What are the potential criminal charges that can stem from submitting false borrowing bases to a lender?
In March 2007, Brooks was the president, secretary, and general manager of Aggressive Road Builders (“ARB“), a company incorporated in British Columbia in 1968. ARB was a long-standing and successful roadbuilding company that generated its revenue from road construction, road maintenance and repairs. Brooks held the majority share interest in ARB.
The Defendant, Roberts, first began working for ARB in 1997 as a labourer. By January 2007, Roberts became the office manager of ARB, and the company sometimes represented him as a controller on some of its documents. His responsibilities included overseeing office staff, organizing crews, ordering materials, and reviewing timesheets. He did not manage the bookkeeping or accounting of ARB.
ARB held its business accounts with the Royal Bank of Canada, including a line of credit account for approximately $7 million. Brooks approached Scotiabank to enquire about transferring ARB’s banking business from RBC. He sought a $7 million line of credit to pay off ARB’s loan to RBC.
Brooks and Roberts, on Brook’s instructions, provided Scotiabank with various documents that Scotiabank could use to assess ARB’s credit application, including an Aged Accounts Receivable Listing that reflected accounts receivable under 90 days of $15,501,688.80. In actuality, the accounts receivable for that period amounted to only $830,000. Both Brooks and Roberts knew that the actual accounts receivable of ARB were much lower than what was reported to Scotiabank. Relying on the documents provided by ARB, Scotiabank approved the line of credit for $7 million. Going forward, Scotiabank relied on the documents submitted by ARB each month to determine whether to adjust the amount of the line of credit.
Mere months later, ARB’s Scotiabank business account was in an overdraft position by $617,836.58, with no funds in the line of credit account to cover the overdraft. During the next ten months, the business account was overdrawn by ARB on a regular basis. Scotiabank eventually made demands for ARB to pay out the $7 million line of credit.
On May 26, 2008, Scotiabank agreed to extend time to ARB to pay the line of credit, provided that ARB would allow the bank to appoint a monitor to review its financial accounts. The Monitor was limited in how it could obtain information from ARB. It relied on ARB to produce the relevant documentation. Brooks failed to provide the Monitor with some of the information it sought. Roberts did not participate in any meetings with the Monitor. After reviewing ARB’s books and records, the Monitor believed that at least some of the accounts receivable that ARB was reporting as still outstanding had already been paid. It noted that it did not have sufficient information to conclude on the realizable value of the accounts receivable.
In subsequent correspondence with Scotiabank, Roberts sent a document that showed that ARB had current outstanding accounts receivable totalling approximately $3.4 million—a significantly smaller amount than the $21 million that had been reported on the last monthly interim financial report sent by ARB to Scotiabank. When asked to explain the difference, Brooks acknowledged that the excess accounts receivable that were reported by ARB were not actually accounts receivable.
On August 6, 2008, Scotiabank petitioned for a bankruptcy order against both ARB and Brooks. The Trustee in Bankruptcy of both estates was only able to recover $408,850.55 for Scotiabank, which resulted in a net loss of $6,030,688.
The matter was subsequently referred to the RCMP. According to the Forensic Accounting Report tendered into evidence, the amounts reported by ARB as accounts receivable greatly exceeded the actual accounts receivable based on records, by amounts ranging from $3.74 million to $12.32 million. Roberts and Brooks were charged on November 21, 2014 with fraud over $5,000 contrary to s. 380(1)(a) of the Criminal Code, for knowingly providing documents to Scotiabank that contained false information.
Brooks pled guilty and was sentenced on October 31, 2017, to three-and-a-half years in jail, and a restitution order for $6,030,688.
Roberts pled guilty and was sentenced on March 11, 2019 to a conditional sentence of two years less one day.
Counsel: Brian McKinley for the Crown and Ian Donaldson, Q.C. for the Accused.