Fraud and Insolvency Law

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In the recent decision Anisman v. Drabinsky, 2020 ONSC 1197 Justice Morgan voided a transfer of a $2.625 million Toronto home for the nominal sum of $2 by Garth Drabinsky to his wife as a fraudulent conveyance as against Drabinsky’s former lawyer and other creditors. This summary judgment decision provides important guidance for creditors on how to approach issues relating to discoverability and limitation periods in the context of real property that may have been fraudulently conveyed.
Continue Reading Understanding a Creditor’s Duty to Investigate: Recent Guidance from the Ontario Superior Court in Anisman v. Drabinsky, 2020 ONSC 1197

On May 14, 2019, in Christine DeJong Medicine Professional Corp. v. DBDC Spadina Ltd., 2019 SCC 30 the Supreme Court of Canada granted Christine DeJong Medicine Professional Corporation’s appeal and unanimously adopted Justice van Rensburg’s dissenting reasons as their own. In reversing the earlier decision of the Ontario Court of Appeal, the Supreme Court has provided guidance on when a party will be found to have participated in a breach of trust.
Continue Reading Refrain is the Name of the Game: Supreme Court rules on Breach of Trust

When a plaintiff obtains a judgment from the court, that party is normally precluded from starting another lawsuit seeking the same judgment debt from the defendant. However, in Royal Bank of Canada v Kim, 2019 ONSC 798, Justice Broad of the Ontario Superior Court made an exception because the bank had discovered evidence of fraud after it obtained summary judgment against the defendant. The bank sought to pursue a second action for a judgment in fraud so that the judgment would survive and be enforceable after the bankruptcy of the defendant who, in turn,  vigorously resisted the second action arguing that  the plaintiff had already obtained judgment against him and could not reconstitute the judgment after the fact.
Continue Reading Bank allowed to allege fraud in second ‘Kick at the Can’

In McGoey (Re), 2019 ONSC 80, Justice Penny of the Ontario Superior Court of Justice found trusts over two properties held by a bankrupt were void as shams. In his decision, Justice Penny noted that had he not found the trusts to be sham trusts, he would still have set them aside as fraudulent conveyances, making us ask: “what is the difference between a sham trust and a fraudulent conveyance?”

A sham trust occurs where documents or acts give the appearance of creating legal rights that the parties have no intention of actually creating. In contrast, the documents and acts for a fraudulent conveyance accurately reflect the intentions of the parties and the legal rights that they want to create. The issue with a fraudulent conveyance is not that the transfer of rights is a sham, but that the transfer is being done for fraudulent purpose. With the evidence in front of him, Justice Penny was satisfied that, even if the McGoeys intended to transfer the properties, it was for a fraudulent purpose.
Continue Reading Same Facts, Different Badges – Sham Trusts and Fraudulent Conveyances

Both of Canada’s primary insolvency statutes, the Bankruptcy and Insolvency Act (“BIA”) and the Companies’ Creditors Arrangement Act (“CCAA”) provide for an automatic stay of all legal proceedings when an insolvent debtor files for or seeks insolvency protection. The purpose of the stay is to provide breathing space to a debtor attempting to restructure its business so as to avoid “death by a thousand cuts” and also to ensure similarly situated creditors are treated equally. While it is an integral part of Canada’s insolvency regime, the stay of proceedings is not inviolable and there have been a number of noteworthy cases where Canadian courts have considered whether to lift the statutory stay and permit proposed class actions to proceed where the plaintiff has alleged fraud.
Continue Reading Courts give the green light for fraud-based class actions in Canadian insolvency proceedings

In Turbo Logistics Canada Inc. v. HSBC Bank Canada, Baker & McKenzie’s litigation team was successful in upholding at the Ontario Court of Appeal, the trial decision awarding HSBC judgments in fraud for over $10.3 million dollars. At trial, Madam Justice Ruth Mesbur accepted the argument that “but for” the false statements made by the appellants, HSBC would never have made the loan and therefore the bank deserved damages equal to 100% of its loss on the loan. On appeal, the appellants argued that their rights under Canada’s Charter of Rights and Freedoms had been violated during the trial and that the trial should never have proceeded because an adjournment should have been granted.
Continue Reading Court of Appeal upholds trial decision awarding HSBC judgments in fraud for over $10.3 million

In Wong v. Luu, the British Columbia Court of Appeal upheld an order requiring the production of a redacted trust ledger to the bankruptcy trustees for Luu Hung Viet Derrick (“Luu”) on the grounds that the trust ledger was not presumptively privileged and that production would not violate the bankrupt’s right to communicate in confidence with his lawyers.

In 2012, Luu had been adjudged bankrupt in Hong Kong and his bankruptcy trustees had been hunting for his assets when the trustees became aware of more than $3 million dollars paid into the trust account of Luu’s lawyers in British Columbia in 2013. This had not been disclosed by Luu. When the bankruptcy trustees sought information from Luu’s lawyers about the monies received, they refused to provide any information on grounds of legal privilege.

The trustees successfully sought an order from the British Columbia Supreme Court compelling Luu’s lawyers to produce accounting records of the amount of trust funds held for or at the direction of Luu, and records showing the receipt of any trust funds and any payments made from trust to Luu or anyone at Luu’s direction. Luu’s lawyers appealed the order requiring production of the trust ledger.
Continue Reading Bankrupt’s right to assert solicitor-client privilege is not absolute

In Akagi v. Synergy Group (2000) Inc. (“Akagi“), the Ontario Court of Appeal set aside a series of ex parte orders made by Toronto’s Commercial List Court granting broad investigative powers to a court-appointed receiver.  The receiver had been empowered under section 101 of the Courts of Justice Act which gives the court powers to make such an order “where it appears to a judge of the court to be just or convenient to do so”.  The Court of Appeal ruled in its decision released on May 22, 2015, that there are situations where it is appropriate to appoint a receiver to investigate the affairs of a debtor or to review certain transactions including even, in proper circumstances, the affairs of and transactions concerning related non-parties.  However, the Court of Appeal ruled that the receivership in Akagi had morphed into an expansive investigation on behalf of non-parties which the Court found to be improper and misguided.
Continue Reading Ontario’s Highest Court affirms the concept of Investigative Receiverships, but with note of caution