Oppression Remedy Granted in Case of Forged Signature and Misappropriated COVID Relief Funds
Updated: May 14
Mawakeesick v. Kaoma et al, 2022 ONSC 5470
On September 26, 2022, the Ontario Superior Court of Justice released its decision in Mawakeesick v. Kaoma et al, 2022 ONSC 5470, an application for an oppression remedy under section 248 of Ontario's Business Corporations Act.
The oppression remedy provides relief to a complainant where an act of a corporation or any of its affiliates or the powers of the directors have been exercised in a manner that is unfairly prejudicial to or unfairly disregards the interests of another participant in the corporation, such as a shareholder, a director, or an officer of the corporation.
In his reasons, Justice Newton found for the applicant (Brenden Mawakeesick) based on evidence that the respondent (Lazarus Kaoma) had forged signatures of the other directors of the corporate respondent (Peritus Consulting) on a series of loan documents.
The case reaffirms that forgery and fraud are misconduct that meets the threshold for oppression and prejudice. The case is also notable in that it resulted in oppression remedy orders being made against a director personally, in circumstances where the corporation was dissolved at the time the proceeding was commenced.
Kaoma, Mawakeesick, and CM were the sole directors and shareholders of Peritus. Peritus was a corporation formed in 2019 as part of a new consulting start-up. The business was never operationalized beyond the opening of a corporate bank account with RBC - at least as far as Mawakeesick and CM knew.
In March 2022, Mawakeesick and CM were notified by the Royal Bank of Canada of a fraudulent cheque that had been deposited into the corporation's bank account. The proceeds of that cheque had then been transferred to various third parties, leaving a $43,000 overdraft in the bank account.
Mawakeesick and CM immediately began investigating the activities of the bank account, discovering that Kaoma had been conducting transactions in it since June 2020, none of which they knew anything about or had been discussed or approved by the board. There was no documentation or accounting for any of the transactions, and no record of work being performed for clients or of good or services being acquired for the corporation.
Through their investigations, Mawakeesick and CM discovered that Kaoma had perpetrated frauds through Peritus, resulting in large cash injections to the bank account, which he subsequently spent or transferred to unknown third parties and himself.
In summer 2020, Kaoma had forged the signatures of Mawakeesick and CM on various loan agreements with a local Community Futures office in order to access $40,000 in federal pandemic relief funding for the corporation (despite the fact that the corporation had no business operations). The loan documentation included a personal guarantee for the loan that made Mawakeesick personally liable for the balance if the corporation defaulted. Kaoma admitted to these forgeries.
By February 2022, the $40,000 loan proceeds were entirely depleted, with the bank records showing numerous transfers to and from unknown parties, as well as to Kaoma and his girlfriend. Neither Mawakeesick or CM had any information about how these funds were used or what the transactions were for.
Mere days after spending all of the pandemic relief funds and putting the corporate bank account into overdraft, Kaoma attended an RBC branch in Thunder Bay to deposit a fraudulent cheque in the amount of $43,825.38 into the account. The very next day, he attended an RBC branch in Whitby and transferred $43,307.94 to himself and third parties.
The unpaid cheque had been altered so that it appeared to be payable to Peritus, when in fact it was not. On February 22, 2022, the cheque was returned unpaid by RBC, resulting in an overdraft of $43,332.13 owing from Peritus to the bank as a result of Kaoma's withdrawals.
In March 2022, RBC's collection agency began efforts to recover this amount from Mawakeesick and CM. Mawakeesick personally paid $35,000 to settle the outstanding debt. At the time of the application, he also remained on the hook for the $40,000 in pandemic relief loans due to Kaoma's fraudulent personal guarantee.
Justice Newton granted the oppression relief requested by Mawakeesick, noting in his decision the admitted forgeries of the signatures by Kaoma.
The list of remedies available under section 248 of the OBCA is non-exhaustive, providing the court with discretion to correct an oppressive situation. In this case:
The court ordered Kaoma to repay the $35,000 to Mawakeesick, in addition to $25,000 in punitive damages and substantial indemnity costs of $10,170.46;
The court set aside the loan agreement for the pandemic relief funds and ordered that Kaoma personally repay the $40,000 loan obligation; and
The court directed that if further sums were claimed by RBC against the applicant, that the judgment could be varied upon the filing of further affidavit evidence.
The applicant, Mawakeesick, was represented by Douglas W. Judson of Judson Howie LLP.