Court File No. 31-208039-T Court File No. 31-208040-T ONTARIO

Court File No. 31-208039-T
Court File No. 31-208040-T
ONTARIO
SUPERIOR COURT OF JUSTICE - COMMERCIAL LIST
IN THE MATTER OF THE BANKRUPTCY OF SHS SERVICES
MANAGEMENT INC.!GESTION DES SERVICES SHS INC. and SHS
SERVICES LIMITED PARTNERSHIP of the City of Toronto, in the Province of
Ontario
FACTUM OF THE TRUSTEE
PRICEWATERHOUSECOOPERS INC.
(returnable April 21, 2015)
McMILLAN LLP
Brookfield Place
181 Bay Street, Suite 4400
Toronto, ON, M5J 2T3
Brett Harrison LSUC# 44336A
Tel: 416.865.7932
Email: [email protected]
Fax: (416) 865-7048
Stephen Brown-Okruhlik LSUC#
66576P
Tel: 416.865.7043
Email: stephen. [email protected]
Fax: (416) 865-7048
Counsel for the Trustee
TO:
PALIARE ROLAND ROSENBERG
ROTHSTEIN LLP
15 5 Wellington Street West
35th Floor
Toronto, ON, M5V 3HI
Gordon Capem
Tel: (416) 646-4311
Email: [email protected]
Massimo (Max) Stamino
Tel: (416) 646-7431
Email: [email protected]
Lawyers for Paul Verhoeff, Stephen
Verhoeff and Theresa Lea.
TABLE OF CONTENTS
Page
PART I - INTRODUCTION ............................................................................................. 1
PART II - THE FACTS .................................................................................................... 2
PART III - ISSUES AND THE LAW .............................................................................. 7
A.
THE VERHOEFFS AND LEA SHOULD BE COMPELLED TO
ATTEND EXAMINATIONS UNDER OATH BEFORE THE TRUSTEE ........ 8
B.
THE VERHOEFFS AND LEA SHOULD BE COMPELED TO
PRODUCE THE RELEVANT DOCUMENTS ................................................. 17
C.
THE COMMENCEMENT OF AN ACTION BY THE TRUSTEE
AGAINST THE VERHOEFFS AND LEA SHOULD NOT PERMIT THE
WITNESSES TO REFUSE EXAMINATION ................................................... 18
PART IV - ORDERS REQUESTED .............................................................................. 20
- 1-
PART I - INTRODUCTION
1.
This proceeding relates to bankrupts that went from being overcapitalized to
insolvent in less than nine months.
2.
On the first day of operations the bankrupts received a loan of $15 million, $8
million of which was immediately redirected out of the company. The vast majority of
the $8 million was directed to the Witnesses l or trusts/companies controlled by them.
When the former Assistant Vice President - Finance of the bankrupt was examined, he
gave evidence that "there are a lot of oddities" surrounding this transaction. 2 In addition,
he gave evidence that the Verhoeffs3 chose to use over $5 million the bankrupts
desperately needed for operations to payoff a loan, because the Verhoeffs had
personally guaranteed the loan.4
3.
The Trustee now has the task of trying to determine what caused the precipitous
decline of the bankrupts, and whether it is possible to increase recoveries for creditors by
attacking any of the transactions entered into by them. In order to do that it is necessary
for the Trustee to obtain information regarding the operations and management of the
bankrupts.
4.
A logical source of this information are the principals of the debtors, Paul
Verhoeff and Stephen Verhoeff (together the "Verhoeffs") and Theresa Lea ("Lea",
and together with the Verhoeffs, the "Witnesses"), who was an employee of both SHS
and Installation Services Org. Ltd.
1 Defined
below.
Evidence of Adam Barnard at Qs 171-176.
J Defined below.
4 Evidence of Adam Barnard at Qs 203-211; 228-233.
2
-2-
5.
On this motion the Trustee seeks an order: 5
(a)
compelling the Witnesses to attend examinations under oath by
the Trustee pursuant to Section 163(1) of the Bankruptcy and Insolvency
Act ("BIN') by May 8, 2015 (the "Examinations"); and
(b)
compelling the Witnesses to deliver to the Trustee all documents
listed in Schedule "A" to the Notices of Appointment (as defined below)
no less than seven days prior to the Examinations.
PART II - THE FACTS
The Parties
6.
The bankrupts, SHS Management Services Inc.lGestion des Services SHS Inc.
and SHS LP (together, "SHS"), carried on business in retail home and appliance
services.
7.
PricewaterhouseCoopers Inc. ("PwC" or the "Trustee") was appointed interim
receiver of SHS on December 13, 2013. PwC was subsequently appointed receiver of
SHS on January 9, 2014 and trustee in bankruptcy ofSHS on July 31, 2014.
8.
The Verhoeffs are the principals and former directors of SHS. They were
intimately involved in the establishment ofSHS and its management. 6
5
Capitalized tenns not otherwise defined herein have the meanings ascribed to them in the First Report of the Trustee
to the Court, dated March 13,2015 or the Supplementary Report to the First Report of the Trustee to the Court, dated
April 20, 2015.
6 Evidence of Adam Barnard at Qs 64,142,151,231,313.
-39.
Lea is the beneficial owner of a large number of shares of SHS, was seruor
management of SHS and was an advisor to the Verhoeffs regarding the operation and
management of SHS. 7
lO.
The Verhoeffs and Lea are represented by the same counsel.
The Trustee's Review of the Affairs of SHS
11.
In the course of executing its duties, the Trustee collected information on the
affairs of SHS between its creation and ultimate insolvency. The Trustee reviewed the
records of SHS to identifY and evaluate transactions that may be subject to review under
the BIA and other relevant legislation (the "Voidable Transactions,,).8
12.
In the course of its investigation, the Trustee obtained limited disclosures from
the Verhoeffs regarding, among other things, the Voidable Transactions. 9
13.
The Trustee obtained a resolution of SHS' s inspectors to conduct examinations
of people involved in the creation and management ofSHS pursuant to section 163(1) of
the BrA, including the Witnesses. 10
14.
The Trustee intends to examine the Witnesses, among others, regarding the
affairs of SHS. The purpose of the Examinations is, among other things and without
limitation, to obtain information in respect of:
(a)
The Voidable Transactions reviewed by the Trustee;
Evidence of Adam Barnard at Qs 65, 100,385.
First Report of the Trustee to the Court, dated March 13,2015 at para. 7.
9 First Report ofthe Trustee to the Court, dated March 13,2015 at para. 10.
IOFirst Report ofthe Trustee to the Court, dated March 13,2015 at para. 13.
7
8
-4-
(b)
The development of the business plan for SHS;
(c)
Why the business plan was not executed;
(d)
What decisions were made, and when, to deviate from the
business plan;
(e)
Why the decision was made to payoff debts that were not due
rather than use available cash for business operations;
(f)
Why the decision was made to pay certain employee obligations
on the eve of SHS' s insolvency when they were not due;
(g)
How a company that appears to have been adequately capitalized
felt it was necessary to file for receivership after only nine months of
operations;
(h)
What role the Verhoeffs played in the management of SHS
following their resignation as directors in October of2013;
(i)
The location of any assets of SHS that were disposed of through
the Voidable Transactions;
G)
What relationship the Verhoeffs and Lea have with other entities
that may have received SHS' s assets;
-5-
(k)
Whether any parties yet unknown to the Trustee were involved in
the Voidable Transactions; and,
(1)
Whether any further assets of SHS were disposed of prior to
SHS's insolvency that are yet unknown to the Trustee."
The Notices of Appointment
15.
On or about January 23,2015, counsel for the Trustee indicated to the Verhoeffs
its intention to examine them pursuant to Section 163(1) of the BIA.12 At that time the
Trustee intended to conduct the examinations within a week or two. The Verhoeffs
asked for a delay of the examinations at that time given, inter alia, the need for the
Verhoeffs to travel to Toronto to attend the examination, as well as their counsel's
availability to attend. The Trustee agreed to this delay in order to accommodate the
Verhoeffs. 13
16.
On February 11,2015, counsel for the Trustee served notices of appointment on
the Witnesses (the "Notices of Appointment"). The Notices of Appointment required
the Verhoeffs to attend to be examined under oath pursuant to Section 163(1) of the BrA
at 1O:00am on March 13, 2015, and required Lea to attend to be examined under oath
pursuant to Section 163(1) of the BIA at 1O:00am on March 17,2015.'4
11
Supplementary Report to the First Report of the Trustee to the Court, dated April 20, 2015 at para 4.
12
First Report of the Trustee to the Court, dated March 13,2015 at para. 12.
13
First Report of the Trustee to the Court, dated March 13, 2015 at para.12.
First Report of the Trustee to the Court, dated March 13, 2015 at paras. 12-13.
14
-6-
17.
Each of the Notices of Appointment set out a list of documents in Schedule "A"
that the Witnesses were required to bring with them to their respective examinations and
produce to the Trustee (the "Relevant Documents,,).15
18.
None of the witnesses attended for examination or produced the Relevant
Documents.
19.
A notice of appointment was also served on Adam Barnard, the former Assistant
Vice President - Finance of SHS ("Barnard"). Barnard was examined by the Trustee on
March 17, 2015. During his examination, Barnard gave evidence that there appeared to
him to be activity happening "behind the scenes" among SHS's management that was
outside of his knowledge. 16 Barnard also gave evidence that "there were a lot of
oddities" surrounding transactions involving a $15,000,000 investment from Alaris. 17
20.
Further, Barnard gave evidence that the early repayment of a loan from Sears
(the "Sears Loan") at a time when SHS was in desperate need of capital was motivated
by personal guarantees given by the Verhoeffs for the Sears Loan. IS
The Action Against the Witnesses
21.
After some investigation of the Voidable Transactions and consultation with
creditors of SHS, as well as legal counsel, the Trustee determined that a cause of action
First Report ofthe Trustee to the Court. dated March 13.2015 at para. 16.
Evidence of Adam Barnard at Qs 122-136.
17 Evidence of Adam Barnard at Qs 171-176.
18 Evidence of Adam Barnard at Qs 203-211; 228-233.
IS
16
-7-
likely existed against certain parties in relation to certain payment made by SHS on
March 4, 2013. 19
22.
This included the payment of millions of dollars in dividends to the shareholders
of SHS, including trusts beneficially owned by the Verhoeffs and Lea (the "Voidable
Dividend").
23.
In February of2015, as the two-year anniversary of the Voidable Dividend was
approaching, the Trustee attempted to negotiate a tolling agreement to avoid any
limitations issues associated with a cause of action in relation to the Voidable
Transactions. However, no agreement was reached until after the claim was issued.
Consequently, in order to prevent that limitation period from lapsing, the Trustee issued
a statement of claim in relation to the Voidable Transactions on February 27, 2015 (the
"Action"), which named the Witnesses as defendants to the Action.
24.
2o
The Witnesses have alleged that the Action raises all possible issues regarding
their involvement in the bankrupts, and any questions which could be raised on a s. 163
examination. That is not accurate. The Action is narrowly focused on the payments made
on March 4, 2013, which claims could be subject to a limitation defence ifno proceeding
was commenced. The Trustee needs to conduct the s. 163 examinations to obtain the
much broader range of information outlined in paragraph 14 above.
PART III - ISSUES AND THE LAW
25.
19
20
The Trustee's requested Order raises the following issues:
Motion Record of the Respondent; Tab 2(e).
First Report ofthe Trustee to the Court, dated March 13,2015 at 19.
-8-
(a)
Should the Verhoeffs and Lea be compelled to attend examinations
under oath pursuant to s. 163(1) of the BIA?
(b)
Should the Verhoeffs and Lea be compelled to produce the Relevant
Documents?
(c)
Should the commencement of the Action by the Trustee against the
Witnesses permit them to refuse examination pursuant to Section 163 (1) of the
BIA?
A.
THE VERHOEFFS AND LEA SHOULD BE COMPELLED TO ATTEND
EXAMINATIONS UNDER OATH BEFORE THE TRUSTEE
26.
The Trustee has an obligation to investigate the affairs of SHS, including through
the reasonable and diligent exercise of its powers under the BIA. In the course of the
bankruptcy of SHS, the Trustee has collected much information about the finances and
operations of SHS. However, the Trustee is still missing crucial information, including
information related to certain dispositions of SHS's assets, which will inform how the
Trustee fulfills its responsibilities under the BIA.21
The Scope of Section 163(1)
27.
The BIA provides for broad powers of examination for trustees. Section 163(1)
ofthe BIA provides as follows:
Examination of bankrupt and others by trustee
21
Supplementary Report to the First Report ofthe Trustee to the Court, dated April 20, 2015 at para. 8(a).
-9163. (1) The trustee, on ordinary resolution passed by the creditors or on the
written request or resolution of a majority of the inspectors, may, without an
order, examine under oath before the registrar of the court or other authorized
person, the bankrupt, any person reasonably thought to have knowledge of the
affairs of the bankrupt or any person who is or has been an agent or a mandatary,
or a clerk, a servant, an officer, a director or an employee of the bankrupt,
respecting the bankrupt or the bankrupt's dealings or property and may order any
person liable to be so examined to produce any books, documents,
correspondence or papers in that person's possession or power relating in all or in
part to the bankrupt or the bankrupt's dealings or property.22
[Emphasis added]
28.
Case law has long recognized that the scope of Section 163 is very wide.23
Examinations under this provision extend to the bankrupts "dealings" and are not limited
to the bankrupt's property. 24
29.
In one recent decision, Justice Wilton-Siegel observed the following in reference
to the power of trustees to examine under Section 163:
On the express language of s. 163 of the BIA, a trustee has the right, without an
order, to examine a third party reasonably thought to have knowledge of the
affairs of the bankrupt. Critically, s. 163 does not provide any discretion to a
court to deny such right to a trustee or to fashion a different remedy.25
30.
In that case, the Registrar had made an order that a witness provide information
to a trustee that fell short of the full examination contemplated in Section 163. In
granting an appeal from the Registrar's order, Justice Wilton-Siegel said "Given the
Registrar's finding that [the witness] is a person described by s. 163, the Registrar had
R.S.C., 1985, c. B-3, s. 163(1).
Houlden & Morawetz, Analysis, H9 at (1) and (3).
24 Houlden & Morawetz, Analysis H9 at (3).
25 Re Victor Osztrovics, 2015 ONSC 2079 at 46.
22
2J
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no further jurisdiction. The Trustee is entitled pursuant to that provision to examine her
underoath ... ,,26
The Trustee's Purpose in Examining the Respondents
31.
In their factum, the Respondents correctly state the purpose of a trustee's powers
under Section 163 as follows:
The purpose of these powers is to allow a trustee to collect information to assist it
in carrying out its duties to administer the bankrupt estate. 27
32.
Similarly, in 303687 Ontario Ltd., Re, the court said that the purpose of the
trustee's examination power is the following:
... to provide information to a trustee to assist him in carrying out his duty to
administer the estate by collecting the property of the bankrupt and distributing it
to his creditors. In particular, a trustee needs to find out the extent of the property
of the bankrupt and whether there have been dispositions or dealings with that
property that should be attacked on behalf of the creditors. 28
33.
This is precisely the purpose for which the Trustee intends to examine the
Witnesses. The Trustee's examinations of the Witnesses are not merely "dress
rehearsals" for the Action, as alleged by the Respondents. 29 As outlined above in
paragraph 14 the Trustee's purpose in examining the Witnesses is not limited to the
issues raised in the Action, but relates to a broad range of matters.
26
Re Victor Osztrovics, 2015 ONSC 2079 at 48.
27
Factum of the Respondent at para. 26.
28
[1986]34 ACWS (2d) 315 at 6.
29
Factum of the Respondents at para. 32.
- 11 34.
As persons involved in the creation of and fonner directors of SHS, the
Verhoeffs are likely to have intimate knowledge of the affairs ofSHS, including, without
limitation, knowledge of the following:
•
Financing arrangements that were in place at the creation of SHS;
•
Negotiations between parties involved in the creation of SHS;
•
The nature and details of SHS' s business operations;
•
The identities of parties involved in the business operations of SHS;
•
The circumstances the payments by and other transactions of SHS;
•
The existence and nature of liabilities owed to SHS by other parties; and
•
The responsibilities of various officers and personnel of SHS prior to
bankruptcy.
35.
As a person involved in the management of SHS, Lea is likely to have intimate
knowledge of the affairs of SHS, including, without limitation, knowledge of the
following:
•
The nature and details of SHS' s business operations;
•
The identities of parties involved in the business operations of SHS;
•
The location of certain assets of SHS;
- 12 •
The circumstances in which certain assets of SHS were disposed of;
•
The existence and nature of liabilities owed to SHS by other parties; and
•
The responsibilities of various officers and personnel of SHS prior to
bankruptcy.
The Respondents are Necessary Witnesses
36.
Contrary to what the Respondents allege in their factum, the Trustee cannot
obtain all relevant information that it requires to administer the estate of SHS from other
witnesses. The Trustee requires the examination of the Witnesses to obtain details
regarding the above issues to fulfill its duties. 3o
37.
The Respondents take the position that Darren Driscoll, the Chief Financial
Officer of Alaris and an Inspector in the bankruptcy of SHS ("Driscoll"), has "fulsome
knowledge of the factual matrix relating to the dividend payments".31 This is inaccurate.
Not surprisingly, the bankrupts' creditor does not have the same level of knowledge
regarding its operations and management as its principals and management.
38.
On examination in anticipation of this motion, Driscoll said that he was surprised
when funds obtained by SHS (through the sale of Alaris shares) that were intended to
provide SHS with much needed capital were used instead for the early repayment of the
Sears Loan; and that he was not part of the decision-making regarding this early
30
JI
Supplementary Report to the First Report of the Trustee to the Court, dated April 20, 2015 at para. 8(a).
Factum of the Respondents at para. 19.
- 13 repayment. 32 Neither Driscoll nor any other potential witness known to the Trustee has
the same intimate knowledge as the Verhoeffs and Lea of the decision-making process
that led to the early repayment of the Sears Loan. No other witness known to the Trustee
is able to provide information as to the anticipated effect of the early repayment on
SHS's fledgling business operations.
39.
Further, Driscoll gave evidence that Alaris did not have any involvement in the
payment of $3,000,000 by SHS to its shareholders. He gave evidence that, while Alaris
was "aware what the money was going to be used for", he is "not sure of the details". 33
He said further that Alaris was not part of the decision-making process for further
payments out ofSHS's account after Alaris provided funding to SHS. 34
40.
Driscoll does not possess detailed information on the business operations of SHS
during its brief existence. Driscoll gave evidence that he does not recall ever attending a
meeting of SHS's board of directors. Nor was he part of the decision-making process
surrounding the payments to satisfY employee obligations made in December of 2013. 35
Further, when asked whether he was provided with information related to SHS's
transactions by SHS' s management, Driscoll replied "I can't say 1 received
everything. ,,36
41.
Further, based on information collected in the course of its investigation, the
Trustee believes that the Verhoeffs remained active in the management of SHS
Evidence of Darren Driscoll at p. 51.
Evidence of Darren Driscoll at p. 52.
34 Evidence of Darren Driscoll at p. 53.
35 Evidence of Darren Driscoll at p. 53-54.
36 Evidence of Darren Driscoll at p. 54.
32
33
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following their resignation as directors in October of 2013. 37 No other witness is able to
provide information as to the level and nature of the Verhoeffs' involvement in the
business operations of SHS following their resignations or the reasons for any decisions
that they took during this period that affected the finances and operations of SHS.
42.
It is clear from the evidence provided by Driscoll that Alaris cannot provide the
Trustee with all of the relevant information that it seeks in connection with the
management of the affairs of SHS. The only parties that possess "fulsome knowledge"
of the conduct of SHS' s affairs, including knowledge of the Voidable Transactions, are
the Verhoeffs and Lea.
43.
Further, there is no legal basis for the Respondents' position that the
Examinations should not take place because other witnesses possess the same
information as the Respondents. The scope of a trustee's examination under section
163(1) of the BIA is not limited by the fact that information may be obtainable from
multiple witnesses. In Korea Data Systems Co. v. Chiang, Justice Wilton-Siegel held
that a trustee's right to examine a party under Section 163 was not limited to matters that
were not within the knowledge of another party.38 He further held that it would be
"improper to attempt to carve out specific questions, or classes of questions, at the
present time ... " merely because of the chance of redundancy between the Section 163
examination and a parallel proceeding. 39
Supplementary Report to the First Report of the Trustee to the Court, dated April 20, 2015 at para. 5.
[20081168 ACWS (3d) 469 [Korea Data] at 4.
39 Korea Data at 8.
J7
38
- 15 44.
Similarly, in Network Forest Products Ltd., Re, the Court rejected the
submissions of a party resisting the production of documents under Section 164 of the
BrA on the basis that the requested information would not assist the Trustee. 4o In
Network Forest, an auditor who had been served by a trustee with a notice of
examination and request for documents refused to comply with the notice, citing a
professional obligation of confidentiality. Regarding the scope of a trustee's power to
require document production, the Court said the following:
Section 164(1) of the BIA is sufficiently broad in scope to encompass the right of
inspection of documents pertaining to a bankrupt which are the property of a
third party, such as an auditor. Sun Squeeze Juices Inc., Re (1994), 27 C.B.R.
(3d) 98 (Ont. Bktcy.), at 99. The underlying public policy is apparent. It is in the
public interest that there be transparency with respect to the business operations
and property of the bankrupt for the protection of creditors. 41
[Emphasis added]
45.
The Court said further "[i]n my view, it is enough that the Trustee makes a bone
fide request for the documents for an order to issue under s. 164.,,42
46.
In response to the auditor's assertion that the requested information would not
assist the trustee in its investigation, the Court held that "[t]hat is not for [the
Respondent] to decide.,,43 Similarly, in the present case it is not for the Respondents to
decide whether information they possess is relevant or not to the Trustee's investigation
of the affairs ofSHS.
[2002] OJ No 5731 [Network Forest].
Network Forest at 3.
42 Network Forest at 10.
40
41
43
Network Forest at 11.
- 16 47.
Finally, in their factum, the Respondents take the position that given the
existence of the Action and the Trustee's discovery rights therein, it would be
disproportionate to require them to also attend an examination under Section 163(1) of
the BIA. 44 They cite the decision of the Supreme Court of Canada in Hryniak v. Mauldin
in support of this position.
48.
Firstly, the Trustee only commenced the Action to preserve its rights. It has not
served the statement of claim, and is still in the process of determining whether to move
forward with the Action. The reason that the statement of claim was issued prior to the
Examinations is that the Verhoeffs requested that the Examinations be postponed. To
refuse to allow the Trustee to conduct its s. 163 examinations now as a result of that
postponement would simply encourage parties to seek this type of technical advantages
in the future. On a policy basis it is better to interpret Section 163 in a manner that
encourage parties to work together to accommodate one another rather than encourage
gamesmanship.
49.
Secondly, even if the reasoning from Hryniak does apply, the Examinations and
document requests are proportional to the Trustee's need for information to properly
administer the estate of SHS. The Witnesses are central figures in the operation and
management of a company that went bankrupt in less than 9 months and clearly have
information that is relevant to the administration of the estate. It is not unduly
burdensome to ask the Witnesses to provide that information to the Trustee. The
44
Factum ofthe Respondents at 33.
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importance and complexity of the issues that the Trustee is required to investigate
demand that its power to examine under Section 163 not be fettered. 45
50.
If time and costs were actually of interest to the Witnesses they would have
simply agreed to be examined, as the time and costs expended on this motion far
outweigh those of the examinations.
B.
THE VERHOEFFS AND LEA SHOULD BE COMPELED TO PRODUCE
THE RELEVANT DOCUMENTS
51.
Section 163(1) of the BIA also provides that the Trustee may order any person
liable to be examined to produce any books, documents, correspondence or papers in
that person's possession or power relating in all or in part to the bankrupt or the
bankrupt's dealings or property.46 Courts have interpreted the power to compel
document under Section 163 quite broadly. The court in 9098-8189 Quebec inc. c.
Samson BelairiDeloitte & Touche inc. held that trustees have an undeniable right to
require production of any document relating to the bankrupt. 47
52.
The Notices of Appointment required the Verhoeffs and Lea to bring with them
to their examinations the Relevant Documents, all of which are within the scope of
Section 163(1) of the BIA. To date, the Verhoeffs and Lea have not produced any of the
Relevant Documents to the Trustee.
Re Osztrovics at 46.
R.S.c., 1985, c. B·3, s. 163(1).
47 2007 QCCS 6227 at para. 6. This case is only available in French. At para. 6 the Court stated that « Le Syndic a un
droit indeniable it l'obtention de tous les documents, livres et registres de la debitrice-faillie,)) A translation of the
45
46
paragraph is provided in the book of authorities.
- 18 -
C.
THE COMMENCEMENT OF AN ACTION BY THE TRUSTEE
AGAINST THE VERHOEFFS AND LEA SHOULD NOT PERMIT THE
WITNESSES TO REFUSE EXAMINATION
53.
Following a number of delays to the examination of the Verhoeffs to
accommodate their schedule and the commencement of the Action, the Witnesses have
taken the position that they are not required to attend examinations by the Trustee due to
the existence of the Action. 48
54.
While typically a trustee will not be entitled to conduct an examination under
Section 163(1) of the BIA after an action has been commenced against the person to be
examined, special circumstances attach to the present case that support granting an order
that the Witnesses attend the Examinations and produce the Relevant Documents,
pursuant to Section 163(1).
55.
According to Houlden & Morawetz, "if the trustee has been forced to commence
an action ... the court may permit a s. 163(1) examination of the defendant".49
56.
In the case of Re Aarons, the trustee of a bankrupt's estate brought a motion for
an injunction restraining a woman from disposing of assets of a bankrupt that she held in
a bank account in her own name. 50 The trustee subsequently sought to examine the
woman in relation to the affairs of the bankrupt. The urgency of bringing the motion
prevented the trustee from examining the witness prior to commencing proceedings. The
Court found that "in this case the circumstances appear to me exceptional, and I think
"First Report ofthe Trustee to the Court, dated March 13, 2015 at 21.
Houlden & Morawetz Analysis H§9, Section (5).
50 Re Aarons, (1914), III L.T. 411 (K.B.).
49
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that the proper course for me to adopt is to adjourn this motion with an intimation to the
registrar that the examination ... shall proceed.,,51
57.
The present case is similar to Re Aarons. The Trustee was forced to commence
the Action due to the possibility of a limitation period tolling to the detriment of SHS' s
estate and the fact that there was no tolling agreement in place. 52 As in Re Aarons, the
Trustee acted swiftly to avoid the dissipation of the assets of the bankrupt. The claims
that are the subject of the Action are choses in action, which are assets of the estate. The
Trustee submits that the urgent need to preserve any claims related to the Voidable
Dividends gives rise to special circumstances that justify departing from the usual rule
that a trustee cannot examine a witness against whom an action has been commenced.
58.
Also, the Trustee consented to accommodate the Verhoeffs' schedule, such that
their examinations under Section 163(1) would fall after the second armiversary of the
Voidable Dividend. 53 Had the Trustee not accommodated the Respondents' delay to the
scheduled examinations, the Action would not have been commenced prior to the
examinations. It would be unjust if the Witnesses were able to rely on a courteous
accommodation by the Trustee to defeat the Trustee's right to conduct examinations
under Section 163(1) of the BrA.
51
ReAarons,(l914), III L.T.411 (K.B.).
52
Email from Brett Harrison to Massimo Stamino, March 2, 2015, Motion Record ofthe Respondent, Tab 2(e).
First Report of the Trustee to the Court, dated March 13,2015 at 12.
53
- 20-
PART IV-ORDERS REQUESTED
59.
The Trustee respectfully requests the granting of an order substantially in the
form contained in its Motion Record compelling the Witnesses to attend at an
examination and produce the Relevant Documents.
ALL OF WHICH IS RESPECTFULLY SUBMITTED this 20th day of April, 2015.
U&tL
Stephen Brown-Okruhlik
McMillan LLP
Counsel for the Trustee
TAB A
- 21 -
SCHEDULE "A"
LIST OF AUTHORITIES
1.
Hou1den & Morawetz, Analysis H§9.
2.
Re Victor Osztrovics, 2015 ONSC 2079.
3.
303687 Ontario Ltd, Re, [1986]34 ACWS (2d) 315.
4.
Korea Data Systems Co. v. Chiang, [2008]168 ACWS (3d) 469.
5.
Network Forest Products Ltd., Re, [2002] OJ No 5731.
6.
9098-8189 Quebec inc. c. Samson Belair/Deloille & Touche inc., 2007 QCCS
6227.
7.
Re Aarons (1914), 111 L.T. 411 (K.B.).
- 21 -
SCHEDULE "A"
LIST OF AUTHORITIES
1.
Houlden & Morawetz Analysis, H§9.
2.
Re Victor Osztrovics, 2015 ONSC 2079.
3.
303687 Ontario Ltd., Re, [1986]34 ACWS (2d) 315.
4.
Korea Data Systems Co. v. Chiang, [2008]168 ACWS (3d) 469.
5.
Network Forest Products Ltd., Re, [2002] OJ No 5731.
6.
9098-8189 Quebec inc. c. Samson BelairlDeloitte & Touche inc., 2007 QCCS
6227.
7.
Re Aarons, (1914) 111 L.T. 411 (K.B.).
TABB
- 22SCHEDULE "B"
RELEVANT STATUTES
1.
Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3
Examination of bankrupt and others by trustee
163. (1) The trustee, on ordinary resolution passed by the creditors or on the written
request or resolution of a majority of the inspectors, may, without an order, examine
under oath before the registrar ofthe court or other authorized person, the bankrupt, any
person reasonably thought to have knowledge of the affairs of the bankrupt or any
person who is or has been an agent or a mandatary, or a clerk, a servant, an officer, a
director or an employee of the bankrupt, respecting the bankrupt or the bankrupt's
dealings or property and may order any person liable to be so examined to produce any
books, documents, correspondence or papers in that person's possession or power
relating in all or in part to the bankrupt or the bankrupt's dealings or property.
IN THE MATTER OF THE BANKRPUTCY OF SHS SERVICES MANAGEMENT INC.!GESTION DES SERVICES SHS INC. AND
SHS SERVICES LIMITED PARTNERSHIP
Court File No. 31-208039-T
IN THE MATTER OF AN APPLICATION PURSUANT TO SECTION 243 OF THE BANKRUPTCY AND INSOLVENCY ACT,
R.S.C. 1985, c. B-5, AS AMENDED; AND SECTION 101 OF THE COURTS OF JUSTICE ACT, R.S.O. 1990, c. C.43, AS AMENDED
Court File No. 31-208040-T
ONTARIO
SUPERIOR COURT OF JUSTICE
COMMERCIAL LIST
Proceeding commenced at Toronto
FACTUM OF THE TRUSTEE
PRICEWATERHOUSECOOPERS INC.
(returnable April 21, 2015)
McMILLAN LLP
181 Bay Street, Suite 4400
Brookfield Place
Toronto, ON M5J 2T3
BRETT HARRISON
Tel: 416.865.7932
Email: [email protected]
LSUC# 44336A
STEPHEN BROWN-OKRUHLIK
Tel: 416.865.7043
Email: [email protected]
LSUC# 66576P
Counsel for the Trustee