CITATION: Stretch v. Solid Gold, 2015 ONSC 82
COURT FILE NO.: 31-OR-208023-T
DATE: 20150107
ONTARIO
SUPERIOR COURT OF JUSTICE
COMMERCIAL LIST
(IN BANKRUPTCY AND INSOLVENCY)
IN THE MATTER OF THE BANKRUPTCY OF SOLID GOLD RESOURCES CORP. of the City of Toronto, in the Province of Ontario
BETWEEN:
DARRYL CAMERON STRETCH and 0894566 BC LTD.
Applicants
– and –
SOLID GOLD RESOURCES CORP. of the City of Toronto, in the Province of Ontario
Respondent
Christopher Funt, for the Applicants
Andre Tanguay, Director, Non-Lawyer, for the Respondent
HEARD: October 15, 2014
L. A. PATTILLO J.:
Introduction
[1] Darryl Cameron Stretch (“Stretch”) and 0894566 BC Ltd. (“Stretchco”) (collectively the “Applicants”) bring this application pursuant to s. 43(1) of the Bankruptcy and Insolvency Act (“BIA”) for a bankruptcy order against Solid Gold Resources Corp. (“Solid Gold”) (the “Application”).
[2] At the outset of the Application, and in the absence of any opposition from the Applicants, I granted leave to Andre Tanguay, the chief executive officer and a director of Solid Gold, to represent it on the Application.
[3] Solid Gold is a junior mining exploration and development company, incorporated in Ontario. Its main asset is a 50,000 acre contiguous block of mining claims in Northern Ontario.
[4] Stretch is a former chief executive officer of Solid Gold. Stretchco is a company controlled by Stretch. In January 2011, Stretch and Stretchco entered into an Executive Consulting Agreement with Solid Gold (the “Agreement”). The Agreement was terminated by Solid Gold on November 29, 2012.
[5] In December 2013, Stretch and Stretchco commenced an action against Solid Gold in the Ontario Superior Court alleging breach of the Agreement and claiming damages of $553,280 made up of unpaid fees and expenses and severance amounts as well as for repayment of a loan (the “Action”). Solid Gold filed a defence and counterclaim in the Action denying liability of the claim and seeking damages in the amount of $2,194,685 against Stretch and Stretchco for breach of contract, breach of duty of care and gross negligence. Apart from filing a brief defence to counterclaim, no further steps have been taken in the Action.
The Issues
[6] The parties agree that the issues to be decided on the Application are as follows:
a) Are the Applicants creditors within the meaning of the BIA;
b) Did Solid Gold commit one or more acts of bankruptcy within six months of the filing of the Application; and
c) Are there justifiable reasons in law or equity for the Application to be stayed or dismissed.
Are the Applicants Creditors?
[7] The Applicants submit they are creditors as defined in s. 2 of the BIA because their claim, as encompassed by the Action, is a provable claim in bankruptcy. They further submit that their claim is “acknowledged publicly by Solid Gold.”
[8] Based on the material filed, I am not prepared to accept for the purpose of this Application that either Stretch or Stretchco are creditors of Solid Gold within the meaning of the BIA.
[9] Note 5 of Solid Gold’s interim financial statements for the nine month period ended June 30 2013, refers to an amount payable to Stretchco of $540,720. That amount relates to the amount alleged to be owing to Stretch and Stretchco pursuant to the Agreement and is the amount claimed by Stretch and Stretchco in the Action. As noted, however, Solid Gold has denied liability and counterclaimed for substantial damages based on the alleged actions of Stretch in running the company. In my view the claims of both parties are contingent at this stage such that I do not consider the claims of Stretch or Stretchco in the Action to establish that they are creditors pursuant to the BIA.
[10] Apart from the Action, the evidence fails to establish that Stretch was a creditor of Solid Gold. Note 5 of the above noted financial statement refers to, among other things, a loan from Stretch of $13,000 to assist cash flow which “will be repaid as soon as funds are available.” The loan is not a demand loan and is arguably not due until funds are available and there is no evidence that is the case.
Did Solid Gold Commit an Act of Bankruptcy within Six Months of the Application?
[11] Section 42(1) of the BIA sets out 10 different acts of bankruptcy. The Applicants submit that the counterclaim, which pleads the Solid Gold is insolvent, is evidence of an act of bankruptcy. In my view, that admission cannot be used to support the submission Solid Gold committed an act of bankruptcy. It is a statement made by Solid Gold in the Action, both in its defence of Stretch and Stretchco’s claim and in support of its counterclaim against them. As such, it is subject to the doctrine of “absolute privilege”.
[12] A written or oral statement made in judicial proceedings is subject to “absolute privilege” such that no liability can arise from such statement. The immunity extends to any action, not just defamation. Statements in a pleading are included in the privilege. See: Samuel Manu-Tech Inc. v. Redipac Recycling Corp., 1999 3776 (ON CA), [1999] O.J. No. 3242 (Ont. C.A.); Mopal Construction Ltd. v. Powell Motorsport Advanced Driving School Inc., [2004] O.J. No. 807 (Ont. C.A.).
[13] Accordingly, the admission by Solid Gold in its defence in the Action that it was insolvent cannot now be used by the Applicants in the Application to establish an act of bankruptcy.
[14] There is no evidence that Solid Gold has exhibited to a meeting of its creditors any statement of assets and liabilities that shows that Solid Gold is insolvent. To the contrary, the interim nine months statements dated June 30, 2013, (unaudited) which are the most recent statements provided, show the value of the assets to be significantly in excess of the liabilities.
[15] Nor do I consider that the Applicants have established that Solid Gold has ceased to meet its liabilities generally as they fall due. In his second affidavit, Stretch states that he is unaware of any creditors of Solid Gold other than those described in Solid Gold’s interim financial statements for the nine month period ended June 30, 2013. Apart from Stretchco, there are amounts shown as owing to a law firm and an accounting firm which are indicated to be related parties. There is no evidence as to the current status of the amounts owing to them, if any.
[16] In his affidavit, Mr. Tanguay states that George Downing Estate Drilling Limited is a judgment creditor of Solid Gold and that its president, Mr. George Downing is opposed to putting Solid Gold into bankruptcy at this time. An email from Mr. Downing confirming his position is provided. Notwithstanding the judgment, I infer from that evidence that Solid Gold has reached an accommodation with George Downing Estate Drilling Limited concerning its debt, at least for the present.
[17] Apart therefore from the above and the Applicants’ allegation that they have not been paid, there is no evidence that Solid Gold’s creditors are not being paid.
[18] In the circumstances, therefore, I do not consider that the Applicants have established that Solid Gold has committed an act of bankruptcy as set out in s. 42(1) of the BIA.
Are there justifiable reasons in law or equity for the Application to be stayed or dismissed?
[19] Section 43(7) of the BIA gives the court discretion to dismiss the bankruptcy application if it is made for an improper purpose.
[20] I am concerned about the Applicants bona fides in bringing the Application. Rather than proceeding with the Action which they commenced against Solid Gold some time ago and which involves a significant counterclaim against them, the Applicants now seek to effectively terminate that proceeding by putting Solid Gold into bankruptcy and as a result, effectively end the counterclaim against them. In my view there is no good reason to do that particularly when it is not clear that Solid Gold will end up owing the Applicants any money. Based on the material filed, I am satisfied that there is substance to the counterclaim.
[21] The evidence indicates that Solid Gold’s claims have some value. There is some potential for it to realize on that value with third parties and potential investors and Mr. Tanguay has been working to make that happen. Bankruptcy will put an end to those efforts. The Applicants have made it clear in their material that they want an opportunity to get their hands on Solid Gold’s claims through the bankruptcy process. In light of the issues between the parties as raised in the Action, I am satisfied that the Application is being brought by the Applicants to eliminate Solid Gold’s counterclaim against them and enable them to take over Solid Gold’s mining claims. Given the history between the parties and the issues in the Action, I consider such a purpose to be improper.
Conclusion
[22] For the foregoing reasons, therefore, the Application is dismissed.
[23] In the normal course, costs follow the result. Solid Gold was not represented by counsel. However, Mr. Tanguay indicated that in preparing Solid Gold’s response to the Application, including the factum and brief of authorities, he utilized the services of a lawyer and incurred legal fees. As a result, he requests $6,000 in legal costs.
[24] The Applicants filed no bill of costs and submit the costs should be fixed at $10,000.
[25] In the circumstances, I award Solid Gold $4,000 in legal costs. Although it was not represented by counsel, it is clear from the material filed that Mr. Tanguay did have significant legal assistance, for which Solid Gold should receive some reimbursement.
L. A. Pattillo J.
Released: January 7, 2015
CITATION: Stretch v. Solid Gold, 2015 ONSC 82
COURT FILE NO.: 31-OR-208023-T
DATE: 20150107
ONTARIO
SUPERIOR COURT OF JUSTICE
COMMERCIAL LIST
(IN BANKRUPTCY AND INSOLVENCY)
IN THE MATTER OF THE BANKRUPTCY OF SOLID GOLD RESOURCES CORP. of the City of Toronto, in the Province of Ontario
BETWEEN:
DARRYL CAMERON STRETCH and 0894566 BC LTD.
Applicants
– and –
SOLID GOLD RESOURCES CORP. of the City of Toronto, in the Province of Ontario
Respondent
REASONS FOR JUDGMENT
PATTILLO J.
Released: January 7, 2015