ONTARIO

SUPERIOR COURT OF JUSTICE

BANKRUPTCY AND INSOLVENCY

COURT FILE NO.: 31-OR-207983-T

DATE: 20131209

IN MATTER OF THE BANKRUPTCY OF JONATHAN CHUKWUDI OKOAKIH OF THE CITY OF TORONTO IN THE PROVINCE OF ONTARIO

Glenn E. Cohen, for the Applicants

Susanne Balpataky, for the Debtor

HEARD: December 3 and 4, 2013

Newbould J.

[1] The applicants apply for a bankruptcy order against Jonathan Chukwudi Okoakih (the “debtor”). They are judgment creditors of the debtor under a judgment dated October 17, 2011 for $317,731.17, costs of $20,000 and costs in the Court of Appeal of $5,000. $3,700 was recovered under a garnishee. The outstanding amount at the date of the application was approximately $357,000. This judgment resulted from the failure of the applicant to close a contracted purchase of the applicants’ home.

[2] The debtor and his wife live a luxurious life style. They live in a home in Oakville purchased in 2011 for $2.475 million. They drive a Rolls Royce, a Bentley and a Range Rover and send their three children to private school. The debtor and his wife testified that the debtor has no income and that everything has been paid for by the wife. At the time of the application there were a number of credit card accounts and car leases in the name of the debtor. The debtor testified that he could not pay any of them, even the minimum amounts shown on the accounts of a few hundred dollars. He and his wife testified that it was the wife who has paid all of the accounts.

[3] The debtor and his wife come from Nigeria. He testified that he became a medical doctor in Nigeria in 1987 and practised as a doctor for three years. He still calls himself Dr. Okoakih although he is not qualified to practise in Canada. In 1990 he says he made a career shift and went into management. He joined Arthur Andersen and trained in Chicago and Dallas. In 1994 he set up a consulting firm Dale & Parker Consulting Limited. In 2009 he emigrated to Canada under an investor immigrant program under which he had to establish a net worth of at least $800,000. He says his net worth at the time he applied in 2006 was about $2 million. By 2007 or 2008 he says it grew to about $5 million and then he lost everything in the stock market in the crash of 2008-09. No records of his stock trading were introduced in evidence. His income tax assessment in Canada for 2012 reported income of $37,163 which he says he received in Nigeria from his consulting firm Dale & Parker. No tax return was produced.

[4] Mrs. Okoakih testified that she obtained an undergraduate degree and an MBA in Nigeria. She is licensed in the “micro financial” business in Nigeria. She began working in banking in Nigeria in 1991 and was a foreign exchange broker. She worked for Parkway Microfinance Bank Limited and eventually became its Managing Director. She emigrated to Canada in 2010. She said that since 2011 she has been on a “working sabbatical” doing relationship managing in Canada on behalf of Microfinance Bank Limited and that she is still the Managing Director. She said she still receives her salary and bonuses from the bank, and earns about $280,000 Cdn paid to her in Nigerian currency. She also testified that she and her sister own a boutique hotel, a beauty salon business, a spa and a trading business, all in Nigeria, and her interest is 70%. She testified that she invested the equivalent of $1.3 million in the businesses.

[5] Both the debtor and his wife testified that he has always paid the bills and that since coming to Canada, these were paid from a bank account in the debtor’s name funded by Mrs. Okoakih. They both testified that the money in the account did not belong to the debtor, essentially saying that the bank account was a conduit for Mrs. Okoakih to pay the bills. Since the judgment against the debtor, the bills have been paid from funds in an account of Mrs. Okoakih.

[6] There is of course nothing wrong with a couple living off the earnings and assets of the wife in a style that she is able to support. However, the applicants contend that there are suspicious circumstances involving the financing and dealing with the matrimonial home in Oakville and with the cars that should be taken into account in considering the bankruptcy application.

Evidence of indebtedness

[7] The judgment against the debtor is dated October 17, 2011. A writ of seizure and sale was issued and filed with the Sherriff on November 9, 2011. The debtor had been the registered owner of the matrimonial home as to 1%, his wife being registered for 99%. However, 11 days after the judgment and before the writ of execution was filed, the debtor transferred his 1% to his wife, and said he was paid for this by his wife. Thus nothing came of the writ of execution. A garnishee of the debtor’s bank account resulted in a recovery of only $3,700.

[8] At the time of the bankruptcy application on August 20, 2013, there were other accounts of the debtor. See Ex. 2 tabs 1 to 8. On a Sears master card account, there was a balance owing of $13,676.16 with a minimum payments $366 due. On a HBC account there was a balance of $1,014.26 with a minimum payment of $67 due. On a Scotia Visa account, which was a joint account with his wife, there was a balance owing of $17,891.55 with a minimum payment due of $357. Other accounts were being paid monthly for the most part. For all of these accounts, the debtor swore on his judgment debtor examinations that he could not pay even the minimum payments on them.

[9] The debtor also has obligations for the three automobiles he has acquired. He has monthly lease payments of $2,313.34 for a 2011 Rolls Royce and $1,159.36 for a 2006 Bentley and monthly purchase payments of $1,669.70 for a 2010 Land Rover. The evidence of the debtor and his wife is that his wife has been paying these payments.

[10] The debtor owns a five bedroom house in Nigeria. He produced a loan agreement with Karlyle Towers Limited, a Nigerian lender, dated February 19, 2009 for 100 million naira, the Nigerian currency, and secured by the house and shares of Dale & Parker. That loan was said by the debtor to approximate $800,000 Cdn. According to the historical currency exchange rates on the web site Oanda.com[^1], the conversion rate at the date of the loan was .0083 naira to one Cdn dollar, making the loan at that time equivalent to $830,000 Cdn.

[11] According to a letter purporting to be from the lawyers for the lender, 76 million naira was outstanding on the loan as of September 26, 2013. At that date the conversion rate was .0064 naira to one Cdn dollar, making the outstanding loan equivalent to $486,400 Cdn. The debtor testified that the house was worth now perhaps 140 million naira. If that is the value, the exchange rate on December 5, 2013 was .0067 naira to one dollar Cdn, making the house worth $938,000 Cdn. On his judgment debtor examination on June 25, 2013, he said the house was worth maybe $500,000 Cdn. No appraisal evidence of any kind was provided to substantiate the value of the house.

Legal principles

[12] It is an act of bankruptcy if the debtor “ceases to meet his liabilities generally as they become due”. See s. 42(1)(j) of the BIA. A bankruptcy order may be made if the debtor has committed an act of bankruptcy within the six months preceding the filing of the application. See s. 43(1)(b) of the BIA.

[13] The applicants contend that the debtor has ceased to pay the judgment debt and other accounts in his name within six months of the application. They also contend that even if the judgment was the only debt to be taken into account, there are special circumstances that would justify a bankruptcy order. Regarding the latter, in Valente v. Fancsy Estate (2004), 2004 8018 (ON CA), 47 C.B.R. (4th) 317 (Ont. C.A.) Feldman J.A. stated:

8. It is now well-settled in the case law that the failure to pay a single creditor can constitute an act of bankruptcy under s. 42(1)(j) 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 B.I.A. 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: Re Holmes (1976), 1975 667 (ON SC), 9 O.R. (2d) 240 (Sup. Ct.); see also Houlden and Morawetz, The 2004 Annotated Bankruptcy and Insolvency Act (Toronto: Carswell, 2003) at 147 D s. 10(3).

[14] In Houlden, Morawetz and Sarra, The 3013-2014 Annotated Bankruptcy and Insolvency Act (Carswell) at D§(11)(3) it is stated:

A debt to a single creditor is sufficient if there are special circumstances, specifically, if the applicant creditor’s claim is either the only claim or is so large that the claim of other creditors are of no significance so that, in effect, there is only one creditor. Another aspect is whether there is proof of fraud or other suspicious circumstances in the way in which the debtor has dealt with assets. (Authorities deleted) (Underlining added).

[15] Where a debt has been reduced to judgment, the fact that the judgment has been entered more than six months before the filing of the application is irrelevant. A judgment is a continuing demand for payment and no demands for payment need be made within six months of the application. See Malmstrom v. Platt (2001), 2001 24037 (ON CA), 24 C.B.R. (4th) 70.

Analysis

[16] There were two judgment debtor examinations of the debtor, one on June 20, 2012 and the other on June 25, 2013. On them, the debtor said he had no assets in Ontario and could not pay the judgment. He testified that he could not make any payments on any of his debts, not even small amounts such as $400. He said he has no income in Canada and that what he received from Dale & Parker in Nigeria went to Karlyle to pay down the loan secured by his house in Nigeria. He said he has not done any work in Nigeria for his consultancy firm Dale & Parker for the past year.

[17] Has the debtor “ceased to meet his liabilities”? It is conceded by him that he has ceased to meet the liability of the judgment against him in favour of the applicants. But it is contended on his behalf that with respect to the other liabilities on the credit cards and on the cars, he has not ceased to meet these liabilities because his wife is paying the monthly minimums on the credit cards and the monthly car payments. Therefore it is contended on his behalf that these liabilities cannot be taken into account as they are being met.

[18] No case law has been provided to support the position that because the credit cards and car payments are being paid by someone else, the debtor has not ceased to meet his liabilities regarding them. In my view, taken the plain meaning of the words in the BIA, the debtor has ceased to meet his liabilities with regards to them. The fact that someone else may be voluntarily paying them does not mean that the debtor has met them. The statute does not say that an act of bankruptcy occurs if the liabilities are not being paid. It says that an act of bankruptcy occurs if the debtor has ceased to meet his liabilities. In this case, the debtor has ceased (or stopped) to meet (or pay) his liabilities.

[19] Nor does the statute say that an act of bankruptcy occurs if the debtor has not failed to have someone else to pay his liabilities. Even if that is the sense of the legislation, it would not assist the debtor. In this case it cannot be said that the debtor has control over his wife or has the ability to require her to make the payments. All her payments are voluntary on her part according to both of them. With respect to the cars, he testified that if his wife stopped making the payments on them, he would have to turn them in.

[20] I find on the evidence that the debtor has ceased to meet his liabilities with respect to the credit cards and the cars.

[21] Thus there is more than one debt that the debtor has failed to meet. Can it be said that the debtor failed then to meet his liabilities generally as they become due? The answer is clear. He has so failed. I find that he has failed to meet his liabilities generally as they become due.

[22] Even if the debtor’s liability on the judgment were the only debt that could be taken into account, as contended by the debtor, there are special circumstances that justify a bankruptcy.

[23] As per the statement from Houlden, Morawetz and Sarra, supra, it is a special circumstance if the applicant creditor’s claim is either the only claim or is so large that the claim of other creditors are of no significance so that, in effect, there is only one creditor. That would be the case if the argument of the debtor regarding his debts other than the judgment were accepted. The reason why normally there must be more than one debt to support a bankruptcy application is that the act of bankruptcy described in s. 42(1)(j) singles out the conduct of the debtor in relation to the creditors of the debtor as a class, and if there are other creditors it is to be established that the debtor has failed to meet his liabilities generally as they become due. Generally means “in most cases” or “on the whole”. See Houlden, Morawetz and Sarra, supra at D§11(1).

[24] However if there are no other creditors to be taken into account, this rational is not applicable and one debt may be sufficient to establish that the debtor has failed to meet his liabilities generally as they become due. See the discussion of Henry J. in Re Holmes (1976), 1975 667 (ON SC), 9 O.R. (2d) 240, approved in Valente v. Fancsy Estate, supra, at para. 13 and circumstances to be taken into account discussed in Valente v. Fancsy Estate at para. 16.

[25] In this case, the judgment is large in relation to the assets and income of the debtor, whose evidence is that he has no income or assets of any value. The judgment has been outstanding for over two years and efforts to collect on it have met with no success except for one small garnished amount. If the only debt to be taken into account, as contended by the debtor, is the judgment, I find that it is sufficient to establish an act of bankruptcy and a bankruptcy order.

[26] The applicants also contend that there are suspicious circumstances in the way that the debtor has dealt with the financing and the transfer of his interest in the matrimonial home, and in the dealing with the Rolls Royce that he owned.

[27] Regarding the matrimonial home, the debtor and his wife testified that all of the money for it came from his wife, and that when he transferred his 1% interest in it to his wife, she paid him 1% of the equity net of the outstanding mortgage, being some $7,000. Extensive evidence was led by Mrs. Okoakih to present a case that all of the money for the house came from her. There is some documentary evidence that money was deposited into her bank account in Nigeria from which a bank draft was paid for and that she obtained the funds largely from a Nigerian company in which her uncle is a shareholder with a small sum from her spa business in Nigeria. However, there was no evidence as to where her uncle’s company or her spa business obtained the money.

[28] There is some documentary evidence that US $99,985 used for part of the funds to close the purchase of the matrimonial home in Canada came from her bank account in Lagos. That is not entirely clear however because the Scotiabank incoming transfer document states that it was the First City Monument Bank that ordered the transfer, and that is not Fairmont BDC Ltd, the organization that issued a draft from funds in Mrs. Okoakih’s bank account in Nigeria. Mrs. Okoakih testified that Fairmont is a “bureau de exchange” in Lagos and that First City was its intermediary bank. No documentation to support this was produced.

[29] The remaining cash needed to close the purchase is said to have been provided in euros, some 414,000 euros, deposited in a Scotiabank account of the debtor set up to receive the euros over 6 days in the amount of 69,990 euros on each of those days. Where the euros came from was not documented. They amounted to $572,686 Cdn.

[30] Counsel for the debtor says that an inference can be drawn that these amounts came from the bank account of Mrs. Okoakih in Nigeria because of the timing of the bank draft paid for from her account on April 4, 2011 and the deposit dates in the Scotiabank accounts of the debtor in Toronto from April 5 to April 25, 2011. I hesitate to do that.

[31] It is of note that on March 3, 2010, the debtor was able to transfer US $299,924 to his bank account in Toronto. This money was used as a down payment on a home being purchased from the applicants. The debtor failed to close the purchase which led to the judgment against him that is the basis for this application. The BNS payment transfer for this money states that the debtor was the beneficiary of the funds being received and that they had been paid by order of Dr. Jonathan C. Okoakih c/o Nepal Oil and Gas Services Ltd. in Lagos, Nigeria. The debtor said that the funds belonged to him and his wife. What his relationship to Nepal Oil and Gas Services Ltd. was not said. This evidence is an indication that in 2010 the debtor had access to substantial funds even though he said that he had lost all his assets in the market crash of 2008-09.

[32] I think it fair to say there are suspicious circumstances surrounding the funding of the purchase of the matrimonial home. While the debtors have led evidence in an attempt to establish that it was Mrs. Okoakih who funded the purchase, the evidence has holes in it and I am reluctant to conclude that the suspicions have been removed. If circumstances are suspicious, they cannot be overlooked in my view unless the evidence indicates that there is nothing in those circumstances. I cannot so conclude on the state of the evidence before me.

[33] The debtor’s dealing involving the Rolls Royce cars is another matter[^2]. In 2010 he bought a 2010 Rolls Royce. He was the owner and paid for it with funds from Dale & Parker. In January 2012 he traded it in for a 2011 Rolls Royce which he leased rather than owned. The 2010 Rolls Royce had an equity value of $78,548 which was transferred to the leasing company by reason of the trade in. At the time of the trade in, he had been sued by the applicants in the action which resulted in the judgment against him. Thus he transferred equity in the 2010 Rolls Royce to the leasing company, which resulted in a lower lease payment for the 2011 Rolls Royce than would have been the case if there had been no trade in, at a time when he was facing liability for failure to close the purchase of the applicants’ home. It is more than a suspicious circumstance. It was at lease a prima facie preference or fraudulent conveyance of his equity interest.

[34] I conclude that there are special circumstances in light of the suspicious way in which the debtor has dealt with his assets, as discussed, and that this is another reason to conclude that the debtor has committed an act of bankruptcy.

[35] It is contended on behalf of the debtor that there is no purpose in a bankruptcy. The applicants have sued the debtor and Mrs. Okoakih claiming a fraudulent conveyance of the debtor’s interest in the matrimonial home to Mrs. Okoakih. The trial is apparently scheduled to be heard in February, 2014. It is contended that if the applicants succeed, there will be plenty of equity from which the applicants can obtain payment on their judgment. This argument is somewhat astounding as the debtor and Mrs. Okoakih say that there was no fraudulent conveyance as everything was paid for by Mrs. Okoakih, which is what they have sought to establish in this application. It hardly lies in their mouth to say that the applicants are protected by their fraudulent conveyance claim. The applicants should not have to rely on that contingent claim if there are other avenues open by reason of a bankruptcy.

[36] There is reason why a bankruptcy in this case could assist the applicants and any other creditors. The debtor has buy-out rights on his leased vehicles which would be advantageous to the extent there is equity in them. A trustee could exercise those rights. There is property in Nigeria that may have equity. A trustee could investigate that and take appropriate steps. A trustee has investigative powers that could well be important in a case such as this.

[37] The debtor has not established that there is no purpose in a bankruptcy or that the application has been brought for an improper purpose.

[38] In the result, the debtor is adjudged a bankrupt and a bankruptcy order as of this date is to be issued.

[39] The applicants are entitled to their costs of this application to be payable out of the estate in accordance with section 45(1) of the BIA.

Newbould J.

Released: December 9, 2013

Footnotes

[^1]: No exchange rates were introduced in evidence at the trial. I have accessed them to understand the evidence given by the debtor.

[^2]: This preference was not listed in the application for a bankruptcy order. However counsel for the debtor conceded that the issue was fully explored in the evidence. There is thus no prejudice to this issue being considered, and I would if necessary grant leave nunc pro tunc to so amend the application.