Results | Jul 14, 2021

LOLG Successful in Lifting Stay of Proceedings following Defendants’ Bankruptcy

Back to all news

On June 23, 2021, the Ontario Superior Court issued its decision in Re Hamed Abbasian Ardestani and Re Nooranie Davood, granting a motion to lift the statutory stay of proceedings against the bankrupt spouses.

In May 2019, LOLG’s client, Covalon Technologies, commenced an action against its former employee Hamed Abbasian Ardestani and his wife, Nooranie Davood, alleging the misappropriation and sale of Covalon’s proprietary information while Ardestani was acting in a fiduciary role. Covalon brought a concurrent injunction against Ardestani and Davood, and was successful. Following the Court’s costs award in the injunction motion, Ardestani and Davood declared bankruptcy, triggering an automatic statutory stay of proceedings in Covalon’s underlying action.

Covalon brought its motion to lift the stay of proceedings under section 69.4 of the Bankruptcy and Insolvency Act (the “Act”), on the basis that its action against Ardestani and Davood concerned a debt for which discharge from bankruptcy would not be a defence, and on the basis that both bankrupts were necessary parties for the complete adjudication of the matters at issue in Covalon’s action.

The Court adopted LOLG’s arguments and found that Covalon’s claim against Ardestani, if proven, would not be protected by his discharge from bankruptcy under section 178 of the BIA, given that the allegations against him related to fraud, embezzlement, misappropriation or defalcation while acting in a fiduciary duty.

With respect to Davood, the Court agreed with LOLG that, given the allegations of her intimate involvement in the misconduct to defraud Covalon of its proprietary information, her presence is necessary for the complete adjudication of the issues in the underlying action. The Court rejected Davood’s argument that conducting a non-party examination under the Rules of Civil Procedure would be a suitable alternative to lifting the stay of proceedings.

The Court’s decision offers a reminder of the powerful mechanisms available to creditors under the Act to prosecute claims against bankrupt defendants which would not be released by an order of discharge, and against bankrupt defendants who are necessary parties for the complete adjudication of the issues in an action.

The decision can be found here: 2021 06 23 - Reasons for Decision of Master Jean