Forsey v. Hydro Kleen Systems Inc., 2011 ABQB 14

Court of Queen ’ s Bench of Alberta Citation: Forsey v. Hydro Kleen Systems Inc., 2011 ABQB 14 Date: 20110112 Docket: 0310 01514 Registry: Red Deer Between: Don Forsey & Blackfalds Investments Ltd. Plaintiffs by Counterclaim (Defendants) Enforcement Creditors - and - Hydro Kleen Systems Inc., Pinnacle Pigging Systems Inc., Pinnacle Mechanical Systems Inc. and 676271 Alberta Ltd. Defendants by Counterclaim (Plaintiffs) Enforcement Debtors _______________________________________________________ Reasons for Judgment of the Honourable Mr. Justice A.G.

Park _______________________________________________________ [ 1 ] Spotlighted in this application is the liquidation of assets by the 4 Defendants by Counterclaim (Plaintiffs) who are now Enforcement Debtors in this action. The 4 Enforcement Debtors are corporations presently controlled by Robert Watts. The Plaintiffs by Counterclaim (Defendants) are Don Forsey (Forsey) and Blackfalds Investments Ltd. (Blackfalds). They are now the Enforcement Creditors in this action.

[ 2 ] By Counterclaim dated December 4, 2003 Forsey and Blackfalds made a claim against Hydro Kleen Systems Inc. (“Hydro Kleen”), Pinnacle Pigging Systems Inc. (“PPS Inc.”), Pinnacle Mechanical Systems Inc. (“PMS Inc.”) and 676271 Alberta Ltd. (“676271”) (the Enforcement Debtors) for commissions, salary, expenses and bonuses owing from Forsey’s employment with one or more of the Enforcement Debtors. [ 3 ] Forsey and Blackfalds made an Offer to Settle on July 4, 2006 to the Defendants by Counterclaim.

The Defendants by Counterclaim accepted the Offer to Settle by way of Confession of Judgment filed on October 24, 2008, a few days before the trial of this action was scheduled to commence in the City of Red Deer, in the Province of Alberta. [ 4 ] The parties entered into a Consent Judgment such that Forsey and Blackfalds were awarded $450,000.00 plus taxable costs and disbursements against the 4 Enforcement Debtor Corporations on a joint and several basis.

Taxed costs and disbursements were awarded on a consent basis against the 4 Enforcement Debtors in the sum of $32,140.85 for a total Consent Judgment in the amount of $482,140.85. [ 5 ] On October 27, 2008 Forsey and Blackfalds filed a Writ of Enforcement and registered it with the Personal Property Registry the following day. [ 6 ] Before the Consent Judgment was entered Forsey and Blackfalds had brought an application in this Court for relief under the following Notice of Motion: 1.

An Order preventing the Plaintiffs, their employees or agents, and all those dealing with the Plaintiffs or with their assets who have notice of this Order from: (

a) selling, transferring or otherwise disposing assets of the Plaintiffs by any means or way whatsoever; (

b) encumbering the assets of the Plaintiffs; or (

c) removing those assets by any means whatsoever from the Province of Alberta except in the ordinary course of business; without leave of the Court. 2. An Order that any and all deposits, proceeds, funds, shares or any other consideration from any disposition or transfer of the assets of the Plaintiff be declared forthwith to the Court and paid into Court, or otherwise dealt with in accordance with an Order of the Court. 3.

An Order that a Certificate of Lis Pendens be issued and filed against the titles of the homes of the Directors of the Plaintiffs, or alternatively, that a writ be issued and filed against the titles of the homes of the Directors of the Plaintiffs as further security. 4. An Order prohibiting the distribution of any money realized or to be realized through writ proceedings as against the assets of the Plaintiffs, or the Directors of the Plaintiffs until the earlier of termination of any Pre-Judgment Relief Order granted pursuant to this application or further Order of the Court. 5.

That the Plaintiffs pay the costs of this application in any event of the cause. AND FURTHER TAKE NOTICE THAT the grounds of the application are: (

a) the Plaintiffs are indebted to the Defendants for the sum of SIX HUNDRED FORTY FOUR THOUSAND TWO HUNDRED

SEVENTY NINE DOLLARS AND SEVENTY FIVE CENTS ($644,279.75) plus accrued interest, for which sum the Defendants have commenced action via a Counter Claim; (

b) without the relief requested in this application the Defendant will be unable to recover any eventual judgment obtained against the Plaintiffs; (

c) the Plaintiffs and the Directors of the Plaintiffs are wrongfully attempting to transfer, sell or otherwise dispose of the Plaintiffs' assets for the purpose of and with the likely effect of defeating the Defendants' Counter Claim. AND FURTHER TAKE NOTICE THAT reference will be made to: (

a) the Alberta Rules of Court , and especially Rules 437-441; and (

b) Part 3 of the Civil Enforcement Act . [ 7 ] The application was opposed by the Defendants by Counterclaim and on October 26, 2005 Brooker, J. of this Court dismissed the Forsey and Blackfalds application with leave to re-apply for the requested relief. The 4 Enforcement Debtors were awarded costs in the application in any event of the cause. [ 8 ] The trial of all of the claims in this action was set to commence on February 19, 2008.

On February 19, 2008 Sirrs, J. in this Court on the application of the Defendants by Counterclaim granted an adjournment of the February 19, 2008 trial. [ 9 ] A new trial date was set for October 27, 2008. Three days before the commencement of the trial the 4 Enforcement Debtors provided the Confession of Judgment and the Consent Judgment was filed against the 4 Enforcement Debtors. [ 10 ] Of particular concern in this application are the actions of the 4 Enforcement Debtors in 2006.

On May 23, 2006 Master Waller in this Court on an application made by Forsey and Blackfalds ordered the following: That when an agreement to sell the business and/or assets of the Plaintiffs is finalized, the Plaintiffs must immediately disclose that to the Defendants.

The closing date for the sale, a list of the business/assets being sold and the purchase price shall be included in the disclosure. [ 11 ] Before the application was heard by Master Waller, Robert Watts, one of the principle shareholders and directors of the 4 Enforcement Debtors’, swore an Affidavit in support of the objection made by the 4 Enforcement Debtors to the relief claimed by Forsey and Blackfalds in that application. [ 12 ] In para. 5 of his Affidavit, Robert Watts deposed to the following: 5.

With respect to paragraph 2 of the Plaintiffs by Counterclaim’s Notice of Motion filed May 11, 2006, I confirm that there continues to be discussions relating to the sale of the assets of the Hydro Kleen Group of Companies, however, to date no sales agreement has been entered into. As indicated in my Affidavit sworn October 24, 2005 in the within action, we are unable to disclose documentation relative to any potential sale given the existence of confidentiality agreements in place as between the Hydro Kleen Group of Companies and potential purchasers.

[ 13 ] The Affidavit was sworn on May 19, 2006 before Damon D. Park of the law firm of Gerig Hamilton and Neeland. While Robert Watts might have been correct in stating that at May 19, 2006 no sales agreement had been entered into by the 4 Enforcement Debtors, a perusal of the reporting letter of June 26, 2006 of Gerig Hamilton and Neeland to its clients, the 4 Enforcement Debtors respecting the sale of their assets to a public company, Eveready Industrial Services Inc. (“Eveready”), would indicate that the sale of the assets almost was completed.

During the months of March, April and May of 2006 it was readily apparent that Gerig Hamilton and Neeland was taking the appropriate steps preparatory to the sale of the assets of the 4 Enforcement Debtors. The sale of those assets closed on May 29, 2006. However Robert Watts certainly knew in March, April and May of 2006 that the sale of these assets was imminently near. Watts’ legal firm was preparing the necessary closing documents on behalf of the 4 Enforcement Debtors as vendors of the assets.

Robert Watts was attending at the offices of the law firm discussing the sale and the closing vendor documentation in March, April and May of 2006. Indeed on May 19, 2006, the same day he swore his Affidavit and some 10 days before the assets sale closed, Robert Watts attended the offices of Gerig Hamilton and Neeland to see his solicitor in that firm to discuss representation and warranties of himself and the companies. In those attendances he discussed the status of other outstanding litigation involving other parties with the 4 Enforcement Debtors.

Indeed the 4 Enforcement Debtors disclosed to the purchaser, the existence of that litigation in the closing documentation of the assets sale. However the existence of the Forsey and Blackfalds litigation was not disclosed to the purchaser in the closing documentation. [ 14 ] Although it was not provided in this application it would be interesting to see the date the completed and accepted Offer to Purchase between Eveready and the 4 Enforcement Debtors was executed.

One might suspect it was executed before May 19, 2006, which was the date Robert Watts swore his Affidavit deposing no sales agreement had been entered into by the 4 Enforcement Debtors.

Unfortunately, in response to an undertaking requested of Robert Watts by Counsel for Forsey and Blackfalds arising out of a post- judgment examination in aid of execution of Robert Watts as an officer of the 4 Enforcement Debtors on December 19, 2008, to provide the minute books for the 4 Enforcement Debtors and to provide client reports and enclosures from Gerig Hamilton and Neeland respecting the sale of the assets, the only items provided were the closing books and the Minute Book for Leedean Consulting and Management Ltd. (“Leedean”).

Counsel for the 4 Enforcement Debtors in this application advised me that Gerig Hamilton and Neeland had no other documentation. I note it does seem unusual that a law firm would have no file or other documentation for a $7 million dollar sale of assets to a public company which had closed 3 years earlier.

However, without the executed Offer to Purchase it is not possible to determine whether Robert Watts made a truthful statement in his Affidavit of May 19, 2006 respecting his evidence that at May 19, 2006 no sales agreement had been entered into by the 4 Enforcement Debtors. [ 15 ] On May 30, 2006 Gerig Hamilton and Neeland sent a faxed letter to Counsel for Forsey and Blackfalds advising of the sale of assets of the Hydro Kleen companies closing on May 29, 2006. [ 16 ] On May 31, 2006 Forsey and Blackfalds took out a Notice of Motion in this Court asking for the following relief: 1.

All Order that any and all deposits, proceeds, funds, shares or any other consideration from the sale of the Plaintiffs’ assets which closed May 29, 2006 be declared forthwith to the Court and the amount of $644,279.75 plus interest and costs, or such other amount as the Court deems just to be paid into Court in an interest bearing account for the duration of this lawsuit or otherwise dealt with in accordance with an Order of the Court. 2.

An Order preventing the Plaintiffs, their directors, shareholders, employees or agents, and all those dealing with the Plaintiffs or with their property, including cash or money assets, who have notice of this Order from: (

a) transferring or otherwise disposing property of the Plaintiffs by any means or way whatsoever; (

b) encumbering the property of the Plaintiffs; or (

c) removing those assets by any means whatsoever from the Province of Alberta except in the ordinary course of business; without leave of the Court. 3. An Order prohibiting the distribution of any money realized or to be realized through writ proceedings as against the assets of the Plaintiffs, or the Directors of the Plaintiffs until the earlier of termination of any Pre-Judgment Relief Order granted pursuant to this application or further Order of the Court.

4. That the Plaintiffs pay the costs of this application in any event of the cause. AND FURTHER TAKE NOTICE THAT the grounds of the application are: (

a) the Plaintiffs are indebted to the Defendants for the sum of SIX HUNDRED FORTY FOUR THOUSAND TWO HUNDRED SEVENTY NINE DOLLARS AND SEVENTY FIVE CENTS ($644,279.75) plus accrued interest and costs, for which sum the Defendants have commenced action via a Counterclaim; (

b) without the relief requested in this application the Defendants will be unable to recover any eventual judgment obtained against the Plaintiffs; (

c) the Plaintiffs and the Directors of the Plaintiffs are wrongfully attempting to transfer, sell or otherwise dispose of the Plaintiffs' assets for the purpose of and with the likely effect of defeating the Defendants' Counterclaim. AND FURTHER TAKE NOTICE THAT reference will be made to: (

a) the Alberta Rules of Court , and especially Rules 437-441; and (

b) Part 3 of the Civil Enforcement Act . [ 17 ] In response thereto Robert Watts swore an Affidavit on June 2, 2006 deposing the following: 3. I confirm that the Defendants by Counterclaim are vigorously defending the Counterclaim on the basis that the Counterclaim is without merit. 4. The asset sale referenced in the Affidavit of Sunni Demchuk, sworn May 31, 2006 in the within action, did in fact close on May 29,2006. Attached to this Affidavit as Exhibit "A" is a true copy of a May 29, 2006 e-mail from Kevin Trumpour, counsel for the purchaser of the assets, in which Mr. Trumpour confirms that the sale closed on May 29, 2006 at 3:01 p.m. 5. Contrary to paragraph 4 (

c) of the Notice of Motion filed May 31, 2006 in the within action, the Defendants by Counterclaim have in no way acted wrongfully with respect to the sale of assets. Furthermore, the purpose of the asset sale had absolutely nothing to do with the within action and as such, the assets were not sold in order to defeat any claim of the Plaintiff by Counterclaim. 6.

I confirm that the directors and shareholders of the Defendants by Counterclaim, (also known as the Hydro Kleen Group of Companies), namely myself and Dean Watts, have no intention of relocating from the jurisdiction of Alberta, where we have lived all of our lives and where we have ties to family and community. Furthermore, the Hydro Kleen Group of Companies continues to be in possession of assets such as vehicles and equipment in the approximate amount of $300,000.00, as the asset sale did not include a sale of all the equipment of the Hydro Kleen Group of Companies. 7.

I make this affidavit in support of my objection to the relief claimed in the Plaintiff by Counterclaim's Notice of Motion filed May 31, 2006. [ 18 ] In that application an Order was granted by Master Waller in this Court wherein the 4 Enforcement Debtors were required to disclose the list of the assets sold and the purchase price of the assets. They did not meet those requirements and Forsey and Blackfalds were forced to file a further Notice of Motion on August 1, 2006 in this Court asking the 4 Enforcement Debtors to disclose the list of

businesses and assets sold to Eveready on May 29, 2006 pursuant to the Order of Master Waller. The Notice of Motion further asked the 4 Enforcement Debtors be found in civil contempt arising from their failure and neglect to obey the Order of Master Waller. [ 19 ] Despite Robert Watts swearing in his Affidavit of June 2, 2006 that the Hydro Kleen companies possessed assets approximating a value of $300,000.00, he did not mention at that time the existence of a D.A.R.T. system owned by 676271. In the present application before me Robert Watts advised of its existence.

He advised it was valued at $1,000,000.00. [ 20 ] After the August 1, 2006 Notice of Motion was filed the 4 Enforcement Debtors finally provided the information required in the original Order of Master Waller. [ 21 ] On March 10, 2009 Forsey and Blackfalds filed an application in this Court to add the following non-parties as Respondents in this action: Robert Watts, Dean Watts, Brenda Watts, Virginia Alger, D & B Watts Trucking Ltd. (“D & B Watts Trucking”), and Leedean Consulting and Management Ltd. (“Leedean”).

None of these non-parties were parties in the original action between the Enforcement Creditors and Enforcement Debtors. [ 22 ] In an Affidavit of July 2, 2009 sworn subsequent to the Consent Judgment in this action, Robert Watts further deposed to the following: 2. In response to the Affidavit sworn by Don Forsey on October 30, 2008, it is not accurate to suggest that there are insufficient assets left in the companies to satisfy the judgement of Mr. Forsey.

I swore a statutory declaration on November 21, 2008 on behalf of 676271 Alberta Ltd. indicating that it had assets in the approximate amount of $1,000,000.00. The asset is a very sophisticated piece of equipment known as a DART system. The DART system permits operators of decoking units to be moved away from the cutting deck while the decoking of the drums at a refinery is being completed. This is for the ultimate safety and protection of the operators. Attached hereto and marked as Exhibit "A" to this my Affidavit is a true copy of the statutory declaration and information book on the DART system. 3.

In addition, the asset continues to be listed as an asset on the financial statements of 676271 Alberta Ltd. under the heading Investment and also includes the Deferred development costs. Attached hereto and marked as Exhibit "B" to this my Affidavit is a true copy of the most recent financial statement of the company.

The 2007 financial statement is not completed yet due to ongoing audits with Revenue Canada. 4. 676271 Alberta Ltd. has been approached to sell the unit for amounts approximating the declared value in the statutory declaration, however, we have not completed a sale of it yet. 5. 676271 Alberta Ltd. will not be struck from Corporate Registry as we have to keep it going to dispose of the DART system and in addition we have other tax filings to complete. 6.While the companies have assets available to satisfy the judgment, I do not believe it is appropriate that Mr.

Forsey be permitted to "attack" assets of other individuals or corporations. Mr. Forsey was well aware of this asset as the same was disclosed to him in the statutory declaration I swore in November 2008. [ 23 ] In this application Forsey and Blackfalds submitted in attempting to enforce the Consent Judgment it became apparent to them that Robert Watts had transferred his assets and the corporate assets in order to defeat the claims of Forsey and Blackfalds.

Forsey and Blackfalds further submitted that Robert Watts admitted in evidence there was a transfer of cash from the corporations into his own personal hands, his close family members’ hands, into the personal residence of Robert Watts and into other various corporations which he controlled.

[ 24 ] The sale of the assets closed on May 29, 2006. In this sale 3 of the Enforcement Debtors, Hydro Kleen, PPS Inc., 676271 and 2 of the Non-Party Respondents in this application, Robert Watts and D & B Watts Trucking sold assets to Eveready. Robert Watts and the affiliated companies received approximately $7 million dollars from the sale. [ 25 ] Robert Watts in a post-judgment Examination in Aid of Execution testified he personally, received less than $1,000,000.00. He admitted he gave some of those personal funds to his daughter, Virginia Alger, and $100,000.00 to his common law spouse, Thelma Galasky.

It was his testimony that Thelma Galasky at the time of the receipt of those funds was aware of the existence of this litigation. [ 26 ] The law firm of Gerig Hamilton and Neeland received $7,228,173.00 from Eveready and its solicitors in 4 payments of March 6, 2005, May 15, 2006, May 25, 2006 and May 30, 2006, on the assets sale. [ 27 ] Gerig Hamilton and Neeland was authorized to pay out the sales proceeds by Counsel for Eveready.

On May 30, 2006, Gerig Hamilton and Neeland paid out the following sums: Robert Watts $ 267,500.00 D&B Watts Trucking Ltd. $ 351,200.00 676271 Alberta Ltd. $ 4,327,902.00 Pinnacle Pigging Systems (Canada) Ltd. $ 1,070.00 Pinnacle Pigging Systems Inc. $ 1,046,307.00 Hydro Kleen Systems Inc. $ 1,234,189.00 Total $ 7,228,168.00 [ 28 ] Gerig Hamilton and Neeland paid out the following creditors of the Enforcement Debtors from the sale proceeds on June 16, 2006: General Motors Acceptance Corporation $ 99,539.30 Ford Credit Canada Limited $ 5,886.92 Canadian Western Bank $ 17,315.18 Kal Tire $ 446.30 [ 29 ] The law firm paid out $5,692.09 to 114464 Holdings Ltd. on June 21, 2006 and paid its own legal account. [ 30 ] Finally, it paid 546757 Alberta Ltd. (“546757”) $50,000.00 and it paid C20490-95 Nevada Inc. (formerly Pinnacle Pigging Systems Inc.) the sum of $32,843.69.

[ 31 ] Placed into evidence in this application were the unaudited financial statements for 676271; 546757, which changed its name to Hydro Kleen Systems Ltd. on October 26, 2006; C20490-95 Nevada Inc.; Pinnacle Pigging Systems (Canada) Inc.; and Leedean. All of these financial statements ended with the respective corporate year end of August 31, 2006 save and except for the unaudited financial statements of Leedean which ended on October 31, 2006.

These same financial statements all set out the financial position of each of those corporations for the prior year ended August 31, 2005 and October 31, 2005 in Leedean’s case. [ 32 ] No other financial evidence was provided on this application for any transactions by the 4 Enforcement Debtors or the Non- Party Respondents subsequent to August 31, 2006 or October 31, 2006 in Leedean’s case. [ 33 ] What is interesting to note is that 676271 received $4,327,902.00 from the Gerig Hamilton and Neeland law firm on or about May 30, 2006.

Yet the unaudited financial statements demonstrate that 676271’s cash position was only $2,863, 848.00 on August 31, 2006. That cash position had increased from $41,235.00 at August 31, 2005. [ 34 ] 676271 owed $372,004.00 on August 31, 2006 to Robert Watts on an alleged shareholder loan advanced to it by Robert Watts during 2006. I note in this connection at August 31, 2005, there was no shareholder loan from Watts to 676271. 676271 allegedly owed $9,171,718.00 to Hydro Kleen on August 31, 2006.

This alleged debt had increased from $8,785,242.00 at August 31, 2005. 676271 owed allegedly a debt of $25,853.00 to Pinnacle Pigging Systems (Canada) Inc. on August 31, 2006.

That debt was incurred sometime after the August 31, 2005 year-end as there was no debt owing to Pinnacle Pigging Systems (Canada) Inc. at August 31, 2005. 676271 also owed 565030 Alberta Ltd. an alleged debt of $175,063.00 at August 31, 2006 and it owed Leedean an alleged debt of $114,256.00 on August 31, 2006. [ 35 ] The August 31, 2006 unaudited financial statements of 676271 indicated it had expenses of $2,706,410.00 for wages and benefits in 2006.

Interestingly enough, that wage and benefit expense increased to $2,706,410.00 from $9,600.00 for the year ending August 31, 2005. [ 36 ] The law firm of Gerig Hamilton and Neeland paid Hydro Kleen $1,234,189.00 on or about May 30, 2006. The unaudited financial statements for 546757 (name changed on October 26, 2006 to Hydro Kleen Systems Ltd.) indicated it had cash holdings of $1,480,953.00 at August 31, 2006. Its cash position increased over the year from $118,197.00 according to the unaudited financial statements at August 31, 2005.

The August 31, 2006 unaudited financial statements showed that it allegedly owed Pinnacle Pigging Systems (Canada) Ltd. the sum of $304,002.00 which was an increase of $304,002.00 from any sum owed to Pinnacle Pigging Systems (Canada) Ltd. at August 31, 2005. It allegedly owed PPS Inc. the sum of $6,182,239.00 on August 31, 2006, which was an increase of debt owing to PPS Inc. from $5,971,910.00 on August 31, 2005. It allegedly owed D&B Watts Trucking the sum of $318,860.00 on August 31, 2006. It owed D&B Watts Trucking nothing on August 31, 2005.

Finally, at August 31, 2006, its alleged debt of $279,255.00 to Leedean remained constant as it had an alleged debt of $279,255.00 at August 31, 2005. These unaudited August 31, 2006 financial statements advised there were bonuses payable of $1,149,000.00. I note there were no bonuses paid for the year ending August 31, 2005. Similarly, management fees of $1,065,265.00 were paid during the year ending August 31, 2006.

Management fees of $630,187.00 were paid for the year ending August 31, 2005. [ 37 ] Both Hydro Kleen and 676271 were companies in which Robert Watts was the only director and shareholder for the year 2006.

Both of these companies were struck from the Corporate Registry of the Province of Alberta in 2009. [ 38 ] Robert Watts in an Examination for Discovery on February 15, 2005 in this action provided evidence that he was the majority shareholder of the 4 Enforcement Debtors. [ 39 ] He testified as the corporate officer and representative of the 4 Enforcement Debtors on an Examination in Aid of Execution held on September 18, 2008 that he was the principal of these 4 corporations and he had full control over the cash assets received in 2006. [ 40 ] It is common ground that each of the 4 Enforcement Debtors sold most of their equipment assets to Eveready on May 29, 2006.

The only sizeable asset not sold was the D.A.R.T. System owned by 676271. This liquidation of the assets occurred during the course of this law suit which had been commenced in 2003. [ 41 ] In an Examination of Notice to Debtor held on December 19, 2008, Robert Watts further testified he was aware of the law suit

of Forsey and Blackfalds when he caused his shareholder loan to be repaid. From the payment of his alleged shareholder loan, he invested $200,000.00 into his matrimonial home. Its title is registered in the name of Leedean. He further testified he purchased a Tahoe motor vehicle from the monies he received. [ 42 ] Finally he testified the 4 Enforcement Debtors are not operating as companies any longer. [ 43 ] In that examination, he provided 9 undertakings. [ 44 ] On September 16, 2009, Forsey and Blackfalds seized the D.A.R.T. System owned by 676271 under their writ for $482,140.85.

On September 21, 2009, a Notice of Objection to that seizure was filed by Robert Watts on behalf of the Enforcement Debtor, 676271. [ 45 ] Robert Watts testified half of the funds received by the 4 Enforcement Debtors was used to pay taxes, legal fees, repayment of loans and/or financing from arm’s length third parties, a partial repayment of shareholder loan to him in an unspecified amount and repayment of a loan to Leedean in an unspecified amount. [ 46 ] There was no evidence provided by the 4 Enforcement Debtors in the form of financial documentation which traced funds into or out of the 4 Enforcement Debtors after August 31, 2006. [ 47 ] On November 21, 2008, Robert Watts as president of each of the 4 Enforcement Debtors swore a statutory declaration.

It indicated no corporation had any assets save and except the following: 1. Cash in the chequing account of Hydro Kleen in a Scotiabank at 5002 - 50th Street in Red Deer, Alberta in the sum of $725.02. 2. Cash in a chequing account of 676271 in a Scotiabank at 5002 - 50th Street in Red Deer, Alberta in the sum of $594.21. 3. Cash in a chequing account of PPS Inc. in a Scotiabank at 5002 - 50th Street in Red Deer, Alberta in the sum of $1,954.00. 4. A D.A.R.T.

System valued at an estimated value of $1,000,000.00 in the name of 676271. [ 48 ] On March 16, 2009, only the minute book of Leedean and the unaudited financial statements of Pinnacle Pigging Systems (Canada) Inc.; C20490-95 Nevada Inc.; Leedean; Hydro Kleen Systems; and 676271; for the years ending August 31, 2006 were provided as part of the undertakings of Robert Watts given at his December 19, 2008 examination and ordered by Master Laycock on March 10, 2009. It should be noted the unaudited financial statements of Leedean were for its year ending October 31, 2006.

The closing book for the asset sale from the law offices of Gerig Hamilton and Neeland was provided as well. No other requested undertakings were provided. [ 49 ] By deduction, it is clear that the cash assets were paid out by the 4 Enforcement Debtors between August 31, 2006 and November 21, 2008, the date of the Statutory Declaration. [ 50 ] During this time period and in fact since the Counterclaim was issued by Forsey and Blackfalds, both Forsey and Blackfalds were creditors of the 4 Enforcement Debtors.

Forsey and Blackfalds, as creditors, have not received any funds from the 4 Enforcement Debtors to date save and except the sale proceeds from the sale of the D.A.R.T. System.

[ 51 ] There was no evidence provided to substantiate any payment to any creditor of the 4 Enforcement Debtors from August 31, 2006 to November 21, 2008. There is no means of determining whether those alleged debts were paid to the creditors, when those alleged debts were paid or indeed whether those alleged debts were bona fide debts.

The only evidence forthcoming in that respect was the evidence of Robert Watts provided in affidavits, and cross-examination on the Affidavits, Statutory Declaration and examinations as a representative of the 4 Enforcement Debtors. [ 52 ] Further, and most importantly, I note there was no documentation or evidence provided to substantiate or prove the debts or liabilities as set out in the unaudited financial statements.

In the absence of such documentation or proof, one cannot rely on the accuracy or the truthfulness of any entry setting out the existence of such debts or liabilities or the bona fides of those debts or liabilities. [ 53 ] Robert Watts’ evidence was scanty and not completely truthful. I do not accept it in its entirety. His answers provided in excerpts from the various examinations conducted upon him by Counsel for Forsey and Blackfalds and as set out in the exhibits filed with the briefs in this application, were equivocal at best.

On occasions, he provided answers in a generalized sense to specific questions and in some instances his answers were non-responsive. (See Tab 6, p. 31, line 24-27 of the Forsey and Blackfalds brief.) (Tab 9 of the Forsey and Blackfalds brief, para. 5 of Robert Watts Affidavit). [ 54 ] Robert Watts was non-cooperative in his scheduled attendances for appointments for Examination in Aid of Execution on November 19, 2008 and August 12, 2009, necessitating Forsey and Blackfalds to obtain court orders to compel his subsequent attendances for those appointments.

Further, he failed to answer his undertakings given examinations forcing Forsey and Blackfalds to make a court application to obtain those undertakings. Finally, Robert Watts failed to provide all of his answers to undertakings and failed to provide complete answers to any undertakings. Post-judgment he proved to be a difficult litigant.

In my view, that post- judgment conduct reduced his credibility in this application despite my not hearing any vive voce evidence from him. [ 55 ] Further, there was no evidence provided when each of the 4 Enforcement Debtors made payments on any of their alleged debts between August 31, 2006 and November 21, 2008. There was no evidence provided by the 4 Enforcement Debtors that any payment of funds to other alleged creditors was done with no intent to defeat, hinder or delay the debt owing to Forsey and Blackfalds.

There was no evidence provided to show that any payment of funds to other alleged creditors was a bona fide transaction. There was no evidence provided that any debts set out in the unaudited financial statements was a proper and just debt other than being included in bare form and substance in the unaudited financial statements. Indeed, there is no evidence of any payment made to any entity or party since August 30, 2006 other than the admission by Robert Watts that he received, personally, less than a million dollars.

Presumably some of that money went to retire his alleged shareholder loan of $372,004.00 owing to him by 676271. However, there was no substantiation of the existence of that shareholder loan by way of a promissory note from 676271 or any other financial documentation supporting its creation or existence. Further, there was no evidence of any payment made to employees or management respecting an expense for wages and benefits of $2,706,410.00 in 2006.

Nor was there any evidence or substantiation of payment by 676271 of the alleged monies due to Hydro Kleen, 565030 Alberta Ltd., Leedean, and Pinnacle Pigging Systems (Canada) Inc. Indeed, Leedean was still owed $112,759.00 on October 31, 2006.

There was no evidence when Leedean was paid that amount of $112,759.00. [ 56 ] There was no evidence provided that Hydro Kleen (formerly 546757) ever paid its debt owing of $279,255.00 to Leedean at August 31, 2006 (as submitted by Counsel for the Non-Party Respondents at para. 19 of its brief in this application). [ 57 ] In this application, there was Counsel appearing for the Non-Party Respondents, Robert Watts, Dean Watts, Brenda Watts, Virginia Alger, D&B Trucking, and Leedean.

Separate Counsel appeared for the 4 Enforcement Debtors. [ 58 ] The Non-Party Respondents opposed the Forsey and Blackfalds application for an extraordinary remedy of awarding enforcement of a judgment debt against them as non-parties to the litigation in which the judgment was obtained. The Non-Party Respondents noted Forsey and Blackfalds had seized the D.A.R.T. System of 676271 and Forsey and Blackfalds had not yet realized upon that asset.

The Non-Party Respondents further noted Forsey and Blackfalds failed to adduce evidence which disclosed any transfer of real or personal property by the 4 Enforcement Debtors to most of the Non-Party Respondents. It was the position of the Non-Party Respondents that any payments made to the Non-Party Respondents by the 4 Enforcement Debtors were payments made for long-term outstanding debts owed by the 4 Enforcement Debtors.

Finally the Non-Party Respondents, submitted there was not sufficient evidence or any evidence of fraud in those debt payments. [ 59 ] Counsel for the Non-Party Respondents noted that in addition to the sales of equipment made by the 4 Enforcement Debtors to Eveready, Robert Watts sold patents for $267,500.00 to Eveready and that D&B Watts Trucking sold equipment to Eveready in the May 29, 2006 sale.

[ 60 ] Counsel for the Non-Party Respondents argued the evidence in this application demonstrated the 4 Enforcement Debtors used the sale funds to pay taxes and existing debts. Those existing debts included legal fees, repayment of loans and/or financing from arm’s length third parties, repayment of a shareholder loan held by Robert Watts in an unspecified amount and repayment of a loan held by Leedean in an unspecified amount. It was argued further there was no evidence presented that Brenda Watts received any funds from the Eveready sale or from the 4 Enforcement Creditors.

Counsel for Forsey and Blackfalds agreed with that argument and advised Forsey and Blackfalds were not proceeding against Brenda Watts any further in this application. [ 61 ] Counsel for the Non-Party Respondents as well agreed that D&B Watts Trucking never received any funds from any of the 4 Enforcement Debtors.

Counsel for Forsey and Blackfalds advised she was not proceeding any further against the Non-Party Respondent, D&B Watts Trucking, in this application. [ 62 ] It was argued by Counsel for the Non-Party Respondent, Virginia Alger, there was no evidence that Virginia Alger received any funds from the 4 Enforcement Debtors. However, Counsel for Virginia Alger did concede the evidence of Robert Watts was that he gifted to Virginia Alger money from his personal proceeds of the Eveready sale.

In that connection, the evidence was that Robert Watts received monies from the 4 Enforcement Debtors in addition to the $267,500.00 he received from the sale of his patents to Eveready.

Robert Watts failed to provide evidence in this application from which source he received that money (the sale of his personal patents or the monies he received from the 4 Enforcement Debtors) and he further failed to answer his undertaking as the amount of money he gifted to his daughter Virginia Alger. [ 63 ] Counsel for the Non-Party Respondents argued the Non-Party Respondent, Dean Watts, on the evidence received no funds personally from the 4 Enforcement Debtors. However, the evidence demonstrated that Enforcement Debtor, Hydro Kleen received $1,234,189.00 from the sale of assets to Eveready.

At the time of this sale, Dean Watts was the only shareholder and director of Hydro Kleen. There was no evidence provided by Hydro Kleen, to demonstrate what debts it paid or to what persons or entities it distributed that $1,234,189.00. The only evidence available was the unaudited August 31, 2006 financial statements for Hydro Kleen, Dean Watts was in control of those funds until December 11, 2006. There is no means of knowing from that evidence whether those funds were paid to repay bona fide and proper debts to any person or legal entity or to pay out any bona fide and proper liabilities.

I am left to guess as to where the cash monies in Hydro Kleen went after August 31, 2006. I note further that Robert Watts, the father of Dean Watts, became the only shareholder and director of Hydro Kleen on December 11, 2006. If there was any cash in Hydro Kleen after December 11, 2006, Robert Watts would be in control of it. Similarly, there is no evidence from Robert Watts to demonstrate the legitimacy of any funds paid out to various recipients on his watch as the sole shareholder and director of Hydro Kleen.

Today the company has been struck (effective May 2, 2009) from the Alberta Corporate Registry. [ 64 ] I note that Robert Watts provided testimony that Dean Watts did not receive any funds from the 4 Enforcement Debtors. In the face of Robert Watts’ failure to answer his undertakings completely and his failure to provide any corroborating evidence to substantiate his position, I do not accept his statement that Dean Watts received no monies from the 4 Enforcement Debtors.

To the contrary, I am left to conclude that either Dean Watts or Robert Watts received the sum of $1,234,189.00 from the monies received by Hydro Kleen for the asset sale. I note at August 31, 2006 Hydro Kleen owed bonuses of $1,149,000.00. Without any evidence to the contrary, I draw the inference that those bonuses went to the shareholders of the company after August 31, 2006. The shareholders were Dean Watts until December 11, 2006 and Robert Watts after that date.

I note further that the August 31, 2006 unaudited financial statements set out $6,182,239.00 was due to a related party, PPS Inc., which is one of the 4 Enforcement Debtors. The latter company’s only shareholder and director was Robert Watts. On November 21, 2008, Robert Watts swore a Statutory Declaration wherein he set out PPS Inc. had no assets save and except $1,954.00 in a chequing account at a Scotiabank. No further evidence was provided by this Enforcement Debtor as to the disposition of the funds it received from the sale of its assets to Eveready.

Further, there was no evidence indicating whether any monies paid out by it subsequent to August 31, 2006 were paid to bona fide creditors. I note further that the August 31, 2006 unaudited financial statements detailed the company owed D&B Watts Trucking the sum of $318,860.00 and it owed Leedean the sum of $279,255.00. It further set out Hydro Kleen had ongoing operating expenses of $1,615,713.00 for salary and wages which was an increase of $908,064.00 from the prior unaudited financial statements of August 31, 2005.

Again, no evidence was provided to demonstrate or substantiate where the funds received from the Eveready sale were allocated or to indicate whether those fund allocations were in payment of bona fide liabilities or expenses. [ 65 ] However, despite the inference that Dean Watts received monies, Counsel for Forsey and Blackfalds advised they were not seeking any relief in this application against him. [ 66 ] Finally, Counsel for Forsey and Blackfalds advised she was not proceeding against any monies received by Thelma Galasky from Robert Watts as Thelma Galasky did not receive any notice of this application.

[ 67 ] Counsel for the Non-Party Respondents did concede in this application that the Enforcement Debtors made unspecified loan repayments to Robert Watts and Leedean. Robert Watts’ repayment was for his alleged shareholder loan made to 676271. The August 31, 2006 unaudited financial statements of 676271 indicated it owed Leedean $114,256.00. The August 31, 2006 unaudited financial statements recorded Hydro Kleen owed Leedean $279,255.00.

Robert Watts admitted in his evidence given at an Examination of Notice to Debtor on December 19, 2008 that he received monies from the sale of assets to repay the shareholder loan. He testified he used $200,000.00 of these monies to finish construction on his home which is registered in the name of Leedean.

Finally he admitted Leedean received monies to repay an alleged shareholder loan it held. [ 68 ] Again I note no substantiation of the bona fides of the shareholder loan of Robert Watts was provided nor was there any substantiation of the bona fides of any debt owing by any of the 4 Enforcement Debtors to Leedean. [ 69 ] Robert Watts also testified he purchased a motor vehicle from the monies he received, a Tahoe, for which he never produced the registration as undertaken by him in that December 19, 2008 examination. [ 70 ] Counsel for the Non-Party Respondents argued that the 2006 unaudited financial statements of 676271, demonstrated it owed Leedean $114,256.00 at August 31, 2006 and had owed that amount since August 2005.

Counsel argued that the October 31, 2006 unaudited financial statements of Leedean indicated the debt of 676271 had been reduced to $112, 759.00. Thus Counsel argued that indicated 676271 had repaid $1,497.00 in the period from August 31, 2006 to October 31, 2006 to Leedean. However, I do not accept that argument as an analysis of the October 31, 2006 unaudited financial statements of Leedean indicate it was owed $112,759.00 by 676271 on October 31, 2005 and it was still owed $112,759.00 by 676271 on October 31, 2006.

The latter unaudited financial statements would indicate no repayment had been made by 676271 to Leedean by October 31, 2006. [ 71 ] Similarly Counsel for the Non-Party Respondents argued that 546757 owed Leedean $279,255.00 on both October 31, 2005 and October 31, 2006 on the basis of the unaudited financial statements of 546757 at August 31, 2005 and August 31, 2006. Counsel indicated that the debt of 546757 had been repaid by October 31, 2006 as that debt was not shown on the October 31, 2006 unaudited financial statements of Leedean.

However I do not accept that argument as the unaudited financial statements of Leedean does not reveal either at October 31, 2005 or October 31, 2006 that Leedean was owed any funds by 546757. There is no entry in either of those financial statements of Leedean to indicate the existence of any debt owed to it at anytime by 546757.

As a result due to the non- reconcilable differences between the unaudited financial statements of 546757 of August 31, 2005 and August 31, 2006 and the unaudited financial statements of Leedean at October 31, 2005 and October 31, 2006, I cannot find that any alleged debt of 546757 to Leedean had been repaid by October 31, 2005.

There is no evidence to demonstrate when, if ever, any debts owing to Leedean by either 676271 or 546757 were repaid. [ 72 ] Consequently I cannot accept the subsequent submission by Counsel for the Non-Party Respondents that the unaudited financial statements of 676271 and 546757 demonstrated both companies to be solvent during the time period in which the repayment and partial repayment of the alleged loans from Leedean were made. I agree that at August 31, 2006 both 676271 and 546757 had cash in excess of $1,000,000.00.

But due to the findings I made in the preceding paras. as to the date, if ever, either 676271 or 546757 repaid any existing loans from Leedean, it is unknown if either 676271 and 546757 was solvent at the unknown date of any such alleged loan repayments. [ 73 ] In addition to my findings on the unknown dates of any alleged loan repayment to Leedean I note further there was no evidence put forward evidencing the creation, the existence, or the bona fides of any such alleged loans from Leedean to either 676271 or 546757.

Finally there is no evidence that any monies paid out by 676271 or 546757 were paid out to satisfy bona fide debts or just and proper debts owing by these companies to other alleged creditors at the time of the payout of these monies by 676271 or 546757.

Robert Watts produced no evidence of the amount of the debts owing by the 4 Enforcement Debtors, the creation of the alleged debts owing by the 4 Enforcement Debtors, the continued existence of the debts owing by the 4 Enforcement Debtors at the time of payout, or that the alleged debts were just and proper or bona fide debts owing by the 4 Enforcement Debtors at the time of the unknown payouts. [ 74 ] Robert Watts produced no documentation to demonstrate that 676271 owed him monies under a shareholder loan.

There was no evidence to demonstrate when this alleged shareholder loan was created, or for what purpose it was created. There was no evidence to substantiate the existence of it by virtue of documentation such as a promissory note or a similar debt instrument to demonstrate he was owed money. There was no evidence from 676271 to demonstrate that the shareholder loan was ever repaid, when it was ever repaid, or that the loan was retired.

Rather the only reference to a shareholder loan was the reference on the August 31, 2006 unaudited balance sheet (tab 13 of the Forsey and Blackfald’s brief) when it set out “due to shareholder” $372,004.00 at August 31, 2006.

[ 75 ] The points and findings referenced in the proceedings paras. apply equally to any alleged debts owing to Leedean by 676271 in the sum of $114,256.00 at August 31, 2006 and any alleged debts owing to Hydro Kleen by 676271 in the sum of $9,172,718.00 at August 31, 2006. [ 76 ] Finally the points and findings referenced in the proceeding paras. apply equally to any alleged debts owing to PPS Inc. by 546757 in the sum of $6,182,239.00 at August 31, 2006 and any alleged debts owing to Leedean by 546757 in the sum of $279,255.00 at August 31, 2006. [ 77 ] Counsel for the Non-Party Respondents further argued under the provisions of the Fraudulent Preferences Act , R.S.A. 2000, c.

F-24 that Forsey and Blackfalds failed to demonstrate any of the 4 Enforcement Debtors were insolvent or on the verge of insolvency when the loans allegedly were repaid to Robert Watts and Leedean. It was submitted if there was no evidence or insufficient evidence of such insolvency or near insolvency then relief should not be granted to Forsey and Blackfalds under that legislation. [ 78 ] Forsey and Blackfalds applied for relief under

section 359 of the Alberta Rules of Court which reads as follows: 359(1)Where a judgment creditor claims to be entitled to a right of relief either under the Fraudulent Preferences Act or under the Fraudulent Conveyances Statute, 13 Eliz. I,

Chapter 5 (U.K.), the Court, on motion in the judgment creditor's action served a. on the judgment debtor, and b. on the persons to whom it is alleged the property was conveyed, may order the property or part of the property to be sold to realize the amount to be levied under a writ of enforcement.

(2) Where a transfer or conveyance is made with the intention of defeating, defrauding or hindering the rights of a judgment creditor, the judgment creditor, for the purposes of obtaining an order under subrule (1), need not have obtained judgment at the time of the impugned transfer or conveyance. [ 79 ] The applicable provisions of the Fraudulent Preferences Act are as follows: Fraudulent transfers 1 Subject to sections 6 to 9, every gift, conveyance, assignment, transfer, delivery over or payment of goods, chattels or effects or of bills, bonds, notes or securities or of shares, dividends, premiums or bonus in any bank, company or corporation, or of any other property, real or personal, made (

a) by a person at a time when the person is in insolvent circumstances or is unable to pay the person's debts in full or knows that the person is on the eve of insolvency, and (

b) with intent to defeat, hinder, delay or prejudice the person's creditors or anyone or more of them, is void as against any creditor or creditors injured, delayed or prejudiced. Intent to prefer

2 Subject to sections 6 to 9, every gift, conveyance, assignment, transfer, delivery over or payment of goods, chattels or effects or of bills, bonds, notes or securities or of shares, dividends, premiums or bonus in any bank, company or corporation, or of any other property, real or personal, made (

a) by a person at a time when the person is in insolvent circumstances or is unable to pay the person's debts in full or knows that the person is on the eve of insolvency, and (

b) to or for a creditor with intent to give that creditor preference over the other creditor of the debtor or over anyone or more of them, is void as against the creditor or creditors injured, delayed, prejudiced or postponed. Preferential effect 3 Subject to sections 6 to 9, every gift, conveyance, assignment, transfer, delivery over or payment of goods, chattels or effects or of bills, bonds, notes or securities or of shares, dividends, premiums or bonus in any bank, company or corporation, or of any other property, real or personal, made (

a) by a person at a time when the person is in insolvent circumstances or is unable to pay the person's debts in full or knows that the person is on the eve of insolvency, and (

b) to or for a creditor and having the effect of giving that creditor a preference over the other creditors of the debtor or over anyone or more of them, is, in and with respect to any action that within one year after the transaction is brought to impeach or set aside the transaction, void as against the creditor or creditors injured, delayed, prejudiced or postponed. What constitutes transaction 4(1) A transaction is deemed to be one that has the effect of giving a creditor a preference over other creditors, within the meaning of

section 3, if by the transaction a creditor is given or realizes or is placed in a position to realize payment, satisfaction or security for the debtor's indebtedness to that creditor or a portion of it greater proportionately than could be realized by or for the unsecured creditors generally of the debtor or for the unsecured portion of that creditor's liabilities out of the assets of the debtor left available and subject to judgment, writ proceedings, attachment or other process.

(2) Independently of the intent with which the transaction was entered into or of whether it was entered into voluntarily or under pressure, the preferential effect or result of the impeached transaction governs, and no pressure by a creditor or want of notice to the creditor alleged to have been so preferred of the debtor's circumstances, inability or knowledge as aforesaid, or of the effect of the transaction, avails to protect the transaction except as provided by sections 6 and 9. Definition 5 In sections 2 to 4, "creditor" includes

(

a) a surety, and the endorser of a promissory note or bill of exchange, who would, on payment by the surety or endorser of the debt, promissory note or bill of exchange in respect of which the surety ship was entered into or endorsement was given, become a creditor of the person giving the preference within the meaning of sections 2 to 4, and (

b) a cestui que trust or other person to whom liability is equitable only. Bona fide transactions 6 Nothing in sections 1 to 5 applies to (

a) a bona fide sale or payment made in the ordinary course of trade or calling to innocent purchasers or parties, or (

b) a payment of money to a creditor, or a bona fide conveyance, assignment, transfer or delivery over of any goods, securities or property, of any kind as above mentioned, that is made in consideration of a present actual bona fide sale or delivery of goods or other property or of a present actual bona fide payment in money, or by way of security for a present actual bona fide advance of money, if the money paid or the goods or other property sold or delivered bear a fair and reasonable relative value to the consideration for it.

Payment to creditor 7 When there is a valid sale of goods, securities or property and the consideration or part of it is paid or transferred by the purchaser to the creditor of the vendor under circumstances that would render the payment or transfer void if it were made by the debtor personally and directly, the payment or transfer, even though valid as respects the purchaser, is void as respects the creditor to whom it is made.

Restoration of security to creditor 8 When a payment that is void under this Act has been made and a valuable security has been given up in consideration of the payment, the creditor is entitled to have the security restored or its value made good to the creditor before or as a condition of the return of the payment. Proceeds of unlawfully transferred property 11

(1) If a gift, conveyance, assignment or transfer of any property, real or personal, that in law is invalid against creditors, was made to a person, and that person has sold or disposed of, realized or collected the property or a part of it, the money or other proceeds or that amount, whether further disposed of or not, may be seized or recovered in an action by a person who would be entitled to seize and recover the property if it had remained in the possession or control of the debtor or of the person to whom the gift, conveyance, assignment, transfer, delivery or payment was made.

(2) The right of seizure and recovery exists in favour of all creditors of the debtor.

(3) When the proceeds are of such a character as to be seizable under writ proceedings, they may be seized under the writ of any creditor and shall be distributed among creditors under the Civil Enforcement Act .

(4) Whether the proceeds are or are not of such a character as to be seizable under writ proceedings, an action may be brought for them

or to recover the amount of them by a creditor, whether a judgment creditor or not, on behalf of that creditor and all other creditors, or any other proceedings may be taken that are necessary to render the proceeds or the amount of them available for the general benefit of the creditors.

(5) This

section does not apply as against innocent purchasers of any of the property. [ 80 ] In the case at bar there are 5 transactions which are impugned and subject to be set aside under the Fraudulent Preferences Act . The first transaction occurred at the time 676271 paid Robert Watts the sum of $372,004.00 being the amount of his alleged shareholder loan. As noted before there was no evidence presented by 676271 as an Enforcement Debtor as to the time of that payment.

It is known that funds in the sum of $4,327,902.00 were paid between May 29, 2006 (the date of closing of the asset sale to Eveready) and June 26, 2006 (the date of the reporting statement of account letter to 676271 by the law firm of Gerig Hamilton Neeland and which statement of account set out the disbursement of the funds to 676271) (see tab 12 of the Brief of Forsey and Blackfalds). At August 31, 2006, 676271 had cash assets of $2,863,848.00 and it allegedly owed Robert Watts, a shareholder loan in the sum of $372,004.00 (see tab 14 of the Brief of Forsey and Blackfalds).

There was no evidence provided by 676271 or by Robert Watts as to when the shareholder loan was paid to him. The only certainty in this area is provided by the Statutory Declaration of Robert Watts, as President of 676271 on November 21, 2008 when he set out 676271 was in possession of the D.A.R.T. system which he estimated to be valued at $1,000,000.00. He further indicated on November 21, 2008 the only other asset of 676271 was a bank account located at Scotiabank in Red Deer, Alberta with a cash balance of $594.21.

As a result it can be inferred that the shareholder loan was paid out in full to Robert Watts between August 31, 2006 and November 21, 2008. [ 81 ] Using similar reasoning and deductions it can be inferred that 676271 caused the monies allegedly due to related parties, Leedean and Hydro Kleen to be paid out in the sum of $114,256.00 and $9,171,718.00 respectively between August 31, 2006 and November 21, 2008. [ 82 ] The remaining 2 transactions which are impugned and subject to be set aside under the Fraudulent Preferences Act relate to the Enforcement Debtor 546757 (Hydro Kleen Systems Inc.).

Between May 29, 2006 and June 26, 2006 the law firm of Gerig Hamilton and Neeland disbursed to its client, 546757, the sum of $1,034,198.00 (see tab 12 of the Forsey and Blackfalds brief.) At August 31, 2006, 546757 had cash assets of $1,480, 953.00 (see tab 15 of Forsey and Blackfalds Brief). At August 31, 2006, 546757 allegedly owed Leedean the sum of $279,255.00 and allegedly owed the Enforcement Debtor, PPS Inc. the sum of $6,182,239.00.

By the Statutory Declaration of Robert Watts sworn on November 21, 2008 as the President of 546757 there was only one remaining asset in 546757 being a bank account with a balance of $725.00. There was no evidence provided by Robert Watts or 546757 as to the time when these alleged debts were paid to Leedean or PPS Inc. As a result it can be inferred that these 2 alleged debts were paid between August 31, 2006 and November 21, 2008. [ 83 ] Robert Watts admitted on September 24, 2009 that he had full control since May 29, 2006 of the approximate $7,000,000.00 paid by Eveready in the asset sale.

In turn, he caused monies to be paid out from the Enforcement Debtors in those 5 impugned transactions. The cash in those 5 impugned transactions went into the hands of Robert Watts, Leedean, 546757 and PPS Inc. As noted before Robert Watts paid $200,000.00 to finish his private residence which is registered to Leedean.

He further purchased a Tahoe motor vehicle from those funds. [ 84 ] All of the Enforcement Debtor companies are not presently registered in the Corporate Registry in the Province of Alberta. [ 85 ] To date, Forsey and Blackfalds have been unable to enforce on any part of their judgment save and except to seize and sell the D.A.R.T. system $10,500.00 was received from that sale. [ 86 ] When one looks at the August 31, 2006 unaudited financial statement of 676271 and observes it had a deficit position of $1,111,403.00, it is simple to make a finding that it was either insolvent or on the verge of insolvency when some of its alleged debts were paid and the cash funds were transferred out of its bank account.

In particular on the evidence adduced in this application 676211 was insolvent or on the verge of insolvency when the impugned transactions occurred. When the impugned transactions were completed, 676211 had no assets and effectively had ceased business operations. The D.A.R.T. system owned by 676211 Alberta Ltd. was of little or no value as it only realized $ in the eventual seizure and sale by Forsey and Blackfalds. In effect I find 676211 was on the verge of insolvency when it ceased business operations, despite its ownership of the relatively valueless D.A.R.T. system.

The bank account held by 676211 was insignificant in value. Existence of the D.A.R.T. system and the bank account did little or nothing to drive me away from my conclusion that 676211 was on the verge of insolvency when Robert Watts caused those impugned transactions to occur.

[ 87 ] In my view by carrying out those impugned transactions Robert Watts had the requisite intent to defeat, hinder, delay or prejudice Forsey and Blackfalds from realizing on their debt which subsequently was reduced to a judgment. Robert Watts had the intent to give himself as an alleged shareholder and his closely held corporations preference over Forsey and Blackfalds. In finding that intent I have reviewed all of the circumstances involving Robert Watts since the proceeds of the asset sales were paid out to the 4 Enforcement Debtors.

There is no doubt 676271 paid monies to Robert Watts, Leedean, Hydro Kleen, and PPS Inc. In his subsequent Examination in Aid of Execution, Robert Watts as the President of the 4 Enforcement Debtors provided little information respecting the payout of the funds from the corporations. He failed to produce in full his documentary undertakings which would have provided answers in tracing the flow of the funds into and out of the corporations. He knew at all times of the existence of the within litigation. He provided the instructions to his Counsel to enter into the Consent Judgment in this action.

Since the Consent Judgment was entered Robert Watts failed to:

a) provide Statutory Declarations in a timely fashion as required.

b) to appear at appointments for Examination in Aid of Execution on April 9, 2008, November 19, 2008 and August 12, 2009 compelling Forsey and Blackfalds to obtain Court Orders to compel his attendance at those examinations.

c) to answer his undertakings, forcing Forsey and Blackfalds to make an application to compel answers.

d) to provide all of his answers to undertakings, and fail to provide complete answers to any undertakings. [ 88 ] Robert Watts’ delay in providing information and his lack of providing detailed information respecting the cash transfers to his closely held corporations and to himself on an alleged shareholder loan, makes it impossible to reach any conclusion other than it was his intent since the entering of the Consent Judgment to defeat, hinder, delay and prejudice the Enforcement Creditors, Forsey and Blackfalds in their enforcement of that Consent Judgment.

Further his lack of candidness and the paucity of information provided leads me to infer that at the time the cash transfers took place from the bank account of 676271, it was insolvent or on the eve of insolvency. Robert Watts, as the directing mind of 676271, had to know by the act of transferring the funds out of that corporation it would be unable to pay its alleged debts in full and specifically would be unable to pay the judgment debt of Forsey and Blackfalds. [ 89 ] In my mind the actions and intent of Robert Watts in his transfers of the funds from 676271 falls squarely within either

section 1 of the Fraudulent Preferences Act or

section 2 of the Fraudulent Preferences Act . [ 90 ] The August 31, 2006 unaudited financial statements of 676271 demonstrated in its statement of income (loss) and deficit a loss from operations of $2,017,069.00. A large part of that loss was attributable to the expense payment of $2,706,410.00 in wages and benefits. An unexplained expense of that magnitude leads me to the inference that the employees of 676271 were overcompensated in that fiscal year when that expense is compared to the expense payment of wages and benefits for the year end of August 31, 2005 of $9,600.00.

The final income (loss) deficit for 676271 for the August 31, 2006 year end was $1,111,403.00. When that deficit was transferred over to the August 31, 2006 balance sheet and all of the alleged liabilities were paid from the stated assets, 676271 still ended up with a final shareholders’ deficiency of $1,111,301.00 at August 31, 2006.

That final deficiency resulted from the intended plan to pay out the alleged sum of $372,004.00 due to Robert Watts on an alleged shareholder loan and the intended plan to pay $114,256.00 to Leedean as alleged liabilities set out in the unaudited balance sheet of 676271 at August 31, 2006. On August 31, 2006, 676271 was in a deficit position before any payment to Robert Watts on his alleged shareholder loan or the alleged repayment to Leedean were made. At August 31, 2006 the deficiency position as set out in the financial statements of 676271 depicted it in insolvent circumstances.

It was apparent that at August 31, 2006 it would be unable to pay its debts in full. Alternatively if it was not in insolvent circumstances, Robert Watts would be presumed to know that it was on the eve of insolvency. [ 91 ] In causing the sum of $372,004.00 to be paid to him on the alleged shareholder loan and in causing Leedean to receive the sum of $114,256.00 as payment on an alleged debt, Robert Watts caused 676271 to make a transfer of monies to himself and Leedean when he was aware of the debt owing to Forsey and Blackfalds.

Both before and after those two payments were made 676271 was in insolvent circumstances or alternatively on the eve of insolvency. In any event on or after August 31, 2006, 676271 could not pay all of its alleged debts in full. Those payments to himself and Leedean were made by Robert Watts as the controlling mind of 676271 with an intention to defeat, hinder, delay or prejudice Forsey and Blackfalds as creditors of 676271.

[92] Those 2 cash transfers to Robert Watts as a director and shareholder of 676271 and to Leedean, a family corporation, is strongevidence of his intent to defeat, hinder, delay or prejudice Forsey and Blackfalds and give preference to himself and Leedean over Forseyand Blackfalds. [93] Using similar reasoning, deductions, findings of fact and inferences as set out in paras. 80 to 92 herein, any payment madefrom 676271 to Hydro Kleen after August 31, 2006 would in the circumstances be a fraudulent preference given to Hydro Kleen overForsey and Blackfalds as creditors. [94] With my findings that the payments made by 676271 to Robert Watts, Leedean and Hydro Kleen fall within the provisions ofsection 1 and

section 2 of the Fraudulent Preferences Act, it follows that those payments are void as against Forsey and Blackfalds, whoas creditors have been injured, delayed or prejudiced. [95] It matters not that Forsey and Blackfalds did not become a judgment creditor until October 27, 2008 when their judgment wasentered in this Court. I follow the authority of Kent, J. in this Court in Proprietary Industries Inc. v. Workum, 2005 ABQB 610 whereshe considered the reasoning of Romaine, J. in Krumm v. McKay, 2003 ABQB 437 , 342 A.R. 169. Both decisions gave a broadmeeting to the word “creditor”.

Both cases define that a creditor is a person to whom a debt is payable in accordance with the generalcommercial understanding of the word. I agree with Kent, J. and Romaine, J. that to require a creditor to perfect its claim by the entry ofa final judgment against the debtor would prevent a creditor from availing itself of the benefits of the legislation of the Statute ofElizabeth or the Fraudulent Preferences Act. Here Forsey and Blackfald’s debt became payable as soon as it occurred as set out in thepleadings under the Counterclaim.

It continued to be due and owing during the continuance of the ensuing litigation and it continues tobe due and owing today. They were creditors under

section 5 of the Fraudulent Preferences Act before the cash sale of the assets of the 4Enforcement Debtors took place. [96] The remedies of Forsey and Blackfalds are set out in

section 8 and

section 11 of the Fraudulent Preferences Act. [97] Accordingly Forsey and Blackfalds pursuant to Rule 359 and the Fraudulent Preferences Act are entitled to realize uponRobert Watts’ personal residence located at Lot 31, Block 1, Plan 9920143 as set out in a Certificate of Title issued by the Registrar ofLand Titles in and for the Province of Alberta and which personal residence is held in trust for him by Leedean.

Forsey and Blackfaldsare entitled to realize upon other property and accounts of Robert Watts, Leedean, 676271 and Hydro Kleen to the value of theirjudgment, post-judgment interest and costs incurred to be taxed subsequent to their judgment. [98] When the unaudited balance sheet of 546757 at August 31, 2006 is examined, it is apparent 546757 with retained earnings of$2,623,881.00 was not in insolvent circumstances or on the eve of insolvency or unable to pay its debts in full at August 31, 2006.Consequently the provisions of the Fraudulent Preferences Act would not apply to 546757. [99] While the Fraudulent Preferences Act requires the debtor to be insolvent or on the eve of insolvency or finally unable to payits debts in full at the time of the impugned transfers, there is no such requirement under the Fraudulent Conveyances Statute, 13 Eliz. 1,Chapter 5 (U.K.) (the “Statute of Elizabeth”).

The latter statute only requires the creditor to demonstrate the result of the impugnedtransfers of assets has the necessary consequence that there is nothing left for the debtor’s creditors. Master Funduk in his decision inPigeon Lake Park Maintenance Ltd. v. Foley (AB KB), 205 A.R. 99 at para. 23 quoted from Dunlop, Creditor-Debtor Law in Canada at p. 513.

There it was stated: “The purpose of the Statute of Elizabeth and the Canadian Acts based on it, as interpreted by the courts, is to strike down all conveyancesof property made with the intention of delaying, hindering or defrauding creditors and others except for conveyances made for goodconsideration and bona fide to persons not having notice of such fraud. The legislation is couched in very general terms and should beinterpreted liberally.

Lord Mansfield concluded that the common law had always been strongly against fraud in every shape and that theStatute of Elizabeth “cannot receive too liberal a construction, or be too much extended in suppression of fraud”. Relying on this policy,the courts have interpreted the statute to include any kind of alienation of property made with the requisite intent, the form of thetransaction being immaterial.

Similarly the legislation has been held to invalidate a conveyance of any kind of exigible or attachableproperty of the debtor, so long as it is of some real value.” [100] The Alberta Court of Appeal in Palechuk v. Fahrland 2004 ABQB 330 , 359 A.R. 50 held at para. 31:

“31 To obtain a remedy under the Statute of Elizabeth , the plaintiff must establish the fol-lowing: (sic) (1) there must be a conveyance of real or personal property; (2) for no or nominal consideration; (3) with intent to defraud, delay, or hinder creditors; (4) the party challenging the conveyance must be someone who was a creditor at the time of the conveyance or someone with a legal or equitable right to claim against the transferor; and (5) the conveyance must have had the intended effect.” [ 101 ] In the cases of 676271 and 546757 both companies transferred assets after August 31, 2006.

The only difference was 676271 was insolvent at August 31, 2006 while 546757 was not. However by November 21, 2008 both companies had little or no assets. 676271 had $594.21 in a bank account and the ownership of the D.A.R.T. system. 546757 at November 21, 2008 had $725.62 in a bank account. Between August 31, 2006 and November 21, 2008 at unknown times Robert Watts, as the directing mind of both companies, caused the assets of each company to be transferred to unknown parties.

Due to the limited evidence provided by Robert Watts and the 4 Enforcement Debtors on this application it is not certain whether the asset transfers were made to bona fide creditors of the companies or indeed whether the asset transfers were made even to the alleged creditors listed on the unaudited financial statements of each company at August 31, 2006. [ 102 ] In any event the evidence established there was a conveyance by 676271 and 546757 of most of the assets in each company, save and except for a minimal amount, such that each company is no longer a viable entity carrying on business.

Each company has been struck from the Corporate Registry of Alberta. Robert Watts admitted to transferring all of the assets for each company save and except for the minimal value retained in each at November 21, 2008. [ 103 ] As noted before the evidence from Robert Watts and the 4 Enforcement Debtors is scanty respecting the nature, security and value of the various debts alleged to be owing by 676271 and 546757. Robert Watts admitted to using some of the cash received from the assets sale to improve his primary residence, to purchase a motor vehicle and to transfer money to his common law spouse.

There was no evidence of consideration or bona fide transfers for value flowing to or from 676271 or 546757 at any time after August 31, 2006. [ 104 ] As I have noted before I find Robert Watts and 676271 and 546757 had an intent to defraud, delay or hinder Forsey and Blackfalds. Forsey and Blackfalds became creditors of the 4 Enforcement Debtors at the time of the creation of the debt as pleaded in their Counterclaim. Their debt was perfected by the issuance of the Consent Judgment in October 2008. Forsey and Blackfalds were creditors of 676271 and 546757 at the time of the impugned transfers.

Since the issuance of the Consent Judgment Forsey and Blackfalds have been unable to collect any part of their debt save and except for the monies received from the private sale of the D.A.R.T. system.

Up until Robert Watts and 676271 consented to the private sale under seizure of the D.A.R.T. system, Robert Watts was content to allow this Court to determine whether the Consent Judgment would be paid or enforced. [ 105 ] In my opinion the actions of Robert Watts and 676271 in causing the transfer of assets from 676271 to Robert Watts, Leedean and Hydro Kleen meet the 4 criteria that Forsey and Blackfalds must establish to invoke the remedy under the Statute of Elizabeth , as defined in the decision of Palechuk v.

Fahrland , supra. [ 106 ] As a further consequence to the impugned transfers of assets of 546757 after August 31, 2006 to Leedean in the sum of $279,255.00 and to PPS Inc. in the sum of $6,182,239.00 or any part of the $6,182,239.00 (the effects of which make or contributed to make 546757 insolvent), the transfers are void under the Statute of Elizabeth . [ 107 ] Forsey and Blackfalds pursuant to Rule 359 and the Statute of Elizabeth have the same remedies as they are entitled to under the Fraudulent Preferences Act .

Accordingly Forsey and Blackfalds are entitled to realize upon Robert Watts’ personal residence held in trust for him by Leedean. Forsey and Blackfalds are entitled to register a writ against that personal residence of Robert Watts and are entitled to realize upon other accounts and assets of Robert Watts, Leedean, 676271, 546757 and PPS (Inc.) to the value of their judgment, post-judgment interest and costs incurred and taxed subsequent to their judgment.

[ 108 ] It is evident from the evidence that Robert Watts was trying to shelter the 4 Enforcement Debtors’ assets from the claim of Forsey and Blackfalds. Due to the aforesaid transfers being fraudulent and due to Robert Watts being the controlling guiding mind of the 4 Enforcement Debtors, Leedean, 676271, 546757 and PPS (Inc.) are directed to transfer back to Robert Watts the value of the Forsey and Blackfalds judgment, post-judgment interest and subsequent taxed costs.

If there are no assets available in Leedean, 676271, 546757 or PPS (Inc.) to be transferred back to Robert Watts, Robert Watts will be personally liable for the value of the judgment, post-judgment interest and subsequent taxed costs held by Forsey and Blackfalds. From that judgment and subsequent taxed costs and post-judgment interest must of course be deducted any net monies received from the sale of the D.A.R.T. system. [ 109 ] The 4 Enforcement Debtors argued in this application that the Forsey and Blackfalds application is statute-barred under section 3(1) of the Limitations Act , being R.S.A. 2000, c L-12 .

Section 3(1) provides: “Subsequent to

section 11 , if a complainant does not seek a remedial order within, a) 2 years after the date on which the claimant first knew, or in the circumstances ought to have known,

i) that the injury for which the claimant seeks a remedial order has occurred, ii) that the injury was attributable to the conduct of the Defendant and, iii) that the injury assuming liability on the part of the Defendant warrants bringing a claim, or, b) 10 years after the claim arose, whichever period expires first, the Defendant, upon pleading this Act as a defence, is entitled to immunity from liability in respect of the claim. [ 110 ] Assuming for argument that this application by Forsey and Blackfalds constitutes the seeking of a Remedial Order, Forsey and Blackfalds still are not statute-barred.

The 4 Enforcement Debtors argued Forsey and Blackfalds knew or ought to have known that the just debts of the 4 Enforcement Debtors were going to be paid out and were paid out, particularly in light of Forsey and Blackfalds applying for pre-judgment relief. The 4 Enforcement Debtors submitted most of the debts were paid out by at least October 31, 2006.

As a result the 4 Enforcement Debtors argued the commencement of this application by Notice of Motion filed on March 10, 2009 is clearly outside of the 2 year limitation period. [ 111 ] I do note that I do not make a finding that the Notice of Motion filed in this application meets the definition of seeking a Remedial Order under the legislation. Regardless the Affidavit evidence of Robert Watts filed in this application and referenced in the pre-judgment applications only referred to the May 29, 2006 sale of some of the assets of the 4 Enforcement Debtors.

Robert Watts in his Affidavit of June 2, 2006 swore that he had no intention of relocating outside of Alberta where he had ties to family and community. He further swore the companies retained assets in their possession in the approximate amount of $300,000.00. [ 112 ] Further there is no evidence to suggest most of the debts were paid out by the 4 Enforcement Debtors by October 31, 2006. The unaudited financial statements of 676271 and 546757 indicate each had substantial sums of cash and alleged outstanding debts at August 31, 2006.

It was finally only by disclosure of the November 21, 2008 Statutory Declaration of Robert Watts for each Enforcement Debtor, that it was disclosed that each Enforcement Debtor had very few assets. There was no evidence from the 4 Enforcement Debtors in this application as to the date their alleged debts were paid out to other alleged creditors.

The earliest knowledge which was gained by Forsey and Blackfalds that the alleged debts were paid out was by disclosure from the November 21, 2008 Statutory Declaration of Robert Watts and the incomplete disclosure of the 4 Enforcement Debtors provided in their Counsel’s letter of March 16, 2009 to Counsel for Forsey and Blackfalds. This knowledge gained by Forsey and Blackfalds was well within the 2 year limitation period, even if the legislation applied. Finally there was no evidence presented that Forsey and Blackfa

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