Bacic v Millennium Educational & Research Charitable Foundation, 2014 ONSC 5875 (CanLII)
(Ontario Superior Court of Justice, Kane J, 17 October 2014)
This was an appeal concerning the estate of the late of Thomas C. Assaly (TCA or the Estate) and
the Thomas C. Assaly Charitable Foundation (the Foundation). On 6 July 1989, TCA caused the
incorporation of the Thomas C. Assaly Charitable Foundation. The applicants for incorporation were
TCA, his two lawyers and his four children. Supplementary Letters Patent were issued on 20
September 2007 changing the name of the Foundation to Millennium Educational and Research
Charitable Foundation. The parties in this case agreed that TCA was the Foundation’s sole settlor,
causing a transfer of assets, having an estimated value of $5 million, to the Foundation. However,
there was no evidence whether some or all of that $5 million came from TCA personally or via
corporations he controlled. The issue before the Court was whether TCA or his Estate was entitled to
the assets in the Foundation.
The applicants in this case, who were creditors, had numerous potential claims against the
Foundation which included misappropriation and conversion of their money. The respondent
corporations, all associated with TCA, were bankrupt. The Estate submitted that based on section 135
of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, as amended (the BIA), the gifts and
settlements made by the late Thomas C. Assaly to create the Foundation and advance its stated
objects failed and must therefore be returned in first priority to his Estate. This return was argued to
be in priority to the Foundation’s creditors and other claimants.
The Estate’s claim to the assets of the Foundation
The Estate claimed that it had a first priority claim to the assets, funds and receipts of the Foundation,
to the extent of its claim of $3,813,507, in priority to the claims of the applicants and other creditors of
the Foundation. His Honour disagreed. He said that although there was no doubt that TCA caused the
money to come into the Foundation in 1989, there was no evidence as to where it came from (at [88]–
[92]):
The directing mind of a charity cannot improperly divert monies belonging to others into a
charity and thereupon use the [Charities Accounting Act, RSO 1990, c C.10 (CAA)] as a
shield to defeat creditors who can trace the misappropriation of their investment into a charity.
A substantial portion of the assets in the Foundation are monies misappropriated from the
Applicant investors or the assets they invested in. The assets of a charitable corporation are
not held by it as trustee for its charitable objects but rather are owned by that corporation
beneficially, to be used in a fashion consistent with its objects. It is now generally accepted
that unrestricted property of a charitable corporation is not to be construed as trust property
held by a charitable corporation. As such, a charity may use an unrestricted gift to the full
extent of its charitable objects based upon its corporate authority as a legal entity without the
involvement of a charitable purpose trust.... The Estate is incorrect in asserting that it has a
priority to the remaining assets presently located within the Foundation in priority to the claims
of the Applicant creditors. The Appellants are not entitled to money misappropriated from
others because the wrongdoer deposited it in a charity. TCA and the Estate have no claim or
priority to the assets in the Foundation.
Was there a trust?
The evidence revealed that the charity had operated at least since 2006 as a means of funding the
lifestyle of TCA’s son (Thomas G Assaly), his son’s wife and his son’s children. There had been fraud
and personal benefit arising. Moreover, if the assets were returned to the Estate, TCA’s two sons
would be the beneficiaries.
His Honour said that a charity is not immune from liability to those who have suffered under it. Assets
of a charity, owned beneficially or in trust, are available to respond to those liabilities. The Estate
argued that TCA intended by his donations to create a trust. However, the Receiver in the bankruptcy
of the respondent corporations determined that no tax returns were ever filed on behalf of any alleged
trust. Nor were there any documents created that showed that a trust was ever intended (at [97]–[99]):
The Appellants have failed to establish an error by the Receiver based on trust law. The
Estate is not a simple creditor. The deceased caused or donated to the Foundation. The
deceased acknowledged the irrevocable nature of the 1998 second donation seven years
later in September of 2005. The Estate is not a creditor of the Foundation or other corporate
respondents. It has no equal right to share in the consolidated remaining assets in the
Foundation.
Was consolidation of assets in the bankruptcy proceedings appropriate?
His Honour was clear that the evidence showed that the Foundation’s business was not separate and
distinct from the business activities of the other respondent corporations since 2006. They operated
as part of one business enterprise which misappropriated investors’ money and was indebted to the
applicants in an amount which far exceeded the best realizable value of the amalgamated assets of
the whole enterprise. Therefore, substantive consolidation of the assets of the bankrupt Estate,
including those of the Foundation, was authorized.
Therefore, the Estate’s appeal was disallowed.
The case may be viewed at:
http://www.canlii.org/en/on/onsc/doc/2014/2014onsc5875/2014onsc5875.html