COURT FILE NO.: 32-OR-1037125
DATE: 20210804
ONTARIO
SUPERIOR COURT OF JUSTICE
IN BANKRUPTCY AND INSOLVENCY
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
– and –
ASH KARIA, a bankrupt
Respondent
Colby Linthwaite, for the Moving Party
Matthew R. Harris, for Ash Karia
Ken Page, for Ella Karia
HEARD: May 4, 2021
L. A. PATTILLO J.:
[1] This is a motion by A. Farber & Partners Inc. (“Farber”), trustee of the estate of Ash Karia, a bankrupt (the “Trustee”) for:
An order setting aside Ash Karia’s (the “Bankrupt”) discharge from bankruptcy on May 4, 2018 granted by the Registrar in Bankruptcy; and
A declaration that all of the issued and outstanding shares of 2397043 Ontario Inc. vest in the Trustee as after acquired property pursuant to s. 67(1)(c) of the Bankruptcy and Insolvency Act (Canada), R.S.C. 1985 c. B-3, as amended (the “BIA”).
[2] For the reasons that follow, I grant the Trustee’s motion.
[3] On February 7, 2008, the Bankrupt filed an assignment in bankruptcy. The trustee was Paddon + Yorke Inc.
[4] In his sworn statement of affairs, the Bankrupt deposed that there were effectively no realizable assets and the total amount of unsecured debt was $1,230,697. Subsequently, the proven unsecured claims were $1,442,759.19. In the information form sworn by the Bankrupt on February 7, 2008, he deposed that he was the sole shareholder of M. Karia Ltd. and 2096224 Ontario Ltd. and was self-employed as a mortgage broker.
[5] On May 6, 2009, the Registrar in Bankruptcy granted an order discharging the Bankrupt from bankruptcy, conditional upon payment to the estate of $24,000 within 48 months. The Bankrupt paid no money towards his discharge until February 2014 when he began paying $100 a month.
[6] On October 11, 2017, the Bankrupt’s brother, Amit Karia, became bankrupt and Farber was the trustee. During the claims process in Amit’s bankruptcy, 2397043 Ontario Inc. (“239”) operating as Bindaas Capital (“Bindaas Capital”) filed a proof of claim in the amount of $664,322.42, secured by a mortgage, as a creditor of Amit. In the claim, the Bankrupt certified that he was a director and signing officer of Bindaas Capital. On February 14, 2018, Amit’s trustee disallowed Bindaas Capital’s claim. Bindaas Capital appealed the trustee’s decision.
[7] On March 14, 2018, the Bankrupt paid $4,661.33, the balance of the $24,000 discharge amount owing. Subsequently, on May 4, 2018, the Bankrupt was granted an absolute discharge by the Registrar.
[8] On May 7 and November 23, 2018, the Bankrupt swore two affidavits in respect of Bindaas Capital’s appeal and related motions in which he deposed that he was the sole officer and director of Bindaas Capital. On December 7, 2018, the Bankrupt was cross-examined on his affidavits, accompanied by counsel. During the exam, he admitted that he was the owner and sole shareholder of Bindaas Capital and that at the time he incorporated the company he was an undischarged bankrupt. A request to produce a copy of the Minute Book was taken under advisement.
[9] Based on information from Farber, the Bankrupt’s then trustee, Paddon + Yorke, sent letters to the Bankrupt on February 22, 2019 and, in the absence of a response, on April 12, 2019, questioning whether he was a shareholder/director of Bindaas Capital while he was an undischarged bankrupt and advising that the shares are part of his estate as a Bankrupt if he was the owner.
[10] Paddon + Yorke subsequently received a letter dated June 13, 2019 from the Bankrupt’s lawyer saying the Bankrupt had provided his firm with a copy of the Minute Book and the directors’ and shareholders’ register indicated that the Bankrupt was one of the first directors of Bindaas Capital at the time of incorporation on November 22, 2013 but that he resigned the same day and “is not and was never a shareholder of Bindaas Capital.”
[11] On August 16, 2019, counsel for Paddon + Yorke wrote to the Bankrupt’s lawyer stating that the shares of Bindaas Capital were after acquired property of the Bankrupt and pursuant to s. 67(1)(c) of the BIA vest in the Bankrupt’s trustee and requesting that the shares be turned over to the trustee forthwith, in the absence of which it will bring a motion.
[12] Subsequently, on August 27, 2019, all of the bankrupt estates administered by Paddon + Yorke, including the estate of the Bankrupt, were transferred to A. Farber & Partners Inc.
[13] On September 5, 2019, the Trustee commenced this motion. In response, the Bankrupt brought a motion to exclude portions of the transcript of his examination in the Amit bankruptcy. On December 1, 2019, Conway J. dismissed the motion and scheduled the hearing date for February 9, 2021.
[14] The Bankrupt and his wife, Ella Karia (“Ella”) then filed affidavits deposing that the shares of 239 were owned by Ella since incorporation. Further, the Bankrupt deposed that while he was listed as a director of 239 at the time of incorporation, it was an accident which was immediately corrected and his wife has always been the director of 239 and that at all times, he has been simply a signing officer of 239.
[15] In addition, the Bankrupt also filed the affidavit of Pathil Baxi, a lawyer. Mr. Baxi was not 239’s incorporating lawyer and his evidence concerning who owned the shares of 239 is based on information and belief from the Bankrupt.
[16] When the Bankrupt and the other affiants refused to appear for cross-examination, on January 25, 2021, Koehnen J. ordered that they appear to be examined virtually on January 28 (Mr. Baxi on February 2), 2021 and set guidelines to prevent any further delay including that the affiants should attend prepared to answer questions rather than taking substantial portions of the examination under advisement or as undertakings.
[17] Unfortunately, neither the Bankrupt or his wife attended the examinations prepared to answer questions, resulting in a number of undertakings including that they produce the company records and the file of the accountant who prepared the company’s financial statements and tax returns.
[18] On February 8, 2021, in the absence of the Bankrupt and his wife not having answered their undertakings, Koehnen J. adjourned the hearing set for February 9, 2021 to May 4, 2021. In so doing, His Honour directed that the accountant was to deliver the information to the Bankrupt’s lawyer who would review it for privilege and then pass it to the Trustee and the Karias were to have no role in reviewing the information before it was provided to the Trustee.
[19] The accountant’s file was never provided to the Trustee. Instead, the Bankrupt provided portions of the tax returns in two batches on February 3, 2021 and in March 2021 as well as 239’s Minute Book which had been in his possession since 2013.
[20] Section 67(1)(c) of the BIA provides, in part, that the property of a bankrupt divisible among his creditors shall compromise all property that may be acquired by the bankrupt before their discharge. While the subsection sets out exceptions, they are not applicable on the facts here.
[21] Section 180(1) of the BIA provides that the court may annul a discharge where a bankrupt fails to perform the duties imposed on him under the BIA after the discharge. Section 180(2) permits annulment of a discharge where it appears to the court that it was obtained by fraud.
[22] The issue on this motion is whether the shares of 239 were owned by the Bankrupt prior to his discharge and are therefore after acquired property which should have been turned over to the Trustee for the benefit of his creditors.
[23] The Trustee submits that the shares of 239 were acquired by the Bankrupt prior to his discharge and accordingly are property of the Bankrupt. It further submits that, contrary to s. 118(1) of the Business Corporations Act (Ontario), R.S.O. 1990, c. B.16, the Bankrupt was a director of 239 during the time he as a bankrupt. In support, the Trustee relies on the proof of claim filed in the Amit bankruptcy, signed by the Bankrupt, the Bankrupt’s evidence during his cross-examination on his affidavit filed in the Amit bankruptcy as well as subsequent corporate profile reports and tax filings by 239.
[24] In response, the Bankrupt denies that he ever owned the shares of 239 or was a director of the corporation. He submits that from incorporation, the shares have been owned by Ella and his wife has always been the director of 239. The fact that he was listed as a director of 239 at the time of incorporation was an accident which was immediately corrected. At all times, he was only a signing officer of the company.
[25] The Bankrupt further submits that the Trustee is bringing this motion to enrich itself and without authority from the creditors and has tendered no direct evidence that he owns the shares.
[26] Based on the evidence which I accept, which includes the Bankrupt’s filing of the proof of claim in the Amit bankruptcy and his answers on his cross-examination in that proceeding that he was the owner and sole shareholder and director of 239, I find that at all material times, the Bankrupt owned the shares of 239 while a bankrupt.
[27] It follows that I reject the evidence of both the Bankrupt 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 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.
[28] Further, I do not accept the documentation produced by the Bankrupt 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 to show that Ella was the sole shareholder and director of 239.
[29] 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 on February 3, 2021, shows the Bankrupt as owning 100% of the shares. In March 2021, the Bankrupt 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.
[30] 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 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 or Ella would or could say who filed the change notice.
[31] With respect to 239’s Minute Book, the Bankrupt 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 well after the fact.
[32] 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.
[33] Nor is there any evidence, beyond the Bankrupt’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 after acquired property for the benefit of the Bankrupt’s creditors.
[34] For the above reasons, a declaration shall issue that all of the issued and outstanding shares of 2397043 Ontario Inc. are vested in the Trustee as after acquired property pursuant to s. 67(1)(c) of the BIA.
[35] Further, and based on my finding that the shares of 239 are after acquired property of the Bankrupt, the Bankrupt’s failure to deliver the shares to the Trustee subsequent to his discharge and following Paddon + Yorke’s request on August 16, 2019 was a breach of his duty under s. 158(a) of the BIA. Accordingly, pursuant to s. 180(1) of the BIA, an order shall issue annulling the Bankrupt’s discharge.
[36] The Trustee has filed a Costs Outline and seeks costs on a substantial indemnity basis against the Bankrupt and Ella on a joint and several basis in the amount of $81,612.05 (fees of $68,796.50; disbursements of $3,426.55 plus HST).
[37] In response, both the Bankrupt and Ella have filed Costs Outlines. The Bankrupt claims $13,948.43 in partial indemnity costs and $19, 202.93 in substantial costs. Ella claims $6,906.56 in partial and $8,633.20 in substantial costs.
[38] The Trustee was successful on the motion and is entitled to its costs. Given the overwhelming evidence that the Bankrupt altered the documents to support his position together with his totally unfounded allegation of the Trustee’s improper conduct, in my view the Trustee is entitled to substantial indemnity costs.
[39] While there is no question that the Trustee’s costs were increased due to the Bankrupt’s opposition to the motion, I agree with both the Bankrupt and Ella that the costs claimed are excessive given the issues. Over the course of the motion, there were three different lawyers involved, resulting in obvious duplication of effort.
[40] In the circumstances, having regard to the issues, I consider that a fair and reasonable substantial indemnity cost award for the Trustee to be $55,000 in total.
[41] Ella takes issue with the Trustee’s request for the costs to be joint and several. She submits that as her role was minor compared to the Bankrupt and involved the submission of a brief affidavit, any costs awarded against her should be significantly less than for the Bankrupt.
[42] Ella was not a party to the motion. But she filed an affidavit supporting her husband’s attempted deception, filed a factum, made submissions at the hearing in support and based on her cost submissions clearly had notice of the Trustee’s request. In the circumstances, splitting the Trustee’s costs is not appropriate and Ella should be jointly and severally liable for the costs.
[43] Accordingly, the Trustee is awarded costs of the motion on a substantial indemnity basis, fixed at $55,000 in total, payable jointly and severally by the Bankrupt and Ella forthwith.
L.A. Pattillo J.
Released: August 4, 2021
COURT FILE NO.: 32-OR-1037125
DATE: 20210804
ONTARIO
SUPERIOR COURT OF JUSTICE
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
– and –
ASH KARIA, a bankrupt
Respondent
REASONS FOR JUDGMENT
PATTILLO J.
Released: August 4, 2021