David Ward

The trustee in bankruptcy moved for a phase-one determination that profit payments made by Douglas Grozelle to net winners in a fraudulent Ponzi scheme were void as against creditors and recoverable for the estate.

The court found the hallmarks of a Ponzi scheme, held insolvency and fraudulent intent could be inferred globally, and concluded the payments were void under the Fraudulent Conveyances Act and not saved by good-faith or good-consideration defences.

The court approved a two-stage insolvency process: common liability issues resolved summarily now, with individualized quantum determinations in phase two.

The winners’ cross-motion for broad directions attacking the trustee’s process and authority was dismissed.

On a CCAA motion, the moving parties sought approval of a reverse vesting transaction and ancillary relief following a court-approved SISP with a stalking horse credit bid.

The court applied the s. 36(3) criteria and found the process was transparent, adequately marketed, monitor-supervised, and fair and reasonable in the circumstances.

The court accepted the monitor’s evidence that a going-concern outcome would produce materially better stakeholder outcomes than liquidation and would preserve enterprise value while reducing restructuring costs.

Applying the Harte Gold framework, the court held the reverse vesting structure was necessary, economically superior to viable alternatives, non-prejudicial to stakeholders relative to alternatives, and reflective of fair value for preserved intangibles.

The motion was granted and both the Reverse Vesting Order and Ancillary Order were approved.

The applicant sought to set aside an arbitration award of $625,551.19 in favour of the respondent partnership, arguing a denial of natural justice and procedural fairness.

The applicant claimed the arbitrator failed to apply common law principles requiring dissolution and an accounting before a partnership can sue a partner, and improperly denied documentary productions.

The Superior Court of Justice dismissed the motion, finding the arbitrator's decisions were reasonable, the applicant was estopped from changing his legal position late in the arbitration, and the production rulings were procedural matters within the arbitrator's jurisdiction.

The Bank of Montreal applied for a receiver over a group of fitness clubs (the Crunch Group) following defaults on credit facilities.

The parties reached an agreement where the debtors' nominee would purchase the debt and security.

The Bank accepted the offer but subsequently refused to provide a fully executed copy of the agreement, causing the purchaser to lose financing and fail to close on the scheduled date.

The court found the Bank's actions, including abruptly closing the debtors' bank accounts and unreasonably refusing to deliver the executed agreement, breached the duty of good faith.

The court ordered the Bank to close the transaction.

CIM Bayview filed a Notice of Intention to Make a Proposal under the BIA and sought to disclaim an Amended Option Agreement that granted Bryton Creek the right to purchase a development property.

CIM Bayview argued the option could be disclaimed, vested out, or was void for imposing a criminal rate of interest or violating the Interest Act.

The court dismissed CIM Bayview's motion, finding the option created an immediate interest in land that could not be disclaimed or vested out.

The court also found the option did not constitute a criminal rate of interest or a penalty.

The court lifted the stay of proceedings to allow Bryton Creek to exercise its option.

The Receiver of a bankrupt masonry contractor sought directions to distribute remaining funds to a secured creditor.

A subcontractor opposed the distribution, arguing the funds were subject to a deemed trust under the Construction Lien Act and excluded from the bankruptcy estate.

The court found that the funds did not meet the certainty of subject matter required for a trust under general trust principles, as all funds were commingled in a single account.

The court ordered the funds distributed to the secured creditor.

The defendants moved under Rule 59.06(2)(a) of the Rules of Civil Procedure to set aside a consent judgment on the ground that it had been obtained by fraud.

They alleged that the plaintiff lender had agreed to hold the consent judgment in escrow and not enforce it, and raised additional arguments concerning the validity of default interest under the Interest Act.

The court held that Rule 59.06 is limited to circumstances where fraud in obtaining the judgment is established and does not permit the court to revisit the correctness of the judgment itself.

The defendants failed to prove that any representation was made that the consent judgment would not be enforced, and the alleged oral arrangement was inconsistent with the written agreements and the parties’ conduct.

The motion was dismissed and substantial indemnity costs were awarded against the defendants.