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Legal Blog: Bankruptcy

May
26
2020

Bankruptcy Misconduct

CBM Ready Mix Division v. 8377278 Canada Inc. 2019 Ont CA

Supplier obtained a default judgment against the contractor for a monetary award only. After the contractor assigned into bankruptcy, the supplier brought a motion seeking a declaration that the default judgment survived the bankruptcy under sections 178 (1)(d) & (h) of the Bankruptcy and Insolvency Act, relying on a breach of the deemed trust. The motion was dismissed and the dismissal was upheld by the Ontario Court of Appeal. The Court referenced its 2018 decision in LPIC v. Rodriguez, noting that it was not the job of a motion judge to go beyond the pleadings and the judgment to make fresh findings of fact.

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Mar
02
2020

Bankruptcy – Property

Posted in Bankruptcy, Five Liners

Thistle v. Schumilas 2020 Ont CA

The plaintiff voluntarily assigned into bankruptcy. Between the date of that assignment and the date of his discharge, the plaintiff had a cause of action against an insurance broker for negligent advice relating to a life insurance policy. The plaintiff did not know of his cause of action against the insurance broker until after he had been discharged. The court noted that all of his property became vested in his trustee in bankruptcy, including any causes of action that he may have had. Further, upon his discharge, any property remained with the trustee until the plaintiff moved to have the trustee re-transfer any unrealised property to him. The plaintiff claimed that, because his limitation period did not start until his discovery of the cause of action, he should be allowed to continue his action against the broker as if he had obtained an order granting him standing during the bankruptcy. The court refused to do so; an order could not be granted nunc pro tunc (i.e. retroactively) if a limitation period had already expired, which was the situation in this case even considering the discovery principle.

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Nov
22
2019

S. 38 BIA Orders

Re McEwen 2019 Ont SCJ

S. 38 of the Bankruptcy and Insolvency Act is designed for the benefit of creditors, not the bankrupt. A bankrupt has no standing to vary a s. 38 order. Further, a creditor moving for a section 38 order may do so on a without notice basis and, regardless, no notice has to be provided to the bankrupt. Finally, a trustee, regardless of its discharge, still remains the trustee of the estate for the performance of duties incidental to its administration and, therefore, has authority to give an assignment of its interest in property in accordance with s. 38.

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Jun
18
2019

Cross-Examination-Bankruptcy

In re Gagnon 2019 Ont SCJ (MC)

As a general rule, an applicant for a bankruptcy order will not be permitted to establish its case by compelling evidence from the respondent debtor. A creditor had issued an action for a fraudulent conveyance and, on the same day, also had issued a petition for bankruptcy alleging the same fraudulent conveyance and the debtor’s alleged inability to pay his debts as they came due. The debtor defended both the application and the action. The creditor then brought a motion in the action for a certificate of pending litigation. When the debtor filed an affidavit in support of resisting the motion, the creditor sought to cross-examine on the affidavit. The Master refused to allow this cross-examination, holding that civil court procedures could not be used to thwart substantive bankruptcy laws.

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Apr
23
2018

Court of Appeal Examines Relief from Forfeiture Finding

Scicluna v. Solstice Two Limited 2018 Ont CA

A purchaser defaulted under an agreement of purchase and sale. She had already paid $264,000 of the $294,000 purchase price. Shortly after the aborted closing date, the purchaser assigned into bankruptcy, but did not list the $264,000 or any claim for it in her assets. The vendor requested that she sign an agreement in which she agree that the vendor would resell the house and return everything other than $30,000. She misread the request and assumed the vendor was to keep $60,000 and sued the vendor for the return of the full amount previously paid. The vendor then claimed the total amount – even though it ultimately re-sold the house for $435,000. The motions judge allowed the vendor to keep $30,000, granted relief from forfeiture for the remainder, and, much to the consternation of the purchaser, directed that the remainder be paid to the purchaser’s trustee in bankruptcy. Both the vendor and the purchaser appealed and the Court of Appeal dismissed both appeals. It held that a payment of 80% of the total purchase price was so grossly disproportionate that there would be relief from forfeiture. It also held that it does not lie in the mouth of a bankrupt who has hidden an asset from her trustee to claim that the trustee was not entitled to that asset – even after the bankruptcy discharge.

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Mar
12
2018

Bankruptcy – Fraudulent Conveyance

Esfahani v. Samimi

The creditor had obtained an order that a discharged bankrupt had fraudulently conveyed property to transferees. The creditor then brought an action against the transferees for its damages. The judge dismissed the action, stating that, once the bankrupt was discharged, his debt was expunged. The only remedy the creditor had was to move, through the bankruptcy, against the property in the bankrupt’s hands. The creditor had no remedy for damages against the transferees.

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May
25
2017

Stay of Action – Bankruptcy

Posted in Bankruptcy, Five Liners

2811472 Canada Inc. v. Canada 2017 Ont SCJ (Master)

Once an action has been stayed by virtue of a bankruptcy, the registrar has no jurisdiction to administratively dismiss the action.

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Mar
30
2015

Fraudulent Conveyance, Preference

Posted in Bankruptcy, Five Liners

Bayerische Landesbank Girozentrale v. Sieber Estate (Trustee) 2015 Ont SCJ

The debtor engaged in extensive shenanigans and transfers. He claimed a trust in favour of a corporation when the corporation was not incorporated until many years after the date the trust allegedly arose. Shares were backdated. The trust agreement was backdated. The creditor obtained a section 38 BIA order. The court held that the trust was a sham. There was no documentation of the creation of the trust. The trust had no accounting records, financial statements, bank accounts, bank records, or tax returns. That in itself was sufficient to be fatal to the supposed existence of the trust. It was a non-operational phantom trust. Once one of the badges of fraud exists, a presumption of fraud takes hold and the defendants must provide some adequate explanation. Of review of cases on fraudulent conveyance and trusts, the judge set aside the fraudulent conveyance to vest the disputed property with the creditor by virtue of the section 38 order.

The creditor had served an offer to settle requiring the debtor to pay $310,000 or to transfer title to the property. Since the judge ultimately ordered the property transferred to the creditor, he held that the offer was as good as or better than his award. Accordingly he awarded partial indemnity cost to the date of the offer and substantial indemnity costs after it. He also noted that it was within the debtor’s contemplation that transferring his property in the manner in which he did would spawn some rather expensive litigation. The judge noted that the complexity of the issues may be taken into account. There was no mention of substantial indemnity costs as a result of the finding of fraud. This was unusual.

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Mar
11
2015

178(1)(d) of BIA and Breach of Trust

Posted in Bankruptcy, Five Liners

Abraham v. McBean 2015 SCJ

Paralegal held liable because she allowed a mortgage transaction to be completed after the proposed mortgagor had sold the property to a numbered company. The trial judge determined that, after advancing funds in her trust account without notifying the mortgagee of the change in the ownership of the property, the paralegal breached her trust obligations and disregarded the interests of the party she was retained to protect.

On application to release the bankrupt paralegal from her subsequent bankruptcy, the bankruptcy judge held that section 178 (1) (d) of the Bankruptcy and Insolvency Act did not apply. It did not apply to every breach of trust, but only a breach akin to misappropriation or defalcation. Since there was no finding by the trial judge of bad faith or dishonesty against the bankrupt paralegal, the section did not apply.

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