Court File and Parties

COURT FILE NO.: 31-1422908
DATE: 20120605
ONTARIO SUPERIOR COURT OF JUSTICE In Bankruptcy

IN THE MATTER OF THE BANKRUPTCY OF ISTVAN KOVARCSIK OF THE CITY OF TORONTO IN THE PROVINCE OF ONTARIO

BEFORE: Justice Newbould

COUNSEL:
Istovan Kovarcsik, in person, Applicant
Philip J. Gertler, for the Trustee, Respondent

DATE HEARD: June 1, 2012

E N D O R S E M E N T

[ 1 ] The bankrupt Istovan Kovarcsik appeals from the order of Deputy Registrar Diamond made under section 68 of the BIA which ordered the bankrupt to pay $16,432.22 in surplus income payable at a rate of $345.84 per month for 47 months and which further ordered the Workplace Safety and Insurance Board (“WSIB”) to pay to the Trustee $345.84 per month.

[ 2 ] Mr. Kovarcsik filed an assignment in bankruptcy on October 22, 2010. The trustee initially calculated the surplus income to be paid by Mr. Kovarcsik under section 68 to be $596 per month. This amount was listed on Mr. Kovarcsik’s statement of affairs which he signed, as well as on his surplus income payments acknowledgment that he signed. Mr. Kovarcsik also signed a further payment agreement in which he acknowledged his obligation to pay to his estate $1,925 in monthly payments of $175.

[ 3 ] Mr. Kovarcsik made only one payment to the trustee in the amount of $308.69. On May 19, 2011 Mr. Kovarcsik advised the trustee that he did not agree to being required to pay surplus income to the trustee. Since his bankruptcy, his employment had ceased and he told the trustee that he had been receiving $1,460 biweekly WSIB benefits in respect of a work-related injury, although he did not provide any documentary proof of the payments. The trustee attempted to discuss the change of circumstances with Mr. Kovarcsik in order to consider changing the surplus income calculation, but Mr. Kovarcsik would not co-operate.

[ 4 ] In these circumstances, the trustee applied for an order under section 68 of the BIA fixing the amount that Mr. Kovarcsik was required to pay as surplus income and directing the WSIB or such further or other party providing remuneration to Mr. Kovarcsik to pay to the trustee the amount directed by the Registrar. On the return of the motion, the Registrar ordered Mr. Kovarcsik to pay as surplus income the sum of $16,432.22 payable at the rate of $345.84 per month for 47 months. According to the endorsement of the Registrar, Mr. Kovarcsik agreed with this calculation after having the statutory definition of surplus income explained to him. The Registrar also ordered the WSIB to pay $345.84 per month to the trustee for 47 months.

[ 5 ] Mr. Kovarcsik argues that the Registrar lacked jurisdiction because there was no mediation. The trustee reports that although he advised Mr. Kovarcsik of the right to mediation, Mr. Kovarcsik never requested mediation.

[ 6 ] Section 68(10) provides that a trustee may apply to the court to fix the amount of surplus income that a bankrupt is required to pay, as follows:

(10) The trustee may, in any of the following circumstances — and shall apply if requested to do so by the official receiver in the circumstances referred to in paragraph (a) — apply to the court to fix, by order, in accordance with the applicable standards, and having regard to the personal and family situation of the bankrupt, the amount that the bankrupt is required to pay to the estate of the bankrupt:

(a) if the trustee has not implemented a recommendation made by the official receiver under subsection (5);

(b) if the matter submitted to mediation has not been resolved by the mediation; or

(c) if the bankrupt has failed to comply with the requirement to pay as determined under this section.

[ 7 ] Mr. Kovarcsik contends that there must be a mediation that has not resolved the surplus income issue in order for the trustee to be able to apply under section 68(10), and as there has been no mediation, the Registrar had no jurisdiction to make any order. I do not agree. Only one of the three circumstances in section 68(10) must be applicable in order for the trustee to apply. The word “or” after subsection (b) makes this clear. As Mr. Kovarcsik had failed to pay the surplus income determined by the trustee under section 68, the trustee was entitled to apply under section 68(10)(c) to have the surplus income fixed by the court, and the Registrar had the jurisdiction to make that determination.

[ 8 ] Mr. Kovarcsik also contends that the Registrar had no jurisdiction to order the WSIB to pay the amount of the monthly surplus income directly to the trustee. He bases this on a letter which he received from legal counsel for the WSIB dated April 23, 2012 which stated that the WSIB’s position is that the benefits that it pays to injured workers does not form part of the bankruptcy estate as a result of the joint operation of section 67(1) (b) of the BIA and section 64 of the Workplace Safety and Insurance Act, 1997.

[ 9 ] The reasoning of legal counsel for the WSIB was that (i) section 67(1)(b) of the BIA states that the property of a bankrupt shall not comprise any property that as against a bankrupt is exempt from execution or seizure under any laws applicable in the province in which the property is situate and within which the bankrupt resides and (ii) WSIB benefits are exempt from seizure pursuant to section 64 of the Workplace Safety and Insurance Act, 1997 which states that “no benefits shall be assigned, garnished, charged or attached without permission of the Board”. Thus it was contended that WSIB benefits do not constitute property divisible among creditors.

[ 10 ] The position taken by counsel for the WSIB in his correspondence is inconsistent with another situation involving a different bankrupt in which the same counsel for the WSIB agreed by letter of February 9, 2011 that that the WSIB would pay to the trustee the amount of surplus income ordered under section 68 of the BIA.

[ 11 ] In any event, the position now taken by counsel for the WSIB overlooks section 68 of the BIA and the definition of “total income” in that section which includes “a bankrupt’s revenues of whatever nature or from whatever source…including those received…under an Act…of the legislature of a province that relates to workers’ compensation”. Section 68 is a complete code in respect of a bankrupt’s income. See Marzetti v. Marzetti , 1994 50 (SCC) , [1994] 2 S.C.R. 765 , Re Landry (2000), 2000 16846 (ON CA) , 21 C.B.R. (4th) 58 (Ont. C.A.) and Houlden, Morawetz and Sarra, 2012 Annotated Bankruptcy and Insolvency Act , (Carswell) at para. F111. It is clear that for the purposes of attaching the income of a bankrupt, it is section 68 and not 67 of the BIA that governs.

[ 12 ] The reasoning of counsel for the WSIB that relied on section 67 of the BIA is therefore incorrect. The amount payable by the WSIB is income as defined by section 68 of the BIA that is to be taken into account in determining a bankrupt’s surplus income. It is also an amount that may be obtained by service under section 68(13) of the BIA of an order made under section 68(10) on any person from whom the bankrupt is entitled to receive money. Section 68(13) provides:

(13) An order of the court made under this section may be served on a person from whom the bankrupt is entitled to receive money and, in such case,

(a) the order binds the person to pay to the estate of the bankrupt the amount fixed by the order; and

(b) if the person fails to comply with the terms of the order, the court may, on the application of the trustee, order the person to pay the trustee the amount of money that the estate of the bankrupt would have received had the person complied with the terms of the order.

[ 13 ] In light of section 68(13)(a), it should not have been necessary for the Registrar to initially make the order that the WSIB pay the amount of the surplus income to the trustee unless and until the WSIB refused to pay the amount after being served with the order of the Registrar. It appears however that it is the practice for trustees to apply at first instance for such an order and for the Registrar to grant it. I see no harm in this process.

[ 14 ] Mr. Kovarcsik objects to the Registrar fixing costs of $1,300 to be paid out of the assets of the estate of the bankrupt. I see no error in principle for this to have been done.

[ 15 ] In the circumstances, the appeal is dismissed. The trustee is entitled to its costs to be added to the amount of surplus income payable by Mr. Kovarcsik to his estate. The trustee shall make brief written submissions not exceeding three pages along with a cost outline in accordance with the rules within 10 days and Mr. Kovarcsik shall have 10 days to file any responding submissions not to exceed three pages in length.

Newbould J.

DATE: June 5, 2012