ANIRBAN GHOSH & JAYA GHOSH, – v. –, 2022 NBKB 192

IN THE COURT OF KING’S BENCH OF NEW BRUNSWICK TRIAL DIVISION JUDICIAL DISTRICT OF MONCTON Anirban Ghosh & Jaya Ghosh v. Sacha Contracting & Renovation Inc., Ruscana Intertrade Inc., Alexandr Petukhov, Alexander Petukhov and Alexandr Sacha Petukhov 2022 NBKB 192 MC/709/2019 BETWEEN: ANIRBAN GHOSH & JAYA GHOSH, – and – SACHA CONTRACTING & RENOVATION INC., RUSCANA INTERTRADE INC., ALEXANDR PETUKHOV, ALEXANDER PETUKHOV and ALEXANDR SACHA PETUKHOV DECISION BEFORE: Justice Robert M. Dysart AT: Moncton, New Brunswick DATE OF HEARING: June 23, 2021, and June 6, 2022 DATE OF DECISION: October 13, 2022 APPEARANCES: René A.

LeBlanc, for the Plaintiffs Dale T. Briggs & Tara M. McIntyre, for the Defendants DYSART, J.

INTRODUCTION [ 1 ] In this matter, both the Plaintiffs and the Defendants are seeking

summary judgment. [ 2 ] Both parties argue that there is no genuine issue requiring a trial. FACTS [ 3 ] This action stems from a construction contract dating back to 2012. At that time, Mr. and Mrs. Ghosh entered into a contract with Sacha Contracting and Renovation Inc. (“Sacha”) for the construction of a home in Dieppe, New Brunswick. [ 4 ] Alexandr Petukhov was, at all material times, the sole shareholder and director (i.e. the directing mind) of Sacha. [ 5 ] It is not disputed that Mr.

Petukhov was also, at all material times, the sole shareholder and director (and directing mind) of another company, Ruscana Intertrade Inc. (“Ruscana”). [ 6 ] Sometime after the construction began, a dispute arose between Mr. and Mrs. Ghosh and Sacha. As a result of that dispute, Sacha commenced an action against Mr. and Mrs. Ghosh in April 2013, claiming damages in the amount of $95,462.65 plus interest, costs and disbursements. Sacha also filed a Claim for Lien under the Mechanics Lien Act , RSNB 1973, c.

M-6 (since repealed), encumbering the Ghosh property. [ 7 ] In response to the lawsuit commenced by Sacha, Mr. and Mrs. Ghosh filed a Statement of Defence and Counterclaim, wherein they denied owing Sacha anything and instead claimed that it was Sacha which breached the contract. They sought damages as against Sacha in the sum of $98,139.98. Mr. and Mrs. Ghosh claimed that Sacha had performed its work in a deficient fashion, failing to comply with the National Building Code.

That Statement of Defence and Counterclaim was filed with the Court on June 3, 2013 and was served on Sacha that same day. [ 8 ] Sacha’s action against Mr. and Mrs. Ghosh (and their counterclaim against Sacha) proceeded to a trial before Justice Rideout. In a decision dated October 4, 2018, he dismissed Sacha’s action and awarded Mr. and Mrs. Ghosh some $96,000 in damages on their counterclaim, plus costs and disbursments. [ 9 ] When Mr. and Mrs. Ghosh attempted to enforce their Judgment against Sacha, they learned that Sacha was insolvent and effectively judgment-proof.

They learned that, just over two months after being served with their Statement of Defence and Counterclaim, Sacha conveyed to Ruscana a parcel of land bearing PID 70458708, located at 9 Zack Road in Berry Mills, New Brunswick (the “Property.”). [ 10 ] Mr. and Mrs. Ghosh now bring this lawsuit, alleging that Sacha and Mr. Petukhov made a fraudulent conveyance or unjust preference by transferring the Property to Ruscana so as to protect the Property from being seized and sold in satisfaction of the Judgment. They plead and rely on

section 2 the Assignments and Preferences Act , R.S.N.B. 2011, c.115 . [ 11 ] As an aside, that legislation was repealed, and has since been replaced by the Debtor Transactions Act , S.N.B. 2015, c.23 . The Plaintiffs and the Defendants agree that the new legislation has no retroactive application to the transfer in issue, which occurred in 2013. It is, therefore, the Assignments and Preferences Act which governs. [ 12 ] The Plaintiffs also claim against the Defendants pursuant to s. 166 of the Business Corporation Act , arguing that Sacha and Mr.

Petukhov (and Ruscana by association) acted in an oppressive manner or in a manner which was unfairly prejudicial, or which unfairly disregarded their interests as creditors of Sacha. [ 13 ] Sacha, Petukhov and Ruscana deny that the transfer was fraudulent or was done to defeat the Ghosh’s claim; rather, Putukhov alleges that the transfer from Sacha to Ruscana was done on the advice of the companies’ accountant and was done for legitimate business purposes.

THE MOTIONS [ 14 ] The Defendants, Sacha, Ruscana and Mr. Petukhov request

summary judgment against Mr. and Mrs. Ghosh, arguing that, since the transfer of the Property was completed some 5 years prior to the Judgment awarded to Mr. and Mrs. Ghosh by Justice Rideout, the Plaintiffs were not “creditors” as that term is used in both the Assignments and Preferences Act and the Business Corporation Act . If they were not creditors, those Acts do not apply, and the Ghoshs’ claim is invalid. There is therefore no genuine issue requiring a trial, they argue. [ 15 ] The Ghoshs filed a mirror motion for

summary judgment, arguing that the transfer of the Property is a classic fraudulent conveyance and unjust preference, and they argue that there is thus no genuine issue requiring a trial. Financial Status of Sacha [ 16 ] In order to understand and appreciate the transfer of the Property by Sacha to Ruscana in 2013, it is essential to review the companies’ – and in particular, Sacha’s – financial situation. [ 17 ] We start with Sacha’s Financial Statement for the year ending December 31, 2012, which shows that the company owed $828,849 to Ruscana.

That amount had risen substantially from the previous year when it was only $187,313. That Financial Statement also shows a debt to shareholder, Mr. Petukhov, of $496,953, up from $430,557 the previous year. Sales in that year had fallen by about half, and the company reported a net loss in 2012 in the amount of $118,597. The company listed real property (the Property) as having a net book value of $70,000. [ 18 ] According to the evidence before the Court, Sacha had taken a mortgage from a private lender in September 2012 on the Property for $650,000. That mortgage was guaranteed by Mr.

Petukhov and Ruscana and carried an annual interest rate of 12%. [ 19 ] The evidence before the Court indicates that Sacha ceased operations in or about August 2012, about one year prior to the transfer of the Property to Ruscana. [ 20 ] For the year ending December 31, 2013, however, the company reported sales of $341,069, which seems at odds with Sacha’s assertion that it ceased operations. Perhaps it had collections that year, notwithstanding that it had ceased operation the previous summer.

In any event, Sacha’s indebtedness to Ruscana was reduced from $828,849 to $461,512 (a reduction of $367,337), and the shareholder debt rose to $542,500. The company reported a net loss of $85,219 for that year. The Property was no longer listed on the company’s list of holding, as it had been transferred to Ruscana. The evidence indicates that, as

part consideration for the transfer of the Property, Ruscana forgave $240,000 of Sacha’s inter-company debt. [ 21 ] In the year ending December 31, 2014, Sacha reported sales of $20,353, and a net loss of $147,725. The company’s debt to Ruscana dropped slightly, to $447,270. [ 22 ] In the year ending December 31, 2015, Sacha reported $0 in sales, and the debt to Ruscana was reduced to $0. Circumstances Surrounding the Transfer [ 23 ] It is not disputed that on August 21, 2013 – about 2 ½ months after being served with Mr. and Mrs.

Ghosh’s Statement of Defence and Counterclaim, Sacha transferred the Property to Ruscana. [ 24 ] It is undisputed that, at the time of the transfer, Sacha had ceased operations as a going concern. In his affidavit, Mr. Petukhov denies that the transfer of the Property was undertaken on the eve of insolvency. However, according to counsel for the Defendants, the company was indeed insolvent in 2013. It conveyed its largest asset but received nothing in return except forgiveness of only part of its debts and the repayment by Ruscana of the $650,000 mortgage in favour of the private lender.

It remained indebted to Ruscana and to

Petukhov, and it had ceased operations. If the company’s financial statements are to be believed, Sacha was insolvent in 2013. [25] It is also undisputed that, at the time of the transfer, the Property was the only real property owned by Sacha. Further, it isundisputed that the Property was Sacha’s single most valuable asset – seemingly by a large margin. How valuable? The Defendantsacknowledge that the Property had been mortgaged in 2012 for $650,000.

The Defendants also acknowledge that, after acquiring theproperty from Sacha, Ruscana obtained a collateral mortgage from Royal Bank of Canada for $1.5 million in October, 2013. That loanwas used to pay off the prior loan from the private lenders and injected approximately $220,000 in cash into Ruscana’s operations. Consideration [26] The Defendants maintain that Ruscana “paid” $240,000 for the Property, which was subject to the mortgage in favour of theprivate lenders.

I use quotation marks because no actual currency was exchanged; rather, Ruscana forgave Sacha’s inter-company debtby that sum and Ruscana paid off the mortgage. The Defendants maintain that that the consideration was genuine, and that the adequacyof the consideration is immaterial to any analysis of whether the conveyance was fraudulent. If some consideration was paid, they argue,the transfer cannot have been fraudulent or intended to give Ruscana an unjust preference. [27] Not surprisingly, the Plaintiffs argue that the consideration is effectively meaningless and allowed Mr.

Petukhov to transferSacha’s most valuable asset to his other company, thereby making Sacha judgment-proof. As well, it would seem that Ruscanabenefited greatly by obtaining an asset which was used as collateral to obtain $1.5 million in financing, and by using some of that moneyto pay the mortgage for which Mr. Petukhov and Ruscana were guarantors. [28] The Defendants filed an affidavit sworn by Zohan El, who identifies herself as the Manager of Ruscana. At the hearing, it wasrevealed that, in fact, she is Mr. Petukhov’s wife.

In her affidavit, she states that the decision to transfer the Property to Ruscana was toassist Ruscana to secure lending. She states that it was done on the advice of the company’s accountant, Terry Bachmann. TheDefendants have not produced any evidence of such opinion however – the only evidence from Mr. Bachmann is a portion of a chain ofemails between Mr. Bachmann and Ms. El, where she advises that she does not have an appraisal for the “Land” but that the fair marketvalue is $30,000 per acre. There is no evidence before the Court as to where that valuation comes from. In response, Mr.

Bachmannsimply writes: In this case, I am going to recommend that they (sic) transfer be made by way of a regular sale of the land on Zach road at FMV toRuscana. The selling price will be $240,000 plus HST. This will help reduce the amount that Sasha owes Ruscana as well as reduce theamount of losses that are showing in Sasha. Both of these items are making it difficult to secure financing by Ruscana. [29] The rest of that email chain was not tendered by the Defendants. In fact, and rather surprisingly, counsel for the Defendantsadvised the Court that Mr.

Bachmann has refused to speak to them or to cooperate with respect to the litigation. [30] There is no doubt that the conveyance from Sacha to Ruscana, one of its creditors, benefitted Ruscana in that it allowed it toobtain financing – the express purpose for the transfer, it would seem. THE LAW [31] Our Rule 22 was amended in 2017, following the Supreme Court of Canada’s decision in Hryniak v. Mauldin, 2014 SCC 7, amendments which fundamentally altered the manner in which actions may be decided by the courts in a

summary fashion. [32] Under the new regime, the question to be asked is whether there is a genuine issue requiring a trial. The Court has broadenedpowers to consider affidavit evidence and can specifically make findings as to the weight of evidence and the credibility of affiants. [33] In Russel et al v. Northumberland Co-operative Limited, 2019 NBCA 70, Justice LeBlond succinctly explained the newapproach to such motions, and he further set out a roadmap for trial judges to follow on motions for

summary judgement, creating two-step analysis. He wrote: [21] The Rule therefore provides a two-step process with specific reference to the central question: is there a genuine issue requiring atrial? [22] In step one, the judge must determine if the evidence put before him reveals a genuine issue requiring a trial. At this point, there

is no need to resort to the fact-finding powers contained in Rules 22.04(2) and (3). Adjudication under step one may include cross- examination on any affidavit (Rule 39.03). Any such cross-examination does not trigger the mini trial prescribed by Rule 22.04(3). If, on the filed evidence alone, the judge can fairly and justly adjudicate the dispute, there will be no genuine issue requiring a trial and the judge must grant

summary judgment. There is no discretion under the Rule to refuse to do so (see 22 King Street Inc. et al. v. The Bank of Nova Scotia, 2018 NBCA 16 , [2018] N.B.J. No. 42 (QL) ). The motion judge in this case granted

summary judgment on that basis and therefore did not need to proceed to step two. [23] A judge only proceeds to step two if the assessment of the filed evidence leads to the conclusion that there may be a genuine issue requiring a trial. […] […] [26] The ultimate objective will continue to be justice according to law. Conventional trials will not disappear, but the new mindset requires a shift away from them as the default and as being always the best mechanism in seeking justice, to a mindset guided by an answer to the central question: is there a genuine issue requiring a trial?

That question can only be answered by fully exploiting the opportunities of Rule 22. [27] A by-product of the culture shift will be a reduction in the number of civil trials. Rule 22 motions, with or without mini-trials, will determine if judges have the level of confidence required to do what they have always done in conventional trials, i.e. find facts and apply relevant legal principles to those facts, with the difference that they will be doing so proportionally, fairly and in a much more timely and affordable fashion. The culture shift will benefit litigants and the court process.

The Supreme Court was clear in Hryniak that the

summary judgment motion, as an alternative model of adjudication, is no less legitimate than a conventional trial. [28] The burden of proof to establish there is no genuine issue requiring a trial will always be on a balance of probabilities. That burden will more readily be met with fulsome use of the broad scope of admissible evidence now permitted under Rule 22. The old adage of putting one’s best foot forward and leading trump or risk losing is far more significant under the new version of Rule 22 than it was under its previous iteration.

This was fully canvassed in O’Toole at paras. 70-73. [ 34 ] The relevant sections of the Assignments and Preferences Act are as follows: 2(1) Subject to the provisions of

section 3, every gift, conveyance, assignment or 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 by a person at a time when that person is in insolvent circumstances, or is unable to pay that person’s debts in full, or knows that that person is on the eve of insolvency, with intent to defeat, delay or prejudice that person’s creditors, or any one or more of them , is void, as against a creditor injured, delayed or prejudiced. 2(2) Subject to the provisions of

section 3, every gift, conveyance, assignment or 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 by a person at a time when that person is in insolvent circumstances, or is unable to pay that person’s debts in full, or knows that that person is on the eve of insolvency, to or for a creditor with intent to give that creditor an unjust preference over the other creditors, or over any of them , is void, as against a creditor injured, delayed, prejudiced or postponed. 2(3) Subject to the provisions of

section 3, if a transaction with or for a creditor has the effect of giving that creditor a preference over the other creditors of the debtor, or over any of them, it shall, with respect to any suit or proceeding that, within 60 days after the transaction, is brought to impeach or set aside the transaction, be presumed to have been made with that intent, and to be an unjust preference within the meaning of this Act, whether it is made voluntarily or under pressure. [emphasis added] [ 35 ] The Plaintiffs also allege that the transfer by Sacha when it was aware of their counterclaim, did not respect their reasonable expectations that Sacha would refrain from making itself judgement-proof.

They plead and rely on the oppression remedy provisions of the Business Corporation Act , which read in part: 166(2)If, upon an application under subsection (1), the Court is satisfied that in respect of a corporation or any of its affiliates

(

a) any act or omission of the corporation or any of its affiliates effects a result, (

b) the business or affairs of the corporation or any of its affiliates are or have been carried on or conducted in a manner, or (

c) the powers of the directors of the corporation or any of its affiliates are or have been exercised in a manner, that is oppressive or unfairly prejudicial to or that unfairly disregards the interests of any shareholder, creditor, director or officer, theCourt may make an order to rectify the matters complained of. 166(3)In connection with an application under this

section the Court may make any interim or final order it thinks fit including, withoutlimiting the generality of the foregoing, (

a) an order restraining the conduct complained of; (

b) an order appointing a receiver or receiver-manager; (

c) an order to regulate a corporation’s affairs by amending the articles or by-laws or creating or amending a unanimous shareholderagreement; (

d) an order directing an issue or exchange of securities; (

e) an order directing changes in the directors as permitted by subsection 132(3); (

f) an order directing a corporation, subject to subsection (6), or any other person, to purchase shares of a shareholder; (

g) an order directing a corporation, subject to subsection (6), or any other person, to pay to a shareholder any part of the moneys paid byhim for shares; (

h) an order varying or setting aside a transaction or contract to which a corporation is a party and compensating the corporation or anyother party to the transaction or contract; (

i) an order requiring a corporation, within a time specified by the Court, to produce to the Court or an interested person financialstatements in the form required by

section 100 or an accounting in such other form as the Court may determine; (

j) an order compensating an aggrieved person; (

k) an order directing rectification of the registers or other records of a corporation under

section 168; (

l) an order liquidating and dissolving the corporation; (

m) an order directing an investigation under

Part XIV to be made; and (

n) an order requiring the trial of any issue. DEFENDANT’S MOTION [36] The Defendant’s motion is based almost entirely on the argument that Mr. and Mrs. Ghosh were not “creditors” of Sacha at thetime of the transfer in 2013. As a result, they argue that the Plaintiffs cannot rely upon either the Assignments and Preferences Act orthe Business Corporation Act, and there is thus no genuine issue requiring a trial. [37] It would seem that our courts have never considered whether the term “creditor” in these legislative provisions would includeclaimants whose lawsuits have yet to be adjudicated, like Mr. and Mrs.

Ghosh. The Defendants cite and rely on 1280055 Alberta Ltd. v.Zaghloul, 2012 ABQB 10 , where the Alberta Court of Queen’s Bench considered the application of that province’s FraudulentPreferences Act and the Statute of Elizabeth. The wording in Alberta’s Fraudulent Conveyances Act is nearly identical to the wordingin New Brunswick’s Assignments and Preferences Act. In that case, the defendant, Mr. Zaghloul, had held himself out to a number ofinvestors, including the plaintiff, as a representative of Peace Trading Investments Inc.

The plaintiff company advanced $100,000 to Mr.Zaghloul on the understanding that it would receive shares in one of two companies. Those shares never materialized. [38] Several other investors had also advanced funds without receiving shares. Those other investors subsequently obtainedpromissory notes from Zaghloul for the amounts of their investments plus a percentage return on their investment. The Plaintiff was notone of those investors that initially obtained a promissory note from Zaghloul.

[39] After issuing those promissory notes in favour of the other investors, Zaghloul conveyed his house to his wife for $1.00. It wasonly subsequent to that conveyance that Zaghloul issued a promissory note to the plaintiff. [40] After the promissory note came due and Zaghloul defaulted, the plaintiff commenced a first action on the promissory note,eventually obtaining a judgment against Zaghloul on that promissory note action. It then commenced a second action, seeking to setaside the conveyance from Zaghloul to his wife, arguing it was a fraudulent conveyance. Mr. Zaghloul and his wife were noted indefault.

The reported decision relied upon by the Defendants is the motion to set aside the noting in default. One of the questions beforethe Alberta court was whether Mr. Zaghloul had an “arguable defence” to the action.

He argued, among other things, that the plaintiffwas not a creditor at the time he conveyed the house, since the conveyance pre-dated the issuance of the promissory note. [41] After a lengthy analysis of the both the Alberta Fraudulent Preferences Act and the Statute of Elizabeth, and while the Courtultimately refused to grant relief from the noting in default, the Court determined that there was an “arguable defence” that the plaintiffwas not a creditor at the time of the conveyance.

The Court noted that, like the former Assignments and Preferences Act in thisprovince, the Fraudulent Preferences Act “can only be relied upon by creditors and the purpose of s. 3 is to restrict the debtor’s abilityto prefer one creditor over another.

The Statute of Elizabeth is broader, and its goal is to set aside transfers designed to hinder or delaycreditors or others in the collection of their claims.” [emphasis added] [42] The difficulty with seeking to rely on that decision is that its focus is the Statute of Elizabeth, and not the definition of“creditors” as that term is used in the Fraudulent Conveyances Act.

The mere fact that there is a difference in the wording between thetwo legislative provisions does not mean this Court can conclude that the Assignments and Preferences Act only applies to persons whohave a judgment as against the defendant at the time of the impugned conveyance, and not to someone who has advanced an as-yetunadjudicated claim against the defendant. [43] The facts in 1280055 Alberta Ltd. v. Zaghloul are quite different from the present case, in that Mr. Zaghloul did not issue thepromissory note to the plaintiff until after he had conveyed the home.

In this case, the counterclaim against Sacha had been filed andserved prior to the conveyance. [44] Also, the Alberta decision in 1007374 Alberta Ltd. v Ruggieri, 2014 ABQB 641 ; aff’d 2015 ABCA 2015 ,seems to conclude the opposite – that a claimant whose claim has yet to be adjudicated is, indeed, a “creditor” for the purposes of theirFraudulent Preferences Act. The facts of that case are quite similar to the facts before this Court: [1] On March 1, 2003 the Plaintiff and one of the Defendants before me, A.

Ruggieri Engineering Ltd. (hereinafter “RuggieriEngineering”), entered into a consulting agreement. [2] When Ruggieri Engineering didn’t pay, the Plaintiff sued. Ruggieri Engineering countersued. A trial ensued before Bensler, J. inMay of 2011. [3] On December 21, 2011 Bensler, J. issued her decision (2011 ABQB 804). She found in favour of the Plaintiff and awardeddamages in the amount of $337,130.00 plus costs.

She dismissed the Defendant’s counterclaim. [4] On March 19, 2012 the Plaintiff obtained judgment against Ruggieri Engineering in the amount of $337,130.00 plus $56,956.87 inpre-judgment interest plus $82,411.97 in costs for a total award of $476, 498.86. [5] Ruggieri Engineering has not paid any part of the judgment award. [6] It is clear and undisputed that by March 2012 Ruggieri Engineering was effectively an empty shell and, aside from one minimalaccount receivable, had no assets and was no longer carrying on business. [7] But it is also clear to the Court that Ruggieri Engineering’s business had been moved to the co-Defendant Alberta Engineering.

MrRuggieri was the sole director and sole officer of both companies as well as with the remaining corporate co-Defendants.

[8] The Plaintiff has now sued alleging a fraudulent conveyance or conversion of Ruggieri Engineering’s business and assets to Alberta Engineering. [9] The Plaintiff further alleges that some or all of the Defendants have conspired to effect this fraudulent conversion, thereby rendering Ruggieri Engineering judgment proof thus depriving the Plaintiff of the opportunity to collect on the judgment debt owed by Ruggieri Engineering. [10] The Plaintiff also alleges oppression and unjust enrichment.

The Plaintiff seeks punitive damages. [ 45 ] The Alberta court fist considered the requirements of the Statute of Elizabeth , writing: 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 [90] It is clear that there need not be a judgment at the time of transfer – only a claim. See Proprietary Industries Inc. v Workum , 2005 ABQB 610 . [91] The lawsuit was filed in 2004.

The transfer of business as reflected by the business revenues commences in 2010 and is significantly completed by the end of 2011. [92] This nicely parallels the setting down and hearing of the trial. [93] There is no reason to find other than that this element has also been proven. [ 46 ] Then, when considering the Fraudulent Conveyances Act , the Court wrote: [96] This Statute adds one further step beyond the requirements of the Statute of Elizabeth, 1571 – that the conveyor be insolvent or on the eve of insolvency. [ 47 ] This would seem to suggest that a “creditor” is not necessarily defined differently, whether under the Statute of Elizabeth or the Fraudulent Conveyances Act .

Both approaches seem to recognize someone who is advancing an as-yet-unadjudicated claim as being a “creditor.” [ 48 ] In the end, this Court is not convinced that the Plaintiffs, Mr. and Mrs. Ghosh, are not “creditors” as that term is used in the Assignments and Preferences Act and the Business Corporations Act .

Rather, it would seem that in order for the legislation to attain its clear objective, a broad and purposive definition is warranted, one that seeks to ensure that a party that is insolvent or on the verge of insolvency cannot convey its assets to a related company and render itself judgment-proof without allowing a court to consider whether the conveyance was done to defeat creditors or in order to prefer a creditor over others who have a claim against that party. [ 49 ] If the Defendants’ position were accepted, any party facing a lawsuit could, on the day prior to the release of the Court’s decision, convey all of its assets to another person or company and render itself judgment-proof with impunity.

Such a result would be unreasonable and would render the clear purpose of the Assignments and Preferences Act and the oppression provisions of Business Corporations Act effectively toothless. [ 50 ] In the end, I am not convinced that the Defendants have established that there is no triable issue as to whether the Plaintiffs are “creditors.” Quite the contrary. The Court is satisfied that Mr. and Mrs.

Ghosh, at the time of the conveyance in 2013, were “creditors” for the purposes of both the Assignments and Preferences Act and the Business Corporations Act . [ 51 ] As a result, the Defendants have not established that there is no triable issue. The Defendants’ motion for

summary judgment is

therefore dismissed. PLAINTIFFS’ MOTION [ 52 ] Mr. and Mrs. Ghosh maintain that the evidence proves that the conveyance from Sacha to Ruscana in 2013 was fraudulent, was an unjust preference and was intended to defeat their claim by rendering Sacha judgment-proof. [ 53 ] As sated above, this Court is satisfied that the Plaintiffs were creditors. That is the first requirement under the analysis, either under section 2(1) or 2(2) of the Assignments and Preferences Act or under s.166 of the Business Corporations Act . [ 54 ] Second, was Sacha insolvent or on the verge of insolvency at the time of the transfer?

While Mr. Petukhov states in his affidavit that the company was not insolvent or on the verge of insolvency in the summer of 2013, the following facts would suggest otherwise: 1) Sacha did not enter into any new contracts after the contract with Mr. and Mrs.

Ghosh, which was signed in 2012; and the company did not perform any work after approximately August 2012; 2) Sacha owed Ruscana, an affiliated company, some $828,000 effective December 31, 2012; 3) Sacha owed nearly $500,000 to Petukhov as of December 31, 2012; and 4) Sacha had net losses that year in the amount $118,000. [ 55 ] Also, counsel for Sacha expressly admitted at the hearing that Sacha was insolvent in 2013. [ 56 ] Based on those facts, I find that Sacha was insolvent or was on the verge of insolvency when the transfer was undertaken, triggering both sections 2(1) and 2(2) of the Assignments and Preferences Act . [ 57 ] Thirdly, is there evidence of an intention to prefer a creditor over others, or to defeat Mr. and Mrs.

Ghosh’s claim? [ 58 ] It must be recalled that there are two routes set out under

Section 2 of that Act whereby the Court may determine that a transfer was improper: 1) Under Section 2(1) where the transfer was done “with intent to defeat, delay or prejudice that person’s creditors, or any one or more of them...”; or 2) Under Section 2(2) where the transfer was “to or for a creditor with intent to give that creditor an unjust preference over the other creditors, or over any of them...” [ 59 ] That is, Mr. and Mrs.

Ghosh must prove either that that transfer was intended to defeat or delay their claim against Sacha, or that it was intended to unjustly benefit Ruscana (one of its creditrs) over their interests. Section 2(2) – was there intent to show an unjust preference? [ 60 ] According to Mr.

Petukhov’s affidavit sworn February 25, 2022: “ On or about August 21 2013, in an effort to reduce the debt owing by the Defendant Sasha to the Defendant Ruscana Intertrade Inc (the “Defendant Ruscana”) and in turn, to secure financing for the Defendant Ruscana for its future business ventures, the Defendant Sasha made the business decision to transfer the Property to the Defendant Ruscana for the initial amount of $240,000 + HST, to be paid by way of reduction of debt (the “Transfer”).

A copy of the electronic Transfer (Form 13 ), which was registered the following day on August 22 2013 in the New Brunswick Land Titles System as Number 33020810, is attached hereto and marked Exhibit B.” [ 61 ] In her affidavit sworn April 23, 2021, Ms. El states: “ The Transfer was undertaken to reduce the amount of debt owing by the Defendant Sasha to the Defendant Ruscana as well as to reduce

the losses of the Defendant Sasha. I am advised by Terry Bachmann of Bachmann Wood & Associates and verily believed to be true thatboth of these elements taken together were making it difficult for the Defendant Ruscana to secure financing necessary for its futurebusiness ventures. A copy of the e-mail correspondence from Terry Bachmann of Bachmann Wood & Associates to myself dated Aug 142013 outlining this advice is attached hereto and marked as Exhibit C.” [62] As mentioned above, the email chain attached does not, in fact, contain any accounting advice from Mr.

Bachmann; rather, itmerely confirms a course of action based on Ms. El’s assessment of the value of the Property, for which there is not supportingevidence. It would seem that her suggested valuation was off by approximately $1.25 million. Also, recall that Mr. Bachmann was notprepared to communicate with counsel for the Defendants, and counsel acknowledged at the hearing that its request to Sacha for the fullemail chain had gone unanswered. That means that Mr. Petukhov, the alter ego for both Sacha and Ruscana, refused to produce the fullemail chain.

In those circumstances, it is difficult to avoid drawing a negative inference. [63] Based on the evidence of both Mr. Petukhov and Ms. El, the stated purpose for transferring the Property from Sacha to Ruscanawas twofold – to reduce Sacha’s debt and to assist Ruscana in obtaining financing. The Defendants maintain this was a legitimatebusiness decision. But the question remains, for which business? How did it benefit Sacha? The Defendants argue that it reducedSacha’s indebtedness to Ruscana and it eliminated the $650,000 mortgage on the property. But Sacha had ceased operations.

And thereduction in debt did nothing to alter its status as an insolvent company. Did conveying its single most valuable asset for a fraction of itsvalue really benefit Sacha? Was there really a valid business purpose for Sacha? I can find none. [64] For Ruscana, of course, there was a significant benefit. It obtained a parcel of land which had an apparent value of more than$1.5 million, paying only about $650,000 in actual monies for it. It forgave an inter-company debt by $240,000, but the benefit toRuscana greatly exceeded that forgiveness.

And, given that Sacha had completely ceased operations, one questions whether Sacha evercould have repaid the debt in any event. [65] It is clear that Mr. Petukhov made a decision to convey the Property to Ruscana because it benefited that company. It was abusiness decision which benefited Ruscana and not Sacha. By benefiting Ruscana and leaving Sacha without assets to pays its othercreditors, including Mr. and Mrs. Ghosh, Sacha made a preference which this Court concludes was unjust in the circumstances. Thepreference was indeed intended to give an unjust benefit to Mr.

Petukhov’s other company, which was not facing a lawsuit by thePlaintiffs. [66] Also, it cannot be forgotten that both Mr. Petukhov and Ruscana had guaranteed Sacha’s mortgage in favour of the privatelenders. By obtaining the Property and by using the funds from the $1.5 million collateral mortgage to pay the first mortgage, both Mr.Petukhov and Ruscana benefitted even further.

Section 2(1) – was the transfer intended to Defeat, Delay or Prejudice the Plaintiffs’ claim? [67] Even though I am satisfied that the transfer was intended to show an unjust preference to Ruscana, I will nonetheless considerwhether the transfer of the Property was also intended to defeat or frustrate the Plaintiff’s ability to recover on an eventual judgment. [68] Again, intent in this case must be inferred based on the totality of the evidence. [69] There are number of indicia of fraud in this case, many of which I have already outlined.

The transfer occurred shortly after thecounterclaim was served on Sacha and there is no evidence to support a legitimate business case for Sacha. Also, the vendor andpurchaser are both closely held, affiliated companies – and Mr. Petukhov is the alter ego of both. [70] While it dealt with an alleged fraudulent conveyance under the provisions of the Bankruptcy and Insolvency Act, the commentsfrom Justice Robertson of our Court of Appeal in Logistec Stevedoring (Atlantic) Inc. v. A.C.

Poirier & Associates Inc., 2005 NBCA 55 are illustrative of those indicia of fraud in the present case: [11] At common law and even after passage of the Statute of Elizabeth in 1570 (fraudulent conveyances) there was no impedimentagainst an insolvent debtor preferring one creditor over another. The question of why a debtor would prefer one creditor over anothergoes to the question of the debtor’s underlying motive, which text writers point out is irrelevant to the issue of dominant intent.Admittedly, it is easy to blur the legal distinctions often drawn between motive, intent, purpose or object.

Be that as it may, one cannothelp but ask why a debtor would prefer one creditor over another. In some cases the answer is self-evident. The common law allowed aninsolvent debtor to engage in selective generosity by paying first those he liked most. Thus, payment to a creditor who is a familymember or friend is more apt than not to qualify as a fraudulent preference within the meaning of s. 95 of the BIA: see Craig (Trustee of)

v. Devlin Estate (1989), (MB CA), 63 Man.R. (2d) 122 (C.A.). Ironically, there is also a reported case in which thedebtor allegedly made the payment to a non-related creditor (Revenue Canada) in order to prefer a creditor who was a close but distantrelative: see Norris (Re). But even if there is no close relationship between the debtor and the preferred creditor, the payment may becaught by s. 95. For example, where the payment is made to a creditor with respect to an indebtedness that had been guaranteed by thedebtor’s spouse, the payment has been held to be a fraudulent preference: see Royal Bank of Canada v.

Roofmart Ontario Ltd. (1990), (ON CA), 74 O.R. (2d) 633 (C.A.) and also Re Royal City Chrysler Plymouth Limited (1998), (ON CA), 38 O.R. (3d) 380 (C.A.). [12] As a general observation, it is evident that the cases in which the creditor has been unable to rebut the presumption arising unders. 95 of the BIA generally involve two factual patterns. First, the insolvent debtor and the creditor in receipt of the payment are somehowrelated (e.g., family members).

Second, the payment to an arm’s length creditor has the subsidiary effect of conferring an unjustifiedbenefit or advantage on the insolvent debtor or a family member. [...] [13] My understanding of the law is that in circumstances where an insolvent debtor pays one creditor at the expense of another forpurposes of carrying on business, the payment will more likely than not be deemed not to constitute a fraudulent preference within themeaning of s. 95 of the BIA. [71] The present case involves the transfer of Sacha’s most valuable asset, at a fraction of its value, for no actual inflow of cash toSacha so that Ruscana’s financial situation would be improved and so that Ruscana could use the Property to secure a $1.5 millionmortgage to fund its business activities.

As well, the evidence shows that both Mr. Petukhov and Ruscana were guarantors of the$650,000 mortgage in favour of private lenders, such that Mr. Petukhov personally benefitted from the preference by conveying an assetto Ruscana which was used to pay of that debt obligation. [72] The transfer of the Property occurred just over two months after Sacha was served with the counterclaim. Mr. Petukhovmaintains that the transfer was not triggered by the lawsuit with Mr. and Mrs. Ghosh, because he maintains that he always expected towin at trial. In my view, that argument is not convincing.

As stated by the Alberta court in Ruggieri, supra: [99] In this case the trial was set for a week in May 2011 – a trial which involved Mr Ruggieri filing a counterclaim seeking adeclaration of a fundamental breach in the contract. Mr Ruggieri testified he thought he’d win. The Plaintiff submits that is simply a self-serving statement and should be disregarded. [100] I don’t have to go that far.

I can certainly presume that, like most trial litigants, Mr Ruggieri felt good about his chances at trial.He certainly did not know, believe, expect or thought that he might lose as was the situation of the litigant cited in the Tracy Estate case. [101] I do find however that Mr Ruggieri’s belief in his case had its practical limits. With no guarantee what a judge might do, I findhe found it advisable to go through all the transfer of business activity into Alberta Engineering simply to “hedge his bet” that he wouldwin at trial. [102] If he won the lawsuit, then there was no harm/no foul in the transfer.

If his confidence was misplaced and he lost, then he washoping to reduce any financial sting by attempting to make Ruggieri Engineering judgment proof. A “win-win” as it were. [73] That same reasoning applies to the present case. [74] The Defendants also maintain that there was consideration paid to Sacha for the Property, and that, regardless of its sufficiency,that consideration is sufficient to defeat any suggestion of fraudulent intent. They cite E.E. McCoy v.

Wiseman (1987), (NS CA), 80 N.S.R. (2d) 1 (NSCA), where the Nova Scotia Court of Appeal held that the assumption of existing encumbrancesconstitutes valuable consideration under the Statute of Elizabeth. But the facts in that case differ significantly, as can be seen fromparagraph 18 of the reasons: “There can be little doubt that the assumption of encumbrances can provide valuable consideration for a conveyance particularly whenthe encumbrance equals or exceeds the value of the property. See: Leighten v. Muir et al. (1962), (NS SC), 4 C.B.R.(N.S.) 137.

In the present case the evidence revealed the encumbrances assumed by the grantee far exceeded the value of the property.Thus I can find no error in principle committed by the trial judge in holding good and valuable consideration was given to support theconveyance.”

[75] The Defendants argue that the total consideration paid (i.e. the forgiven inter-company debt and the payment of the mortgage of$650,000) exceeds the “assessed value” of the Property for tax purposes. But the clear evidence before the Court is that the marketvalue of the Property was much, much higher.

That clearly distinguishes McCoy from the present case. [76] Also, there are a number of unanswered questions about how Sacha arrived at the selling price, why Sacha had valued theproperty so low on its financial statements, and why the Court was not provided any evidence from the company’s accountant, includingthe email chain (which Sacha would, of course, have in its possession) which might support its contention that the transfer was part of alegitimate business strategy recommended by Mr. Bachmann - which seems to be key to their defence in this case.

In my view, it wasincumbent on the Defendants to lead that evidence or risk losing. As stated by the Court of Appeal in Irwin v. Swift et al., 2022 NBCA35 : [17] The Court has repeatedly harkened back to the words of Drapeau C.J.N.B., as he then was, in Cannon v. Lange et al. (1998), (NB CA), 203 N.B.R. (2d) 121, [1998] N.B.J. No. 313 (QL): Common sense should move the parties to put their best foot forward on a motion under Rule 22. Such a course of conduct isparticularly wise for a respondent, since he or she has the most to lose. As stated by the Ontario Court of Appeal in 1061590 Ontario Ltd.v.

Ontario Jockey Club (1995), (ON CA), 21 O.R. (3d) 547 at 557 in a vernacular expression, the respondent “mustlead trump or risk losing.” It will rarely be sufficient for the respondent to promise that evidence, which is admissible pursuant to Rule39.01(4), will be produced at trial: absent a compelling explanation, the respondent is required to produce admissible evidence whichwill prevent a conclusion that the action or defence is bereft of merit.

I have no doubt that, where the ends of justice require, the courtwill allow all appropriate accommodations including leave to file further affidavit evidence. [para. 23 cited to QL] [18] In this case, if the respondents did indeed put their best foot forward, in my opinion, they fell short of what was required toestablish there was a genuine issue requiring a trial. If they had additional evidence and failed to put their best foot forward, the outcomewould have been the same. The motion for

summary judgment should have been granted. [77] The Court is satisfied, based on the totality of the evidence in this matter, that the transfer of the Property was done both with theintent to defeat, delay or prejudice the Plaintiffs’ claims, and with the intent to give an unjust preference to Ruscana to the prejudice ofSacha’s other creditors, including the Plaintiffs.

OPPRESSION REMEDY [78] The Plaintiffs further argue that the transfer to Ruscana, which effectively left Sacha judgment-proof, was an oppressive actwhich was unfairly prejudicial, or which unfairly disregarded their interests as creditors of Sacha. Again, they plead and rely on sections166(2) and (3) of the Business Corporations Act reproduced above. [79] The Defendants deny that those provisions have any application, again arguing that the Plaintiffs are not “creditors” for thepurpose of that legislation. Again, this Court disagrees. The Plaintiffs cite the Ontario Court of Appeal in Downtown Eatery

(1993) Ltd.v. Ontario, (ON CA), which considered a case that was similar on its facts to the present matter, i.e. where thecorporate reorganization in question was conducted after a wrongful dismissal lawsuit was commenced, but prior to the trial. The Courtof Appeal held that the former employee was protected under the legislation and that transferring the defendant company’s assets toanother affiliated company, even if done for legitimate business purposes, nonetheless was prejudicial to the Plaintiff whose interests hadbeen unfairly disregarded. [80] I am of the same view in this case.

The Defendants, in transferring Sacha’s largest asset and leaving the company judgment-proof, prejudiced the interests of the Plaintiffs in a manner which the Plaintiffs had no power to prevent. Their interests were prejudiced,and their interests were disregarded. [81] The acts of Mr. Petukhov and Sacha were therefore oppressive as against the Plaintiffs. There is no need for the Plaintiffs toprove a fraudulent intent under that legislation, and so the oppression claim is made out.

DISPOSITION [82] In light of the foregoing, this Court Orders that: 1) The transfer of the property identified as PID 70458708, located at 9 Zack Road, Berry Mills, New Brunswick from SachaContracting and Renovation Inc. to Ruscana Intertrade Inc., dated August 22, 2013, is null and void;

2) The Defendants shall forthwith transfer the Property from Ruscana Intertrade Inc. to Sacha Contracting and Renovation Inc.; 3) The Plaintiffs, Anirban Ghosh and Jaya Ghosh, shall have judgment as against the Defendants, Sacha Contracting and Renovations Inc., Ruscana Intertrade Inc., and Alexandr Sacha Petukhov (a.k.a.

Alexandr Petukhov and Alexander Petukhov), jointly and severally, for the full sum of the Judgment awarded by Justice Rideout, being $96,461.09 plus costs of $7,906.25 plus disbursements of $8,759.65 for a total of $113,126.99 (as per the Judgment issued by the Clerk of the Court on October 4, 2018); and 4) The Plaintiffs shall be entitled to their costs in this action, MC-709-2019, on a solicitor-and-client basis. DATED at Moncton, New Brunswick this 13 th day of October, 2022. _____________________________________ Robert M. Dysart, Judge of the Court of King’s Bench of New Brunswick