ONTARIO
SUPERIOR COURT OF JUSTICE
IN BANKRUPTCY and INSOLVENCY
COURT FILE NO.: BK-33-1650640
DATE: 2014/09/24
RE: IN THE MATTER OF THE BANKRUPTCY OF DEREK JOHN SCOTT, OF THE CITY OF KINGSTON, IN THE PROVINCE OF ONTARIO
BEFORE: KERSHMAN J.
COUNSEL: Derek John Scott, Self-represented, the Bankrupt, Kenneth Robbs, for the Trustee in Bankruptcy, John Siwiec, for Alana Corrine Scott
HEARD IN OTTAWA: September 19, 2014
REASONS: September 24, 2014
reasons for decision TO lift stay of proceedings under the BANKRUPTCY AND INSOLVENCY ACT BY ALANA SCOTT
[1] This Motion is brought by Alana Corrine Scott (“Ms. Scott”) to lift the stay of proceedings under section 69.3 of the Bankruptcy and Insolvency Act, R.S.C., 1985, c. B-3 (“BIA”) in relation to her claim and granting her leave to continue her claim under the Family Law Reform Act (“FLRA”) as against Mr. Scott (“Bankrupt”) notwithstanding his bankruptcy for the purpose of obtaining a remedy against the bankrupt’s pension, RRSPs or other exempt assets, which do not vest in the Trustee and Bankruptcy; and requiring the Trustee to hold the within matter open until the family law proceedings between Ms. Scott and the bankrupt have concluded or until the issue of the date of separation has been determined.
Factual Background
[2] The parties were married on October 21, 2000. Mr. Scott filed for bankruptcy on July 26, 2012.
[3] According to Ms. Scott one of the bankrupt’s significant assets is his pension which is an exempt asset under the Bankruptcy and Insolvency Act, however, under the family law legislation the asset may form part of the parties equalization of net family assets.
[4] There is a dispute with respect to the date of separation. Ms. Scott asserts that they were separated on August 1, 2012 and Mr. Scott asserts that they were separated on September 30, 2007. As of the date of bankruptcy, both parties had interests in pension plans which were valued as at August 1, 2012.
[5] Family law proceedings have been commenced in Oshawa, Ontario where Ms. Scott resides. The matter is to proceed to a Case Conference on or about October 14, 2014. The issue of the date of separation will be dealt with in the family law proceedings.
Issues
- Should the stay of proceedings be lifted to allow Ms. Scott to continue her claim under the Family Law Act against the bankrupt notwithstanding his bankruptcy or subsequent discharge for the purpose of obtaining a remedy against the bankrupt’s pension, RRSPs or other exempt assets, which do not vest in the trustee and bankruptcy.
[6] Sections 69.3(1) and 69.4 of the BIA read:
Stays of proceedings — bankruptcies
69.3 (1) Subject to subsections (1.1) and (2) and sections 69.4 and 69.5, on the bankruptcy of any debtor, no creditor has any remedy against the debtor or the debtor’s property, or shall commence or continue any action, execution or other proceedings, for the recovery of a claim provable in bankruptcy.
Court may declare that stays, etc., cease
69.4 A creditor who is affected by the operation of sections 69 to 69.31 or any other person affected by the operation of section 69.31 may apply to the court for a declaration that those sections no longer operate in respect of that creditor or person, and the court may make such a declaration, subject to any qualifications that the court considers proper, if it is satisfied
(a) that the creditor or person is likely to be materially prejudiced by the continued operation of those sections; or
(b) that it is equitable on other grounds to make such a declaration.
1992, c. 27, s. 36;
1997, c. 12, s. 65.
Ms. Scott’s Position
[7] Ms. Scott argues that Mr. Scott is using the bankruptcy proceedings to frustrate the family law proceedings taking place in Oshawa, Ontario. She seeks to have the stay of proceedings lifted pursuant to s. 69.4 so that the matter can be fully dealt with in family court in Oshawa.
Mr. Scott’s Position
[8] Mr. Scott argues that the matter will be dealt with fully in Oshawa and there is no need to lift the stay of proceedings on this case.
Analysis
[9] Section 69.4 of the BIA states that the stay of proceedings can be lifted in one of two cases: (1) where the creditor or other person is likely to be materially prejudiced by the continuous operation of s. 69.3; or (2) that it is equitable on other grounds to make such a declaration.
[10] In the case of Schreyer v. Schreyer, 2011 SCC 35, [2011] 2 S.C.R. 605, LeBel J. deals with a similar issue in the province of Manitoba which has an equalization scheme similar to the Ontario family law regime. In that particular case, the item at issue was a family farm which was exempt from seizure by creditors under Manitoba’s The Judgments Act, C.C.S.M. c. J10.
[11] The Court states at paras. 31-32:
31 Under s. 13 of Manitoba's The Judgments Act, C.C.S.M. c. J10, the Schreyers' family farm was exempt from execution by creditors. But the appellant, as a spouse, would have been entitled to pursue the enforcement of her equalization claim against the exempt property, as we shall see. This property lay out of the reach of the trustee in bankruptcy, who could not dispose of it on behalf of the bankrupt's estate in order to distribute it to his creditors.
32 In such circumstances, the appropriate remedy for a creditor like the appellant would be to apply to the bankruptcy judge under s. 69.4 BIA for leave to pursue a claim against the exempt property. Since this property is beyond the reach of the ordinary creditors, lifting the stay of proceedings cannot prejudice the estate assets available for distribution. In keeping with the wording of s. 69.4(b) BIA, this is why it would be "equitable on other grounds" to make such an order. This procedure would also accord with the policy objective of bankruptcy law of maximizing, under the BIA, returns to the family unit as a whole rather than focussing on the needs of the bankrupt: see, on this point, Hildebrand v. Hildebrand (1999), 1999 32268 (MB KB), 13 C.B.R. (4th) 226 (Man. Q.B.), at para. 15; and, generally, on Parliament's concern for the support of families, Marzetti v. Marzetti, 1994 50 (SCC), [1994] 2 S.C.R. 765, at pp. 800-801.
[12] This decision has been followed in Ontario in the case of Hewton (Re), 2012 ONSC 3154.
[13] The issue of the date of separation is an issue to be determined in the family law proceedings.
[14] Based on the reasoning in Schreyer and Hewton (Re), this Court finds that in this particular case it would be equitable to lift the stay of proceedings to allow Ms. Scott to pursue her claim for equalization of net family property. The lifting of the stay will not prejudice the Estate assets available for distribution to the creditors of the bankrupt Estate.
[15] Accordingly, there will be an order to go lifting the stay of proceedings so that Ms. Scott can pursue a claim for equalization of net family property.
[16] For exempt assets, the equalization of net family property would proceed as a normal equalization claim assuming there had been no bankruptcy.
[17] For non-exempt assets, the equalization of net family property would only proceed to determine the amount of the equalization of net family property for the purpose of allowing Ms. Scott to file a claim in Mr. Scott’s bankruptcy.
[18] As to the length of time that the Bankrupt’s estate should remain open, the reasoning for the decision is set out in a related decision to be released shortly dealing with the opposition to discharge in Mr. Scott’s bankruptcy. For reasons set out in that decision, the Court orders that the Bankruptcy Trustee shall hold this Estate open for 18 months from today. Therefore the Bankruptcy Trustee may close the estate any time that it sees fit.
Costs
[19] The parties are encouraged to settle the issue of costs. If they are unable to do so within 14 days of the release of this decision, the Parties shall contact the Trial Coordinator and arrange for a date at 9:30 a.m. to argue the issue of costs. The Parties will provide Costs Outlines at the hearing and will each have 10 minutes to argue their position as to the issue of costs.
[20] Order accordingly.
Mr. Justice Stanley J. Kershman
Date: September 24, 2014
COURT FILE NO.: BK-33-1650640
DATE: 2014/09/24
ONTARIO
SUPERIOR COURT OF JUSTICE
IN BANKRUPTCY and INSOLVENCY
IN THE MATTER OF THE BANKRUPTCY OF
DEREK JOHN SCOTT
OF THE CITY OF KINGSTON
IN THE PROVINCE OF ONTARIO
Derek John Scott
Debtor
– and –
Kenneth Robbs
Trustee in Bankruptcy
– and –
Alana Corrine Scott
Moving Party
REASONS FOR DECISION TO LIFT STAY OF PROCEEDINGS UNDER THE BANKRUPTCY AND INSOLVENCY ACT BY ALANA SCOTT
Kershman J.
Released: September 24, 2014