Court File and Parties

COURT FILE NO.: 31-2782032 DATE: 20240731

SUPERIOR COURT OF JUSTICE – ONTARIO (IN BANKRUPTCY AND INSOLVENCY)

RE: In the Matter of the Bankruptcy of Eliatha Gregoriou

BEFORE: Associate Justice Rappos

COUNSEL: Bruce Simpson, for Eliatha Gregoriou Matthew Moloci, for MNP Ltd., Trustee in Bankruptcy

HEARD: July 31, 2024

E N D O R S E M E N T

Introduction

[1] Eliatha Gregoriou brings three motions before the Court. This Endorsement is with respect to Ms. Gregoriou’s motion brought under subsection 135(5) of the Bankruptcy and Insolvency Act (the “BIA”) for an order reducing the amount of the proof of claim filed by Ms. Gregoriou’s former spouse, Angelo Zitella, by $17,759.07.

[2] The hearing was scheduled to commence at 10:00 am. At that time, we went on the record, where it was noted that Mr. Zitella was not in attendance. In accordance with subrule 3.03(2) of the Rules of Civil Procedure, the hearing was stood down to 10:15 am. At 10:15 am, the hearing was recommenced. Mr. Zitella was still not in attendance.

[3] Mr. Zitella was aware that this motion was proceeding today, as it was discussed at a case conference he attended that was held on June 28, 2024. As reflected in my Endorsement from that case conference, today’s motions were peremptory on Mr. Zitella.

[4] As a result, the motion proceeded without him.

Background

[5] Ms. Gregoriou filed an assignment in bankruptcy on November 12, 2021, and MNP Ltd. was appointed as trustee in bankruptcy (the “Trustee”). One of the reasons given by Ms. Gregoriou for her financial difficulties was “martial breakdown”.

[6] Prior to the bankruptcy, Ms. Gregoriou and Mr. Zitella were engaged in a matrimonial proceeding in Newmarket bearing Court File No. FC-16-00051694-E000 (the “Matrimonial Proceeding”). In the Matrimonial Proceeding, Justice Mullins granted an Order dated June 26, 2019 (the “Mullins Order”) ordering that Ms. Gregoriou pay Mr. Zitella the sum of $62,432.08 in equalization.

[7] On December 8, 2021, Mr. Zitella filed a proof of claim in the amount of $62,432.08. Ms. Gregoriou had listed Mr. Zitella as a creditor in the amount of $62,432.08 on her statement of affairs dated November 12, 2021.

[8] Mr. Zitella claimed a right to priority with respect to his claim. The Trustee disallowed the priority request in its notice of disallowance dated February 2, 2022. To my knowledge, Mr. Zitella never appealed the Trustee’s partial disallowance of his claim.

[9] The Trustee did not take issue with Mr. Zitella having an $62,432.08 unsecured claim.

[10] Ms. Gregoriou has filed with the Court a letter dated July 6, 2023 from Ministry of the Attorney General, Court Services Division – Newmarket, which cites the Matrimonial Proceeding and states that “In relation to the garnishment for the above noted file, the court has successfully disbursed $18,059.85 to the creditor Mr. Angelo Zitella. All cheques issued have been duly cashed, except for one that was returned by the Italian post office as ‘unknown’ in the amount of $300.78.”

[11] Ms. Gregoriou has also filed a copy of the Official Receiver’s Report dated June 29, 2022 (the “OR Report”), which is with respect to an examination of Ms. Gregoriou conducted by the Official Receiver on May 24, 2022. The OR Report references monthly garnisheed equalization payments of $580 that were ongoing and being received by Mr. Zitella prior to the assignment in bankruptcy, at a time when Ms. Gregoriou had an outstanding consumer proposal.

[12] In the Trustee’s Supplementary Report to the Court dated February 16, 2023 (the “Trustee Supplementary Report”), the Trustee noted that Ms. Gregoriou, through her counsel, disputed the quantum of Mr. Zitella’s claim. The Trustee’s response was that:

“[a]s at the date of this Report, the Trustee has not investigated and verified the information provided by the Bankrupt’s counsel and therefore has not issued any further disallowance to Mr. Zitella. The Trustee notes, however, that because there is unlikely to be any dividend distribution to the unsecured creditors due to the substantial costs already incurred and that will be incurred moving forward, any future disallowance is unlikely to have any meaningful impact on the administration of the bankruptcy.”

[13] The Trustee has taken no further steps with respect to the quantum of Mr. Zitella’s claim.

[14] In an email dated July 10, 2023, Mr. Simpson, who is counsel to Ms. Gregoriou, wrote to Mr. Zitella and requested that he amend his “Proof of Claim to reduce it by the garnisheed amount of $17,759.07, failing which I shall report it to the judge.”

[15] Mr. Simpson advises the court that Mr. Zitella never responded to this request, which, given the Trustee’s position set out above, necessitated Ms. Gregoriou bringing this motion.

[16] Mr. Zitella has not filed any materials to challenge the evidence from the Court Services Division that he has received the net amount of $17,759.07 ($18,059.85 less the $300.75 uncashed cheque) in garnishments with respect to the Mullins Order.

Applicable Statutory Provisions

[17] Section 121 of the BIA provides that all debts and liabilities to which Ms. Gregoriou was subject to on the day she became bankrupt are claims provable under the BIA.

[18] Section 124 of the BIA requires creditors to prove their claims.

[19] Section 135 of the BIA requires the Trustee to review and value proofs of claim. Subsection 135(5) of the BIA provides that the court may expunge or reduce a proof of claim on the application of a creditor or a debtor if the trustee declines to interfere in the matter.

[20] The court’s power to expunge or reduce a proof of claim on an application under subsection 135(5) is wide. [1]

Analysis

[21] The first step in the analysis is to determine whether Ms. Gregoriou has standing to bring this motion. Subsection 135(5) of the BIA refers to a “debtor”, which is defined in section 2 of the BIA to include, where the context requires, a bankrupt.

[22] In my view, a bankrupt such as Ms. Gregoriou falls within the definition of debtor for the purposes of subsection 135(5) of the BIA since, to hold otherwise would result in bankrupts being powerless to challenge a proof of claim where the trustee declined to interfere. This would be contrary to the fundamental purpose of the bankruptcy process to allow for a fair distribution of a bankrupt’s assets to her creditors. Additionally, a bankrupt has been permitted by the Court to bring a motion under subsection 135(5) (see Bankruptcy of Thomas Pirner, 2014 ONSC 172).

[23] The second step in the analysis is to determine whether the Trustee declined to interfere in the matter, which is a perquisite to a debtor bringing a motion under subsection 135(5) of the BIA.

[24] Based on the statements made by the Trustee in the Trustee Supplementary Report, and no other steps being taken by the Trustee in response to the requests made by Ms. Gregoriou, I am satisfied that the Trustee did decline to take steps regarding the quantum of Mr. Zitella’s proof of claim.

[25] In terms of whether I should exercise my discretion to reduce the amount of Mr. Zitella’s proof of claim, Mr. Zitella was required to file a proof of claim based on the amount owed to him by Ms. Gregoriou as of November 12, 2021, being the date of bankruptcy. Mr. Zitella claimed to be owed $62,432.08, which is the amount listed in the Mullins Order.

[26] I accept as accurate the letter from the Court Services Decision detailing that Mr. Zitella received $17,759.07 in funds garnished from Ms. Gregoriou following the issuance of the Mullins Order and prior to the bankruptcy.

[27] As a result of how a provable claim is defined under section 121 of the BIA, Mr. Zitella should have taken into account the $17,759.07 he received from the sheriff in garnished funds when he was preparing his proof of claim under section 124 of the BIA.

[28] The evidence shows that Mr. Zitella was not owed $62,432.08 as of the date Ms. Gregoriou filed for bankruptcy. I see no reason why the quantum of Mr. Zitella’s claim should remain at $62,432.08 given the garnished funds he received from the sheriff.

[29] Accordingly, I am satisfied that Ms. Gregoriou’s request for a reduction in the amount of Mr. Zitella’s claim by $17,759.07 from $62,432.08 to $44,673.01 should be granted.

Disposition

[30] I hereby exercise the discretion afforded to me under subsection 135(5) of the BIA to grant Ms. Gregoriou’s motion and reduce the amount of Mr. Zitella’s proof of claim from $62,432.08 to $44,673.01.

[31] Costs of this motion shall be dealt with together with my decision to be released concerning the other motions.

Associate Justice Rappos DATE: July 31, 2024

[1] EnerNorth Industries Inc. (Re), 2009 ONCA 536, para. 49.