ONTARIO
SUPERIOR COURT OF JUSTICE
IN BANKRUPTCY and INSOLVENCY
IN THE MATTER OF THE BANKRUPTCY OF
SHELBY AUSTIN MILLS
OF THE VILLAGE OF OSGOODE
IN THE PROVINCE OF ONTARIO
BEFORE: Justice Stanley J. Kershman
HEARD IN OTTAWA: June 13 and 17, 2022 by Zoom at Ottawa
APPEARANCE: Robert J. De Toni, for the Trustee, Baker Tilly Ottawa Ltd.
Philip William Augustine, for the Debtor, Shelby Austin Mills
DECISION ON MOTION AND CROSS-MOTION
Introduction
1This is a motion brought by Baker Tilley Ottawa Ltd. (“Trustee”) seeking a determination as to whether the increase in equity in the property at 4310 Fawn Lane, Osgoode, Ontario, is after-acquired property belonging to the Trustee for the benefit of the creditors or belongs to Mr. Mills (“Bankrupt”).
2A cross-motion was brought by Mr. Mills against the Trustee for among other things, damages.
Orders Sought
3On the motion and cross-motion, the following orders were sought:
The Motion
4Other than the issue of costs, the Trustee seeks the following orders from the court:
a) an order that the Trustee is entitled to the net sale proceeds of the Property being held in the trust account of the solicitor who acted on the sale, and an order that the said net sale proceeds to be paid to it, and
b) an order dismissing Mr. Mills’ cross-motion.
The Cross-Motion
5Other than the issue of costs, Mr. Mills seeks the following orders from the court:
a) an order that the Trustee’s motion be dismissed;
b) an order that the proceeds of the Property be payable to Mr. Mills to the exclusion of the Trustee;
c) an order that the proceeds currently held in trust at Kelly Santini LLP in the amount of $264,949.05 be paid to Mr. Mills; and,
d) in the alternative, an order for damages equal to the proceeds based on the principles of breach of contract and/or proprietary estoppel.
Factual Background
6An initial meeting between Mr. Mills and Andree Laurencelle, a Trustee from the Trustee’s office occurred on or about October 2, 2017. Discussions took place about Mr. Mills’ options concerning his financial situation. An appraisal of the property at 4310 Fawn Lane Road, Osgoode, Ontario (the “Property”) was obtained, which was jointly owned by Mr. Mills and his common law spouse Rachelle Rocan.
7On February 14, 2018, Mr. Mills made an assignment in bankruptcy. Thereafter, the Trustee registered its interest on title to the Property.
8In his Statement of Affairs, the Bankrupt indicated that he was a self-employed contractor. He indicated that he had owned a corporation called Capital Landscape and Construction Inc. (“Capital Landscape”) that had been in operation for 66 months, offering landscaping services and which he had closed. He also indicated that for the last 4 months (from November 2017 to February 2018), he was a self-employed contractor running Fawn Group Construction offering landscaping and construction services.
9Mr. Mills indicated that the cause of his financial difficulties was “failure of a business.” The court finds that the business failure in the Bankrupt’s Statement of Affairs relates to Capital Landscape and not Fawn Group Construction.
10The Bankrupt’s Statement of Affairs showed that the estimated dollar value of the assets was $371,202. The amount of secured liens was $333,270.13 with the estimated dollar value to be realized being $12,380. The amount of unsecured creditors was $157,229.76.
11On the same day that Mr. Mills filed for bankruptcy, the Trustee and the Bankrupt entered a written agreement (the “Equity Agreement”) whereby Mr. Mills agreed to repurchase his half interest in the Property for $12,390 to be paid over the bankruptcy period (“Bankruptcy Period”). The quantum was amended on consent to $12,621.20. The phrase ‘Bankruptcy Period’ was not defined in the Equity Agreement.
12The Bankrupt made one payment of $400 shortly after his filing. Further payments were requested by the Trustee to be paid on a monthly basis. No further payments were made until September 1, 2018, when $2,300 was paid. Further payments of $2,350 were made on October 1, 2018, and November 1, 2018, for a total of $7,500. No further payments were made until April 9, 2021, when the Bankrupt paid the balance of the equity in the Property of approximately $5,121.20. The Trustee did not remove its registered interest on title. The parties dispute the terms of the payment schedule.
13No inspectors were appointed in the Estate.
14As a first time bankrupt, Mr. Mills’ bankruptcy was to be for 9 months ending in November 2018 assuming he had no surplus income. It was extended to 21 months (i.e. November 2019) due to his requirement to pay surplus income. The court finds that when the extension to 21 months occurred because Mr. Mills had surplus income, but there had been no determination of the amount of surplus income.
15Mr. Mills’ relationship with his common law spouse, Rachelle Rocan, ended in February 2021. On April 21, 2021, she contacted the Trustee requesting the sale of the property. The Property was sold with a closing date in August 2021. Mr. Mills was advised that the Trustee was seeking to have his proceeds of the sale held in trust pending a determination as to whether he was entitled to the same, alleging that any increase in value of Mr. Mills’ half of the equity during the bankruptcy period accrued to the Trustee as after-acquired property.
16On August 23, 2021, the Property was sold and, on consent, 50 percent of the net proceeds of the sale, being $264,949.05, were held in trust by Kelly Santini LLP, the real estate lawyers pending the determination of the issues now before the court.
Fawn Group Construction
i) General
17In his Statement of Affairs sworn on February 14, 2018, the Bankrupt indicated that Fawn Group Construction was owned by him personally as a sole proprietorship and that he had been operating it since November 2017.
18The Statement of Affairs listed the business location as being at the Property at 4210 Fawn Lane Road, Osgoode, Ontario. The court finds that this is a typographical error and that the business was really located at 4310 Fawn Lane Road, Osgoode, Ontario. The court finds that Mr. Mills ceased operating Canada Landscape and began operating Fawn Group Construction, thereby transferring his core business from a corporation to a sole proprietorship.
19There was some suggestion that Ms. Rocan is the owner of the business because she is shown as an Individual Debtor on financial statements registered by Arundel Capital Credit (“Arundel”).
20The court finds that Fawn Group Construction is solely owned by Mr. Mills and not by Ms. Rocan.
ii) Financing Statements registered under the Personal Property Security Act
21In 2020, Mr. Mills, carrying on business as Fawn Group Construction, either leased or financed three pieces of equipment from Arundel. The business debtor is shown as Fawn Group Construction and the individual debtor is shown as Rachelle Rocan.
22The court has previously found that Mr. Mills, as the owner and sole proprietor of Fawn Group Construction, was the one who actually leased or purchased these pieces of equipment.
23In 2020, the Trustee conducted a Personal Property Security Act, R.S.O. 1990, c. P.10, (“PPSA”) search and found three pieces of equipment registered under the name “Fawn Group Construction.”
24The first piece of equipment was a 2007 Skyjack Scissorlift. The second piece of equipment was a 1995 Hyster Forklift for which a financial statement was registered on May 28, 2020, as number 20200528123417931606. The secured creditor in both cases was Arundel. A third piece of equipment was a 2016 Bobcat Excavator for which a financial statement was registered by Arundel on November 16, 2020, as number 20201116180417931562. Based on the information provided by Mr. Mills, the Trustee understood that as a sole proprietor, Mr. Mills personally owned or leased these assets and that this information had not been disclosed to the Trustee. The Trustee requested paperwork on these pieces of equipment and advice as to whether they were in his possession or not.
25The court makes a finding that the financing statements registered under the Personal Property Security Act by Arundel both in May 2020 and November 2020 were for equipment owned or leased by Mr. Mills c.o.b. as Fawn Group Construction notwithstanding that the financing statements say that the individual business debtor is Rachelle Rocan, his former common law spouse.
26The court notes that pursuant to s. 199 of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (“BIA”), it is an offence for a Bankrupt to obtain credit while bankrupt unless he advises the creditor. There is no evidence as to whether Mr. Mills advised Arundel that he was bankrupt, but the implication is that by listing Rachelle Rocan as the individual debtor, Mr. Mills likely did not advise Arundel.
Equipment used by Canada Landscape before Mr. Mills’ Bankruptcy
27The Trustee’s Report includes a second separate affidavit sworn on February 14, 2018, by Mr. Mills with some handwritten notations claiming that all equipment used by Canada Landscaping was voluntarily surrendered to the secured creditors. The affidavit stated that Capital Landscaping was insolvent. The court finds that the equipment described in the Arundel financing statements was not the same equipment that was purportedly voluntarily surrendered by Mr. Mills in or before 2018.
28There is a letter from Equirex, a division of Bennington Financial Corp. Inc. dated February 16, 2021. In the letter Equirex advised the Trustee that it was not able to locate the missing equipment associated with Lease ZVVJ1605, which was for Capital Landscape. It enclosed an updated proof of claim.
29Mr. Mills says that one of the pieces of the equipment, a vehicle, was stolen pre-bankruptcy and that a police report was filed. According to Mr. Mills, when an insurance claim was filed, the insurance company disallowed it. The court finds that whatever vehicle this is, it related to equipment financed prior to Mr. Mills’ bankruptcy in 2018.
30There was also a letter from Wells Fargo Equipment Finance Company, who submitted a revised proof of claim on March 16, 2018, stating “could you please contact me ASAP as we are working with a bailiff to secure our assets and Mr. Mills has not been cooperative wonder [sic] if there’s any thing you can do to assist.”
31There was also an email from Peter Codner at CLE Capital dated March 14, 2018, indicating that Mr. Mills had personally guaranteed various leases, that a bailiff had been on assignment since December 2016 to retrieve the equipment, and that none of the equipment secured by the leases been surrendered.
32The court finds these leases relate to equipment used by Canada Landscape prior to Mr. Mills’ bankruptcy in 2018 and it is not related to the equipment that was described in the Arundel financing statements.
Initial Trustee Report
33The Trustee issued an initial report dated October 11, 2018. In that report, the Trustee indicated that the Bankrupt could justly be held responsible for facts under s. 173 of the BIA which, at that time, were as follows:
The assets were not $.50 on the dollar of the unsecured liabilities; and
The Bankrupt failed to perform the duties imposed under the BIA.
34The Trustee also indicated its intention to oppose the Bankrupt’s discharge pursuant to ss. 173(1)(a) and (o) of the BIA.
35The court finds that at the time of the initial report, the Bankrupt had not complied with his duties including not providing information about his surplus income and that he was not going to receive an absolute discharge even though he was a first-time Bankrupt.
Amended Report of the Trustee
36There is an amended report from the Trustee on the Bankrupt’s Application for Discharge dated May 28, 2021, under s.170(1) of the BIA, which shows the proven unsecured claims at $517,837.51 with $12,831.33 being realized.
37In the report, the Trustee indicated that the Bankrupt failed to perform the following duties:
Deliver all of his property to the Trustee; and,
Deliver all documents relating to his property or affairs.
38In particular, under s. 158(a) of the BIA, according to the Trustee the Bankrupt did not disclose to the Trustee assets that he acquired during the bankruptcy. Based on the evidence, the court finds that these assets were the 2007 Skyjack Scissors, the 1995 Hyster Forklift, and the 2016 Bobcat Excavator.
39In addition, under s. 158(b) of the BIA, according to the Trustee the Bankrupt did not provide the Trustee with the requested proof of business expenses.
40In the report, the Trustee says that the Bankrupt can be held responsible for the following facts under s. 173(1) of the BIA:
s.173(1)(a) The assets are not $.50 on the dollar on unsecured liabilities;
s.173(1)(b) The bankrupt omitted to keep books of account.
s.173(1)(d) The bankrupt failed to account for loss or deficiency of assets;
s.173(1)(m) The bankrupt failed to comply with the requirement to pay imposed under s. 68 of the BIA; and,
s.173(1)(o) The bankrupt failed to perform the duties imposed under the BIA or to comply with any court order of the court.
41The Trustee notes that the Bankrupt, under s. 173(1)(b), failed to keep the books and records of his corporation, Capital Landscaping, pre-bankruptcy and that he failed to keep books and records for his sole proprietorship, Fawn Group Construction, pre and post-bankruptcy.
42In addition, under s. 173(1)(d), the Bankrupt has reportedly not returned assets held as collateral to secured creditors.
43As will be seen later on, Fortier A.J. found that the facts alleged under s. 173(1) of the BIA were found to be true at the discharge hearing on August 9, 2021.
Claims Register
44A Claims Register dated May 25, 2021, was filed showing admitted unsecured claims filed of $530,846.76. The court finds that this amount is three to four times the amount declared by the Bankrupt in his Statement of Affairs for unsecured creditors of $157,229.76. The court finds that under oath the Bankrupt grossly understated his unsecured liabilities.
Requests for Information by the Trustee Including for Surplus Income
45Mr. Mills provided an acknowledgement dated February 14, 2018, that until his discharge, he was to report to the Trustee any material change in circumstances in his family unit and he was also to provide updated financial information on a monthly basis for the Trustee to calculate surplus income.
46An affidavit was sworn under oath by Mr. Mills on February 14, 2018 said, “I have not had any contracts in 2018 to date and I am looking for work. I understand that I must report my income and expenses to the Trustee on a monthly basis for the purposes of determining surplus income. As I am self-employed, I understand that I will retain an accountant to prepare my post bankruptcy income tax return. I shall provide a copy of it to the Trustee by no later than March 15, 2019.”
47Based on the evidence, the court finds that the Bankrupt did not provide a copy of his post-bankruptcy tax return by March 15, 2019, and that he provided it late.
48There is an email from Ms. Laurencelle, a Trustee with the Trustee’s office, dated May 22, 2018, seeking a summary per month of the invoices submitted for payments or paystubs if he started to work.
49Ms. Laurencelle sent another email to the Bankrupt on July 24, 2018, advising that he had not provided the Trustee with the monthly budget forms and proof of income. She requested that he make arrangements to resolve the situation. The court notes that the email also broaches the subject of payment of the outstanding equity obligation in the Property.
50Another email was sent by Ms. Laurencelle dated August 16, 2018, to the Bankrupt requesting the following information by September 5, 2018:
Copy of business bank statements;
Copy of invoices to support the deposits;
Excel spreadsheet of the various categories of business expenses; and,
Copy of his spouse’s most recent paystub.
51In the same email, the Trustee strongly suggested that he retain a bookkeeper to assist him in keeping his books and records up-to-date in order to allow them to determine income tax installment payments, among other things. Based on the evidence, the court finds that as of August 16, 2018, approximately six months after he had gone bankrupt, Mr. Mills had not retained a bookkeeper.
52In an email dated October 16, 2018, Ms. Laurencelle made enquiries about equipment that belonged to Equirex and asked questions about the return of the equipment or what had happened to it. In the same email, she reminded him that the Trustee had not received his proof of income as previously requested and stated that the Trustee was opposing his discharge.
53In a letter dated January 14, 2019, the Trustee advised the Bankrupt of the Notice of Hearing of the Bankrupt’s Discharge. He was also notified that he was not required to attend in court and that the hearing would be adjourned until the amount required for surplus income could be determined.
54The letter also said that the Trustee had previously sent him an email on November 21, 2018, to advise him that the surplus income payments would be required based on proof of income provided and suggested that he provide the proof of income for November and December 2018 to assist in calculating what amount the Bankrupt should be paying.
55The letter also indicated that he would be required to provide proof of income for a total of 21 months and once the Trustee had received the proof of income up to November 2019, they could calculate the final amount for the surplus income and then the discharge hearing would be rescheduled.
56In the same letter, the Trustee discusses the issue of the equity in the Property which is listed at $12,620.30, of which $7,500 had been paid. The letter said that if the Bankrupt believed that the value of the property was different than the appraised value then he should provide written evidence of it. The court finds that at no time did Mr. Mills provide a different calculation and that at a certain point in time, he was satisfied with the Trustee’s valuation.
57Anna Lorraine Campbell, also known as Laurie Campbell, an Administrative Assistant in the Trustee’s office sent an email to Mr. Mills dated January 27, 2020, requesting a copy of his 2018 income tax return, his spouse’s proof of income from October 2018 to October 2019 and copies of bank statements for February 2018 to October 2019. In that email Ms. Campbell reminded Mr. Mills that he had not provided the monthly budgets to show his income and expenses.
58The email also requested copies of invoices for all subcontractor work from February 2018 to October 2019 as well as copies of credit card statements or bills/invoices for suppliers over $1,000 from February 2018 to October 2019 to confirm the purchase and payment for the supplies.
59Lastly, Ms. Campbell’s email requested proof of payment of HST payments to the Canada Revenue Agency and installment payments for income tax.
60The Trustee noted that there were many cash withdrawals and transfers that needed to be confirmed as legitimate business expenses.
61A further email was sent by Laurie Campbell on March 6, 2020, requesting the 2018 and 2019 income tax returns; spousal paystubs for the year to date from January 1, 2019 to November 2019; and bank statements for Mr. Mills’ personal bank account from December 2018 to September 2019 for any account in his name.
62In addition, there were questions about new transfers to an account 503-2898 and information was requested about whose account it was and why transfers were being made to the account.
63Lastly, there was a list of payments being transferred to account 6237559, which appeared to be from his personal joint bank account with his spouse. The Trustee requested copies of the invoices for the work performed or purchases made and an explanation as to why these accounts were transferred from his personal account and not directly from the business account. The list is as follows (extracted from an e-mail sent by Laurie Campbell dated March 6, 2020):
December 7
$ 2,568.00
December 21
$ 2,568.00
December 21
$ 780.66
January 7
$ 2,568.00
January 18
$ 2,568.00
January 31
$ 2,568.00
February 15
$ 3,924.00
March 6
$ 2,215.00
March 15
$ 1,800.00
April 1
$ 2,900.00
April 2
$ 784.95
April12
$ 2,215.00
April 24
$ 1,779.68
April 24
$ 2,568.00
May 14
$ 4,705.00
May 24
$ 4,521.85
June 7
$ 3,800.00
June 20
$ 4,153.00
July 2
$ 1,393.93
July 5
$ 5,022.44
July 22
$ 4,153.00
July 30
$ 6,000.00
August 2
$ 3,800.00
August 2
$ 4,153.00
August 16
$ 1,737.10
August 19
$ 4,153.00
Sept 3
$ 5,153.00
Sept 13
$ 5,153.00
December 2018
NOTE - payments transferred to credit card, you may wish to provide the credit card statement to provide proof of the goods purchased which backs up the payment made If a receipt is not available.
December 3
paid by TFR to C/C
$ 5,452.13
December 3
TFR to C/C
$ 5,506.94
December 24
TFR to C/C
$ 1,000.00
December 24
Cash withdraw
$ 3,100.00
2019
January 15
Transfer to C/C
$ 1,500.00
January 18
E-Transfer
$ 1,864.50
February 15
Transfer to C/C
$ 3,500.00
March 6
ETransfer
$ 1,800.00
March 29
ETransfer
$ 1,192.15
April 8
Cash Withdraw!
$ 3,400.00
April 10
CAD Draft
$ 14,837.97
April 22
Transfer to CC
$ 2,500.00
May 2
Transfer to CC
$ 3,500.00
May 6
CAD Draft
$ 9,988.57
May 6
Calabogie Motorsports
$ 1,575.00
May 14
Transfer CC to
$ 2,500.00
May 16
Transfer to CC
$ 6,000.00
June 4
CAD Draft
$ 10,177.50
June 7
ETransfer
$ 1,977.50
June 14
Transfer to CC
$ 2,000.00
July 2
ETransfer
$ 4,000.00
July 3
Transfer to CC
$ 2,500.00
July 17
Transfer to CC
$ 6,497.49
July 22
APPLE Store
$ 2,834.00
July 22
Transfer to CC
$ 2,518.00
July 24
First Insurance Loan
$ 4,926.00
Aug 2
Transfer to CC
$ 5,339.00
August 6
Cash withdrawal
$ 3,200.00
August 16
Etransfer
$ 3,490.29
August 16
Cash withdraw!
$ 3,000.00
August 19
Transfer to CC
$ 3,562.00
Aug 19
ETransfer
$ 6,500.00
Sept 3
CAD Draft
$ 14,934.82
Sept 3
Transfer to CC
$ 5,570.00
Sept 10
Transfer to CC
$ 6,010.46
Sept 13
Transfer to CC
$ 5,065.00
Sept 13
CAD Draft
$ 21,257.50
Sept 20
CAD Draft
$ 25,000.00
Sept 23
CAD Draft
$ 35,884.63
Sept 23
Transfer
$ 5,778.82
Sept 23
ETransfer
$ 6,407.10
64Ms. Laurencelle sent an email dated November 25, 2020, which in part, attached a copy of the March 6, 2020 email regarding the items required for the bankrupt to obtain his discharge. The Bankrupt indicated that he would be dropping off the information; however, no information was received at that time. The court makes a finding to this effect.
65The email also asked for copies of his 2019 income tax return together with all tax slips claimed on the return, a copy of the HST annual filings, as well as records of subcontractors paid by e-transfer.
66The Trustee required a response by December 15, 2020. The letter also said that should the information not be received by that date, the Trustee would consider closing the file and being discharged, which would result in the creditors’ rights being revived so that they could take action against him for debts included in the bankruptcy.
67The court finds that the various information requested was not provided by December 15, 2020.
68A further email was sent on May 13, 2021, from Julie Merkley, a Trustee, to Mr. Mills. At that time, the Trustee was still requesting further information including the 2018 post-bankruptcy income tax return, answers to questions concerning his 2019 income tax return, his 2019 T4 claimed on his 2019 income tax return, and his 2018 February bank business statement.
69The correspondence went on to say that the Trustee had prepared a spreadsheet summarizing his income with a high and low scenario based on the information received to date, for the purpose of calculating surplus income.
70The high-income scenario calculated an average monthly surplus income payable to the Estate of $5,303.78 per month which would be required to be paid for 21 months, resulting in a total payment of $111,379 payable to the Estate.
71The low-income scenario calculated an average monthly surplus income payable to the Estate of $2,392 per month which would be required for 21 months, resulting in a total payment of $50,232 payable to the Estate.
72There is an email from Laurie Campbell to Mr. Mills dated May 6, 2021, which includes a number of questions about the income tax return that Mr. Mills filed.
73The court is uncertain whether the May 6, 2021 questions were ever answered.
74The court finds that the Bankrupt did not provide his monthly income and expenses on a monthly basis, as required by the BIA and the Trustee, for the purpose of calculating surplus income.
Official Receiver’s Examination Report
75After December 15, 2022, due to the Bankrupt’s lack of cooperation, the Trustee requested an examination of the Bankrupt pursuant to s.161(1) of the BIA. It took place with the Official Receiver (“O.R.”) on February 3, 2021, under oath.
76The O.R. indicated that certain facts were proven for which the discharge might be either refused, suspended, or granted conditionally:
173(1)(b) the bankrupt has omitted to keep such books of account as are usual and proper in the business carried on by the bankrupt and as sufficiently disclose the business transactions and financial position of the bankrupt within the period beginning on the day that is three years before the date of the initial bankruptcy event and ending on the date of the bankruptcy, both dates included;
77At question 95 and 96, Mr. Mills admitted that he did not keep any proper financial records for his business. When asked the location of the books and records of his business, he answered: “that’s the biggest issue, there is nothing. There is no bookkeeping.”
78In addition, at questions 65 and 70, the O.R. indicated that the Bankrupt failed to perform his duties imposed on him under the BIA pursuant to s.173(1)(o). In particular, the O.R. said that Mr. Mills admitted that he was not making any payments to his Trustee at the moment and that he was not preparing monthly income and expense statements as required by the Bankruptcy and Insolvency Act.
79The court notes that in the O.R. examination, the Bankrupt admitted that since going bankrupt, he has had a Capital One credit card that was fully secured. No further information was provided about the credit card, including when he got it, who he got it from, and what security was provided for the card.
80The court notes that in question 42 of the O.R. examination when asked about a bank statement for June 2019 and attachment #2 to the statement, the Bankrupt’s answers were as follows: Mr. Mills said that he did not know who a bank draft for $10,177.50 was made payable to or for. Furthermore, he advised that he did not know the name of the subcontractor paid by a cash withdrawal for $1,200. He also did not have explanations for various other matters set out therein.
81At question 73, he was asked when the 2017 Cross Country D200 AA trailer financed by Equirex was returned. He said he did not know.
82The court finds that the answers given by Mr. Mills as set out above are true and accurate.
Surplus Income
83As will be seen later on, at Mr. Mills’ discharge hearing, the court ordered him to pay $70,500 for surplus income for 2018 and 2019. The evidence is that Mr. Mills advised Ms. Laurencelle when he first went to see her that he was having problems getting work and keeping himself afloat financially. The court rejects the evidence by Mr. Mills that he was trying to keep himself afloat financially. Based on $70,500 of surplus income, for 2018 and 2019, the court finds that Mr. Mills was making a good living, while at the same time, he was continuously delaying providing the surplus income information to the Trustee to do the necessary calculations and the payment of surplus income.
84Mr. Mills’ surplus income was not declared until August 2021, even though the Trustee had been requesting the information since February 2018. The court makes a finding to this effect.
85In an attempt to move the matter, based on the limited information provided by the Bankrupt despite numerous requests, the Trustee prepared high and low scenarios of surplus income. Based on the high income scenario, approximately $111,000 would be owing to the Estate while in a low income scenario approximately $50,000 would be owing to the Estate.
86The court has prepared the following chart based on the aforesaid two scenarios for the period of time from February 2018 to May 2018 and from December 2018 to May 2019, which the court considers to be the winter/spring months:
Surplus Income Calculation as reported by the Trustee and Included in the Trustee’s Report
High Scenario
February 2018
March 2018
April 2018
May 2018
Bankrupt’s portion of surplus income: 50% of monthly surplus income calculated by the trustee for specific months
0
($10.75)
$362.88
$4,439.18
December 2018
January 2019
February 2019
March 2019
$8,779.71
$3,988.65
($1,359.02)
$2,071.81
April 2019
May 2019
$5,696.79
$10,010.89
Low Scenario
February 2018
March 2018
April 2018
May 2018
Bankrupt’s portion of surplus income: 50% of monthly surplus income calculated by the trustee for specific months
0
$5,736.66
$71.89
$2,211.03
December 2018
January 2019
February 2019
March 2019
$1,396.38
$1,267.87
($2,090.87)
$981.26
April 2019
May 2019
$3,336.39
$4,632.20
E. & E.O.
87The chart in the high income scenario shows that there was surplus income in 7 out of the 10 months and either no surplus income or negative surplus income in 3 out of 10 months. The lowest surplus income for this scenario was for the month of February 2019 of ($1,359.02). The highest surplus income was for the month of May 2019 of $10,010.89.
88The low income scenario shows that there was surplus income for 8 out of the 10 months and there was either no surplus income or a negative surplus income in 2 out of 10 months. The lowest surplus income was for the month of February 2019 of ($2,090.87). The highest positive amount was for the month of March 2018 at $5,736.66.
89Based on the numbers in the charts and the surplus income calculations as a whole, the findings by Fortier A.J. was that Mr. Mills’ surplus income was $70,500, which on average was $3,357.14 per month for 21 months.
90Based on these calculations, the court rejects the argument by Mr. Mills that he had a hard time finding work and that he was having a hard time financially and therefore late and/or unable pay the equity on a timely basis. The court finds that Mr. Mills c.o.b. as Fawn Construction Group that earned enough income to provide $70,500 of surplus income.
91The court finds that Mr. Mills continuously delayed providing financial information, income tax returns, and various other information to calculate surplus income. The court finds that Mr. Mills’ actions, delaying tactics and the non-provision of the aforesaid information on a timely basis constitute a failure on his part to perform the duties of a bankrupt pursuant to the BIA and this failure rests solely on Mr. Mills.
Discharge of the Bankrupt
92In the amended trustee report dated May 28, 2021, the Trustee opposed the Bankrupt’s discharge pursuant to ss. 173(1)(a)(b)(d)(m) and (o) of the BIA. The Trustee recommended that the Bankrupt’s discharge be conditional upon the following:
(i) The Bankrupt shall file an accurate and complete 2018 post-bankruptcy income tax return, prepared by an accountant, and shall remit all amounts payable to CRA, including interest and penalties:
ii) The Bankrupt shall file an accurate and complete 2019 income tax return, prepared by an accountant, and shall remit the amounts payable to CRA, including interest and penalties;
iii) The Bankrupt shall file the HST return for his sole proprietorship for 2019 and shall remit the HST owing for the 2018 postbankruptcy period and 2019 to CRA, including interest and penalties;
iv) The Bankrupt shall pay to the Trustee the Surplus Income Payments due to the Estate, as determined by the court; and,
v) The Bankrupt shall provide to the Trustee ownership and financing documents related to any and all assets in the Bankrupt’s possession from the date of bankruptcy to now, that have not been previous disclosed to the Trustee.
93The discharge of the bankrupt was dealt by Fortier A.J. on August 9, 2021.
94At that time, the court made the following findings:
a) The assets of the Bankrupt are not equal to fifty cents on the dollar on the amount of the Bankrupt’s unsecured liability; s.173(1)(a)
b) The Bankrupt omitted to keep books of account; s.173(1)(b)
d) The Bankrupt failed to account for loss or deficiency of assets; s.173(1)(d)
m) The Bankrupt failed to pay the surplus income pursuant to section 68 of the BIA; s.173(1)(m) and,
o) The Bankrupt failed to perform duties imposed under the BIA. s.173(1)(o)
95At the discharge hearing, the court ordered that the Bankrupt’s discharge be subject to the following conditions:
a) The Bankrupt shall, within 30 days, file an accurate and complete 2018 post-bankruptcy income tax return, prepared by an accountant, and shall remit all amounts payable to CRA, including interest and penalties;
b) The Bankrupt shall, within 30 days, file an accurate and complete 2019 income tax return, prepared by an accountant, and shall remit the amounts payable to CRA, including interest and penalties;
c) The Bankrupt shall, within 30 days, file the HST return for his sole proprietorship for 2019 and shall remit the HST owing for the 2018 postbankruptcy period and 2019 to CRA, including interest and penalties;
d) The Bankrupt shall pay to the Trustee the sum of $70,500 for surplus income pursuant to s. 68 of the BIA, which payment shall be made as follows:
i. The Bankrupt shall pay the said sum over a sixty (60) month period, commencing on September 1, 2021, and monthly thereafter on the first day of each and every month until paid in full at a minimum monthly amount of $1,175.00;
ii. If the Bankrupt is successful on the Motion and the Trustee has not appealed the decision on the Motion, the unpaid balance of the $70,500 due to the Trustee shall be paid to the Trustee from the Trust Sale Proceeds, held in trust by Michael Leaver of Kelly Santini LLP, after deducting therefrom the payments made to the Trustee pursuant to paragraph d(i) above;
e) The Bankrupt shall provide to the Trustee ownership and financing documents related to any and all assets in the Bankrupt's possession from the date of bankruptcy to date, that have not been previously disclosed to the Trustee; and
f) In the event that the Trustee determines there is equity in the assets disclosed pursuant to paragraph (e), the Bankrupt shall pay to the Trustee the equity in the assets, or deliver the assets to the Trustee for realization.
g) The Bankrupt's discharge be suspended for a period of 6 months from the date of the order.
h) That once the Court was satisfied that the Bankrupt had complied with the conditions and the period of suspension has elapsed, an Absolute Order of Discharge could issue.
Issues
96The following are the issues on both the motion and the cross-motion:
Is Mr. Mills an honest but unfortunate debtor?
Who is entitled to the after-acquired property?
Was the Equity Agreement enough of a distinguishing factor to override the decisions in LePage and Kim.
What is the meaning of the phrase “Bankruptcy Period” in the Equity Agreement?
Is the defence of promissory estoppel available to Mr. Mills?
Does Mr. Mills have the right to pursue a claim for damages against the Trustee (Mr. Mills’ cross-motion)?
Does Mr. Mills have a claim for damages against the Trustee?
Issue #1: Is Mr. Mills an Honest but Unfortunate Debtor?
The Trustee’s Position
97The Trustee argues that Mr. Mills is not an honest but unfortunate debtor. It argues that Mr. Mills did not provide the information continuously requested by the Trustee on a timely basis, and the Bankrupt did not comply with the provisions of the BIA. Lastly there were findings made against the Bankrupt by the court which granted him a suspended and conditional discharge.
Mr. Mills’ Position
98Mr. Mills argues that he is an honest but unfortunate debtor who says his problems arose because of financial troubles with his business, Canada Landscape, and that his business debts forced him to go bankrupt.
99He argues that he is entitled to a “fresh start” in accordance with the caselaw under the BIA.
Analysis
100The court must consider the Bankrupt’s conduct to see whether he can be considered an honest but unfortunate debtor. This principle has been set out in numerous cases includeing Bank of Montreal v. Giannotti (2000), 2000 CanLII 16928 (ON CA), 197 D.L.R. (4th) 266 (Ont. C.A.). Paragraphs 11 to 15 read as follows:
11There is no question that a principal purpose of the Bankruptcy and Insolvency Act ("BIA") is the rehabilitation of unfortunate debtors. As expressed by L.W. Houlden and C.H. Morawetz in their treatise, Bankruptcy Law of Canada, 3rd ed., rev., Vol. 1, looseleaf (Toronto: Carswell, 1992) at p. 1-5:
The Act permits an honest debtor, who has been unfortunate in business, to secure a discharge so that he or she can make a fresh start and resume his or her place in the business community.
12However, the rehabilitation of the debtor must be balanced with the interests of creditors who have lost money because of the bankrupt's conduct. This requirement of a balanced approach in discharge hearings was well articulated by Adams J. in Re Goodman, [1995] O.J. No. 72 (Gen. Div.), at para. 1:
The rehabilitative purpose of bankruptcy legislation is well understood. See Re Willey (1981), 38 C.B.R. (N.S.) 24 (B.C.S.C.). Individuals and society generally benefit from a process by which the crushing burden of financial debt can be lifted, thereby permitting a bankrupt to resume the life of a useful and productive citizen. See Re Shakell . . . (1988), 70 C.B.R. (N.S.) 270 (Ont. S.C.). Equally important, however, is the integrity of the bankruptcy process itself. While the central purpose of the statute is to enable the honest but unfortunate debtor to make a fresh start, parity of treatment between debtors and fairness to creditors need to be kept in mind.
13Both Adams J. and Houlden and Morawetz use two adjectives to describe a debtor who should be entitled to the relief of a discharge -- "unfortunate" and "honest". I have no doubt that Mr. Giannotti has been unfortunate. The downturn in the real estate market in the late 1980s and early 1990s ruined many developers. Mr. Giannotti, with millions of dollars in personal guarantees behind his companies, was one of them.
14However, I do not think that the adjective "honest" applies to the manner in which Mr. Giannotti conducted himself in this proceeding. My review of his testimony at the discharge hearing leads to the inevitable and overwhelming conclusion that Mr. Giannotti has not told the truth to his creditors, his trustee in bankruptcy, or the court at the discharge hearing. In Re Gestetner (November 25, 1996), (Ont. Gen. Div.), Sharpe J. said, at para. 7:
An honest but unfortunate debtor is entitled by the law to have a fresh financial start. The applicants may have been unfortunate, but I find that they have not been honest. In my view, they are not entitled to have the fresh start the law allows them unless they are prepared to be honest with their creditors and with the court. The court has an obligation to ensure that the integrity of the bankruptcy law is maintained. The applicants have refused to provide the court with the information required to make an appropriate judgment. In light of the evidence the applicants have offered and the level of disclosure they have made as to the true state of their financial affairs, I find that they are not entitled to discharges on any terms.
15I agree entirely with the philosophy manifest in this passage -- a dishonest debtor, and a debtor unwilling to make full disclosure of his financial affairs, is entitled to no relief under the BIA. For several reasons, I find that every word of the above passage applies to Mr. Giannotti and, therefore, like the bankrupts in Re Gestetner, he was entitled to no relief at his discharge hearing.
101As set out above, the court must balance the competing interests of the honest but unfortunate debtor with the ability of the creditors to maximize their recovery in bankruptcy, where they are usually recovering pennies on the dollar.
102Furthermore, one of the cornerstones of the commercial system in Canada is the BIA, which is intended to provide honest but unfortunate debtors with a way of relieving themselves of their debts. The integrity of the BIA must be protected against those who try to abuse and or misuse it to their own benefit while at the same time leaving creditors with losses.
103The following case law sets out these principles:
a. A fundamental purpose of the BIA is to provide for financial rehabilitation of insolvent persons (see: Royal Bank of Canada v. North American Life Assurance Co., 1996 CanLII 219 (SCC), [1996] 1 S.C.R. 325.
b. The integrity of the BIA must be maintained so that honest or unfortunate debtors can obtain a discharge in order to make a fresh start and resume their place in the business community (see: Irwin (Re) (Trustee of) (1994), 1994 CanLII 1723 (BC CA), 89 B.C.L.R. (2d) 114 (C.A.)).
104The court finds that Mr. Mills is not an honest debtor because he did not comply with various provisions of the BIA, some of which are as follows:
He did not disclose his income to the Trustee on a timely basis for the purpose of calculating surplus income;
He did not provide his monthly budget of incomes and expenses to the Trustee in a timely basis;
He did not provide information to the Trustee on a timely basis in relation to his spouse’s paystubs, payments to suppliers, e-transfers, etc.;
He did not provide his completed income tax returns on a timely basis;
He did not file his post-bankruptcy income tax returns as required and did not remit HST in a timely fashion; and,
The equipment that was used by Canada Landscape was not property accounted for based on the letters from creditors.
105Therefore, the court finds that Mr. Mills is not an honest debtor.
106In addition, the court finds that Mr. Mills is not an unfortunate debtor because in his O.R. examination, Mr. Mills admitted that he did not have a bookkeeper and that he did not do any bookkeeping in relation to his business.
107Based on this evidence, the court finds that Mr. Mills is not an unfortunate debtor.
108The court finds that Mr. Mills’ actions and/or lack thereof, both before and after bankruptcy are relevant considerations. Therefore, based on the evidence in this case, the court finds that Mr. Mills is neither an honest nor an unfortunate debtor.
Issue #2: Who is Entitled to the After-Acquired Property?
Case Law on After-Acquired Property
109The major cases relied upon by the parties which dealt with after-acquired property are as follows:
- Re Lepage, 2016 ONCA 403, 36 C.B.R. (6th) 207
110In this case, the bankrupt was an undischarged bankrupt from a second bankruptcy. The trustee had the value of the bankrupt’s home appraised, finding it to have negative equity and adding no value to the estate. Despite the trustee’s representations to the bankrupt that it would disclaim the property, it took no steps under the BIA to divest its interest. The bankrupt, relying on the trustee’s representations, continued to pay the mortgage, property taxes, and insurance for the home: at paras. 1-8.
111Following the bankrupt’s application for a discharge, the trustee reported no amounts were realized on the bankrupt’s property. However, the Canada Revenue Agency (“CRA”), the sole unsecured creditor, obtained a new appraisal of the home showing that there had been a significant increase in the equity of the property and rejected the trustee’s report. While the motion judge ruled that, pursuant to ss. 67(1)(c) and 71 of the BIA, the increase was after-acquired property that accrued to the estate and to the benefit of the CRA, the representations made by the trustee and relied upon by the bankrupt gave rise to promissory estoppel that precluded the trustee from claiming the entire increase in value of the equity. The motion judge ruled that the bankrupt was entitled to credit for the reduction in principal amount of the mortgage from the date of the trustee’s representation that it would disclaim its interest in the home.
112The CRA appealed. The Court of Appeal allowed the CRA’s appeal of the motion judge’s decision, finding that that the motion judge erred by failing to apply the provisions of ss. 67, 68, and 71 to the bankrupt’s surplus income, thus allowing him to retain the after-acquired equity in the home: at para. 17. In doing so, the Court distinguished the case of Deloitte & Touche LLP v. Marino, 2004 CanLII 4324 (ON CA), 72 O.R. (3d) 274, since in that case one of the bankrupts was a discharged bankrupt entitled to dispose of her property as she wished in accordance with the “fresh start” principle: at para. 22.
113In Lepage, the bankrupt was undischarged and remained subject to the rule that after-acquired property vested in the trustee. The bankrupt was not entitled to retain any surplus income that exceeded his reasonable living expenses and, as an undischarged bankrupt, all after-acquired property vested in the trustee: at para. 23.
114In this case, Kim made an assignment in bankruptcy. The trustee opposed the bankrupt’s automatic discharge because arrangements satisfactory to the trustee for dealing with an increase in the realizable equity in the bankrupt’s house since the bankruptcy date had not been made: at para. 1. The trustee then brought a motion for vacant possession of the property and for leave to issue a writ of possession, which it sought under its statutory duty to realize on its interest in the realizable equity in the property for the benefit of the bankrupt’s creditors: at para. 2.
115This was the bankrupt’s second bankruptcy. Prior to making the assignment, Kim signed a declaration stating, “I have been advised that any assets I acquire prior to my discharge from bankruptcy (including appreciation in the value of any real estate I may own) are after-acquired assets and may be realized upon by the Trustee”: at para. 3(f).
116At the date of the bankruptcy, the home had no realization value when accounting for costs of disposition, and the home was noted by the trustee as being exempt from realization. Prior to the bankrupt’s eligibility for an automatic discharge, the trustee sought information about the value of the home. The bankrupt obtained three property valuations, but only provided the trustee with the lowest one. The trustee then sought a formal appraisal, which valued the home at approximately $200,000 more than the value the bankrupt had indicated at the date of bankruptcy: at paras. 3(i)-(n). The parties were unable to agree on the value to be paid by the bankrupt to the trustee for the increase in the net realizable value of the property since the date of bankruptcy: at para. 3(o).
117Two issues were before the court: (1) did the equity in the property from the date of bankruptcy vest in the trustee under the BIA such that the trustee was entitled to an order for possession and leave to issue a writ of possession of the property to realize on its interest in the property for the benefit of the bankrupt’s creditors, and (2) did the assertion by the bankrupt that his wife had an interest in the property affect the trustee’s entitlement to vacant possession of the property and/or the court’s decision about whether to grant leave for the issuance of a writ of possession?
118In finding that the trustee had a vested interest in the increase in the net realizable equity in the home that accrued since the date of bankruptcy, the court rejected the bankrupt’s submissions for the court to follow Gwizd and distinguish from LePage. The court held that the Court of Appeal’s decision in LePage was binding and rejected submissions that LePage’s application is limited to circumstances of fraud as set out in Gwidz: at para. 14.
- Deloitte & Touche LLP v. Marino (2004), 2004 CanLII 4324 (ON CA), 72 O.R. (3d) 274 (C.A.)
119Mr. and Mrs. Marino declared bankruptcy and Deloitte & Touche LLP (“D&T”) was appointed as trustee in bankruptcy. Under the BIA, the Marino’s home vested in D&T, who made representations that it would not make a claim to the home. This was again confirmed when the parties were discharged from bankruptcy. A final statement of receipts and disbursements stating that there was no equity in the home available to creditors was issued. Relying on D&T’s representations, the Marinos completed home renovations and planned to pay the outstanding mortgages. D&T was discharged as trustee for Mrs. Marino but continued with respect to Mr. Marino. Subsequently, D&T registered its interest against the home and later moved for possession of the property and directions for sale.
120The motion judge held that D&T was aware of the equity in the home and that too much time had passed for D&T to now advance a claim against the equity. Concluding that the home was incapable of realization within the meaning of s. 40(1) of the BIA, the motion judge stated that the trustee should have opposed the Marinos’ discharges from bankruptcy if it intended to proceed against the equity. The motion judge ordered the property vested in the Marinos pursuant to s. 40(1) of the BIA.
121The Court of Appeal dismissed the appeal. With respect to Mrs. Marino, the Court of Appeal held, at para. 20, that following her discharge, D&T only continued in its position for “such duties as may be incidental to the full administration of the estate” pursuant to s. 41(10) of the BIA. As such, absent an application for reappointment, despite that the property vested in the trustee, D&T had no authority to deal with it unless such dealing was “incidental” to the administration of Mrs. Marino’s estate. The sale of Mrs. Marino’s interest in the home was not incidental: at paras. 21-22.
122With respect to Mr. Marino, the court held that because Mr. Marino was an undischarged Bankrupt and that D&T was still the trustee in bankruptcy, the issue was whether the motion judge erred in concluding that the property was incapable of realization. Since D&T was not discharged and since it’s Final Statement to Mr. Marino stated its view that there was equity in the property, the trustee could not be found to have determined that the home was incapable of realization so as to found the basis of a vesting order: at para. 29. However, on the issue of promissory estoppel, the court found that the trustee gave assurances to the Marinos and that they acted honestly. Further, they acted on the representations from D&T. Therefore, the Court of Appeal upheld the motion judge’s finding that promissory estoppel applied: at paras. 37-38.
- Re MacKay, 2002 ABQB 598, 4 Alta. L. R. (4th) 181
123In this case, the bankrupt voluntarily sold his residence, which he owed as a joint tenant, while still in bankruptcy, although there was a conditional order of discharge. The sale resulted in the bankrupt receiving a surplus above his $20,000 exemption. The trustee requested that the surplus be paid to it, but the bankrupt refused. The trustee did not challenge the bankrupt’s refusal, but the bankrupt’s creditor, the Canadian Imperial Bank of Commerce (“CIBC”), was permitted to commence proceedings for the bankrupt’s equity in the residence above the exemption.
124The CIBC’s action was held to be too late, and the court stated that claims for surplus equity ought to be advanced by no later than the bankrupt’s application for discharge: at paras. 103-04, 110. The court held that the surplus above his exemption was not after-acquired property and stated that if property which vests in the trustee on the date of bankruptcy increases in value while vested in the trustee, that increase in value is not after-acquired property: at para. 108.
- Re Hazin, 2011 ABQB 197, 516 A.R. 167
125This case involved an application by the trustee for directions relating to the realization of the bankrupt’s non-exempt equity in the former matrimonial home. The bankrupt’s spouse cross-applied for an order allowing her to pay to the trustee the previously determined value of the bankrupt’s share of the matrimonial home in exchange for the trustee’s right, title, and interest in the home.
126The trustee had previously applied for advice and directions regarding the value of the non-exempt portion of the matrimonial home. At that hearing, the registrar directed that “the portion of the matrimonial home available for distribution among creditors after allowing for 50% being the wife’s portion, to be $36,500”: at para. 6. The registrar also set the conditions for the bankrupt’s discharge. Between the date of the registrar’s decision and this application, the value of the matrimonial home increased from $305,000 to $533,500: at paras. 6, 9.
127The trustee submitted that they were entitled to one-half of the increased equity in the matrimonial home: at para. 10. The bankrupt’s spouse argued that an increase in non-exempt equity was not after-acquired property and that the trustee’s interest in the matrimonial home was solidified on the date of discharge: at paras. 11-15.
128Gill J. held that the trustee’s interest in the home had crystallized on the date of the registrar’s decision for two reasons. Firstly, the court followed the guidance of Master Funduk in Re MacKay, and held that the discharge is the latest time that the issue of non-exempt equity may be addressed, and once a bankrupt receives an absolute, suspended, or conditional discharge, the value of the home cannot later be revisited: at paras. 27-28. Secondly, Gill J. held that the doctrine of issue estoppel applied, precluding further litigation as the earlier decision granting the bankrupt a conditional discharge had determined with finality the trustee’s interest in the matrimonial home: at paras. 29-30. The spouse’s application was granted.
- Re Piraux, 2006 ABQB 409, 398 A.R. 66
129In this case, a husband and wife both made assignments in bankruptcy. They jointly owned a home, for which they claimed an exemption for the equity. Subsequent appraisals demonstrated that the value of the home was higher than at the valuation date, resulting in some non-exempt equity in the home. The bankrupts brought an application for a declaration as to the amount owed for non-exempt equity in the home, arguing that the entirety of the equity in the home should be exempt since essentially all the non-exempt equity would be consumed by the costs of disposition.
130The court had to determine when in the bankruptcy the value should be set for the bankrupt’s residence: the date of the assignment in bankruptcy or an “essentially moving target”, being the date when the property is effectively dealt with by the trustee: at para. 13. The court held that the date the property is effectively dealt with, not the date of bankruptcy, should govern its proper valuation: at para. 44. By doing so, it removes “any market risk that might erode the economic value of the exemption and ensures the bankrupt has a certain amount with which to make a fresh start”, and it also preserves the integrity of the bankruptcy system in maximising the return for creditors: at paras. 44, 48.
131In this case a first-time bankrupt sought an order of discharge on the condition of making an agreed-upon payment to the trustee. Prior to declaring bankruptcy, the trustee agreed it would disclaim its interest in the bankrupt’s home upon the bankrupt paying out the agreed upon net equity in the home. Relying on these representations, Mr. Gwizd made an assignment into bankruptcy and the parties entered an agreement where the equity the bankrupt would need to pay was ultimately determined to be $30,363.45.
132The trustee brought an application for the bankrupt’s discharge conditional on the bankrupt making the agree-upon payments. The matter was adjourned, and a more recent appraisal of the home was obtained, which found that the value of the property and the equity had increased purely as a result of market forces. The court had to determine whether or not the increase in the equity of the property was after-acquired property pursuant to s. 67 of the BIA and whether the bankrupt was entitled to rely on the principle of promissory estoppel: at para. 21.
133Registrar Taylor concluded that when taking into account the rehabilitation of the bankrupt, the interest of the creditors being paid, the public’s perception of the integrity of the bankruptcy process, and that the increase in equity in the bankrupt’s residence was unearned equity due to the demand for housing and not the result of anything the bankrupt did, the bankrupt could not be held accountable for after-acquired property: at para. 44. The bankrupt was discharged on the condition he pay the trustee the agreed upon sum.
134In doing so, the court distinguished the case from LePage, noting that Lepage was a second bankruptcy involving tax fraud. Further, the court noted that the Ontario Court of Appeal’s comments were made in obiter and not made in the context of a decision dealing with an application for discharge: at paras. 29-35.
The Trustee’s Position
135The Trustee argues that, notwithstanding the Equity Agreement, Mr. Mills’ reacquisition of his interest in the Property and its increase in value is after-acquired property that accrues to the benefit of Mr. Mills’ creditors pursuant to s. 67 of the Bankruptcy and Insolvency Act.
136The Trustee relies on Re Lepage, 2016 ONCA 403, 36 C.B.R. (6th) 207, at para. 25, in which the Court of Appeal affirmed the motion judge’s finding that if the bankrupt remains in the property or acquires it from the Trustee before discharge, any increase in equity is after-acquired property that accrues to the benefit of the estate. The Trustee submits that this principle applies to this case.
137While the Trustee acknowledges the difference in circumstances of the bankruptcies in this case versus in LePage, it submits that the culpability of the bankrupt has no impact on whether the Property is considered after-acquired property and that s. 67(1)(c) of the BIA applies regardless.
138The Trustee also relies on Re Kim, 2022 ONSC 2731, in which the court considered whether the Trustee had a vested interest in the increase in the net realizable equity in property since the date of bankruptcy. The court applied the reasoning in Lepage in holding that it did.
Mr. Mills’ Position
139Mr. Mills argues that he is entitled to his share of the equity in the Property. While Mr. Mills acknowledges LePage, he argues his situation is distinguishable because:
- There was an Equity Agreement between the parties regarding the equity in the Property;
- Mr. Mills paid the Trustee to reacquire the equity in the Property;
- The circumstances under which the bankruptcies in Lepage and other cases occurred are different;
- There are no inspectors or objecting creditors in this case;
- Section 172.1 of the BIA is not applicable in this case; and
- Unlike in Lepage, there is evidence of detrimental reliance by Mr. Mills.
140Mr. Mills argues that the relevant date for valuing a bankrupt’s property is the date of realization, which in this case was February 14, 2018. He also relies on Re Piraux, and Re MacKay, to support the principles that property should be valued when it is dealt with by the Trustee and that an increase in value is not after-acquired property.
141Mr. Mills also relies on Re Gwizd, which he submits is factually analogous to the case before the court. Mr. Mills argues the court in Gwizd rejected Lepage as an authority on the issue of after-acquired property. In Gwizd, the court considered whether the increase in equity in property post-assignment but pre-discharge was after-acquired property, and whether Mr. Gwizd could rely on an equity agreement and assurances. The court held that the increase in equity was not after-acquired property as defined by the BIA.
142Mr. Mills argues that the parties had a legally enforceable and binding agreement. Once Mr. Mills satisfied the payment requirements, including that the payment be made within the Bankruptcy Period, he argues he was entitled to have the Trustee remove the registration from title. He submits that the terms of the Equity Agreement should be enforced.
Analysis
143This court notes that the cases of Re MacKay, Re Hazin, and Re Piraux all predate the LePage case and are from provinces other than Ontario. The court will not follow these decisions because they were decided prior to Lepage.
144The Gwidz case was decided in 2017, which was two years after LePage and 5 years before Kim. The court in Gwidz distinguishes LePage at para. 43 where the court sees LePage as a “one-off where the court determined the bankrupt needed to provide a healthy payment to CRA whom the debtor had defrauded, and for no other purpose.”
145In Gwidz, the court continues at para. 44:
when the court takes into account the rehabilitation of the bankrupt, the interest of the creditors in being paid, the public’s perception of the integrity of the bankruptcy process, and the fact that the increase in equity in the bankruptcy residence is merely unearned equity due to the demand for housing in the Lower Mainland and Fraser Valley of British Columbia, and is not the result of anything the bankrupt did, then the bankrupt cannot be held accountable for after-acquired property as it is defined in the BIA.
146This court finds that in Gwidz, at para. 44, the court takes into account four factors, three of which are most applicable in this case.
147The first factor is the rehabilitation of the bankrupt. The court finds that in this case, based on the five findings made under s.173(1) of the BIA at the discharge hearing, the numerous conditions set out in the conditional and the suspended discharge order granted by Fortier A.J., that Mr. Mills has not either been self rehabilitated or otherwise rehabilitated. The court has compelled and enforced his rehabilitation as set out in the conditions of the discharge order, which is ongoing. Therefore, the court finds that Mr. Mills has not been rehabilitated.
148The second applicable factor set out in Gwidz was the interest of the creditors in being paid. The court notes if Mr. Mills’ argument is successful, the creditors will receive pennies on the dollar particularly after considering fees and disbursements while Mr. Mills will walk away with almost a quarter of a million dollars. The court finds such a result to be unconscionable and totally inappropriate under the circumstances of this case.
149The third applicable factor set out in Gwidz was the public’s perception of the integrity of the bankruptcy process. The court finds that based on the facts of this case, the public’s perception and confidence in the integrity of the bankruptcy process would be severely questioned if Mr. Mills were to receive the after-acquired value in the property of over $265,000, while the creditors would receive a very small portion of the estate assets. The Court finds that the integrity of the bankruptcy process under the BIA must be respected. This factor weighs against Mr. Mills.
150The court is aware that the last factor is the increase in value of the real estate due to market forces which may be in Mr. Mills’ favour. The court finds that this is only one of the four factors used by the court in coming to its decision. The court finds that the first three factors are of greater importance in the present case and weigh against the Bankrupt.
151In LePage, the Court of Appeal of Ontario found that the motion judge erred by failing to apply the provisions of ss. 67 and 71 of the BIA and by allowing the bankrupt to retain the after-acquired property in the home: at para. 17.
152At para. 25 of LePage, the court said that if the bankrupt remains in the property or reacquires it from the trustee before discharge, subject to any order to the contrary, any increase in equity is after-acquired property that accrues to the benefit of the estate.
153In Lepage, the court distinguished Deloitte and Touche Inc v. Marino because in Marino, Mrs. Marino had already been discharged and the court said that she was entitled to dispose of her property as she wished in accordance with the “fresh start” principles: at para. 22.
154Mr. Marino was undischarged at the time. The court found that the trustee had given him an assurance that the trustee would not proceed against the property and both Marinos acted on that assurance. The court found in favour of the Marinos. The court said at para. 35:
Not only did the trustee give assurances to the Marinos, but the Marinos also did not engage in any conduct that would have misled the trustee. The trial judge found as a fact that the Marinos had acted honestly.
155The court specifically notes that in Marino, the Marinos had acted honestly.
156The court finds that in the Mills case, Mr Mills did not act honestly. The court finds that acting honestly sufficiently distinguishes the Mills case from Marino.
157In LePage, the bankrupt was an undischarged bankrupt. He remained in the property that was partly owned by him. He was asked to re-acquire it from the trustee before discharge. There was no order to the contrary (Lepage, at para. 25). This means that according to Lepage the after-acquired property is vested in the trustee.
158In Kim, at para. 14, the court said the following about Gwidz, “the decision of a registrar in bankruptcy in British Columbia is not binding in Ontario. A decision of our Court of Appeal is binding. I do not accept the bankrupt’s submission that the reasoning in LePage is limited to circumstances of fraud and should be distinguished in other circumstances.”
159A very similar argument was made by the Bankrupt and rejected in the recent case of Ouellette which applied and followed LePage: Ouellette et al. (Re), 2022 ONSC 1698 endorsement of Gorman J. dated March 17, 2022, leave to appeal to ONCA refused May 17, 2022.
160In the present case, Mr. Mills argues that there is a distinguishing factor similar to Gwidz, which is the Equity Agreement.
Issue #3: Was the Equity Agreement enough of a distinguishing factor to override the decisions in LePage and Kim?
161The Equity Agreement was dated February 14, 2018 and signed by both parties. It required Mr. Mills to pay $12,261.20 for his equity in the Property. The agreement said that the monies were to be paid within the bankruptcy period. There is no definition of the phrase “Bankruptcy Period”.
162The Equity Agreement includes a provision that the trustee could oppose the Bankrupt’s discharge or ask to have his discharge revoked if he did not pay the equity.
163The Trustee opposed the Bankrupt’s discharge in an opposition to discharge dated October 11, 2018. The matter proceeded to court and was adjourned sine die.
164The Equity Agreement also indicated that it was subject to either creditor approval, inspector approval, or court approval. The court also acknowledges that no inspectors were appointed. The court acknowledges that there were no meetings of creditors to seek approval. The court finds this is a motion for “court approval” as described in the Equity Agreement.
165The court acknowledges that before the opposition to discharge was filed, approximately $5,050 was paid. After the opposition to discharge was filed, $2,350 was paid on November 1, 2018. No further payments were made until April 2021, when the balance was paid off.
166By December 16, 2020, or by February 3, 2021, at the latest, the Trustee had, through its actions of setting the deadline and then ordering the O.R. examination, terminated the Equity Agreement, based on the Bankrupt’s actions and/or conduct. The court finds that the Trustee had lost faith in Mr. Mills and his duty to comply with the provisions of the BIA on a timely basis. Because of his conduct, the court finds that Mr. Mills’ noncompliance and the Trustee’s request for the O.R. examination, has the effect of terminating the Equity Agreement.
167The court finds that it is reasonable for payment of the equity to be within 21 months of his bankruptcy or a few months later (i.e., by February 2020).
168As stated previously, the court finds that there was no affirmation of the Equity Agreement by the Trustee after December 15, 2020, at the earliest or February 3, 2021, at the latest.
169It is not until April 2021 that the Bankrupt paid the balance of the equity which is about 30-40% of the balance owing. The court is aware that the money was accepted by the Trustee. At the same time, the Trustee was aware that surplus income would have been payable by Mr. Mills, so that he would have had to pay the money in any event. His surplus income obligation was found to be $70,500 far more than the approximate $5,000 paid in April 2021.
170In February 2018, both the Trustee and the Bankrupt agreed to the value of the equity in the property, subject to a concern by Mr. Mills that the equity was too high. The court finds that the issue of the equity being too high was resolved by February 2019, when Mr. Mills advised that he was satisfied with the Trustee’s calculations. Yet, for reasons unknown, Mr. Mills did not pay the balance until 27 months later.
171The court finds the Trustee’s expectation was that the equity would be paid either within nine months of his bankruptcy, or if he had surplus income, within 21 months of his bankruptcy, and at the latest, a couple of months later.
172It was not until November 1, 2018, that Mr. Mills had paid off a total of $7,500. He did not pay the rest of the money until April 2021, a span of approximately 40 months.
173The court finds that the Equity Agreement is not a “a pay what you want, when you want” agreement. It must be a commercially reasonable agreement with reasonable parameters. The court finds that payment in 39 months is not reasonable and that paying off the equity in April 2021 was far too late.
174The Trustee had warned the Bankrupt about his failure to comply with his duties under the BIA. By an email dated November 25, 2020, the Trustee indicated that if the Bankrupt did not provide the information by December 15, 2020, then the Trustee would consider applying for his discharge and thereafter, the rights of the creditors would revive as against the Bankrupt.
175The court finds that Mr. Mills did not provide the information by December 15, 2020. Notwithstanding that position taken by the Trustee, the court finds that Mr. Mills provided little or no further information to the Trustee on a timely basis as required by the BIA.
176The court finds that Mr. Mills either intentionally and/or negligently failed to provide this information to the Trustee on a timely basis and he was non-compliant with the provisions of the BIA. The court finds that the Trustee had lost all faith in Mr. Mills and his conduct. On that basis, the Trustee ordered the O.R. examination, which was held on February 3, 2021.
177The court finds that the bankrupt’s conduct terminated the Equity Agreement when he did not pay on a timely basis. Once the agreement was terminated, the acceptance of the funds by the Trustee would have been on account of fees and/or unpaid surplus income.
178Furthermore, the court finds that by accepting the monies from the Bankrupt in April 2021, the Trustee did not reaffirm the Equity Agreement as it had been previously terminated.
179The court finds that Mr. Mills could have paid off the balance of the equity in a timely basis; however, he chose not to. The court finds that with a surplus income of $70,500, there would have been more than sufficient funds to pay off the equity in a reasonable period of time during a 21-month bankruptcy period.
180The court rejects the Bankrupt’s argument that, for the purpose of the Equity Agreement, the bankruptcy period should be an indefinitely extended period of time because the Bankrupt has not been discharged. That reasoning defies all logic. It also allows the Bankrupt to determine when and how much he would pay and to basically control the administration of his bankruptcy.
181To accept the Bankrupt’s behaviour and his argument on this topic would place the integrity of the BIA in jeopardy and would allow the Mr. Mills to control the bankruptcy process. The court is not prepared to reward behaviour by a bankrupt which flouts the integrity of the BIA and which goes against its policies of being a commercial act to alleviate honest but unfortunate debtors from past debts and allow them to have a fresh start.
182Therefore, the court finds that the Equity Agreement was terminated by the Bankrupt’s action or lack of action and was no longer in place after February 3, 2021, at the latest.
183This is Mr. Mills’ first bankruptcy. If he had no surplus income, and assuming he complied with the provisions of the BIA, it would be a nine-month bankruptcy. If there was surplus income, the bankruptcy would be extended to 21 months.
184Based on this analysis, the court finds that the Equity Agreement is insufficient to distinguish it from LePage and Kim for the following reasons:
Mr. Mills has been found to be neither an honest nor an unfortunate debtor;
Five findings were made by Fortier A.J. pursuant to s. 173 of the BIA at Mr. Mills’ discharge hearing;
Mr. Mills was given a suspended discharge;
The court ordered that lengthy conditions be placed on Mr. Mills’ discharge which included the payment of $70,500 of surplus income;
Mr. Mills did not cooperate in providing information to the Trustee including information set out in an email dated March 6, 2020, as well as surplus income information;
Various deadlines provided by the Trustee for Mr. Mills to provide information were missed including the final deadline of December 15, 2020;
The Trustee did not reaffirm the Equity Agreement after December 15, 2020, or ask for the balance after December 15, 2020;
The Trustee requested an O.R. examination, which was held on February 3, 2021;
The balance was not paid until April 2021, approximately 40 months after the initial bankruptcy; and,
Mr. Mills’ conduct had the effect of terminating the Equity Agreement as of December 15, 2020, or at the latest by February 3, 2021, being the date of the O.R. examination.
185The court finds that Mr. Mills’ discharge was delayed because of his conduct, his lack of cooperation, and his failure to provide documentation sought by the Trustee on a timely basis.
186Therefore, as stated previously, the court finds that the Equity Agreement is not a sufficient distinguishing factor to distinguish it from the decisions in LePage and Kim.
187In addition, the court does not find that the reasoning in LePage is limited to circumstances of fraud and can be distinguished in other circumstances.
188This court agrees with the reasoning in the LePage, Kim, and Ouellette cases and finds that they are the applicable law in Ontario and are to be followed in this case.
189The court finds that it would be inequitable and improper for Mr. Mills to have ignored his obligations and requirements of the BIA and claim that the Trustee should be obliged to follow the Equity Agreement which in fact has been terminated by the Bankrupt based on his conduct and/or his inaction to provide accurate information during the bankruptcy.
190Furthermore, while it may have been covered peripherally before in the analysis, the court finds that a policy consideration must be taken into account. The Bankrupt’s conduct must be appropriate and in compliance with the BIA, otherwise, there is no respect or reason to respect the integrity of the bankruptcy system. The court must ensure that the BIA is complied with so that its integrity, as viewed by the public, is held in a positive light and not in disrepute. In this case, the court finds that Mr. Mills’ conduct was not appropriate and not in compliance with the BIA.
Issue #4: What is the Meaning of the Phrase “Bankruptcy Period” in the Equity Agreement?
191The Bankrupt made an argument that the Equity Agreement was paid over the “Bankruptcy Period”. The court notes that there is no definition of the term “Bankruptcy Period” in the Equity Agreement. Mr. Mills interprets it to mean at any time before his absolute discharge. The court rejects the Bankrupt’s interpretation of “Bankruptcy Period”.
192The court interprets and finds that the phrase “Bankruptcy Period” to either be nine months assuming there was no surplus income or 21 months assuming there was surplus income and possibly several months after that which would have been by February 2020 at the latest. The court does not interpret bankruptcy period to mean any time before the Bankrupt’s absolute discharge. That would allow the Bankrupt to control the bankruptcy proceedings including when he could receive his discharge. The balance of the equity was not paid until April 2021, some 29 months after the last payment in November 2018.
193In theory, the Bankrupt’s discharge might not be granted an indefinite period of time. The court finds that to interpret the term “Bankruptcy Period” the way the Bankrupt wants is absurd and unreasonable. The court finds that the Bankrupt was to make the payment for the equity in good faith in accordance with either a nine-month or a 21-month bankruptcy or a few months later, not a bankruptcy that had an indefinite end date.
Issue #5 - Is the Defence of Promissory Estoppel Available to Mr. Mills?
The Trustee’s Position
194The Trustee argues that regardless of whether the Trustee made a promise or assurance to Mr. Mills, there was no detrimental reliance; it submits that Mr. Mills had no option but to file for bankruptcy; and his bankruptcy did not result from the Trustee’s representations. Additionally, it argues that Mr. Mills’ equity in the Property would have been subjected to creditors’ claims regardless of the bankruptcy.
195The Trustee argues that at no time did it indicate to Mr. Mills that it was guaranteed he could repurchase the equity in the Property for the sum that was agreed to, and the evidence demonstrates that this would have been communicated to Mr. Mills. Additionally, the Trustee submits that the evidence establishes that Mr. Mills would have been advised that if the Property were to be sold during the Bankruptcy Period, the amount of equity received from the sale would take precedence over the Equity Agreement and would be payable to the Trustee.
Mr. Mills’ Position
196Mr. Mills argues that the Trustee is estopped from claiming entitlement to the increase in the Property’s value. Mr. Mills submits the Trustee’s advice and assurances led him to believe that the Trustee would discharge the registration from the title and Mr. Mills would be entitled to 50 percent of the equity in the Property, and these assurances informed his decision to make the assignment in bankruptcy.
197Mr. Mills argues the Trustee led him to reasonably believe that payment in full was not required until the discharge hearing and that lump sum payments were sufficient to meet the terms under the Equity Agreement. As such, the Trustee cannot now claim that it is entitled to the increase in half of the equity during the bankruptcy period.
198Mr. Mills argues that even if the Trustee had a legal entitlement to realize part of the equity in the property, it is estopped from doing so. He relies on the case of Deloitte & Touche LLP v. Marino, where the bankrupt, like Mr. Mills, continued to pay the mortgage and related payments while relying on the assurance of his Trustee that it would not make a claim against the equity of the bankrupt’s home. The court in that case held that the defence of promissory estoppel applied.
Analysis
199In Marino, the test in relation to the defence of promissory estoppel is set out at para. 32:
(a) That the trustee, by words or conduct, made a promise or assurance which was intended to affect its legal relationship with Mr. Mills and intended Mr. Mills to act upon it; and,
(b) Mr. Mills, relying on the representation, acted on it or in someway changed his position.
200The Trustee and the Bankrupt interpret this test differently.
201The court finds that when the initial meeting occurred between the Trustee and Mr. Mills in October 2017 and the subsequent meeting on February 14, 2018, when Mr. Mills filed for bankruptcy, his business (Canada Landscape) was failing, and he was under emotional and financial strain attempting to address the claims of Canada Landscape and his own creditors. At one point, at least one creditor was trying to obtain a judicial sale of the Property in order to realize on their judgment. In addition, the CRA was indicating that it was going to register a lien against the Property to secure the outstanding indebtedness owed by Mr. Mills.
202The court finds many bankrupts are under emotional and financial strain when they see a Trustee.
203The court finds that the promise made by the Trustee was that if Mr. Mills filed for bankruptcy, his financial issues would be, for the most part, resolved. On that basis Mr. Mills filed for bankruptcy, which changed his status from debtor under pressure from his creditors to the status of a bankrupt, for which there was a stay of proceedings under s. 69 of the BIA in place.
204The Bankrupt argues that he relied on the Trustee’s assurances that he could purchase the property for the $12,621 prior to his discharge and that he actually paid the money prior to his discharge. Notwithstanding that fact, the Bankrupt argues that even though he has paid the money he did not receive the Trustee’s release of interest in the Property and that the Trustee is now claiming an interest in the after-acquired property.
205The court rejects Mr. Mills’ interpretation. The court finds that the interpretation provided by the Trustee prevails.
206The court finds that the promises or assurances made by the Trustee and which the Bankrupt relied upon, changed his status from a non-bankrupt debtor with over $500,000 of debt, to a bankrupt in order to deal with his debts under the BIA which included a stay of proceedings under s. 69 of the BIA. Mr. Mills accepted the advice of the Trustee and filed for bankruptcy.
207The court finds Mr. Mills had no other realistic option but to file for bankruptcy. On his Statement of Affairs, he reported that he had no employment income. Therefore, the court finds that he could not pay his debts without going bankrupt. He did not have the ability to compromise his debts with a proposal under the BIA because, in part, he did not have the cash flow to do it. The only mechanism that Mr. Mills could use to deal with his debts in an orderly fashion was to file for bankruptcy, which he did. His legal position changed from being an insolvent person with no protection to a Bankrupt with protection under the BIA.
208Mr. Mills was assured by the Trustee that he would be able to remain in occupation of the property, that Mrs. Rocan’s interest in the Property would not be affected, and that he would be able to purchase the equity at a reasonable cost. Relying on those assertions, Mr. Mills filed for bankruptcy. The court finds that the Trustee made the representation that if Mr. Mills filed for bankruptcy, that his financial situation would change for the better. Mr. Mills relied on those representations and went bankrupt. The court finds that his financial situation did change for the better because the s. 69 BIA stay of proceedings was in place.
209The fact that Mr. Mills paid the taxes, insurance, and the mortgage on the property does not enter into the equation in this case because he was only part owner of the property. If he had to live somewhere else, he would have had to pay similar amounts to what he was paying for his share of the mortgage, insurance, and taxes. Moreover, Ms. Rocan would have been liable for these costs and expenses in any event.
210If the court is wrong in this interpretation, and the interpretation of the Bankrupt is the correct one, the court finds that the Bankrupt’s conduct terminated the Equity Agreement, in part, by virtue of his failure to comply with various provisions of the BIA.
211In terms of the Marino case, one of the major findings of the court was that the Trustee had given assurances to the Marinos and that the Marinos had acted honestly. As the court had found previously, Mr. Mills did not act honestly. He did not provide his surplus income information on a timely basis, he was subject to an Official Receiver’s examination, he did not answer various questions made by the Trustee on a timely basis, and he was found to have committed five facts under s. 173(1) of the BIA.
212Furthermore, this court has already made findings that Mr. Mills is not an honest or unfortunate debtor.
213The court finds that the current case can be distinguished from Marino in relation to the issue of promissory estoppel because of his failure to act honestly, one of the key findings made in Marino. In order to obtain the relief by Mr. Mills, he must come to court with clean hands and keep his hands clean. The court finds that Mr. Mills did not come to court with clean hands and if he did, he certainly did not keep them clean during the bankruptcy process.
214As such, the court finds that Mr. Mills cannot rely on the defence of promissory estoppel. The court finds that the claim of the defence of promissory estoppel fails.
Issue #6: Does Mr. Mills Have the Right to Pursue a Claim for Damages Against the Trustee? (The Mills’ Cross-Motion)
The Trustee’s Position
215The Trustee submits that Mr. Mills has no standing to bring the alleged claim for damages, since it is property within the meaning of the BIA, and considering the effects of ss. 67 and 71 of the BIA, Mr. Mills’ claim is after-acquired property.
216It also argues that Mr. Mills did not obtain leave to commence an action for damages against the Trustee pursuant to s. 37 and/or s. 215 of the BIA.
Mr. Mills’ Position
217Mr. Mills argues that he is entitled to bring the matter to this court even if he did not obtain leave. In addition, he argues that the Trustee had in his factum waived the requirement for leave to be brought and the matter should proceed.
Analysis
218In order for Mr. Mills to sue the Trustee, he must comply with ss. 37 and 215 of the Bankruptcy and Insolvency Act. Those sections read as follows:
Appeal to court against trustee
37 Where the bankrupt or any of the creditors or any other person is aggrieved by any act or decision of the trustee, he may apply to the court and the court may confirm, reverse or modify the act or decision complained of and make such order in the premises as it thinks just.
No action against Superintendent, etc., without leave of court
215 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.
219The court finds that the Bankrupt has not appealed the decision of the Trustee pursuant to s. 37 of the BIA. The bankrupt has brought a cross motion against the Trustee. The court finds that the cross-motion is not an appeal of the Trustee’s decision.
220In this particular case, the Bankrupt is the one who claims to be aggrieved by the Trustee not releasing the equity in the Property to him.
221Pursuant to s. 37 of the BIA, a Trustee is entitled to the protection of the court against improper, frivolous, and vexatious suits or proceedings arising out of its administration of the Bankrupt estate: see Re Walsh (1924), 5 C.B.R. 27 (Ont S.C.), Re Pelée Motor Inn Ltd. (No. 2) (1979), 30 C. B.R. (N.S.) 216 (Ont. S.C.).
222Under s. 215 of the BIA, leave of the court is required in order to bring an action against the trustee with respect to any report made thereunder or any action taken pursuant to the BIA. This section is intended to protect those charged with the administration of the BIA from actions or other proceedings save those which have the sanction of the courts: see 382231 Ontario LTD v. Wilanour Resources Ltd. (1982), 43 C.B.R. (N.S.) 153 (Ont S.C.).
223The court finds that in this case, leave was not obtained. The court notes that in it’s factum, the Trustee has consented to waiving the leave requirement provided the matter was brought as an action in ordinary civil court and not in bankruptcy court.
224Notwithstanding the fact that leave was not obtained to begin the action pursuant to s. 215 of the BIA, based on the Trustee consenting to the waiving of the leave requirement, this court will allow this matter to proceed by way of an action in the Ontario Superior Court of Justice Civil Division but not in the Bankruptcy and Insolvency Court of the Civil Division, if the Bankrupt wishes to do so.
Issue #7: Does Mr. Mills Have a Claim for Damages Against the Trustee?
225Based on the decision in the previous issue, about where an action can be bought, the court will not deal with this issue.
Miscellaneous
226In the reply oral argument, Mr. de Toni raised the subject of $27,292.84 in relation to additional monies that are required to be paid to the Trustee.
227No mention of this amount was made in the motion materials. The court does not have any evidence in relation to this amount. Accordingly, the court will not make any findings about it.
228In addition, Mr. Mills has paid the $12,621.20 to the Trustee. The court finds that from the $264,949.05, Mr. Mills should receive a credit in the amount of $12,621.20.
Conclusion
229In conclusion, the court finds as follows:
The motion by the Trustee to claim after-acquired property in the amount of $264,949.05 is successful and that the money should be paid to the Trustee by the firm of Kelly Santini LLP.
The Bankrupt shall be given credit for the sum of $12,621.20 paid to the Trustee.
The cross motion fails.
Mr. Mills is granted leave to commence a proceeding against the Trustee in the Ontario Superior Court of Justice Civil Division, but not in the Bankruptcy and Insolvency Court of the Civil Division.
Costs
230Costs outlines were provided to the court after hearing of the motion in the cross motion. The parties shall have 14 days to resolve the issue of costs. If they are unable to do so, they shall contact the Trial Coordinator and arrange a court date to argue the issue of costs at 9:30 a.m. Each will have 15 minutes.
231Order accordingly.
Justice Stanley J. Kershman
Released: November 29, 2022
COURT FILE NO.: BK-18-2344559-0033
DATE: 2022/11/29
ONTARIO
SUPERIOR COURT OF JUSTICE
IN BANKRUPTCY and INSOLVENCY
IN THE MATTER OF THE BANKRUPTCY OF
SHELBY AUSTIN MILLS
OF THE MUNICIPALITY OF VILLAGE OF OSGOODE
IN THE PROVINCE OF ONTARIO
BEFORE: Justice Stanley J. Kershman
HEARD IN OTTAWA: June 17, 2022 by Zoom
APPEARANCE: Robert J. De Toni, for the Trustee, Baker Tilley Ottawa Ltd. Philip William Augustine, for the Debtor, Shelby Austin Mills
DECISION ON MOTION AND CROSS-MOTION
Kershman J.
Released: November 29, 2022