All trusts appeared to do was protect assets from bankrupt’s creditors

Ontario civil | Bankruptcy and Insolvency | Avoidance of transactions prior to bankruptcy | Fraudulent and illegal transactions

Bankrupt and his spouse were married 1994 and 4 children. Following marriage, bankrupt and spouse purchased Ledge Lodge (LL) for $700,000 as joint tenants and later in 2003, purchased Humber Station (HS) for $635,000 as joint tenants. Bankrupt worked in telecommunications and became CEO for company Look in 2004. Look experienced financial difficulties in 2008 and proceeded by way of arrangement consisting of supervised auction for sale of Look’s assets. AS CEO, bankrupt was awarded about $5.6 million in compensation package however, he was ordered to repay $5,565,696 for breach of fiduciary duty. In June 2017, bankrupt with his management company, filed notice of intention to make proposal under Bankruptcy and Insolvency Act. At meeting of creditors held on December 2017, creditors voted against acceptance of proposal. Accordingly, bankrupt was deemed to have made assignment in bankruptcy. Trustee of bankrupt’s estate applied for realization on bankrupt’s assets for benefit of his creditors. Bankrupt and his spouse asserted LL and HS were held in trust for their children and placed reliance for this assertion on trust documents alleged to have been created in 1995 for LL and 2004 for HS. Trustee’s application granted. Overwhelming evidence supported conclusion that alleged trusts over properties were shams. Expert was retained in fonts, and font identification who definitively identified typeface used in property LL dated January 1995, as set out in Cambria, however, Cambria typeface did not reach public until January 2007. Similarly, typeface used in HS document was definitively identified as set in font called Calibri and like Cambria, it was designed in 2002 but not released to public until 2007. Given heavy reliance placed by bankrupt on LL and HS trust documents, and trustee’s claim that trusts were shams, there was no doubt expert’s evidence was relevant to material issue in litigation. Expert’s report’s evidence was reliable and there was no suggestion that any prejudice to bankrupt outweighed probative value of expert’s evidence. Finally, there was no applicable exclusionary rule. Contrary to bankrupt’s direct evidence, trust documents neither existed on not were signed on dates indicated; at earliest, these documents could not have come into existence until 2007. Nothing distinguished bankrupts’ use of properties from that of owner as they used properties as they wished, encumbered them at will and described themselves as owners in legal documents. All trusts appeared to do was protect assets from bankrupt’s creditors, creditors to which his exposure was known at least by early 2010.

McGoey (Re) (2019), 2019 CarswellOnt 254, 2019 ONSC 80, Penny J. (Ont. S.C.J.).

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