Superior Court of Justice – Ontario In Bankruptcy and Insolvency

Citation: Lechcier-Kimel (Re), 2016 ONSC 1185 Court File No.: 31-1832092 Date: 2016-02-17

Re: In the matter of the bankruptcy of Mahvash Miriam Lechcier-Kimel of the City of Toronto, in the Province of Ontario

Before: Hainey J.

Counsel: Fred Tayar, for the Mahvash Miriam Lechcier-Kimel, a Bankrupt E. Patrick Shea, for A. Farber & Partners Inc., Opposing Creditor Greg Azeff, for the Trustee

Heard: February 12, 2016

Endorsement

[1] Mahvash Miriam Lechcier-Kimel (“MLK”) made an assignment into bankruptcy on January 29, 2014. She now applies for her discharge from bankruptcy. (“MLK’s Discharge Application”)

[2] Liefman & Partners Inc. is the trustee administering her estate (the “Trustee”).

[3] A. Farber & Partners Inc. (“Farber”) is the trustee of the bankruptcy estates of a number of corporations in which MLK was either a shareholder or director (the “Corporations”). Farber is also the interim receiver of the assets and property of MLK’s former husband, Jack Lechcier-Kimel.

[4] In September 2014 Farber filed Proofs of Claim against MLK in respect of obligations it alleges MLK owes to certain of the Corporations.

[5] The Trustee and Farber oppose MLK’s discharge from bankruptcy.

[6] MLK’s Discharge Application came before Pattillo J. on May 29, 2015 for scheduling. Pattillo J. ordered that MLK’s Discharge Application be heard for two days commencing on October 13, 2015. He also ordered that counsel prepare and exchange will-say statements for all proposed witnesses and to arrange a trial management conference before the application was heard.

[7] Mesbur J. conducted a trial management conference in respect of MLK’s Discharge Application on October 9, 2015. Counsel for MLK, the Trustee and Farber all participated at the trial management conference. Mesbur J.’s endorsement at the trial management conference specifies that one of the legal issues to be tried on MLK’s Discharge Application is whether MLK gave an undue preference to her creditors when she granted a mortgage in the amount of $5,000,000.00 against her residence at 40 Park Lane Circle in favour of Morris Goldfinger.

[8] Mesbur J.’s endorsement also indicates that Farber would participate in MLK’s Discharge Application. Her endorsement refers to a witness who counsel for Farber might call at the hearing of MLK’s Discharge Application.

[9] MLK’s Discharge Application could not proceed as scheduled on October 13, 2015 because a judge was not available to hear it. It was adjourned to be heard on January 18 and 19, 2016.

[10] When MLK’s Discharge Application commenced before me on January 18, 2016, MLK’s counsel raised the following three preliminary issues for the first time:

(1) Whether Farber can participate in MLK’s Discharge Application;

(2) Whether the Trustee can raise the issue of a preference regarding the mortgage on 40 Park Lane Circle on MLK’s Discharge Application; and

(3) The use that can be made of documents filed by Farber on MLK’s Discharge Application.

[11] Counsel for the Trustee and Farber submitted that they had been taken by surprise by MLK’s position and requested an adjournment of the hearing to allow them to prepare material to respond to the issues raised by MLK’s counsel.

[12] I granted their adjournment request and scheduled a hearing before me to determine these issues before the hearing of MLK’s Discharge Application. The hearing of these issues proceeded before me on February 12, 2016.

[13] I have carefully considered counsels’ submissions on these three issues. I have arrived at the following conclusions.

Farber’s Standing

[14] MLK submits that Farber does not have standing to oppose MLK’s discharge from bankruptcy because the Trustee has not formally accepted Farber’s Proofs of Claim.

[15] I disagree with MLK’s position. The Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (“BIA”) makes it clear that any creditor has standing to participate in a discharge hearing provided that they have filed a proof of claim under the BIA and the claim has not been disallowed by the trustee or struck on the application of the bankrupt or another creditor. There is no statutory or common law requirement that a creditor’s Proof of Claim must be formally admitted by the trustee before that creditor can oppose the discharge of a bankrupt.

[16] Further, the BIA does not have a process by which claims can be formally admitted by a trustee. The BIA claims process only contemplates that Proofs of Claim may be disallowed by the trustee. I agree with Farber’s submission that any proof of claim that is not disallowed by the Trustee is de facto admitted.

[17] The Trustee has not disallowed any of Farber’s Proofs of Claim and MLK has taken no steps to have Farber’s Proofs of Claim expunged under s. 135(5) of the BIA.

[18] For these reasons, I am of the view that Farber has standing to oppose MLK’s discharge at the hearing of MLK’s Discharge Application.

[19] My conclusion on this issue is reinforced by the fact that it was clearly contemplated by all counsel, including MLK’s counsel, at the trial management conference before Mesbur J. that Farber would be participating at the hearing of MLK’s Discharge Application.

[20] Farber may, therefore, participate in MLK’s Discharge Application.

Undue Preference

[21] Justice Mesbur and all of the parties anticipated that the question of whether MLK gave an undue preference to her creditors in connection with the mortgage against 40 Park Lane Circle is an issue to be determined on MLK’s Discharge Application. Mesbur J.’s “Report of the Pre-Trial Judge to the Trial Judge” makes this clear.

[22] Further, the $5 million mortgage on 40 Park Lane Circle has been a central issue in MLK’s bankruptcy since the mortgage was granted. In 2011 Newbould J. stated that if MLK were to become bankrupt the mortgage would be “at least prima facie void”.

[23] For these reasons it is surprising that MLK’s counsel waited until the first day of MLK’s Discharge Application to object to the undue preference issue being considered at the hearing.

[24] Mr. Tayar’s objection is based upon the decision of Osborne J. (as he then was) in Re Horwitz, (1984) 52 C.B.R. (NS) 102. In Horwitz, Osborne J. held that issues such as the allegation of a fraudulent preference should not be explored on a discharge application. He also held that a discharge hearing should not be adjourned to enable the issue of an undue or fraudulent preference to be determined in a separate proceeding.

[25] It is interesting to note that despite Justice Osborne’s view that the bankrupt’s fraudulent conduct should not be considered during a discharge hearing, that is what he did when he concluded in the discharge hearing before him that the bankrupt had not engaged in fraudulent conduct.

[26] I prefer the reasoning of Robinson L.J.S.C. of the Supreme Court of British Columbia in Re Kemila in which the Court stated that it would be hesitant to grant an unconditional discharge if the bankrupt’s conduct is questionable.

[27] Under the circumstances of this case, particularly since Newbould J. has already concluded that the mortgage in question is “prima facie void”, I have concluded that the undue preference issue is relevant to MLK’s Discharge Application. For this reason I would have been inclined to allow the issue to be pursued on the hearing of MLK’s Discharge Application. However, under the present circumstances it is not necessary for me to do so.

[28] The positions advanced by MLK’s counsel on the first day of her Discharge Application have caused a significant delay in the hearing of MLK’s Discharge Application. It is now scheduled to be heard for three days commencing on June 13, 2016.

[29] The Trustee has brought a separate proceeding to determine the undue preference issue. It is scheduled to be heard on April 29, 2016.

[30] The parties may have a ruling from this court on the undue preference issue before MLK’s Discharge Application is heard. If so, this issue will be moot. If not, the hearing of MLK’s Discharge Application should be deferred until the undue preference issue has been determined. I am of the view that it is preferable to have the undue preference issue determined before MLK’s Discharge Application is heard because the determination of this issue will be relevant to whether MLK receives a discharge from her bankruptcy.

Farber’s Documents

[31] I indicated to counsel that I am not prepared to determine the admissibility of evidence in advance of the hearing of MLK’s Discharge Application. In my view the judge hearing the Discharge Application should rule on the admissibility of evidence as the hearing proceeds.

[32] Mr. Tayar has made it clear to counsel for the Trustee and Farber that he will require all documents to be proved in accordance with the applicable Rules of Evidence and the Rules of Civil Procedure. In order to ensure that the hearing of MLK’s Discharge Application proceeds as efficiently as possible, I order counsel to meet to attempt to agree upon the admissibility of as many documents as possible and to prepare a joint document brief of those documents that are not in dispute for the hearing of MLK’s Discharge Application

Costs

[33] There has been divided success on this preliminary motion. Under all of the circumstances I am of the view that this is an appropriate case in which to make no order as to costs.

HAINEY J.

Date: February 17, 2016