Call us: (905) 366 9700

Legal Blog

Receiver

Posted on February 1, 2014 | Posted in Collections

Sometimes you know that debtors have assets, but you just cannot get at the assets by the usual means because the debtors have arranged their affairs to shield them. That is when you consider the ultimate remedy: obtain a court order appointing an equitable receiver. A court may give an equitable receiver wide-ranging powers, including powers of investigation and control over assets and income. However, the court order authorising the appointment is not easily obtained. Weig v. Weig, a 2012 Ontario Superior Court of Justice decision, is a case in point.

Nasty

Two brothers had been fighting for years, culminating in a judgment that ultimately left brother Roman owing brother Matvei $1.58mil plus interest from 2009. Actually, Roman owed Matvei even more, but part of the debt went to pay a very large award against Matvei for his sexual assaults against another party – whose relationship with the brothers was not disclosed in the reasons for decision. Matvei was also imprisoned for a time because of the assaults.

Roman and Matvei were so close that, during one judgment debtor examination, when Roman was asked about Matvei, Roman retorted that he had no brother, just a bloodsucker.

Roman made sure that he had no assets or income that Matvei could attach. In frustration, Matvei brought a motion to appoint an equitable receiver.

Tests

A court may appoint a receiver to enforce a judgment for money if special circumstances exist that render the normal methods of execution ineffective or impractical or if certain property of the debtor might not be exigible for execution. Nice, but what does it mean? If a creditor can demonstrate that the debtor is using elaborate business structures as debt avoidance vehicles, particular if corporations owned by family members are involved in paying the debtor’s ongoing expenses, the creditor can, as a last resort, move to bypass these debt avoidance vehicles. The creditor must also demonstrate that the receivership order will yield a benefit that will outweigh its costs.

Shenanigans

What did Roman do to frustrate Matvei?

1.         Shortly after Matvei obtained the judgment, Roman mortgaged his residence for $1.17mil. He then paid the proceeds to his corporations, but claimed that the payments were loans from his wife (“wife”). The corporations paid the mortgage payments and taxes on the residence.

2.         Roman caused his corporations not to respond to Matvei’s notice of garnishment.

3.         Roman continued to be the president and an owner of his corporations, but, because of alleged share restrictions, the shares could not be sold.

4.         Roman claimed that he pledged his shares in the corporations to secure the repayment of loans that wife made to the corporations.

5.         Although his corporations employed him, Roman claimed he earned no income from them. However, his corporations paid for the fuel costs and lease payments for his and wife’s cars. He had no personal credit card, but used a corporate credit card for personal expenses.

6.         He claimed that he held his cottage in trust for his daughters. However, he also paid all of the expenses associated with the cottage and, on a listing, identified himself as the cottage owner. Further, after signing a trust declaration, he then mortgaged the cottage for $588,000. Later, he granted a $5.675mil collateral mortgage on the cottage as security for his corporations’ obligations. The sheriff would not sell the cottage because of that collateral mortgage.

7.         Wife said the corporations employed her at $72,000 per year. However, her tax returns showed her annual employment income was no higher than $44,000.

8.         Roman stonewalled Matvei during Roman’s judgment debtor examination, refusing to answer proper questions and refusing to give information regarding his assets, his corporations’ assets, and his and wife’s bank accounts.

9.         Wife claimed that she had made loans to the corporations and was not being paid. She sued the corporations and obtained default judgment against them for over $2mil. However, Matvei introduced evidence to show that wife did not have any wealth that was independent of Roman. Further, she was requested to supply documentation to support her bald assertions of independent wealth, but refused.

Granted

 

Given what had gone on, the judge granted the receivership order making the following findings of fact:

1.         Roman had taken every step possible to frustrate the efforts of Matvei to collect the judgment debt

2.         He enlisted wife in his efforts to obstruct the enforcement process.

3.         He secured the co-operation of his fellow shareholders in obstructing Matvei’s efforts and then refused to provide the corporate records.

4.         He treated the cottage as his own.

5.         He used his corporations as debt avoidance vehicles.

The judge concluded that, without the receivership appointment, Matvei had no reasonable prospect to recover on his judgment.

Order

The order gave the receiver the power of investigation, including powers to (i) investigate any interest of Roman or wife  in, or any benefit they may receive from, the corporations, (ii) investigate and determine the amount of money transferred to Roman, or to a joint account of Roman, by the corporations since the service of the 2009 notices of garnishment, and (iii) require any third party to provide the receiver with information or documents to which Roman would be entitled in his personal right.

The receiver was also to investigate and report on the alleged loans from wife and stayed wife’s default judgment against the corporations until he considered that report.

Finally, the judge showed his confidence in Roman and wife, by ordering the following:

 

“Given Roman’s obstruction of efforts to settle the Judgment, I need to ensure that neither Roman, nor his wife whom I have found has co-operated with him to prevent the enforcement of the Judgment, dissipate assets before the receivership order is settled. I therefore order, on an interim basis, that Roman and Sofia are restrained, until the entry of this order, from disposing of, encumbering or dealing with in any way any of their property, including the Cottage registered in Roman’s name, save to pay ordinary, day-to-day living expenses.”

 

To add even more colour to this situation, the judge summed up the relationship between the brothers as follows:

 

“I am not blind to the fact that Matvei became involved in legal proceedings concerning Marina Bibik. He swore his May 5, 2011 affidavit while serving his sentence … in Joyceville. Those events no doubt contributed to the present bitter estrangement between the brothers. Strong views of right and wrong surely exist on both sides of this fight. However, Matvei has served his sentence, and the highest court in this province upheld the Judgment based on the settlement to which Roman agreed. The reality is that the Judgment must be paid. I would encourage the parties to come to grips with that reality.”

Share:

Download our free checklist:

“10 Questions to ask before hiring a law firm”

DOWNLOAD

Speigel Nichols Fox LLP