Here come the vultures

Cynthia Cushing | Image: Dina Goldstein | Published: July 01, 2008

Imagine there’s a company you’ve done a ton of work for – one that has yet to pay – and now the rumour is it’s going bankrupt. What do you need, urgently? The answer: certainty. You need to know, now, what assets this shaky company has and what they’re worth, who the other creditors are and what they are owed, as well as how your claim ranks in the creditors’ lineup. Only then can you deal with the people to whom you owe money and avoid getting thrown into bankruptcy yourself.

Fortunately, the business of going broke in Canada is designed to fulfill creditors’ needs for speed, transparency and fair treatment – most of the time. There is, however, a growing trend of companies forcing a new interpretation on Canada’s existing insolvency laws, one that strips creditors of their usual rights. It’s a trend that may see many creditors walking away empty-handed in the coming recession, even if another group of players in the insolvency business will not. Like divorce lawyers, bankruptcy lawyers have been characterized as legal vultures who prey on others’ misfortunes; you hope never to have to hire either, but if the time comes, you want the best. In an economic recession, however, the best are going to be in demand by both principals and creditors, with both sides battling to protect their livelihoods and futures.

It’s been some time since anyone called Bonita Lewis-Hand a vulture. As the partner in Vancouver law firm Lawson Lundell LLP points out, the resource- and real estate-driven B.C. economy has been enjoying boom times, and Lewis-Hand hasn’t been accused of feasting on the roadkill of capitalism since at least 2003. For lawyers like her, whose practice is in bankruptcy and insolvency, the last few years have been very good for writing articles, brushing up on case law and preparing seminars, if not so good for litigating. B.C. resource companies have generally been very profitable in this economic cycle, with mineral producers enjoying high global prices and labour productivity since the last downturn in 2001-02. The real estate sector here also hasn’t paused, despite troubles in the U.S. and Ontario. Of course, there have been some areas of weakness in the province. The forestry sector, for example, has been damaged by a high Canadian dollar, rising costs and labour disputes, and there have been a number of restructurings and forced sales –

Lewis-Hand has acted for several creditors and joint-venture partners as pulp mills have restructured their operations. She’s still putting in 50-hour weeks. There were 470 commercial bankruptcies in B.C. in 2007, but, overall, commercial bankruptcies have been a falling trend since 2003.

“It’s the solicitors in B.C. who have been working flat out doing deals for the past three years. They work insane, 80-hour weeks,” says the 47-year-old Lewis-Hand, a fresh-faced blond who’d look at home on a farm. Her voice, however, reveals no traces of the country. Seated in her large, airy Georgia Street office (which doesn’t feature the toppling stacks of paper that are the usual lawyer’s office decor), her hands perfectly still before her on the desk, she speaks precisely and quickly, authority in every completely formed sentence.

Lewis-Hand has always been pragmatic about economic ups and downs. When B.C.’s most recent recession hit in 1990, for example, just before she was called to the bar, one of the partners in the firm where she was articling called her into his office and shut the door. He said the partners liked her but couldn’t offer the corporate solicitor position promised earlier; work had suddenly dried up in everything but insolvency, so she took a position there instead. In the end, Lewis-Hand was just grateful to be one of the few articling students of her year to get a job at all. She took the Bankruptcy and Insolvency Act (BIA) home that night and read it all the way through. And by the time her old firm eventually dissolved, she had discovered that bankruptcy and insolvency litigation, unlike other areas of the law, was always urgent, always fast-moving, and that she liked the adrenalin rush. She stayed with it.

Unsurprisingly, then, it’s not when describing her balanced lifestyle (walks in the forest with the dogs in the morning; same nanny for the past 10 years; either she or her lawyer husband at home with the children in the evenings) that Lewis-Hand becomes animated. It’s when she talks about the case that had her working 12-hour days seven days a week through the summer of 2002, when her one break in three months was a four-day camping trip with her son and daughter. The case was the bankruptcy of Tarsem Singh Gill and one of the biggest cases of fraud in B.C. history. And it is worth recalling because it shows how the legal system is capable of protecting creditors’ rights.

Over a period of four years, Gill had fraudulently purchased more than 350 properties in B.C. with the connivance of lawyer Martin Wirick, now disbarred. The Vancouver real estate developer was buying up to a dozen properties a month and obtaining mortgages on them – many in the names of employees and subcontractors who were aware of the fraud; others were purchased in the names of innocent bystanders. But the game was up when Wirick went to the Law Society of B.C. in May 2002 and confessed. HSBC, the bank that held most of the mortgages, successfully petitioned the courts to place Gill in bankruptcy and appoint a trustee in bankruptcy. That trustee immediately retained Lewis-Hand, who put together a crew of lawyers, paralegals and assistants.