ESTATE NO.: 31-1405629
HEARD: 20131219
RELEASED: 20140221
SUPERIOR COURT OF JUSTICE
IN BANKRUPTCY AND INSOLVENCY
In the Matter of the Bankruptcy of
NICHOLAS BIGIONI
of the Town of Ajax, in the
Province of Ontario
APPEARANCES:
R. D. Howell Fax: 416-324-4218
- for the Bankrupt
Brian Haley Fax: 416-973-7440
- for Office of Superintendent
Robert Klotz Fax: 416-360-4501
- for opposing Creditor
B. Burton Fax: 416-922-1963
- For Trustee
Kelly Dey Fax: 905-272-3690
- office of Trustee
BEFORE: MASTER D. E. SHORT, Registrar in Bankruptcy
HEARD: December 19, 2013
REASONS FOR DECISION
“From 1966-71, Dodge stuffed their massive Hemi into the small E-Body platform and the 1970 Hemi 'Cuda is widely accepted as one of the most sought after of these. Only 652 were built when new, including 14 rare convertibles, making an original Hemi 'Cuda a rare sight.
With their classic shape, tire-shredding American power, limited production and huge popularity a 1970 Hemi 'Cuda can easily fetch over $150 000 USD. This is a remarkable amount for a car with the same build quality as a mass-produced Plymouth. However, the aggressive sound of Hemi combined with visual street cred and Barrett-Jackson publicity now make these Cudas more expensive than most Ferraris produced in the same era.”
http://www.supercars.net/cars/1448.html
I. Contested Discharge
[1] Perhaps ironically the automobile described above figures prominently in a contested bankruptcy discharge application arising more than forty years after the vehicle was produced.
[2] Mr Bigioni filed for bankruptcy on September 15th, 2010. It appears his voluntarily filing for bankruptcy was a consequence of liabilities arising out of an action brought against him for damages for failing to complete the purchase of land from Mr and Mrs Everson.
[3] Ultimately this appears to be a two creditor bankruptcy. The Everson’s have a judgment for $450,000 and that claim has been admitted by the trustee. During the course of the bankruptcy a second action was underway relating to an alleged entitlement of Cesaroni Holdings Limited to an entitlement to a half the profit made on a sale of the purchaser’s rights under an agreement of purchase and sale at a profit of $900,000. I understand that their claim was based on a “handshake” agreement.
[4] In exchange for their agreeing to waive any fraud or similar claim that would survive Mr. Bigioni’s discharge from bankruptcy, he consented to a judgment against him in the amount of $250,000.
[5] Up until that time Mrs Emerson has served as the sole inspector in the bankruptcy. In her evidence before me she indicated that the litigation had been very strenuous on the couple and she was prepared to step down as an inspector when the Cesaroni claim had been reduced to judgment and accepted by the trustee.
[6] This combined at the amount of $700,000 represents virtually all the claims of in Mr. Bigioni’s bankruptcy.
[7] Both creditors and the Trustee and the Office of the Superintendent of Bankruptcy opposed the bankrupt’s discharge.
II. The Family Businesses
[8] It would appear that the bankrupt has not been fully cooperative in providing information to the trustee or to his creditors.
[9] Part of the difficulty faced by all those parties has flowed from the fact that there are a number of companies controlled by either the bankrupt or his two sons which all seem to operate out of the same premises .
[10] It is my impression that the business that Mr. Bigioni was engaged in related to the construction of high end custom homes through an entity known as Grand Homes.
[11] It was also my impression was that there may have been other single-purpose for each house project in order to segregate the liability for each such home.
[12] The evidence before me was that Mr. Bigioni owns all the shares of two corporations these corporations are Big Garden Holdings Ltd. and N. Bigioni Management Services Ltd.
[13] His sons own two other companies that were relevant to the matters in front of me. These corporations were 2176415 Ontario Ltd. and 2071503 Ontario Ltd.
[14] A Ms Pizalli was the chartered accountant who did the books for all the companies. The son’s companies refused to make any of their financial records available to the Trustee or the judgment creditors.
[15] The financial records of the bankrupt’s companies produced to date disclose very little in the way of identifiable income. Many inter-corporate transactions were described by the bankrupt as “intercompany equalizations” but on his section 163 (1) examination he could not remember what many of the transactions recorded were actually for.
[16] What does seem to have happened is that that at tax time monies were moved around by way of charges for management fees in order to optimize the corporations’ various tax positions.
[17] Mr. Bigioni is provided with a car by the sons’ companies and indicates that he has an annual income that does not attract even a surplus income obligation in this case.
[18] My impression from his evidence is that his sons are now generally running the companies and the construction and development business. He indicates that he is not very involved in the business and generally is doing bookkeeping functions etc.
III. A Summary Process
[19] One of the difficulties confronted in this case is whether or not a discharge hearing is intended to be a summary proceeding in a case such as this or whether ongoing examinations to seek more information and motions to enforce undertakings etc. ought to be permitted when the creditors are prepared to continue that process.
[20] My colleague Registrar Jean came to the conclusion that this matter had dragged on long enough and directed that the parties attend before me for a one day discharge hearing.
[21] That hearing commenced at 10 AM and concluded at 6 PM (with half an hour for lunch). I then reserved my decision.
[22] The nature of the hearing meant that some of the evidence was abbreviated nevertheless no fewer than seven witnesses gave evidence before me.
[23] Significantly in my view those witnesses did not include any of the sons nor the accountant who did the books for all the relevant companies.
IV. Trustee’s position
[24] The Trustee produced at least two supplementary reports. The most recent one dated in in December of this year raised three items :
• an indication that a used vehicle he had 1970 Chevrolet Malibu was shown on a used vehicle information package generated by the ministry of transportation in September 2012 indicated that in October of two sup in October 2088 in October 1988 is to be only acquired this this vehicle the current registrant by virtue of a transfer registered on May 11, 1989 was shown as being Bruce Cameron and Nicholas Bigioni.
• An assertion that the bankrupt had neglected to make a full disclosure of assets is required of him by the act and as previously reported in the trustee’s report of June 2013. That item indicated the trustee had requested the officers of the superintendent of bankruptcy consider recommending an investigation by the RCMP into these matters
• the supplementary report concludes with the following: “… It is inappropriate that a substantial condition be imposed but not appropriate to recommend the amount of any condition until all the evidence has been reviewed.”
[25] The representative of the office of the superintendent of bankruptcy indicated the hearing before me that information had been forwarded to the RCMP.
[26] Once again my problem in dealing with this matter was to determine whether or not to proceed with the discharge hearing in the face of these elements having regard to the fact that my colleague had made an order that was not appealed indicating that the discharge hearing would proceed before me on December 19, 2013.
[27] I have determined that the matter ought to have proceeded and that if there are any investigations to be undertaken they will have to proceed having regard to the disposition that I am making. Certainly I am not in any way preventing the continuation of examinations which are felt necessary by any entity.
V. The Trustee’s Role
[28] At the outset there were no particular funds available to the trustee to undertake any significant investigation. The Everson’s were engaged in trying to enforce their judgment and their counsel represented both them and the trustee in some of the early attempts to recover against the bankrupt.
[29] When the Cesaroni’s became involved they retained their own counsel who took the lead in trying to make recoveries .for the estate.
[30] Result of all these activities is that significant legal fees were incurred without any meaningful recoveries until an agreement was reached with respect to two properties in which the lien bankrupt’s interest had been transferred to his spouse by virtue of a separation agreement entered into in 2009.
[31] A significant recovery was made with respect to those two properties and some other funds the gross amount of which approximated $133,701.
[32] Regrettably the trustee’s legal fees and other fees apparently have reduced that amount to what is now said to be about $66,000. Of course that is before the charges for preparing and attending at this full day hearing.
[33] It is my understanding of the section 38 order was made which permitted the assertion of a fraudulent conveyance of the bankrupt’s entitlement to an equalization payment out of the matrimonial home was owned by his spouse. Whether such a claim can in fact be made is not for me to evaluate in this case.
[34] As indicated above the Cesaroni’s negotiated a settlement where they have a judgment for $250,000.
VI. Following the Tire Tracks
[35] During his cross examination Mr. Bigioni only acknowledged that he had been involved dealing with show cars as a hobby since the 1960s.
[36] The Cesaroni’s retained the services of a former police officer who was successful in utilizing the used-car vehicle reports to establish the registered ownership with respect to a number of vehicles. These reports are normally used for a potential purchaser to verify of a vehicle has been in an accident etc.
[37] He investigated four categories of cars. Vehicles previously owned by Mr. Bigioni and vehicles presently owned by him together with vehicles previously owned by 217 and most importantly vehicles presently owned by 217.
[38] There was no real evidence before me as to how the used-car registry really works. It seems that a vehicle coming into Ontario would need to be registered but that their main not be any requirement to deal with a departure of a vehicle.
[39] I expect that there might be a sales tax liability in the event of a sale in Ontario which would be payable on the transfer of the vehicle being registered.
[40] No evidence was before me to indicate that any of the 10 vehicles identified by the expert were not still in Ontario.
[41] Certainly there was no evidence led that indicated the numbered company 215 was not the continuing registered owner of the vehicles
[42] The list of cars is interesting. Not a lot of information was available but the year the car and the date in which it was registered in the Ontario system was available. My notes of the present vehicles which are indicated as being owned by 127645 Ontario Inc. are as follows:
(a) 1967 Corvette convertible acquired 2001
(b) 1968 GTX Plymouth convertible acquired 2008
(c) 1970 “Cuda” acquired 2000;
(d) 2000 Ford
(e) 2008 Corvette (yellow) acquired 2011
(f) 1969 Corvette acquired 2008
(g) 1969 Plymouth GTX acquired 2006
(h) 1970 GM ( green) acquired 2005;
(i) 1998 Dodge VGT acquired 1999; and
(j) 1998 Ford Tau (Taurus?) Acquired 2004
[43] The investigator also found vehicles that were disposed of by the numbered company along the way including a 1970 Plymouth Road Runner that was acquired in 2001 and sold 2003 and a 1971 Pontiac GTO which acquired in July 2007 and apparently sold in August 2010, one month before the date of bankruptcy.
[44] Regardless of how many layers of hearsay are involved I still find it useful to consider materials which are archived on sites on the Internet.
[45] In cross examination a document was put to the bankrupt which appears to be a screen print out from something called the Supercar Registry Bulletin Board.
[46] The extract found by Mrs Emerson by searching both the bankrupt’s name and various reports on car conventions yielded to postings which were put to the bankrupt. One concerned “Vettefest” in a 2008 postings relating to photographs taken at that car show. The posting indicates that a customer of the author one awards at the convention and that “other winners that I know of were… Nick Bigioni. It goes on to note:
“Most of the participants elected to not have their cars judged such as law convertible. However, Nick’s convert was given a Club Pick award from the Fox Valley Corvette Club which was quite a compliment in my opinion.”
[47] Another extract found from a “Supercar/Muscle car Discussion” forum within the Supercar Registry in 2002 regarding to ZL-1 Corvette which was painted red with a red interior. One of the participants in the conversation was trying to track down this vehicle and in response to a question regarding who purchased the “Red/Red that ZL1?”, the answer given was “nick bigioni in Canada.”
[48] The website of CNN Money, self-described as “A Service of CNN Fortune & Money”, in 2013 included the 1969 Corvette convertible in their listing of the “most valuable Corvettes.” The following is an extract from description of a white ZL1 [as opposed to a Red/Red car] found at the indicated web address:
“The ZL1 motor was developed by Chevrolet with the intended purpose of racing. Therefore it was necessary for Chevrolet to produce it as a regular production motor to qualify it. But it is likely that without the efforts of Zora Duntov the engine would never have made it to production. Chevrolet produced the ZL1 motor as a RPO (Regular Production Order) option in 1969 only, and only available as a RPO option on the Corvette. Additionally there were 1969 ZL1 Camaros produced; but only as COPO (Central office Production Order) orders.
This ZL1 Corvette is one of only two 1969 ZL1's sold to the public. Why were only two sold when it was such a great engine option? It was the added cost of approximately $6,000 for the ZL1 option that discouraged sales. This more than doubled the cost of the Corvette resulting in a total cost over $10,000. It would be a good guess that prospective buyers opted for the more cost effective L88 cast iron motor, which appeared to have the same horsepower; for a lot less than the $6,000 that Chevrolet wanted for the ZL1.”
http://money.cnn.com/gallery/autos/2013/01/11/most-valuable-corvettes/2.html
[49] The most significant item for my task on this application is the reported valuation of the white Corvette ZL-1 at 1.4 million dollars.
VII. Lack of cooperation and transparency
[50] Any debt or seeking the assistance of this court needs to come not only with clean hands but with open files. The court needs to be satisfied that it can trust the information before it is a bankrupt wants to obtain assistance from the Court.
[51] It was clear from the evidence from the trustee and the creditors that they had been having a very difficult time sorting out into corporate transfers of funds and in particular the funding and ownership structure of 2176415 Ontario Ltd. and 2071503 Ontario Ltd. Both corporations are said to be owned by the bankrupt’s sons Jeff and Paul Bigioni.
[52] It seems to me that based on the evidence before me there is a good chance that the beneficial owner of most if not all of the subject vehicles is actually the bankrupt.
[53] Gordon Everson, one of the judgment creditors testified that prior to the parties getting into a dispute that lead to the claim accepted at $450,000 in this bankruptcy, Mr. Bigioni described his car collection as “my retirement fund”.
[54] The parties have already spent too much money trying to make recoveries in this case and incurring additional forensic costs and otherwise may not be justified as is conceivable that the cars were sold many years ago or in fact are not in a condition to justify anywhere near the amount that could be realized for a near mint car at one of the televised car auctions.
[55] Some not insignificant realizations have already been made by the trustee with respect to property that was previously owned by the bankrupt and/or his spouse.
[56] Counsel for the trustee proposed that I require payment in full of the full amount of the claimed indebtedness as a condition of the discharge that is being sought in this case. I’m not prepared to go that far on this record.
[57] In a recent decision In the Alberta Court of Queen’s Bench, Dykes (Re),2013 ABQB 597, Registrar Prowse observed that the bankruptcy and insolvency act provides a process for individuals in financial distress to obtain relief from their financial obligations by assigning themselves into bankruptcy. It allows “honest but unfortunate debtors to have a fresh start.
[58] He observed that in the case before him the evidence indicated that the bankrupt did not fit within the description of an honest but unfortunate debtor. He asked rhetorically “How should the terms and conditions of her discharge from bankruptcy reflect this fact?”
[59] He is answer was to direct that as a condition of her discharge the bankrupt should pay amount equal to 50% of her proven unsecured debts plus the trustee’s fees.
[60] In this matter I am not satisfied that there has been a full and proper disclosure on the part of the bankrupt. How the cars required and his true financial situation considers to be quite unclear.
[61] But for the efforts of the two creditors to discover information regarding the collection of classic cars the trustee might never have been aware of them. Certainly substantial sums would need to be expended for more detailed forensic analysis and examinations. They have incurred substantial legal and professional fees to get to this point.
[62] A discharge hearing is supposed to be a summary proceeding. Rather than adjourn this matter and have the parties wait longer for recovery I have determined that the appropriate order to make is one requiring that the bankrupt now pay 60% of the principal amounts of the two claims as a condition of his discharge.
[63] As well I am requiring that his discharge be suspended for a period of six months to run consecutively from the completion of the payment hereinafter specified.
[64] If I am totally in error with respect to my conclusions based on the evidence before me, the bankrupt has the option in one year to seek the very these terms.
[65] I would expect that the court hearing that variation application would expect a very detailed explanation of the source of funding for all these cars when they were required acquired how they were brought across the border what tax was paid on the sale of the vehicles and what documentation if any exists with respect to the into corporate transfers which were the subject of undertakings previously given.
[66] Section 172(3) reads:
“Where at any time after the expiration of one year after the date of any order made under this section the bankrupt satisfies the court that there is no reasonable probability of his being in a position to comply with the terms of the order, the court may modify the terms of the order or of any substituted order, in such manner and on such conditions as it may think fit.”
[67] While I do not read this section as dictating that there must be a reduction when the court considers such an order after a year, there certainly is a duty upon the bankrupt to satisfy the court that in fact there is no ability to comply with the order made.
VIII. Disposition
[68] An order will go granting a conditional discharge to Nicholas Bigioni conditional upon him making a payment to the Trustee in Bankruptcy. I have used as a method of arriving at what I regard as an appropriate amount, the total of $250,000 being the sum agreed to be payable on account of the claim asserted by Cesaroni Holdings Group and $450,000 being the amount payable on account of the claim of the Everson’s. The payment that I am requiring to be made to the Trustee on behalf of all the creditors of the estate is therefore $420,000.
[69] I am fixing the legal fees for counsel for the creditors on the contested discharge process at $8400 plus HST which amount will be a charge on the first monies received pursuant to this order.
[70] As indicated above the discharge will also be suspended for a period of six months consecutive from the date that the full amount of $420,000 has been paid.
Master D. E. Short
Registrar in Bankruptcy
February 21, 2014
DS/ B30