abakhan vs braydon may 2012

Presentation toFraser Valley Chartered Accountants Association

Thursday, 3 May 2012

ABAKHAN& Associates Inc.

100% 100% 100%100%

3.6% 96.4% $7,000,000 Loan

Car Finance

Shamrock Trust Manulife

$7,000,000Secured Loan


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”


Timeline of Events2004 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.


Timeline of EventsAug. 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).


Timeline of Events, cont’d.

Sep. 2, 2005

Registered Security against JW Auto.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.


Timeline of Events, cont’d.May 31, 2006

BHL investment a failure (7 months 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).


Timeline of Events, cont’d.May/June 2007

AAI discovers as a result of searches and tenants wondering who to pay rent to that there are several properties in name of BHL.

June 19, 2007

BHL filed tax return for October 31, 2006.

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.


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.


Timeline of Events, cont’d.Mar/Apr. 2008

AAI off to Court to clarify SSDL claim.

July 4, 2008

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.


Argument AAI asserts 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.


Argument, cont’d. Therefore this is a transaction in violation of the Fraudulent Conveyance Act RSBC 1996.OR

In the alternative an illegal settlement contrary to The Bankruptcy and Insolvency Act RSC 1985.

Effect of transaction was to remove $12,000,000 of Shareholder Equity.


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.


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.


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 otherwise what is purpose of Corporations?


Analysis Fundamental difference 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.


Analysis AAI submitted that BHL’s admission as per Discovery, 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”


Analysis, cont’d.a) A disposition of property, by writing or

otherwise,b) A bond,c) A proceeding, ord) An order

“is void and of no effect 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 contrary”.


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 property out of the reach of those who may become his creditors in his trading operations.


Analysis, cont’d.

In Newlands Sawmills Ltd. v. Bateman (1922), Martin J.A. held at 359 that the principle in Mackay v. Douglas was based upon the contemplated entry into a trading or other venture which “might” lead to indebtedness, and that it was not necessary that the business should be of a hazardous nature.


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 property of BHL to a

new company (“Newco”) to ensure that BHL’s real property and other assets are not exposed to its new leasing venture”, and


Analysis, cont’d.

2. “Limit the activities and gross revenue of BHL to its interest in the JW Auto Group partnership”.

Proof of intent to defeat or delay creditors typically requires drawing inferences from the circumstances surrounding the transaction. However, it is not necessary in this case to draw an inference at all. Here, there is direct evidence of the intent of Mr. Botham and his solicitors.


Analysis, cont’d. Mr. Botham’s answers on examination

for discovery and in his affidavit 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 part of estate planning?A. That I could agree with.


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 affidavit sworn October 3, 2007 in Action No. S076370, Mr. Botham stated: … I did not want to cause BHL to go into the

partnership with the nine properties at risk of execution by creditors of the partnership.


Result Decision in FAVOUR of the Trustee.

Court of Appeal – centered

principally on the words “Guile, Malice and Fraud”. Found in “FAVOUR” of AAI.

Appeal to Supreme Court of Canada - REFUSED.


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 vs braydon may 2012

Business

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bhl jwhl

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