In the Matter of the Proposal of John William Ehrhardt

COURT FILE NO.: 33-1995668

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: In the Matter of the Proposal of John William Ehrhardt

BEFORE: Associate Justice A. Kaufman Registrar in Bankruptcy

COUNSEL: Allen W. MacLeod, Licensed Insolvency Trustee Alden Christian, for the inspector Peter Robertson, for Kaufmann Dockrill & Associated Robert De Toni, for F.J. Zielski and Associates

HEARD: November 1, 2021

REASONS FOR DECISION

[1] The trustee applies for an order approving the proposal of John William Ehrhardt dated September 1, 2017. Mr. Ehrhardt attended the hearing today and sought an adjournment. He wishes to object to the trustees’ remuneration, but as mentioned to him at the hearing, s. 39(5) of the Bankruptcy and Insolvency Act[^1] (“BIA”) permits him to apply for an order reducing the trustee’s remuneration. I agree with Mr. MacLeod that this is not a valid ground to delay the approval of a proposal.

[2] The second reason for Mr. Ehrhardt’s request to adjourn the application to approve his proposal is that he objects to one of the creditor’s claims (Joseph Bowes) in the amount of $72,484.

[3] Section 135(5) allows a debtor to apply to the Court to expunge or reduce a proof of claim if the trustee declines to interfere in the matter. A motion under section 135(5) is an appeal by a creditor or the debtor against an allowance by the trustee of a proof of claim or proof of security. It provides: "The court may expunge or reduce a proof of claim or a proof of security on the application of a creditor or of a debtor if the trustee declines to interfere in the matter."

[4] While subsection 135(5) does not provide a time limit for a debtor’s motion to expunge or reduce a trustee’s proof of claim, these applications must be commenced in a reasonable time.[^2] The issue for the Court is whether the motion to approve Mr. Erhardt’s proposal should be adjourned to give him an opportunity to move under s. 135(5) to expunge or reduce Joseph Bowes’ claim.

Relevant facts

[5] Mr. Erhardt initially filed an assignment in bankruptcy on May 19, 2015. F.J. Zielski was appointed as Licensed Insolvency Trustee. On February 17, 2017, Joseph Bowes, a creditor, opposed Mr. Erhardt’s discharge. The grounds for the opposition were, among others, that Mr. Erhardt failed to disclose assets to his trustee and failed to advise Mr. Bowes of the bankruptcy. Mr. Erhardt’s opposed application for a discharge was adjourned on consent.

[6] Mr. Erhardt was subsequently found guilty of unlawfully making a material omission in a statement of account and failing to comply with his obligation under section 158 of the BIA. These charges stem from the trustee receiving information that Mr. Erhardt failed to disclose two assets, an emerald ring, and a judgment for $155,000.

[7] Mr. Erhardt retained D & A MacLeod in May 2017, initially as a consultant in relation to his bankruptcy. On August 19, 2017, Mr. Erhardt executed a Division 1 proposal to creditors through Mr. MacLeod. On August 30, 2017, Mr. MacLeod was appointed by the Office of the Superintendent of Bankruptcy as the Division 1 Proposal Trustee. Mr. Erhardt’s proposal was amended on September 1, 2017.

[8] In his Report of trustee on proposal, Mr. MacLeod advises that the relationship between Mr. Erhardt and Mr. Zielski became acrimonious in part, due to Mr. Erhardt’s “concerns and objections over the trustee admitting two proofs of claim (Smith Construction and Joseph Bowes”. In response to questions posed by the Court, Mr. Zielski advises that it is his practice to review a proof of claim when it comes in and send out a notice when a claim is disallowed. Because Mr. Zielski did not send out a notice of disallowance in this matter, he would have approved Joseph Bowes’ claim shortly upon receiving it. Mr. Zielski believes that Mr. Erhardt would have been aware that the Joseph Bowes claim was admitted by the time he filed a proposal with D & A MacLeod on August 19, 2017.

[9] In a letter dated April 10, 2019, Mr. MacLeod confirmed Mr. Erhardt’s instructions to file a Division 1 proposal given his concerns over debts Mr. Zielski admitted. Mr. MacLeod advised Mr. Erhardt that the purpose of the proposal was to allow these claims to be reviewed, as settled, or in the alternative to bring an application to the Court to determine the amount of the claims.

[10] Mr. MacLeod, like Mr. Zielski before him, admitted the Bowes claim and advised Mr. Erhardt and his counsel of that fact on September 20, 2021. On that date, a reconvened meeting of creditors was held at which Mr. Erhardt was represented by counsel. Neither Mr. Erhardt nor his counsel objected to the Bowes’ claim being admitted.

Disposition

[11] I decline to grant an adjournment for the purpose of contesting the trustee’s admission of the Bowes claim because, in my view, such an application should have been made earlier. Mr. Erhardt did not bring an application under s. 135(5) when he was aware that Mr. Zielski admitted that claim. Moreover, when he attended at the reconvened meeting of creditors, with counsel, he did not voice any objections when Mr. MacLeod also admitted the Bowes’ claim. The BIA’s provisions dealing with proposals make it clear that the procedure is to be carried out in a timely and cost-effective manner.[^3] These proceedings, which commenced with an assignment in bankruptcy in 2015, have already been scandalously long.

[12] Mr. Erhardt’s request for an adjournment is therefore denied.

[13] Pursuant to s. 58 of the BIA, the Court is of the opinion that the terms of the proposal are reasonable and calculated to benefit the general body of creditors. The Court hereby approves the proposal.

[14] Order accordingly.

Associate Justice Kaufman

Date: November 9, 2021

[^1]: RSC 1985, c B-3. [^2]: Krespil v. Nathalie Brault Syndic Inc., 2017 QCCA 523 at para 35. [^3]: In the Matter of the Proposal of Casimir Capital, 2015 ONSC 2819 at para 30.