Court and Parties

Date: 2024-08-20 Superior Court of Justice – Ontario (In Bankruptcy and Insolvency)

Re: In the Matter of the Bankruptcy of Jose Lava Suguitan

Before: Associate Justice Rappos

Counsel: Howard Manis and Daniel Litsos, for msi Spergel Inc.

Heard: August 15, 2024 (via videoconference)

Endorsement

[1] Jose Lava Suguitan was deemed to have filed an assignment in bankruptcy on March 3, 2023, and msi Spergel Inc. was appointed as Trustee in bankruptcy. The Trustee brings a motion seeking a number of heads of relief, which I deal with below.

Information and Documentation from Mr. Suguitan

[2] The Trustee has had difficulty obtaining information and documentation from Mr. Suguitan regarding his property and affairs that would permit it to administer the bankruptcy estate.

[3] The Trustee previously brought a motion in November 2023 seeking production of certain information and documentation. Mr. Suguitan did not oppose the motion. As set out in my Endorsement dated November 30, 2023 (reported as Re Suguitan, 2023 ONSC 6801), I directed Mr. Suguitan to provide the Trustee with information and documentation concerning his assets, income, and business interests, including with respect to Sugi Financial Inc., Sugi Financial Limited, and Traveluxe Inc. (collectively, the “Companies”).

[4] The Trustee reports that it has not received any of the required information and documentation, and brings a second motion for an order compelling Mr. Suguitan to deliver it.

[5] Mr. Suguitan once again has been served with the motion record and has taken no steps to oppose the motion.

[6] Based on the evidence before me, Mr. Suguitan continues to breach his disclosure duties under the Bankruptcy and Insolvency Act (the “BIA”). As a result, I hereby once again grant the relief sought by the Trustee directing Mr. Suguitan to deliver to the Trustee the requested information and documentation.

[7] It is the expectation of this Court that orders are to be complied with and not ignored. If Mr. Suguitan continues to ignore orders of this Court, the Trustee may wish to bring a contempt motion before the Court.

Answers to Undertakings and Under Advisements by Sarah Morrison

[8] Sarah Morrison is the spouse of Mr. Suguitan. On January 30, 2024, she was examined under oath pursuant to section 163(1) of the BIA. Ms. Morrison had counsel with her during the examination.

[9] The Trustee reports that there are several undertakings and questions taken under advisement that have yet to be answered by Ms. Morrison. The Trustee seeks an order compelling Ms. Morrison to provide answers to these matters.

[10] Ms. Morrison was served with the motion record through her counsel. Ms. Morrison has taken no position in response to the motion.

[11] In the circumstances, I am satisfied that it is necessary and appropriate to grant the Trustee’s motion and direct Ms. Morrison to provide answers to the undertaking and questions taken under advisements within 14 days.

Matters Related to the Florida Property

[12] The Trustee reports that it has discovered that there was real property in Florida that was previously solely owned by Mr. Suguitan. The property was transferred to Ms. Morrison in August 2018. The property was sold by Ms. Morrison in October 2020 for US$250,000.

[13] The Trustee brings a motion for a declaration that the transfer of the Florida property was a transfer at undervalue, a preference, and/or a fraudulent conveyance. The Trustee seeks an order that Ms. Morrison pay US$250,000 to the Trustee on account of this transfer.

[14] As I have previously indicated in Re Ghajar, 2023 ONSC 6041, I am unaware of any reported decision in Ontario where a registrar in bankruptcy has granted declarations that a transfer was a transfer at undervalue, a preference, or a fraudulent conveyance, even where the motion proceeded on an unopposed basis. The Trustee has put forward no case in support of a registrar having jurisdiction to grant such declaratory relief. In my view, the fact that the motion is unopposed does not establish jurisdiction where it otherwise does not exist.

[15] As a result, I am hereby adjourning this portion of the Trustee’s motion and traversing it to be dealt with by a judge of the Commercial List.

Personal Banking and Accounting Information

[16] In my Endorsement dated November 30, 2023, I stated that if the Trustee continued to have difficulty receiving banking documentation from Mr. Suguitan, it could seek production of such documentation from the financial institutions through a motion brought on notice to the banks.

[17] The Trustee has brought such a motion and served CIBC, TD Bank, TD Canada Trust, RBC, Scotiabank, BMO, and National Bank.

[18] The Trustee also seeks an order that Ayesha Meher of Nexus Bookkeeping deliver to the Trustee all books, records, statements and other financial information and documentation for Mr. Suguitan. The Trustee understands that Ayesha Meher filed certain income tax returns on behalf of Mr. Suguitan.

[19] There is no opposition to the relief sought by any of the banks or Ayesha Meher.

[20] Sections 16(5) and 164(1) of the BIA provide that the Trustee may require any person that may have any document relating to a bankrupt’s dealings or property to produce it to the Trustee.

[21] I am satisfied, given Mr. Suguitan’s continued failure to provide the requested information and documentation, that it is appropriate to direct the identified banks and Ayesha Meher to deliver to the Trustee documentation regarding Mr. Suguitan’s personal bank accounts and personal income tax returns.

Corporate Banking and Accounting Information

[22] The Trustee also seeks the same relief from the banks and Ayesha Meher regarding the Companies.

[23] There is nothing in the statement of affairs that indicates that Mr. Suguitan is the owner of the Companies. The Trustee has not produced corporate searches for the Companies to show that Mr. Suguitan is an officer and/or director of the Companies. All that the Trustee has produced are copies of certain unsigned CRA Information Returns for Sugi Financial Services Inc. that list Mr. Suguitan as president of the company.

[24] The Trustee argues that it should be entitled to obtain the information and documentation regarding the Companies, as any shares Mr. Suguitan has in the companies have vested in the Trustee under the BIA.

[25] It is trite law that a corporation has the capacity and the rights, powers, and privileges of a natural person. [1] As explained by the Court of Appeal in Yaiguaje v. Chevron Corporation:

It is important to understand the distinction between corporations and their shareholders. Pursuant to s. 15(1) of the CBCA, Parliament has made a clear policy choice that corporations have "the rights, powers and privileges of a natural person". This is not, as the appellants suggest, a mere legal fiction. It is a bedrock principle of our corporate law. Consistent with the law established in Salomon, Parliament has entrenched in our law the notion of corporate separateness. That means that corporations are separate entities from their shareholders, capable of carrying on business and incurring debts on their own behalf. Thus, if a judgment debtor is a parent corporation, it and not its shareholders or subsidiaries, is responsible for the debts it incurs. It also means that a corporation's assets are its own and do not belong to related corporations.

A shareholder of a corporation does not have a right to claim a proportionate share of the corporation's assets while it is ongoing. That right only arises if and when the corporation is wound up: BCE Inc. v. 1976 Debentureholders, 2008 SCC 69, at para. 34. This makes logical sense because the corporation is deemed to be a natural person. While it is extant, it holds its assets. When it ceases to exist, the assets are distributed to the shareholders, subject to claims from creditors and others, because there is at that point no existing entity capable of holding the assets. [2]

[26] Even if I assume that Mr. Suguitan is the sole shareholder of these companies, the Trustee has not directed me to any statutory provision or case law that provides that a shareholder would be entitled to production of the documentation sought by the Trustee.

[27] The Trustee argues that it is in the interests of justice for the Court to grant the relief sought, as there are a number of investors that have lost money at the hands of Mr. Suguitan, and if there is money in the corporate bank accounts, they should be delivered to the Trustee. The Trustee posits that if there is a $1.0 million in an account, that is Mr. Suguitan’s property.

[28] Unless a Court holds that it is necessary to pierce the corporate veil and disregard the separate legal personality of the company as completely dominated and controlled and being used as a shield for fraudulent and improper conduct, [3] the property of a company remains its property and is not the property of the shareholder.

[29] There is insufficient evidence before me to make any determination whether it is appropriate to pierce the corporate veil. Again, there is no documentation confirming that these Companies are solely owned and controlled by Mr. Suguitan. Even if they are, there is no information regarding the creditors of the Companies, and whether they differ from the creditors of Mr. Suguitan.

[30] The only property that may have vested in the Trustee are any shares that Mr. Suguitan’s has in the Companies. The Trustee steps into the shoes of Mr. Suguitan, and is only entitled to take the steps that Mr. Suguitan was legally entitled to take as a shareholder.

[31] If any party wishes to put the Companies into bankruptcy, they may bring an application before the Court. The Trustee argues that it would be cost prohibitive to bring such proceedings. In my view, the fact that such applications may be costly does not entitle the Trustee to act in a manner as if it has been appointed as trustee in bankruptcy of the property and assets of the Companies.

[32] For these reasons, I hereby dismiss the Trustee’s motion for an order compelling the banks and Ayesha Meher to deliver any documentation with respect to the Companies.

[33] If the Trustee wishes to seek costs for this motion, it may send a Costs Outline and written cost submissions of no more than 3 pages to the Bankruptcy Court Office for my review.

Released: August 20, 2024 Associate Justice Rappos

Footnotes

[1] Business Corporations Act, R.S.O. 1990, Chapter B.16, section 15, and Canada Business Corporations Act, R.S.C. 1985, c. C-44, section 16.

[2] Yaiguaje v. Chevron Corporation, 2018 ONCA 472, paras. 57-58.

[3] Ibid. at paras. 64-83; FNF Enterprises Inc. v. Wag and Train Inc., 2023 ONCA 92, paras. 17-18.