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PRE-JUDGMENT REMEDIES - Absconding debtors - Attachment order

Friday, July 31, 2020 @ 6:06 AM  

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Appeal by the Five Star defendants from an order confirming an ex-parte attachment order obtained by the respondent bank. The appellants were involved in a car dealership and car financing business. They had a banking arrangement with the respondent throughout. In 2019, the respondent advised the appellants they had decided they would terminate certain banking relationships as of June 5, 2019. In May 2019, the appellants entered into six agreements with a third party numbered company for the bulk sale of 58 motor vehicles and received six separate cheques for the purchase price, all postdated until June 3, 2019. The purchaser was not to obtain possession of the vehicles until the postdated cheques cleared. The appellants alleged this sale was in the ordinary course of their business and that the principal of the numbered company was known to them and was believed to be reliable. On June 4, 2019, the cheques were deposited at different branches of the respondent bank, which was in the ordinary course of the appellants’ business. The postdated cheques were dishonoured due to insufficient funds. The appellants alleged that they received no warning or notice from the numbered company that the cheques could not be relied upon, and they expended funds from their accounts on the assumption that the cheques would clear. In June 2019, the respondent issued its statement of claim alleging that the appellants had perpetrated a cheque kiting scheme. Twenty-four days after the cheques were negotiated and 14 days after the statement of claim was issued, the respondent obtained the attachment order limiting the ability of the appellants to deal with their assets, freezing certain real estate owned by the individual appellant, and authorizing an interim receiver to locate, seize and take possession of the exigible property of the appellants in some circumstances. Although the confirmation judge concluded the respondent had not misled the court, she found that much of the exculpatory information adduced by the appellants at the hearing was available to the respondent, if it had looked through its records. The respondent asserted it only wanted an interim receiver with limited monitoring power to determine the level of inventory, the debt level and to monitor the appellants’ cash flow.

HELD: Appeal allowed. There was no basis for the original application to have proceeded ex parte. The respondent also failed to discharge its obligation to make full, fair and candid disclosure of the facts to the court. The respondent relied on suspicious circumstances which it ought to have known were not suspicious. While the respondent did not intentionally or actively mislead the original ex parte judge, it did not provide all the information known to it and overstated the implications of some of the conduct it identified. There was also no basis for proceeding ex parte due to delay. By the time of the confirmation hearing both the attachment order and receivership order were no longer justified. Since the respondent’s proceedings had essentially shut down the businesses, there was no further cash flow to be monitored. The inventory had all been seized by the secured creditors, and a receiver was not needed to determine what had been seized. A determination of the appellants’ debt level did not require the draconian remedy of a receiver. By the time of the confirmation hearing all the bank drafts had been examined. Because of the affidavit of the individual appellant, and cross examination on the affidavit, the payees had all been identified, together with the purposes for the payments.

Bank of Nova Scotia v. Five Star Motor Group Ltd., [2020] A.J. No. 689, Alberta Court of Appeal, F.F. Slatter, B.K. O'Ferrall and R. Khullar JJ.A., June 19, 2020. Digest No. TLD-July272020009