Introduction Background: The CSBFL Loan and the Fraud In this case, Rejuv Medical and its director secured a $350,000 CSBFL loan, along with other credit facilities, by claiming the funds would be used to buy medical equipment for their clinic. However, the business never purchased the equipment, and the supporting invoice was fabricated. The funds were diverted to unrelated accounts, and no legitimate business activity took place. Why This Matters for Small Businesses 1. Transparency Is Critical When applying for a CSBFL loan, your business must use the funds for the stated, eligible purposes and provide accurate documentation. False statements or fabricated documents, even if intended to “help” the application – constitute fraud and can have severe legal and financial consequences. 2. Consequences of Fraudulent Misrepresentation The court found that the defendants’ actions were organized fraud, exploiting a government program designed to help small businesses.  The result: a judgment for the full amount owed, plus significant punitive damages and costs. The court awarded: This sends a clear message: courts will not tolerate abuse of CSBFL loans or similar programs. 3. CSBFL Loans Are Not a Shield Against Liability If a loan is obtained through fraud, the debt may not be discharged in bankruptcy. The court declared the debt arose from fraudulent misrepresentation, meaning it could survive bankruptcy proceedings under section 178 of the Bankruptcy and Insolvency Act. 4. Legal Remedies Go Beyond Repayment The court granted additional remedies to help the lender recover funds, including tracing orders and constructive trusts. This means that if misappropriated funds can be identified in other accounts or assets, the lender can claim them – even if they have changed hands1. What Small Businesses Should Do Conclusion The Bank of Montreal v. 1886758 Ontario Inc. case is a powerful reminder that integrity and transparency are essential when dealing with government-backed small business loans. Fraudulent conduct can lead to devastating financial and legal consequences, including personal liability for directors and the loss of bankruptcy protection for the debt. Small businesses should view the CSBFL program as a valuable resource – one that must be respected and used responsibly. If you have questions about CSBFL loans, compliance, or best practices, our law firm can assist and guide your business through the process. Attention: This article is for informational purposes only and does not constitute legal advice _______________________________________________ 1.Bank of Montreal v. 1886758 Ontario Inc., 2022 ONSC 4642 (CanLII), <https://canlii.ca/t/jrbsw>, retrieved on 2025-06-18 2.Bankruptcy and Insolvency Act, RSC 1985, c B-3, <https://canlii.ca/t/56fbr> retrieved on 2025-06-18