SUPERIOR COURT OF JUSTICE – ONTARIO

COURT FILE NO.: 31-207884-T;
31-207885-T

DATE: 20130114

RE: IN THE MATTER OF THE BANKRUPTCY OF SENTINEL GROUP CORPORATION and BRUNO BONAZZA OF THE TOWN OF OAKVILLE, IN THE PROVINCE OF ONTARIO

BEFORE: CUMMING J.

COUNSEL:
Neil Abbott, for the Applicant Creditor

Bruno Bonazza, for himself and for Sentinel Group Corporation

HEARD: JANUARY 10, 2013

ENDORSEMENT

The Applications

[1] Forensic Investigations Canada Inc. (“Forensic” or the “Applicant Creditor”) applies for orders that Mr. Bruno Bonazza (“Bonazza” or the “Individual Debtor”) and Sentinel Group Corporation (“Sentinel” or “the Corporate Debtor”) be each adjudged bankrupt and a Bankruptcy Order issue.

[2] A Notice of Objection has been filed by Mr. Bonazza and Sentinel.

Background

[3] The evidence establishes that Mr. Bonazza is the sole shareholder of Sentinel. He was a former employee of Forensic, a company based in Alberta but operating across Canada providing investigation services, primarily for insurance companies.

[4] Mr. Bonazza was the principal of Ram International Private Investigators Inc. (“RAM”) which provided like services in Ontario. Forensic purchased the shares of RAM in 2003 for $429,000 with the sale agreement providing an anti-competition covenant and an employment contract in respect of Mr. Bonazza which itself had a non-competition provision.

[5] Mr. Bonazza remained employed by Forensic until early January 2008. The evidence establishes he incorporated Sentinel and it began to carry on a similar business in Ontario in competition with Forensic.

[6] The share purchase agreement between Forensic, RAM and Bonazza provided for a resolution of disputes under it by negotiation, mediation and arbitration.

[7] On December 1, 2008, the Honourable A. McN. Austin released an Arbitration Award which, inter alia, awarded damages of $330,000 plus interest against Mr. Bonazza and Sentinel in favour of Forensic. A further award for costs of $167,861.18 was made by the Arbitrator on February 23, 2009.

[8] Mr. Justice D. R. Aston of this Court dismissed the appeal of Mr. Bonazza and Sentinel in respect of the Arbitration Award by Reasons for Judgment released on June 23, 2009. Leave to appeal to the Court of Appeal was refused on December 7, 2009.

The Evidence

[9] Mr. Kenneth N. Hansen, the Chief Financial Officer for Forensic, testified on behalf of Forensic in support of its application for the bankruptcy orders. He was straightforward in his evidence and I accept his testimony.

[10] Forensic has been zealous in attempting to collect upon the judgment arising from the Arbitration Award, including obtaining writs of seizure, garnishment orders and conducting a judgment debtor examination.

[11] The sum of $79,500 was paid by Ms. Bonazza, the spouse of Mr. Bonazza, in May 2010 in exchange for the release of Mr. Bonazza’s interest in the family residence from the charge attaching consequential to the Arbitration Award. The evidence gained from the Sentinel financial statements at a later point in time indicates that this $79,500, in fact, came from Sentinel rather than as a payment from the funds of an independent source, i.e. Ms. Bonazza.

[12] Forensic has not received any further payments in respect of the outstanding indebtedness of Mr. Bonazza and Sentinel which amounts to $465,618.13 as at April 4, 2012.

[13] Mr. Bonazza says in his Notice of Objection that he has “made numerous attempts to reach a payment schedule and/or settlement with Forensic...”. He claims that Forensic is unreasonable in not agreeing to enter into a partnership arrangement with him as a means of satisfying the judgment; however, it is at Forensic’s sole discretion as to whether it is prepared to compromise the outstanding indebtedness in any offer of settlement and, if it is prepared to compromise, it is for Forensic to decide as to how that will be done. Mr. Hansen emphasizes that, given the events leading to the arbitration and the history in attempting to recover upon the judgment resulting from the Arbitration Award, Forensic simply does not trust Mr. Bonazza and is not prepared to enter into any new suggested business arrangement with him.

[14] The simple and undisputed point is that no payments have been made toward satisfaction of the judgment beyond the $79,500 referred to above.

[15] Mr. Bonazza and Sentinel issued a statement of claim in CV-10-396221 in this Court on March 3, 2010 against a Toronto lawyer, claiming $900,000 in damages for alleged breach of contract and/or negligence in providing legal advice in respect of the non-competition provision in the employment contract with Forensic.

[16] In his Notice of Objection to the applications at hand for bankruptcy orders, Mr. Bonazza claims that Forensic “is attempting to use the courts to seize control of the Statement of Claim...and to obtain an award that only satisfies their judgment”.

[17] The evidentiary record, at least to this point in time, suggests that Forensic is the only creditor of Mr. Bonazza and Sentinel.

[18] Section 43(1) and 42(1)(j) of the Bankruptcy and Insolvency Act (BIA) set forth as to when a creditor may apply for a bankruptcy order. A debtor owing at least $1,000 to the applicant creditor commits an “act of bankruptcy ...if he ceases to meet his liabilities generally as they become due”, and the act of bankruptcy is within six months next preceding the filing of the application.

[19] The failure to pay a single creditor can constitute an act of bankruptcy under s. 42(1)(j), as held by the Court of Appeal in Valente v. Fancsy Estate 2004 8018 (ON CA), 70 O.R. (3d) 31 at para. 8 per Feldman J. A.:

...when there are special circumstances, which have been recognized in three categories: (a) where repeated demands for payment have been made within the six-month period; (b) where the debt is significantly large and there is fraud or suspicious circumstances in the way the debtor has handled its assets which require that the processes of the BIA be set in motion; and (c) prior to the filing of the petition, the debtor has admitted its inability to pay creditors generally without identifying the creditors.

[20] A judgment debt is considered as constituting a continuing demand for payment and hence, satisfies the statutory six-month period prior to the filing of the application.

[21] The question remains, have Mr. Bonazza and Sentinel ceased to meet their “liabilities generally as they become due” as required by the statute to be proved by the application creditor? There is only one known creditor, albeit a major creditor, Forensic.

[22] In the situation at hand, the judgment is a large one, it has been outstanding for more than three years, a judgment debtor examination has taken place, and the evidentiary record establishes the judgment creditor in all probability cannot collect without invoking the mechanism of the bankruptcy process.

[23] I say this because the only apparent asset of Mr. Bonazza/Sentinel appears to be the chose in action seen in the claim issued against his legal advisor. The merits of this action and its true value as an asset are unknown. However, it is known that very little has been done in pursuit of the claim since its filing almost three years ago and it would seem, given the apparent lack of funds of Mr. Bonazza/Sentinel, it is very problematic that they will be able to proceed.

[24] I disagree that there is any prejudice to Mr. Bonazza and/or Sentinel in a bankruptcy trustee evaluating the claim and having carriage of the action if there is merit in proceeding. The trustee and its counsel is, of course, bound to act in the best interests of the estate but that must fairly take into account the interests of Mr. Bonazza and Sentinel in the litigation. (Indeed, it is possibly arguable by Mr. Bonazza that he is in a position analogous to that of a putative creditor of Sentinel for the purpose of a bankruptcy proceeding derived from his interest as a shareholder of Sentinel.) The point is - Mr. Bonazza and Sentinel will be kept informed as to the progress of the litigation by a trustee. Indeed, their cooperation is essential as they are the persons who can provide the relevant evidence in support of the claim.

[25] For the reasons given, in my view, there are special circumstances in the applicant creditor case at hand such that there is a proven act of bankruptcy inasmuch as Mr. Bonazza and Sentinel have ceased to meet their liabilities generally as they become due within the meaning of the statute.

Disposition

[26] For the reasons given, the application for a bankruptcy order in respect of each of Mr. Bonazza and Sentinel is granted and the requisite bankruptcy orders will issue.

CUMMING J.

Date: January 14, 2013