Legal Blog

Bankruptcy Rescission

In Tran v. Royal Bank of Canada, a 2022 decision of the Ontario Superior Court of Justice, the Court refused to allow a bankrupt to make her bankruptcy vanish without a trace.

Save Me

The case involved a debtor who owed a bank over $480,000. After the debtor ignored the bank’s demands, the bank obtained judgment and successfully petitioned her into bankruptcy. As is often the case, the bankrupt’s parents came to the rescue. The debtor’s father paid the bank $400,000 (less than 83% of the judgment debt) and took an assignment of the bank’s judgment and claim in bankruptcy.

It was clear that the father was not going to move on the judgment against his own daughter.  Aside from the father’s claim, the bankrupt daughter had no other liabilities and was keeping up with her current expenses as they came due. Based on this, the daughter applied to rescind the bankruptcy – to erase it from her record as if it never existed. One suspects that this was the reason the father bought the claim in the first place – to ensure his daughter did not have to face the consequences of her actions.

No Way

Although the bank took no position on this motion, the judge refused to rescind the bankruptcy. The judge found that matters occurring after the order were irrelevant. In considering whether the bankruptcy ought to be rescinded, the judge would not engage in Monday morning quarterbacking. A judge must assess whether the bankruptcy ought to have been granted (and therefore ought to be rescinded) based on the facts that existed when the court originally granted the bankruptcy order.

Here, there was no such evidence. The bank was required to, and did, obtain judgment at a significant expense. The debtor did not pay that judgment.

The judge was also critical of the daughter and would not have exercised his discretion to rescind the bankruptcy, even if he had that discretion.  The judge noted that the daughter filed no evidence as to why she did not respond to the bank or any evidence that she challenged the bank’s position at the time. The judge specifically commented that the bankruptcy process is larger than the creditor and the bankrupt; it also protects the public.

Ultimately, this case stands for two things. First, bankruptcy orders are not lightly interfered with. Second, if daddy is going to bail you out, he should do so before you become bankrupt, not after.

Image courtesy of Mastertux.

Written by Tim Morgan, a litigator with a focus on commercial matters. He has appeared before all levels of Ontario Courts and has represented businesses of all sizes, from Canada’s largest corporations to privately held, family-run businesses.