SUPERIOR COURT OF JUSTICE

IN BANKRUPTCY AND INSOLVENCY

ESTATE NO. : 31-1646892
HEARD: 20131203
RELEASED: 20140903

In The Matter of the Bankruptcy of

Terrance Benjamin McColm

Of The Town of Newmarket,
In The Regional Municipality of York,
In The Province of Ontario

APPEARANCES:
Brandon Jaffe Fax: (416) 365-1474 - for the Bankrupt

Kristine G. Holder Fax: (416) 360-4501

• for Pamela Hendry, moving creditor

Philip J. Gertler Fax: (416) 485-7307

• for Morgan & Partners Inc.,

Trustee of the Estate,

BEFORE: MASTER D. E. SHORT, Registrar in Bankruptcy

HEARD: December 3, 2013

REASONS FOR DECISION

“There’s many a slip ‘twixt the cup and the lip”

I. Annulling an “Automatic” Discharge

[1] A first time bankrupt who is not determined to have any “surplus income”, receives a discharge from bankruptcy pursuant to the provisions of the Bankruptcy and Insolvency Act (the “BIA”) nine months from the date of filing unless a proper opposition to the discharge is filed.

[2] In this case the moving party, Pamela Hendry, moves for an order of annulling the automatic discharge from bankruptcy of her spouse Terrance Benjamin McColm, which occurred on April 20, 2013.

[3] As well, she seeks an order lifting the stay of proceedings resulting from the bankruptcy in order to allow her to proceed with an equalization claim against his pension, notwithstanding his bankruptcy or subsequent discharge.

[4] Ms. Hendry’s motion materials asserted that she had been unable to effectively pursue for equalization in support claims because the bankrupt had failed or refused to provide complete financial disclosure with respect to his income in various businesses.

[5] She further asserts that she attempted to file a claim for support arrears and equalization in the bankruptcy on at least three occasions. The trustee rejected her initial claims and no appeal was brought from any of those disallowances.

[6] It is asserted on her behalf that “Ms. Hendry intended to oppose the bankrupt’s discharge from bankruptcy and would have done so had the trustee approved her claim prior to the bankrupt’s discharge from bankruptcy.”

[7] The trustee ultimately accepted that contingent claim in the amount of “two” dollars, which amount was expected to be amended, “If and when the bankrupt provides financial disclosure”.

[8] Notwithstanding the foregoing situation, no creditor, including Ms. Hendry, filed a notice of objection to the automatic discharge of the Bankrupt with the result that his discharge took place on April 20, 2013.

[9] Is it appropriate, in the circumstances of this case, for such an automatic discharge to be annulled, where no timely opposition was filed?

II. Notice of Pending Discharge of First Time Bankrupt

[10] This case raises yet again a timing problem under the Bankruptcy and Insolvency Act. Under the previous practice, the trustee was required by the BIA to send a notice to all proven creditors when the date of an automatic discharge of a first time bankrupt was approaching.

[11] While that section was in force, a number of cases dealt with the consequences of a failure by a trustee to provide the statutory notice as the automatic discharge date approached. Those cases led to additional costs and uncertainty for both creditors and bankrupts.

[12] As a consequence amendments to the statute were enacted which removed the requirement of a separate notice and instead provided that a notice that the bankrupt would be discharged in nine months from the date of bankruptcy was required to be incorporated in the original notice to creditors sent to them at the time of the initial filing.

[13] In his affidavit, the trustee notes that notwithstanding the original omission of Ms. Hendry from the bankrupt’s statement of affairs, the trustee did send a creditors package to her with respect to the bankrupt’s estate, just as it did with the bankrupt’s other creditors.

[14] The affidavit of mailing with respect to the Notice of Bankruptcy and of Impending Discharge dated July 19, 2012 includes Ms. Henry on the list of recipients.

[15] That Notice sets out information that the bankrupt to be entitled to an automatic discharge “on the expiry of 9 months after the date of bankruptcy” and explicitly sets out:

“Any creditor who intends to oppose the discharge of the bankrupt shall state in writing, the grounds for his/her opposition and send a notice to this effect to the division office, the trustee of the estate of the bankrupt and the bankrupt at any time before the 20th day of April 2013.”

[16] The trustee’s affidavit filed on this motion also notes that a further copy of the creditors’ package was sent by email directly to Ms. Hendry by the Trustee’s office on September 14, 2012.

[17] It was argued before me that Ms. Hendry was therefore twice given clear notice of the impending date for filing of any intended opposition to the discharge the bankrupt.

[18] As outlined above the automatic discharge for first-time bankrupts normally takes place nine months following the date of bankruptcy unless a creditor files a notice of objection, or if the trustee or other or the court determines that the bankrupt has surplus income, in which case a longer period in bankruptcy applies.

[19] In this case it appears that no surplus income obligation was established and as a consequence the nine-month date was operative.

III. Time Limit Problems

[20] One of the common applications brought before registrars in bankruptcy is one relating to attempts to vary time periods established by the BIA.

[21] In my decision in Bell (Re), I determined that a period of 30 days ought to be calculated in a manner that arguably allowed additional days for the appeal of a trustee’s disallowance based in on based upon an interpretation of the Ontario rule of civil procedure dealing with service by mail.

[22] It overturning my decision, Justice David Brown made these observations in Bell (Re), 2013 ONSC 6742 (footnotes omitted):

25 While a careful reading of the Registrar's reasons discloses an effort to avoid what he perceived would be a harsh result if April 17, 2012 was recognized as the date of service of the Notices of Allowance, the jurisprudence dealing with BIA s. 135(4) is quite clear that the courts only possess the jurisdiction to extend the time for filing a notice of appeal from a disallowance in accordance with the terms of BIA s. 135(4) -- i.e. the claimant applies within the 30-day appeal period to court for such an extension. That principle was laid down by the Alberta Court of Appeal in its 2005 decision in Tamglass American Inc. v. Goldray Inc. (Trustee of):

BIA s. 135(4) is clear. A disallowance is final unless the affected creditor takes one of two steps within 30 days of service: either (1) files an appeal, or (2) applies to the court to extend the time to appeal. In this case, assuming service was effected on January 20, Tamglass failed to take either of those two steps within the established time period, rendering the disallowance of its claim final and conclusive after the 30 days had passed.

Tamglass refers to s. 187(11) of the BIA, a general provision that confers discretion on the court to modify any time limit under that Act:

187(11) Where by this Act the time for doing any act or thing is limited, the court may extend the time either before or after the expiration thereof on such terms, if any, as it thinks fit to impose.

This provision cannot apply to extend the time limit established by s. 135(4). It is well-established that when two provisions are in conflict and one of them deals specifically with the matter in question, the special legislation will override the general ... The court's general power to extend the time for the doing of any act is therefore subject to the specific provision of s. 135(4). That specific provision requires the application to extend time be brought within 30 days of service. There is no jurisdiction in the court to extend time under s. 135(4) where that requirement has not been met...

The British Columbia Court of Appeal recently followed that portion of the Tamglass decision in its decision in Friedland (Re).

26 Moreover, in Tamglass the Alberta Court of Appeal went on to hold that the equitable principle of estoppel is not available if its effect would be to nullify a statutory provision which imposes a positive obligation on a party, including imposing a time period in which an appeal must be filed from a trustee's disallowance of a proof of claim. Nor did a court possess the power to grant relief from forfeiture from the effect of such a statutory provision. 27 That, then, is the legislative regime governing appeals from a trustee's notice of disallowance. With respect, it was not open to the Registrar to attempt to avoid the effect of that regime in the present case by ignoring the actual date of receipt by the creditor of the Notices of Disallowance and by misapplying the law to select a "deemed" service date which would shelter the creditor's motion for appeal within the prescribed 30-day appeal period.”

[23] On further appeal, the Court of Appeal restored the effect of my decision, but for somewhat different reasons. Because of their approach to, and analysis of, the facts surrounding the purported service of the notice of disallowance, the Court in Bell (Re), 2014 ONCA 568, did not address the interpretation of the case law relating to time limits as described by Justice Brown above.

[24] As a consequence I feel constrained in this case to strictly enforce any clear time lines established by the BIA.

IV. The Slip

[25] The problem is that as a result of a conversation with the trustee, counsel for the bankrupt understood that the discharge date would be in the month of May 2013 and apparently in reliance on that impression did not take the necessary steps to have the proof of claim accepted so that she would be in a position, as a recognized creditor, to oppose the automatic discharge of the bankrupt.

[26] Unfortunately, by the time her final contingent claim was filed, the automatic discharge had already occurred.

[27] The spouse says her counsel was misinformed and the automatic discharge should be set aside.

[28] The trustee says he made it clear that he did not have the file in front of him and that he was uncertain as to the automatic discharge date.

[29] As three other disallowances had not been appealed by Ms. Hendry, the trustee asserts he had no reason to anticipate that it was certain that an appeal of the two dollar contingent claim recognized by the trustee or an objection to the discharge was to be filed.

[30] It would seem that, in fact, neither side was aware that the final claim was submitted and accepted after the automatic discharge had occurred.

V. The Trustee’s Understanding

[31] The trustee filed an affidavit on the motion in which he set out his understanding of the history of this matter. In the portion of that affidavit dealing with the attempts to file a proof of claim made by or on behalf of, Ms. Hendry, Mr. Morgan deposes, in part:

“6. Notwithstanding the Hendry's claim in paragraph 8 of the Hendry Affidavit to have made three attempts to file a proof of claim with the Trustee, Hendry in fact filed five proofs of claim as follows:

Hendry's first claim dated February 11, 2013…, was in the amount of $90,374.15 ($20,728.50 of which was claimed with priority). It contained no schedule "A" backup documentation whatsoever. Mark Borysiak of the Trustee's office spoke with Hendry by telephone on February 11, 2013 and advised her of the deficiency in her proof of claim. In the said telephone call, Hendry confirmed that there was no Order or agreement which had been made in respect of the claimed support amount.

A second proof of claim also dated February 11, 2013, …was filed later on the same day in the amount of $110,235.56 ($20,678.50 of which was claimed with priority). This claim contained some documentation explaining the basis for Hendry's calculation, but with no documentation supporting the underlying numbers on which her calculations were based. Attached … [was] a copy of the Trustee's notice of disallowance of this claim dated February 21, 2013. This disallowance was not appealed.

A third proof of claim dated February 14, 2013…, was filed as an "additional" proof of claim for Hendry's equalization claim against the Bankrupt's pension in the amount of $23,393.50. Attached… [was] a copy of the Trustee's notice of disallowance of this claim dated February 20, 2013. This disallowance was not appealed.

A fourth proof of claim dated April 4, 2013, a copy of which is attached hereto and marked as Exhibit "K" to this my Affidavit, was in the amount of $12,198.42 ($2,040 of which was claimed with priority). This proof of claim was in respect of both claimed support arrears and equalization. The Bankrupt's solicitor, in her covering letter … acknowledged that "it is difficult to come to a conclusive value for Ms. Hendry's claims". By correspondence dated April 16, 20l3… the Trustee advised Hendry's solicitor that given that there was no court Order or agreement in respect of support or equalization, the Trustee remained unable to accept Hendry's claim as it was unable to accept her prior claims.

A fifth proof of claim dated April 25, 2013 …was in the amount of $2.00 and was admitted by the Trustee as a contingent claim. ….”

[32] Mr. Morgan’s affidavit also comments that “While Hendry may have filed five proofs of claim in the estate of the Bankrupt, at no time did she ever file a notice of opposition.”

[33] The affidavit then addresses the pivotal conversation with respect to the outcome of this motion. The full text of that paragraph of the Trustee’s sworn evidence reads:

“8. In paragraph 9, Hendry references a telephone conversation between the Deponent and her solicitor, Kristine Holder. During the said telephone conversation, Holder inquired about the Bankrupt's discharge date. Not having the Bankrupt's file in front of me, I advised Holder that to the best of my recollection, the Bankrupt's automatic discharge would occur in May. However, I also advised Holder that I did not have the file in front of me and that I therefore was not certain of the date. To the best of my recollection, there was no reference made by Holder to any intention on the part of Hendry to oppose the Bankrupt's discharge. Hendry had already been sent the Notice of impending discharge on two occasions as set out in paragraph 2 herein. Notwithstanding paragraphs 12 and 17 of the Hendry Affidavit, the Trustee did not apply for the Bankrupt's discharge, nor was an Order granted; but rather, the Bankrupt received his automatic discharge on April 20, 2013 by operation of law as set out in and anticipated by the original notice. The Trustee was not in a position to prevent this occurrence given that the Bankrupt had (as far as the Trustee was concerned) met all of his statutory obligations and there had been no notice of opposition served and filed by any of the Bankrupt's creditors (including by Hendry). Hendry claims in paragraph 12 of the Hendry Affidavit that she "ought to have been advised of the Bankrupt's impeding discharge." Hendry was, in fact, advised at least twice in the two copies of the Notice which were sent to her.”

[34] I accept the Trustee’s recollection of this discussion. I see no valid reason to set aside the automatic discharge in the circumstances of this case.

[35] Ms Hendry will have to look to the family court for any relief to which she may be entitled.

VI. Disposition

[36] At all times, Hendry was aware of the bankruptcy, had two sets of counsel, and had on two occasions been provided with notice of the impending date of the Bankrupt's automatic discharge. Notwithstanding the foregoing, she did not file a notice of opposition.

[37] I have determined that the trustee’s decision to disallow the claim was not appealed prior to the automatic discharge being obtained. I do not feel that it can be laid at the bankrupt’s feet that he is responsible for the automatic operation of the statute which granted him his discharge without any opposition from any recognized creditor within the statutory nine-month period.

[38] The result is the motion to set aside the automatic discharge is dismissed.

[39] In my view this is a situation where no side is entirely blameless. Nevertheless the Trustee has been upheld and the estate should not bear all of the costs of this motion.

[40] Trustee’s costs fixed at $5000 plus HST payable by Ms Hendry in 120 days.

Master D. E. Short
Registrar in Bankruptcy

September 3, 2014

DS/ B. 33