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Legal Blog: Bankruptcy

Jun
14
2021

False Pretences

Shaver-Kudell Manufacturing Inc. v. Knight Manufacturing Inc. 2020 Ont SCJ

In a prior action, the defendant been held liable for substantial damages for committing a breach of confidence and misappropriating the plaintiff’s trade secrets. The defendant then assigned into bankruptcy. The plaintiff brought a motion seeking a declaration that, upon discharge from bankruptcy, the defendant was not released from the debt owed to the plaintiff because that debt arose from the defendant obtaining property by false pretences as set out in section 178(1)(e) of the Bankruptcy and Insolvency Act (BIA). The plaintiff also requested a declaration that the automatic stay under section 69(1) of the BIA be lifted. The judge gave a complete list of considerations and granted both requests. The judge found that the defendant was a deceitful wrongdoer who should be precluded from benefiting from his dishonesty. He found that, because s. 178(1)(e) applied, the plaintiff would be materially prejudiced if the stay continued to operate.

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Apr
27
2021

Bankruptcy Discharge

RBC v. Kim 2020 Ont SCJ

s. 178(1)(e) of the BIA provides that a bankruptcy discharge does not release the bankrupt from debts resulting from obtaining property or services by false pretences or fraudulent misrepresentation. In this case, the bankrupt had provided a personal statement of affairs that set out incorrect facts. The court had to decide whether they were false representations and, if so, whether RBC relied on them. The judge found that the bankrupt, whom the judge disbelieved in every regard, knew that the representations were false and that the whole purpose of a statement of affairs was to be part of the loan approval process. The judge stated that the false representations were intentional and were the type of socially unacceptable conduct at which the section was aimed.

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Apr
13
2021

Bankruptcy

Posted in Bankruptcy, Five Liners

Re Kim 2020 Ont SCJ

The judge specifically approved of the British Columbia Supreme Court decision in Re Walker. The judge held that a trustee must review the account of the first execution creditor to determine if the account is reasonable and that the account did not have to be approved by a Bankruptcy Court. The judge relied on sections 70(2) and 136(1) of the Bankruptcy and Insolvency Act.

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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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