Executive Summary: Key Legal and Evidentiary Issues

• The court considered whether Clonsilla Auto Sales and Leasing was insolvent on a balance sheet basis throughout the one-year review period preceding its bankruptcy.
   
• Justice Myers examined whether payments made by Clonsilla to non-arm's length family members and associates of Hugh Waddell constituted preferences or transfers at undervalue under sections 95 and 96 of the Bankruptcy and Insolvency Act.
   
• Several respondents, including Nancy, Meggan, Taylor, and Sara Waddell, disputed whether funds they received represented bona fide loan repayments or wages rather than gratuitous payments.
   
• Evidence about undocumented loans, inconsistent recordkeeping, and a promissory note bearing a fabricated signature complicated the court's assessment of several claims.
   
• Rastislav Scasny's arm's-length status was contested based on his lengthy tenure, personal loyalty to Hugh Waddell, and prior attempts to purchase an ownership stake in the business.
   
• Claims against Ian Anderson, Northbridge Estates Inc., and Gerald and Marion Shapiro required the court to assess whether those payments reflected genuine consideration or an arm's-length commercial relationship.
   

Facts of the case

Deloitte Restructuring Inc., acting as Receiver of 926749 Ontario Ltd., operating as Clonsilla Auto Sales and Leasing, brought a motion under sections 95 and 96 of the Bankruptcy and Insolvency Act seeking repayment of preferences and transfers at undervalue allegedly made to non-arm's length parties in the year before Clonsilla's initial bankruptcy event. The Receiver had been appointed under an order dated December 8, 2023, and exercised the authority of a trustee in bankruptcy for the purposes of the proceeding. Hugh Waddell, previously the owner of Clonsilla, was the central figure connecting most of the targeted respondents, who included his spouse Nancy Waddell, his children Meggan, Sara, and Taylor Waddell, a company he controlled called Northbridge Estates Inc., his mother Sandi McDavid, his late brother Ian Anderson, his son-in-law Thomas Sargeant, longtime General Manager Gerald Shapiro along with his spouse Marion Shapiro and his consultancy Glortran Consulting, and salesperson Rastislav Scasny.

The hearing began on October 31, 2025 but was not completed that day. After that sitting, Hugh Waddell produced financial statements for Clonsilla that the Receiver later realized it had already possessed but had not recognized as significant. This development, along with Hugh Waddell being adjudged bankrupt on January 20, 2026 and the death of respondent Ian Anderson, delayed the resumption and completion of the hearing until July 2, 2026. The relevant one-year review period for reviewable transactions ran from October 6, 2022 to October 6, 2023, the date of Clonsilla's initial bankruptcy event.

Policy and legislative provisions at issue

The motion turned on sections 95 and 96 of the Bankruptcy and Insolvency Act. Section 95 addresses preferences, for which insolvency at the time of the transaction is a relevant consideration, while section 96 addresses transfers at undervalue to non-arm's length recipients, for which insolvency is not a required element of proof. The definition of "insolvent person" in section 2 of the Act, and specifically the balance sheet test in paragraph (c) of that definition, was central to the insolvency finding. Sections 4(2) and (3) of the Act, which govern non-arm's length relationships, were relevant to determining which respondents were presumptively non-arm's length by virtue of family ties, and section 4(3)(c) was raised regarding whether a terminated agreement to purchase shares in Clonsilla conferred non-arm's length status on Mr. Scasny.

Several authorities informed the court's approach. Robinson v. Countrywide Factors Ltd., 1977 CanLII 175 (SCC), and Servus Credit Union v JRD Investments Inc, 2020 ABQB 249 (CanLII), were relied on for the principle that insolvency can be established through a reasonable inference from the evidence, shifting an evidentiary burden to the respondents to rebut a prima facie case. On the question of arm's length status, the court applied the reasoning in Canada v McLarty, 2008 SCC 26 (CanLII), Juhasz Estate v Cordeiro, 2015 ONSC 1781 (CanLII), and Nguyen (Re), 2024 ABKB 647, which in turn adopted language from National Telecommunications v. Stalt, 2018 ONSC 1101, regarding the absence of ordinary commercial bargaining as an indicator of a non-arm's length relationship. The lease between Clonsilla and Northbridge Estates Inc., under which rent was set at $5,000 per month with an informal pandemic-era arrangement permitting deferred or reduced payment, was also examined as a contractual term bearing on whether Northbridge's payments were properly received.

Reasoning and analysis

Justice Myers found that Clonsilla was insolvent on a balance sheet basis throughout the review period, based on the Receiver's adjusted financial statement showing liabilities exceeding assets, narrative evidence of ongoing liquidity crises, and the absence of any evidence of improvement in the company's financial position. He rejected arguments that insolvency required strict proof on the date of each transaction, holding that a continuing state of insolvency could be inferred absent contrary evidence.

Applying that finding, the court assessed each respondent individually. Nancy Waddell's claim that $32,150 she received reflected wages or income splitting was rejected for lack of any employment terms or proof of services rendered, and the payments were found gratuitous and repayable. Meggan Waddell's claim that $85,681 represented loan repayments was rejected due to a lack of corroborating documentation, with the court finding the payments gratuitous and, alternatively, preferential. Sara Waddell's $124,684 in payments were accepted as genuine interest payments on advances she made, and so were not transfers at undervalue, but were nonetheless found to be preferential as a non-arm's length recipient and were ordered repaid. Taylor Waddell could not distinguish which portion of his $155,236 in payments related to services versus loan repayments, and the court found the Receiver had established a prima facie case he failed to rebut.

Northbridge Estates Inc.'s receipt of $12,950 was found to represent legitimate rent, not a transfer at undervalue or a preference. Sandi McDavid's $9,380.33 was found to be repayment of a debt to a related person and therefore preferential, notwithstanding irregularities surrounding the supporting promissory note, including a signature Hugh Waddell admitted he forged in another person's name. Ian Anderson's $21,070.98 and Thomas Sargeant's $1,700 were both found to be payments for genuine services rendered, rebutting the Receiver's prima facie case. The claims against Gerald Shapiro, Marion Shapiro, and Glortran Consulting, totalling $61,757.14, failed because the Receiver did not establish that Mr. Shapiro dealt with Clonsilla on a non-arm's length basis.

Rastislav Scasny's situation was more complex. Of the $330,931 Clonsilla paid him during the review period, $93,862.37 related to a vehicle financing transaction with National Bank and was found to be an ordinary business transaction rather than a preference or undervalue transfer. The remaining $159,401.80, characterized by Mr. Scasny as loan repayments, was found preferential after the court concluded, based on his cross-examination evidence and the absence of any commercial bargaining, that he did not deal with Clonsilla at arm's length despite not being a blood relative. [The decision does not expressly resolve the status of the remaining $77,666.83, which Mr. Scasny received as regular income he allegedly did not declare to tax authorities; the court's discussion of this amount addresses only the resulting tax exposure, not whether it constitutes a repayable preference or transfer at undervalue.]

Ruling and overall outcome

Justice Myers ordered repayment to the Receiver from Nancy Waddell ($32,150), Meggan Waddell ($85,681), Sara Waddell ($124,684), Taylor Waddell ($155,236), Sandi McDavid ($9,380.33), and Rastislav Scasny ($159,401.80), while dismissing the Receiver's claims against Northbridge Estates Inc. ($12,950), Ian Anderson ($21,070.98), Thomas Sargeant ($1,700), Gerald Shapiro, Marion Shapiro, and Glortran Consulting ($61,757.14 combined), and the portion of Mr. Scasny's payments tied to the National Bank transaction ($93,862.37). The court declined to exercise its equitable discretion to relieve any of the unsuccessful respondents from repayment, noting that none had put forward a basis for such relief distinct from the merits already decided. Counsel were directed to attempt to agree on repayment terms and costs, with any unresolved issues to be addressed at a case conference.