SUPERIOR COURT OF JUSTICE – ONTARIO
COMMERCIAL LIST
RE: IN THE MATTER OF the Bankruptcy of Alexander Josipovicz
BEFORE: D. M. Brown J.
COUNSEL:
D. Shiller, for Kenneth Whyte, moving party
David Levangie, for Milosh Pavlovicz, responding party
T. MacLennan, for the bankrupt, Alexander Josipovicz
HEARD: September 14, 2012
REASONS FOR DECISION
I. Motion to examine a third party under section 163 of the BIA
[ 1 ] On April 26, 2011, the bankrupt, Alexander Josipovicz, filed an assignment in bankruptcy. Killen Landau & Associates Ltd. was appointed trustee of the bankrupt’s estate. Kenneth Whyte is a creditor of Josipovicz. Whyte moved for an order compelling Milosh Pavlovicz to attend for examination pursuant to section 163(1) or, alternatively section 163(2), of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3. Pavlovicz opposed the motion.
II. Background to this motion
[ 2 ] In the present case, the first meeting of creditors was held on June 24, 2011. No person was prepared to act as an inspector. The creditors unanimously approved a motion that the bankrupt be examined by counsel to one of the creditors, Ken Whyte. Prior to the bankruptcy Jospovicz had had some involvement with two companies, Studio Pyramid Inc. and De Cerigo Properties Inc., serving as a director and officer of both companies until February, 2011. Howard Landau, the Trustee, in his affidavit in support of this motion, deposed that the bankrupt had described both companies as his personal corporations.
[ 3 ] The June 24, 2011 resolution approving the examination of the bankrupt specifically required the bankrupt to produce documentation for those two companies. The examination of the bankrupt was conducted by Whyte’s counsel on August 16, 2011. On his examination the bankrupt advised that he could not secure the requested corporate and financial documentation for Studio Pyramid Inc. or De Cerigo Properties Inc. from Pavlovicz.
[ 4 ] Another meeting of creditors was held on October 19, 2011. The Trustee reported on the results of the examination of the bankrupt. The Minutes of that meeting recorded the following:
It was agreed that the matters noted below are amongst those requiring further follow-up, because either satisfactory documentation was not provided to the extent that the information could be verified and/or the information was not noted on the bankrupt’s statement of affairs:
The bankrupt failed to produce any documents regarding De Cerigo Properties Inc., Studio Pyramid Inc. or Studio Pyramid partnership…
Mr. Josipovicz testified that he is living with Mr. Pavlovicz, rent free, in the property owned by De Cerigo properties located at 176 Davenport Road…
Mr. Josipovicz advised that Studio Pyramid and Mr. Pavlovicz owed him money (not disclosed on his statement of affairs); he advised that Mr. Pavlovicz owed him money from a loan Mr. Josipovicz claims he advanced in 2005; he advised that the sum loaned was used by De Cerigo to purchase 176 Davenport Road (not disclosed on his statement of affairs);
The bankrupt advised he owes Studio Pyramid money but did not disclose this on his statement of affairs;
Mr. Josipovicz advised that he never owned any shares in De Cerigo or Studio Pyramid while referring to these as “his companies”; in previous litigation, his accountant, David Corazza, deposed in his affidavit that those companies were Mr. Josipovicz’s “personal companies”.
[ 5 ] The creditors thereupon approved a resolution authorizing counsel for Whyte, at Whyte’s expense, to examine Pavlovicz and Mr. Corazza under section 163 of the BIA.
III. Analysis
A. Motion under BIA s. 163(1)
[ 6 ] Under section 163(1) of the BIA the trustee may examine “any person reasonably thought to have knowledge of the affairs of the bankrupt”:
- (1) The trustee, on ordinary resolution passed by the creditors or on the written request or resolution of a majority of the inspectors, may, without an order, examine under oath before the registrar of the court or other authorized person, the bankrupt, any person reasonably thought to have knowledge of the affairs of the bankrupt or any person who is or has been an agent or a mandatary, or a clerk, a servant, an officer, a director or an employee of the bankrupt, respecting the bankrupt or the bankrupt’s dealings or property and may order any person liable to be so examined to produce any books, documents, correspondence or papers in that person’s possession or power relating in all or in part to the bankrupt or the bankrupt’s dealings or property.
[ 7 ] In the present case the bankrupt’s creditors, in the absence of the appointment of any inspectors, authorized counsel for a creditor to examine Pavlovicz under BIA s. 163(1). In his factum Pavlovicz submitted that section 163(1) does not permit an examination by a creditor:
Section 163(1) of the Act does not permit a creditor to conduct an examination of the bankrupt or another person and does not authorize the trustee to permit a creditor to conduct an examination of the bankrupt or another person.
[ 8 ] I disagree. In the circumstances of this case, section 163(1) of the BIA permits counsel for Whyte to examine Pavlovicz. In Bennett on Bankruptcy the author wrote:
In smaller estates, the trustee will not have any funds to conduct an examination. Often, the creditor will conduct such an examination in the trustee’s name if the creditor agrees to pay the costs and indemnify the trustee. This will avoid the creditor in having to apply for an order under subsection 163(2). [1]
[ 9 ] Such an approach makes practical sense. [2] In the present case the Trustee lacks funds to conduct an examination. The Trustee filed an affidavit in support of the motion in which he deposed that he wanted to obtain the corporate and financial documentation for Studio Pyramid Inc. and De Cerigo Properties Inc. as part of his investigation of the administration of the bankrupt’s estate. The examination authorized by the creditors will assist the Trustee in performing his duties.
[ 10 ] It was clear from the evidence filed on the motion that an examination of Pavlovicz will deal with information relevant to the administration of the bankrupt’s estate. Conflicting evidence exists about who owns Studio Pyramid and De Cerigo Properties. Pavlovicz filed an affidavit in which he deposed that the bankrupt never had any ownership interest in either Studio Pyramid or De Cerigo. However, the materials he provided disclosed that the bankrupt had resigned as director and President of De Cerigo Properties Inc. effective February 16, 2011, two months prior to his assignment in bankruptcy, and on the same date had resigned as director, Secretary and Treasurer of Studio Pyramid Inc. As well, in previous litigation between the bankrupt and one of his creditors, Whyte, the bankrupt’s accountant swore an October 4, 2009 affidavit in which he deposed, in two separate places, that he was “accountant for Mr. Josipovicz and his personal corporations Studio Pyramid Inc. and De Cerigo Properties Inc.” In an affidavit sworn the same day Josipovicz deposed that he agreed with the contents of his accountant’s affidavit which were “truthful, accurate and complete”. An examination into the ownership of Studio Pyramid and De Cerigo Properties relates to the administration of the estate as it concerns a possible asset of the estate.
[ 11 ] Further, in his affidavit Mr. Pavlovicz did not address the information recorded in the Minutes of the creditors’ meeting regarding the bankrupt’s testimony concerning a loan to him which had been used by De Cerigo. Inquiring into whether Pavlovicz owes the bankrupt money obviously relates to the administration of the bankrupt’s estate. [3]
[ 12 ] Consequently, I grant an order requiring Milosh Pavlovicz to attend for examination under section 163(1) of the BIA.
B. Motion under BIA s. 163(2)
[ 13 ] The same result would follow under section 163(2) of the BIA which provides as follows:
- (2) On the application to the court by the Superintendent, any creditor or other interested person and on sufficient cause being shown, an order may be made for the examination under oath, before the registrar or other authorized person, of the trustee, the bankrupt, an inspector or a creditor, or any other person named in the order, for the purpose of investigating the administration of the estate of any bankrupt, and the court may further order any person liable to be so examined to produce any books, documents, correspondence or papers in the person’s possession or power relating in all or in part to the bankrupt, the trustee or any creditor, the costs of the examination and investigation to be in the discretion of the court. (emphasis added)
[ 14 ] An examination under BIA s. 163(2) must be for the purpose of investigating the administration of the estate of the bankrupt and for the general benefit of creditors. The section requires a creditor, or other interested person, to show sufficient cause in order to secure an order to examine. To do so, a creditor must file evidence with the court demonstrating that:
(i) the examination seeks information relevant to some aspect of the administration of the estate, including the existence of assets or liabilities of the bankrupt or the accounting for them; [4] and,
(ii) the person sought to be examined likely possesses information which may shed some light on the estate or its administration. [5]
Section 163(2) cannot be used to pursue a mere fishing expedition, nor can a creditor attempt to use the section to pursue a private remedy. [6] The test applied by a court when considering a request under section 163(2) is a low one, [7] but it does require the court to review carefully the evidence placed before it. [8]
[ 15 ] Although some of the cases have suggested that an order should not be granted under section 163(2) unless the creditor demonstrated that something was “amiss”, that word risks deflecting the focus of the judicial inquiry on such a motion. Certainly, if something is “amiss”, further investigation may be merited. But, equally, an investigation may be appropriate where an examination is required to reconcile, or shed further light on, conflicting information gathered by the trustee. In such a case nothing may be “amiss”, but an inquiry is needed. So, where an order is sought under section 163(2) against a third party – i.e. neither the bankrupt nor the trustee – the focus should be on whether the examination likely will secure information required by the trustee to continue with or complete the administration of the estate of the bankrupt.
[ 16 ] In the present case the information sought relates to conflicting evidence as to whether the bankrupt enjoyed an ownership interest in Studio Pyramid or De Cerigo Properties at the material time and whether Pavlovicz owed the bankrupt money. Both matters clearly relate to the administration of the estate and the Trustee has deposed he wishes to obtain the information to discharge his duties. [9] Such an expressed need by the Trustee indicates that the creditor has not brought this motion simply to obtain some private remedy. Sufficient cause has been shown by the moving party creditor to justify an order under section 163(2) of the BIA.
IV. Summary
[ 17 ] For the reasons set out above, I order Milosh Pavlovicz to attend in Toronto for examination pursuant to section 163 of the BIA on or before October 15, 2012.
[ 18 ] I make no order as to costs.
D. M. Brown J.
Date : September 24, 2012
[1] Bennett on Bankruptcy, 13 th Edition, 2011 (Toronto: CCH, 2011), p. 478.
[2] One must remain alive, however, to possible issues of conflicts of interests. See, for example, Re Safire Infrastructure Inc., 2009 57154 (ON SC) and Re Kaiser, 2011 ONSC 4877.
[3] Further evidence demonstrating financial links between the bankrupt and Pavlovicz were set out in paragraph 14 of Whyte’s Factum.
[4] Gervais (Re) (1993), 23 C.B.R. (3d) 42 (Ont. Gen. Div., Bkrptcy.); Hartland Pipeline Services Ltd. (Trustee of) v. Jones (2000), 2000 ABQB 412, 18 C.B.R. (4 th ) 28 (Alta. Q.B.), para. 5; Boozary Estate (Re) (2005), 18 C.B.R. (5 th ) 205 (Ont. S.C.J., Bkptcy), paras. 4 and 5; Scherer v. Allan Marshall & Associates Inc. (2011), 79 C.B.R. (5 th ) 325 (N.B.Q.B.).
[5] Re NsC Diesel Power Inc. (1997), 49 C.B.R. (3d) 213 (N.S.S.C.), p. 218.
[6] Re NsC Diesel Power Inc. (1998), 6 C.B.R. (4 th ) 96 (N.S.C.A.), p. 108; Hartland Pipeline Services, supra.
[7] Boozary, supra., para. 5
[8] Hartland Pipeline Services, supra., para. 13.
[9] See also the answers given by the Trustee on his cross-examination which were set out in paragraph 24 of Whyte’s Factum.