Court File and Parties

Court File No.: BK-31-2025354 and BK-31-2025355 Date: 2018-09-26 Ontario Superior Court of Justice In Bankruptcy and Insolvency

In the Matter of the Joint Consumer Proposal of: Nickolas James Crepeau and Sarah Jane Crepeau aka Sarah Banks aka Sarah Webb of the City of Sudbury in the Province of Ontario, Debtors

Administrator: Gregory J. Fontaine, Administrator of the Joint Consumer Proposal.

Counsel: Stephen Bayley, for the Office of the Superintendent of Bankruptcy.

Heard: September 4, 2018

Before: R. D. Gordon, R.S.J.

Overview

[1] Nickolas James Crepeau and Sarah Jane Crepeau filed a joint consumer proposal. The proposal is in good standing, however, Mrs. Crepeau has suffered a negative change in her financial situation and intends to file an assignment in bankruptcy. The question before me is whether and to what extent this will affect Mr. Crepeau and his continued participation in the consumer proposal.

Background Facts

[2] Mr. and Mrs. Crepeau filed a joint consumer proposal (“the proposal”) on August 13, 2015. It called for an initial payment of $100 followed by 59 monthly payments of $600 for a total of $35,500 and will result in recovery by unsecured creditors of close to one hundred cents on the dollar. Most all of the debt covered by the proposal was owed by either Mr. Crepeau or Mrs. Crepeau. That is, there was little if any joint debt.

[3] All payments due under the proposal are current.

[4] Mr. and Mrs. Crepeau separated in September of 2016. Mrs. Crepeau has since lost her employment due to health issues and is no longer in a position to continue mortgage payments on real property owned solely by her. She wishes to file an assignment in bankruptcy. Mr. Crepeau wishes to continue payment under the terms of the proposal.

[5] The Ontario Superintendent of Bankruptcy (“OSB”) is of the view that an assignment of bankruptcy of Mrs. Crepeau will have the effect of automatically annulling the proposal.

The Position of the Administrator of the Proposal

[6] The administrator argues that the circumstances causing annulment of a consumer proposal are specifically provided for in sections 66.3 and 66.31 of the Bankruptcy and Insolvency Act (the “Act”) and since none of the circumstances provided for in these sections apply to this situation the proposal is not annulled or deemed to be annulled and Mr. Crepeau should be entitled to complete the proposal in the usual course.

The Position of the OSB

[7] The OSB argues that when a proposal debtor becomes bankrupt the proposal is annulled automatically pursuant to the combined effect of sections 101.1(3) and 2 of the Act. As there is only one proposal it will be annulled notwithstanding that it offers protection to two individuals.

Analysis

[8] The purpose of our bankruptcy legislation is to allow for the financial rehabilitation of persons who are insolvent. It provides a mechanism by which such person’s assets are liquidated and distributed among his or her creditors, following which those creditors have no further rights of collection. The bankrupt is discharged from bankruptcy and is allowed a fresh start.

[9] It follows that bankruptcy is a two-sided coin for the bankrupt. On the one side, he or she is required to give over all of his or her assets to the trustee. On the other side, he or she is then relieved from essentially all of his or her outstanding debt.

[10] Proposals are dealt with in Part III of the Act. Essentially, the provisions of the Act dealing with proposals allow an insolvent person to avoid bankruptcy or a bankrupt to annul his or her bankruptcy by making a proposal. The effect of a successful proposal is to leave in the insolvent’s hands his or her assets while providing relief from debt and allowing a fresh start. A successful proposal essentially takes away the side of the coin that affects the debtor adversely. He or she gets the same benefits of bankruptcy but without having to forfeit his or her assets.

[11] If the very purpose of a proposal is to give relief from bankruptcy, it seems to make perfect sense that a proposal debtor who elects to make an assignment in bankruptcy is also deemed to have elected to annul his or her proposal. A debtor cannot have it both ways. He or she cannot have a proposal aimed at preserving his or her estate while at the same time having that estate vested in the Trustee.

[12] Although there is no specific provision in the Act deeming a proposal to be annulled as a result of an assignment in bankruptcy by a proposal debtor, this result does seem to be anticipated by section 101.1 of the Act. This section provides that provisions of the Act dealing with transfers at undervalue and preferences apply to proposals made under Division I of Part III. It also provides that those same provisions apply “If the proposal is annulled by the court under subsection 63(1) or as a result of a bankruptcy order or assignment…”.

[13] There is but a single proposal in this case. That it provides potential relief from bankruptcy for both Mr. and Mrs. Crepeau does not change that fact. In my view an assignment in bankruptcy by one of them will have the effect of annulling the proposal for them both.

[14] On a practical basis this also makes sense. The joint proposal provides for the payment of a set monthly amount to be applied to the debts of them both. If Mrs. Crepeau makes an assignment in bankruptcy, her creditors will no longer be eligible for payment of dividends under the terms of the proposal. Presumably this would leave greater amounts available to satisfy Mr. Crepeau’s debtors. However, if the proposal is allowed to continue, Mrs. Crepeau’s creditors under the proposal would continue to be paid, in apparent preference to her other creditors, and to the potential detriment of Mr. Crepeau’s creditors.

[15] Although it seems somewhat harsh to Mr. Crepeau to deny him the benefit of the joint proposal when he has met every obligation thereunder, he is not without an avenue of relief. He may seek an order of the court allowing him to make another consumer proposal. Given that he has a good explanation for why the first would be annulled and that it would be without fault on his part; and given that his creditors are likely to receive payment of 100 cents on the dollar under a second proposal that provides for similar monthly payments, it seems likely that such a proposal would be approved by creditors and the court alike.

Conclusion

[16] An assignment in bankruptcy by a proposal debtor has the effect of annulling the proposal, whether joint or not. The motion brought by the Administrator and Mr. Crepeau is dismissed.

R. D. Gordon, R.S.J. Released: September 26, 2018