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Bankruptcy & Insolvency Law - Creditors and claim - Claims - Equitable claims

Thursday, August 25, 2016 @ 8:00 PM  


Appeal by three judgment creditors from a Supreme Court judgment affirming refusal of their bankruptcy trust claim. The appellants were judgment creditors of e3m Investments, a registered investment dealer and member of the Investment Industry Regulatory Organization of Canada (IIROC). The $750,000 judgment was treated by e3m as a contingent liability pending its appeal. The accounting gave rise to a $550,000 deficiency in the company’s estimated regulatory capital. As a result, e3m agreed to sell its client accounts to Caldwell. As a condition of consenting to the transaction, the Ontario Securities Commission (OSC) required e3m to pay the proceeds of purchase to an accumulating account held by Caldwell in order to satisfy the judgment owed to the appellants. The appeal from the judgment was dismissed in 2014 and the amount owed was increased on cross-appeal. In 2015, e3m made an assignment in bankruptcy, recording cash of $546,837 held in the accumulating account. The appellants asserted a trust claim over the account. The motion judge refused the claim on the basis there was no certainty of intention that the funds were to be held in trust for the appellants, as neither e3m nor the OSC intended to create a trust. The OSC direction was in the nature of a status quo preservation order rather than the intention to create a trust. The appellants appealed.

HELD: Appeal dismissed. The onus was on the appellants to establish that the monies in the accumulating account were held in trust for their benefit. The motion judge considered all relevant factors in concluding the necessary intention had not been proven. Nothing in the documentation referred to the accumulating account as a trust account. Until the assignment in bankruptcy, the appellants were unaware of the arrangement. The terms and conditions of the OSC direction obliged the accumulation and maintenance of assets to satisfy the judgment, but never addressed ultimate entitlement to the funds. The ability to permit the funds to be used for any purpose deemed appropriate by the OSC and IIROC was fundamentally inconsistent with an intention to create a trust in favour of the appellants. No error in principle was established.