Hydra-Dyne Industrial Cleaning Services Ltd. v. KPMG Inc. (Trustee)

Hydra-Dyne Industrial Cleaning Services Ltd. v. KPMG Inc. (Trustee) Collection Decisions of the Court of Appeal Date 2003-01-29 Docket numbers C37894 Judges Carthy, James Joseph; Laskin, John Ivan; Cronk, Eleanore Ann Subject Civil Decision Content DATE: 20030129 DOCKET:C37894 COURT OF APPEAL FOR ONTARIO CARTHY, LASKIN AND CRONK JJ.A. IN THE MATTER OF THE BANKRUPTCY OF HYDRA-DYNE INDUSTRIAL CLEANING SERVICES LTD., of the City of Sarnia, in the Province of Ontario BETWEEN: HYDRA-DYNE INDUSTRIAL CLEANING SERVICES LTD. Appellant/Moving Party - and - KPMG INC., TRUSTEE IN BANKRUPTCY Respondent Raymond F. Leach for the appellant Timothy C. Hogan for the respondent Heard: December 10, 2002 On appeal from the order of Justice I.M. Gordon of the Superior Court of Justice dated February 19, 2002. CARTHY J.A.: [1] The bankrupt company appeals from the dismissal by Gordon J. of its motion to annul the bankruptcy. [2] Section 181(1) of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 reads: 181. (1) Where, in the opinion of the court, a receiving order ought not to have been made or an assignment ought not to have been filed, the court may by order annul the bankruptcy. [3] Hydra-Dyne was a substantial private company with over one hundred employees and gross revenue of over $11 million dollars. Its president and principal shareholder was Walter Dynes. In May of 2001, the National Bank of Canada called upon the company for immediate repayment of over $1.8 million then owing to the bank. The bank then entered into a forbearance agreement to give the company an opportunity to obtain a replacement financing facility and had in the meantime installed KPMG as a business monitor. In September the bank gave notice of defaults in the forbearance agreement, including a failure to remit source deductions and G.S.T. to the federal government and margin defaults to the bank. When these defaults were not cured, the bank terminated its forbearance agreement and took steps to close down the business. KPMG prepared and presented to Walter Dynes the documentation for an assignment for the general benefit of creditors, including a statement showing the assets and debts of the company. These were signed by Dynes on November 6, 2001. [4] Section 49 of the Act reads in part: 49. (1) An insolvent person or, if deceased, his legal personal representative with the leave of the court, may make an assignment of all his property for the general benefit of his creditors. (2) The assignment made under subsection (1) shall be accompanied by a sworn statement in the prescribed form showing the property of the debtor divisible among his creditors, the names and addresses of all his creditors and the amounts of their respective claims and the nature of each, whether secured, preferred or unsecured. [5] Dynes signed this document in the presence of the KPMG representative, Stephen Cherniak, who then returned to his office to have a commissioner for taking affidavits complete the jurat. The "affidavit" was then presented to the Official Receiver and a trustee appointed. [6] A motion followed to annul the bankruptcy alleging that the statement of affairs was not properly sworn and did not accurately express the financial position of the company, that it was not bankrupt, that Dynes had no authority to sign on behalf of the company, that Dynes acted under duress, and that the procedure followed was an abuse of process. These arguments were all pursued before this court. [7] Justice Gordon recited the facts in far more detail than I have found necessary and concluded at paragraph 61 of his reasons: [61] In summary, Hydra-Dyne was insolvent and there is no abuse of process. Mr. Dynes has not satisfied the court there was lack of appreciation of the nature and effect of the documents he signed nor was there duress beyond the normal stress of financial insolvency. That Mr. Dynes held himself out as able to bind the company is clear and in addition the director or directors by their signatures knew that he signed for the company on major banking documents. They cannot now come to the court and deny his authority. [8] These conclusions are fully supported by the evidence and the only ground which gives this court reason to hesitate is that based on the failure to swear the affidavit before a Commissioner. [9] It is a thin excuse for the KPMG representative to say that he was unaware of the necessity for the commissioner to be present to swear the affidavit. That requirement is plain on the face of the document. Further, the affidavit is a document which initiates a judicial process and is relied upon as the foundation of that process. A casual approach to the integrity of the document reflects upon the process and should not be tolerated. [10] Having said that, the focus of the jurisprudence dealing with annulment has been on the conduct of the debtor and the solvency of the debtor, giving the motion judge a wide discretion to deal with the particular circumstances of the instant case. See: Re: Bateman (1998), 10 C.B.R. (4th) 197 at 199-200 (N.S.S.C.); Re: Wale, [1996] O.J. No. 4489 at 4 (Gen. Div.); and Columbia Properties Ltd. v. Commonwealth Mtge Corpn. (1964), 6 C.B.R. (N.S.) 321 at 325 (B.C.C.A.). [11] In this case, Justice Gordon found that the statement of affairs contained no substantial errors and that the debtor was clearly insolvent. It would defeat that purpose of the Bankruptcy and Insolvency Act directed at protection of creditors to now annul the bankruptcy and, thus, I would in this case agree with the motion judge that no substantial injustice has been caused by the impropriety in execution of the affidavit, or to put the converse, there would be an injustice to the creditors to order annulment. [12] I would therefore dismiss the appeal and also dismiss the cross-appeal that seeks alternatively a declaration as to Dyne's authority to sign for the company. No time in argument was devoted to the cross-appeal and it should be dismissed without costs. The respondent should recover the costs of the appeal fixed on a partial indemnity basis at $12,000 plus disbursements of $446.15 plus G.S.T., offset by $4,000 plus G.S.T. payable to the appellant for the motion for security for costs. Released: January 29, 2003 "JJC" "J.J. Carthy J.A." "I agree J.I. Laskin J.A." "I agree E.A. Cronk J.A."