Platt v. Malmstrom et al. [Indexed as: Platt v. Malmstrom]

53 O.R. (3d) 502

[2001] O.J. No. 1024

Docket No. C33681

Court of Appeal for Ontario

Before: Finlayson, Labrosse and MacPherson JJ.A.

Date: March 23, 2001

Bankruptcy--Acts of bankruptcy--Ceasing to meet liabilities generally--Proof of act of bankruptcy within six months preceding the filing of petition--Failure to pay judgment or order being proof of act of bankruptcy--Demand from judgment creditor within six months of the petition not required to prove act of bankruptcy--Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, s. 43.

A judgment or order entered more than six months before the issuance of a petition for bankruptcy is sufficient evidence of an act of bankruptcy having been committed within the six months of the filing date of the petition. An express demand for payment by the judgment creditor within the six-month period is not necessary to establish the act of bankruptcy because a judgment is a continuing demand for payment by the judgment creditor.

APPEAL from a receiving order of the Superior Court of Justice (In Bankruptcy)

Cases referred to Aarvi Construction Co., Re (1978), 29 C.B.R. (N.S.) 265 (Ont. S.C.); Bayerische Hypotheken-und Wechselbunk Aktiengesellschaft v. Kaussen Estate (1988), 1988 CanLII 346 (QC CA), 47 D.L.R. (4th) 626, 67 C.B.R. (N.S.) 81, 31 E.T.R. 85 (Que. C.A.), affg, [1986] R.J.Q. 2683, 64 C.B.R. (N.S.) 97, 25 E.T.R. 99 (Sup. Ct.) (sub nom. Kaussen Estate Re, Kaussen's Re); Bombardier Credit Ltd. v. Find (1998), 1998 CanLII 3000 (ON CA), 37 O.R. (3d) 641, 2 C.B.R. (4th) 1 (C.A.) [Leave to appeal to S.C.C. refused (1998), 231 N.R. 400n]; Harrop of Milton Inc., Re (1979), 1979 CanLII 1688 (ON SC), 22 O.R. (2d) 239, 92 D.L.R. (3d) 535, 29 C.B.R. (N.S.) 289 (S.C.); Rayner, Re (1934), 1934 CanLII 330 (PE SCTD), 16 C.B.R. 411, 8 M.P.R. 369, [1935] 2 D.L.R. 542 (P.E.I.S.C.); Solloway, Re (1942), 24 C.B.R. 90 (Que. C.A.); The Pas Foundation & Excavation Ltd., Re (1975), 21 C.B.R. (N.S.) 154 (Man. Q.B.) Statutes referred to Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, ss. 42(1), 43(1), 43(6),

Counsel: Kevin O'Hara, for appellant. Jonathan H. Marler, for respondent Kaarina Malmstrom. Glenn J. Cooper, for respondent 798839 Ontario Limited.

The judgment of the court was delivered by

FINLAYSON J.A.:

Background

[1] This is an appeal by the debtor Robert Platt from the February 7, 2000 decision of the Honourable Mr. Justice J.M. Farley of the Superior Court of Justice (In Bankruptcy), wherein a judgment for a receiving order was rendered against Platt.

[2] Pursuant to s. 43(6) of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, as amended (the "BIA"), the bankruptcy judge found that the petitioning creditors had established that Mr. Platt:

(a) had ceased to meet his liabilities generally as they became due (s. 42(1) of the BIA);

(b) was indebted to his creditors in a sum in excess of $1,000 (s. 43(1)(a) of the BIA); and

(c) had committed an act of bankruptcy within the six months next preceding the filing of the petition, which was dated June 24, 1999 (s. 43(1)(b) of the BIA).

[3] The debts relied upon by the bankruptcy judge consisted of (a) for 798839 Ontario Limited, a judgment in the amount of $9,895.44 for a cost order taken out by final judgment of the Court of Appeal dated September 15, 1998; (b) for Kaarina Malmstrom, a judgment in the amount of $623.08 issued out of Small Claims Court on March 12, 1991; (c) for Eric Kraushaar, a judgment in the amount of $2,196.56 issued by the Ontario Court (General Division) and confirmed by the Court of Appeal on September 15, 1998; and (d) for Ersen Cogulu, a judgment in the amount of $45,693.54 and costs of $235.00 with interest at a rate of 15 per cent per annum from the date of judgment, being September 12, 1990.

[4] There were two other claims (not taken to judgment) which were accepted by the bankruptcy judge: a claim from the City of Timmins with respect to property taxes in the approximate amount of $7,000, and a 1979 judgment of Barbara Hughes for $600 plus interest.

[5] The bankruptcy judge found that the judgments and orders entered against Platt more than six months before the issuance of the petition were sufficient evidence in themselves of an act of bankruptcy having been committed within six months of the filing date of the petition. He ruled that a demand for payment of the judgments within the six-month period preceding the date of the petition was not necessary in order to establish the act of bankruptcy.

Issue

[6] The two issues in appeal are whether there was any demand for payment made with respect to the debts within six months of the petition and, if there was not, whether such a demand was in fact necessary to establish an act of bankruptcy on the part of the debtor. I will address these issues in reverse order.

i. The need for a demand

[7] s. 43(6) of the BIA, read in conjunction with s. 43(1)(b), provides that before a court can grant a receiving order, it must be satisfied that the petitioner has presented proof that an act of bankruptcy was committed within six months preceding the filing of the petition.

[8] The theory behind the six-month period appears to be that a petitioning creditor should not be permitted to rely upon stale-dated debts which have not been pursued in order to establish current acts of bankruptcy. However, it has been accepted that even in situations where a debt has become due more than six months before the date of the petition, a demand for payment made within the six-month period revives the original debt. Such a demand makes the debts current and failure to act on such a demand can serve as a current act of bankruptcy. As noted by Henry J. in Re Harrop of Milton Inc. (1979), 1979 CanLII 1688 (ON SC), 22 O.R. (2d) 239, 29 C.B.R. (N.S.) 289 (S.C.), at p. 243 O.R., p. 293 C.B.R.:

As I understand those judgments, they interpret the [Bankruptcy Act, R.S.C. 1970, c. B-3] as meaning that, where the act of bankruptcy occurred prior to the six-month period and thereafter nothing was done by creditors with respect to the debts in default for a period of six months or more, the act of bankruptcy ceases to be current and cannot found a receiving order. But in my opinion that does not apply where the debtor has received continued demands for payment since the initial defaults and has not paid. This is the case here. . . .

[9] In this case, there is some evidence of a demand for payment being made within the six-month period, but leaving that aside for the moment, it is still important to consider the bald question of whether it is necessary to make a demand where the debt is reduced to a judgment of the court pronounced outside the six-month period. In my opinion, this question has not been dealt with satisfactorily in Canada.

[10] It was the view of the bankruptcy judge that court judgments did not require a demand from the judgment creditor within six months of the petition in bankruptcy. As he put it in his reasons of February 7, 2000:

. . . As I discussed before, court judgments and orders are sufficient in themselves. They're the ultimate demand. There is no necessity to keep on demanding on a periodic basis as to the payment under those directions of the Court.

[11] I agree with the position taken by the bankruptcy judge.

[12] As noted by the respondent Malmstrom, the majority of cases cited by the appellant in which it has been found necessary to prove a fresh demand for payment within the six months immediately preceding the issue of the petition appear to be in regard to debts which have not been liquidated to the form of a judgment or an order. In addition, the appellant concedes that there are cases that have held that it is not necessary to make a demand within the six-month period, as long as there is evidence of a continuing default. See Re Rayner (1934), 1934 CanLII 330 (PE SCTD), 16 C.B.R. 411 (P.E.I.S.C.); Re The Pas Foundation & Excavation Ltd. (1975), 21 C.B.R. (N.S.) 154 (Man. Q.B.); Re Aarvi Construction Co. (1978), 29 C.B.R. (N.S.) 265 (Ont. S.C.); Bayerische Hypotheken-und Wechselbunk Aktiengesellschaft v. Kaussen Estate (1986), 64 C.B.R. (N.S.) 97, [1986] R.J.Q. 2683 (Sup. Ct.), affirmed sub nom. Re Kaussen Estate (1988), 1988 CanLII 346 (QC CA), 67 C.B.R. (N.S.) 81, 47 D.L.R. (4th) 626 (Que. C.A.).

The object of that limitation clearly is to prevent the filing of a petition for a stale default or isolated act of bankruptcy. It cannot, without disregarding the fundamental purpose of the Act, be held to apply to such a case as the present where a state of bankruptcy is shown to have continued without interruption from a time long prior to and down to the time of presentation of the petition and to be still subsisting; in other words a chronic state of bankruptcy existing for a period more than six months anterior to and down to the time of the presentation of the petition herein.

. . . In my opinion the evidence shows the equivalent of a continuous demand for payment by the petitioner and a continuous refusal on the part of the debtor to pay the judgment debt and costs of suit owed by the debtor to the petitioner.

[14] In Re The Pas Foundation, supra, Morse J. specifically relied upon Re Rayner, and stated at p. 157: "To refuse a petition merely because formal demands for payment had not been made in the six months prior to the issuance of the petition would, in my view, be unrealistic."

[15] Re Aarvi, supra, was a decision of Saunders J. of the Ontario Supreme Court [In Bankruptcy]. Saunders J. decided that in circumstances where the debtor had ceased to meet his liabilities generally as they became due for several years, where such situation continued up to a period of time which was within the six months preceding the date of the filing of the petition, and where there was also evidence that the debtor continued to fail to meet its interest obligations on its outstanding loans from the bank, it was unnecessary for the petitioning creditor to have to provide evidence that the demand was made within the six-month period.

[16] In Re Kaussen, supra, the bankruptcy judge, Gomery J., who was affirmed by the Quebec Court of Appeal, put it even more broadly at p. 119:

The reason for the six-month rule was to prevent a petitioning creditor from invoking a stale default as an act of bankruptcy. Where there is no purpose to be achieved in making fresh demands because it is apparent that the debtor cannot or will not pay, the creditor is entitled to consider that default, once clearly established, continues in effect. His recourse should not be excluded because he fails to perform the empty gesture of demanding payment from someone who has already demonstrated his inability to respond.

[17] Of all the cases referred to this court by the parties, I find the case of Bombardier Credit Ltd. v. Find (1998), 1998 CanLII 3000 (ON CA), 37 O.R. (3d) 641, 2 C.B.R. (4th) 1 (C.A.) particularly insightful. While not addressing the specific issue before this court, Charron J.A. did consider the question of whether an act of bankruptcy had been committed within the requisite limitation period. Charron J.A. first found that demands for payment made during the six-month period could revive debts that had accrued prior to the notice period. This conclusion was based on a recognition that adopting the contrary view would result in the unnecessary filing of many petitions within six months of a debt accruing due by creditors who, out of an abundance of caution, may seek a remedy under the BIA simply for fear of forever being foreclosed from taking such action at a later time. Charron J.A. then went on to comment [at p. 9 C.B.R.]:

Although it is not necessary to consider the matter in this case, I would hasten to add that this decision [Re Raitblat (1925), 1925 CanLII 391 (ON SC), 28 O.W.N. 237 (Ont. S.C.), affd. (1925), 5 C.B.C. 765 (Ont. C.A.)] should not be interpreted to mean that a fresh demand must be made within the six months preceding the filing of a petition in every case where a s. 42(1)(j) act of bankruptcy is alleged in order to satisfy the requirements of the [BIA]. The issue is not whether a fresh demand has or has not been made but whether the evidence is sufficient to prove that the act of bankruptcy has been committed within the requisite time period. Of course, the making of a fresh demand followed by a repeated default provides cogent evidence on this issue and may be a prudent practice to follow. However, even absent a fresh demand, the circumstances of the case may suffice to support a finding that the ceasing to meet liabilities generally as they become due extends to the relevant period of time.

[18] I agree with the sentiments expressed by Charron J.A. Taking a practical approach to the question at bar, once a judgment or order has been entered against a debtor, no purpose would be served by forcing the creditor of that debtor to either file a petition immediately (and possibly prematurely), or to make repeated demands for payment once the petition is filed. It is inappropriate to require a creditor who has proceeded properly through legal channels and become a judgment creditor to make frequent demands for payment to the judgment debtor, only for the purpose of ensuring that the statutory time limitations are complied with. A judgment is a continuing demand for payment by the judgment creditor just as the failure to satisfy the judgment is a continuing refusal by the judgment debtor.

[19] Once a judgment or an order has been entered against a debtor, that judicial decree, even if entered more than six months before the filing of the petition, constitutes sufficient evidence of an act of bankruptcy having been committed within six months of the filing date. There is nothing improper in allowing a petitioning creditor to rely, as proof of bankruptcy, on formal judgments awarded against the debtor before the six-month period. Further, allowing petitioners to rely upon judicial pronouncements in order to establish current acts of bankruptcy is not contrary to the objectives of the BIA.

[20] Accordingly, I do not accept that the bankruptcy judge erred in holding that once a court judgment or order has been entered against a debtor, a demand for payment during the six months preceding the filing of the petition need not have been made in order to comply with the relevant BIA provisions. Therefore, I see no reason to interfere with the order in appeal.

ii. Whether a demand for payment was made in the case in appeal

[21] While I have found that in circumstances where the debt is reduced to a judgment or order of the court, it is not necessary to make a demand for payment in order to establish an act of bankruptcy, I believe that there is evidence in this case capable of serving as proof that a demand for payment was made within the six-month period immediately preceding the filing of the petition. When Platt was asked in cross- examination whether his counsel, Mr. Eversley, advised him that the law firm of McCarthy Tétrault had made a demand for payment in relation to the cost awards that had been upheld by the Court of Appeal, Mr. Platt acknowledged:

Mr. Eversley informed me over the phone sometime in the, I'm guessing April, May [of 1999], approximately. I mean, he didn't necessarily phone me up that day and say, "There is a demand." I already received the demand at some point over the telephone. He said that there were some court costs that should be settled up.

[22] Although the case of Re Solloway (1942), 24 C.B.R. 90 (Que. C.A.) may seem to suggest otherwise, I see no logical basis to conclude that when it is acknowledged that the demand on the solicitors has been communicated to the debtor, the requirements of the BIA are not satisfied.

[23] This admission serves to establish that a demand for payment was communicated to Platt within the statutorily mandated time period, thus satisfying the requirement contained in s. 43(1)(b) of the BIA.

Conclusion

[24] Accordingly, for the above noted reasons, I would dismiss the appeal with costs.

Order accordingly.