A bankruptcy trustee sought directions regarding priority disputes over proceeds of sale from the bankrupt’s property.
The dispute concerned competing claims by a judgment creditor and two mortgage holders.
The court considered the validity of a mortgage granted to an accounting firm for tax services and a later mortgage granted to a lawyer securing unpaid legal fees.
Applying the Bankruptcy and Insolvency Act and the Assignments and Preferences Act, the court held that the earlier mortgage was valid and enforceable but that the later mortgage constituted a preferential transfer granted when the debtor was on the eve of insolvency.
The preferential mortgage was declared void and the proceeds of sale were ordered distributed accordingly.
