COURT FILE NO.: 31-2805050 DATE: 20240524
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: In the Matter of the Bankruptcy of Bijan Naghshbandi
BEFORE: Associate Justice Rappos
COUNSEL: Sean Zeitz, James Quigley and Cora Madden, for Shahram Heidari, Tarra Engineering Inc., and Tarra Engineering & Structural Consultants Inc. Mark Persaud, for Golaleh Tabak and Sherwood Custom Homes Inc. Jordan Goldblatt, for Lipman, Zener & Waxman PC
HEARD: January 25, 2024 (via videoconference)
REASONS FOR DECISION
Overview
[1] The two motions before the Court represent the current chapter in the bitter dispute between Bijan Naghshbandi and Shahram Heidari.
[2] Mr. Naghshbandi filed for bankruptcy in February 2022 shortly after his appeal of judgements issued against him and in favour of Mr. Heidari and his two companies was dismissed by the Court of Appeal.
[3] The trustee in bankruptcy examined Golaleh Tabak, the former spouse of Mr. Naghshbandi, with respect to Mr. Naghshbandi and his dealings and property. One of the motions before me is to compel Ms. Tabak to answer certain undertakings, questions taken under advisement and questions refused during the examination.
[4] The other motion is for an order compelling a representative of Sherwood Custom Homes Inc. (“Sherwood”), Mr. Naghshbandi’s former employer and Ms. Tabak’s current employer, to be examined with respect to Mr. Naghshbandi and his dealings or property pursuant to subsection 163(1) of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (the “BIA”).
[5] This decision is with respect to the motion concerning Sherwood, with a separate decision to be released with respect to Ms. Tabak’s refusals and undertakings.
[6] For the reasons that follow, the motion to compel a representative of Sherwood to be examined pursuant to subsection 163(1) of the BIA is hereby dismissed.
Procedural Matters
[7] The two motions were originally scheduled to be heard on November 28, 2023. A timetable for the exchange of materials and completion of cross-examinations was set out in my Endorsement dated August 10, 2023.
[8] Mr. Heidari, Tarra Engineering Inc. (“TEI”), and Tarra Engineering & Structural Consultants Inc. (collectively, the “Heidari Creditors”), as assignees of the rights of A. Farber & Partners Inc. (“Farbers”) as trustee in bankruptcy (the “Trustee”), served their materials in accordance with the timetable.
[9] Sherwood did not file any materials in connection with the motion. Ms. Tabak did not file materials in accordance with the timetable. Ms. Tabak did serve an affidavit sworn November 26, 2023. In that affidavit, Ms. Tabak alleged that the Heidari Creditors and/or their legal counsel, Lipman, Zener & Waxman PC (“LZW”), misused her personal and confidential information to obtain information and documentation about her affairs in Iran.
[10] At the return date for the motions on November 28, 2023, Ms. Tabak indicated that she wished to bring a motion for an order removing LZW as counsel to the Heidari Creditors, and requested an adjournment of the motions.
[11] As detailed in my Endorsement dated November 28, 2023, I granted the adjournment request and scheduled the removal motion for January 25, 2024.
[12] The parties appeared at case conferences on December 5 and 20, 2023. As set out in my Endorsement dated December 20, 2023, Ms. Tabak confirmed that she did not intend to proceed with the removal motion on January 25, 2024. As a result, the motions with respect to Ms. Tabak and Sherwood were made returnable on January 25, 2024 and were made peremptory on them.
[13] During the hearing, counsel to Ms. Tabak and Sherwood argued that the motions should not proceed, given: (a) the outstanding removal motion; (b) that his clients were not permitted to cross-examine affiants; (c) the conduct of LZW and its counsel; and (d) the need for a public inquiry in this matter.
[14] As I had made the motions peremptory on Ms. Tabak and Sherwood, and as the removal motion did not proceed at the request of Ms. Tabak, I refused the request for an adjournment on this ground. If Ms. Tabak intends to proceed with the LZW removal motion and/or a motion to remove the firm acting as counsel for LZW, she can arrange for a case conference with the Bankruptcy Court Office, on notice to counsel to LZW, to discuss the scheduling of the hearing and a timetable for the motion.
[15] On the second ground for the adjournment request, there was a timetable set out for these motions in the August 10, 2023 Endorsement, which included the ability of the parties to complete cross-examinations. Ms. Tabak and Sherwood did not file any materials in accordance with the timetable. As a result, I am not prepared to adjourn the motions on this basis.
[16] On the third ground for the adjournment request, the allegations against LZW will be dealt with on the removal motion. I see no reason why these motions should be delayed again and heard after the removal motion. That option was granted to Ms. Tabak, and she decided not to proceed with the removal motion on January 25, 2024. As well, in my Endorsement dated December 20, 2024, I noted that “the allegations made by Ms. Tabak in her affidavit regarding the conduct of LZW will not be dealt with at the January 25, 2024 hearing.”
[17] On the final ground for the adjournment request, a public inquiry is initiated by the federal government under the Inquiries Act, R.S.C. 1985, c. I-11, or the provincial government under the Public Inquiries Act, S.O. 2009, c. 33, Sched. 6.
[18] An associate judge of the Superior Court of Justice has no jurisdiction to direct that a public inquiry be conducted by the federal or provincial government.
[19] As a result, I have refused the request for an adjournment of these motions.
Background Facts and Chronology
[20] In 2009, actions were commenced against Mr. Naghshbandi by Shahram Heidari and TEI for repayment of certain loans. Mr. Naghshbandi counterclaimed against the Heidari Creditors.
[21] Mr. Naghshbandi and Ms. Tabak state that they separated in December 2017, as set out in a separation agreement dated December 11, 2017.
[22] On October 17, 2019 and May 8, 2020, Mr. Naghshbandi was ordered to pay amounts to the Heidari Creditors pursuant to judgments of Justice Bawden.
[23] On February 3, 2022, Mr. Naghshbandi’s appeal of the judgments was dismissed by the Court of Appeal.
[24] On February 15, 2022, Mr. Naghshbandi filed an assignment in bankruptcy, and Farbers was appointed as Trustee. In his statement of affairs, Mr. Naghshbandi listed “business dispute with former partner, judgment, marital separation and unemployment” as the reasons for his financial difficulties. He also listed household effects of $1,500, personal effects of $2,000, and a 2020 Lincoln Navigator. The statement of affairs did not list any realizable amount for these assets.
[25] On March 9, 2022, the Heidari Creditors filed proofs of claim in the bankruptcy estate, which have been accepted as proven claims by the Trustee. The Heidari Creditors represent 99.3% of the total claims filed in the bankruptcy estate.
[26] On April 12, 2022, Mr. Naghshbandi was examined pursuant to section 163(1) of the BIA.
[27] During the examination, Mr. Naghshbandi confirmed that he previously worked for Sherwood as a project manager. His employment ended in 2020, and he confirmed that he is in no way related to the principals of Sherwood. Mr. Naghshbandi indicated that he had been receiving Employment Insurance benefits for the past two years.
[28] On June 6, 2022, the Trustee served its motion record for an order compelling Mr. Naghshbandi to answer undertakings and questions that were refused and taken under advisement.
[29] On June 15, 2022, Ms. Tabak was examined pursuant to section 163(1) of the BIA. During the examination, Ms. Tabak confirmed that she has been employed by Sherwood as a project accountant since 2015, and has annual income of $300,000. She testified that she has no ownership interest in Sherwood.
[30] On June 28, 2022, Associate Justice Ilchenko directed that all undertakings and questions were to be answered by Mr. Naghshbandi, other than two questions taken under advisement which the Court required further written submissions on.
[31] On August 8, 2022, Mr. Naghshbandi and Ms. Tabak brought an urgent motion to, among other things, declare that Mr. Heidari and his counsel were not entitled to have access to the responses to undertakings, questions taken under advisement and refusals from the examinations of Mr. Naghshbandi and Ms. Tabak except with leave of the Court.
[32] On August 16, 2022, Justice Cavanagh released an Endorsement dismissing their motion.
[33] On August 30, 2022, the Trustee served its motion for an order directing Ms. Tabak to answer undertakings and questions that were refused and taken under advisement.
[34] On October 20, 2022, Justice Huscroft of the Court of Appeal heard a motion brought by Mr. Naghshbandi and Ms. Tabak for a declaration that they have an automatic right to appeal Justice Cavanagh’s decision. In the alternative, they sought leave to appeal the decision.
[35] On November 2, 2022, Justice Huscroft determined that Mr. Naghshbandi and Ms. Tabak were not entitled to appeal the decision of Justice Cavanagh as of right, and denied their request for leave to appeal.
[36] On December 15, 2022, Judy Moore, Vice President of Sherwood Homes, sent an e-mail to LZW taking issue with, among other things, what she saw as offensive and improper attacks made by LZW concerning the reputation of Sherwood and the suggestion that Mr. Naghshbandi hid his income by having Sherwood pay income earned by him to Ms. Tabak.
[37] On May 30, 2023, the Court authorized the Heidari Creditors under section 38 of the BIA to, among other things, assume carriage and conduct of the examinations of Mr. Naghshbandi and Ms. Tabak, to enforce the undertakings, under advisements and refusals previously given by them at their examinations, and seek such other and incidental relief as the Heidari Creditors may ascertain as being necessary in order to augment the available funds for the bankruptcy estate.
[38] On August 9, 2023, LZW confirmed during a case conference that the Heidari Creditors wish to examine a representative of Sherwood under section 163(1) of the BIA. Counsel to Sherwood confirmed that a representative would not attend an examination unless compelled to do so by Court order.
Theory of the Case
[39] The Heidari Creditors’ theory of this case is that the financial affairs of Mr. Naghshbandi and Ms. Tabak are intertwined, such that Ms. Tabak’s salary with Sherwood may represent funds earned by Mr. Naghshbandi. As a result, they wish to examine a representative of Sherwood to elicit information regarding its employment of Mr. Naghshbandi and Ms. Tabak.
Issue
[40] The issue to be determined on this motion are whether the Court should compel a representative of Sherwood to be examined under subsection 163(1) of the BIA.
Legal Principles
[41] Subsection 163(1) of the BIA provides that a trustee in bankruptcy may, without an order, examine under oath, among other persons, the bankrupt and any person reasonably thought to have knowledge of the affairs of the bankrupt [emphasis added], respecting the bankrupt or the bankrupt’s dealings or property.
[42] Under this subsection, the Court may order that any person liable to be examined to produce any books, documents, correspondence or papers in that person’s possession or power relating in all or in part to the bankrupt or the bankrupt’s dealings or property.
[43] As noted, the trustee does not require a court order to conduct examinations under subsection 163(1). This differs from examinations conducted by creditors or other interested persons under subsection 163(2) of the BIA, which require such parties to bring an application to the Court and establish sufficient cause for the examination.
[44] Section 167 of the BIA provides that any person being examined is bound to answer all questions relating to the business or property of the bankrupt, to the causes of the bankruptcy and the disposition of property.
Analysis
[45] Sherwood did not file a responding motion record or factum. Counsel to Sherwood argued that the Heidari Creditors had failed to establish that Sherwood reasonably has knowledge of the affairs of Mr. Naghshbandi and his dealings or property. Sherwood also argued that the request was a fishing expedition, and the Heidari Creditors should have sufficient information from their examinations of Mr. Naghshbandi and Ms. Tabak. Sherwood believed the request was an attempt to corroborate or challenge their testimony, which should not be permitted.
[46] The Heidari Creditors filed a motion record and a two-page statement of law in support of their motion. The Heidari Creditors argued that the power under subsection 163(1) is broad, and that an examination of Sherwood would assist in the administration of the bankruptcy estate as it would provide information on how funds were paid to Mr. Naghshbandi, and information regarding his financial relationship with Sherwood and Ms. Tabak.
[47] The Heidari Creditors rely on three cases in support of their motion. In Rieger Printing Ink Company (Re), the issue before the Court was the right to protection against self-incrimination in a section 163 examination. In that case, Justice Pepall (as she then was) noted the purpose of a section 163 examination is to provide information to assist the trustee in carrying out its duty to administer the bankruptcy estate by collecting the property of the bankrupt and distributing the proceeds to its creditors. A trustee needs to find out the extent of the property of the bankrupt and whether there have been dispositions or dealings with that property which should be challenged. [1]
[48] In the second case, Alexander Josipovicz (Re Bankruptcy), 2012 ONSC 5361, the trustee sought to examine a third party. Justice D.M. Brown (as he then was) noted that there was conflicting evidence concerning whether the bankrupt or the third party was the owner of two corporations, and whether the third party owed money to the bankrupt. Justice D.M. Brown granted the order authorizing the examination of the third party since an examination into the ownership of the two companies and whether the third party owed money to the bankrupt related to the administration of the bankruptcy estate, as it concerned a potential asset of the estate. [2]
[49] In the last case, 303687 Ontario Ltd. (Re), 1986 CarswellOnt 166 (S.C.), the Heidari Creditors rely on a statement made by Justice Saunders that the bankrupt, Robert Cohen, was involved in numerous transactions, and:
“[h]e is unable to provide satisfactory answers to the trustee as to his income and assets and yet he appears to enjoy an above-average lifestyle and to remain closely involved in a business whose nature has not changed despite the transactions amongst persons who probably do not deal at arms length with him. There is also evidence that Robert Cohen receives money from various sources and the trustee is entitled to investigate the extent of the property he has received and the source of its receipt. In order to carry out his duty, the trustee needs to know and is entitled to receive all information concerning the property and assets of the business and of Robert Cohen since at least 1978 from all persons who have dealt with either or both of them.” [3]
[50] In my view, none of these cases is particularly relevant to resolving whether Sherwood can reasonably be thought to have knowledge of the affairs of Mr. Naghshbandi, respecting Mr. Naghshbandi or his dealings or property.
[51] The evidence before the Court is that Mr. Naghshbandi worked at Sherwood starting in January 2018 and ending in March 2020, more than two years before he filed for bankruptcy. He was earning EI benefits for the two years following the end of his employment with Sherwood.
[52] The Heidari Creditors have asked Mr. Naghshbandi about his relationship with Sherwood. There is nothing in the record that indicates that Mr. Naghshbandi has an ownership interest in Sherwood, or that he was ever an officer or director.
[53] They have also asked Ms. Tabak questions about her relationship with Sherwood, which started in 2015.
[54] I recognize that the Heidari Creditors take issue with what they see to be a dissonance between the income made by Ms. Tabak and her apparent lack of “professional certification”. However, I do not believe, based on the materials before me, that it is reasonable to infer that Ms. Tabak’s income at Sherwood represented funds earned by Mr. Naghshbandi. She started working at Sherwood three years before Mr. Naghshbandi, and has continued to work there for the past number of years since he stopped working there in March 2020. Mr. Naghshbandi had been receiving EI benefits for the two prior years. There is nothing in the record before me that reasonably supports the theory that the income being paid by Sherwood to Ms. Tabak represents income earned by Mr. Naghshbandi.
[55] In my view, the Heidari Creditors have failed to establish that Sherwood reasonably has knowledge of the affairs of Mr. Naghshbandi, respecting Mr. Naghshbandi or his dealings or property.
Disposition
[56] Accordingly, based on the evidence before me and legal submissions made by the parties, the motion to compel a representative of Sherwood to be examined is hereby dismissed.
[57] I strongly urge the parties to come to a resolution on the issue of costs. If they are unable to do so, they may contact the Bankruptcy Court Office to obtain direction regarding the exchange of costs submissions.
Associate Justice Rappos DATE: May 24, 2024