HXP Debenture Trust v. Guillaume et al.

• Jurisdiction: Saskatchewan
• Court: Court of Queen's Bench of Saskatchewan (Canada)
• Judge: Barrington-Foote, J.
• Citation: 2015 SKQB 225,(2015), 479 Sask.R. 289 (QB)
• Date: 21 July 2015

HXP Debenture Trust v. Guillaume (2015), 479 Sask.R. 289 (QB)

MLB headnote and full text

Temp. Cite: [2015] Sask.R. TBEd. AU.004

HXP Debenture Trust (plaintiff) v. Danny Guillaume, Joseph Guillaume, 101082401 Saskatchewan Ltd. (defendants)

(2007 Q.B.G. No. 1724; 2015 SKQB 225)

Indexed As: HXP Debenture Trust v. Guillaume et al.

Saskatchewan Court of Queen's Bench

Judicial Centre of Regina

Barrington-Foote, J.

July 21, 2015.

Summary:

HXP built and operated attractions. It owned "the Tunnels" in Saskatchewan and "Storyeum" in British Columbia. The Tunnels was profitable, while Storyeum was not. HXP was owned by HXI. Guillaume was a major shareholder of HXI. Guillaume created 101082401 Saskatchewan Ltd. (1010) for the purpose of purchasing the Tunnels from HXP. The sale closed in July 2006. The purchase price was $1.75 million. As payment, 1010 received credit for HXP's $380,000 debt to Guillaume and for $520,000 that had been identified as advances by the purchasers. HXP assumed other various payables and debts. The purchasers accordingly paid only $743,000 of the purchase price in cash. The net proceeds finally paid to HXP were $101,412. HXP was petitioned into bankruptcy in November 2006. Secured claims were estimated at $17,961,479. The liquidation value of assets was $742,842. The Tunnels sale was identified as a reviewable transaction. The plaintiff, HXP's major creditor, claimed that the sale was a fraudulent preference under s. 95 of the Bankruptcy and Insolvency Act.

The Saskatchewan Court of Queen's Bench, in a decision reported at (2014), 444 Sask.R. 29, agreed and granted the requested declaration that the Tunnels sale was a fraudulent preference under s. 95 for the benefit of Guillaume in the amount of $600,000 (the full value of Guillaume's unsecured loans to HXP). The court rejected the plaintiff's claim for punitive damages. If the parties were unable to agree on a remedy, a further hearing was to be arranged. The parties applied for a determination of the remedy.

The Saskatchewan Court of Queen's Bench declared that the Tunnels sale was a fraudulent preference under s. 95 and was void as against the plaintiff. Guillaume was to pay the plaintiff $600,000 plus pre-judgment interest and costs. Pending payment of the judgment amount, 1010 was not to deal with the Tunnels assets. If the judgment was not paid within 90 days, the Tunnels assets were to be sold and the plaintiff was to be paid that amount with the remainder going to 1010.

Bankruptcy - Topic 7245

Setting aside transactions prior to bankruptcy - Fraudulent preferences - Remedies - HXP built and operated attractions - It owned "the Tunnels" in Saskatchewan and "Storyeum" in British Columbia - The Tunnels was profitable, while Storyeum was not - HXP was owned by HXI - Guillaume was a major shareholder of HXI - Guillaume created 101082401 Saskatchewan Ltd. (1010) to purchase the Tunnels from HXP - The sale closed in July 2006 - The purchase price was $1.75 million - As payment, 1010 received credit for HXP's debt to Guillaume and others - The net proceeds finally paid to HXP were $101,412 - HXP was petitioned into bankruptcy in November 2006 - The plaintiff, HXP's major creditor, obtained a declaration that the Tunnels sale was a fraudulent preference under s. 95 of the Bankruptcy and Insolvency Act for Guillaume's benefit in the amount of $600,000 (the full value of Guillaume's unsecured loans to HXP) - The Saskatchewan Court of Queen's Bench noted that the appropriate remedy under s. 95 was to declare the transfer void with consequential orders to ensure that the trustee took possession of the assets - However, here, the preference was $600,000, while the Tunnels was valued at $1.75 million - An order simply returning the Tunnels to the trustee would result in a windfall for HXP's creditors - The court's jurisdiction to craft an appropriate remedy meant that it was not limited to an order to return the property but could also order the party preferred to pay the amount of the preference - A remedy that affected a third party (other than the party preferred) might also be appropriate - However, the remedy should avoid unnecessary damage to third parties as much as possible - 1010 was never a creditor of HXP and, thus, could not be preferred - As the party preferred, Guillaume was ordered to pay $600,000 (the amount of the preference) to the plaintiff - In default of payment, the Tunnels was to be sold and the plaintiff was to be paid $600,000 with the remainder going to 1010.

Courts - Topic 2001.1

Jurisdiction - General principles - Remedies - General - [See Bankruptcy - Topic 7245 ].

Counsel:

Kevin C. Mellor, for the plaintiff;

Kenneth A. Ready, for the defendants.

This application was heard by Barrington-Foote, J., of the Saskatchewan Court of Queen's Bench, Judicial Centre of Regina, who delivered the following fiat on July 21, 2015.