COURT FILE NO.: 32-1179979

DATE: 20120615

SUPERIOR COURT OF JUSTICE – ONTARIO

(IN BANKRUPTCY)

RE: IN THE MATTER OF THE BANKRUPTCY OF VINCENZO ANTONIO IELUZZI, A.K.A. VINCE IELUZZI, OF THE CITY OF HAMILTON, IN THE PROVINCE OF ONTARIO, Bankrupt/Appellant

BEFORE: MORAWETZ J.

COUNSEL:
Raffaele Sparano, for the Bankrupt/Appellant, Vincenzo Antonio Ieluzzi

Eric Sherkin, for the Creditor/Respondent, Automotive Finance Canada Inc.

HEARD & ENDORSED: JUNE 5, 2012

REASONS: JUNE 15, 2012

ENDORSEMENT

[ 1 ] The Bankrupt, Mr. Ieluzzi, brought this motion to appeal the decision of Registrar Short who ordered that the stay imposed by s. 69 of the Bankruptcy and Insolvency Act (“BIA”) no longer applied to an action commenced by the creditor, Automotive Finance Canada Inc. (“AFCI”) and Advantage Auto Sales Inc. (“Advantage”), bearing Court File No. CV-11-421565 (the “AFCI Action”) against Mr. Ieluzzi.

[ 2 ] At the conclusion of argument on June 5, 2012, I endorsed the record as follows: “The appeal is dismissed with costs of this motion fixed at $5,000, payable in any event of the cause. Reasons will follow.”.

[ 3 ] These are those reasons.

[ 4 ] The parties were in agreement that the standard of review was as set out in Impact Tool & Mould Inc. (Trustee of) v. Impact Tool & Mould (Windsor) Inc. (Receiver of), 2006 (Ont. C.A.).

[ 5 ] Counsel to Mr. Ieluzzi submitted that Registrar Short committed an error in principle and/or an error of law, and/or failed to take proper factors into account and/or took into account improper factors that lead to a wrong conclusion, such that the court should interfere with the decision of Registrar Short.

[ 6 ] In my view, the appeal is without merit.

[ 7 ] Under s. 69.4 of the BIA, the court may make the requested declaration if it is satisfied:

(a) that the creditor or person is likely to be materially prejudiced by the continued operation of the stay; or

(b) that it is equitable on other grounds to make such a declaration.

[ 8 ] The controlling authority is Ma (Re), 24 C.B.R. (4th) 68 (Ont. C.A.):

In considering an application for leave, the function of a bankruptcy court is not to enquire into the merits of the action sought to be commenced or continued. Instead, the role is one of ensuring that sound reasons, consistent with the scheme of the Bankruptcy and Insolvency Act, R.S.C. 1985 c. B-3, exist for relieving against the otherwise automatic stay of proceeding.

[ 9 ] Ma went on to note that the onus is on the applicant to establish a basis for the order within the meaning of s. 69.4. (See also Bandiera (Re), 2012 ONSC 2211 and CIBC Mortgages Inc. v. Touchie 2011 NSSC 228, 2011, 305 N.S.R. (2nd) 228 (N.S.S.C.))

[ 10 ] The moving creditor need only plead specific facts which show that there are sound reasons to lift the stay, such as a set of facts which, if believed, would fall within the ambit of subsection 178 (1) (d).

[ 11 ] The Registrar reviewed the background of the matter and, in particular, made specific reference to the allegations in the statement of claim. See paragraphs 21 and 22 of the reasons of the Registrar.

[ 12 ] It is sufficient, for the purposes of the disposition of this appeal, to focus on the first part of s. 178 (1) (d). AFCI has alleged that the debt or liability has arisen out of Advantage and Mr. Ieluzzi receiving the sale proceeds on AFCI’s behalf while acting in a fiduciary capacity and that Advantage and Mr. Ieluzzi misappropriated and/or converted AFCI’s funds to their own use. Further, by failing to hold the proceeds in trust for AFCI, Advantage and Mr. Ieluzzi have breached fiduciary duties to AFCI.

[ 13 ] In my view, the basic elements set out in s. 178 (1) (d) have been alleged by AFCI such that, if the claim succeeds, there is the very real possibility that a court will make a finding that the debt is such that it survives any discharge from bankruptcy. The basic elements have been pleaded, namely, misappropriation or defalcation where acting in a fiduciary capacity. Acting in a fiduciary capacity connotes an element of trust. It is not necessary to examine, in detail, the second part of s. 178 (1) (d) as it pertains to the Province of Quebec. Simply put, a party can act as a trustee and, by definition, can also be acting in a fiduciary capacity. I see no reversible error in this part of the Registrar’s decision.

[ 14 ] Counsel to Mr. Ieluzzi also took the position that the Registrar improperly applied principles in jurisprudence with respect to the statutory trust provisions of the Construction Lien Act. The Registrar did make reference to certain cases under the Construction Lien Act, such as Commodore Aluminum v. Solar Sun Rooms Inc.

[ 15 ] The Registrar noted that the case before him, while not involving a statutory trust, nevertheless paralleled the lien trust cases such that he was satisfied that leave ought to be granted.

[ 16 ] As pointed out by counsel to AFCI at paragraph 22 of his factum, in Superior Crane (Canada) Inc. v. Justin Consulting Limited, an action was commenced against the sole officer and director of the corporate defendant alleging a statutory breach of trust under the Construction Lien Act. Archibald J. concluded that the officer, a stranger to the trust, could be held liable under common law for breach of trust if he is found to have knowingly participated in the breach of trust as a person in receipt and charged with trust property. Archibald J. granted judgment against the officer which survived his proposal in bankruptcy under s. 178 (1) (d) of the BIA.

[ 17 ] In my view, the analysis of Archibald J. is applicable in this case and supports the conclusions of the Registrar.

[ 18 ] Counsel to Mr. Ieluzzi also submitted that leave should have been refused on the basis that AFCI had inordinately delayed bringing and proceeding with the motion to lift the stay, without any explanation for the delay.

[ 19 ] As noted in the AFCI factum, Mr. Ieluzzi advanced the argument of delay at a status hearing convened in the action. This argument was previously dismissed by Master Sproat and need not be revisited. I fail to see the prejudice to Mr. Ieluzzi, who remains a conditionally discharged bankrupt.

[ 20 ] Registrar Short concluded his decision with the following statement:

This is a case where the ultimate issue will turn on whether the plaintiff can make out his case at trial in such a manner that liability would attach to Mr. Ieluzzi and not be affected by his discharge.

[ 21 ] I agree. In my view, Registrar Short reviewed all of the applicable case law and correctly and properly determined that the stay should be lifted. The appeal is dismissed.

MORAWETZ J.

Date: June 15, 2012