Ontario Superior Court grants bankruptcy order over unsettled million-dollar debt

Over US$ 7 million remained unpaid under a supply and distribution contract

Ontario Superior Court grants bankruptcy order over unsettled million-dollar debt

In a recent ruling, the Ontario Superior Court of Justice granted a bankruptcy order following substantial unpaid debts from a supply and distribution agreement.

In 1719108 Ontario Inc. c.o.b. as Zoren Industries, 2024 ONSC 909, Ningbo Yamao Optoelectronics succeeded in its application for a bankruptcy order against 1719108 Ontario Inc., operating as Zoren Industries. The action was brought under s. 43 of the Bankruptcy and Insolvency Act.

The court dismissed Zoren's counter-claims and its request for a stay of proceedings, paving the way for Ningbo to proceed with the bankruptcy order.

The dispute stemmed from a supply and distribution agreement where Ningbo appointed Zoren as its exclusive distributor in North America for LED-based light bulbs. Despite Zoren's payment of over US$ 11 million to Ningbo, a substantial debt of about US$ 7 million remained unpaid, leading Ningbo to seek a bankruptcy order.

The Ontario Superior Court of Justice’s decision was based on exhaustive evidence, including email and SMS exchanges acknowledging the debt by Zoren's representative, Jimmy Halioua. The court found that Zoren had ceased to meet its liabilities generally as they became due, constituting an act of bankruptcy within six months preceding the application filing.

The court was not persuaded by Zoren's defence, which included counterclaims alleging that Ningbo supplied patent-infringing goods, leading to Zoren losing its contract with Lowe’s Companies, Inc. and that Ningbo breached the distribution agreement by selling LED light bulbs directly to other North American distributors. The court noted inconsistencies in Zoren's claims and the lack of evidence to substantiate them.

The court highlighted that Zoren failed to advance its counterclaim since November 2019 and did not demonstrate a bona fide dispute that would justify staying the bankruptcy proceedings. Furthermore, the court found insufficient cause to dismiss the bankruptcy application, emphasizing that the Bankruptcy and Insolvency Act does not require a petitioning creditor to exhaust all other remedies before seeking a bankruptcy order.

Zoren's motion to stay the application pending the determination of the ongoing civil proceedings was dismissed. The court ruled that the counterclaim, if viable, would not be extinguished by bankruptcy but could be realized upon by the trustee, Zeifman Partners Inc., who was appointed as trustee in Bankruptcy.

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