October 16, 2024
In a rare case on bankruptcy and insolvency law at the country’s top court, the Supreme Court made a unanimous ruling that is good news for creditors looking to collect from companies that committed fraudulent activity.
In the case of Aquino v. Bondfield Construction Co., the Supreme Court ruled that “the fraudulent intent of the president of two construction companies can be attributed to the companies in bankruptcy proceedings”.
Litigation partner Jeremy Opolsky, who acted as counsel in the case to KSV Restructuring Inc., a subsidiary of Bondfield, spoke with the Globe and Mail about the ruling. “This will make it easier for insolvent companies to collect on behalf of creditors against former executives who defrauded or otherwise took corporate assets,” he said. Jeremy also spoke with Canadian Lawyer about this case.
The Torys team consisted of Jeremy Opolsky, Scott Bomhof, Craig Gilchrist and Alex Bogach.
John Aquino was the former president of Bondfield Construction Co. Ltd., one of Ontario’s largest public infrastructure construction companies. Forma-Con Construction was an affiliate of Bondfield that performed concrete forming services. Both companies began experiencing serious financial difficulties in 2018 and were subsequently placed into bankruptcy protection. However, following investigations, forensic auditors found that Mr. Aquino and other associates had been participating in a false invoicing scheme through which they fraudulently syphoned tens of millions of dollars from the company.
To recover these funds, auditors commenced applications under section 96 of the Bankruptcy and Insolvency Act (BIA), seeking declarations that the payments to these illegitimate suppliers were “transfers at undervalue”. This is the first time that the SCC has considered the test for a “transfer at undervalue”. Under section 96 of the BIA, a court may order the return of property that a debtor transferred to another party if insufficient value was given and the debtor transferred the property with the intent to defraud, defeat, or delay a creditor.
The 7-0 ruling ultimately upheld the two lower court decisions in Ontario, ruling Mr. Aquino and his associates liable to pay creditors more than $33 million they took out of the company through the fraudulent scheme.
The SCC used this case to reframe the law of corporate attribution in Canada generally, which will apply to all areas of law going forward. In particular, the SCC added a “new” factor for Courts to consider in the context of the application of the corporate attribution doctrine, and rejected prior strict interpretations of the SCC’s ruling in DeJong.
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