Vetro (Re), 2023 ABKB 181

Court of King’s Bench of Alberta Citation: Vetro (Re), 2023 ABKB 181 Date: 20230329 Docket: B203 753727 Registry: Edmonton In the Matter of the Bankruptcy of Anthony Paul Vetro Between: 1461043 Ontario Ltd c.o.b. Nuvo Iron Applicant - and - Anthony Paul Vetro Respondent _______________________________________________________ Reasons for Decision of L.A.

Smart Registrar in Bankruptcy _______________________________________________________ Introduction [ 1 ] 1461043 Ontario Ltd (146) applies to lift the stay of proceedings against the Bankrupt Anthony Paul Vetro (the Bankrupt or Vetro) pursuant to s 69.4 of the Bankruptcy and Insolvency Act, RSC 1985, c B-3 ( BIA ) to allow it to enforce its Judgment (obtained May 22, 2019 in Ontario and registered in Alberta July 19, 2019) against the Bankrupt. Implicit in its application is that the Judgment survives the bankruptcy as the circumstances fall within the exceptions stipulated under s 178(1)(

d) of the BIA . [ 2 ] In addition, 146 seeks leave to add Vetro to an action commenced on October 1, 2021 against Ortev Enterprises Inc. (Ortev) and 186708 Alberta Ltd (186) both Alberta holding companies of which Vetro had been the directing mind as well as against 102083671 Saskatchewan Ltd (Nordic Fencing) of which Vetro is an employee and acts as its general manager. This action alleges breaches by Ortev, 186 and Nordic Fencing under the Fraudulent Conveyances Act (Ont), the Assignment and Preferences Act (Ont) and for civil conspiracy between those Defendants to divert funds away and prevent or delay the enforcement efforts of 146. The allegation is that if

proven this would result in the debts surviving discharge pursuant to s 178 of the BIA . Judgment of 1461043 Ontario Ltd [ 3 ] 146 supplied materials to Soldan Fence and Materials

(2009) Ltd (Soldan) for use in various projects for installation of fences from May, 2018 to October, 2018 under nine separate Orders totaling $150,235.34. Payments were alleged to be due 30 days after delivery with interest at 24% on overdue payments and the materials were to remain the property of 146 until paid for in full. Soldan is an Alberta company. Vetro was its controlling mind and sole director at all material times.

Materials were not paid for when due and Vetro proposed a payment plan but no payments were received under the proposal. 146 commenced an action against Soldan and Vetro on February 6, 2019 in the Ontario Superior Court making, inter alia , the allegations above. The Statement of Claim alleged the Defendants failed to pay and were in default of their contractual obligations to 146. The prayer for relief is as follows: a. Damages for breach of contract in the amount of $150,235.34; b. Further and/or in the alternative, damages in the amount of $150,235.34 for breach of trust pursuant to

section 8 and

section 13 of the Construction Lien Act ; c. Further and/or in the alternative. damages in the amount of $150,235.34 for unjust enrichment; d. Further and/or in the alternative, damages in the amount of $150,235.34 on a quantum meruit basis; e. Further and/or in the alternative, a declaration that the Defendants hold funds and assets to the benefit of the Plaintiff on a resulting and/or constructive trust; f. Further and/or in the alternative: a declaration that the debt owing to the Plaintiff falls under the exceptions set out al

section 178 of the Bankruptcy and Insolvency Act and shall not be released, and instead shall survive the Defendants' discharge from bankruptcy if they are or become bankrupt; g. Pre-judgment and post-judgment interest at the rate or 24% in accordance with the Plaintiff’s Terms and Policies commencing November 10, 2018; h. Costs of the Action on a substantial indemnity basis plus H.S.T.: and i. Such further and other relief as to this Honourable Court may seem just. [ 4 ] Material to this application is a claim of breach of trust pursuant to the Construction Lien Act, RSO 1990, c C-30 ( CLA ) (Ont).

Soldan was alleged to have received payments on its construction projects where 146’s materials were incorporated. In such circumstances those payments received were alleged to constitute trust funds under s 8 of the CLA and that the trust was breached by Soldan. In addition, it was alleged that Vetro, as a director of Soldan, assented to or acquiesced to the breach of trust and under s 13 of the CLA also breached the trust.

The balance of the Statement of Claim makes conclusionary legal statements or relief sought without material facts to support the allegations of unjust enrichment, quantum meruit , constructive or resulting trust, and that the circumstances fall under s 178 of the BIA such that 146’s claims against the Defendants would survive a bankruptcy discharge. [ 5 ] The Defendants did not file defences and were noted in default constituting an admission of facts pleaded, however, not conclusions of law.

Specifically, there was in effect an admission that materials were supplied, the materials not paid for and further, the funds were collected by Soldan from construction projects where the material was incorporated. To the extent that there was a debt, judgment could have been entered without notice to the Defendants. Nonetheless, a motion on notice to the Defendants was made in the Ontario Superior Court resulting in the judgment for the amount claimed, interest and costs. The Judgment recites that it is based on the Motion Record and an affidavit from the principal of 146.

I do not know what specific relief was sought in the Motion nor what evidence was presented but it is clear the Judgment did not make any declarations with respect to a trust under the CLA nor s 178 of the BIA against Soldan or Vetro. [ 6 ] Vetro was questioned in Aid of Enforcement on December 30, 2019 in his personal capacity and as the director of Soldan. During that questioning Vetro stated that some of the material supplied by 146 could have been returned or retrieved by it. In addition, he disclosed that there were numerous receivables outstanding to Soldan and efforts were being made to collect them.

Undertakings were given that would provide particulars of the receivables and the value of the material. The undertakings were never completed. Soldan [ 7 ] On September 1, 2020 Soldan was adjudged bankrupt. BDO as its Trustee realized receipts of $475,851.12 - $355,016.71 from receivables, $71,592.89 for machinery and equipment and $44,784.38 from a sale of assets enblanc. No further particulars have been provided.

After disbursements including a $303,201.45 deemed Trust Claim by the Federal Crown, and trustee’s fees, there was a net amount remaining after the OSB levy of $94,797 which was paid to Servus Credit Union on its secured claim of $200,000. In addition, 186 sold its assets after seizure by Servus Credit Union under its security with the net proceeds paid to Servus. The purchaser from the Trustee and 186 was Nordic Fencing. [ 8 ] 146 filed a proof of claim in the Soldan Bankruptcy claiming unsecured amount which was admitted by the Trustee. No claim of a trust or property was asserted by 146.

Evidence shows that 146 did not register a security interest under the Alberta Personal Property Securities Act. As noted, 146 has alleged that funds were received from the construction project in which material had been supplied by 146 and would be impressed by the trust under the CLA . No particulars are available as to what those amounts were, when they were collected, what the funds might have been used for, or which projects may be relevant. Suffice it to say even if the provincial

statutory trust was operative in these circumstances, it did not otherwise conform with the three common law trust principles of the certainties of intention, object, and subject matter (Re Norame Inc, 2008 ONCA 319 , 41 CBR (5th) 179 (Ont C.A.) and Royal Bank of Canada v Atlas Block Co, 2014 ONSC 3062 , 15 CBR (6th) 272). As a practical matter, Soldan has no assets sonothing would be gained for 146 to have its claim survive bankruptcy. Vetro [9] 146 says considering the allegation of Vetro’s breach of trust under the CLA, in respect of which judgment was grantedagainst both Soldan and Vetro, and that s 178(

d) of the BIA clearly contemplates breach of trust falling under the exceptions, the stay ofenforcement should be lifted to permit continued enforcement. Although relief sought in the action included relief for breach of trustunder the CLA and survival of the claim under the BIA, the Judgment granted makes no mention of either and is solely a moneyjudgment on its face.

The case of the Judgment against Vetro one might infer the granting of the judgment was pursuant to a breach oftrust under the CLA, but the Statement of Claim seeks relief under a number of different categories and further uses mixed languagethroughout sometimes referring to the “Defendant”, “Defendants”, “Soldan”, and “Vetro”.

Judgment against them could be under anyone of the claims for relief and most relevant at this point, it is impossible to say under what claim for relief, the judgment was grantedagainst Vetro. [10] Vetro also argues that for a judgment to survive under s 178 of the BIA, there must be proof of dishonesty, wrongdoing, or misconduct (Toro Aluminum Ltd, (ON SC), 18 CBR (4th) 134). It is also pointed out that some unused materialcould have been retrieved and that there were receivables on ongoing projects.

There is no evidence that payments were actually receivedon projects where 146’s materials were incorporated nor anything to substantiate that Vetro used funds for some inappropriate use, suchas, for his own personal benefit. This argument is at best disingenuous. This information is not available to 146 as it is in the exclusiveknowledge of Soldan and Vetro. Had undertakings by Vetro been completed from the questioning in aid of enforcement much of thatinformation have then been known to 146.

Vetro was again questioned in aid of enforcement on April 30, 2021 (after Soldan’sbankruptcy) in relation to his personal circumstances. Some of the undertakings given earlier were again requested and there were othersregarding Ortev’s dealings with Nordic Fence. Apparently, those undertakings were not completed either. [11] In any event, it seems doubtful these issues were before the Court when Judgment was granted.

Had they been squarely beforethe Court, and as the Defendants did not appear, absent direct evidence to the contrary regarding receipt of funds by Soldan, it would’vebeen open for the Court to draw an adverse inference and grant a judgment with reference to liability under the trust created by the CLA.Ontario authorities both support and reject the bringing forward of the CLA trust and s 178 for a determination post the granting of amoney judgment as occurred here. I do not intend to address those authorities here.

Suffice it to say that each case must be examined onits individual facts. [12] Vetro argues that there is no evidence where the materials supplied by 146 were incorporated or used. Evidence stronglysuggests that much of the material was incorporated outside of Ontario. As for receipt of payments, Soldan banked at Servus CreditUnion and Scotiabank. All funds received were presumably deposited at one of these financial institutions. Servus is an Alberta CreditUnion and has no presence in Ontario. Scotia is a Bank with branches throughout Canada.

There is no evidence which branch Soldandealt with but Soldan’s presence in Alberta suggests it would have dealt with an Alberta branch. Again, this evidence was available toVetro when he was first examined in Aid. Nonetheless, this raises the issues of the extent to which the Ontario CLA can apply tomaterials delivered and incorporated in lands outside of Ontario, and if the trust provisions under that provincial legislation can attach tofunds received and deposited outside of Ontario.

Parenthetically, I observe that although there are trust provisions under Alberta lienlegislation, it is available only in limited circumstances which do not appear to be present here. Other than presenting these issues, Vetrohas provided no legal authorities or otherwise to assist the Court in addressing them. Ortev/186/Nordic Fencing Action [13] 146 has commenced an action in Ontario against Ortev, 186 and Nordic Fencing.

The complaint against 186 seems to arisefrom the sale of its assets to Nordic Fencing but as noted above the assets were in effect sold under a seizure by Servus Credit Unionpursuant to its security with all proceeds paid to Servus. Vetro and Soldan had business dealings with Nordic Fencing for about 10 yearsbefore Soldan’s bankruptcy. Nordic Fencing subsequently contracted with Ortev for employment services supplied by Vetro. Thisallowed Ortev to pay funds for shareholder loans made to it by Vetro previously and allow him to take a tax advantage.

Thisarrangement continued until Vetro became bankrupt and, thereafter he received a salary from Nordic Fence directly. There are allegationsof conspiracy to defeat 146’s recovery on its judgment and 146 seeks lifting of the stay as against Vetro so he can be added as a party tothat action. The other parties have defended. [14] Vetro argues that a request must be made to the Trustee under s 38 of the BIA and the process under it completed before anyaction against Vetro can be commenced.

Based on the evidence before me and the limited resources available, I think it doubtful that theTrustee would want to take on the action for the benefit of the estate. In my view, this action faces many challenges for it to be successfulnot the least of which being that the transactions and activities complained of took place entirely in Alberta and Saskatchewan. Trustee’s Position [15] The Trustee did not appear on this application. It chose to file an affidavit saying it knows of no information or documents thatsuggest there is any valid claim for a fraudulent preference or conveyance.

No explanation is given as to what the Trustee did to arrive atthat conclusion. Furthermore, no comment is made, or guidance given with respect to the impact either of the forms of relief soughtwould have on the administration of this bankruptcy estate. To put it mildly, the Trustee was unhelpful.

Conclusion [16] The Court’s role is to ensure that sound reasons, consistent with the scheme of the BIA, exist for relieving the otherwiseautomatic stay of proceedings under s 69 of the BIA. The Court need not find the existence of a prima facie case and some authorities say the threshold is whether there is any case at all (Catahan, Re, (ON SC), 40 CBR (4th) 3, at para 9). In addition, theCourt must consider whether there will be material prejudice if the stay is not lifted or if it is equitable to do so on other grounds. [17] In my view, the Judgment granted in Ontario does not establish a breach of trust nor provide the necessary basis to conclude s178(1)(

d) of the BIA applies. Quite apart from the incomplete facts before me on the circumstances of that claim, the question of theapplicability of the CLA is also a question of fact which requires expert evidence. Furthermore, this Court cannot and should not attemptto make those determinations as part of the bankruptcy proceeding. Under the circumstances, I will lift the stay for further application tobe made before the Ontario courts on these issues. Such application will be made on notice to Vetro.

I hasten to add that I am not in anyway suggesting that the Ontario court is obliged to hear applications on these issues. It is in its discretion to decide if it is appropriate toconsider or not. [18] As for adding Vetro to the Ortev/186/Nordic Fencing action, based on what is before me, I have serious reservations as towhether there is a case at all, even as against the current parties in that action. The action has, as its genesis, that Nordic Fencing acquiredthe assets of Soldan and 186.

It appears to disregard that this occurred through the bankruptcy of Soldan, and a seizure process exercisedby a secured creditor against 186. Vetro’s earlier association with Nordic Fence does not vitiate the bona fides of those processes. Nordoes the hiring of Vetro by Nordic Fencing without more constitute inappropriate action. As for using Ortev as a vehicle to pay Vetro itstrikes that by doing so, it may well have improved the value of Ortev as it would decrease its debt.

All shares of Ortev have vested in theTrustee and presumably the Trustee will have realized on whatever value it may have had, or if Vetro improperly received payments, itwill take or has taken the necessary steps to recover them. I am mindful that this action is ongoing in Ontario and I make theseobservations in the context of whether I ought to lift the stay to add Vetro and are not to be taken as determinative of the allegationsmade or the action, per se. That again will be for the Ontario courts to decide.

Decision [19] Accordingly, the application to lift the stay to allow the trust/survival issues is granted. The application to lift the stay to addVetro to the Ortev/186/Nordic Fencing action is dismissed. Considering the mixed success on these applications, I direct that each of theparties bear their own costs. Dated at the City of Edmonton, Alberta this 29th day of March, 2023. L.A. Smart Registrar in Bankruptcy Appearances: Jessica Hewlett Katzman & Associates, Barristers and Solicitors for the Applicant Ryan Quinlan Duncan Craig LLP for the Respondent, Anthony Paul Vetro

Anthony Paul Vetro on his own behalf