A family car dealership's paper trail didn't hold up in court.
A family-run dealership's bankruptcy shows how loosely documented payments to relatives, friends and staff can turn into repayable clawbacks.
The Ontario Superior Court of Justice ruled on August 10, 2026, that a receiver could recover hundreds of thousands of dollars a bankrupt Ontario auto dealership paid to its former owner's family members and associates in the year before it collapsed.
The case centered on Deloitte Restructuring Inc., acting as receiver and trustee in bankruptcy for 926749 Ontario Ltd., operating as Clonsilla Auto Sales and Leasing. The receiver brought a motion under sections 95 and 96 of the Bankruptcy and Insolvency Act, seeking to claw back preferences and transfers at undervalue paid to parties who were not dealing with Clonsilla at arm's length. Justice FL Myers, who heard the matter over two days in October 2025 and July 2026, found the dealership was insolvent on a balance sheet basis throughout the review period, which ran from October 2022 to October 2023.
Several relatives of Hugh Waddell, the dealership's former owner who was himself adjudged bankrupt January 20, 2026, were ordered to repay funds they could not show were legitimate wages or documented loan repayments. His wife, Nancy Waddell, must repay $32,150. His daughter Meggan Waddell must repay $85,681, after the court found her claimed loans to the company, some allegedly dating back to 2007, had no supporting paperwork. His son Taylor Waddell must repay $155,236, after he was unable to say which payments covered work he performed and which repaid loans he says he made. His daughter Sara Waddell must repay $124,684, even though the court accepted she had genuinely advanced funds to the company, because the repayments still gave her priority over other creditors. Hugh Waddell's mother, Sandi McDavid, must repay $9,380.33 tied to a promissory note that misidentified an unrelated individual as the borrower's chief financial officer; that person denied signing it or ever working for the dealership, and Hugh Waddell admitted signing it in that person's name.
Not everyone targeted by the receiver lost. The court dismissed claims against Northbridge Estates Inc., a landlord company tied to the family, a deceased relative who had invoiced his maintenance work, a longtime employee's spouse and consulting company, and a contractor who removed trees from the property, finding those payments reflected real consideration.
The clearest lesson for advisors wasn't about a relative. Rastislav Scasny, a longtime Clonsilla salesperson with no blood tie to the Waddells, had advanced money to Hugh Waddell over the years without interest, written terms, or a repayment schedule. The court found part of Scasny's pay came through cheques outside Clonsilla's payroll system, an arrangement exposing both sides to tax liability. Despite the absence of a family tie, Justice Myers wrote, "I find as a fact that their relationship was non-arm's length," ordering Scasny to repay $159,401.80 in preferential loan repayments while allowing a separate truck-financing payment to stand.
For advisors with business-owner clients, the case shows how courts test arm's-length status: not by blood relation, but by evidence of real bargaining and self-interest. Undocumented loans, off-payroll pay and casual bookkeeping between an owner and people close to the business can all be unwound years later if the company goes under.
