ONTARIO SUPERIOR COURT OF JUSTICE
COURT FILE NO.: FC-10-0930-00
DATE: 2013-04-09
BETWEEN
Elizabeth Jean Warner
Applicant
— and —
Ray Anthony Warner
Respondent
COUNSEL:
Robert A. Klotz and Rachael L. Eynon for the applicant.
Ray Anthony Warner acting in person.
HEARD: March 18, 2013.
Vallee J.
ENDORSEMENT on motion
Introduction and Background
[1] This is a motion by the applicant, Mrs. Warner, for an annulment of an assignment into bankruptcy on the grounds that it was commenced by the respondent Mr. Warner for the purpose of staying the family law proceedings and avoiding an equalization payment and therefore constitutes an abuse of process. Mrs. Warner makes claims for other relief including an advance on the equalization payment. Although Mr. Warner attended the motion, he failed to file any motion material.
[2] This matter has a long history. There have been five conferences including one case conference, one settlement conference and three trial management conferences. This appears to be due to Mr. Warner’s delay in obtaining a valuation for his pension and his failure to produce financial disclosure, among other things. He did not obtain a valuation until July 11, 2012, which had the effect of ensuring that the matter could not proceed to trial during the spring sittings in 2012. For three years up until April 2012, he failed to produce values for an RRSP asset held at the date of separation.
[3] When it became clear that the matter would proceed to trial and the pension asset would be divided along with the other equalization matters owed to Mrs. Warner, Mr. Warner filed a consumer proposal on October 10, 2012, which resulted in a stay of the family court proceedings, ensuring that the trial could not take place within the November 2012 sittings.
[4] This proposal showed that Mr. Warner had relatively small debts. He owes $11,113.00 to Scotiabank and $11,800.00 in unpaid taxes to Canada Revenue Agency (“CRA”). These debts were incurred post-separation. It appears that the CRA debt was incurred because Mr. Warner cashed a London Life RRSP post-separation and an insufficient holdback was maintained to satisfy the tax liability. This RRSP was not listed within Mr. Warner’s consumer proposal.
[5] It appears that the main purpose of the consumer proposal was an attempt by Mr. Warner to avoid his equalization payment to his wife. The Consumer Proposal was rejected and the stay of the family court proceedings was eliminated. It should be noted that a pension and an RRSP are precluded from a bankruptcy, as they are exempt assets. Subsequently, Mr. Warner made an assignment into bankruptcy. The relief requested in this motion includes an annulment of the bankruptcy proceedings and an interim advance to Mrs. Warner on her equalization payment.
The Law
[6] Mr. Klotz, who appeared for Mrs. Warner regarding the bankruptcy issue, submitted that the court has jurisdiction under the Bankruptcy and Insolvency Act, section 181(1) to annul a bankruptcy, if in the opinion of the court, an assignment ought not to have been filed.[^1] If such an order is made, all actions taken by the Trustee are valid but the property of the bankrupt shall vest in any person that the court may appoint. Mr. Klotz referred the court to the case of Re: Wale, wherein O’Connor J. commented in paragraph 26 as follows:[^2]
Under s. 181 the Court has a wide discretion when considering an annulment application. An exhaustive review of the circumstances surrounding the assignment should be made by the Court. There is no single test or principle to be applied. The test is flexible and fact specific. The debtor’s motive is the primary consideration is determining abuse of process or fraud. After considering whether the debtor is an insolvent person, some of the questions the court might pose to ascertain the debtor’s motives are:
Is the debtor’s financial situation genuinely overwhelming or could it have been managed?
Was the timing of the assignment related to another agenda or was bankruptcy inevitable in the near or relatively near future?
Was the debtor forthcoming in revealing his situation to his creditors or did he hide assets or prefer some creditors over other creditors?
What had been the debtor’s relationship with his creditors, particularly his major ones? Was it such that they might have assisted him if he had approached them by granting time for terms of repayment or has any goodwill be destroyed by past unfulfilled promises?
Are there other relationships – business partnerships, shareholder arrangements, spousal, competitors for an asset or simply personal associations which could cast light on a possible bad faith motive for making an assignment?
[7] Mr. Wale barely met the definition of an insolvent person. The court found that he could have worked his way through his financial problems. He was on good terms with his creditors. The assignment in bankruptcy was made one and one-half hours before the commencement of the trial. O’Connor J. found that the assignment was an abuse of process. Accordingly, the court exercised its jurisdiction and annulled the bankruptcy. All of the debtor’s property was vested in the wife.
[8] Mr. Klotz also referred the court to the case of Re: Good.[^3] In this matter Rosenberg J. noted in paragraph 10 that:
… the husband, after 33 years of marriage, is determined to destroy himself and all of his assets rather than allow his wife the benefit of any of those assets.
The bankruptcy proceedings of the husband were annulled because a clear abuse of process had been established.
[9] Mr. Klotz submitted that subrule 2(3) of the Family Law Rules also provides authority for the court to annul an assignment in bankruptcy, as it states that the primary objective of these rules is to enable the court to deal with cases justly, ensuring that the procedure is fair to all parties and saving expense and time among other things.[^4]
[10] Mr. Klotz submitted that it is desirable to avoid a multiplicity of proceedings and keep costs down. He noted that a bankruptcy filing has the effect of fragmenting this case and driving costs up. Two different counsel would be required for two different hearings. The Trustee’s fees could be substantial and erode the assets. He submitted that in cases of matrimonial bankruptcy, the court should consider whether the family law proceedings motivated the bankruptcy. The court must consider whether the case is really about a $200,000.00 equalization payment or whether it is about approximately $22,000.00 owed to creditors. It should be noted that Mrs. Warner was seeking the orders requested in this motion prior to Mr. Warner’s assignment in bankruptcy. Mr. Klotz noted that a motion in this matter was scheduled for February 21, 2013. The bankruptcy was filed the day prior and the Trustee very quickly sent a notice of stay.
[11] It is significant that while Mr. Warner has $22,000.00 in debts, his share in the matrimonial home is approximately $122,000.00. His assets exceed his liabilities. His RRSP and pension are exempt from the bankruptcy proceedings. He is far from insolvent. It is odd that someone with this amount of equity would make an assignment in bankruptcy. There is no evidence that Mr. Warner made any efforts to have discussions with his creditors to work out payments. In a legitimate bankruptcy, there is usually a shortage of assets to pay the debts. If the bankruptcy proceeds, trustee fees will increase. The trustee will likely require counsel. A bankruptcy is not the preferable approach to ordering Mr. Warner’s affairs. In fact, it is probably the worst approach, as the assets may be sold for less than the amount that could be obtained in a private sale. All payments from a bankruptcy are subject to a 5% levy.
[12] Mr. Warner advised the court that he filed the assignment because the legal fees were escalating and they were “beyond [his] scope.” This is illogical, given the equity in the matrimonial home and his pension income. He made no further submissions with respect to his motivation for filing the assignment.
Order
[13] Based on the above, I find that Mr. Warner was solvent when he made the assignment in bankruptcy. The motivation for it was to stay the family law proceedings and avoid his equalization payment; therefore, the assignment was an abuse of process. The following order is made:
The bankruptcy is annulled.
Mr. Warner shall not declare bankruptcy or commence a proposal proceeding again under the Bankruptcy and Insolvency Act until the final disposition of Mrs. Warner’s equalization claim and enforcement against Mr. Warner’s pension.
There shall be an immediate vesting of the debtor’s property in Mrs. Warner as follows:
(a) Mr. Warner’s one-half interest in the matrimonial home at 60 Bascom Street, Uxbridge to Mrs. Warner. Mr. Warner shall be divested of his interest in the matrimonial home. Counsel shall consult with the Land Titles Office to determine the correct wording to be used in the vesting order. A formal order shall be taken out after consultation.
(b) Mr. Warner’s RRSPs at Scotiabank account number 12823439 to Mrs. Warner through a spousal rollover. Mr. Warner’s signature and consent on the RRSP rollover form (CRA Form T2220) shall be dispensed with such that Scotiabank shall effect the transfer of the RRSP funds held by Mr. Warner into an RRSP account held by Mrs. Warner. Mrs. Warner shall forthwith cash in the RRSP and pay the net proceeds as follows:
(i) first, to the Trustee in Bankruptcy for its proper fees and costs if any as may be fixed by the court;
(ii) secondly, to Mr. Warner’s two proven creditors:
▪ Scotiabank regarding the debt on account number 4538164427238 and account number 453704310488036; and
▪ Canada Revenue Agency in respect of their proven claims, namely $11 113.00 to Scotiabank and $11,800.00 to Canada Revenue Agency;
Mr. Warner’s signature and consent on the transfer/deed associated with transferring the real property at 60 Bascom Street, Uxbridge, Ontario into the sole title of Mrs. Warner shall be dispensed with.
Mrs. Warner’s claim to an advance on her equalization is denied at this time. She may bring a further motion to have this issue determined after the property transfers and payments noted above have been effected.
This order is intended to have proprietary consequences and have priority over any subsequent bankruptcy, subsequent execution claims, and any subsequent process against property brought by Mr. Warner.
[14] If the parties cannot agree on costs, written cost submissions may be made. All submissions are restricted to five pages, exclusive of dockets and offers to settle and are to be served and filed at the appropriate court office. Counsel for the applicant may serve and file cost submissions within 30 days of the release of this judgment. The respondent may serve and file his response within 15 days thereafter and counsel for the applicant may serve and file their reply within 7 days thereafter.
The Honourable Madam Justice Mary E. Vallee
DATE RELEASED: Tuesday, April 9, 2013.
[^1]: Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3.
[^2]: Re: Wale (1996), 1996 8275 (ON SC), 45 C.B.R. (3d) 15, (sub nom. Wale (Bankrupt), Re) 18 O.T.C. 290, 1996 CarswellOnt 4873 (Ont. Gen. Div.).
[^3]: Re: Good, [1991] 4 C.B.R. (3d) 12, [1991] O.J. No. 3493, 1991 CarswellOnt 174 (Ont. Gen. Div.).
[^4]: Family Law Rules, O. Reg. 114/99.