Court File and Parties

COURT OF APPEAL FOR ONTARIO

DATE: 20220325 DOCKET: C69773

Pardu, Paciocco and Thorburn JJ.A.

In the Matter of the Bankruptcy of Aashish Karia, also known as Ash Karia of the City of Hamilton, in the Province of Ontario

BETWEEN

A. Farber & Partners Inc., trustee of the estate of Ash Karia, a bankrupt Moving Party (Respondent)

and

Ash Karia Respondent (Appellant)

Counsel: Matthew R. Harris, for the appellant Colby Linthwaite, for the respondent

Heard: March 21, 2022 by video conference

On appeal from the order of Justice Laurence A. Pattillo of the Superior Court of Justice, dated August 4, 2021, with reasons reported at 2021 ONSC 5377.

Reasons for Decision

Overview

[1] This is an appeal of the motion judge’s order (i) setting aside the appellant Ash Karia (“Karia”)’s discharge from bankruptcy and (ii) declaring that all issued and outstanding shares of 2397043 Ontario Ltd., operating as Bindaas Capital (“Bindaas”), be vested in the Trustee in bankruptcy.

[2] The hearing below centred on the question of Karia’s involvement with Bindaas. The motion judge held that Bindaas was owned by Karia, the shares were after-acquired property of Karia’s estate, and Karia breached his duty under s. 158(a) of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 by failing to deliver the shares to the trustee after his discharge from bankruptcy. The court annulled Karia’s discharge from bankruptcy pursuant to s. 180(1) of the BIA.

[3] The appellants raise the following issues on appeal:

a. Whether the Trustee had legal authority to bring the application before the motion judge; b. Whether the motion judge considered his legal authority not to annul the discharge; c. Whether the motion judge gave too much weight to the endorsements of other judges; d. Whether the motion judge imputed a finding of fraud when material facts were in dispute and a trial of the issues should have been ordered; and e. Whether the motion judge failed to consider prejudice to Karia.

[4] For the reasons that follow, the appeal is dismissed.

[5] In order to address the issues, it is important to understand the actions of the parties after the appellant, Karia declared bankruptcy.

Background Facts

The Appellant, Karia’s Bankruptcy

[6] On February 7, 2008, Karia filed an assignment in bankruptcy. In so doing, he swore that there were effectively no realizable assets and the total unsecured debt was $1,230,697. The proven unsecured claims were later determined to be $1,442,759.19. On May 6, 2009, the Registrar in Bankruptcy made an order granting Karia a discharge conditional upon his paying $24,000 to the estate within a period of 48 months. Karia did not make the payments within the 48-month period.

[7] On March 14, 2018, almost nine years after the order for conditional discharge had been made, and a month after the disallowance, Karia satisfied the condition by paying the last of the $24,000 plus interest to the Trustee, Paddon + Yorke Inc., in a lump sum of $4,661.33. The Trustee’s final statement of receipts and disbursements showed total receipts of $26,314.31. The Registrar in Bankruptcy granted Karia an absolute discharge on May 4, 2018.

The Incorporation of Bindaas in 2013

[8] In November 2013, while Karia was still assigned into bankruptcy, Bindaas was incorporated. Bindaas was a mortgage lender, and within a few years, had extended loans of nearly $15 million.

Karia’s Brother’s Bankruptcy in 2017 and Discovery of Karia’s Undisclosed Interest in Bindaas in 2018

[9] On October 11, 2017, Karia’s brother, Amit Karia became bankrupt. Bindaas filed a proof of claim in the amount of $664,322.42, as a creditor of Karia’s brother. The claim was disallowed.

[10] In May 2018, Bindaas appealed the disallowance, and in support of the appeal, Karia (who was by then discharged from bankruptcy), swore two affidavits. In the first, he said, “I am the sole officer and director of the moving party, 2397043 Ontario Inc. operating as Bindaas Capital”. He also admitted in his affidavit that Bindaas, “had loaned a total of $14,461,612.70 to a total of 88 borrowers.” The Trustee’s representative, John Delo swore an affidavit in response to Karia’s First Affidavit in which he attested that:

At no time during the period from the date of the Ash Conditional Order until the date of said final payment did Ash Karia advise PYI [the Trustee] (i) of his incorporation of or his involvement in Bindaas Capital […] (ii) that he purported to be a director of Bindaas Capital (contrary to the provisions of section 118 of the Business Corporations Act (Ontario)); or that (iii) Ash Karia as an undischarged bankrupt was through Bindaas Capital in carriage and control of $14,461,612.70 in mortgage financing.

[11] Karia then swore a reply affidavit in which he attested that “I am the sole officer and director of the moving party, 2397043 Ontario Inc. operating as Bindaas …” On December 7, 2018, Karia was cross-examined on his affidavits. During cross-examination, Karia made the following admissions:

Q. Okay. Are you a shareholder of Bindaas Capital? A. On this corporation yes. Q. You’re one of the owners of the company? A. Yes. Q. Are you the only owner of the company? A. I’m the only owner. Q. You’re the only owner, okay. Do you recall offhand how many shares have been issued? A. No. Q. At the time you incorporated Bindaas Capital, were you an undischarged bankrupt? A. I recall, yes, I was. Q. And on the Corporate Profile Report that we’ve marked as Exhibit A, you’re indicated as being the only director of Bindaas Capital; is that correct? A. Yes.

[12] The corporation profile report for Bindaas shows that Karia was appointed the sole officer and director of Bindaas on the date of its incorporation. Karia had not told the Trustee of his own bankruptcy or told the Court that he was a director of Bindaas while he was an undischarged bankrupt. Section 118(1) of the Business Corporations Act (Ontario), R.S.O. 1990, c. B.16 disqualifies an undischarged bankrupt from being a director of a corporation.

[13] On February 22, 2019, the Trustee wrote Karia to say that “[i]f you were a shareholder… of [Bindaas] during the period [February 7, 2008 through May 4, 2018, during which Karia was an undischarged bankrupt] then the value of the company must be paid into your estate”. In April 2019, the Trustee wrote to demand that Karia deliver up the shares in Bindaas as after-acquired property, in accordance with subsection 67(1)(c) of the BIA. Karia did not do so.

[14] In August 2019, the Trustee advised him that the shares formed part of his estate as a bankrupt and demanded that he deliver the shares to his estate as they were “after acquired property” that vested in the Trustee pursuant to s. 67(1)(c) of the BIA. Later that month, all bankrupt estates administered by the Trustee were transferred to the new trustee, A. Farber & Partners Inc. Karia claimed that while he was a director at the time of incorporation (in November 2013) he resigned the same day and therefore was “not and was never a shareholder of Bindaas Capital.” He claimed the shares belonged to his wife, Ella.

The Motion Judge’s Decision

[15] On September 5, 2019, the Trustee brought a motion seeking to have the shares declared after-acquired property of the estate and to have Karia’s discharge from bankruptcy set aside. The sole issue was whether the shares of Bindaas were owned by Karia before his discharge thereby amounting to after-acquired property which should have been turned over to the Trustee for the benefit of creditors.

[16] In support of the motion, Karia and his wife, Ella, each deposed that the shares of Bindaas had been owned exclusively by Ella since incorporation. Karia further deposed that while he was listed as a director at the time of incorporation, it was an accident which was immediately corrected. He submitted he was only ever a signing officer of Bindaas. He further argued that the Trustee was bringing the motion simply to “enrich itself”. In her affidavit, Ella claimed that she had been a director and the sole shareholder of Bindaas since its incorporation.

[17] However, the record contains corporation profile reports for Bindaas as of March 27, 2014, May 12, 2016, October 23, 2017, and October 28, 2019. At no point prior to 2019 (well after the Trustee made its demand) was Ella registered as a director. The corporation profile reports before 2019 list Karia as the company’s only director and officer. On cross-examination, neither Karia nor Ella could recall anything of significance about Bindaas’ history or finances. Karia undertook to produce Bindaas’ tax returns, financial statements, and bank statements. Each of them undertook to produce the file of Bindaas’ accountant, after it had been vetted for privilege by his counsel. However, neither produced any financial statements, bank statement or the accountant’s file.

[18] Both Karia and Ella refused to appear for cross-examinations claiming their internet connection was insufficient to enable them to do so, nor did they answer undertakings to produce business records.

[19] On February 8, 2021, the motion was therefore adjourned by Koehnen J. who directed that the accountant deliver his file to Karia’s lawyer, who was to vet it for privilege and pass it to the Trustee. Ultimately, the appellant provided Bindaas’ Minute Book and portions of tax returns to the Trustee in March 2021.

[20] The motion was heard in May of 2021. The motion judge carefully reviewed the evidence and expressly rejected the evidence of Karia and his wife Ella. He did so for the following reasons:

It follows that I reject the evidence of both Karia and his wife in respect of the ownership of the shares of 239 during the period of the bankruptcy for a number of reasons. First, the Bankrupt’s [Karia’s] explanation for his evidence during his cross examination in the Amit bankruptcy that he owned the shares was to protect his wife but that answer makes no sense as there is no evidence to suggest there was anything to protect her from.

Further, I do not accept the documentation produced by the Bankrupt [Karia] purporting to show Ella as the sole shareholder and director of 239. In my view, it has been altered or created after the fact by the Bankrupt [Karia] to show that Ella was the sole shareholder and director of 239.

As noted, 239's tax returns were produced in two batches in February and March 2021. Schedule 50 of 2013 tax return, which was produced by the Bankrupt [Karia] on February 3, 2021, shows the Bankrupt [Karia] as owning 100% of the shares. In March 2021, the Bankrupt [Karia] also produced the 2013 tax return but this time Schedule 50 listed the shareholder as Ella. Further, the form used indicates at the bottom that it was the 2020 version. As a result, in the absence of producing the accountant’s file as directed by Justice Koehnen, I do not accept any of the financial information produced by the Bankrupt [Karia].

Further, the corporate profile reports filed with the province as at March 27, 2014, May 12, 2016 and on October 2, 2017 show the Bankrupt [Karia] as the sole director of 239 since incorporation. It was not until a notice of change was filed with the province on May 22, 2019 that Ella was first shown as a director of 239. Neither the Bankrupt [Karia] or Ella would or could say who filed the change notice.

With respect to 239's Minute Book, the Bankrupt [Karia] has had possession of it since 2013. On cross-examination, he admitted that he prepared the resolutions and documents in the Minute Book. Based on the altered corporate tax returns, I have no hesitation in concluding that the information in the Minute Book purporting to show Ella as the sole shareholder and director of 239 since incorporation, has also been fabricated by the Bankrupt [Karia] well after the fact.

I also do not accept Ella’s evidence that she was the sole shareholder and the director of 239 from incorporation. In addition to my findings in respect to the documentary evidence, her evidence did not hold up during cross-examination.

Nor is there any evidence, beyond the Bankrupt’s [Karia’s] bald assertion, that the Trustee has brought its motion to enrich itself. In my view, the Trustee is doing nothing but its duty in pursuing the Bankrupt’s [Karia’s] after acquired property for the benefit of Bankrupt’s creditors.

[21] He therefore concluded that the documentation was either “altered or created after the fact” by Karia to show that his wife was the sole shareholder and director of the corporation and that, “at all material times, [Karia] owned the shares of 239 while a bankrupt”. He therefore “reject[ed] the evidence of both Karia and his wife in respect of the ownership of the shares” during the bankruptcy.

[22] In view of these findings, the motion judge was obliged by virtue of s. 67(1)(c) of the BIA to declare the shares to be after-acquired property of the estate of Karia. Section 67(1)(c) provides that the “property of a bankrupt divisible among his creditors… shall comprise (c) all property wherever situated of the bankrupt at the date of the bankruptcy or that may be acquired by or devolve on the bankrupt before their discharge.” The motion judge then exercised his discretion under s. 180(1) to annul Karia’s discharge, on the basis that Karia had breached his statutory duty to deliver the shares to his trustee, even after a demand had been made.

Analysis of the Issues and Conclusion

The Standard of Review

[23] “Making a factual conclusion, of any kind, is inextricably linked with assigning weight to evidence, and thus attracts a deferential standard of review” of palpable and overriding error: Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235, at paras. 24-25. An “appellate court will not interfere with the trial judge's findings of fact unless it can plainly identify the imputed error, and that error is shown to have affected the result.”: L. (H.) v. Canada (Attorney General), 2005 SCC 25, [2005] 1 S.C.R. 401, at para. 55. Similarly, “[a]n appellate court is only justified in interfering with a lower court judge’s exercise of discretion if that judge misdirected himself or if his decision is so clearly wrong as to amount to an injustice”: Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, at para. 95.

Analysis of the Issues Raised by the Appellant, Karia

[24] Assuming without deciding that leave to appeal is not required and that this appeal is therefore properly before this court, for the reasons that follow, the appeal is dismissed.

[25] First, contrary to the appellants’ submission, the Trustee was never discharged and could properly bring the motion. Karia’s estates were administered by the Trustee Paddon + Yorke Inc. (who was the Trustee when Karia declared bankruptcy) and later transferred to A. Farber & Partners Inc. As there were no inspectors appointed, the Trustee could institute or defend a legal proceeding relating to Karia’s property: ss. 30(1)(d), BIA.

[26] Second, contrary to Karia’s submission, the motion judge did not believe that he was required to annul Karia’s discharge from bankruptcy after finding that the shares were after-acquired property. He noted that the decision was discretionary by writing: “the court may annul a discharge where a bankrupt fails to perform the duties imposed on him under the BIA after the discharge,” pursuant to s. 180(1) of the BIA. He elected to exercise his discretion to do so, given his conclusion that Karia had fabricated documents to suggest he did not have an ownership interest in Bindaas when he did. There is no basis on which to interfere with the motion judge’s exercise of discretion, as he neither misdirected himself nor did he render a decision that was clearly wrong: Sattva, at para. 95.

[27] Third, the motion judge did not allow the endorsements in prior orders to “colour his decision” as the appellant suggests. He properly outlined the history of this matter, and in so doing, set out the prior orders leading to the motion before him. Importantly, the issue of fraud was not addressed in any of the prior orders.

[28] Fourth, the appellants have not directly challenged any of the above-described findings of fact. They have simply suggested that the motion judge should have weighed the evidence differently, or that the matter should have proceeded to trial. Moreover, Karia’s assertion that he did not breach his duty to the Trustee to deliver all property under his possession and control as the shares belonged to his wife, is belied by the fact that the motion judge found that the only documents he relied on to support his assertion, were “altered or created after the fact by Karia”. The motion judge therefore annulled Karia’s discharge on the basis that Karia failed to perform his duties pursuant to s. 180(1), not on the basis that he committed fraud.

[29] Karia has not challenged the finding that he fabricated evidence, or suggested another reason for doing what he did. Nor were any other material facts adduced. There was no palpable and overriding error in the motion judge’s reasoning; the only point at issue was the interpretation of the evidence as a whole. There is therefore no basis to set aside the order: Jaegli Enterprises Ltd. v. Taylor, [1981] 2 S.C.R. 2, at p. 4, cited in Housen at para. 29.

[30] Fifth, Karia’s discharge was annulled pursuant to s.180(1) of the BIA after Karia was found to have failed to perform the duties imposed on him by the Act. There is no legal requirement that prejudice caused by the annulment be “a major consideration” as the appellants suggest.

[31] Once a breach of Karia’s duty has been found, the decision to annul is discretionary. In any event, there is no evidence of unfair prejudice caused by the Order.

[32] For these reasons, the appeal is dismissed. Costs of this appeal are awarded to the respondent in the amount of $12,000 as agreed by the parties.

“G. Pardu J.A.”

“David M. Paciocco J.A.”

“J.A. Thorburn J.A.”