Legal Blog

Contempt (2)

An examination in aid of execution is a wonderful tool for a creditor to determine what assets a debtor may have and whether the debtor has improperly transferred assets. It is a simple process: the creditor serves a notice of examination, the debtor appears at the specified time and date and brings all relevant documents, the debtor truthfully answers all questions asked at the examination, and if the debtor does not have the answer or documents – because a debtor cannot anticipate everything – the debtor quickly honours his undertakings to supply the answers and the documents. Stop laughing.

We set out the process that the Rules envisage. Those pesky debtors, however, just do not want to play by the Rules. They want to keep their assets and money and have no intention of assisting a creditor to collect its debt.

What really happens? The debtor evades service of the notice of examination. When finally served, the debtor simply fails to attend the examination. Maybe, after a motion or two, the debtor finally attends the examination – but brings no documents. The debtor answers all questions – sort of – because the debtor just cannot remember the details of all transactions in which he was involved. The debtor undertakes to deliver the documents and answer all of the questions he was unable to answer. The debtor then does nothing. The creditor brings another motion or two and the debtor finally delivers the documents and answers the questions. Except that the debtor lies. Well maybe not; the debtor is just mistaken.

To this litany of roadblocks, add another: bankruptcy. Bankruptcy will stay all proceedings, but does it stay an order requiring the debtor to produce documents and answer questions? And does it immunize a debtor who has breached an order for production and examination? These questions were answered in Walchuk Estate v. Houghton, a 2015 decision of the Ontario Superior Court of Justice.

Chase

Creditor obtained a judgment against debtor for $121,000. Debtor did not want to pay it. Creditor served debtor with a notice for an examination in aid of execution to take place in December 2013. Debtor did not appear. Creditor brought a motion in June 2014 to obtain an order compelling debtor to attend and answer questions. At the motion, heard September 5, 2014, debtor insisted that he was never served. The judge found that he was and ordered debtor to attend for his examination on September 17, 2014.

Debtor made an assignment into bankruptcy on September 16, 2014. He dutifully attended his examination the next day, but refused to answer any questions because, he said, the bankruptcy stayed all proceedings. Creditor moved to have debtor held in contempt.

Power

Rule 60.11 of the Rules of Civil Procedure allows an aggrieved person to move for a contempt order if another person fails to comply with a court order that requires that person to perform, or abstain from performing, an act – other than an order for the payment of money, debtors’ prison having been abolished. The judge’s September 5, 2014 order requiring debtor to attend and answer questions was an order to perform an act.

Section 69 of the Bankruptcy and Insolvency Act states that, upon bankruptcy, creditors no longer have any remedy against the bankrupt, nor may a creditor commence or continue any action, execution, or other proceedings for the recovery of a claim otherwise provable in bankruptcy.

The question for the judge was whether the relief under the BIA absolved debtor from complying with the judge’s prior court order. The judge decided that it did not. He stated that a motion for contempt is one that “goes directly to the issue of the court’s ability to enforce its judgments. The order that I made was an order that called for the defendant to do certain things. Whether he did them or not cannot be caught up in his choice of the timing of his filing for bankruptcy.”

The judge decided that the motion for contempt could proceed.

Advantage

Did creditor gain any advantage with this motion? A trustee in bankruptcy has the ability, through counsel, to examine a bankrupt in the same manner as an examination in aid of execution. However, we do not know if creditor would be allowed to do so rather than, perhaps, another larger creditor. Further, who is to say that debtor would co-operate any more with the trustee’s examination than he did for creditor’s examination. We expect that he would not. Accordingly, based on the “bird in the hand theory,” it was better for creditor to have his examination immediately, outside of the bankruptcy process.

Written by Jonathan Speigel Jonathan Speigel, the founding partner of Speigel Nichols Fox LLP, leads the litigation and construction practices.