Ontario Court rules former Bondfield chairman and associates must repay $33 million misappropriated from company

Bondfield Construction Group creditors have won a major victory in the Ontario Court of Appeal, which upheld a ruling that the former Bondfield chairman and his associates must repay more than $33 million they have misappropriated from businesses through a false invoice scheme.

John Aquino, former chairman of Bondfield Construction Co. Ltd., and the other defendants in the case sought to overturn a 2021 ruling finding them liable, under a provision of the Bankruptcy and Insolvency Act, to repay tens of millions of dollars they secretly extracted from Bondfield. On Thursday, the Ontario Court of Appeal issued a decision upholding the decision, saying the payments must be returned to court-appointed agents overseeing Bondfield’s assets.

Bondfield was one of Ontario’s largest builders of public infrastructure, including hospitals, schools and transit stations, until its collapse in 2019. The bankruptcy, which the Surety Association of Canada called the most damaging construction insolvency in Canadian history, has reverberated through the economy. Many subcontractors have not been paid for work already done, and major public projects, such as the redevelopment of St. Michael’s Hospital in Toronto and Cambridge Memorial Hospital in Southwest ‘Ontario, remain unfinished.

When Bondfield entered bankruptcy protection in 2019, the monitor, Ernst & Young Inc. (E&Y), launched an investigation and discovered what it alleged was fraud. More than a dozen companies that appeared to have no real business or even physical office space were paid tens of millions of dollars by Bondfield over roughly seven years for work that was never done. Forensic investigators alleged that some of those payments went to Mr. Aquino, who E&Y said was the driving force behind the scheme. Auditors determined that the companies were related to Mr. Aquino’s associates.

In 2021, Ontario Superior Court Judge Bernadette Dietrich found that approximately $22 million of those Bondfield payments were “undervalued transfers” — payments that take place within five years of an insolvency that was effected, not for any real business purpose, but rather to put the assets out of reach of creditors. Similarly, Judge Dietrich found that an additional $11 million in payments made by a Bondfield subsidiary, Forma-Con Construction, were also understated transfers.

Mr. Aquino and his associates have appealed the decision. Mr Aquino did not dispute that the invoices were false and that Bondfield and Forma-Con received nothing in exchange for the payments. However, he argued that Judge Dietrich erred in her interpretation of bankruptcy law. He argued that she had incorrectly stated that he and his associates were personally liable for the payments, when the debtor was in fact Bondfield and Forma-Con.

The panel of judges rejected this argument.

Writing on behalf of the panel, Justice Peter Lauwers said the primary purpose of the section of the Bankruptcy and Insolvency Act that deals with undervalued transfers is to allow creditors to recover assets that have been wrongfully removed from an insolvent company.

The way to achieve this in this case, he wrote, is to attribute “John Aquino’s fraudulent intentions to Bondfield and Forma-Con”, which is consistent with the goal of “providing appropriate redress to creditors”.

The judges also rejected the argument that the law did not apply to Mr Aquino and his associates because, as they argued, Bondfield and Forma-Con were not in a precarious financial situation when numerous payments suspects were made. Judge Lauwers wrote that, in fact, there was evidence that the Bondfield group was “in increasing financial difficulty” throughout the five-year period covered by the law. And even if the two companies paid some of their bills while the scheme was in effect, that didn’t mean there was no intention to evade obligations to creditors, Judge Lauwers said.

One of the defendants, Giuseppe Anastasio, was linked to two companies that received more than $4 million from the scheme. He did not deny that these companies did no work and that Bondfield received no value for the payments.

However, he argued that Bondfield owed him a fee of US$3.75 million because, as it teetered on the brink of bankruptcy, he introduced the business to Deutsche Bank, who considered granting him a $150 million loan. Those unpaid fees, Mr. Anastasio argued, should be offset by the $4 million his companies received.

The panel upheld Judge Dietrich’s finding that this alleged debt should not be applied to the money the companies took: “Anastasio has pointed out no manifest and overriding error, or error of law, with respect to these findings.”

Lawyers for Mr. Aquino and Mr. Anastasio and one of the other defendants said they were instructed to seek leave to appeal to the Supreme Court of Canada.

“The Court of Appeal’s decision raises several new and important issues that would benefit significantly from review by the Supreme Court so that all Canadians can benefit from the Court’s guidance,” said Michael Citak, counsel for Ms. Aquino, in an emailed statement.

Supervising monitor Bondfield and supervising bankruptcy trustee Forma-Con filed separate lawsuits against Mr. Aquino, both seeking to recover payments made outside the five-year statute of limitations under the Bankruptcy Act and the insolvency.

Your time is valuable. Receive the Top Business Headlines newsletter in your inbox morning or evening. register today.