ONTARIO
SUPERIOR COURT OF JUSTICE
IN BANKRUPTCY and INSOLVENCY
IN THE MATTER OF THE BANKRUPTCY OF
AMANDA ASHLEY MARIE MARLEAU
OF THE CITY OF OTTAWA
IN THE PROVINCE OF ONTARIO
BEFORE: Justice Stanley J. Kershman
HEARD IN OTTAWA: May 3, 2021 by Zoom at Ottawa
APPEARANCE: Peter Markham, for the Trustee BDO Canada Limited
Donna Tucker, for Rifco National Auto Finance Corporation
endorsement on motion
Introduction
1This is an appeal from the Notice of a Disallowance issued by BDO Canada Limited (“Trustee” or “BDO”) in relation it to a 2016 Ford Fusion VIN 3FA6P0H70GR128066 (“Vehicle”). The Notice of Disallowance was issued on February 5, 2021 pursuant to section 135 of the Bankruptcy and Insolvency Act (“BIA”).
Factual Background
2On April 24, 2018 Amanda Ashley Marie Marleau, (“Bankrupt”), signed a loan agreement for the purchase of a Vehicle which Rifco National Auto Finance Corporation (“Rifco”) agreed to finance for the principal amount of $28,743.45, with the Vehicle being taken as security.
3Pursuant to section 4(12) of the financing agreement, the Bankrupt was obliged to notify Rifco within 10 days of changing her address and removing the Vehicle from the Province of Alberta.
4Rifco last had contact with the Bankrupt on October 17, 2020. At no time did she indicate that she was moving or removing the Vehicle from Alberta to Ontario.
5Rifco attempted to contact the Bankrupt by telephone, text and email between October 17, 2020 and January 29, 2021, without success.
6Ms. Marleau filed for bankruptcy with BDO on January 29, 2021.
7On January 29, 2021, Rifco received a bankruptcy notice from BDO. This is the first time that Rifco was aware that the Bankrupt had moved to Ontario.
8On February 8, 2021, Rifco in accordance with the Ontario Personal Property Security Act, R.S.O. 1990, c. P.10 (“PPSA”), section 5(2)(b), registered a security interest against the Vehicle in the Province of Ontario.
9On February 8, 2021, Rifco received a Notice of Disallowance of Claim pursuant to section 135(3) of the BIA. The reason stated for the disallowance of the Rifco claim was that its interest was not perfected under section 5(2) of the PPSA of Ontario.
10Rifco appeals the decision of the Trustee to this Court and requests the right to seize the Vehicle under the laws of the Province of Ontario.
11The Vehicle is presently at an auto auction lot. The Court has ordered that nothing be done with the Vehicle until such time as this Court has rendered a decision.
Rifco’s Position
12Rifco argues that it had no idea that the Bankrupt was either moving to the Province of Ontario or filing for bankruptcy, until it received the bankruptcy notice from BDO.
13Rifco argues that it has registered its security interest in Ontario pursuant to section 5(2)(b) of the PPSA by registering within 15 days of becoming aware that the Vehicle had been removed to Ontario.
BDO’s Position
14BDO argues that once the Bankrupt filed an assignment, that date crystallized the situation and that any registration of the under the PPSA of Ontario after that date did not take priority over the trustee in bankruptcy.
15Furthermore, it argues that as of the date of bankruptcy, title to the asset transferred to the Trustee and the Bankrupt no longer owned the asset.
16BDO also argues that section 5(2) of the PPSA deals with the earliest of one of three dates. According to the Trustee, the earliest date would have been 60 days after the debtor had moved to Ontario. According to the evidence, the debtor moved to Ontario on November 2, 2020. Based on that date, Rifco had until January 2, 2021 to register under the PPSA in Ontario.
17The Trustee argues that the stay of proceedings pursuant to section 69.3 of the BIA commenced as of the date of bankruptcy which was January 29, 2021 and that registration under the Ontario PPSA after that date would not cure the deficiency notwithstanding the fact that the 15 days had not elapsed from the time that Rifco became aware that the asset had moved to Ontario.
18The Trustee relied on the case of Falcon Auto Leasing v. Deloitte, 2016 Manitoba Queens Bench 66.
Legislation
19The section 5.2 of the Ontario PPSA reads as follows:
Perfection of security interest continued
5 (2) A security interest in goods perfected under the law of the jurisdiction in which the goods are situated at the time the security interest attaches but before the goods are brought into Ontario continues perfected in Ontario if a financing statement is registered in Ontario before the goods are brought in or if it is perfected in Ontario,
(a) within sixty days after the goods are brought in;
(b) within fifteen days after the day the secured party receives notice that the goods have been brought in; or
(c) before the date that perfection ceases under the law of the jurisdiction in which the goods were situated at the time the security interest attached,
whichever is earliest, but the security interest is subordinate to the interest of a buyer or lessee of those goods who acquires the goods from the debtor as consumer goods in good faith and without knowledge of the security interest and before the security interest is perfected in Ontario. R.S.O. 1990, c. P.10, s. 5 (2).
Analysis
20It is clear from the evidence that the Bankrupt relocated to the Province of Ontario on November 2, 2020 and brought the Vehicle into the province of that time.
21It is also clear that the bankruptcy filed an assignment in bankruptcy on January 29, 2021.
22The Court also finds that Rifco had not been notified of the change in location of the Vehicle until it received the bankruptcy notice from the Trustee.
23Pursuant to the provisions of the BIA, assets of the Bankrupt vest in the Trustee on the date that the person files for bankruptcy, which in this case would have been January 29, 2021.
24Once that occurs, a stay of proceedings commences pursuant to section 69.3 of the BIA. Section 69.3(1) is clear in that once there is a bankruptcy, 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.
25The Court finds that once the person files for bankruptcy, no creditor, including Rifco has any remedy against the debtor or the debtor’s property which would include the registration of a financing statement in Ontario.
26Section 69.3(2) deals with secured creditors who realize or are entitled to realize on their security. The Court finds that as of the date of bankruptcy, Rifco was a secured creditor possibly in the Province of Alberta. However, at the time of the bankruptcy, Rifco was not a properly perfected security holder in the Province of Ontario.
27The Court finds that as of the date of the bankruptcy, Rifco was an unsecured creditor. Their security was not perfected until after the date of bankruptcy. The bankruptcy provided for a stay of proceedings. The asset vested in the Trustee on January 29, 2021. The fact that Rifco registered on February 8, 2021 under the PPSA in Ontario does not allow them to properly perfect their security interest after the date of bankruptcy and gain priority over the Trustee.
28Furthermore, the Court’s reading of the section 5(2) talks about the earliest of three dates. Based on the Court’s calculation the earliest of the three dates would have been the date that the Bankrupt moved into the Province of Ontario whether the secured creditor had knowledge of the move to Ontario or not. In this case, the Bankrupt moved to Ontario on November 2, 2020. Sixty days later would have been January 2, 2021. Clearly, Rifco did not register under the Ontario PPSA within that time. The Court makes a finding to this effect.
29BDO relies on the case of Re Bankruptcy of Tammy Lynn Lloyd, 2016, MBQB 66.
30In that case, the applicant appealed the trustee’s disallowance of its claim of a vehicle pursuant to section 81 of the BIA.
31The issue on the appeal was whether the registration of a financing statement at a later time but on the same date as the assignment in bankruptcy was made, is sufficient to provide priority to the secured creditor over the trustee In bankruptcy in relation to section 20(b)(1) of the Personal Property Security Act, C.C.S.M. c. P35 in Manitoba.
32In that case, the bankrupt leased a vehicle from the applicant dealership on February 3, 2015. She made an assignment in bankruptcy on November 3, 2015. The certificate of appointment issued by the OSB dated November 3, 2015 at 3:21 p.m. Earlier in the day, the trustee had performed a PPSA search which disclosed no registrations relating to the bankrupt.
33At 4:28 p.m. on November 3, 2015, the applicant was informed of the bankruptcy by way of fax sent by the trustee. The letter indicated that the applicant’s security interest was unperfected as of the date of the bankruptcy and as a result the vehicle vested in the trustee in priority to the applicant’s interest.
34The applicant registered a financing statement at 4:49 p.m. on November 3, 2015, which was faxed to the trustee’s office at 4:59 p.m. on November 3, 2015.
35The applicant submitted a proof of claim under section 81 of the BIA claiming to be a secured claim in relation to the vehicle.
36On December 18, 2015, the trustee disallowed the claim indicating that the security interest was not validly perfected and was not effective as against the trustee in bankruptcy. The applicant appealed the decision.
37In the Falcon case, the court held that the applicant knowingly attempted to perfected its security interest after the bankruptcy had occurred and since the applicant had full knowledge of the bankruptcy prior to taking the steps to register the financing statement, the registration of the financing statement later in time, than the assignment, could not take priority over the trustee in bankruptcy.
38As a result, the appeal of the trustee’s disallowance was dismissed.
39While the facts of the Falcon case are not the same as in the present case, the Falcon case shows that the registration of a financing statement after date and time of the bankruptcy would not allow a secured creditor to obtain a priority over the trustee.
40In the present case, since Rifco’s financing statement was registered after the date of the bankruptcy, the Court finds that based on the sequence of events in the present case, that Rifco could not take priority as against the trustee in bankruptcy.
41Accordingly, the Court finds that Rifco security interest is unperfected and is subordinate to the interest of the Trustee.
42The appeal from the Notice of Disallowance by the Trustee is dismissed.
43The Court exercises its discretion and makes an order that each party bear their own costs.
44Order accordingly.
Justice Stanley J. Kershman
Released: May 10, 2021
COURT FILE NO.: 33-2707894
DATE: 2021/05/10
ONTARIO
SUPERIOR COURT OF JUSTICE
IN BANKRUPTCY and INSOLVENCY
IN THE MATTER OF THE BANKRUPTCY OF
AMANDA ASHLEY MARIE MARLEAU
OF THE CITY OF OTTAWA
IN THE PROVINCE OF ONTARIO
BEFORE: Justice Stanley J. Kershman
HEARD IN OTTAWA: May 3, 2021 by Zoom at Ottawa
APPEARANCE: Peter Markham, for the Trustee BDO Canada Limited
Donna Tucker, for Rifco National Auto Finance Corporation
endorsement on motion
Kershman J.
Released: May 10, 2021