COURT FILE NO.: 32-2834101

DATE: 2022 11 15

ONTARIO

SUPERIOR COURT OF JUSTICE

IN THE MATTER OF THE BANKRUPTCY OF 1947755 ONTARIO LTD. OF THE VILLAGE

M. Kersten and A. Zweig for the Moving Party, Gaspare Caruso

OF BOLTON IN THE REGIONAL MUNICIPALITY OF PEEL IN THE PROVINCE OF ONTARIO

M. Harris, for the responding party, John Hanna Nissan

W. Jaskiewicz, appearing for the trustee in bankruptcy, BDO Dunwoody Limited

D. Ketelaars, for 1883203 Ontario Inc., John Visaretis and Leo Gallo

D. Laframboise, as agent for D. Pomer, counsel for Gaspare Caruso in CV-19-130

HEARD: In person on July 18 and August 30, 2022 at Orangeville

REASONS FOR JUDGMENT

Emery J.

[1] John Hanna Nissan and Gaspare Caruso have been contesting which of them is the sole director and a shareholder of 1947755 Ontario Limited (“194”) in several proceedings commenced in Orangeville. The prize for winning corporate control, of course, is access to the equity in the sole asset of the corporation, a residential and commercial property located at 138-142 King Street East in Bolton, Ontario (collectively “142 King Street East” or “the property”). Those proceedings have become a litigation battlefield.

[2] There have been numerous Case Conferences before me as the judge designated to hear all motions in four of those proceedings under Rule 37.15. I have heard waves of motions that have inevitably followed. The litigation over 194 and therefore issues relating to the property as its underlying asset spilled over to bankruptcy court when 194 made an assignment in bankruptcy on May 30, 2022. The assignment was signed by Mr. Nissan holding himself out as a director with the corporate authority to take that step on behalf of the corporation.

[3] Mr. Caruso brings this motion to annul the bankruptcy of 194 under s. 181(1) of the Bankruptcy and Insolvency Act (the “BIA”). Mr. Caruso is a party in various proceedings before the court and in those proceedings, he has held himself out as the sole director of 194 since incorporation. Mr. Caruso has taken the position that no other individual is a director of 194, and he has made this a central issue in those proceedings. He raises the same issue on this motion as a ground to argue that Mr. Nissan did not have legal authority as a director of 194 to make the assignment.

[4] Mr. Caruso also brings the motion to annul the bankruptcy on the ground that 194 was not insolvent within the meaning of s. 2 of the BIA. He has put evidence before the court that 194 has an asset of sufficient value to enable it to meet its obligations generally as they became due. He argues that 194 would have been able to meet its obligations with a modicum of effort on the part of Mr. Nissan. Mr. Caruso also alleges that Mr. Nissan assigned 194 into bankruptcy to shield himself from pending examinations in the protracted litigation, and that doing so was an abuse of process.

[5] Mr. Nissan does not take issue with Mr. Caruso’s standing to bring this motion as an interested party. All counsel agreed that I hear this motion in Orangeville because of my familiarity with the background of 194 instead of having it heard in Toronto.

Context for the motion

[6] 194 was incorporated on December 31, 2016. It was incorporated to acquire title to the property.

[7] Mr. Caruso is shown on the Articles of Incorporation as the incorporator of 194. By virtue of s. 119 of the (Ontario) Business Corporations Act, he would be its first director. Section 119 provides that the first director remains in office until the first meeting of shareholders, at which time a board of directors is elected.

[8] The question of who became or remained a director at an alleged meeting of shareholders on January 27, 2017 was an issue on a motion for summary judgment brought by Mr. Caruso in CV-17-82. In Reasons for Decision released on March 22, 2022 at 2022 ONSC 1773, I found as a fact that Mr. Caruso remained a director of 194 in February 2017 (at para. 116) at the time he withdrew funds from a certain bank account open in the name of 194. The balance of the motion relating to the issues in the underlying action was adjourned to a hearing with viva voce evidence under Rule 20.04(2.2), referred to hereafter as the “mini-trial”.

[9] The identification of the shareholder(s) of 194 entitled to call a Special Meeting of Shareholders may also be an issue for the court to determine at the mini-trial. While the mini-trial should have been scheduled after the Reasons for Decision were released, steps taken in other proceedings involving 194 have overtaken that scheduling.

[10] On or about April 5, 2022, Mr. Caruso’s lawyers at Sullivan Law LLP filed a Notice of Change of Lawyer in each of four proceedings in which 194 was a party to become the lawyers of record for 194. The lawyer having carriage of the file at Sullivan Law LLP is Mr. Matthew Kersten.

[11] At that time or shortly after serving the Notices of Change of Lawyer, Mr. Kersten’s office served a Motion Record containing an earlier Notice of Change of Lawyer dated March 28, 2022 in the action commenced under CV-19-13 in which Doug Laframboise, a lawyer, is named as a defendant. In that action, Mr. Laframboise acts for himself and the other defendants. On the strength of this Notice of Change of Lawyer, Mr. Kersten brought that motion pursuant to a Consent Mr. Caruso had signed on behalf of 194 as the plaintiff to dismiss the action with costs payable by 194.

[12] Upon being served with these Notices of Change of Lawyer, Mr. Nissan’s counsel, Mr. Adam Jarvis, requested an Urgent Case Conference. Up to that point in time, Mr. Jarvis had been counsel of record for 194 in those proceedings. At that Case Conference, a motion was scheduled to set those Notices of Change of Lawyer aside (the “Nissan motion”). The motion to dismiss the action in CV-19-13 has been held in abeyance pending the disposition of the Nissan motion.

[13] The parties encountered various difficulties with respect to scheduling examinations with the respect of the Nissan motion. These difficulties were addressed by directions given at three Case Conferences between April 11 and May 25, 2022. The examinations of various affiants on the Nissan motion were finally scheduled to take place on June 1, 2022.

[14] At or around 6:30 a.m. on June 1, 2022, Mr. Jarvis advised counsel for Mr. Caruso and the other parties that 194 had made an assignment in bankruptcy and that BDO Canada Limited was now the trustee.

[15] The examinations scheduled for June 1, 2022 were cancelled that day as a result of the stay of actions by or against 194 by operation of s. 69.3 of the BIA. Sullivan Law LLP followed up with a letter to Mr. Jarvis to ask questions about how and when the assignment had come about.

[16] Another Case Conference was convened shortly thereafter at the request of Sullivan Law LLP, where a timetable was set for Mr. Caruso’s proposed motion to annul the bankruptcy of 194 under s. 181 of the BIA (the “annulment motion”).

[17] The annulment motion was heard on July 18 and August 30, and the decision taken under reserve.

[18] On September 14, the lawyers for Mr. Caruso requested another Case Conference on an urgent basis because Mr. Caruso had received a Notice of Special Meeting of Shareholders from Mr. Nissan. This Notice was given by Mr. Nissan as a director and shareholder of 194 to call a special meeting to “confirm” that Mr. Caruso was no longer a director of the corporation. The Notice specified that the special meeting would take place over Zoom at 10 a.m. on September 16, 2022.

[19] At the Case Conference on September 15, 2022, I made an interim Order that Mr. Nissan and 194 were enjoined from convening the special meeting of shareholders until further order, on terms. Mr. Caruso was granted leave to bring a motion for an interim or interlocutory injunction at which a further order could be made. That motion is now set for hearing on November 22, 2022 (the “injunction hearing”).

[20] The evidence relied upon by the parties on the instant motion does not provide much further insight into the corporate governance of 194 than other motions heard to date. It remains to be seen if a better record emerges at the “mini-trial” on the motion for summary judgment in CV-17-82.

[21] There are also the issues in the application commenced by 194 in CV-19-130 concerning authority to enter transactions on its behalf. Those issues include whether Mr. Caruso granted a second mortgage to 1883203 Ontario Inc. (“188”) against title to the property on behalf of 194 in the purported exercise of his authority as a director, and what funds were advanced under that mortgage. The application has never been brought forward to be argued in application form, or to be converted to an action.

Summary of positions taken by interested parties

[22] Mr. Kersten advances three arguments why the assignment in bankruptcy should be annulled. First, he submits that 194 did not meet the test for insolvency under s. 2 of the BIA on the date Mr. Nissan assigned the corporation into bankruptcy. Second, he submits that the assignment was made for ulterior motives in that the assignment was made on the eve of court ordered examinations that strike at the heart of the Nissan motion. Mr. Kersten takes the position that making the assignment was therefore an abuse of process. Third, he argues that Mr. Nissan is not a director, and had no corporate authority to make the assignment on behalf of 194 on May 30, 2022. Accordingly, he asks this court to annul the bankruptcy under s. 181 as it ought never to have occurred.

[23] In response, Mr. Harris submits that Mr. Nissan had authority as a director and there was good reason to make the assignment. Mr. Harris refers to the court order made by Petersen J. on July 29, 2019 that recognized Mr. Nissan as a director of 194, and he argues that Mr. Nissan remains the sole director. He also submits that the secured debts of the corporation exceed the value of its assets, being the property at 138-142 King Street East that he lists on the asset page of the Creditors Package as having a total value of $850,000.

[24] Mr. Nissan takes the position that 194 no longer has income to meet its obligations as they become due. Mr. Nissan has given evidence that Nissan Contracting Inc. (“NCI”), a corporation owned and operated by him, had been a tenant of 194 and had stored its equipment at the property since 2018. NCI moved its equipment from the property earlier this year and, after paying an extra three months rent, it has ceased paying rent of approximately $4,000 a month. This means it can no longer service the first mortgage, let alone redeem the charge registered in the name of 188. There is also evidence that 194 is approximately two years behind on paying its municipal taxes.

[25] Mr. Harris submits that 194 did not make the assignment in bankruptcy to avoid the pending examinations on the Nissan motion. He submits that 194 had been insolvent for some months and that the time had simply come to put it into bankruptcy. Mr. Nissan considered this a prudent step to take to protect 194 from incurring further debt caused by the litigation, among other reasons.

[26] In the result, Mr. Harris submits that Mr. Caruso has not met the onus as the moving party under s. 181(1) to show the assignment should be annulled. He has not provided evidence to satisfy the court that 194 does not meet the insolvency requirement under s. 2 of the BIA. He has not shown that Mr. Nissan signed the bankruptcy documents to assign 194 into bankruptcy because of the approaching examinations in the litigation. Finally, he has not provided proof that he, and not Mr. Nissan, is the director of 194 having corporate control over its affairs.

[27] Neither counsel or any representative of the first mortgagees 1614358 Ontario Ltd. and Allenb Holdings Limited appeared on the motion. However, none of the other parties challenged the security or the amount they claim is owing under that mortgage.

[28] Mr. Ketelaars appeared on behalf of 188 and its principals, Mr. Visateris and Mr. Gallo. Mr. Ketelaars advanced the position that this motion was not the proper forum to determine whether the mortgage to 188 was properly made, or to determine the actual amount owing under it. He indicated that these questions are better left to the proceedings in which those are the issues for adjudication.

[29] Mr. Laframboise made submissions as agent for Mr. Pomer, counsel for Mr. Caruso in the application over the second mortgage to 188 in CV-19-130. Mr. Laframboise submitted that if I was to adjudicate the amount owing to 188, I should find that no money was advanced and therefore no money is owing. In that event, Mr. Laframboise suggests that I should discharge that mortgage.

[30] Given that 194 is currently a bankrupt, the trustee has standing on the motion and is represented by Mr. Jaskiewicz. In making submissions on behalf of the trustee, Mr. Jaskiewicz stated that it is the bankrupt who selects the trustee with whom to file the assignment. The BIA is court driven, with events taking place in the bankruptcy proceeding under the statute. This process includes calling for the filing of proof of claims and the assessment of those claims through various mechanisms.

[31] Mr. Jaskiewicz also advised the court that the test for insolvency under the BIA is not just an exercise of reading a balance sheet, but involves a consideration how a proposed bankrupt might have the ability to pay its debts as they become due.

Analysis

[32] Under s. 181(1), the Superior Court of Justice may annul a bankruptcy if the court is of the opinion that a bankruptcy order ought not to have been made, or an assignment ought not to have been filed. A leading case on grounds to make an order to annul a bankruptcy is Re Wale at 1996 CanLII 8275 (ONSC). In Re Wale, O’Connor J. of this court explained that an annulment is a discretionary remedy that can be granted where it is shown that:

a) The debtor was not an insolvent person when it made the assignment;

b) The debtor abused the processes of the court; or

c) The debtor committed fraud on its creditors.

[33] The Re Wale decision made it clear that the court has a wide discretion when it comes to annulling a bankruptcy. No single test is applicable, and the factors to apply are flexible and fact specific. Furthermore, the test is not one where all elements must be found. It will be sufficient to find that any one of the three grounds has been met.

[34] Mr. Caruso relies upon the first two grounds to bring his motion. The onus is on the party seeking to annul the bankruptcy: Ringuette v. Fournier, 2011 NBQB 225 (at paras. 84 and 85).

[35] Mr. Caruso alleges that 194 was not insolvent at the time Mr. Nissan made the assignment on its behalf. Mr. Caruso relies on evidence obtained from the examinations of Mr. Gallo and Mr. Visaretis that the amount advanced under the second mortgage to 188 was not the $750,000 shown on its face, but rather a much lesser amount. He relies on the discharge statement produced from 188 in court on July 18, 2022 that states the required payout is $650,750. He argues that, even with the alleged amounts owing under this second charge and approximately $503,000 for the first mortgage, the value of 142 King Street East as the underlying asset of 194 exceeds the secured obligations of the corporation. As a result, the test for insolvency is not met, and there were no grounds to make the assignment on May 30, 2022.

[36] In the alternative, Mr. Caruso argues that Mr. Nissan signed off on the assignment in bankruptcy to avoid the examinations on the Nissan motion that were scheduled for June 1, 2022. He submits that the assignment was an abuse of the process of the court as the BIA was used improperly to stay the proceedings in which the examinations were to take place.

[37] The labyrinth of evidence produced by affidavits, examinations and exhibits filed within the context of interrelated proceedings over the last four years make difficult, if not impossible to discern whether Mr. Nissan had the corporate authority to assign 194 into bankruptcy. The facts before this court are not clear as they were in in the Saskatchewan case of Prince Albert Beef Producers Ltd., 1979 CanLII 2201. In that case, it appears that minutes of a directors meeting had been drafted containing a resolution for the company to make an assignment in bankruptcy and empowering one of those directors to take all steps in his capacity of a director to put that resolution into effect. The resolution was signed by only two of the three directors, with the third director refusing to sign as he had not been present at the meeting, if there was one held at all.

[38] After Maher J. had reviewed what he had every reason to conclude was a confusing set of facts, he stated at para. 13 that it is prima facie trite law that due notice of a meeting of directors must be given. He ruled that in default of giving notice, the meeting is irregular and the business conducted at the meeting will be invalid unless all directors are present. As no actual meeting was held, and as one of the directors had refused to sign a waiver of notice or his approval of the business allegedly conducted, the resolution authorizing the assignment in bankruptcy was invalid and of no effect.

[39] Fortunately, I do not consider it necessary to rely on this ground to decide the annulment motion. The time for the court to determine who held office as a director of 194, and who is a shareholder of the corporation is yet to come. The mini-trial in the summary judgment motion in CV-17-82 as to whether Mr. Caruso was a director of 194 after February 2017 may be one of those times. The hearing of the Nissan motion as to whether Mr. Caruso was a director on March 28 or on April 5, 2022 when he instructed Sutherland Law LLP to deliver a Notice of Change of Lawyer on behalf of 194 in each proceeding may be another.

[40] There is also the motion for injunctive relief that is now scheduled for hearing on November 22, 2022. On that motion, the court will be asked to decide if Mr. Nissan has authority as a shareholder in 194 to call a special meeting of shareholders.

[41] For the purpose of deciding this motion on the grounds advanced by Mr. Caruso, I accept the following evidence taken from Mr. Nissan’s cross-examination. This evidence is summarized in paragraph 18 of the Caruso factum:

a) Mr. Nissan had engaged Mr. Naumis at BDO Canada as the chosen trustee in bankruptcy, and had been planning to assign 194 into bankruptcy weeks before he made his intentions known to the Court, Mr. Caruso or opposing counsel;

b) Mr. Caruso was not in attendance at either the lawyer’s office or the place where the assignment was signed, nor was he given notice of the proposed bankruptcy;

c) Mr. Nissan understood that the Order of Justice Petersen was temporary, that Justice Emery had the power to make changes, and that it was an interim Order pending the determination of who the director was;

d) Mr. Nissan moved NCI (of which he was the sole director and shareholder) out of the property in or around January 2022. NCI had previously paid rent to 194’s benefit (equal to or slightly higher than the mortgage payments required by 194 for its first mortgage). The only reason it required a different space was because it needed access to “higher ceilings”;

e) Prior to January 2022, there was sufficient rental income (being provided by his company) to cover the mortgage of 194;

f) NCI paid rent for an additional 3 months after moving out despite no longer retaining any benefit as a tenant;

g) Mr. Nissan unilaterally decided to not pay rent to 194 for May 2022, causing 194 to default on its first mortgage;

h) Mr. Nissan had permitted Robert Bortolon live in the house on the property rent free for approximately five years and had been actively foregoing a potential revenue stream. He had received no funds to 194’s benefit from Mr. Bortolon other than “a little bit of cash for that bedroom” (which Mr. Nissan admits he kept for himself); and

i) Mr. Nissan has taken no steps to re-let either the house or the shop building at 138-142 King Street East, nor has he attempted to find a tenant so 194 can be earning rental income (at all, and at a market appropriate rate).

Was 194 insolvent on the date of the assignment?

[42] The adjudication of whether a person or corporation is insolvent is a matter of fact under s. 2 of the BIA. In this case, Mr. Nissan relies on his conclusion that 194 was insolvent as the reason he made the assignment in bankruptcy. On that basis, it equally stands to reason that if I do not find that 194 was in fact insolvent at the time, I may exercise my discretion under s. 181(1) to annul the bankruptcy.

[43] The first ground Mr. Caruso advances to challenge Mr. Nissan’s view that 194 was insolvent as of May 30, 2022 rests on the argument that the fair value of the property is sufficient to enable 194 to pay all its obligations as they become due. This ground for seeking the annulment raises issues about the liabilities that Mr. Nissan has listed in the Creditors Package issued by the trustee as much as by the fair value he has ascribed to 138-142 King Street East.

[44] According to the Creditor’s Package, the following assets are listed:

a) Value of 142 King Street East: $850,000; and

b) Cash on hand: $52,000.

[45] For the purposes of this motion, the debts of any significance listed in the Form 78 are as follows:

a) The significant debts shown on the list of creditors on Form 78 are as follows: The first mortgage has a balance owing of $503,000;

b) 188 is shown as having balance owing of $430,000 as a secured balance after a $319,000 secured claim;

c) Various creditors have unsecured claims totalling $250;

d) Bortolon Holdings Inc. and Cavalon Inc. are listed as unsecured creditors having a claim of approximately $255,000; and

e) NCI is a creditor having an unsecured claim totalling $350,000.

[46] The creditors with unsecured claims have yet to prove those claims for the trustee. These claims were initially listed by Mr. Nissan without proof from those creditors, and the amounts shown are his estimates only.

[47] Mr. Nissan estimated the combined value of the unsecured claims of Bortolon Holdings Inc. and Cavalon Inc. would be $255,000. There is no evidence on this motion in support of this claim to apply to the insolvency test. This is particularly relevant as Robert Bortolon swore an affidavit sworn on June 25, 2022 on various issues, mostly in relation to the injunction hearing. Despite having an opportunity to provide evidence for the current motion, neither Mr. Bortolon or Mr. Nissan provided details about any claim Bortolon Holdings Inc. or Cavalon Inc. may have against 194 as creditors.

[48] There is also no evidence before the court to support the largest of the unsecured claims listed, being the $350,000 allegedly owed to NCI. Mr. Nissan testified at his examination on this motion that this amount has built up for the legal fees he has paid for the overall litigation. One would think that Mr. Nissan, as the director of NCI, would have provided evidence of the transfer of funds to himself or 194 to pay legal fees, or evidence of any direct payment of those fees from NCI. This evidence should have come from Mr. Nissan as NCI is not a party in any of the proceedings.

[49] In my view, the indebtedness for legal fees shown as owing to NCI should not be taken into account. It is Mr. Nissan in his personal capacity who seeks a finding that he is the shareholder and director of 194 in the greater litigation. NCI may have paid certain legal fees on behalf of Mr. Nissan, but it cannot make a direct claim to recover those fees without a legal basis to make a claim. There is no evidence of indebtedness on the part of 194 to repay either Mr. Nissan or NCI as an unsecured creditor. If Mr. Nissan borrowed funds from his own corporation to pay legal fees for 194, that is between them.

[50] The reason Mr. Nissan has given to assign 194 into bankruptcy is to recover the $350,000 in legal fees he or NCI has spent. In my view, he would not assign 194 in bankruptcy for this reason unless he was reasonably confident that the sale of the property by the trustee would yield enough for the mortgages to be paid and for NCI to make a full recovery of its claim as an unsecured creditor. I say this because Mr. Nissan has not provided any evidence that 194 granted a security interest to him or to NCI for any loan.

[51] The sole asset owned by 194 is, and always has been, the property and the income it produces. Therefore, the estate would have to realize at least $1,453,000 from any sale of the 142 King Street East plus the fees and expenses of the trustee to achieve this result.

[52] Mr. Caruso has provided evidence that he has made an application for 194 to re-finance, and that he obtained approval for a new mortgage in the amount of $925,000. I am not deciding on this motion if or when he had the necessary authority to contract for 194. This includes any authority he may have with respect to making an application for re-financing the property, as leave for that purpose is required under the Order of Petersen J. dated July 29, 2019. However, I accept this evidence as proof that a lender was prepared to accept that the property has a value that is greater than $850,000.

[53] There is further evidence before the court that 142 King Street East has a fair market value of perhaps $2.3 million and as much as $2.7 million. I acknowledge the Letter of Opinion of Richard Viera, a Broker at Re/Max Realty Enterprises Inc. attached as an exhibit to Mr. Caruso’s affidavit. In his letter, Mr. Viera expresses the opinion that the property could be worth more than $2.7 million. Although the opinion in this letter is not given in an affidavit by Mr. Viera himself as an expert in the manner required by Sanzone v. Schektar, 2016 ONCA 566, that case could arguably be confined to a motion for summary judgment, which this is not. But see McPeake v. Cadesky & Associates, 2018 ONCA 554.

[54] I accept Mr. Viera’s opinion not for the truth of its contents, but for the fact he has given that opinion to the extent it is consistent with the other evidence that is admissible. This evidence includes, but is not limited to the financing offer obtained by Mr. Caruso that would suggest a fair market value for the property of at least $1.2 million.

[55] Mr. Harris has filed the affidavit of Christina Cardinal, a legal assistant in his office. I ruled this affidavit inadmissible as it was sworn on July 13, 2022 and after cross-examinations had taken place, with no request for leave under Rule 39.02(2). Had I not made this ruling, the evidence that Ms. Cardinal sought to introduce is also contrary to the $850,000 that Mr. Nissan gave for an estimate of value to the trustee.

[56] In particular, Ms. Cardinal explains in the affidavit that her office could not obtain a letter of opinion from a realtor or brokerage, or an appraisal of the property due to the time constraints imposed by the motion. However, she attached a “Purview” report and a Market Sales Report form the Municipal Property Assessment Corporation (MPAC) as exhibits. The Purview report shows a graph of average neighborhood values in 2022 for the property of approximately $1.6 million. The MPAC report gives a market value in a range that extends between $1,222,000 and $1,618,000 as of July 6, 2022.

[57] Based on the current record, I find that the fair value of the property as the sole underlying asset owned by 194 was at least $1.75 million as of May 30, 2022. I make this finding as the mid point between the $1.2 million value I have inferred would be necessary to justify the offer to finance Mr. Caruso has obtained, and the lower end of the range in value given by Mr. Viera.

[58] Upon reaching this conclusion, I consider that the value of the property should be sufficient to pay out the first charge and whatever amount 194 might owe under the second mortgage to 188, if and when proven. Based on the evidence given by Mr. Gallo and Mr. Visaretis at their examinations, I am leaving the amount advanced under that charge, and the amount repayable to obtain a discharge, as open questions. I need only decide on an asset and liability matrix that the fair value of 194’s assets are sufficient to pay its obligations generally as they become due.

[59] On the evidence of fair value for the property filed, I find that 194 is not insolvent on this ground.

[60] In Re Wale, the court reviewed the scope of what insolvency involves to determine if a person or corporation is insolvent using the ability of that person or corporation to meet its obligations as they generally become due as the measure.

[61] The court in Re Wale determined that a person will be adjudged insolvent if they cease to pay their obligations as they become due, or cannot meet those obligations. However, O’Connor J. went on to qualify that requirement by stating that the person will be found insolvent in those circumstances unless it is shown that with a “modicum of effort” a sufficiency of income can be generated to work through the financial inability to meet those obligations. The burden of proof to show whether the insolvency test is met was discussed by the Court of Appeal in Kormos v. Fast, 2019 ONCA 430 at para. 13:

[13] Mrs. Fast clearly did not meet any criteria of the definition of “insolvent person”. Bankruptcy is reserved for “clear cut situations where the liabilities on which the petition is founded and the act of bankruptcy are clearly established by sound and convincing evidence”: Sangha v. Crowe MacKay & Company Ltd., 2016 BCSC 260, at para. 20, citing Houlden & Morawetz, Bankruptcy & Insolvency Law of Canada, 3d ed. Looseleaf (Toronto: Carswell 2002), at p. 2-93. That is not the case here.

[62] If a bankrupt has sufficient assets to satisfy the debts owing or to meet its obligations but chooses not to do so, that person or corporation is not insolvent: Kormos, at para. 15, and Thorne Riddell v. Fleishman, 1983 CarswellOnt 201 (Ont.C.A.), at para. 22.

[63] In my view, there is no basis for Mr. Nissan to claim that 194 cannot meet its obligations generally as they become due. Since he claims to have become the sole shareholder of 194 and its sole director in January 2018, Mr. Nissan has used 142 King Street East to store equipment for NCI. He takes the position that NCI has been a tenant of 194 until NCI relocated the equipment to another property. Although there is no lease to evidence this tenancy, Mr. Nissan testified at his examination that NCI was on a month-to-month tenancy and would pay approximately $4,000 a month. Although that amount fluctuated from time to time, this monthly income was sufficient to service the first mortgage against the property. This all stopped, however, when NCI moved its equipment and ceased paying rent in May 2022.

[64] There is also evidence before the court that Mr. Nissan allowed Robert Bortolon, the principal behind Cavalon Inc. and a director of Bortolon Holdings Inc., to reside in the residential quarters at 138 King Street East. According to Mr. Nissan’s evidence at his cross-examination, neither he nor NCI has charged Mr. Bortolon rent since 2018.

[65] I find on the record before me that Mr. Nissan could have arranged for NCI to continue storing its equipment at 142 King Street East and to keep paying the rent that provided194 with the income to service the first mortgage. Instead, he made the decision for NCI to remove its equipment and to cease the payment of rent to 194 on the basis NCI was no longer a tenant.

[66] In the alternative, I am of the view that Mr. Nissan had a duty of good faith, if he was a director of the landlord, to seek a new tenant that could pay fair market rent to ensure that 194 could meet its obligations. If it is true that Mr. Nissan also allowed Mr. Bortolon to reside on site without paying rent, he should have also taken steps to set and collect rent for the corporation.

[67] There is sufficient evidence before me to find that 194 was not insolvent as it could have met its obligations as they became due, at least in the short term, had Mr. Nissan exerted a “modicum of effort” on its behalf. Accordingly, I conclude that the receiving order made pursuant to the assignment filed ought not to have been made.

Was the assignment in bankruptcy an abuse of process?

[68] There is evidence from Mr. Nissan’s cross-examination that he was having discussions with the trustee about assigning 194 into bankruptcy days, if not weeks before June 1, 2022. The first round of examinations scheduled for May 19, 2022 had been cancelled because Mr. Jarvis insisted on the actual receipt of attendance money to accompany the summons to witness for the examination of each Dean Bortolon and Martin Citrus. While Mr. Jarvis had a duty of confidentiality to his client, Mr. Nissan was acting during this time as though he was cooperating with re-scheduling those examinations, particularly through the case conference process, when at the same time he was speaking with the trustee about making the assignment.

[69] The concept of abuse of process was revisited by Vella J. on a motion to strike parts of a Fresh as Amended Statement of Claim in Urban Mechanical Contracting Inc. v. Broccolini Construction (Toronto) Inc., 2021 ONSC 1807. At para. 8, Vella J. summarized the test for abuse of process as follows:

[8] The test for abuse of process was set out by the Supreme Court of Canada in Toronto (City) v. C.U.P.E., Local 79, 2003 SCC 63, [2003] 3 S.C.R. 77. The Supreme Court provided that abuse of process is properly engaged to prevent litigation that, if permitted to proceed, would violate principles such as judicial economy, consistency, finality, and the integrity of the administration of justice. The focus of this analysis is on the integrity of the justice system……

[70] This court has the inherent jurisdiction to control its own process. This inherent jusdiction includes patrolling against the misuse of that process: Wright v. Urbanek, 2019 ONCA 823 (at para. 8). I find that Mr. Nissan assigned 194 into bankruptcy to interrupt, if not defeat the orderly progress of the litigation over 194. The assignment was not inevitable as Mr. Nissan says it was, with only the timing of filing the assignment with the trustee as the only variable.

[71] The bankrupt in Re Wale made an assignment in bankruptcy that was date stamped an hour and half before his family law trial was set to begin. On those facts, and findings that he barely met the definition of an insolvent person under s. 2 of the BIA and that he could have easily worked his way out of his financial problems with a modicum of effort, the court held that his motives were improper as he had made the assignment to avoid the family law trial and was therefore an abuse of process.

[72] It was later held in Re Moss (1999), 1999 CanLII 14182 (MB QB), 12 C.B.R.(4th) 62 (Manitoba Q.B.) that the conduct of a party can give rise to an inference of a bad motive for making an assignment.

[73] The assignment of 194 into bankruptcy was made under the shroud of secrecy as the parties marched towards the Nissan motion. Its timing had all the hallmarks of a strategic manoeuvre driven by self interest. The assignment effectively stayed the Nissan motion which ground the scheduled examinations to a halt. While Mr. Nissan has stated he took this step to stop the legal fees he was paying, this step was taken at a time when parties and witnesses were just about to give their evidence at examinations as directed by the court. Making the assignment to put 194 and those witnesses beyond the reach of the litigation process was an improper use of the BIA.

[74] I find that by making the assignment when he did, and for the reason he has given for making it, there is an evidentiary basis to draw the inference that Mr. Nissan’s motive for doing so was to frustrate the rights of others in the litigation. The assignment of 194 into bankruptcy effected not only the examinations on the Nissan motion, but all other proceedings in which 194 is a party. The assignment of 194 in bankruptcy amounted to an abuse of the process of the court as it would bring the administration of justice into disrepute, if permitted. I conclude on the evidence and the law that the assignment dated May 30, 2022 ought not to have been filed.

Order

[75] Mr. Caruso has proven on the balance of probabilities that 194 was not insolvent on May 30, 2022. This finding is compounded by my conclusion that the assignment in bankruptcy was made to avoid the examinations scheduled in the Nissan motion on June 1, 2022 and was an abuse of process. As the moving party, Mr. Caruso has satisfied the onus of showing the assignment in bankruptcy out not to have been made or filed under s. 181(1) of the BIA.

[76] I am therefore exercising my discretion to annul the bankruptcy of 1947755 Ontario Ltd. The motion is granted.

[77] Costs may be spoken to at the next Case Conference.

Emery J.

Released: November 15, 2022

COURT FILE NO.: 32-2834101

DATE: 2022 11 15

ONTARIO

SUPERIOR COURT OF JUSTICE

IN THE MATTER OF THE BANKRUPTCY OF 1947755 ONTARIO LTD.

OF THE VILLAGE OF BOLTON IN THE REGIONAL MUNICIPALITY OF PEEL IN THE PROVINCE OF ONTARIO

REASONS FOR DECISION

Emery J.

Released: November 15, 2022