COURT OF APPEAL FOR ONTARIO

CITATION: Levesque (Re), 2016 ONCA 393

DATE: 20160525

DOCKET: C61210

Rouleau, Pardu and Benotto JJ.A.

In the Matter of the Bankruptcy of Michael Levesque

Of the Town of Lasalle, in the County of Essex, and Province of Ontario

Raymond Colautti and Anita Landry, for the appellant

Stephen Schwartz, for the respondent

Heard: May 6, 2016

On appeal from the order of Justice Helen A. Rady of the Superior Court of Justice, dated September 10, 2015.

ENDORSEMENT

[1] The appellant, 363148 Ontario Limited o/a AAA Stock’N Lock Self Storage, has been unable to recover on a judgment it has against Michael Levesque and Engineered Systems Inc., jointly and severally, for just over $600,000. It appeals from the dismissal of its application for an order that the debtor, Mr. Levesque, be adjudged bankrupt.

[2] It submits that the application judge erred in four respects:

• She applied the wrong standard of proof and reversed the onus of proof.
• She erred in concluding that there was only one creditor, the appellant, and that therefore special circumstances had to be proven before a bankruptcy order could be made.
• Even if this was a case of a single creditor, she erred in failing to conclude that special circumstances justifying a bankruptcy order were present.
• She erred in taking into consideration the fact that other enforcement steps could have been taken by the appellant.

[3] We do not accept these arguments.

[4] The petitioning creditor must establish the following essential elements to obtain a bankruptcy order:

• There is a debt of at least $1000 owing to the petitioning creditor;
• The debtor has committed an act of bankruptcy within the preceding six months; and
• There is an unsecured part of the secured creditor’s claim that exceeds $1000, after the creditor has estimated the value of its security.

See the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, s. 43 (“the BIA”); Re Fengar Investments Corp. (1993), 17 C.B.R. (3d) 167 (Ont. C.J. (Gen. Div.)), at para. 20.

[5] Here, the act of bankruptcy alleged is that the debtor ceased “to meet his liabilities generally as they become due”: see the BIA, s. 42(1)(j).

[6] The application judge correctly set out the nature of bankruptcy proceedings and the standard of proof, at para. 4 of her reasons:

It is well established that proceedings under the BIA are quasi-criminal in nature. The act(s) of bankruptcy and all allegations set out in the application must be proven on sufficient evidence: Re Holmes (1975), 9 O.R. (2d) 240 (S.C.); Re Valente (2004), 70 O.R. (3d) 31 (C.A.).

[7] She went on to rely on Brown J.’s decision in Re Ivany, 2012 ONSC 7058, 97 C.B.R. (5th) 214, at para. 12, for the test for determining when a debtor has failed “to meet his liabilities generally as they become due”:

To demonstrate that a debtor has ceased to meet his liabilities generally as they become due generally requires, in the absence of special circumstances, (i) proof of the outstanding debt owed to the applicant and (ii) evidence that the debtor has ceased to meet his liabilities to its creditors in general. The existence of unpaid creditors is not sufficient, in and of itself, to establish an act of bankruptcy; the applicant must prove, on the balance of probabilities, that the debtor has ceased to meet its liabilities generally as they become due. Since the machinery of the BIA is for the benefit of the creditors of a debtor as a class, establishing that a debtor has ceased to meet his liabilities generally requires some evidence that the debtor has ceased to meet liabilities other than those incurred towards the applicant creditor. [Footnotes omitted.]

[8] The application judge did not err in holding that the onus lies on the petitioning creditor to establish each of the elements prerequisite to a bankruptcy order on sufficient evidence.

[9] The application judge was not persuaded on the evidence before her that the debtor had failed to meet his liabilities generally. His evidence was that his Visa card was current and that he was negotiating a settlement with another creditor. While the appellant’s principal had deposed that the debtor had other debts, he had no evidence of them.

[10] As this court stated in Re Valente (2004), 70 O.R. (3d) 31, at para. 8, a bankruptcy order may be made in the case of a single debt where there are special circumstances:

It is now well-settled in the case law that the failure to pay a single creditor can constitute an act of bankruptcy under s. 42(1)(j) when there are special circumstances, which have been recognized in three categories: (a) where repeated demands for payment have been made within the six-month period; (b) where the debt is significantly large and there is fraud or suspicious circumstances in the way the debtor has handled its assets which require that the processes of the B.I.A. be set in motion; and (c) prior to the filing of the petition, the debtor has admitted its inability to pay creditors generally without identifying the creditors. [Citations omitted.]

[11] The application judge was not satisfied that special circumstances had been proven. While she acknowledged that the debt was significant, she found there was no evidence of fraud or suspicious circumstances. And while she considered the respondent’s view of the value of the corporate assets to approach the “grandiose”, she also found that the debt had only been outstanding a relatively short time, the appellant appeared to have taken no steps to collect on a general security interest in its favour, and the appellant had not given any evidence on what steps it had taken to collect from the corporate judgment debtor. She concluded that the appellant had failed to provide the necessary evidence to invoke the bankruptcy process.

[12] These factual findings were reasonably open to the application judge on the evidence before her. She did not err in considering that other steps to enforce the judgment could have been taken by the appellant.

[13] We note that the application was dismissed without prejudice to a new application being made in future on further and better evidence.

[14] The appellant has not demonstrated a basis for appellate intervention, and the appeal is dismissed, with costs to the respondent fixed at $6,467, inclusive of HST and disbursements.

“Paul Rouleau J.A.”

“G. Pardu J.A.”

“M.L. Benotto J.A.”