DATE: 20040611

DOCKET: C40366

COURT OF APPEAL FOR ONTARIO

IN THE MATTER OF THE BANKRUPTCY OF CANADA CASH ADVANCE INC. OF THE CITY OF LINDSAY IN THE PROVINCE OF ONTARIO

RE: CNG FINANCIAL CORPORATION (Applicant/Appellant) – and – CANADA CASH ADVANCE INC. (Respondent/Respondent)

BEFORE: BORINS, SHARPE and JURIANSZ JJ.A.

COUNSEL: Geoff R. Hall for the appellant

Catherine Francis for the respondent

HEARD: May 10, 2004

On appeal from the judgment of Justice Romain W.M. Pitt of the Superior Court of Justice dated July 18, 2003.

E N D O R S E M E N T

[1] CNG Financial Corporation appeals from the decision of Pitt J. dismissing its petition for a receiving order in the bankruptcy proceedings it initiated against Canada Cash Advance Inc.

[2] CNG argues that as the bankruptcy judge found that Canada Cash committed an act of bankruptcy, there was no proper basis upon which he could refuse to issue a receiving order. In the alternative, CNG argues that the bankruptcy judge failed to provide adequate reasons to explain his decision.

[1] CNG’s petition was based on loans it had made to Canada Cash evidenced by notes that had not been repaid when the notes came due.

[2] Section 43 (7) of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 as amended, provides:

Where the court is not satisfied with the proof of the facts alleged in the petition or of the service of the petition, or is satisfied by the debtor that he is able to pay his debts, or that for other sufficient cause no order ought to be made, it shall dismiss the petition.

[3] The bankruptcy judge was not satisfied with the proof of the facts alleged in the petition and took the view there was other sufficient cause why no order should be made.

[4] The bankruptcy judge described the debt as “the sum allegedly due and owing by Canada Cash to CNG” and stated that he was unable to determine, on the basis of the material before him, whether CNG made verbal promises to Canada Cash that created legal rights. Canada Cash claims that it had an arrangement with CNG that was akin to a partnership or joint venture, under which CNG agreed to fund Canada Cash’s future growth and expansion. CNG’s position is that it made no commitment to continue funding Canada Cash on any ongoing basis.

[5] The bankruptcy judge noted there was evidence that Canada Cash had a close relationship with CNG, CNG had provided Canada Cash over $1,200,000 in debt and equity financing, and CNG had bought Canada Cash warrants for approximately $450,000 that, if exercised, would have entitled CNG to acquire 60% of the common stock of Canada Cash. Canada Cash had embarked on an expansion program, and there was evidence that CNG first supported its expansion plans by way of capital, then by way of loan, and later withdrew its support. There was the evidence of Mr. Baxter that CNG made oral representations that it would not seek repayment of the notes until Canada Cash became profitable at the end of its expansion program, and that it would renew the notes, if necessary. This evidence supported the bankruptcy judge’s observation that to Canada Cash CNG was more than just a creditor, and that CNG’s conduct, verbal representations to Canada Cash, and its failure to live up to those representations played a significant part in creating the financial crisis faced by Canada Cash.

[6] While there was evidence to the contrary from CNG, the bankruptcy judge was entitled to conclude he was not satisfied with the proof of the facts alleged in the petition, and though Canada Cash could pursue a counterclaim through a trustee in bankruptcy, given that CNG was the only petitioning creditor and the only significant creditor, it was open to the bankruptcy judge to take the view that the dispute between the parties was better decided by civil action and to exercise his discretion accordingly under s. 43(7) of the Bankruptcy and Insolvency Act.

[7] Furthermore, the fact that no articulated purpose would be served by a bankruptcy and the fact that the application followed Canada Cash’s protest that CNG was responsible for its financial position provided an adequate basis for the bankruptcy judge’s inference that the petition was not brought for the purpose of realizing Canada Cash’s assets, but as a pre-emptive strike.

[8] We conclude that bankruptcy judge was entitled to dismiss the petition for a receiving order.

[9] Furthermore, we are satisfied that the bankruptcy judge’s reasons sufficiently explain the result to the parties and provide an adequate basis for appellate review. The findings we have discussed above are expressly stated in the reasons. Having made these findings to the parties, the bankruptcy judge then dismissed the petition.

[10] The appeal is dismissed with costs on a partial indemnity basis to Canada Cash fixed in the amount of $8000.00 inclusive of disbursements and GST.

“S.T. Borins J.A.”

“Robert J. Sharpe J.A.”

“R.G. Juriansz J.A.”