IN THE MATTER OF THE BANKRUPTCY OF IGOR BANNIKOV OF THE TOWN OF NEWMARKET IN THE PROVINCE OF ONTARIO
COURT FILE NO.: BK-18-2375149-31
DATE: 2020-11-26
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
ELENA FILATOVA Applicant
– and –
RUSSO CORP. Respondent
Elena Filatova, self-represented
Howard Manis, for the Respondent
HEARD: November 13, 2020
ENDORSEMENT
DIETRICH J.
[1] In 2016, Elena Filatova (the “Applicant”) lent $80,000 to Igor Bannikov (the “Bankrupt”). She did not secure the loan with collateral or a general security agreement. The Bankrupt failed to repay the loan and, on March 7, 2018, the Applicant obtained a judgment for $83,200, plus $1,100 for costs. On March 20, 2018, she registered a writ against the Bankrupt and against real property, municipally known as 64 Savage Road, in the Town of Newmarket (the “Property”).
[2] The Bankrupt owned the Property jointly with his wife, Elena Bannikova (“Ms. Bannikova”). The Property was encumbered by a first mortgage and a second mortgage, both of which were in arrears. The first mortgagee was considering a sale of the Property under power of sale. The Bankrupt also had other unpaid loans and credit card debt.
[3] Ms. Bannikova personally made an assignment in bankruptcy on or about April 19, 2018. On May 7, 2018, using a power of attorney for property granted to her by the Bankrupt on October 17, 2008, Ms. Bannikova made an assignment in bankruptcy on his behalf.
[4] The respondent, Russo Corp., a Licensed Insolvency Trustee (the “Trustee”), was charged with administering the estates of Ms. Bannikova and the Bankrupt.
[5] On May 8, 2018, the Trustee sold the Property and made payments to the first mortgagee and the second mortgagee. Their respective mortgages were discharged. After satisfying those debts and paying the real estate commission and legal fees, a modest amount of proceeds was transferred to the Bankrupt’s estate. The Trustee was unable to realize any other asset of the Bankrupt and the Bankrupt did not pay the Trustee’s fees. The Trustee could not pay the Applicant’s unsecured claim.
[6] On October 24, 2018, the creditors of the Bankrupt appointed the Applicant as the sole inspector of the Bankrupt’s estate. On January 15, 2019, pursuant to s. 38 of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (the “BIA”), the Applicant obtained an order authorizing her to continue the action against the Bankrupt’s assets located in Russia and Canada, and assigning all the Trustee’s rights, title and interest in the subject matter of the proceedings to the Applicant.
[7] The Applicant was unsuccessful in realizing any additional assets of the Bankrupt.
[8] The Applicant brings this motion for leave to bring an action against the Trustee. She alleges that the Bankrupt’s assignment into bankruptcy was illegal and the Trustee should not have accepted it. She asserts that the power of attorney for property used by Ms. Bannikova to make the assignment in bankruptcy on the Bankrupt’s behalf was defective and that Ms. Bannikova did not have the authority to act as his attorney for property.
[9] The Applicant further asserts that if the Trustee had not accepted the Bankrupt’s assignment into bankruptcy, the Applicant would not have been prevented from collecting her debt from the Bankrupt. But for the bankruptcy she could have negotiated with the Bankrupt for the repayment of her debt, in whole or in part, in exchange for her agreement to lift her writ of execution to permit him to sell the Property.
[10] For the reasons that follow, I decline to grant leave to the Applicant. She has not provided sufficient evidence to establish that there is a factual basis for a claim against the Trustee or that her claim discloses a cause of action.
Law and Analysis
[11] Section 215 of the BIA provides as follows:
Except by leave of the court, no action lies against the Superintendent, an official receiver, an interim receiver or a trustee with respect to any report made under, or any action taken pursuant to, this Act.
[12] In Mancini (Bankrupt) v. Falconi, [1993] O.J. No. 146, the Court of Appeal for Ontario articulated the following guiding principles when considering an application for leave pursuant to s. 215 of the BIA:
Leave to sue a trustee should not be granted if the action is frivolous or vexatious. Manifestly unmeritorious claims should not be permitted to proceed.
An action should not be allowed to proceed if the evidence filed in support of the motion, including the intended action as pleaded in draft form, does not disclose a cause of action against the trustee. The evidence typically will be presented by way of affidavit and must supply facts to support the claim sought to be asserted.
The court is not required to make a final assessment of the merits of the claim before granting leave.
[13] The Applicant has not included a draft of her statement of claim against the Trustee in her motion record. She has provided affidavit evidence in which she supplies facts in support of her claim. Acknowledging that I am not required to make a final assessment of the merits of the claim, I have considered the facts supplied by the Applicant on her motion for leave and I find that they do not support a meritorious claim. The proposed claim does not disclose a cause of action.
[14] The Applicant asserts that the facts relating to the Bankrupt’s power of attorney and the Trustee’s treatment of it establish the factual basis for her proposed claim against the Trustee. I disagree.
[15] The Applicant has not adduced sufficient evidence to show that the power of attorney is void because it contains “false statements”, as she alleges. The Applicant identifies two such false statements. First, she asserts that the grantor and the attorney are misdescribed as having been born in the City of Toronto, when, in fact, they were born in Russia. Second, she asserts that Ms. Bannikova is described as the grantor’s “wife”, when, in fact, she and the Bankrupt were separated.
[16] Leaving aside whether a nonmaterial misdescription of a grantor or attorney could invalidate a power of attorney, the Applicant’s assertions are incorrect. The power of attorney includes the birthdates of each of the grantor/Bankrupt and the attorney/Ms. Bannikova, and describes them as being “of the City of Toronto”, not born in the City of Toronto. And despite Ms. Bannikova’s alleged separation from the Bankrupt, she legally remains his “wife”. Further, there is no evidence to suggest that she was not his wife when the power of attorney was made in 2008.
[17] The Applicant further asserts that the power of attorney provides a comprehensive list of actions that the attorney may take on behalf of the grantor, which does not include making an assignment in bankruptcy. However, while that action is not included, the list is prefaced with the grantor’s direction that the attorney may “do on my behalf anything that I can otherwise lawfully do by an attorney, and without limiting the generality of the foregoing”. The Applicant has not adduced any evidence to show that the law in Ontario precludes an attorney for property from making an assignment in bankruptcy on behalf of the grantor.
[18] Finally, the Applicant asserts that Ms. Bannikova was an undischarged bankrupt and that this status precluded her from acting as the Bankrupt’s attorney for property. The Applicant relies on s. 12(1)(a) of the Substitute Decisions Act, 1992, S.O. 1992, c. 27 (the “SDA”), which states that a continuing power of attorney is terminated when the attorney becomes “incapable of managing property”. The Applicant asserts that Ms. Bannikova became incapable of managing property when she made an assignment into bankruptcy. This is incorrect. The definition of incapable for the purposes of the SDA is set out in s. 1(1): “‘incapable’ means mentally incapable, and ‘incapacity’ has a corresponding meaning.” There is no evidence to suggest that Ms. Bannikova was mentally incapable at the time she used the power of attorney to assign the Bankrupt into bankruptcy.
[19] The Applicant asserts that, had the Trustee not accepted the “illegal” power of attorney and Ms. Bannikova’s authority to make an assignment in bankruptcy on behalf of the Bankrupt, the Applicant would have been able to negotiate with the Bankrupt directly. She would have bargained with him for payment of some or all of the judgment in exchange for lifting her writ so he could sell the Property. Again, I disagree. Apart from the finding that the power of attorney was not a defective document and Ms. Bannikova was not disqualified from relying on it to make the assignment in bankruptcy, I find the Applicant’s reasoning on her alleged damages to be speculative at best. Since the Bankrupt had no equity in the Property, it is unlikely that he would have had any interest in negotiating with the Applicant to lift her writ. The more probable outcome, it seems to me, would have been a sale of the Property by a mortgagee under power of sale. The Applicant was one of a number of unsecured creditors of the Bankrupt.
[20] The facts relied on by the Applicant relating to the power of attorney and the consequences of the Trustee’s acceptance of Ms. Bannikova’s authority to act as an attorney for property do not disclose a cause of action against the Trustee.
[21] Further, I note that the Applicant acknowledges that she has actively participated in the administration of the Bankrupt’s estate. She is an inspector of the Bankrupt’s estate, she regularly participated in creditor meetings and she attended at the Trustee’s office to review and make copies of records and documents.
[22] Throughout the administration of the Bankrupt’s estate, the Applicant challenged the Trustee’s actions and filed eight complaints with the Office of the Superintendent of Bankruptcy. Each of these complaints, including the one regarding the legality of the power of attorney, was reviewed by that Office and subsequently closed.
[23] The Applicant has not established a factual basis for a claim against the Trustee or that her claim discloses a cause of action against the Trustee. The Applicant has not provided evidence to show that the Trustee has any liability for her loss or that she has suffered damages as a consequence of the Trustee’s actions.
[24] Section 215 of the BIA balances two important objectives: the need for proper oversight of receivers and trustees, which takes the form of both court oversight and creditors’ rights to proceed against receivers and trustees, and the need to prevent unmeritorious actions from proceeding against a court’s agent: Crate Marine Sales Ltd. (Re), 2017 ONSC 178, [2017] O.J. No. 884, at para. 62. The Applicant’s proposed action is unmeritorious and should not proceed against the Trustee, an agent of the court.
Disposition and Costs
[25] The Applicant’s motion for leave to pursue her claim against the Trustee is dismissed.
[26] The Trustee has succeeded in defending this motion and is entitled to its costs. The Trustee seeks costs on a full indemnity basis in the amount of $27,674, or on a substantial indemnity basis in the amount of $24,919, inclusive of disbursements and HST. Considering the general principles relating to costs as set out in r. 57 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, I fix the costs payable by the Applicant to the Trustee on a partial indemnity basis at $5,000, payable forthwith.
[27] I have endorsed the Order to go in the form attached. The Order is effective as of the date of this endorsement and does not need to be entered.
Dietrich J.
Released: November 26, 2020