SUPERIOR COURT OF JUSTICE - ONTARIO

COURT FILE NO.: 32-126070
DATE: 20140401

RE: IN THE MATTER OF THE BANKRUPTCY OF TACITA NADIA JOYELLE BURKE (C.O.B. AS N.A.H. HAIR DESIGNS) OF THE CITY OF BRAMPTON, IN THE REGION OF PEEL IN THE PROVINCE OF ONTARIO, Applicant

BEFORE: Mr. Justice H. J. Wilton-Siegel

COUNSEL: Philip J. Gertler, for the Appellant Trustee in Bankruptcy

HEARD: February 25, 2014

ENDORSEMENT

[1] The appellant trustee (the “Trustee”) of the estate of Tacita Nadia Joyelle Burke (c.o.b. as N.A.H. Hair Designs) (the “Bankrupt”) appeals the order of Master Jean dated November 25, 2013 (the “Order”) set out in the Reasons for Decision dated the same date (the “Reasons”) of the Master. Pursuant to the Order, the Master denied an order pursuant to s. 68(10) of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (the “BIA”) that the Bankrupt is required to pay the Trustee the amount of surplus income set out in a conditional discharge order dated April 19, 2011 of Deputy Registrar Diamond (the “Conditional Discharge Order”) and also denied an order pursuant to s. 68(13) of the BIA that the Bankrupt’s employer pay such amount to the Trustee.

[2] On this appeal, as on the motion before the Master, the Bankrupt did not appear. The Master did however provide an opportunity to the Superintendent of Bankruptcy (the “OSB”) to provide written submissions. The OSB did so, taking the position that s. 68 remains applicable for determining appropriate surplus income, even when such amount has been fixed in the context of the bankrupt’s application for discharge. The OSB also took the position that a trustee may rely on s. 68(13) for the purpose of collection in such circumstances.

The Master’s Reasons

[3] The Master found that s. 68 of the BIA was not available where a bankrupt fails to comply with an order of discharge requiring the bankrupt to pay an amount of surplus income as a condition of the bankrupt’s discharge. The Master reasoned that the court had already determined the bankrupt’s surplus income at the time of the discharge hearing and, accordingly, there was nothing left for the court to determine under s. 68(10)(c) of the BIA.

[4] The Master further reasoned, among other things, that the motion sought, in substance, a variation order varying the terms of a discharge order, rather than an order under s. 68, and therefore resort must be had to s. 172(3) of the BIA, not s. 68(13). The Master held, in effect, that the procedure available to a trustee in bankruptcy in the present circumstances was that provided for under s. 176 of the BIA, which, if not complied with, could result in a revocation of the discharge in which event the bankrupt would be subject again to the regime in s. 68.

[5] In the Master’s view, this result reflected a policy in the BIA of encouraging early determination and payment of surplus income to improve collectability. The Master stated that, in her experience, when surplus income is left to a discharge hearing, the bankrupt’s ability to pay is usually greatly diminished by intervening events.

Standard of Review

[6] The standard of review of a Master’s order is the standard set out in Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235. In this case, the issue is one of law – the application of s. 68 of the BIA to a bankrupt subject to a conditional discharge order. Accordingly, the standard is correctness.

Analysis and Conclusions

[7] In my opinion, there are three difficulties with the reasoning of the Master which I propose to address before setting out my conclusions regarding this appeal.

[8] First, there is an inherent contradiction in the Reasons. If, as the Master suggests, the court has already determined surplus income at the time of the Conditional Discharge Order, then the remedy provided for in s. 68(13) of the BIA should be available to the Trustee. On the other hand, if the Conditional Discharge Order does not constitute an order under s. 68(10)(c) of the BIA, there is a matter that remains for determination by the court after which the remedy in s. 68(13) would be available to the Trustee.

[9] With respect to the former possibility, which I consider to be the correct characterization of the Conditional Discharge Order, the Master implicitly proceeds on the basis that an order under s. 172 of the BIA cannot also be an order under s. 68 of the statute. However, I see no reason to conclude that a conditional discharge order cannot have the additional quality of an order under s. 68 of the BIA if it specifically addresses the payment of surplus income. Given the existence of a bankrupt, s. 68 remains engaged until, at least, the terms of a conditional discharge order are satisfied. As mentioned, the Conditional Discharge Order specifically provided that the discharge was conditional “[u]pon payment of surplus income of $18,915.90 to the Trustee”. On this basis, the Conditional Discharge Order constitutes an order granted under s. 172(1) of the BIA that was also an order granted under s. 68(10)(c) insofar as it specifically addressed surplus income, with the result that the remedial provision in s. 68(13) is available to the Trustee. The fact that there is no further determination to be made by a court is irrelevant.

[10] With respect to the latter possibility, if the Conditional Discharge Order does not constitute an order under s. 68(10)(c), I see no reason why s. 68 and, in particular, s. 68(10)(c), would not be available to the Trustee for the reason that, as mentioned, s. 68 remains engaged given the existence of a bankrupt. This position is also consistent with the decision of the Court of Appeal in Landry (Re) (2000), 2000 16846 (ON CA), 50 O.R. (3d) 1 (C.A.), at paras. 38-39, that the s. 68 process can be relied upon by a trustee even after a bankrupt’s discharge. It therefore follows that the s. 68 process must also be available during the currency of a conditional discharge order. On this basis, the remedy in s. 68(13) would also be available to the Trustee after a determination by a court under s. 68(10)(c).

[11] Second, the Master’s decision proceeds on the basis that there is something improper with the Trustee seeking to use the enforcement mechanism under s. 68(13) of the BIA in respect of the payment of surplus income contemplated by the Conditional Discharge Order. The Master considered that the Trustee’s remedy lay under s. 176 of the BIA. The basis for this conclusion appears to be the absence of specific statutory language addressing the present circumstances together with the Master’s view that, as a policy matter, s. 68 is aimed at the early determination and payment of income so as not to delay a bankrupt’s discharge.

[12] In my view, neither of these considerations is determinative and, accordingly, there is nothing improper with the Trustee’s recourse to the enforcement procedure in s. 68(13) for the following reasons.

[13] First, there is no conflict in the language of ss. 68 and 172 that compels the conclusion of the Master that the Trustee’s remedy lies under s. 176 of the BIA. There is, therefore, no reason why both ss. 68 and 176 should not be available to a trustee.

[14] Second, insofar as the Master based her decision on the absence of any basis for an amendment of a s. 68 order under s. 68(12), the Master also erred. In the present case, the Trustee is not seeking to vary the amount of the surplus income payment under that provision. Accordingly, the Trustee’s motion cannot properly be characterized as a motion under s. 68(12) of the BIA, except to the extent that the Trustee sought to have its costs of the motion included in the amount of surplus income to be paid. For the purposes of s. 68, such an order in respect of costs is treated as a new fixing of surplus income under s. 68(10)(c). For the purposes of s. 172, the Conditional Discharge Order can be varied pursuant to s. 187(5) of the BIA to increase the amount of the surplus income payable.

[15] The third difficulty with the Master’s Reasons is that s. 176 is a very indirect means of achieving payment of surplus income. On the other hand, the application of s. 68 in the present circumstances directly furthers the policy of the BIA in circumstances where a bankrupt has chosen to ignore a court-ordered obligation of the bankrupt under s. 68(10)(c) set out in the Conditional Discharge Order. While it may not be possible to compel the Bankrupt to make the surplus income payment contemplated by the Conditional Discharge Order, it is clearly desirable that the Trustee have access to the regime in s. 68(13) to achieve that result. Otherwise, as the OSB noted, pre-discharge surplus income orders would be collected but surplus income orders made in the context of discharge orders would be unenforceable. This would have the undesirable result of rewarding bankrupts who ignore the s. 68 regime to the point where surplus income issues remain outstanding at their discharge hearings.

[16] More generally, while it is desirable for surplus income obligations to be addressed in a stand-alone motion prior to a discharge hearing for the reason expressed by the Master, in practice, the issue of surplus income is often addressed for the first time at the discharge hearing of a bankrupt due to actions of the bankrupt over which the trustee has no control. In this case, the Bankrupt acknowledged, and agreed to pay, surplus income and simply chose not to do so. It was therefore necessary to address it in the Conditional Discharge Order. While the BIA undoubtedly favours early determination and payment of surplus income, I see no basis for concluding that the BIA favours the early discharge of a bankrupt over payment of surplus income acknowledged and payable by a bankrupt, as the Master implicitly suggests.

[17] Based on the foregoing, I conclude that the Master erred in law in concluding that the enforcement mechanism in s. 68(13) of the BIA was not available to the Trustee. Accordingly, the appeal is granted. As set out above, I consider that the Conditional Discharge Order constitutes an order under s. 68(10)(c) of the Act. To the extent that it does not, however, the evidence before the Master satisfied the requirements for an order under that provision fixing the amount of surplus income to be paid by the Bankrupt to the Bankrupt’s estate in the amount of $18,915.90.

Wilton-Siegel J.

Date: April 1, 2014