District of Ontario Division No. 09 – Toronto Court No. BK-22-00208573-OT31

ONTARIO SUPERIOR COURT OF JUSTICE IN BANKRUPTCY AND INSOLVENCY

IN THE MATTER OF THE BANKRUPTY OF GARY MAN KIN NG, of the City of Toronto, in the Province of Ontario

BEFORE: Thomas J. McEwen J.

COUNSEL: Ian Aversa and Jeremy Nemers, for the Applicant FUNG-BC Holdings Ltd. Frank Portman, Jeffrey Kroeker and Emma Chapple, for the Respondent Gary Man Kin Ng

HEARD: February 16, 2023

Reasons for Decision

[1] The Applicant, FUNG-BC Holdings Ltd. (the “Applicant”), brings this Application for a Bankruptcy Order (the “Application”) against Gary Man Kin Ng. The Application specifically references two debts owed by Mr. Ng:

• A debt in the amount of $4 million plus interest and costs owed to the Applicant in respect of a guarantee and corresponding credit agreement, both dated March 21, 2018; and
• A debt in the amount of $5,194,000 owed to the Investment Industry Regulatory Organization of Canada (“IIROC”) in respect of a financial penalty imposed upon Mr. Ng by IIROC on May 27, 2022 for having “engaged in fraudulent conduct with respect to loan financing” and “failed to cooperate with Enforcement Staff who are conducting an investigation” (the “IIROC Debt”).

[2] Mr. Ng does not dispute that both debts remain outstanding; however, he raises a number of defences canvassed below. In this regard, Mr. Ng brings his own motion seeking to dismiss the Application as an abuse of process. For the reasons that follow I do not accept Mr. Ng’s submissions. I dismiss his motion and grant the Application.

Background

[3] I do not propose to go into Mr. Ng’s previous conduct in detail as it is largely irrelevant to the debts referenced in this Application.

[4] Suffice it to say that Mr. Ng is the subject of significant allegations of fraud. They relate to the procurement of loans by companies controlled by Mr. Ng on the basis of alleged falsified records he provided in support of the provision of security for the loans.

[5] The issues surrounding the IIROC Debt are fairly straightforward. In November 2020, IIROC initiated proceedings against Mr. Ng. He declined to participate.

[6] Ultimately in May 2022, IIROC permanently banned Mr. Ng from the investment industry and levelled the maximum fine of $5 million against him. IIROC also ordered that he pay costs in the amount of $194,000. These two amounts constitute the IIROC Debt. Mr. Ng has not made any payment with respect to the IIROC Debt, which became due and owing on May 27, 2022 – the day the decision was made.

[7] There is a convoluted history with respect to the debt owed to the Applicant. The salient facts are as follows:

• Mr. Ng executed three loan agreements (collectively the “Subject Loans”) with Bridging Finance Inc. (“Bridging”). [^1]
• The first loan (the “First Subject Loan”), which is the subject of this Application, was made to companies controlled by Mr. Ng on March 21, 2018 in the amount of approximately $21 million. Mr. Ng was the guarantor up to the aggregate principal amount of $4 million.
• The second loan (the “Second Subject Loan”) was a demand loan in the amount of $6 million under the terms of a promissory note dated December 14, 2008 between Bridging, Mr. Ng and another company he controlled.
• The third loan (the “Third Subject Loan”) was a demand term loan in the original amount of approximately $32 million dated June 21, 2019 as between Bridging and a company Mr. Ng controlled.
• On December 31, 2020, the Applicant purchased from Bridging all of its rights and interests to the Subject Loans and all amounts owing and obligations in respect thereof (the “Assignment Transaction”).
• On October 28, 2021, the Applicant made a formal written demand on Mr. Ng in respect of the Subject Loans.

[8] Important to this Application is what happened next. In response to the Applicant’s written demands to Mr. Ng for payment, Mr. Ng’s then counsel advised the Applicant that, prior to the Assignment Transaction, Bridging had entered into two agreements with Mr. Ng on July 31, 2020. The first was a settlement agreement resolving certain of Mr. Ng’s indebtedness to Bridging (the “Settlement Agreement”). The second was an agreement that Bridging would not commence any action against Mr. Ng (the “Covenant Not to Sue”). The Applicant was further advised that the Settlement Agreement and the Covenant Not to Sue encompassed all Subject Loans including the First Subject Loan. Therefore, the Applicant, pursuant to the Assignment Transaction, had no right to pursue payment from Mr. Ng with respect to the First Subject Loan, or for that matter any of the Subject Loans.

[9] The terms and conditions of the Settlement Agreement and the Covenant Not to Sue are important and relevant to this Application.

[10] First, the Settlement Agreement commences with the following recitals:

RECITALS: A. Between December 14, 2018 and June 20, 2019, BFI [^2] made various loans to Ng and/or entities controlled, owned and/or affiliated with Ng (collectively the “Loans” and initially a “Loan”). Ng is a co-borrower and/or a guarantor of these loans. B. To induce BFI to make the Loans, Ng made several representations to BFI which included holdings in a securities account with PI Financial Corp. and produced an account statement evidencing these holdings. BFI relied on the truth of Ng’s representations in making this Loan. C. BFI alleges that Ng misrepresented certain facts regarding the securities he held with PI Financial Corp. (the “Misrepresentations”). As a result of the Misrepresentations, BFI may suffer losses on the Loans. Ng disputes he made any Misrepresentations. D. The parties hereto have agreed to resolve Ng’s liability to BFI in connection with the Loans and the potential liability of Ng in connection with the alleged Misrepresentations in accordance with the terms and conditions of this Settlement Agreement.

[11] Of note is the fact that the timeline in Recital A commences on December 14, 2018, after the First Subject Loan was made on March 21, 2018.

[12] Second, the Covenant Not to Sue concludes with the following paragraph:

THIS COVENANT Not to Sue is delivered pursuant to and is to be read subject to the terms of the Settlement Agreement dated July 31, 2020 made among BFI, 2693600 Ontario Inc., 2693602 Ontario Inc. and Gary Ng.

[13] As can be seen by the above wording, the Covenant Not to Sue is to be read subject to the terms of the Settlement Agreement, which has the restrictive language in Recital A concerning the timeline of the Subject Loans.

The Position of the Applicant

[14] First, the Applicant submits that there is no question that the debt owing to IIROC remains outstanding and no payment has been made.

[15] Second, with respect to the First Subject Loan that it purchased from Bridging, the Applicant submits that the Settlement Agreement does not include the First Subject Loan which was made prior to the December 14, 2018 - June 20, 2019 timeline set out in Recital A of the Settlement Agreement. The Applicant specifically relies on the fact that the term “Loans” is a defined term throughout the Settlement Agreement and only encompasses loans made between the aforementioned two dates. The Applicant therefore submits that the Settlement Agreement does not affect Mr. Ng’s $4 million guarantee under the First Subject Loan entered into on March 21, 2018. Accordingly, it is an outstanding debt owed to the Applicant upon which no payments have been made.

[16] Insofar as the Covenant Not to Sue is concerned, the Applicant raises a similar argument. Here, the Applicant points out, as noted above, that the Covenant Not to Sue is restrictive in nature and is to be read “subject to the terms of the Settlement Agreement dated July 31, 2020”.

[17] Based on the aforementioned wording, the Applicant submits that the First Subject Loan is not captured by the Covenant Not to Sue since the Settlement Agreement does not include the First Subject Loan.

[18] The Applicant submits that there is good reason for such an interpretation. First, there is no evidence in this case, particularly no evidence adduced by Mr. Ng, that the Settlement Agreement is in any way flawed. Second, it makes sense given the fact that as of the time the Settlement Agreement and the Covenant Not to Sue were entered into, the First Subject Loan had not yet matured while the Second Subject Loan and the Third Subject Loan had in fact matured, and thus they were subject to collection.

[19] Based on the foregoing, the Applicant submits that it is not asking for any special treatment on this Application. It is not relying upon the fact that Mr. Ng has been found to have engaged in fraudulent conduct by IIROC. Rather, the Applicant relies upon a simple reading of the Settlement Agreement and the Covenant Not to Sue. The First Subject Loan was not captured by the Covenant Not to Sue. As such, the $4 million is owing and has not been paid and there is no basis to provide Mr. Ng with extraordinary or equitable relief. This is particularly so given Mr. Ng has introduced no evidence to suggest there was any mistake in entering into the Settlement Agreement or the Covenant Not to Sue.

[20] Alternatively, the Applicant argues that if I was to look at the Covenant Not to Sue in isolation (which it submits should not be the case), it is clear that no consideration was paid for the Covenant Not to Sue. This is proven, at least in part, by the fact that Mr. Ng ultimately paid Bridging $1.5 million: the exact amount contemplated by the Settlement Agreement.

[21] Although the Applicant points out that there are significant issues with Bridging and Mr. Ng’s conduct concerning this Settlement Agreement and the Covenant Not to Sue, those issues, if necessary, are to be reserved for another day and that the simple, straightforward issue before this Court is whether Mr. Ng has committed an act of bankruptcy as defined in the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, as amended, ss. 43(1), (6) and (7). In this regard, the Applicant submits that this is unquestionably the case based upon Mr. Ng’s failure to pay the $4 million personal guarantee with respect to the First Subject Loan and the $5,192,000 to IIROC.

[22] The Applicant therefore submits that it has proven that Mr. Ng has committed an act of bankruptcy within six months preceding the filing of the Application. The Applicant asserts that it has proven its case and that Mr. Ng cannot establish sufficient cause for this Court to depart from the ordinary circumstances and refuse to grant the Bankruptcy Order. Notably, the Applicant stresses that Mr. Ng does not deny his inability to meet his liabilities as they become due.

The Position of Mr. Ng

[23] Mr. Ng raises a number of defences.

[24] Mr. Ng primarily submits that the Settlement Agreement and the Covenant Not to Sue are clear and unequivocal; they cover all Subject Loans including the First Subject Loan for which Mr. Ng provided the $4 million guarantee. Mr. Ng further submits that if I am not in agreement with his position above, that a trial is required.

[25] In support of this position, Mr. Ng also submits that this is a complicated matter and the authorities support the conclusion that a trial is necessary since the evidence on this Application should be scrutinized with particular care and that an act of bankruptcy must be fully and strictly proven, given the serious consequences that flow: see Avalanche Holdings Corp. v. Ball, 2004 BCCA 647, 207 B.C.A.C. 161. Mr. Ng takes issue with the Applicant’s position since, as noted, he is of the belief that the First Subject Loan was settled in the Settlement Agreement and the Covenant Not to Sue. He wishes to put the entire factual matter before the Court with respect to how the Settlement Agreement was entered into and the subsequent actions of the Applicant.

[26] In this regard, Mr. Ng presents a convoluted argument. He claims that he has entered into settlements with other companies that are controlled by the same principals as the Applicant, Messrs. Christopher Morris and Conrad Krebs. Those settlement agreements also contained covenants not to sue. They did not involve the Applicant, but two other lenders controlled by Messrs. Morris and Krebs: R.C. Morris and Company and Whitehorse Capital Management, LLC. Through these other settlement agreements, Mr. Ng alleges that Messrs. Morris and Krebs knew that a settlement between Bridging and Mr. Ng was being negotiated. Despite their knowledge of the settlement discussions between Bridging and Mr. Ng, they nonetheless executed the Assignment Transaction to acquire debt that, Mr. Ng argues, was extinguished under the Settlement Agreement and the Covenant Not to Sue. In what Mr. Ng calls a “bad deal [the Applicants] made with [Bridging]”, he alleges that instead of pursuing damages from Bridging, a company now in receivership, for failure to disclose the extinguishment of the purchased debt, the Applicants are now petitioning him into bankruptcy. This, he says, constitutes an abuse of process and therefore the full factual matrix should be put before the Court.

[27] Mr. Ng also submits that his previous conduct, particularly the alleged and proven allegations of fraud, are irrelevant. He concedes the legitimacy of the Subject Loans and that he entered into the Settlement Agreement and the Covenant Not to Sue. Further, Mr. Ng points out that he was unaware, prior to the Settlement Agreement being entered into, that the Subject Loans had been assigned to the Applicant. He does not, however, take issue with this lack of notice since the Settlement Agreement expressly provides that notice to Mr. Ng of any assignment is not required.

[28] First, with respect to the Settlement Agreement itself, Mr. Ng submits that the First Subject Loan is in fact captured in the Settlement Agreement and therefore the Application must fail. In this regard Mr. Ng submits that all of the Recitals must be read together in harmony and particular regard must be made to the provisions of Recital C. As noted above, Recital C provides as follows:

BFI alleges that Ng misrepresented certain facts regarding the securities he held with PI Financial Corp. (the “Misrepresentations”). As a result of the Misrepresentations, BFI may suffer losses on the Loans. Ng disputes he made any Misrepresentations.

[29] Based on the aforementioned wording, Mr. Ng submits that Bridging agreed to settle all Misrepresentations and therefore it cannot be argued that the Settlement Agreement is limited only to loans made between December 14, 2018 and June 20, 2019. In this regard, he stresses the Settlement Agreement cannot simply be read in a restricted fashion since Bridging had alleged that Mr. Ng made a number of misrepresentations also with respect to the First Subject Loan.

[30] Insofar as the Covenant Not to Sue is concerned, Mr. Ng submits that it goes even further than the Settlement Agreement and includes the First Subject Loan based on the following language in the first section of the covenant which releases Mr. Ng from:

[C]laims … which the Covenantors may be entitled to assert, whether known or unknown, mature or unmatured, direct, indirect or a derivative, foreseen or unforeseen, existing or hereafter arising, based in whole or in part on any act, omission, transaction, duty, responsibility, indebtedness, liability, obligation, dealing or other occurrence existing or taking place on or prior to the date hereof in any way relating to the indebtedness, liabilities and amounts owed by the Covenantees to BFI as borrower and/or guarantor (collectively, the “Claims”).

[31] Further, with respect to the Covenant Not to Sue, Mr. Ng argues that the third paragraph contains broad language that prevents the Applicant from pursuing the First Subject Loan. It reads, in part, as follows:

AND IT IS FURTHER AGREED AND UNDERSTOOD that this Covenant Not to Sue shall operate conclusively as an estoppel in the event of any claim, action, complaint or proceeding which might be brought in the future by the Covenantors with respect to the matters covered by this Covenant Not to Sue.

[32] Mr. Ng submits that the broad wording of both the Settlement Agreement and the Covenant Not to Sue encompasses the First Subject Loan and that Bridging (now the Applicant) is bound by those terms and is estopped from bringing any claim with respect to the First Subject Loan.

[33] Mr. Ng emphasizes that when the Settlement Agreement and the Covenant Not to Sue are read together, there is no ambiguity and that when they are read and interpreted together, the only reasonable interpretation leads to the conclusion that the First Subject Loan has been settled since there was a global resolution of all of Bridging’s claims against Mr. Ng. Alternatively, Mr. Ng submits that the Covenant Not to Sue is broader in scope than the Settlement Agreement and therefore there is a conflict between the two documents.

[34] Mr. Ng has also deposed in his aforementioned affidavit at paragraph 25 that in entering into the Settlement Agreement and the Covenant Not to Sue, he believed that all the Subject Loans had been fully and finally settled and therefore if I do not accept the above arguments, a trial should be conducted on this issue.

[35] In the further alternative, Mr. Ng submits that the broad language contained in the Settlement Agreement and the Covenant Not to Sue is sufficiently ambiguous such that a full trial is required.

[36] Mr. Ng also raises a number of other defences which he concedes do not arise if I conclude that the First Subject Loan is not captured by the Settlement Agreement and the Covenant Not to Sue. They are as follows:

• He completed all of his obligations under the Settlement Agreement.
• Bridging waived any default payments and agreed that the Settlement Agreement was enforceable once Mr. Ng paid the $1.5 million required under it.
• The assignment is contrary to s. 53 of the Conveyancing and Law of Property Act, R.S.O. 1990, c. C.34 as notice was not given to Mr. Ng.
• The assignment of the debt is estopped by operation of the indoor management rule and as a major shareholder of Bridging, Mr. Ng was entitled to rely upon the waiver provided by Bridging and had no reason to believe that Bridging could not grant the waiver, even though it had assigned Mr. Ng’s debt to the Applicant.
• The law of equity operates as a bar to enforcement of a bankruptcy against Mr. Ng as he believed that he had complied with the Settlement Agreement and any non-compliance had been waived.

[37] Mr. Ng therefore denies that he has committed an act of bankruptcy with respect to the First Subject Loan and submits that the Applicant cannot rely upon the IIROC Debt since the Applicant is a stranger to the IIROC penalty. Mr. Ng also takes the position that his failure to pay the IIROC Debt alone does not constitute an act of bankruptcy since a regulatory fine is not captured where, amongst other things, the debtor has not admitted its inability to pay creditors generally. He also points to the fact that IIROC has not provided any subsequent notices to Mr. Ng with respect to the collection of that debt. In any event, Mr. Ng argues that the IIROC order constitutes a judgment debt and not a liability that has become due.

[38] Last, Mr. Ng submits that the dispute as to whether he committed an act of bankruptcy between him and the Applicant, to date, has been a bona fide dispute and therefore it cannot be said, that as of the date of the hearing, Mr. Ng committed an act of bankruptcy by failing to pay the $4 million pursuant to his guarantee on the First Subject Loan. Mr. Ng characterizes this as being a “live dispute” that requires a hearing and evidence.

Analysis

[39] I agree with the Applicant that the Bankruptcy Order against Mr. Ng ought to be granted. I see no ambiguity in the Settlement Agreement or the Covenant Not to Sue that would be sufficient to order a trial. I also do not accept that Mr. Ng’s loan settlements with parties other than Bridging ought to be taken into account, nor is there evidence to support his contention that the Applicant is using the bankruptcy process as an abuse of process to salvage a bad deal that it made with Bridging.

[40] First, I accept the Applicant’s submission that the First Subject Loan is excluded by virtue of the wording of the Settlement Agreement and the resulting Covenant Not to Sue.

[41] When one reads the Settlement Agreement and the Covenant Not to Sue as a whole, giving the words used their ordinary and grammatical meaning, it is clear to me that the intent of the parties was to restrict the Settlement Agreement to the timeline set out in Recital A. The Recitals, read as a whole, clearly restrict the Settlement Agreement to “Loans” made within the time period set out in the Settlement Agreement. Similarly, the Covenant Not to Sue, when read, giving the words used their ordinary and grammatical meaning, clearly stipulates that it is subject to the Settlement Agreement which has the above restrictive meaning. [^3] Moreover, I do not read the Covenant Not to Sue as being broader in scope than the Settlement Agreement such that the two documents conflict with one another. On the Applicant’s interpretation, which I agree with, the two documents can be read together in harmony to exclude the First Subject Loan.

[42] Mr. Ng’s argument that “Misrepresentations” ought to be given an interpretation that would lead to a broader settlement involving the First Subject Loan does not withstand scrutiny when one considers the restrictive language of Recital A. The Misrepresentations are restricted to the “Loans” made between December 14, 2018 and June 20, 2019.

[43] Given the clear and unequivocal language contained in the Settlement Agreement and the Covenant Not to Sue, I therefore see no ambiguities whatsoever or a reason to order a trial.

[44] Insofar as Mr. Ng’s bald statement in his affidavit where he deposed that he thought the Settlement Agreement applied to all of the Subject Loans is concerned, I am of the view that this runs contrary to the parole evidence rule which precludes the admission of evidence outside the words of the written contract that would add to, subtract from, vary or contradict a contract that has been wholly reduced to writing: see Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, at para. 59. Mr. Ng’s unsubstantiated statement simply contains his subjective view; the parole evidence rule precludes the admission of this evidence.

[45] Mr. Ng points to Avalanche Holdings Corp. v. Ball for the proposition that a trial is necessary since the evidence on a bankruptcy application should be scrutinized with particular care given the serious consequences that flow. While this is true, Avalanche Holdings Corp. deals with a different issue than the one here. In Avalanche Holdings Corp., the parties adduced contradictory evidence of an alleged debt that, if proven by the creditors, would constitute an act of bankruptcy. The determination of whether such a debt existed turned, in no small part, on credibility: see Avalanche Holdings Corp., at paras. 6-7. The Court found that the appellants “had put before the court material which could, if believed, be taken to establish that … Mr. Ball had committed an act of bankruptcy”: at para. 12. The Court goes on to conclude that “where there are disputed allegations as to whether certain debts are owing or not owing, the resolution of such issues must be determined by the trier of fact.”

[46] There are important distinctions between Avalanche Holdings Corp. and this Application. First, the fundamental nature of the evidence is different on this Application. Avalanche Holdings Corp. dealt with important credibility determinations that are not present here. This Application deals with the simple interpretation of two documents. The only evidence that Mr. Ng has adduced is either barred by the parole evidence rule and inadmissible or entirely unsupported. For this reason, there is no “live dispute” requiring a hearing and evidence, as Mr. Ng alleges.

[47] Further, with respect to the IIROC Debt, I agree with Mr. Ng (and the Applicant does not take serious issue with this) that the IIROC Debt alone would not entitle the Applicant to a Bankruptcy Order since the Applicant is a stranger to that debt. Having found, however, that Mr. Ng is liable for the First Subject Loan, and when one considers the equities, I agree with the Applicant that Mr. Ng has not only failed to pay the First Subject Loan but also the IIROC Debt. Pursuant to IIROC’s rules, particularly rule 8204, an imposed fine and costs are due and owing when the decision is made. Mr. Ng has made no payment against this debt, and it remains outstanding as of the date it was levied. The fact that IIROC has not provided subsequent notices with respect to the collection of that debt is of no importance to this analysis. I am therefore entitled to consider both debts in conducting my analysis as to whether a Bankruptcy Order ought to be granted.

[48] Based on the foregoing, I am satisfied that Mr. Ng has committed the act of bankruptcy of ceasing to meet two significant liabilities as they have become due within six months of the filing of the Application. Mr. Ng has filed no evidence on this Application to show sufficient cause why the Court should depart from the ordinary circumstances and refuse the Bankruptcy Order.

[49] In reaching this conclusion, it is worth noting that allegations and findings of fraud against Mr. Ng remain beyond the scope of this analysis. This is a straightforward Bankruptcy Order. Mr. Ng’s previous conduct as it relates to fraud is irrelevant and the Applicant is not relying on allegations and findings of fraud on this Application.

[50] I am also of the view that Mr. Ng’s submission that the other agreements involving the companies controlled by Messrs. Morris and Krebs ought to be taken into account is without merit. Those agreements involve companies that are separate and distinct from the Applicant. There is no credible evidence, or any evidence at all, that those agreements were in any way linked or affected by Mr. Ng’s Settlement Agreement, the Covenant Not to Sue with Bridging or Bridging’s subsequent Assignment Transaction with the Applicant.

[51] Having reached this conclusion, I do not have to consider the alternative arguments raised by Mr. Ng as they were premised on the First Subject Loan being captured by the Settlement Agreement.

[52] Simply put, Mr. Ng entered into a Settlement Agreement and a Covenant Not to Sue with Bridging that was properly assigned to the Applicant which, by its terms, did not include the First Subject Loan.

[53] Last, in these circumstances, it cannot be said by Mr. Ng that the Application constitutes an abuse of process, as he alleges. Mr. Ng did not point the Court to any evidence that could support this bald assertion. This is simply an unsupported attempt to recast the narrative of this proceeding. I do not find that the Applicant is wielding the bankruptcy process against Mr. Ng as an abuse of process.

Disposition

[54] For the reasons above, the Application for a Bankruptcy Order is granted and Mr. Ng’s motion is dismissed.

[55] I appoint KSV Restructuring Inc. as Trustee. It has signed the necessary Consent in this regard.

McEwen J. Date: April 05, 2023

Footnotes

[^1]: Bridging Finance Inc. executed the three loan agreements as agent on behalf of various lenders who, for ease of reference, I will collectively refer to as “Bridging”. [^2]: As noted in footnote 1, I refer to BFI throughout this endorsement as Bridging. [^3]: I pause here to note, however, that I do not accept the Applicant’s argument that no consideration was given by Mr. Ng in the Covenant Not to Sue. The Covenant Not to Sue specifically references consideration in the amount of $2.00.