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Contempt

Posted on December 1, 2003 | Posted in Collections

We all know that some debtors will do almost anything to avoid paying their debts. Occasionally, however, some debtors cross the line, are found out, and suffer the consequences. The case of Bressi (Trustee of) v. 1418146 Ontario Inc., a 2003 decision of the Ontario Superior Court of Justice, illustrates the extent to which a debtor will go to evade his creditors.

Players 

Bressi, the debtor, owed many people a lot of money. Creditors were chasing him from Florida to Ontario.

In the meantime, Bressi created a family trust. He named himself as sole trustee and flowed a significant amount of money through the trust. The trust had no books of record and no resolutions and never filed a tax return.

Bressi, who was and is a real estate developer, went bankrupt in April 2000.

D’Ascanio was Bressi’s carpenter. In consideration for continuing employment, D’Ascanio allowed Bressi to use him as a front man in two corporations, one incorporated just before Bressi’s bankruptcy and one incorporated just after. D’Ascanio, who had no assets, signed whatever documents Bressi put in front of him and did whatever Bressi wanted regarding the two corporations.

Background

In January 1999, Bressi transferred his residential property in Bolton to a bare trustee corporation.

In May 2000, just after Bressi’s bankruptcy, a D’Ascanio corporation (“Nordicraft”) purchased lands in Aurora for development purposes. Since Bressi was the true owner of the corporation, this was a violation of the terms of his bankruptcy; in particular, the downpayment for the land came from Bressi and should have been given to Bressi’s trustee in bankruptcy.

The trustee got wind of Bressi’s activities and determined that Bressi had been hiding assets, through a variety of trusts and corporations. In January 2001, the trustee obtained an order (the “Order”) that, among other things, put strict controls on the sale of lots from the Aurora property. For example, Nordicraft could only sell the lots to an arm’s length purchaser, had to immediately notify the trustee of any sale, had to deposit all monies regarding the sales into a specific bank account, and could not take any monies out of that account.

The trustee attempted to obtain information regarding the sale of the lots, but Bressi stonewalled. Ultimately, the trustee learned that Nordicraft had sold 12 of the lots, taken deposits, and deposited no monies into the designated account.

The trustee brought a motion for a writ of sequestration. This would allow the trustee to take possession of and obtain the income from the Aurora property.

The trustee also brought a motion for contempt of court against Bressi, D’Ascanio, and D’Ascanio’s corporations, resulting from the alleged failure to comply with the Order.

Subterfuge 

Bressi and D’Ascanio were cross-examined as part of the trustee’s motion. It became painfully obvious after those cross-examinations that D’Ascanio and his corporations were shams for Bressi and that Bressi, who was living very well as a bankrupt, was using every contrivance he could think of to avoid paying anything to his creditors. It was also obvious that Bressi ignored the Order.

Bressi breached the Order in a number of ways: money from the deposits under the agreements went astray, the trustee was not immediately informed of the agreements, and one lot was sold to D’Ascanio who, obviously, was not at arm’s length.

Bressi’s explanation as to why he deposited no money from the deposits set out in the 12 agreements for the sale of the Aurora lots was especially novel. He said that these lots were all sold to people who supplied goods and services to the project. The deposit monies were therefore not paid in cash; rather, they were bartered for the goods and services. The judge wryly noted that, if this were true, Bressi did not seem to care that the parties paid no income tax and no GST. We do not think that this explanation endeared Bressi to the judge.

Findings 

The judge granted the request for a writ of sequestration and did so on the first appearance before her. Although she required further argument regarding the contempt portion of the motion, the need for the writ was crystal clear to her.

Contempt of court is a civil remedy under the Rules of Civil Procedure, with criminal implications. It is a power granted to the court to ensure that its orders are enforced. It applies not only to a corporation that is the subject of the order, but also to the individuals controlling the corporation.

The judge first held that Bressi was in contempt of the Order. She stated that Bressi “manipulated his bankruptcy and deceived his Trustee, rather than working with him as the BIA contemplates. Bressi’s whole existence as a bankrupt was a lie, in that there were assets and money, which should have gone to the Trustee, but did not. The capital was stripped out of the Bolton property. No cash ever seemed to appear on the Aurora Agreements of Purchase and Sale, as would have been the case in normal real estate transactions. No bank account was kept for anything other than the virtually empty Nordicraft account and the Trust’s account that was a conduit for monies that never belonged to the Trust.”

The judge then held that both of the D’Ascanio corporations were in contempt of the Order.

Finally, the judge held that D’Ascanio was in contempt of the Order. She held that his professed lack of knowledge of the corporations was insufficient to save him from contempt. He knew about the Order, had put himself in a position in which he kept no documents relating to the corporations, and never told the truth about what Bressi had asked him to do until he had to submit to a cross-examination.

The judge then adjourned the motion for a hearing as to the appropriate penalty for the contempt. The penalty for D’Ascanio will be far less severe than for Bressi; D’Ascanio was not the mastermind of the fraud and received nothing for his complicity, other than continued employment. The penalties for Bressi, we suggest, will ultimately depend upon what Bressi does between the date of the finding of contempt and the date of the sentencing hearing. If he comes clean and produces a wad of money for the creditors, he may get off lightly. If he does nothing more than appear, he should pack a toothbrush.

Moral 

Some debtors are just unfortunate; other debtors attempt to beat the system and cheat their creditors. If a creditor, or trustee in this case, does sufficient investigation, the category into which the debtor falls can usually be ascertained. Although it takes some effort, the rewards can be considerable.

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