Re Reza Khoshnik, 2026 ONSC 1581

CITATION: Re Reza Khoshnik, 2026 ONSC 1581

COURT FILE NO.: 31-03165088

DATE: March 16, 2026

ONTARIO

SUPERIOR COURT OF JUSTICE

IN BANKRUPTCY AND INSOLVENCY

IN THE MATTER OF THE BANKRUPTCY OF REZA KHOSHNIK OF THE CITY OF MARKHAM, IN THE PROVINCE OF ONTARIO

BEFORE: Associate Justice Ilchenko, Registrar in Bankruptcy

Andrew Benson Forrest (“Forrest”) and Arash Jazayeri (“Jazayeri”) for Hessamedin Seyedrazi (the “Creditor” or “Seyedrazi”) the Plaintiff in Action CV-22-00000162-0000 commenced on February 8, 2022 at Barrie against, inter alia, the Bankrupt (the “Action”)

Joseph Onyekwelu (“Onyekwelu”) for the Bankrupt Reza Khoshnik (the “Bankrupt”)

Mihir Chande, LIT (“Chande”) for Chande & Company Inc., Trustee in Bankruptcy (the “Trustee”) of the Bankrupt

Superintendent of Bankruptcy (the “OSB”) not appearing, but providing OSB s.161 Examination evidence of Bankrupt as evidence on this Motion

HEARD: Motion adjourned from October 2, 2025 to October 15, 2025 to allow counsel for Bankrupt the opportunity to file responding Materials. Motion heard on October 15, 2025 and adjourned for parties to provide further Motion materials by December 19, 2025.

endorsement

1The Creditor seeks an Order pursuant to section 69.4 of the Bankruptcy and Insolvency Act, RSC 1985, c B-3, as amended (the “BIA”), lifting the automatic stay and declaring that the stay imposed by section 69.3 of the BIA no longer operates in respect of the Action relating to claims against the Debtor, for inter alia misrepresentation and fraud, as I will more specifically detail from the Amended Fresh as Amended Statement originally issued on February 8, 2022 (the “Statement of Claim”)

2The basis of this request for leave is that the Creditor in the Action is seeking damages against the Bankrupt and his spouse Vida Saligherhrad (also a Bankrupt)(“Saligherhrad”), as well as two identified corporations New Horizon Renovation Company (“New Horizon”) and 2681874 Ontario Inc. (“268”).

3The liquidated damages claimed in the Action are $680,000. The Plaintiff also claims punitive and exemplary damages and $500,000 and various orders and declarations for accounting, tracing, disgorgement, declarations of equitable interests and certificates of pending litigation relating to the real properties (the “CPLs”).

4In their Statement of Claim the Creditor is specifically seeking a declaration under s.178 of the BIA that any order for discharge will not release any of the Defendants, including the Bankrupt, from any Judgment obtained in the Action.

5The Bankrupt opposes the Motion.

6The Trustee does not oppose the Motion. The OSB did not intervene on the Motion.

THE BANKRUPTCY PROCEEDINGS

7The Bankrupt made an assignment into Bankruptcy on December 12, 2024. The Statement of Affairs sworn by the Debtor (the “Statement of Affairs”) is attached at Exhibit D to the Trustee’s Supplementary Report on Discharge dated November 19, 2025 (the “Supplementary Report”). Also filed for this Motion is the Report of the OSB under s.170(2) of the BIA (the “OSB Report”) filed for this Motion.

8The Trustee has also filed the Original s.170 Report (the “Original Report”) that also attaches the Statement of Affairs.

9The Bankrupt has never filed a prior proposal or bankruptcy.

10In the Statement of Affairs the Bankrupt declared assets valued at $32,076 being chiefly an 2021 Lexus IS3 valued at $29,576.

11The Claims Register is at Exhibit N to the Supplementary Report which lists $1,411,994.82 in proven creditors. The largest proven creditor is Reza Moghaddam for $956,570. The Creditor is listed on the Claims Register as having a $680,000 contingent claim.

12Despite the Bankrupt apparently being in the business (along with his wife and corporations) of purchasing houses, renovating them, then selling them, the CRA is not declared as creditor for either personal tax or HST, either directly or for director liability claims.

13To date the Trustee has collected $1803.46.

14It is unclear whether the Bankrupt has accounted to the Trustee for the proceeds of sale of the 4 real properties that are the subject matter of the Action.

15The Trustee states the following of relevance to this Motion in the Supplementary Report:

The Bankrupt is a 56 year old self employed Uber Driver

The Bankrupt’s father in law is assisting with expenses

The Bankrupt has not filed tax or HST returns to date for the two corporations 268 and New Horizon which are also defendants in the Action, and as a result there could be claims for income tax and HST payable against the Bankrupt as director of these corporations, but these liabilities cannot be determined until the outstanding HST returns are filed.

The Bankrupts gross income as an Uber driver for 2024 was $79,961.64

The Bankrupt has not provided the Banking documentation for the accounts the Trustee has requested information for at TD, BMO, CIBC and RBC.

There are $136,850.64 in proceeds from the apparent settlement of certain CPLs that are currently in the possession of Counsel for the Creditor as a result of the Order of McCarthy J. in the Action.

The Bankrupt has failed to attend his second counselling session so the Bankrupt opposed the Discharge under the provisions of s.173(1)(o).

The Bankrupt does not have surplus income payable.

The Bankrupt’s Discharge Hearing was originally scheduled for December 4, 2025 but the Creditor and another creditor with a Judgment, Rez Ahmari, had opposed the discharge. AJ Rappos adjourned the discharge to a Case Conference to schedule the discharge.

16As an Exhibit to the Original Report the Trustee has attached the OSB Report which states the following as a summary of the Bankrupt’s testimony at his s.161 Examination held on March 26 and 31, 2025 (the “OSB Exam”):

7. The bankrupt is a 56 year old married man who lives with his wife and two children in a rented house. In 2017 he began a home renovation business and one or two years later a real estate property investment company. While renovating two properties for sale Covid hit and stalled these businesses. After the pandemic the bankrupt attempted to resume his business in partnership with another person but interest rate increases in May, 2022 made it impossible to sell his properties. In June or July, 2023 he realized he was insolvent and stopped paying his creditors. The bankrupt began driving for Uber in January, 2023 and surrendered his personal residence to the mortgagee in October or November, 2023. It was sold under power of sale on July 24, 2024. The following month a creditor obtained judgement against the bankrupt, his spouse, and his real estate investment business. The bankrupt’s spouse filed an assignment three days before the judgement creditor issued a notice of examination to the bankrupt. On December 06, 2024 the bankrupt failed to appear as required for the creditor examination and six days later filed his own assignment. (Q1, 6, 11, 13, 15, 19-21, 25,29, 30, 32, 56, 63)

THE STATEMENT OF CLAIM AND EVIDENCE OF THE CREDITOR ON LEAVE MOTION

17The Statement of Claim in the Action that the Creditor is requesting leave to continue is attached at Exhibit 13 to the Affidavit of the Creditor sworn September 15, 2025 (the “Creditor’s Affidavit”). Exhibits 14, 15 and 16 attach the other pleadings in the Action, which includes a Counterclaim by the Defendants, including the Bankrupt, against the Creditor for inter alia Damages of $1,000,000, which chose in action was not declared as an asset by the Bankrupt on his Statement of Affairs.

18That raises the issue as to why the Bankrupt would oppose leave to allow the Action to continue, that, if his Counterclaim was found to be valid, could pay the majority of his proven creditors, assuming the claims made by the Creditor were found in the Action not to be valid.

19The Creditor’s evidence in the Creditor’s Affidavit is that the Action has proceeded through the Discovery of the Bankrupt and the Creditor in 2023. At his 5 days of discovery the Bankrupt gave 22 undertakings and made 148 refusals or under-advisements.

20The Creditor booked an appointment for directions regarding a Motion to compel answers to undertakings for January 8, 2025 but the Bankruptcy forestalled the scheduling and hearing of that Motion.

21The jurisprudence as set out below, and in particular, the decisions of Penny, J. in Global Royalties, and of Chief Justice Morawetz in Ieluzzi (both as defined below) requires the Court on a leave motion to analyze the claims made by the Moving Party, and the response by the Bankrupt, in their respective pleadings in the action for which leave is sought.

22The nature of the claim arises out of the alleged agreement by the Creditor to partner with the Bankrupt, his wife and the Corporate Defendants to buy and renovate properties then sell them and split the profits. It is alleged that because the Creditor was not a permanent resident until 2022 that he would not be on title to the various properties being renovated that he alleges he provided funding for, but that the Bankrupt would hold the Creditor’s interests in Trust to avoid adverse tax consequences for the Creditor being a “foreign buyer”. The Creditor alleges the Bankrupt defrauded him from the proceeds of the properties that he had invested in to renovate.

23Of relevance to this leave motion, the Statement of Claim asks for the following relief:

“1. The Plaintiff claims against the Defendants Reza Khoshnik, 2681874 Ontario Inc., New Horizon Renovation Company Inc., Doe Corporations:

a. a Declaration and Judgment for fraud (common law and at equity), breach of trust, conversion, conspiracy, unjust enrichment, oppression remedy compensation and relief, pursuant to s. 248 of the Ontario Business Corporation Act, as amended, and/or for breach of contract, as well as knowing assistance and knowing receipt in the case of the corporate Defendants;

b. liquidated damages in the amount of $680,000.00 (the "Defrauded Funds")

g. a Declaration that all monies obtained by the Defendants from the Plaintiff, in breach of duties including trust duties, and/or in furtherance of their unlawful conduct, are held in a constructive trust and/or resulting trust for the benefit of the Plaintiff as of the dates of the fraudulent transactions;

i.a Declaration that any judgment granted in fraud against the Defendants, in addition to a judgement in other named torts, constituted a debt or liability that shall not be released by an order of discharge from bankruptcy pursuant to the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, as amended, or any similar statute or regulation;

24The following paragraphs of the Statement of Claim set out the nature of the misrepresentations and breaches of trust alleged against the Defendants and the Debtor, relevant to this leave motion for a claim under s.178(1)(d) of the BIA:

11. In mid 2020, Seyedrazi was invited by Khoshnik to become partners to purchasing real estate, a times renovating them, and then selling them for a profit (the "Business Venture"). This business venture was in the context of a booming housing market.

12. Seyedrazi was led by Khoshnik to believe he was a business partner of Khoshnik whereby the partners would share equally in the profits, costs and risks of the Business Venture, with a slight modification for the first property where a third partner, Mojtaba Karjalian Chaijani ("Karjalian") contributed to the down payment of the project.

13. Khoshnik led Seyedrazi to believe that Seyedrazi should not be registered on title given his immigration status and that Khoshnik would hold legal title to the beneficial interests that Seyedrazi would have in the property purchased as a part of the Business Venture.

14. There was an agreement that Seyedrazi would be a beneficial owner of each property purchased as a part of the Business Venture.

Fraud

59. The Plaintiff claims against Khoshnik and the corporate defendants for fraud at common law and equity. The various misrepresentations and omissions of material fact by Khoshnik are detailed above. The sole reason, or alternative the primary reason, that Khoshnik made such representations and other dishonest conduct was to misappropriate, divert and/or convert the Plaintiffs funds and additional funds received from mortgagees through the misuse of the Plaintiffs funds and materials and labour for his personal benefit and/or for the benefit of all the defendants to the detriment of the Plaintiff.

60. Khoshnik and his conspirators (the balance of the defendants), made the aforementioned misrepresentations and material omissions with knowledge of their falsity and/or with recklessness, willful blindness and/or without honest belief in the truth of his conduct or statements. Khoshnik and his conspirators (the balance of the defendants) carried out the wrongful conduct, misrepresentations and material omissions knowing that the Plaintiff was relying on him to be honest and act in their best interest.

61. Khoshnik and his conspirators (the balance of the defendants) intended that the Plaintiff should act upon his false representations and omissions for the purpose of inducing him to entering into transactions and providing materials and services as particularized above.

62. The Plaintiff acted upon the false representations and omissions of Khoshnik and his conspirators and transferred to Khoshnik control of his funds and beneficial interest in the properties as particularized above.

63. The Plaintiff states that Khoshnik used the Plaintiffs funds and additional funds received from mortgagees through the misuse of the Plaintiffs funds and materials and labour for the defendants' personal use and for other purposes known only to the defendants and unknown to the Plaintiff, and not for the purposes represented to the Plaintiff.

64. As a result of the fraudulent conduct of Khoshnik, the Plaintiff suffered the harm and loses referred to throughout this Statement of Claim.

Conversion

65. The Plaintiff pleads as against the defendants the tort of conversion.

66. Khoshnik, and the balance of the corporate defendants, had unfettered access to the funds, materials and services supplied by Seyedrazi as well as his beneficial interest in the real estate properties in question.

67. Khoshnik, and the balance of the corporate defendants, wrongfully appropriated and retained the funds, materials and services supplied by Seyedrazi as well as his beneficial interest in the real estate properties in question for their unauthorized personal use and benefit and for the benefit of Salighehrad, with the intent to wrongfully interfere with the Plaintiffs ownership rights of the same.

68. Khoshnik, and the balance of the corporate defendants, used the property that belonged to Seyedrazi in a manner inconsistent with the rights of possession of the owner of that property.

69. Due to the Khoshnik's wrongful conduct the Plaintiff has suffered the loss described throughout this statement of claim.

Corporate Fraud, Shield, Facade or Alter Ego

70. Khoshnik used 268, New Horizon and the Doe Corporations as a shield, fa9ade or alter ego of Khoshnik and used misrepresentations to induce Seyedrazi to advance funds, material and labour to the projects described above with the intention of committing fraud and/or conversion as particularized above and/or without intention of returning the same or alternatively a significant portion of the same.

71. Khoshnik and his conspirators' fraud, warrant an order piercing the corporate veil.

72. The Plaintiff states the secret and unlawful and fraudulent use of the funds received from Seyedrazi and the excess funds received from the mortgagees through the misuse of Seyedrazi's funds, material and labour, was used to maintain and advance Khoshnik's Existing Venture and Secret Venture for the benefit of Khoshnik and Salighehrad as well as to maintain the Vaughan Property (the residence of Khoshnik and Salighehrad) for the benefit of Khoshnik and Salighehrad.

Breach of Truste

75. Khoshnik, or alternatively Khoshnik and the corporate defendants, acted as trustee for the beneficial interest of the Plaintiff in the 410-236 Albion Property, the PH7-90 Fisherville Property, the Lake Avenue Property, and the Belfry Property (the "Four Properties"). Further the Plaintiff pleads that by Khoshnik, or alternatively Khoshnik and the corporate defendants, acted as trustee with respect to the funds advanced to Khoshnik and 268.

76. The Plaintiff pleads that Khoshnik, or alternatively Khoshnik and the corporate defendants, breached their trust duties to the Plaintiff in that Khoshnik and the corporate defendants, inter alia, dishonestly, unconscionably, knowingly and/or recklessly:

a. misappropriated, misapplied, diverted, embezzled, defalcated and/or otherwise converted the Plaintiff funds and interest in the Four Properties for their own unauthorized use and benefit, and/or for the unauthorized use and benefit of the Khoshnik and Salighehrad;

b. manipulated, dishonestly, and/or made fraudulent omissions/statements purporting to show proper use of the Plaintiffs funds, equitable interest in the Four Properties, and purporting to show how the Plaintiffs funds and interests in the Four Properties and proceeds thereof where applicable were secure;

c. fraudulently and dishonestly communicated with the Plaintiff regarding his interest in the Four Properties and funds, when the funds and interest had been misused and/or dissipated for the defendants' own personal use and benefit;

d. failed to return an overwhelming large portion of the Plaintiffs funds and proceeds of sale of properties sold; and

e. such other unlawful conduct as will be particularized prior to trial.

77. As a result of the unlawful conduct of Khoshnik, or alternatively Khoshnik and the corporate defendants, and corresponding breaches of trust, the Plaintiff has suffered loss referred to throughout this statement of claim.

78. At all material times, the corporate defendants and Salighehrad were aware, or reasonably should have been aware of Khoshnik's obligations to the Plaintiff, whether at law or equity, or according to any applicable statute, or according to the terms of their agreements. The Defendants engaged in a series of fraudulent or otherwise unlawful activities designed and intended to ensure that the Plaintiffs funds would be transferred or converted to their own collective or individual unauthorized use and benefit, and then to further conceal their unlawful acts, to the detriment of the Plaintiff.

79. The Defendants carried out their unlawful conduct with the combined intention of obtaining a financial benefit to the Plaintiffs detriment. Consequently, the Plaintiff seeks the relief describe throughout this statement of claim.”

25The Creditor filed a Factum with the initial Motion materials (the “Creditor Factum”) which was fully compliant with the Rules of Civil Procedure and the relevant Practice Directions by providing the required hyperlinking to evidence and, particularly, to the jurisprudence cited.

STATEMENT OF DEFENCE AND EVIDENCE OF THE DEBTOR ON LEAVE MOTION

26The Bankrupt and the other Defendants filed a joint Statement of Defence and Counterclaim dated March 30, 2022 (the “Statement of Defence and Counterclaim”).

27The paragraphs of the Statement of Defence, in addition to broad general denials, made the following specific denials relevant to this leave Motion:

4. The Defendants deny the allegations in paragraphs 17 and 18. The Defendants deny that Seyedrazi is or has been licensed, at any material time, as an architect and/or skills trade person in Canada, and that he contributed any useful labour as such, and put the plaintiff to the strict proof of same.

5. Furthermore, Salighehrad has never had any direct dealings with Seyedrazi. The action against Salighehrad is simply an abuse of process and is being used as a tactic by Seyedrazi to force Khoshnik to incur further costs and capitulate. Salighehrad merely acted as the purchasing and/or selling real estate agent in relation to the various renovation projects the parties entered into due to her experience as a realtor in dealing with similar properties.

…9. Khoshnik explained to Seyedrazi that renovation projects are funded the injection of capital by the owner for the purchase and closing costs of the property. After closing, further capital must be injected into the project by the owner in order to finance construction and/or renovations as well as pay for carrying costs. This additional financing can come in the form of an additional cash injection by the owner of the property or other financing. Khoshnik further explained that a project may require more capital that initially projected.

31. During the projects, Seyedrazi demanded that Khoshnik refrain from registering the trust agreements on title for the respective properties, as he did not have permanent residence or citizenship status in Canada and would thus be required to pay a foreign buyer tax of fifteen percent. Seyedrazi also refused to cooperate with the said registration process and advised, in the form of a threat, that his ability to contribute financing for the projects would be further impaired if he were to incur the foreign buyer tax liability.”

28With respect to each of the 4 listed projects the Defendants allege the Creditor “…impeded the purchase, renovation, and sale of the [property], by failing to pay his share of the costs associated with the project.” and/or alleged that the creditor failed to perform workmanlike services with regards to certain of the projects, that caused the Bankrupt Khoshnik to have to seek further financing for the project and caused unnecessary delays.

29The basis for the $1,000,000 counterclaim was:

“35. Contrary to the terms of the agreements for the 410-236 Albion Property, PH7-90 Fisherville Property, 47 Belfry Property, and 39 Lake Avenue Property, Seyedrazi failed to meet his obligations to contribute his share of all purchase, construction, and/or carrying costs and also caused damage to and delayed each project by interfering and providing unworkmanlike services, which led the Defendants to have to pursue additional sources of financing, which they are now obligated to repay. This has caused great detriment to the Defendants financially.”

30The Bankrupt swore a responding Affidavit on October 8, 2025 (the “Bankrupt’s Affidavit”)(attached to his factum, which contains no paragraph references to the Bankrupt’s Affidavit) which mostly mirrored the defences made in the Statement of Defence and Counterclaim related to the projects, but also made the following allegations of relevance, leaving out the extensive portions of the Bankrupt’s Affidavit that are non-permissible legal opinions of the Bankrupt on matters of Bankruptcy law (which opinions were also fundamentally wrong at law in any event, which I will deal with subsequently):

“8. In performance, Mr. Seyed-Razi failed to contribute his agreed share, except for 50% of the initial down payment.

9. It was agreed that he would be added to title once his required contribution was completed, but this never occurred because he never complied with our agreed terms of his own contributions.

10. The partnership broke down within months due to Hessamedin Seyedrazi’s default in meeting his financial obligations, which disrupted ongoing projects and caused substantial delays.

11. To prevent collapse of the projects, I used my personal credit and obtained mortgages to cover his unpaid share until the funds he promised arrived. But those funds were never provided by Mr. Hessamedin Seyedrazi.

12. Mr. Hessamedin Seyedrazi repeatedly promised to deliver funds but failed to do so.

13. It later became apparent that he had credit difficulties which he concealed from me, including the fact that he needed a co-signer for a truck he was supposed to lease for purposes of performing his part in our agreement.

14. Because of his delays and project extensions, I was forced to obtain a second mortgage on certain properties to sustain liquidity and protect both parties’ investments.

15. In early 2022, during the project at 47 Belfry Drive, Hessamedin Seyedrazi physically assaulted me, first punching me in the face, then attacking me with a knife.

16. Police were called; he was arrested under Case No. 22-19910 and later placed under a one-year Peace Bond. A copy of the Peace Bond Order and Police Report is attached as Exhibit “A”

17. The 47 Belfry Drive project was consequently terminated due to Mr. Hessamedin Seyedrazi’s violent and criminal actions.

18. Despite my efforts to preserve it, the property was sold under Power of Sale, resulting in significant losses.

19. It was to avoid paying the Non-Resident Speculation Tax (NRST), that Mr. Hessamedin Seyedrazi used my name and credit to register the properties and not because of his immigration status as he falsely claims.

20. This was done without my informed consent and contrary to Ontario tax law of which I queried him, which was among the reasons why he attacked me with a weapon.”

31Whatever the truth of conflicting testimony of the Creditor and the Bankrupt of who instigated the scheming to avoid the provisions of the Land Transfer Tax Act, R.S.O. 1990, c. L.6 (the “LTTA”) by not having the Creditor be registered on title, the “Non-Resident Speculation Tax” portion of the LTTA, as described in the Divisional Court decision of Yavari v. Ontario (Minister of Finance), 2024 ONSC 5296, is complex legislation.

32It is not at all clear whether, despite their scheming to avoid the LTTA (that they have both helpfully admitted to in their pleadings and Affidavits) that the Bankrupt, the Creditor, or both, owe considerable additional amounts to the Ontario Crown, due to the “taxable trustee” provisions of the LTTA, that could unravel their scheme.

33Also unclear is whether the Bankrupt ever declared any capital gains for any of these flips (which they also helpfully admitted to in their pleadings and Affidavits) whether he owned the properties personally, or corporately.

34Also unclear is whether the Bankrupt remitted any HST for these flipped properties, being in the “nature of trade” as I described in the case of another bankrupt serial house-reno-flipper in Re Zivic 2022 ONSC 3604 at para. 266-279, and whether the proceeds of these flips that are the subject matter of the Action may be subject to the Deemed Trust imposed on the property of the Bankrupt, and the proceeds of these transactions, by the Excise Tax Act.

35No cross-examinations were conducted on either the Creditor’s or the Bankrupt’s evidence filed for this Motion.

Responding Evidence of the Creditor:

36The Creditor filed a Reply Affidavit sworn April 14, 2025 (the “Creditor’s Reply Affidavit”) that dealt with certain of the allegations of the Creditor’s criminal conduct made by the Bankrupt in the Bankrupt’s Affidavit:

“4. Although not relevant to the disposition of this motion, I, nonetheless, wish to respond specifically to the allegations in paragraphs 18 and 19 of the Khoshnik Affidavit. It is true that, as I became more and more frustrated in early 2022 with the Bankrupt over his refusal to pay me the money I was owed and his developing false narrative of me not delivering on my part of our deals, there was a confrontation that boiled over into an angry outburst on my part. I categorically deny, however, that I ever assaulted the Bankrupt. I did not punch him or make any threatening gestures towards with a knife of otherwise.

5. Ever the opportunist to create a diversion from the true source of the conflict, the Bankrupt contacted the York Regional Police who attended. No charges were laid against me and I was not arrested.

6. I was summonsed, however, to a subsequent hearing to determine if a Peace Bond should be issued against me. I did not oppose and a Peace Bond was issued which I have fully abided by.”

37The Creditor also filed the Affidavit of Forrest sworn December 11, 2025 providing the chronology of the litigation of the Action and the Discharge hearing and attaching certain pleadings and the Undertakings and Refusals Chart (the “Forrest Affidavit”)(collectively the affidavits filed on behalf of the Creditor being the (“Creditor’s Affidavits”).

LAW AND ANALYSIS

A. Legislation:

38Section 69.4 of the BIA reads:

69.4 A creditor who is affected by the operation of sections 69 to 69.31 or any other person affected by the operation of section 69.31 may apply to the court for a declaration that those sections no longer operate in respect of that creditor or person, and the court may make such a declaration, subject to any qualifications that the court considers proper, if it is satisfied

(a) that the creditor or person is likely to be materially prejudiced by the continued operation of those sections; or

(b) that it is equitable on other grounds to make such a declaration.

B. General Jurisprudence regarding application of s.69.4:

39The Court has considered all materials and arguments raised by all parties on this Motion. Any failure by the court to refer to specific arguments and materials raised by the Parties does not reflect that the Court has not considered those arguments.

40At the initial hearing on October 2, 2025 I advised Onyekwelu in my endorsement:

“Mr. Onyekwelu has been recently retained and requests an adjournment to review the materials and get instructions from the Bankrupt. I have advised him that the Factum of the Moving Party is a fair summation of the statutory and jurisprudential authorities and the tests on this Motion, and that the bar set by the tests for leave in Re Ma and Re Ieluzzi is not high.”

41The lifting of a stay under section 69.4 is at the discretion of the Court. The test for lifting of the stay is set out in Ma, Re (2001), 2001 24076 (ON CA), 143 O.A.C. 52 (C.A.), at paras. 2-3(“Re Ma”):

“2 In our view there is no requirement to establish a prima facie case and no inconsistency in the case law. We do not agree that Bowles v. Barber imposes a prima facie case requirement. More importantly, that requirement is not imposed by the statute. Under s. 69.4 the court may make a declaration lifting the automatic stay if it is satisfied (a) that the creditor is “likely to be materially prejudiced by [its] continued operation” or (b) “that it is equitable on other grounds to make such a declaration.” The approach to be taken on s. 69.4 application was considered by Adams J. in Re Francisco (1995), 1995 2018 ONSC 4425 () - Page 4 - 7371 (ON SC), 1995 7371 (ON SC), 32 C.B.R. (3d) 29 at 29-30 (Ont. Gen. Div.), a decision affirmed by this court (1996), 1996 10233 (ON CA), 40 C.B.R. (3d) 77 (Ont. C.A.):

“In considering an application for leave, the function of a bankruptcy court is not to inquire into the merits of the action sought to be commenced or continued. Instead, the role is one of ensuring that sound reasons, consistent with the scheme of the Bankruptcy and Insolvency Act, R.S.C. 1985, c.B-3, exist for relieving against the otherwise automatic stay of proceedings.”

As this passage makes clear, lifting the automatic stay is far from a routine matter. There is an onus on the applicant to establish a basis for the order within the meaning of s. 69.4. As stated in Re Francisco, the role of the court is to ensure that there are “sound reasons, consistent with the scheme of the Bankruptcy and Insolvency Act” to relieve against the automatic stay. While the test is not whether there is a prima facie case, that does not, in our view, preclude any consideration of the merits of the proposed action where relevant to the issue of whether there are "sound reasons" for lifting the stay. For example, if it were apparent that the proposed action had little prospect of success, it would be difficult to find that there were sound reasons for lifting the stay.”

42In Re Mathur, 2018 ONSC 4425, (“Mathur”) Wilton-Siegel J., after quoting the above passage from Re Ma states:

“[16] It is agreed that Ma sets a low threshold – a plaintiff must show no more than some chance of success. This is often expressed as a question of whether the plaintiff has pleaded facts that, if believed, would establish a claim. However, the onus on a plaintiff will depend, in part, on the extent to which a defendant adduces evidence that an action is frivolous, vexatious or has little chance of success. In such event, a court may need to have regard at least to the nature and strength of the plaintiff’s evidence bearing on the merits of the action: see Global Royalties Ltd. v. Brook, 2016 ONCA 50, 344 O.A.C. 49, per Strathy C.J.O.”

43Also in Mathur, Wilton-Siegel, J. stated with respect to the analysis required with respect to the evaluation of the Plaintiff’s claim for which leave is sought, and assessments of credibility:

“[21] Given the foregoing facts before the Master, the Master was entitled to draw the following two conclusions: (1) that the merits of the Respondent’s claim depended largely on issues of credibility that were not to be decided on the motion before her; and (2) to the extent she was required to consider the merits of the Respondent’s case, the Respondent satisfied the obligation to establish some chance of success.

22In respect of the first conclusion, the Respondent specifically denies the Debtor’s allegation that he met George and his wife for the first time two years after the loan. This raises a legitimate credibility issue. More importantly, the issue of the Debtor’s knowledge of any circumstances giving rise to a fiduciary relationship and any breach thereof by Peter, or of any fraudulent misrepresentations on his part, will inevitably raise issues of credibility.

23In respect of the second conclusion, the following considerations are relevant. While the Debtor says he was not privy to Chatzigiannis’ discussions with Giannopoulos, this is a bald assertion for which the evidence is not definitive. In any event, even if true, the mere fact that the Debtor did not physically interact with Giannopoulos until two years after the loans were made does not exclude a claim against him as a joint tortfeasor or in conspiracy. The critical question is, as mentioned, the extent of his knowledge of, and participation in, any actions on the part of Chatzigiannis that might have constituted breach of a fiduciary duty owed to Giannopoulos or a fraudulent misrepresentation. This is not addressed in the Debtor’s affidavit in the motion record nor is it otherwise addressed in the materials before the Court on this appeal.”

44In Francisco, Re 1995 7371 (ON CTGD), 1995 CarswellOnt 363, [1995] O.J. No. 917, 19 C.L.R. (2d) 146, 32 C.B.R. (3d) 29, 54 A.C.W.S. (3d) 428 upheld 1996 10233 (ON CA), 1996 CarswellOnt 2176, [1996] O.J. No. 2024, 40 C.B.R. (3d) 77, 63 A.C.W.S. (3d) 1012 (Ont. CA) (“Francisco”) cited in Re Ma, Adams J. cited the tests set out by Registrar Ferron in Re Advocate Mines (1984), 52 C.B.R. (N.S.) 277 (Ont. S.C.) (“Advocate Mines”) as providing examples where a Court can exercise its discretion under s.69.4:

“In considering an application for leave, the function of a bankruptcy court is not to inquire into the merits of the action sought to be commenced or continued. Instead, the role is one of ensuring that sound reasons, consistent with the scheme of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, exist for relieving against the otherwise automatic stay of proceedings”.

Stating:

“[12] It should be understood that Re Advocate Mines Ltd., supra, is not an exhaustive codification of the policy underlying the Bankruptcy and Insolvency Act. It is but one thoughtful decision attempting to articulate the type of grounds which may provoke the exercise of a judicial discretion. To view Advocate Mines as a limiting or exhaustive instrument is an error in principle. Moreover, I am satisfied the action in question is one in respect of which a discharge may not be a defence and, further, that the action had progressed to a point where logic dictated the action be permitted to continue to judgment.”

45In Re Advocate Mines, Registrar Ferron stated:

“Section 49 of the Bankruptcy Act, R.S.C. 1970, c. B‑3, is plain in its terms that no creditor with a claim provable in bankruptcy shall have any remedy against the property or the person of the bankrupt in respect of it, except in the manner directed by the Act.

The court may, however, remove the stay of proceedings prescribed by that section in appropriate cases and has done so in the following circumstances:

1. Actions against the bankrupt for a debt to which a discharge would not be a defence.

2. Actions in respect of a contingent or unliquidated debt, the proof of which and valuation has that degree of complexity which makes the summary procedure prescribed by s. 95(2) of the Bankruptcy Act inappropriate.

3. Actions in which the bankrupt is a necessary party for the complete adjudication of the matters at issue involving other parties.

4. Actions brought to establish judgment against the bankrupt to enable the plaintiff to recover under a contract of insurance or indemnity or under compensatory legislation.

5. Actions in Ontario which, at the date of bankruptcy, have progressed to a point where logic dictates that the action be permitted to continue to judgment.”

46Before granting an order to lift a stay, the moving party must satisfy the court on any one or more of these grounds. They do not all need to be satisfied: Save-A-Lot Holdings Corp. v. Christiansen 2021 BCSC 2546.

47Re Sangha, 2016 CarswellBC 2770 (“Re Sangha”) which similarly lists the categories listed by Registrar Ferron in Re Advocate Mines, states:

“ The principles that emerge from the jurisprudence may be summarized:

(1) The general scheme of bankruptcy proceedings is that civil actions are stayed against the insolvent person; exemptions are to be made only where there are "compelling reasons". This flows from one of the major purposes of the Bankruptcy and Insolvency Act, which is to permit the rehabilitation of the bankrupt unfettered by past debts.

(2) An applicant for exemption from the stay must show that there will be material prejudice to the applicant if the stay is continued or that it is equitable on other grounds to allow the exemption.

(3) The existence of one or more of the factors listed in Re Advocate Mines will be an important consideration but is not determinative.

(4) The court is not to attempt to determine the proposed claim on its merits.

(5) Rather, it must assess whether it is a claim of the nature that would survive discharge, whether it is a claim that could not succeed, and whether if it did succeed it could not result in recovery against the defendants.”

48In Re Ramgulam-Rafiq, 2024 ONSC 6085 (“Ramgulam-Rafiq”), Associate Justice Rappos stated the following regarding the case that the Creditors need to establish to obtain leave:

“[18] The moving parties are not required to establish that they have a prima facie case against Ms. Ramgulam-Rafiq and Mr. Doon. However, the court may consider the merits of the action where relevant to the issue of whether there are sound reasons for lifting the stay. It will be difficult to find that there are sound reasons for lifting the stay where it is apparent that the action has little prospect of success.[6]

19The moving parties need only plead specific facts that show that there are sound reasons to lift the stay, such as a set of facts, which if believed, would fall within claims that are not released upon discharge under section 178(1) of the BIA.[7]

20The threshold for the moving parties to meet has been described as being a low one. However, the onus on a plaintiff will depend, in part, on the extent to which a defendant adduces evidence that the action in question is frivolous, vexatious or has little chance of success. In that case, a court may need to have regard to the nature and the strength of the plaintiff’s evidence concerning the merits of the action.[8]

23The language of section 178(1) does not necessarily correspond to legal causes of action. The categories are ways of characterizing existing liabilities so as to trigger the underlying policy rationale for allowing those liabilities to survive discharge from bankruptcy, regardless of the legal basis for that liability.[10]

24The role of the court is to examine the pleadings and any other “contextual facts” on the record to determine whether the liability is properly characterized as falling within any of the listed categories. The language of section 178 need not be explicitly used in the pleadings, but the facts alleged must clearly suggest that the liability falls under that provision.[11]

61The plaintiffs argue that their claims also constitute debts or liabilities resulting from obtaining property or service by false pretenses or fraudulent misrepresentation.

62The core content of the phrases “false pretenses” and “fraudulent misrepresentation” is deceitful statements.[30] They may be made verbally, or by a non-disclosure of material facts through blameworthy or strategic silence.[31]

63This section does not require the debtor to have been convicted of the offence of false pretenses under the Criminal Code. The section also does not require the moving party to show facts sufficient to prove that the debtor would be criminally convicted if charged.[32]”

49Also, Penny, J. in Global Royalties Limited v David Brook, 2015 ONSC 6277 (“Global Royalties”) made the following statements relevant to this motion:

“[5] Under s. 69.3 of the BIA, upon bankruptcy, no creditor has a claim against a debtor or shall commence or continue any action for the “recovery of a claim provable in bankruptcy.”

6The term “claim provable in bankruptcy” is defined in s. 121 of the BIA. There are three essential requirements:

(i) there must be a debt, liability or obligation to a creditor;

(ii) the debt, liability or obligation must be incurred before the date of bankruptcy; and

(iii) it must be possible to attach a monetary value to the debt, liability or obligation,

John Briggs Armstrong (Re), 2015 BCSC 1167 at para. 23.

13Second, the definition of creditor includes a contingent creditor. The plaintiffs’ claims are for unliquidated damages and have yet to be proved, to be sure, but to the extent they assert monetary claims arising pre-bankruptcy, they are creditors.

18In Re Ma the Court of Appeal for Ontario upheld the decision of the registrar lifting the stay to permit the TD Bank to continue an action against the bankrupt. The bankrupt argued that the creditor had to establish a prima facie case on the merits by providing evidence of the facts giving rise to the proposed claim. The registrar held that the test to be applied is whether the type of claim which the creditor seeks to advance against the bankrupt is the type of claim that should be allowed to proceed. She held that it was not the function of the court on a motion to lift the stay to embark upon a scrutiny of the merits of the proposed action.

19The Court of Appeal pointed out that lifting the statutory stay is far from a routine matter. The Court of Appeal affirmed, however, that there was no obligation on the part of the moving party to establish a prima facie case on the basis of evidence. The gloss on the previous law provided by the Court of Appeal in Re Ma is that the court is not precluded from any consideration of the merits where relevant to the issue of whether there are “sound reasons” for lifting the stay. The court used the example that, if the proposed action had little prospect of success, it would be difficult to find that there were sound reasons for lifting the stay.

20It is well-established in the authorities that “sound reasons” constituting material prejudice or other equitable grounds includes:

(i) actions against the bankrupt for a debt for which a discharge would not be a defence (s. 178(1));

(ii) actions involving sufficient complexity to make the summary procedure under s. 135 of the BIA inappropriate; and

(iii) actions in which the bankrupt is a necessary party for the complete adjudication of matters at issue involving other parties.

24Morawetz J. noted, in connection with the decision in Re Ma, that, “the moving creditor need only plead specific facts which show that there are sound reasons to lift the stay, such as a set of facts which, if believed, would fall within the ambit of s. 178(1)(d).” See Ieluzzi (Re), 2012 ONSC 3447, 2012 O.J. No. 2763. (“Ieluzzi”)

25Here, the plaintiffs have alleged that Brook committed fraud, misappropriated money and assets and obtained property by fraudulent misrepresentation. The plaintiff complains that none of these allegations have been proved. That, however, is clearly not the test.

26While the pleading lacks a certain amount of particularity, this is not a pleadings motion. The bottom line of the pleading is that allegations are made of fraudulent conduct which, if proved, could result in an award of monetary damages which would not be released on discharge.

29Based on the allegations in the statement of claim, Brooks is a central figure in the events giving rise to the causes of action pleaded against all defendants. It would make little sense to have one procedure to deal with the other eight defendants and another, entirely different procedure, to deal with Brooks. The conclusion of Ground J. in Royal Bank of Canada v. Societe Generale (Canada), [2003] O.J. No. 5139 is equally applicable here:

“…the evidence of the Bankrupts will be crucial in the action to establish the factual framework surrounding the various transactions which are alleged to be part and parcel of the fraudulent scheme and, accordingly, there cannot be a completed adjudication of the issues in the action among the other parties without the production of documents in the possession of, and the discovery of, [an, I would note, the evidence of] the Bankrupts.”

50Penny, J. was following Morawetz, R.S.J. (as he then was) in Re Ielluzi 2012 CarswellOnt 7608, 2012 ONSC 3447, [2012] O.J. No. 2763, 216 A.C.W.S. (3d) 825 (“Ielluzi”):

“7 Under s. 69.4 of the BIA, the court may make the requested declaration if it is satisfied:

(a) that the creditor or person is likely to be materially prejudiced by the continued operation of the stay; or

(b) that it is equitable on other grounds to make such a declaration.

8 The controlling authority is Ma, Re (2001), 2001 24076 (ON CA), 24 C.B.R. (4th) 68 (Ont. C.A.):

In considering an application for leave, the function of a bankruptcy court is not to enquire into the merits of the action sought to be commenced or continued. Instead, the role is one of ensuring that sound reasons, consistent with the scheme of the Bankruptcy and Insolvency Act, R.S.C. 1985 c. B-3, exist for relieving against the otherwise automatic stay of proceeding.

9 Ma, Re went on to note that the onus is on the applicant to establish a basis for the order within the meaning of s. 69.4. (See also Bandiera, Re, 2012 ONSC 2211 (Ont. S.C.J.) and CIBC Mortgages Inc. v. Touchie (2011), 2011 NSSC 228, 305 N.S.R. (2d) 228 (N.S. S.C. [In Chambers])

10 The moving creditor need only plead specific facts which show that there are sound reasons to lift the stay, such as a set of facts which, if believed, would fall within the ambit of subsection 178 (1) (d).

11 The Registrar reviewed the background of the matter and, in particular, made specific reference to the allegations in the statement of claim. See paragraphs 21 and 22 of the reasons of the Registrar.

12 It is sufficient, for the purposes of the disposition of this appeal, to focus on the first part of s. 178 (1) (d). AFCI has alleged that the debt or liability has arisen out of Advantage and Mr. Ieluzzi receiving the sale proceeds on AFCI's behalf while acting in a fiduciary capacity and that Advantage and Mr. Ieluzzi misappropriated and/or converted AFCI's funds to their own use. Further, by failing to hold the proceeds in trust for AFCI, Advantage and Mr. Ieluzzi have breached fiduciary duties to AFCI.

13 In my view, the basic elements set out in s. 178 (1) (d) have been alleged by AFCI such that, if the claim succeeds, there is the very real possibility that a court will make a finding that the debt is such that it survives any discharge from bankruptcy. The basic elements have been pleaded, namely, misappropriation or defalcation where acting in a fiduciary capacity. Acting in a fiduciary capacity connotes an element of trust. It is not necessary to examine, in detail, the second part of s. 178 (1) (d) as it pertains to the Province of Quebec. Simply put, a party can act as a trustee and, by definition, can also be acting in a fiduciary capacity. I see no reversible error in this part of the Registrar's decision.”

Legal Submissions by the Bankrupt

51I am not deciding whether the claims made by the Creditor against the Bankrupt in the Action will survive Bankruptcy. I am deciding whether the Creditor meets the legal test of being allowed to have another Court determine whether those claims are claims under s.178(1)(d) and (e) of the BIA to fulfill the overriding policy objectives of the BIA that a fresh start should not be given for certain types of claims.

52When I initially read the Responding Factum of the Bankrupt dated October 8, 2025 (the “Bankrupt’s Factum”) I had immediate concerns as it quoted extensively, but not accurately, from my decision Re Fakoori 2025 CarswellOnt 10525, 2025 ONSC 3956, 2025 A.C.W.S. 3329 (“Fakoori”).

53None of the case references in the Bankrupt’s Factum were hyperlinked to actual databases. Most of the case references lacked any paragraph references. Usually those are hallmarks of an AI assisted factum.

54As I recently noted in Re Gary Man Kin Ng 2026 CarswellOnt 3420, 2026 ONSC 1418 (“Ng”):

“14

No hyperlinks to the cases and paragraphs cited were present in the Bankrupt's Materials.

Rule 4.06.1 of the Rules of Civil Procedure state with respect to Facta and Books of Authorities:

Factums

4.06.1 (1) A factum that is required to be filed by these rules shall consist of a concise argument stating the facts and law relied on by the party filing the factum. O. Reg. 300/24, s. 3.

(2) Each citation to an authority in a factum must include a reference to the relevant paragraph, provision or page number of the authority. O. Reg. 300/24, s. 3.

(2.1) A factum shall include a statement signed by the party's lawyer, or on the lawyer's behalf by someone the lawyer has specifically authorized, certifying that the person signing the statement is satisfied as to the authenticity of every authority cited in the factum. O. Reg. 384/24, s. 1.

(2.2) An authority that is published on a government website or otherwise by a government printer, on the Canadian Legal Information Institute website, on a court's website or by a commercial publisher of court decisions is presumed to be authentic for the purposes of subrule (2.1), absent evidence to the contrary. O. Reg. 384/24, s. 1.

If Filed Electronically

(3) A factum that is filed electronically must meet the following requirements:

1. The factum must include bookmarks, as appropriate, for each section.

2. Each citation to an authority that is published on a website referred to in subrule 4.05.3 (7.1) must be hyperlinked to the published authority or, if possible, to the relevant provision or portion of the published authority. O. Reg. 300/24, s. 3.

When Book of Authorities is Also Required

(4) Except in a proceeding in the Court of Appeal, if a factum is filed electronically and contains one or more cited authorities that cannot be hyperlinked in accordance with subrule (3), or is filed in paper format, a book of authorities that meets the requirements of subrule (5) shall be served and filed together with the factum. O. Reg. 300/24, s. 3.

Contents

(5) Unless the court orders otherwise, a book of authorities shall contain the following information and documents:

1. A table of contents listing each authority cited in the factum.

2. If the book of authorities is being filed in electronic format,

i. for each cited authority that is published on a website referred to in subrule 4.05.3 (7.1), a hyperlink from the table of contents to that document, and

ii. for each cited authority that is not published on a website referred to in subrule 4.05.3 (7.1), a copy of that authority with a hyperlink to it from the table of contents.

3. If the book of authorities is being filed in paper format, a copy of each cited authority. O. Reg. 300/24, s. 3.

On questioning by me, the Bankrupt admitted using AI to generate his materials, and that he did not actually read the cases and paragraph references cited in his materials for the propositions he put forward, but relied on AI to do it for him.

As stated by Myers, J. in Ko v. Li, 2025 ONSC 2766 (“Ko”):

"[14] This occurrence seems similar to cases in which people have had factums drafted by generative artificial intelligence applications (like ChatGPT). Some of these applications have been found to sometimes create fake legal citations that have been dubbed "hallucinations." It appears that Ms. Lee's factum may have been created by AI and that before filing the factum and relying on it in court, she might not have checked to make sure the cases were real or supported the propositions of law which she submitted to the court in writing and then again orally.

15All lawyers have duties to the court, to their clients, and to the administration of justice.

16It is the lawyer's duty to faithfully represent the law to the court.

17It is the lawyer's duty not to fabricate case precedents and not to mis-cite cases for propositions that they do not support.

18It is the lawyer's duty to use technology, conduct legal research, and prepare court documents competently.

19It is the lawyer's duty to supervise staff and review material prepared for her signature.

20It is the lawyer's duty to ensure human review of materials prepared by non-human technology such as generative artificial intelligence.

21It should go without saying that it is the lawyer's duty to read cases before submitting them to a court as precedential authorities. At its barest minimum, it is the lawyer's duty not to submit case authorities that do not exist or that stand for the opposite of the lawyer's submission.

22It is the litigation lawyer's most fundamental duty not to mislead the court.

23In Zhang v Chen, 2024 BCSC 285 Masuhara J. dealt with a similar issue. Masuhara J. held:

Citing fake cases in court filings and other materials handed up to the court is an abuse of process and is tantamount to making a false statement to the court. Unchecked, it can lead to a miscarriage of justice.

24In that case, the lawyer caught her mistake before the hearing, apologized to all, and withdrew her factum. Here, counsel actively relied on two of the suspicious cases as part of her submissions in open court. In the few days that have past since the oral hearing, I have not received any communication from Ms. Lee explaining, correcting her factum, or otherwise acknowledging an issue.

25I do not know the full facts yet. There are cases that are not available on the .org website. But I have also determined that the three unknown cases discussed above are also not found on any of Westlaw, Quicklaw, or Google. Perhaps wrong hyperlinks were given for cases. Perhaps AI was not used to create the factum and these are not examples of hallucinations. Perhaps counsel misunderstood Johnson.

26The court must quickly and firmly make clear that, regardless of technology, lawyers cannot rely on non-existent authorities or cases that say the opposite of what is submitted.

27With the sudden advent of AI, this has quickly become a very important issue.

28In the US, several cases have been reported in which courts have grappled with issues arising from lawyer's brief containing AI hallucinations. For a very recent case discussing the problem thoroughly, see: Benjamin v Costco Wholesale Corp., No. 2:24-cv-7399, 2025 US Dist. LEXIS 78895 (E.D.N.Y Apr. 24, 2025)

29In R. v. Cohn, 1984 43 (ON CA), Goodman JA defined a contempt in the face of the court:

A contempt in the face of the court may be broadly described as any word spoken or act done in, or in the precincts of, the court which obstructs or interferes with the due administration of justice or is calculated so to do.

30Ms. Lee may have committed grave breaches of her duties that may amount to contempt in the face of the court.”

90 If the Bankrupt was unaware of the restrictions, requirements and possible consequences of use of AI Court Materials, he cannot say that after these reasons are released he is unaware of the requirements to advise the Court as to the use of the AI materials, the requirements to comply with the provisions of the Rules of Civil Procedure, the Commercial List Practice Direction, and the Bankruptcy Court Practice Direction, and specifically the Practice Direction dated June 15, 2023 "K. The Use of Artificial Intelligence (AI) for Court Proceedings" to file compliant Court materials.

92 The consequences for the failure to comply with the Rules regarding AI Materials are set out in detail in Ko and XL, which I have quoted from extensively. The Bankrupt can no longer plead ignorance of the implications of using AI improperly in future matters, including having Courts finding him to be in contempt.”

55Even more recently, Myers, J. in Kapahi Real Estate Inc. v. Elite Real Estate Club of Toronto Inc., 2026 ONSC 1438 (“Kapahi”), where the presumed robotic factum writer instead of merely producing hallucinatory citations, became more ambitious and creative, and manufactured entire hallucinatory quotes that did not actually appear in the actual real cited cases, stated:

“[40] Try as I might, I do not understand Mr. Parvaiz’s response. If he did not use AI, how did he come to make up seven paragraphs and call them quotations from real cases? If I accept that Mr. Parvaiz did not use AI for research or drafting, I am at a loss for how these quotations could be a result of human error, a lack of due care, misreading the cases cited, carelessness, or inadvertence as stated by Mr. Parvaiz.

41I do not understand how one can make up a quotation that supports the argument in a factum by misreading a case or being careless. The only way I can understand Mr. Parvaiz having made up seven distinct quotations is if he believes that counsel is allowed to make up law in his factum. Perhaps doing it once could be some kind of slip or error that mistakenly found its way into the factum. But not seven times.

42Mr. Parvaiz says that he was only called to the bar in 2022. I do not believe that anyone can get through bar admission and ethics courses believing that counsel are allowed to make up principles and attribute them to real cases.

43But that leaves me in a quandary. Either Mr. Parvaiz used AI and has been untruthful about it, or he made up seven fake paragraphs and chose to present them as actual quotations from precedent cases.

44As is often the case, if Mr. Parvaiz has not been truthful, the cover-up may be worse than the initial error.

45I have previously required counsel to show cause why they should not be held in contempt of court for relying on fake cases in a factum and in open court. Ko v. Li, 2025 ONSC 2766.

46But in a show cause proceeding, I have no ability to investigate to try to determine what happened from objective sources like computer metadata and online histories. As judge, I am not able to cross-examine or challenge credibility like a prosecutor.

47In Ko v Li, 2025 ONSC 6785, I ultimately referred prosecution of a contempt of court proceeding to the Attorney General. But that came after counsel admitted in writing that she had been untruthful in a prior hearing. With the unclear facts here, I do not think it is necessary or appropriate to take that step at this time.

48I am also concerned because there has already been a proceeding under Rule 57.07 in which Mr. Parvaiz was exposed to some jeopardy in costs for misconduct that included the fake quotations in his Reply Factum. While that does not preclude contempt of court, other quasi-criminal or criminal processes, or administrative proceedings, it does lead me to temper the court’s ongoing involvement.

50In my view, on these facts, the best outcome to determine if there has been either use of AI hallucinations or deliberate falsification of law is for those with the authority to investigate to be left to do so. It will be up to the authorities to decide if charges of one type or another should be brought.”

56Having concerns that something similar was occurring, after the conclusion of argument on October 15, 2025 I adjourned the Motion, and in my October 15 Endorsement gave Onyekwelu an opportunity to fix the problems by filing further submissions:

“After argument on the Materials provided, as counsel for the Bankrupt has raised a number of arguments that require greater support, I am adjourning this Motion for leave under s.69.4 of the BIA pending receipt of further written materials by counsel for the Bankrupt, counsel for the Moving Party Creditor and from the Trustee:

Bankrupt: By November 28th, 2025 to provide to the Moving Party, the Trustee and the Court:

1. Any jurisprudence that supports the argument made by the Bankrupt that the Moving Party creditor does not have standing to bring this Motion under s.69.4 of the BIA because they are listed by the Trustee as contingent creditors, rather than creditors with a Proven Claim.

2. Any jurisprudence that supports the argument made by the Bankrupt that the allegations made of fraud and breach of Trust are not complex and should be determined by investigations and proceedings in the Bankruptcy conducted by the Trustee, and specifically the discharge hearing, and specifically how the Trustee is to assess and determine credibility.

3. Any jurisprudence that supports the argument made by the Bankrupt that the allegations made of fraud and breach of Trust should be determined by investigations and proceedings in the Bankruptcy conducted by the Trustee, and specifically the discharge hearing, and specifically how the Trustee is to assess and determine credibility and under what procedure “where all evidence will be tested under the Trustee’s supervision”.

4. Where precisely in Re Fakoori 2025 ONSC 3956 the Court “emphasized that relief under s.69.4 must remain exceptional and should not be granted simply because a parallel action is well advanced” and where the Court stated “Courts have consistently cautioned against lifting the stay where it would disrupt the orderly administration of the estate”.

57I also requested that the Trustee provide the Supplementary Report updating the status of the Bankruptcy, and allowed the Creditor to file responding Materials to whatever the Bankrupt filed. The Creditor filed the Further Supplementary Motion Record with the Creditor’s Supplementary Affidavit, but chose not to file an additional factum.

58The Bankrupt filed his Factum-like “Supports for Arguments of the Bankrupt”(the “Bankrupt’s Supplementary Factum”), which again, lacked any of the hyperlinks to databases for the case references required under the Rules of Civil Procedure and the Practice Directions, and lacked paragraph references for most of the cited cases. No Book of Authorities with the cited cases was filed.

59With the assistance of the Judicial Library, I had the cases cited in the Bankrupt’s Facta provided to me, which is NOT how that is supposed to work. The Judicial Library confirmed that the cases cited were in fact genuine.

60But as I will set out below in detail, the arguments made in the Bankrupt’s Facta did not properly reflect those authorities cited, and the lack of most paragraph references required a forensic review of each case to determine whether that case stood for that proposition cited by the Bankrupt. Again, that is NOT how that is supposed to work.

Issue 1) Can a contingent creditor bring a Motion for leave under s.69.4 of the BIA?

61About 9 paragraphs of the Bankrupt’s Affidavit were devoted to impermissible non-expert opinion regarding the alleged inability of the Creditor to bring this Motion as he was a “contingent creditor”.

62Counsel for the Bankrupt led with this at the hearing.

63Paradoxically, in the Bankrupt’s Factum it is stated:

“4. The estate is under control of a Licensed Insolvency Trustee (Chande & Co.); no risk of asset dissipation exists. The motion seeks to continue a civil action raising issues that are highly contentious as the debtor declared them as totally false. There is little or no prospect of success in the said civil action and as such, there is no sound reason to lift the stay.”

But also:

“9. The Moving Party has not shown real prejudice beyond ordinary delay. His claim is fully protected within the bankruptcy: he is a recognized creditor; his Proof of Claim has been filed; and the Trustee’s process provides for discovery, tracing, and examination. Nothing is lost by awaiting the conclusion of the entire process.”

64First of all the Trustee confirmed at the hearing that he has collected approx.. $1800 in the estate and later stated in the Trustee’s Supplementary Report:

“11. The Amended Statement of Claim with the proof of claim and the subsequent motion record for the Motion to Lift the Stay, filed by PHM makes various allegations of fraud; however, the Trustee is not in funds to conduct a detailed and comprehensive investigation into the allegations of fraud.”

65I asked counsel for the Bankrupt that since the premise that the Trustee would be conducting the investigations regarding fraud was central to his opposition to the leave motion, and the Trustee confirmed at the hearing that he would not be doing so, having no funds, where did that leave his argument?

66I also raised with counsel for the Bankrupt on October 15, 2025 at the hearing that, to my knowledge, the decision of Penny, J. in Global Royalties, which is binding upon me, stated clearly that the definition of “creditor” in the BIA included contingent creditors for the purposes of having standing to seek leave under s.69.4:

“[4] The relevant allegations in the statement of claim are that Brook breached fiduciary duties owed to the plaintiffs, defrauded the plaintiffs and misappropriated sales, revenue and business opportunities from the plaintiffs and that the other defendants knowingly assisted Brook in his dishonest and fraudulent behavior. It is alleged that Brook falsely represented sales and marketing figures to the plaintiffs and that he wrongfully copied and removed client files from the plaintiff's office and fraudulently diverted sales, revenues and clients from the plaintiffs to his new venture.

13Second, the definition of creditor includes a contingent creditor. The plaintiffs’ claims are for unliquidated damages and have yet to be proved, to be sure, but to the extent they assert monetary claims arising pre-bankruptcy, they are creditors.

25Here, the plaintiffs have alleged that Brook committed fraud, misappropriated money and assets and obtained property by fraudulent misrepresentation. The plaintiff complains that none of these allegations have been proved. That, however, is clearly not the test.

26While the pleading lacks a certain amount of particularity, this is not a pleadings motion. The bottom line of the pleading is that allegations are made of fraudulent conduct which, if proved, could result in an award of monetary damages which would not be released on discharge.

27Having to wait until discharge, when a release may well not be available to the defendant anyway, represents material prejudice to the plaintiffs.”

67I gave the Bankrupt the opportunity to file further materials to support this contention regarding the “contingent claim” of the Creditor. However, in the Bankrupt’s Supplementary Factum, the Bankrupt did not mention, at all, why Global Royalties is not applicable and binding, instead stating:

“Furthermore, it is safe to suggest that the right of an unsecured creditor under the BIA is to file a proof of claim with the trustee, and only if the proof of claim is allowed, the creditor is entitled to receive a proportionate share of the net proceeds of the bankrupt's estate. Therefore, the contingent creditors who have not yet established a provable claim, may not have the requisite standing to bring a motion under section 69.4 of the BIA.”

68No jurisprudence is cited for that proposition, which is directly contrary to Penny, J.’s binding decision in Global Royalties.

69Global Royalties was not an obscure precedent that would have been difficult for counsel for the Bankrupt to locate. The decision of Penny, J. (and of Strathy, J.A. refusing leave to appeal the decision of Penny, J.), have been referred to and followed collectively over 30 times, including by me in the Fakoori decision, which the Bankrupt also misstated repeatedly in his Facta.

70Also one of the Advocate Mines factors, listed by Registrar Ferron as being specific circumstances in which leave can be granted, is:

“2. Actions in respect of a contingent or unliquidated debt, the proof of which and valuation has that degree of complexity which makes the summary procedure prescribed by s. 95(2) of the Bankruptcy Act inappropriate”

71The Bankrupt cited three cases Bell Canada v Red Rhino Entertainment Inc, 2019 FC 1460 at para 27, 4028490 Canada Inc. v. Canada, [2005] T.C.J. No. 95, and International Hi-Tech Industries Inc. v. Canada, [2014] T.C.J. No. 154.

72In Red Rhino the court found that no leave under the BIA was required because the moving parties were seeking to find the Bankrupt in contempt of an injunction. The issue of standing was not decided because no leave was required, because a motion to find the Bankrupt in contempt was not a proceeding “for the recover a claim provable in bankruptcy”. This case had absolutely nothing to do with whether a contingent creditor had standing to bring a leave motion under s.69.4 of the BIA.

73In 4028490 Canada Inc. the issue was whether the Bankrupt could apply for obtain an extension of time for the Applicant to file a notice of objection to an assessment under the Income Tax Act. This case had absolutely nothing to do with whether a contingent creditor had standing to bring a leave motion under s.69.4 of the BIA.

74In International Hi-Tech Industries Inc. the Tax Court of Canada found that a secured creditor with a General Security Agreement may continue the appeal filed by a Bankrupt to have it heard on its merits, as the benefit of the appeal, namely an HST Refund, could fall within the collateral secured under the GSA. Once again, this case had absolutely nothing to do with whether a contingent creditor had standing to bring a leave motion under s.69.4 of the BIA.

75The Bankrupt having made no arguments supported by applicable case law, and many irrelevant arguments, I find that under the binding jurisprudence in Global Royalties that the Creditor has standing to bring this Leave Motion.

Issue 2) Jurisprudence that supports the argument made by the Bankrupt that the allegations made of fraud and breach of Trust are not complex and should be determined by investigations and proceedings in the Bankruptcy conducted by the Trustee, and specifically the discharge hearing, and specifically how the Trustee is to assess and determine credibility.

76With respect to the second issue I raised with the Bankrupt and allowed his counsel to file further materials, the Bankrupt first states in the Supplementary Factum:

“The Bankruptcy and Insolvency Act (BIA) provide mechanisms for addressing allegations of fraud and breach of trust during bankruptcy proceedings. Section 205 of the BIA allows the court to authorize the Trustee to initiate criminal proceedings if there is sufficient evidence to believe that a person is guilty of an offence under the Act or other statutes in connection with bankruptcy’s property or transactions. This provision underscores the Trustee's role in investigating and reporting offences, including fraud and breach of trust, during the bankruptcy process.”

77Yes, the BIA has provisions such as s.205 for the Trustee reporting facts that may amount to CRIMINAL fraud and breach of Trust to the appropriate authorities for investigation and possible prosecution. But the allegations in the Action, given that the Bankrupt proceeded, with the assistance of his own counsel, through discovery involves allegations of CIVIL fraud and breach of Trustee. One remedy does not eliminate the other, and civil and criminal fraud and breach of trust proceedings can proceed concurrently.

78The practical issue was what role the Trustee had to investigate and determine CIVIL fraud allegations made by the Creditor, and how the Trustee would do so, having made approx. $1800 in recoveries from the Bankrupt, where the Trustee has repeatedly stated “…the Trustee is not in funds to conduct a detailed and comprehensive investigation into the allegations of fraud.”

79The Bankrupt also states “that fraudulent breach of trust can be grounds for opposing a bankrupt's discharge” and that the Bankruptcy Court could make the determination of fraud at the Discharge hearing citing Wirick (Re), 2005 BCSC 1906, (“Wirick”) and Campoli Electric Ltd v Georgian Clairlea Inc, [2017] OJ No 2980, 2017 ONSC 2784, 281 ACWS (3d) 463, 77 CLR (4th) 70, 2017 CarswellOnt 8873.

80The Bankrupt says that Wirick supports the following proposition:

“The court held that the opposing creditors were entitled to a finding of fraudulent breach of trust to oppose the bankrupt's application for an absolute discharge. This case demonstrates that allegations of fraud and breach of trust are not inherently too complex to be addressed during bankruptcy proceedings.”

81In the Wirick decision cited by the Bankrupt, the Court was hearing the Bankrupt’s Discharge in February 2005. However, as stated by Sigurdson, J.:

1THE COURT: This is an application by the bankrupt, Martin Wirick, for an order for a discharge from bankruptcy. Mr. Wirick is not eligible for an absolute discharge of bankruptcy because of a finding that I made on August 3, 2004 that he was guilty of fraudulent breach of trust under s. 173(1)(k) of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 ("the Act").

2I will not repeat the circumstances leading to my finding that the bankrupt was guilty of fraudulent breach of trust, although I will refer to them in passing later in these reasons.”

82So in that Wirick case cited by the Bankrupt, the Court was deciding on discharge on the basis of a fraud it had ALREADY determined, a year earlier, in a prior Wirick case.

83That Wirick case, not cited by the Bankrupt, was also before Sigurdson, J. and was reported as Re Wirick 2004 CarswellBC 1950, 2004 BCSC 1826, [2004] B.C.W.L.D. 1118, [2004] B.C.J. No. 1773, 133 A.C.W.S. (3d) 590, 155 A.C.W.S. (3d) 25, 35 B.C.L.R. (4th) 132, 5 C.B.R. (5th) 124. After citing all of the following jurisprudence that states that issues of fraud and fraudulent breach of Trust SHOULD NOT be determined in a summary fashion in Bankruptcy proceedings, unless there already is a pre-existing finding of fraud by another Court:

Horwitz, Re, 52 C.B.R. (N.S.) 102, [1984] O.J. No. 1018 (Ont. H.C.), aff'd 53 C.B.R. (N.S.) 275, [1985] O.J. No. 1402 (Ont. C.A.)(“Horwitz”), Kemper, Re, 2 C.B.R. (N.S.) 130, [1961] O.W.N. 288 (Ont. S.C.)(“Kemper”), Herd, Re, 1988 3269 (BC SC), 71 C.B.R. (N.S.) 92, [1988] B.C.J. No. 1924 (B.C. S.C.), aff'd 77 C.B.R. (N.S.) 209, [1989] B.C.J. No. 2368 (B.C. C.A.) Abou-Rached, Re, 35 C.B.R. (4th) 165, 2002 BCSC 1022, Hashem, Re (1984), 1984 2378 (SK QB), 54 C.B.R. (N.S.) 156, 36 Sask. R. 179

Sigurdson, J. states:

“27 I think that when the court in bankruptcy is presented with essentially undisputed facts, it can make a finding whether or not the bankrupt has been found guilty of any fraud or fraudulent breach of trust. When there are disputed facts, unless they can be resolved, the court of course must await the determination of that issue in a civil or criminal proceeding. Presumably it can order a trial of that issue, if appropriate, or grant a creditor or the trustee leave to start an action against the bankrupt. Where the issue can be determined on the evidence that is not in dispute, I do not see why parties must go to the expense and trouble of another proceeding, particularly when the purpose is simply to determine whether the bankrupt is not eligible for an absolute discharge and some other type of order on his discharge application is appropriate. Given that the facts are not in dispute, only their legal effect, I can decide whether I should make the finding sought by the applicants.”

84The Bankrupt in his Facta and the Bankrupt’s Affidavit says that he disputes all of the allegations of fraud and breach of trust made by the Creditor, and makes additional allegations of criminality and illegality against the Creditor.

85Even if Wirick was binding at law on this Ontario Court, as opposed to the Ontario Court of Appeal decision in Horwitz and Smily, J.’s decision in Kemper, which are binding contrary authority to the proposition being advanced by the Bankrupt, then whichever Wirick decision the Bankrupt is actually relying on is totally distinguishable on these facts. There is nothing “undisputed” between the Bankrupt and the Creditor.

86Even Wirick, in the prior Wirick decision not cited by the Bankrupt, states that:

“When there are disputed facts, unless they can be resolved, the court of course must await the determination of that issue in a civil or criminal proceeding. Presumably it can order a trial of that issue, if appropriate, or grant a creditor or the trustee leave to start an action against the bankrupt.”

87The Bankrupt also cites Campoli Electric Ltd. v. Georgian Clairlea Inc. 2017 CarswellOnt 8873, 2017 ONSC 2784, 281 A.C.W.S. (3d) 463, 77 C.L.R. (4th) 70 (“Campoli Electric”) as supporting his position that the Bankruptcy Court can deal with determinations of Fraud. As I noted in Can-Industrial Electric v. City of Toronto 2022 CarswellOnt 19800, 2022 ONSC 7376, 2022 A.C.W.S. 5734 , the Campoli Electric case is very factually dense, and very much turns on its very specific facts:

“110 The Bankrupt relies on Campoli. As I noted in the preamble, I invited counsel for the Bankrupt at the October hearing to reconsider the interpretation that counsel for the Bankrupt asserted in Campoli, and I did so again at the re-convened hearing of the Motion in December, after reviewing the Fresh as Amended Factum.

111 To be completely clear, the particular factual circumstances of Campoli that lead to the statement made by Master Short that "there is little point in getting leave to continue this action if the court finds that this is not a case where the judgment should survive bankruptcy" make that statement limited to the facts of why Master Short decided that case, and are not of general application, which I reiterated to counsel for the Bankrupt, twice.

112 In Campoli, the lien claimants had settled with the corporate defendant and with the mortgagees and agreed to take a subordinate mortgage in exchange for discharging their liens. The lien claimants signed releases with the corporate defendant AND the individual defendant directors in exchange for being granted the mortgage. The property was sold but for insufficient funds to pay proceeds to the lien claimants. The lien claimants then began an action claiming breach of trust, but 3 years after the date that Master Short determined they were aware of their trust claims, and therefore out of time under the Limitations Act.

113 Each of the individual directors had filed proposals under the BIA under which stays were imposed. In addition, CRA had brought claims in the proposals of the directors in the amount of $13,487,679 while the trust claims were only $1,107,657.

114 Master Short determined "there is little point in getting leave to continue this action if the court finds that this is not a case where the judgment should survive bankruptcy." in the particular factual matrix of Campoli, because:

i) The claims against the Corporate defendant AND the individual directors had been released by the lien claimants;

ii) AND the trust claims were out of time under the Limitations Act;

iii) AND because the Action against the corporate defendant was stayed and also released and no steps had been taken to lift the stay to prove liability for breach of trust by the corporate defendant;

iv) AND because the evidence placed before Master Short with respect to the individual directors was insufficient to prove breach of trust as no finding of breach of trust had been found against the corporate defendants, who had denied any liability.

115 Accordingly, other than for stating general principles, because of the particular intricate factual matrix in Campoli, I find that Campoli is distinguishable on the facts, and in any event is not binding authority on me by a superior court, as I would be bound by the decisions above, and the decision of Kershman, J. in Yanic Dufresne.”

88In any event, Master Short did NOT decide the fraud claims. He decided that leave should not be granted because:

a) the fraud claims could not be proven as they had already been released prior to bankruptcy;

and

b) the fraud claims were out of time under the Limitations Act,

and not because he decided them on a summary basis.

89So, again, Campoli does not support the arguments being made by this Bankrupt.

90The Bankrupt then proceeds in the Bankrupt’s Supplementary Factum for a half-dozen more paragraphs arguing that the Bankruptcy Court has the ability to decide issues of fraud without citing any other authority for those propositions.

91The Bankrupt cites the following:

“The court’s ability to make such determinations [fraudulent conduct] highlights its capacity to address complex issues of fraud and breach of trust within the bankruptcy framework. Wang v Wang, 2024 BCSC 1162.”

92But the Wang v Wang case cited by the Bankrupt was an appeal that upheld an Associate Justice’s decision in a civil documentary production motion. It had absolutely nothing to do with determination of fraud in a Bankruptcy context and the ruling was by the Civil, not the Bankruptcy Court.

93Similarly, the Bankrupt cites Simone v Daley 1999 3208 (ON CA), [1999] O.J. No. 571 (actually 1999 CarswellOnt 551, [1999] O.J. No. 571, 118 O.A.C. 54, 170 D.L.R. (4th) 215, 24 R.P.R. (3d) 1, 43 O.R. (3d) 511, 86 A.C.W.S. (3d) 271, 8 C.B.R. (4th) 143) stating in the Supplementary Factum:

“For instance, in Simone v. Daley, 1999 3208 (ON CA), [1999] O.J. No. 571, the court held that a breach of trust under the Construction Act could fall within s. 178(1)(d) of the BIA, provided the breach was not due to simple inadvertence, negligence, or incompetence. This demonstrates the nuanced analysis required to distinguish between different types of breaches and fraudulent conduct, which bankruptcy courts are well-suited to undertake.”

94The decision on appeal to the Court of Appeal in Simone v. Daley was not from the Bankruptcy Court, but the Civil Court. The issue was whether the alleged breach of trust under the Construction Act survived the Discharge from Bankruptcy of one of the 6 Defendants in the Action. The Civil Court decided it. The Court of Appeal reversed that finding with respect to that one Defendant. The Bankruptcy Court played no role. This decision would argue AGAINST the position of the Bankrupt on this Motion, not FOR the position.

95Finally for this issue the Bankrupt argues that somehow Matthews Equipment Ltd (cob Hertz Equipment Rental) v Yalda Contracting Inc, 2021 ONSC 1823 is applicable. I cannot see how. This was an undefended default judgment motion before the Civil Court, inter alia for breach of Trust under the Construction Act. None of the Defendants were bankrupt. The Court refused to grant a pre-emptive Order that the judgment survived Bankruptcy when none of the defendants were in fact Bankrupt. I fail to see how this case could possibly be applicable.

96Accordingly, following Horwitz and Kemper, as well as the “other” Wirick decision that the Bankrupt failed to cite, I find that:

“When there are disputed facts, unless they can be resolved, the court of course must await the determination of that issue in a civil or criminal proceeding. Presumably it can order a trial of that issue, if appropriate, or grant a creditor or the trustee leave to start an action against the bankrupt”

Issue 3) Jurisprudence that supports the argument made by the Bankrupt that the allegations made of fraud and breach of Trust should be determined by investigations and proceedings in the Bankruptcy conducted by the Trustee, and specifically the discharge hearing, and specifically how the Trustee is to assess and determine credibility and under what procedure “where all evidence will be tested under the Trustee’s supervision”.

97For this issue the Bankrupt in both Facta continued to make submissions that fraud claims should be investigated by the Trustee and adjudicated at the discharge hearing.

98As I stated above, the binding Ontario cases of Horwitz and Kemper state that premise is incorrect, but the Bankrupt somehow raises s. 41(8) dealing with the release of the Trustee on discharge, s.14.01(1) of the BIA that discharge Orders do not preclude inquiries by the Superintendent of Bankruptcy, and that because s.173 facts can be proven at a discharge hearing, that:

This demonstrates that the bankruptcy court has broad discretion to address allegations of fraud and breach of trust during discharge hearings, and that such matters are integral to the process

99The Bankrupt cited the Supreme Court Decision in Poonian v British Columbia (Securities Commission), 2024 SCC 28, but providing no paragraph reference. Generally, what the Supreme Court was dealing with in Poonian was the interpretation by the Bankruptcy Court of s.178 of the BIA as to whether the wording included judgments of securities regulators made prior to Bankruptcy, not the actual making of findings of fraud under s.178(1)(e), by the Bankruptcy Court DURING bankruptcy proceedings. The Poonian case, again, had nothing to do with a discharge hearing or the determination of a s.178 debt during a discharge hearing.

100The Bankrupt also cited for the issue I raised as to how a Trustee would assess credibility in a dispute such as the one between the Creditor and this Bankrupt the decisions of Toro Aluminum Ltd. v. Revah, 1999 14847 (ON SC) and Dicroce (Bankruptcy), Re, 2004 15274 (ON SC), again with no paragraph references.

101In each case the Creditor was asking to have a pre-existing judgment against a Bankrupt declared to be a debt that is not dischargeable under s.178, as a breach of trust under then Construction Lien Act. Neither case has anything to do with a Trustee in Bankruptcy determining credibility of parties.

102The Bankrupt also cites Batista v. Mason’s Masonry Supply Limited, 2014 ONSC 3955, without any paragraph references, for the proposition “This highlights the importance of the Trustee’s role in identifying and presenting evidence of fraudulent conduct during bankruptcy proceedings”. This is yet another case where a creditor attempted to have a default judgement determined to be a s.178 debt for breach of Trust under the (then) Construction Lien Act, except after 23 years had passed after the Bankrupt’s discharge. I have no idea where the Bankrupt manufactured the proposition he quoted in his Facta. There was no Trustee involvement at all in this case.

103Finally the Bankrupt cited my cases Zivic (Re), [2022] O.J. No. 2779, Chhabra (Re), [2023] O.J. No. 1472, and also Dicroce for the following proposition, again without paragraph references:

“In conclusion, Canadian bankruptcy law provides a robust framework for addressing fraud and breach of trust during bankruptcy proceedings. The trustee plays a pivotal role in investigating and presenting evidence of such conduct, which is integral to the court’s decision-making process regarding discharge applications.”

104I wrote those decisions, and nowhere in my decisions can I find any statement approaching what the Bankrupt states these cases stand for. I don’t disagree with the generality of the statement, but none of those cases actually state that particular proposition, at all.

Issue 4) Where precisely in Re Fakoori 2025 ONSC 3956 the Court “emphasized that relief under s.69.4 must remain exceptional and should not be granted simply because a parallel action is well advanced” and where the Court stated, “Courts have consistently cautioned against lifting the stay where it would disrupt the orderly administration of the estate”.

105The Bankrupt admits in the Bankrupt’s Supplementary Factum:

“The emphasis that reliefs under s.69.4 must remain exceptional and should not be granted simply because a parallel action is well advanced and that Courts have consistently cautioned against lifting the stay where it would disrupt the orderly administration of the estate, was not precisely drawn from any passage in Re Fakoori, but rather from our understanding of the courts references to Re Ma and Re Francisco and other jurisprudence on the topic.”

106In other words the Bankrupt admits manufacturing the proposition stated in his original Factum as being from my decision, which is an astounding admission, but as I have pounded through misstatement after misstatement of jurisprudence in the Bankrupt’s Facta, it is consistent behaviour.

107The Bankrupt then proceed to misstate even more jurisprudence for another 22 swirling repetitive paragraphs of the Bankrupt’s Supplementary Factum. Rather than continuing to quote the Bankrupt, misquoting me in Fakoori, and manufacturing propositions and taking quotes out of context from Fakoori regarding the meaning of Ma and Francisco, I will simply proceed to deal directly with the tests in Ma, Francisco, Advocate Mines, Mathur, and Ielluzi, and the facts of this Motion.

ANALYSIS

The threshold to be met by the Creditor to enable the Court to grant leave:

108Instead of the dozens of paragraphs of the Bankrupt’s Facta, parsing and re-parsing, badly, Ma and Francisco, the operative paragraphs 2-3 of Ma (quoting Francisco) state:

“2 In our view there is no requirement to establish a prima facie case and no inconsistency in the case law. We do not agree that Bowles v. Barber imposes a prima facie case requirement. More importantly, that requirement is not imposed by the statute. Under s. 69.4 the court may make a declaration lifting the automatic stay if it is satisfied (a) that the creditor is “likely to be materially prejudiced by [its] continued operation” or (b) “that it is equitable on other grounds to make such a declaration.” The approach to be taken on s. 69.4 application was considered by Adams J. in Re Francisco (1995), 1995 2018 ONSC 4425 () - Page 4 - 7371 (ON SC), 1995 7371 (ON SC), 32 C.B.R. (3d) 29 at 29-30 (Ont. Gen. Div.), a decision affirmed by this court (1996), 1996 10233 (ON CA), 40 C.B.R. (3d) 77 (Ont. C.A.):

“In considering an application for leave, the function of a bankruptcy court is not to inquire into the merits of the action sought to be commenced or continued. Instead, the role is one of ensuring that sound reasons, consistent with the scheme of the Bankruptcy and Insolvency Act, R.S.C. 1985, c.B-3, exist for relieving against the otherwise automatic stay of proceedings.”

As this passage makes clear, lifting the automatic stay is far from a routine matter. There is an onus on the applicant to establish a basis for the order within the meaning of s. 69.4. As stated in Re Francisco, the role of the court is to ensure that there are “sound reasons, consistent with the scheme of the Bankruptcy and Insolvency Act” to relieve against the automatic stay. While the test is not whether there is a prima facie case, that does not, in our view, preclude any consideration of the merits of the proposed action where relevant to the issue of whether there are "sound reasons" for lifting the stay. For example, if it were apparent that the proposed action had little prospect of success, it would be difficult to find that there were sound reasons for lifting the stay.”

109Cutting through the Bankrupt’s maelstrom of submissions and misstatements regarding the tests they purportedly establish, Ma and Francisco, together, provide binding appellate guidance for the following tests on a s.69.4 leave motion:

1. There is no requirement in the jurisprudence for the moving party on a s.69.4 leave motion to establish a prima facie case;

2. The BIA itself does not impose the requirement of proving a prima facie case;

3. There is an onus on the applicant to establish a basis for the order within the meaning of s. 69.4:

a) the creditor is “likely to be materially prejudiced by [its] continued operation” of the stay;

OR

b) “that it is equitable on other grounds to make such a declaration.”

4. the function of a Bankruptcy Court is NOT to inquire into the merits of the action sought to be commenced or continued;

5. lifting the automatic stay is far from a routine matter;

6. The role of the court is to ensure that there are “sound reasons, consistent with the scheme of the BIA ” to relieve against the automatic stay;

7. The Court should consider the merits of the proposed action where relevant to the issue of whether there are "sound reasons" for lifting the stay;

8. ONE example of a lack of “sound reasons” to lift the stay was if a Court found it was “apparent” that the proposed action had little prospect of success;

9. Fransciso, followed by Ma, imports the specific tests set out by Registrar Ferron in Advocate Mines as a non-exhaustive codification of the policy underlying the BIA and examples of situations where there are “sound reasons” to lift the stay;

10. The “Advocate Mines factors” are one, but not the exclusive, articulation of the type of grounds which may provoke the exercise of a judicial discretion to grant the lifting of the stay;

11. To view Advocate Mines as a limiting or exhaustive instrument is an error in principle;

12. In Re Advocate Mines, Registrar Ferron found that the court may remove the stay of proceedings in “appropriate cases”, and has done so in the following circumstances:

a) Actions against the bankrupt for a debt to which a discharge would not be a defence;

b) Actions in respect of a contingent or unliquidated debt, the proof of which and valuation has that degree of complexity which makes the summary procedure prescribed by s. 95(2) of the Bankruptcy Act inappropriate;

c) Actions in which the bankrupt is a necessary party for the complete adjudication of the matters at issue involving other parties;

d) Actions brought to establish judgment against the bankrupt to enable the plaintiff to recover under a contract of insurance or indemnity or under compensatory legislation;

e) Actions in Ontario which, at the date of bankruptcy, have progressed to a point where logic dictates that the action be permitted to continue to judgment.

On the Evidence before the Court does the Creditor meet his onus of proving “sound reasons” exist to lift the stay?

110In the Statement of Claim the Creditor has set out the basis upon which he is seeking an order under s.178(1)(d) and (e) of the BIA. In particular in the Statement of Claim in the Action there are causes of action and material facts plead, that prove that the Creditors have

“…plead specific facts that show that there are sound reasons to lift the stay, such as a set of facts, which if believed, would fall within claims that are not released upon discharge under section 178(1) of the BIA”

as stated by AJ Rappos in Ramgulam-Rafiq, and also by Chief Justice Morawetz in Ieluzzi.

111This fits within the first of the Advocate Mines tests: “Actions against the bankrupt for a debt to which a discharge would not be a defence”

112I have set out the specific excerpts from the Statement of Claim above that set out the specific allegations against the Bankrupt of misrepresentation and defalcation of the alleged trust for the funds allegedly advanced by the Creditor to the Bankrupt to purchase and renovate the various properties, and the alleged failure of the Bankrupt to repay these amounts and any share of the profits owing to the Creditor from the proceeds of sale of the 4 properties.

113The Bankrupt disputes the allegations made by the Creditor. In the Counterclaim the Bankrupt alleges that the Creditor owes him (and therefore the Bankruptcy Estate) $1,000,000.

114For the purposes of this Motion, in the Statement of Defence and Counterclaim, and in the Bankrupt’s Affidavit, the Bankrupt admits that:

1. He entered into a joint real estate and renovation partnership with the Creditor;

2. The partnership’s objective was to purchase, renovate, and resell residential properties for mutual profit;

3. Both parties agreed to contribute equally (50/50) toward purchase and renovation costs;

4. The partnership was established on the understanding of equal participation and shared benefit;

5. That the Bankrupt allowed the Creditor to participate in each of the 410-236 Albion Road, PH7-90 Fisherville Road, 47 Belfry Drive, and 39 Lake Avenue Property projects;

6. That in each case the Bankrupt pleads that the Bankrupt and the Creditor “purchased” the property to be renovated, but that 268 “held” at least the 410-236 Albion Road and the PH7-90 Fisherville Road properties “for the benefit of the parties”;

7. That with respect to, at least, the PH7-90 Fisherville Road property, each of the Bankrupt and the Creditor “would be entitled to a 50% ownership interest in the Property” if they made their financial contributions;

8. The Bankrupt obtained second mortgages on some of the properties, allegedly without the consent of the Creditor, allegedly because the Creditor allegedly failed to provide the required shared funding;

9. The Bankrupt made partial payments to the Creditor from the proceeds of sale from certain of the properties, not from all of the properties;

10. That Trust agreements were not registered on title to the properties allegedly at the instance of the Creditor to avoid Land Transfer Tax consequences, but with the acquiescence of the Bankrupt.

115The Creditor, throughout the paragraphs of his Statement of Claim has made specific allegations that the Bankrupt, with respect to the funds the Creditor allegedly provided to the Bankrupt to purchase and renovate the 4 properties, inter alia:

“76. The Plaintiff pleads that Khoshnik, or alternatively Khoshnik and the corporate defendants, breached their trust duties to the Plaintiff in that Khoshnik and the corporate defendants, inter alia, dishonestly, unconscionably, knowingly and/or recklessly:

a. misappropriated, misapplied, diverted, embezzled, defalcated and/or otherwise converted the Plaintiff funds and interest in the Four Properties for their own unauthorized use and benefit, and/or for the unauthorized use and benefit of the Khoshnik and Salighehrad;”

and made misrepresentations to the Creditor in order to do so, as itemized in the Statement of Claim.

116Ma states (at para.2)

“While the test is not whether there is a prima facie case, that does not, in our view, preclude any consideration of the merits of the proposed action where relevant to the issue of whether there are "sound reasons" for lifting the stay. For example, if it were apparent that the proposed action had little prospect of success, it would be difficult to find that there were sound reasons for lifting the stay”

117Ieluzzi states:

10 The moving creditor need only plead specific facts which show that there are sound reasons to lift the stay, such as a set of facts which, if believed, would fall within the ambit of subsection 178 (1) (d).

12 It is sufficient, for the purposes of the disposition of this appeal, to focus on the first part of s. 178 (1) (d). AFCI has alleged that the debt or liability has arisen out of Advantage and Mr. Ieluzzi receiving the sale proceeds on AFCI’s behalf while acting in a fiduciary capacity and that Advantage and Mr. Ieluzzi misappropriated and/or converted AFCI’s funds to their own use. Further, by failing to hold the proceeds in trust for AFCI, Advantage and Mr. Ieluzzi have breached fiduciary duties to AFCI.”

118Mathur adds:

“[16] It is agreed that Ma sets a low threshold — a plaintiff must show no more than some chance of success. This is often expressed as a question of whether the plaintiff has pleaded facts that, if believed, would establish a claim.

119Once that low threshold is met by the Plaintiff, the onus switches to the Defendant, per Mathur (at Para 16):

“However, the onus on a plaintiff will depend, in part, on the extent to which a defendant adduces evidence that an action is frivolous, vexatious or has little chance of success”

120The specific paragraphs of the pleadings I have cited extensively do in fact make the specific claims by the Creditor against the Bankrupt needed to plead a claim for misappropriation and breach of trust by the Bankrupt that the Bankrupt has misappropriated and converted to his own use the proceeds of sale of the various properties, in alleged breach of the arrangements between the Bankrupt and the Creditor, that are “…specific facts which show that there are sound reasons to lift the stay, such as a set of facts which, if believed, would fall within the ambit” of subsection 178 (1) (d) and (e) of the BIA per Ielluzzi and Mathur. Therefore the Creditor has met the initial onus to proved that are specific facts that show that there are sound reasons to lift the stay.

121I find that the Creditor has plead “specific facts” in the Statement of Claim, supported by the evidence they have filed on this Motion “…which show that there are sound reasons to lift the stay, such as a set of facts which, if believed, would fall within the ambit of s. 178(1)(d).” against the Debtor per Ieluzzi, Ma, and Mathur.

Onus on Debtor on Motion to prove evidence that claim is “frivolous”, “vexatious” or has “little prospect of success”:

122As noted previously, per the tests in Ieluzzi, Ramgulam-Rafiq, Francisco, Global Royalties, and Mathur, applying the test for leave per Ma, for the Court to establish a “sound basis” for lifting the stay:

a) the function of a bankruptcy court is not to inquire into the merits of the action sought to be commenced or continued (Ma, Sangha, Global Royalties and Francisco);

b) a plaintiff must show no more than some chance of success, which is often expressed as a question of whether the plaintiff has pleaded facts that, if believed, would establish a claim (Mathur);

c) there was no obligation on the part of the moving party to establish a prima facie case on the basis of evidence (Global Royalties) and the moving creditor need only plead specific facts which show that there are sound reasons to lift the stay, such as a set of facts which, if believed, would fall within the ambit of one of the grounds upon which leave can be granted under Advocate Mines, such as the determination of a claim to which s.178 of the BIA applies (Ieluzzi);

d) the court is not precluded from any consideration of the merits where relevant to the issue of whether there are “sound reasons” for lifting the stay (Global Royalties);

e) Where the merits of the Creditor’s claim depended largely on issues of credibility those issues are not to be decided at the leave motion (Mathur);

f) The onus on a plaintiff will depend, in part, on the extent to which a defendant adduces evidence that the action in question is frivolous, vexatious or has little chance of success. In that case, a Court may need to have regard to the nature and the strength of the plaintiff’s evidence concerning the merits of the action. (Ramgulam-Rafiq)

g) The role of the court is to examine the pleadings and any other “contextual facts” on the record to determine whether the liability is properly characterized as falling within any of the listed categories (Ramgulam-Rafiq);

h) Where a defence is raised, but there is not specific evidence provided on the Leave Motion to substantiate that the claim defended is “frivolous”, “vexatious” or has “little prospect of success” the Bankruptcy Court should leave the determination of whether the defence is valid to the Trial Judge who will be in the best position to evaluate the defence on a full evidentiary record (Re Lamonica (31-2971775)(unreported)).

123The Bankrupt in his Facta argues that Francisco, Fakoori, Yigzaw v Ahsgarie (2019) ONSC 2474 (“Yizgaw”) and Pietrazak 2016 CarswellOnt 11567, 268 A.C.W.S. (3d) 721, 39 C.B.R. (6th) 145 (“Pietrazak”) that granting a lifting of a stay on a s.69.4 Motion “is far from a routine matter”.

124Agreed. But the facts as plead and sworn to by the Creditor, and the facts admitted to by the Bankrupt in his pleadings and the Bankrupt’s Affidavit establish that the circumstances of the Action are far from “routine”.

125The Bankrupt consistently in his Facta, the Bankrupt’s Affidavit and his pleadings in the Action alleges that the Creditor’s request for leave, and the underlying action is “frivolous”, “vexatious” and has little prospect of success.

126In Lang Michener Lash Johnston v. Fabian 1987 172 (ON HCJ), 1987 CarswellOnt 378, [1987] O.J. No. 355, 16 C.P.C. (2d) 93, 37 D.L.R. (4th) 685, 4 A.C.W.S. (3d) 141, 59 O.R. (2d) 353 (“Fabian”) Henry, J. set out the test for a “frivolous and vexatious” action or proceeding which has been followed or considered with approval more than 470 times since 1987. That test is:

“20 From these decisions the following principles may be extracted:

(a) the bringing of one or more actions to determine an issue which has already been determined by a Court of competent jurisdiction constitutes a vexatious proceeding;

(b) where it is obvious that an action cannot succeed, or if the action would lead to no possible good, or if no reasonable person can reasonably expect to obtain relief, the action is vexatious;

(c) vexatious actions include those brought for an improper purpose, including the harassment and oppression of other parties by multifarious proceedings brought for purposes other than the assertion of legitimate rights;

(d) it is a general characteristic of vexatious proceedings that grounds and issues raised tend to be rolled forward into subsequent actions and repeated and supplemented, often with actions brought against the lawyers who have acted for or against the litigant in earlier proceedings;

(e) in determining whether proceedings are vexatious, the Court must look at the whole history of the matter and not just whether there was originally a good cause of action;

(f) the failure of the person instituting the proceedings to pay the costs of unsuccessful proceedings is one factor to be considered in determining whether proceedings are vexatious;

(g) the respondent's conduct in persistently taking unsuccessful appeals from judicial decisions can be considered vexatious conduct of legal proceedings.”

127As per Ieluzzi the Creditor has plead specific facts which show that there are sound reasons to lift the stay, such as a set of facts which, if believed, would fall within the ambit of one of the grounds upon which leave can be granted under Advocate Mines.

128The Bankrupt in his Pleadings and in the Bankrupt’s Affidavit denies the testimony and allegations made by the Creditor in the Creditor’s Affidavits and in the Pleadings in the Action and slings further allegations of criminal and improper conduct on the part of the Creditor, which the Creditor denies.

129An example is the issue of the “Foreign Buyer Tax” issue. The Creditor’s evidence is that the Bankrupt represented to him that the Creditor could not own a registered interest in real property as a result of his immigration status, so the Bankrupt would hold the property “in trust” for him. The Bankrupt’s evidence in his Pleadings and the Bankrupt’s Affidavit is that the Creditor demanded that the Bankrupt not register any trust agreements on title, as he would be forced to pay foreign buyer tax.

130As found in Mathur the merits of the Creditor’s claim in this Action depend largely on issues of credibility, arising from alleged verbal agreements between the Bankrupt and the Creditor, and the contradictory evidence on the terms of those agreements and whether the Creditor and the Bankrupt fulfilled those terms. Those issues are not to be decided at the leave motion, but can only be decided in the Action, with proper discovery and viva voce trial testimony to determine which parties evidence is to be preferred by the trier of fact, as held in Mathur.

131The evidence provided by the Bankrupt to defend this motion, and the admissions specifically made by the Bankrupt in his Pleadings in the Action and in the Bankrupt’s Affidavit that I have itemized above, do not provide a basis for this Court to determine for the purposes of this Motion that the claims made by the Creditor in the Statement of Claim to the Action are “frivolous”, “vexatious” as defined in the Fabian tests, or that the claims by the Creditor against the Bankrupt in the Action, if permitted to proceed to trial, have “little prospect of success” against her, per the tests in Ma, Mathur, and Global Royalties.

Is the Creditor likely to be Materially Prejudiced by the continued operation of the Stay:

132The Bankrupt argues repeatedly that the Creditor has not provided any evidence that he will be prejudiced by the continuation of the Stay.

133The Creditor argue that not lifting the stay of proceedings prejudices the Creditor by not allowing him to prove that he has a valid, non-dischargeable claim under s.178 of the BIA against the Bankrupt which the Trustee cannot determine in the Bankruptcy, and should not be determined at discharge, based on the jurisprudence they cited, and that I have set out in detail.

134The reasoning of Penny, J. in Global Royalties is dispositive of the issue:

“[26] While the pleading lacks a certain amount of particularity, this is not a pleadings motion. The bottom line of the pleading is that allegations are made of fraudulent conduct which, if proved, could result in an award of monetary damages which would not be released on discharge.

27Having to wait until discharge, when a release may well not be available to the defendant anyway, represents material prejudice to the plaintiffs.

28The plaintiffs also allege that Brook, as a former employee, owed fiduciary duties and conspired with other former employees to breach those duties, divert customers and assets and misappropriate property of the plaintiffs. There are multiple parties (none of the other defendants are in bankruptcy proceedings) and multiple causes of action. There are few if any written agreements. It is clear that the issues in this action are complex and will require documentary and oral discovery and are likely to involve numerous procedural steps. Is also clear that credibility issues will be paramount on many important material facts. In this circumstance, the issues pleaded against Mr. Brook are unlikely to be amenable to resolution through a summary claims procedure under s. 135 of the BIA. Depriving the plaintiffs of fundamental procedural tools under the Rules and trial practice would constitute a form of material prejudice, Sher (Re), 1999 15015 (ON SC), 1999 CanLII15015 (Ont. S.C.) at para. 59.

29Based on the allegations in the statement of claim, Brooks is a central figure in the events giving rise to the causes of action pleaded against all defendants. It would make little sense to have one procedure to deal with the other eight defendants and another, entirely different procedure, to deal with Brooks. The conclusion of Ground J. in Royal Bank of Canada v. Societe Generale (Canada), [2003] O.J. No. 5139is equally applicable here:

“the evidence of the Bankrupts will be crucial in the action to establish the factual framework surrounding the various transactions which are alleged to be part and parcel of the fraudulent scheme and, accordingly, there cannot be a completed adjudication of the issues in the action among the other parties without the production of documents in the possession of, and the discovery of, [an, I would note, the evidence of] the Bankrupts."

135For the purposes of this Motion, I find that the lifting of the stay will permit the Action against the Bankrupt and the other Defendants in the Action to move forward, including the wife of the Bankrupt, also bankrupt, if leave is obtained.

136The Bankrupt filed a joint defence for himself and all of the other Defendants. The claims being made by the Creditor are against all of the Defendants, corporate and individual. It does not appear the Corporate defendants, of which 268 appears to be the actual registered owner of certain of the properties, are in any sort of insolvency proceeding.

137As the Bankrupt has made a broad general denial of all of the allegations made by the Creditor, viva voce evidence will be required by the Trial Judge to determine the credibility of the Bankrupt his wife and the Creditor, as well as any non-party witnesses involved in the improvement of the various properties, and in providing the financing for the purchase and improvement of the properties, as well as any documentary evidence and communications obtained in the discovery process.

138To not have access to the procedural methods available in the Action to obtain the documentary and evidence to prove the Creditor’s case, and to have a forum before a trier of fact to determine relative credibility in order to establish liability, would be prejudicial to the Creditor, as stated in Global Royalties.

139The Bankrupt’s constant repetitive assertions that the “fraud” could be determined by the Trustee in the “administration” of the Bankruptcy, or at discharge, when the Trustee has recovered approx. $1800 from the Bankrupt and has stated in the Supplementary Report that it lacks the resources to do so, is a nonsensical argument.

140Applying the Global Royalties tests, and applying it to all of the evidence before me on this Motion:

“The bottom line of the pleading is that allegations are made of fraudulent conduct which, if proved, could result in an award of monetary damages which would not be released on discharge.

Having to wait until discharge, when a release may well not be available to the defendant anyway, represents material prejudice to the plaintiffs

Here are multiple parties…and multiple causes of action. There are few if any written agreements. It is clear that the issues in this action are complex and will require documentary and oral discovery and are likely to involve numerous procedural steps. Is also clear that credibility issues will be paramount on many important material facts.”

I find that in the circumstances material prejudice has been proven by the Creditor sufficient to enable the Bankruptcy Court to lift the stay of proceedings under the test in Ma.

Other Advocate Mines factors and Ma “equitable on other grounds” factors for granting leave

141Additionally, in this case there other Advocate Mines factors that also guide the Court to exercise its discretion in granting leave under s.69.4. The Creditors argue that the following Advocate Mines factors apply:

“1. Actions against the bankrupt for a debt to which a discharge would not be a defence.

2. Actions in respect of a contingent or unliquidated debt, the proof of which and valuation has that degree of complexity which makes the summary procedure prescribed by s. 95(2) of the Bankruptcy Act inappropriate.

3. Actions in which the bankrupt is a necessary party for the complete adjudication of the matters at issue involving other parties.

4. Actions in Ontario which, at the date of bankruptcy, have progressed to a point where logic dictates that the action be permitted to continue to judgment.”

142The first Advocate Mines factor, to prove a s.178 debt, has been proven, as discussed above.

143The 3rd and 5th Advocate Mines factors above, I have also dealt with above. The Bankrupt is a necessary party for the complete adjudication of the Action, for the reasons I have set out above, and the Action, having proceeded to discovery needs to be completed to determine the complex factual and credibility issues raised.

144The additional issue of the 2nd Advocate Mines factor, for the reasons set out above the Action is:

“…in respect of a contingent or unliquidated debt, the proof of which and valuation has that degree of complexity which makes the summary procedure prescribed by s. 95(2) of the Bankruptcy Act inappropriate.” Per Advocate Mines.

145As I have set out in these reasons, in order to determine the claim of the Creditor, both in the Bankruptcy for distribution purposes, and whether the claim is dischargeable by the Bankruptcy, the claim of the Creditor has to be fully adjudicated.

146The complexity of the case is beyond the ability of the summary claims determination process in the BIA to adjudicate, particularly as the Action involves defendants, that may not be in bankruptcy or insolvency proceedings. The validity of the large counterclaim by the Bankrupt against the Creditor must also be evaluated, and validity of any resulting set-offs, as that Counterclaim may turn out to be a valuable asset for the Bankruptcy estate, if so found in the Action.

147The Trustee does not have the resources to fund that litigation, and has stated so, repeatedly.

148These matters cannot be properly adjudicated in the summary proof of claim process under the BIA, and also constitute:

“3. Actions in which the bankrupt is a necessary party for the complete adjudication of the matters at issue involving other parties” per Advocate Mines.

149The Action has the necessary procedural and fact finding tools lacking from the Bankruptcy process to determine many of the above claims in a context that third parties and the priority claims involving those parties can be considered, including possibly the CRA for HST claims and Ontario Ministry of Finance for unpaid Land Transfer Tax, which would not be possible in the summary proof of claim process under the BIA.

150This would also, independently, on these facts establish that it is “…equitable on other grounds” to lift the stay of proceedings per Ma, and I exercise my Registrar’s Discretion to do so.

151As a result the Creditor has satisfied the onus to prove that there are “sound reasons consistent with the scheme of the [BIA] to relieve against the automatic stay” per Francisco.

152It is therefore appropriate and equitable to lift the stay of proceedings.

DISPOSITION

153In the context of this Motion, on all of the evidence before me, and in exercising my discretion as Registrar, on the factors as enumerated above, I am satisfied that the relief requested by the Creditor should be granted.

154After considering all of the factual admissions made by the Bankrupt, and in the Bankrupt’s Pleadings in the Action and his motion materials, which I have summarized above and will not repeat, and after considering the Trustee’s non-opposition, all of the evidence filed by the Creditor, and the pleadings of the parties to the Action, I find that there is sufficient evidence before me to determine that there are “sound reasons for lifting [a] stay" and that the Bankrupt has not provided sufficient evidence on this Motion to prove that “it is apparent that the proposed action has little prospect of success", because the Creditors have “… failed to show that its claim is one that will survive bankruptcy in any event” as per Mathur.

155I find that there is a prospect of success that the Creditor can prove that his claim is for a debt that will not be released by the Bankrupt’s discharge, as such liability may fall within the provisions of section 178(d) and (e) of the BIA based on the above mentioned jurisprudence.

156For all of the reasons set out above, and utilizing my Judicial discretion as Registrar under the BIA, I find that under s. 69.4 of the BIA I may make a declaration lifting the automatic stay under the BIA as, after considering all of the evidence on this motion, and all legal arguments made by the Bankrupt and the Creditor, I am satisfied that:

(a) The Creditor is “likely to be materially prejudiced by the continued operation” of the Stay of Proceedings relating to the Bankrupt; and

(b) “… it is equitable on other grounds to make such a declaration.”, as the evidence of the Debtor will be crucial in the Action and, accordingly, there cannot be a completed adjudication of the issues in the action among the Creditor, the Bankrupt and the other parties to the Action without the production of documents in the possession of, and the completion of the discovery of, the Bankrupt; and that depriving the Creditor of “fundamental procedural tools under the Rules and trial practice would constitute a form of material prejudice” per Global Royalties;

(c) sound reasons, consistent with the scheme of the BIA, exist for relieving against the otherwise automatic stay of proceedings, as set out in great detail above, and

(d) I have found, for the reasons set out in great detail above, that the Bankrupt has NOT adduced evidence that the Action is frivolous, vexatious or has little chance of success, on the evidence before me on this Motion.

157Accordingly I have granted the Order requested by the Creditor that the stay of proceedings pursuant to section 69.3(1) of the BIA be lifted so as to permit the Creditor to continue with the Action as against the Bankrupt. I would ask that counsel for the Creditor provide to me through my ATC a word version of the Draft Order, so I may amend the Order if necessary.

COSTS

Bankruptcy Context for determination of Costs:

158I set out in detail in Re Bannikova 2023 CarswellOnt 14017, 2023 ONSC 5131, 2023 A.C.W.S. 4499 the interplay between the provisions of the BIA for the assessment of Costs under s.197, and the provisions of s.131 of the Ontario Courts of Justice Act and Rule 57 of the Ontario Rules of Civil Procedure, for the Bankruptcy Court in determining costs for Motions brought under the BIA:

“166 Subject to the provisions of an Act or the Rules of Civil Procedure, the costs incurred during a proceeding or a step in a proceeding are in the discretion of the Court. The Court must determine by whom and to what extent costs shall be paid (s. 131(1), Courts of Justice Act (Ontario)).

167 Under the relevant general provisions of s.197 the BIA:

197(1) Costs in discretion of court

Subject to this Act and to the General Rules, the costs of and incidental to any proceedings in court under this Act are in the discretion of the court.

197(2) How costs awarded

The court in awarding costs may direct that the costs shall be taxed and paid as between party and party or as between solicitor and client, or the court may fix a sum to be paid in lieu of taxation or of taxed costs, but in the absence of any express direction costs shall follow the event and shall be taxed as between party and party.

168 Bankruptcy Courts have interpreted these provisions in exercising their discretion as to costs under s.197 of the BIA by citing jurisprudence generally interpreting the provincial Rules of Civil Procedure, such as the Registrar in Eastern Ontario District Soccer Association (Re)2017 CarswellOnt 13201, 2017 ONSC 4932, 283 A.C.W.S. (3d) 696, 51 C.B.R. (6th) 305 stating:

"13 In my view section 197 of the BIA does in fact govern the issue of costs on this motion but it does not do so in a vacuum. There is ample case law in bankruptcy proceedings applying the factors set out in rule 57.01(1) in the determination of costs."

The Registrar in that case also applied the very influential Ontario Civil decision of Boucher v. Public Accountants Council (Ontario)2004 14579 (ON CA), [2004 CarswellOnt 2521 (Ont. C.A.)], 2004 14579 ("Boucher") in assessing the costs award.

169 In Sally Creek Environs Corp. Re 2010 CarswellOnt 2634, 2010 ONCA 312, 188 A.C.W.S. (3d) 344, 261 O.A.C. 199, 67 C.B.R. (5th) 161, ("Sally Creek") the Ontario Court of Appeal stated:

"148 We agree, in part, with the appellant. We note that s. 197 of the BIA grants a very broad discretion on the court to award costs. Section 197(1) states that, subject to the BIA and the General Rules, "the costs of and incidental to any proceedings in court under this Act are in the discretion of the court." Subsections (2) and (3) create presumptions for party and party costs to be paid from the estate unless the court orders otherwise. In our view, this wide discretion allows the court to balance the myriad factors and diverse interests at play in bankruptcy proceedings.

149 We agree with the respondents that, in exercising this discretion, registrars and courts have often been guided by the Rules of Civil Procedure, the Courts of Justice Act and the case law flowing from them. Rule 3 of the General Rules states: "In cases not provided for in the Act or these Rules, the courts shall apply, within their respective jurisdictions, their ordinary procedure to the extent that that procedure is not inconsistent with the Act or these Rules." Provincial rules of procedure thus perform a gap filling function in the interpretation and application of the General Rules. With respect to costs, reference to the Rules of Civil Procedure has been made in determining whether an appellant should post security for costs of an appeal (Towers Marts & Properties Ltd., Re, 1968 270 (ON HCJ), [1968] 1 O.R. 605 (Ont. S.C.)) and the effect of an offer to settle on a costs award (Baltman v. Coopers & Lybrand Ltd. (1997), 47 C.B.R. (3d) 121 (Ont. Bktcy.).

150 In the present case, although reference to the Rules of Civil Procedure or Courts of Justice Act may have been helpful, the Supreme Court's clear direction in Young v. Young governs. As noted above, this case held that solicitor and client costs are to be awarded only in the rarest of occasions. Although not decided in the bankruptcy context, that case laid out broad principles that we would apply to the present case."

170 In Kaptor Financial Inc. v. SF Partnership, LLP.2016 CarswellOnt 17052, 2016 ONSC 6607, [2016] O.J. No. 5612, 272 A.C.W.S. (3d) 25, 41 C.B.R. (6th) 262, ("Kaptor ") Newbould J. applied relevant civil jurisprudence including Davies v. Clarington (Municipality)(2009), 2009 ONCA 722, 100 O.R. (3d) 66 (Ont. C.A.) ("Davies") to a costs determination in a Bankruptcy context.”

172 Very recently, Osborne, J. confirmed these principles of assessment of costs under the BIA in BMO v. Can United Consulting Corporation 2023 ONSC 4773, ("Can United") in the context of proceedings relating to a Receiver appointed under s.243 of the BIA stating:

"19. This proceeding was brought, and the Receiver was appointed, pursuant to section 243 of the Bankruptcy and Insolvency Act (BIA) and section 101 of the Courts of Justice Act (CJA). This Court has the discretion to award costs of BIA proceedings pursuant to section 197 of the BIA and has the discretion to award costs in any civil proceeding pursuant to section 131 of the CJA (taking into account the factors set out in Rule 57.01).

20. The discretion under both statutes includes the discretion to determine whether costs should be paid, and if so by whom, and to what extent. This discretion includes the jurisdiction to award costs against a non-party: Dallas/North Group Inc. (Re), 2001 3636 (ON CA), [2001] 148 O.A.C. 288, O.J. No. 2743 (C.A.) at paras. 6-15; 1730960 Ontario Ltd. (Re), 2009 ONCA 720, O.J. No. 4182 at para. 8; and 2403177 Ontario Inc. v. Bending Lake Iron Group Limited, 2017 ONSC 3566, O.J. No. 3374 at paras. 27 - 28.

159As a result, following the Court of Appeal in Boucher and Davies, and Sally Creek, Newbould, J. in Kaptor, and Osborne, J. (as he then was) in Can United I will apply the Rules of Civil Procedure and the cases interpreting those rules in this Bankruptcy context, unless there is specific authority in Bankruptcy that contradicts those principles.

160In exercising its discretion in determining costs the court may consider, inter alia, the factors set out in Rule 57.01(1) of the Ontario Rules of Civil Procedure, which reads:

Factors in Discretion

57.01 (1) In exercising its discretion under section 131 of the Courts of Justice Act to award costs, the court may consider, in addition to the result in the proceeding and any offer to settle or to contribute made in writing,

(0.a) the principle of indemnity, including, where applicable, the experience of the lawyer for the party entitled to the costs as well as the rates charged and the hours spent by that lawyer;

(0.b) the amount of costs that an unsuccessful party could reasonably expect to pay in relation to the step in the proceeding for which costs are being fixed;

(a) the amount claimed and the amount recovered in the proceeding;

(b) the apportionment of liability;

(c) the complexity of the proceeding;

(d) the importance of the issues;

(e) the conduct of any party that tended to shorten or to lengthen unnecessarily the duration of the proceeding; whether any step in the proceeding was,

(i) improper, vexatious or unnecessary, or

(ii) taken through negligence, mistake or excessive caution;

(f) a party's denial of or refusal to admit anything that should have been admitted;

(g) whether it is appropriate to award any costs or more than one set of costs where a party,

(h) commenced separate proceedings for claims that should have been made in one proceeding, or

(ii) in defending a proceeding separated unnecessarily from another party in the same interest or defended by a different lawyer;

(h.1) whether a party unreasonably objected to proceeding by telephone conference or video conference under rule 1.08; and

(i) any other matter relevant to the question of costs

Authority of Court

(4) Nothing in this rule or rules 57.02 to 57.07 affects the authority of the court under section 131 of the Courts of Justice Act,

(a) to award or refuse costs in respect of a particular issue or part of a proceeding;

(b) to award a percentage of assessed costs or award assessed costs up to or from a particular stage of a proceeding;

(c) to award all or part of the costs on a substantial indemnity basis;

(d) to award costs in an amount that represents full indemnity; or

(e) to award costs to a party acting in person.

161Fairness and reasonableness are the overriding principles to be considered by the Court in determining costs: Boucher and Deonath v. Iqbal 2017 ONSC 3672 (Ont. S.C.J.) at paras. 20-21) ("Deonath").

162Generally, costs on a partial indemnity scale should follow the event, and this principle should only be departed from for very good reasons such as findings of misconduct by a party, where there has been a miscarriage in procedure or where there is oppressive or vexatious conduct (1318706 Ontario Ltd. v. Niagara (Regional Municipality)(2005), 2005 16071 (ON CA), 75 O.R. (3d) 405 (Ont. C.A.) Lakeshore Oakville Holdings Inc. v. Misek 2010 ONSC 7238 (Ont. S.C.J.) at paras. 10, 12-14).

163In order for a Court to make its determination as to costs, Rule 1.04(1) must also be considered, to ensure that the Court makes a just, expeditious and least expensive determination of every civil proceeding on its merits and under Rule 1.04(1.1) so that costs orders are made which are proportionate to the importance and complexity of the issues and to the amount in dispute in the proceeding between the parties (Deonath at para. 21).

164In Davies the Court of Appeal stated as follows (at paragraph 52):

"Rather than engage in a purely mathematical exercise, the judge awarding costs should reflect on what the court views as a reasonable amount that should be paid by the unsuccessful party rather than any exact measure of the actual costs of the successful litigant."

Analysis of Tests under s.197 of the BIA and R.57.01 and R.1.04

165The Creditor was entirely successful in its Motion.

166The Bankrupt entirely failed in his opposition to the Creditor’s Motion.

167In the Bill of Costs filed by counsel for the Creditor, on a substantial indemnity basis the Creditor is requesting costs $13,982.90 or, alternatively, on a partial indemnity scale in the amount of $10,499.68. Both figures are inclusive of HST and disbursements.

168However, these amounts are only for the October 2 and October 15 hearing dates, and does not include any costs incurred by the Creditor for the materials prepared and filed by the Creditor in response to my requirement for the filing of further materials in my October 15, 2025 Endorsement and to respond to the Bankrupt’s materials filed.

Importance of issues

169The Creditor, if not granted the relief sought to continue the Action would have no practical means of having a determination made of his fraud and misappropriation claims against the Bankrupt.

170These issues were important to the Creditor, as well as for the administration of the Bankruptcy Estate.

Complexity of Motion

171As can be discerned from my Reasons, there were many complex issues raised by the Bankrupt that arose as a result of his misapprehension of the provisions of the BIA, and misstatements of jurisprudence. Also the factual situation described in the Pleadings in the Action was similarly complex. The Motion took the better part of a day to hear, and as a result of the misstatements made in the Bankrupt’s initial Motion Materials required responding materials, which were full of even more misstatements.

172This motion was complex.

Whether any step in the proceeding was improper, vexatious or unnecessary, or taken through negligence, mistake or excessive caution, and did the conduct of any party tend to shorten or to lengthen unnecessarily the duration of the proceeding

173The materials, and particularly the Facta filed by the Bankrupt, were atrocious and misleading.

174Whether that atrocity occurred as a result of incompetence, a deliberate attempt to mislead the Court, the use of AI to prepare the materials or resulted from the combined efforts of man and machine, matters little.

175On a base level, the Facta filed by the Bankrupt lacked any of the hyperlinks required to source documents, and most of the case citations lacked even paragraph references for the propositions being put forward. That alone completely violated the Rules of Civil Procedure and the various Practice Directions governing the filing of Facta and Books of Authorities in the Bankruptcy Court.

176It required a combined effort of the Court, the Judicial Librarian for the Court and counsel for the Creditor to unravel the misstatements of law and jurisprudence made by the Bankrupt on this Motion. I have detailed some, but not all of the misstatements made.

177As stated by Myers, J. in Ko:

“[21] It should go without saying that it is the lawyer's duty to read cases before submitting them to a court as precedential authorities. At its barest minimum, it is the lawyer's duty not to submit case authorities that do not exist or that stand for the opposite of the lawyer's submission.

22It is the litigation lawyer's most fundamental duty not to mislead the court.”

178As stated by Myers, J. in Kapahi:

“[40] Try as I might, I do not understand Mr. Parvaiz’s response. If he did not use AI, how did he come to make up seven paragraphs and call them quotations from real cases? If I accept that Mr. Parvaiz did not use AI for research or drafting, I am at a loss for how these quotations could be a result of human error, a lack of due care, misreading the cases cited, carelessness, or inadvertence as stated by Mr. Parvaiz.”

179As Myers, J. concluded in Kapahi, the Court is ill-suited to investigate how and why such incidents occur. As Bankruptcy Registrar and Associate Justice I also lack the ability to both try and sentence for contempt.

180But I can impose cost consequences for behaviour that is an obvious abuse of process, such as the conduct of the Bankrupt in this case.

181The conduct of the Bankrupt was in its totality improper, unnecessary, taken through negligence and in every possible way lengthened unnecessarily the duration of the proceeding for the purposes of the R.57 tests, as well for the tests under s.4.2 of the BIA regarding the duty of good faith for parties participating in Bankruptcy Proceedings, as set out in the tests summarized in CWB Maxium Financial Inc v 2026998 Alberta Ltd,2021 ABQB 137.

Principle of Indemnity and Scale of Costs

182The principle of indemnity is particularly important in the case of Bankruptcy proceedings, as this is not ordinary Civil Litigation. Here the Trustee is appointed by operation of the BIA, as the Court's Officer to administer the assets of the Bankruptcy Estate. By necessity, even individual disputes between the Bankrupt and a Creditor have a broader dimension as, in each case, the Trustee and the integrity of the Bankruptcy process may be at issue, having collective effect on all of the Creditors of the Bankrupt.

183As noted in Davies, Substantial Indemnity scale costs (or Solicitor and Client Costs for the purposes of s.197(2) of the BIA) are awarded outside of the usual costs regime of Partial Indemnity costs as an explicit sanction and penalty by the Court of egregious conduct "...which makes such costs desirable as a form of chastisement."

184Substantial Indemnity Costs (or Solicitor and Client Costs for the purposes of s.197(2) of the BIA) are awarded over and above the ordinary principles of proportionality and indemnity, in part to discourage this Bankrupt, as well as other parties from engaging in similar behaviour, particularly in the context of Bankruptcy Proceedings.

185Accordingly, given my findings that the conduct of the Bankrupt meets these tests, and in applying s.4.2 of the BIA, I will exercise my Registrar's Discretion to determine the costs of the Creditor on a Substantial Indemnity Scale under the provisions of s.131 of the Courts of Justice Act, and Rule 57.01 or "solicitor and client costs" in the language of s.197(2) of the BIA, on a scale of 90% of the amounts properly claimed by the Creditor, after the determination of quantum.

Quantum of costs

186I have reviewed in detail the Costs Outline submitted by the Creditor for the period leading up to the Motion and the actual hearing of the Motion, but not for the preparation of supplementary materials that I required that the Creditor file.

187The information presented is sufficiently detailed to allow me to make determinations of quantum and permissible costs for the purposes of determining the proper quantum of costs, and to determine the proportionality of the costs for the purposes of s.197 and 4.2 of the BIA and R.57 and R.1.04(1.1) of the Rules of Civil Procedure.

188The Bankrupt has filed no Bill of Costs to date.

189In order to exercise my Registrar's Discretion to assess costs under the BIA, under the CJA and under the Rules I will require that the Creditor and the Bankrupt file updated Bills of Costs so that I may assess the quantum of all of the Costs that the Creditor has expended to date, and compare them to the costs expended by the Bankrupt, to determine what costs amount would be in the contemplation of the Bankrupt for this Motion.

190I would ask that the Creditor and the Bankrupt provide to me through the Bankruptcy Court Office by March 20th, 2026 updated Bills of Costs for this Motion for all costs incurred by the Creditor and by the Bankrupt.

191I will then finalize and circulate my Costs Reasons.

192I must advise that for the reasons that summarized in Ng at paragraphs 31-43, as the costs that will be ordered for opposing this motion occurred post-bankruptcy, any costs award that I will make is not a “claim provable” in bankruptcy, and will not be compromised by any order of discharge of this Bankrupt.

Associate Justice Ilchenko

Registrar in Bankruptcy

Superior Court of Justice

March 16, 2026