List of Characters Abakhan & Associates Inc. “AAI” Botham Holdings Ltd. “BHL” Braydon Investments Ltd. “BIL” Silverspoon Developments Ltd. “SSDL” J.W. Welsh Holdings Ltd. “JWHL” ABAKHAN & Associates Inc.
Timeline of Events 2004 BHL sold real estate assets for profit. Paid large capital gains tax. Oct. 31, 2004 BHL taxable income $6,000,000 as a result of selling Gas Station at corner of Burrard & Davie. Jan. 2005 “Allegedly transferred assets to BIL”. 2005 Met fellow boater Jordon Welsh ex. Totem Lease Manager. Agreed to set up JW Auto and get tax loss Aug. 2005 Business in place. BHL agreed to acquire Leasing Portfolio for $3,000,000. ABAKHAN & Associates Inc.
Timeline of Events Aug. 2005 Profits/Losses agreed to be shared BHL 96.4% vs. JWHL 3.6%. Losses expected as a result of capital cost allowances on the Automobile Lease Portfolio. Also agreed to provide further $4,000,000. JW Auto signed Secured Loan Agreement with SSDL for “Debtors present and after acquired Personal Property”. Aug. 2005 BHL to be General Partner and provider of financing. Agreed to fund through Silverspoon (BIL son – Robert). ABAKHAN & Associates Inc.
Timeline of Events, cont’d. Sep. 2, Registered Security against JW Auto. 2005 No registration against BHL / JWHL. Sep. 2005 Business started SSDL. Advanced $5,402,000. Oct. 31, 2005 Transferred all assets to BIL for various classes of shares (93 documents). AAI colleague – Phil McCourt, described in Affidavit April 2008 “effect was to transfer all assets to BIL without triggering capital gains…. Leaving BHL with no assets except BHL interest in the Partnership which had .... a nominal or negative value. ABAKHAN & Associates Inc.
Timeline of Events, cont’d. May 31, BHL investment a failure (7 months 2006 later). J.W. Auto had operating losses of $5,300,000. JWIL - $190,000 BHL - $5,130,000 May 2007 BHL/JWHL/J.W. Auto assigned into Bankruptcy. AAI as Trustee told assets moved January 2005 (still a problem). ABAKHAN & Associates Inc.
Timeline of Events, cont’d. May/June AAI discovers as a result of searches 2007 and tenants wondering who to pay rent to that there are several properties in June 19, 2007 name of tax return for October 31, 2006. BHL filed BHL. Loss carried back to October, 2003 & 2004. CRA issued several refund cheques totaling $1,186,000. AAI told transaction takes place in January 2005. Then told October 2005. ABAKHAN & Associates Inc.
Timeline of Events, cont’d. Sep. 2007 CFI/Shamrock advance $100,000 to fund AAI and Lawyer. Jan. 2008 CIF/Shamrock indemnify AAI and Faskens. SSDL Lawyers agree to cash cheques from CRA and hold in trust pending litigation. Feb. 12, 2008 Fasken’s opinion that SSDL security does not cover Partner (BHL) assets. ABAKHAN & Associates Inc.
Timeline of Events, cont’d. Mar/Apr. AAI off to Court to clarify SSDL claim. 2008 2008 July 4, Judgment in Favour of AAI re Tax Refunds. $1,200,000 now given over to AAI. Aug. 25, 2008 Trial against BIL commenced by AAI. Robert Millar (Faskens) presiding. Nov. 14, 2008 Judgment in favour of AAI for retrieval of all assets. May 2009 AAI repays $800,000 to CFI/Shamrock for advances. ABAKHAN & Associates Inc.
Argument AAI asser ts that the transfer was not for good or valuable consideration. There were liabilities at time of transfer: AIG $4,000,000 BMO Guarantee for $2,100,000 SSDL Owed $5,200,000 October 31, 2005 Financial statistics showed a negative retained earnings. ABAKHAN & Associates Inc.
Argument, cont’d. Therefore this is a transaction in violation of the Fraudulent Conveyance Act RSBC 1996. OR In the alternative an illegal settlement contrar y to The Bankruptcy and Insolvency Act RSC 1985. Ef fect of transaction was to remove $12,000,000 of Shareholder Equity. ABAKHAN & Associates Inc.
Argument, cont’d. Alternatively, AAI had to prove: BHL was unable to pay it’s debts without these assets conveyed, and BHL rendered Bankrupt within 5 years of doing so. ABAKHAN & Associates Inc.
Defendant BHL argued: No intent to defraud creditors. No dishonest intent. Never represented to creditors it had assets that were transferred. B.I.A. has no application. Claims valuable consideration exchanged. ABAKHAN & Associates Inc.
Defendant BHL argued, cont’d: BHL not insolvent at time of transaction. BHL contends transaction conducted within Sec. 85 rollover guidelines. BHL claims that it is entirely legal to limit assets at risk other wise what is purpose of Corporations? ABAKHAN & Associates Inc.
Analysis Fundamental dif ference between AAI & BHL turned on what may properly constitute “Fraudulent Intent” for establishing Fraudulent Conveyance. AAI admitted on examination that BHL had no “Dishonest Intent”. BHL argued that that was the whole answer to AAI’s case. ABAKHAN & Associates Inc.
Analysis AAI submitted that BHL’s admission as per Discover y, that the purpose of the transaction was to protect assets. Section 1 of the Fraudulent Conveyance Act provides: 1. “If made to delay, hinder or defraud creditors and others of their just and lawful remedies” ABAKHAN & Associates Inc.
Analysis , cont’d. a) A disposition of proper ty, by writing or other wise, b) A bond, c) A proceeding, or d) An order “is void and of no ef fect against a person or the person’s assignee or personal representative whose rights and obligations by collusion, guile, malice or fraud are or might be disturbed, hindered, delayed or defrauded, despite a pretence or other matter to the contrar y”. ABAKHAN & Associates Inc.
Analysis, cont’d. The governing principle was established in Mackay v. Douglas (1872), where Vice-Chancellor Malins held at 543 that: A man who contemplates going into trade cannot on the eve of doing so take the bulk of his proper ty out of the reach of those who may become his creditors in his trading operations. ABAKHAN & Associates Inc.
Analysis, cont’d. In Newlands Sawmills Ltd. v. Bateman (1922), Mar tin J.A. held at 359 that the principle in Mackay v. Douglas was based upon the contemplated entr y into a trading or other venture which “might” lead to indebtedness, and that it was not necessar y that the business should be of a hazardous nature. ABAKHAN & Associates Inc.
Analysis, cont’d. Evidence introduced included a letter from BHL Lawyers dated October 31, 2005, describes the objectives and purpose of the Transaction as follows: 1. “Move the real proper ty of BHL to a new company (“Newco”) to ensure that BHL’s real proper ty and other assets are not exposed to its new leasing venture”, and ABAKHAN & Associates Inc.
Analysis, cont’d. 2. “Limit the activities and gross revenue of BHL to its interest in the JW Auto Group par tnership”. Proof of intent to defeat or delay creditors typically requires drawing inferences from the circumstances surrounding the transaction. However, it is not necessar y in this case to draw an inference at all. Here, there is direct evidence of the intent of Mr. Botham and his solicitors. ABAKHAN & Associates Inc.
Analysis, cont’d. Mr. Botham’s answers on examination for discover y and in his af fidavit make his intent patently clear: Q. Okay. Well here’s my suggestion. This BHL – Braydon transaction had nothing to do with estate planning unless you would say that the protection of your assets from claims of creditors is par t of estate planning? A . That I could agree with. ABAKHAN & Associates Inc.
Analysis, cont’d. Q. All right. And the whole motivation behind the BHL – Braydon transaction again was to ensure that creditors wouldn’t get assets of the estate? A . Yes. In his af fidavit sworn October 3, 2007 in Action No. S076370, Mr. Botham stated: … I did not want to cause BHL to go into the par tnership with the nine proper ties at risk ABAKHAN of execution by creditors of the & Associates Inc.
Result Decision in FAVOUR of the Trustee. Cour t of Appeal – centered principally on the words “Guile, Malice and Fraud”. Found in “FAVOUR” of AAI. Appeal to Supreme Cour t of Canada - REFUSED. ABAKHAN & Associates Inc.
Result - Assets AAI successful in retrieving assets into the BHL Estate. Gross realization before selling expenses: $20,105,000. Estimated dividend to creditors: 52 cents. ABAKHAN & Associates Inc.