Court File and Parties

COURT FILE NO.: 31-2902928 DATE: 20231027

Superior Court of Justice - Ontario

RE: In the Matter of the Bankruptcy of Xiuzhen Guan

BEFORE: Associate Justice Rappos

COUNSEL: Matthew Harris, for Baoling Zhang

HEARD: October 24, 2023 (via videoconference)

Endorsement

Nature of the Motion

[1] Baoling Zhang (“Zhang”) brings a motion for an order under subsection 38(1) of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, as amended (the “BIA”) authorizing her, nunc pro tunc, to commence a proceeding against the bankrupt, Xiuzhen Guan (“Guan”), in her own name and at her own expense.

[2] Zhang also seeks an order for leave to issue and register a lis pendens / certificate of pending litigation (“CPL”) on title to real property municipally known as 3163 Bayview Avenue, Toronto (the “Bayview Property”).

[3] For the reasons set out below, I grant Zhang’s section 38 motion and adjourn the request for a CPL.

Facts

[4] Zhang commenced an application against Guan in connection with a commercial transaction. Pursuant to an order dated March 5, 2020, the parties were to proceed to arbitration.

[5] On July 17, 2020, Zhang was granted a final arbitration award against Guan in the amount of $237,285.80 and costs of $37,033.

[6] Guan sought leave to appeal the arbitration award, which was dismissed by Justice J. Cameron on January 4, 2022. Judgment was granted against Guan.

[7] After the issuance of the final arbitration award, it was discovered that Guan:

(a) sold two properties she owned, one in December 2020 and the second in June 2021;

(b) transferred her 50% interest in a properly municipally known as 21 Van Horne Avenue, Toronto (the “Van Horne Property”) to her common-law spouse on June 29, 2021. This property was subsequently sold on or about October 29, 2022; and

(c) transferred her 50% interest in the Bayview Property to her common-law spouse on July 18, 2021.

[8] On January 24, 2023, Guan filed a proposal under the BIA. Zhang was listed as a creditor in the proposal proceeding. At a creditors’ meeting held on March 15, 2023, Zhang voted against the proposal, which was rejected by Guan’s creditors. As a result, Guan was deemed to have made an assignment in bankruptcy.

[9] Zhang informed Guan’s trustee in bankruptcy about the transfers of the Van Horne Property and the Bayview Property to Guan’s common-law spouse, and raised the possibility of the trustee challenging the transfers. The trustee confirmed that it would not oppose a motion brought under section 38 for Zhang to challenge the transfers.

[10] On July 17, 2023, Zhang commenced an action against Guan (the “Action”) seeking, among other things, declarations that the transfers of Guan’s interest in the Van Horne Property and the Bayview Property were fraudulent conveyances under the Fraudulent Conveyances Act, R.S.O. 1990, c. F.29, as amended (the “FCA”), and leave to register a CPL against the Bayview Property.

[11] Zhang’s evidence is that the Bayview Property was listed for sale on MLS on or about June 19, 2023, and the listing was terminated on July 20, 2023 for unknown reasons.

[12] Zhang registered a Caution against title to the Bayview Property, which is set to expire on October 28, 2023.

[13] Zhang is concerned that the Bayview Property may be subject to a sale transaction and that she and Guan’s other creditors would be prejudiced if interim relief is not granted.

[14] Zhang brought a motion in the Action seeking leave to issue a CPL, which was adjourned by Associate Justice Josefo due to the fact that Guan was bankrupt and the Action was stayed under the BIA.

[15] Zhang served the trustee and Guan with her motion materials. The trustee does not oppose the motion. Guan did not appear or file any materials in opposition to the motion.

Law and Analysis

[16] Section 38(1) of the BIA provides jurisdiction to the Court to grant an order authorizing a creditor to take a proceeding in her own name and at her own expense and risk, where the trustee refuses or neglects to take the proceeding, and the creditor is of the view that the proceeding would be for the benefit of the bankruptcy estate.

[17] For relief to be granted under this section, the applicant must satisfy the Court that: (a) it is a creditor of the bankrupt; (b) it asked the trustee to take a proceeding; (c) the proceeding, in the opinion of the applicant, would be for the benefit of the estate of a bankrupt; and (d) the trustee refuses or neglects to take the proceeding.

[18] I am satisfied, based on my review of the materials, that Zhang has met all of the preconditions to obtaining relief under section 38.

[19] In terms of the underlying merits of the Action, if the trustee consents to the section 38 order, which this trustee has effectively done in this case by not opposing the motion, the merits of the action are irrelevant. See McEwen (Re), 2021 ONCA 566, at para. 46.

[20] Zhang seeks an order that she be permitted to continue the Action nunc pro tunc, given that she commenced it prior to obtaining leave of the Court. Commencement of the Action without the consent or the refusal of the trustee and without a section 38 order is an irregularity that may be cured through the court exercising its discretion to grant an order nunc pro tunc. See DeGroote v. Canadian Imperial Bank of Commerce (1996), 45 C.B.R. (3d) 132, as affirmed by the Court of Appeal in Canadian Imperial Bank of Commerce v. Montego Forest Products Ltd..

[21] In my view, it is appropriate in the circumstances to permit Zhang to continue the prosecution of the Action, such that the issuance of an order nunc pro tunc is warranted.

[22] As a result, I hereby grant the relief sought by Zhang under section 38 of the BIA.

[23] With respect to the request for the issuance of a CPL, Zhang first relies on rule 107(b) of the Bankruptcy and Insolvency General Rules, C.R.C., c. 368, as amended (the “Bankruptcy Rules”).

[24] That rule is not applicable, as it only permits a registrar to issue a certificate of lis pendens (referred to as a CPL in Ontario) where real property or any interest relating to it is the object of litigation under sections 91 to 99 of the BIA. The Action does not involve sections 91 through 99 of the BIA, as it only seeks declarations under the FCA.

[25] In the alternative, Zhang seeks the issuance of a CPL under section 103 of the Courts of Justice Act, R.S.O. 1990, c. C.43, as amended (the “CJA”) and rule 42.01 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, as amended (the “Civil Rules”). In support of this position, Zhang relies on an unreported decision of Associate Justice Jean in Re Sante-Carlo Di Florio.

[26] In that case Associate Justice Jean did not address the issue as to whether a registrar in bankruptcy has jurisdiction to grant a CPL under the CJA and the Civil Rules.

[27] As noted in Bankruptcy and Insolvency Law of Canada, 4th Edition at §8.164, “a registrar derives its authority from the Act and the Rules and has no inherent jurisdiction. If authority for an act cannot be found in the BIA or the [Bankruptcy and Insolvency General Rules], then the registrar cannot perform it.” The learned authors of the text go on to state that “if the power to hear a matter is not expressly conferred on the registrar by s. 192 or some other section of the Act or the Rules, the registrar has no jurisdiction to hear it.”

[28] Zhang did not make submissions as to how any of the provisions of section 192 would empower a registrar to issue a CPL under the CJA and the Civil Rules.

[29] As a result, based on the record and submissions before me, I am not in a position to conclude that a registrar in bankruptcy has jurisdiction to grant leave for the issuance of a CPL outside of rule 107 of the Bankruptcy Rules, which, as noted above, is not applicable in this case.

[30] In the alternative, Zhang requests that an interim preservation order be granted that may be registered on title to the Bayview Property for a 45-day period. This would give Zhang time to amend the claim in the Action to seek relief under section 96 of the BIA (transfers at undervalue), which would then enable a registrar in bankruptcy, if it is prepared to do so, to grant a CPL under rule 107 of the Bankruptcy Rules.

[31] Subrule 192(1)(e) of the BIA empowers a registrar in bankruptcy to make interim orders in cases of urgency.

[32] As detailed above, following the issuance of the arbitration award, Guan sold two of her properties and transferred her interest in two other properties to her common-law spouse. The Bayview Property was listed for sale and that listing was terminated for unknown reasons. Zhang’s Caution registered against the Bayview Property is set to expire on October 28, 2023, which would permit the current title holders to sell the property before the Action may be adjudicated and Zhang can bring back her CPL motion.

[33] In the circumstances, I am satisfied that an interim order preserving the Bayview Property for 45 days is necessary to ensure that it is not conveyed to a third party before the issue of the availability of a CPL may be adjudicated.

Disposition

[34] As a result, I hereby grant Zhang’s request for an order under section 38 of the BIA with respect to the Action. Order to go as electronically amended and signed by me. The order includes a provision dealing with its registration against title to the Bayview Property for a period of 45 days.

[35] Zhang’s motion for a CPL is hereby adjourned sine die.

Associate Justice Rappos

DATE: October 27, 2023