Court File and Parties

COURT FILE NO.: 31-02780995

DATE: December 12, 2024

ONTARIO

SUPERIOR COURT OF JUSTICE

IN BANKRUPTCY AND INSOLVENCY

IN THE MATTER OF THE CONSUMER PROPOSAL OF MALBOW SANTHIKUMAR OF THE CITY OF TORONTO,

IN THE PROVINCE OF ONTARIO

BEFORE: Associate Justice Ilchenko, Registrar in Bankruptcy

COUNSEL:

Matthew R. Harris (“Harris”) for the Consumer Debtor Malbow Santhikumar (the “Consumer Debtor”)

Arlene Campbell (“Campbell”), for Moving Party Creditor Arista Homes (Boxgrove Village) Inc. (“Arista”) seeking an Order to annul the Consumer Proposal of the Consumer Debtor

Greg Judd, LIT (“Judd”) for the Administrator of the Consumer Proposal of the Consumer Debtor, (the “Administrator”), Kunjar Sharma & Associates Inc. (“KSA”)

Kunjar Sharma LIT (“Kunjar”), co-defendant with Judd and KSA in action commenced by Arista not appearing

Superintendent of Bankruptcy (the “OSB”) not appearing

HEARD: Initial Motion heard on June 20, 2024, after prior Special Appointment Scheduling Conference on December 13, 2023. Further materials ordered to be filed by Consumer Debtor, Administrator and Creditor Arista by August 12th, 2024 in accordance with schedule in June 20, 2024 Endorsement

Endorsement

[1] Arista brings a motion (the “Annulment Motion”) to Annul the Consumer Proposal (the “Consumer Proposal”) of the Consumer Debtor.

[2] The Court on this Annulment Motion must determine whether it should exercise its discretion to annul the Consumer Proposal in the factual context where BOTH the Consumer Debtor AND the Moving Party Creditor Arista are in breach of certain of their respective duties under the Bankruptcy and Insolvency Act, RSC 1985, B-3. (the "BIA”).

[3] The Court must determine whether there is a greater systemic risk to the administration of the Bankruptcy system generally by condoning the improper behaviour of the Consumer Debtor, or condoning the improper behaviour of the Moving Party Creditor Arista, or whether there is a resolution that condones neither.

[4] The Consumer Proposal was:

a) filed on November 9, 2021 with the OSB,

b) deemed accepted by creditors on December 24, 2021 under the statutory provisions of s.66.18(1) of the BIA, and

c) deemed approved by the Court on January 8, 2022 under the statutory provisions of s.66.22(2) of the BIA ;

[5] The parties initially appeared before me on a case conference on December 13, 2023 with Arista seeking at least a half day hearing (the “Case Conference”).

[6] After discussion at that case conference, and due to the less than complete disclosure of the facts by Arisa (as detailed below), it did not appear to me that the dispute was so fact dense as to require a half or full day and let the parties appear for 59 minutes on a regular Bankruptcy Zoom Motions day, after exchanging materials in accordance with the Timetable that I ordered.

[7] On reviewing the materials filed for the Motion for the return date of June 20, 2024, and after hearing arguments made by Arista at that hearing, it was apparent to me that Arista had failed to advise the Court at the Case Conference of certain proceedings that Arista had taken in relation to the Consumer Debtor and the Administrator without obtaining first obtaining leave of the Court.

Multiple Breaches by Arista of Stays of Proceedings under [s.69.2](https://www.canlii.org/en/ca/laws/stat/rsc-1985-c-b-3/latest/rsc-1985-c-b-3.html#sec69.2_smooth) and [s.215](https://www.canlii.org/en/ca/laws/stat/rsc-1985-c-b-3/latest/rsc-1985-c-b-3.html#sec215_smooth) of the [BIA](https://www.canlii.org/en/ca/laws/stat/rsc-1985-c-b-3/latest/rsc-1985-c-b-3.html)

[8] Only in the materials filed by Arista and the Administrator, and in the submissions by Counsel for Arista at the hearing of the Motion on June 20, 2024, was it revealed to the Court that Arista had:

i. Commenced an Action in Toronto (the “Arista Administrator Action”) as they stated in its Supplementary Factum (the “Arista Supplementary Factum”):

“On or around December 22, 2023, the Creditor issued a Statement of Claim, bearing court file number CV-23-00711907-0000, seeking damages for the Administrators' (Kunjar Sharma and Associates Inc., Kunjar Mani Sharma, and Gregory Judd) negligence in administering the Consumer Proposal ("Administrator Action");

ii. On October 3, 2022 issued a Notice of Application CV-22-00003171-0000 in Newmarket Civil Court against the Consumer Debtor and her alleged spouse Branavan Kumar (“Kumar”) (the “Newmarket Application”) for the following relief:

a) a declaration setting aside the trust agreement with respect to the property known municipally as 111 Bethany Leigh Drive, Toronto (described in Schedule "A" hereto) between Malbow Santhikumar and Branavan Kumar dated November 10, 2020, pursuant to the provisions of the Fraudulent Conveyances Act, R.S.O. 1990, c. F.29;

b) a certificate of pending litigation in respect of 111 Bethany Leigh Drive, Toronto;

c) a declaration that Malbow Santhikumar's consumer proposal bearing court file number 31-OR-2780995 filed November 9, 2021 is invalid;

d) in the alternative, damages in the amount of the judgment owing by Malbow Santhikumar to the applicant;

e) in the alternative, an order that the respondent, Branavan Kumar, is liable for the damages in the amount of the judgment owing by Malbow Santhikumar to the applicant;

[9] Counsel for Arista admitted at the hearing of the Annulment Motion that leave under s.69.4 of the BIA was not obtained by Arista prior to the commencement of the Arista Newmarket Application, in violation of the provisions of s.69.2 of the BIA the applicable portions of which read:

“Stay of proceedings — consumer proposals

• 69.2 (1) Subject to subsections (2) to (4) and sections 69.4 and 69.5, on the filing of a consumer proposal under subsection 66.13(2) or of an amendment to a consumer proposal under subsection 66.37(1) in respect of a consumer debtor, no creditor has any remedy against the debtor or the debtor’s property, or shall commence or continue any action, execution or other proceedings, for the recovery of a claim provable in bankruptcy until

(a) the consumer proposal or the amended consumer proposal, as the case may be, has been withdrawn, refused, annulled or deemed annulled; or

(b) the administrator has been discharged.”

[10] As the Consumer Proposal was deemed filed on November 9, 2021 and deemed accepted by operation of s.66.18 of the BIA on December 24, 2022, and deemed approved by the Court on January 9, 2022, Arista is in breach of the provisions of s.69.2 by commencing the Newmarket Application against the Consumer Debtor without first obtaining leave of this Bankruptcy Court.

[11] Similarly, Counsel for Arista admitted at the hearing that leave under s.215 of the BIA was not obtained by Arista prior to the commencement of the Arista Administrator Action against KSA, as well as Judd and Kunjar, in their personal capacities.

[12] Section 215 reads:

“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.”

[13] “Trustee” is defined in s.2 of the BIA

“trustee or licensed trustee means a person who is licensed or appointed under this Act”

[14] Under s.66.11 of the BIA:

66.11 In this Division,

administrator means

(a) a trustee, or

(b) a person appointed or designated by the Superintendent to administer consumer proposals; 

[15] To remove all doubt, s.66.4 of the BIA reads:

66.4 (1) All the provisions of this Act, except Division I of this Part, in so far as they are applicable, apply, with such modifications as the circumstances require, to consumer proposals.

[16] The purposes of the Stay of Proceedings under the BIA is set out in the following passage from Bankruptcy and Insolvency Law of Canada, Fourth Edition, by The Honourable Mr. Justice Lloyd W. Houlden, Mr. Justice Geoffrey B. Morawetz, and Dr. Janis P. Sarra (“Houlden & Morawetz”) § 5:278. Stay of Proceedings: Unsecured Creditors:

“One of the objects of the Bankruptcy and Insolvency Act is to provide for the orderly and fair distribution of the property of a bankrupt among his or her creditors on a pari passu basis (see § 1:4 “Purposes of Bankruptcy and Insolvency Legislation”): R. v. Fitzgibbon (1990), 1990 102 (SCC), 78 C.B.R. (N.S.) 193, 1990 CarswellOnt 172 (S.C.C.). Sections 69, 69.1, 69.2 and 69.3 are designed to prevent proceedings by a creditor that might give the creditor an advantage over other creditors.”

[17] In R. v. Fitzgibbon (1990), 1990 102 (SCC), 78 C.B.R. (N.S.) 193, 1990 CarswellOnt 172 (S.C.C.) (cited above) (“Fitzgibbon”) the Supreme Court of Canada set out the purposes of the Stay of Proceedings in the BIA:

“25 It is to be observed that the section prohibits the granting of any "remedy against" or "recovery of" any claim against the debtor or his property without leave of the court in bankruptcy. The aim of the section is to provide a means of maintaining control over the distribution of the assets and property of the bankrupt. In doing so, it reflects one of the primary purposes of the Bankruptcy Act, namely, to provide for the orderly and fair distribution of the bankrupt's property among his or her creditors on a pari passu basis: see Duncan and Honsberger, Bankruptcy in Canada, 3rd ed. (1961), at p. 4. The object of the section is to avoid a multiplicity of proceedings and to prevent any single unsecured creditor from obtaining a priority over any other unsecured creditors by bringing an action and executing a judgment against the debtor. This is accomplished by providing that no remedy or action may be taken against a bankrupt without leave of the court in bankruptcy, and then only upon such terms as that court may impose.”

[18] As a result of the revelation of the existence of the Newmarket Application and, in particular, the Arista Administrator Action, I required Arista and the Trustee to file supplementary materials, and in particular the Notice of Application and the Arista Supplementary Factum, given the tests for Annulment of a Consumer Proposal set out by my colleague Associate Justice Rappos in the leading case of Re Singh 2024 CarswellOnt 1526, 2024 ONSC 837, 11 C.B.R. (7th) 400, 169 O.R. (3d) 609, 2024 A.C.W.S. 720 (“Singh”), relied on by all parties at the hearing, and also the provisions of s.4.2 of the BIA governing the conduct of all participants in proceedings under the BIA, including Consumer Debtors and Creditors.

[19] In response to my June 20 Endorsement Arista provided the Notice of Application in the Newmarket Application and the Statement of Claim in the Arista Administrator Action.

[20] In the Statement of Claim in the Arista Administrator Action Arista claims against from KSA, and personally against Kunjar and Judd:

(a) Damages in the amount of $800,000, or some other amount to be proven at trial;

(b) Punitive damages in the amount of $100,000;”

[21] I will deal with the specific time-line of the interaction between counsel for Arista and the Administrator later in these Reasons in the context of the Annulment Motion, but the specific allegations being made by Arista against the Administrator to support its claims for punitive damages against KSA, and Kunjar and Judd personally, are very serious:

13. Under the Bankruptcy and Insolvency Act R.S.C., 1985 c. B-3 ("BIA"), the defendants possess the following (non-exhaustive) statutory obligations:

a) to investigate the consumer debtor's property and financial affairs;

b) to verify whether the consumer debtor falls within the monetary jurisdiction to make a consumer proposal and to stop any consumer proposals outside of the monetary jurisdiction;

c) to forthwith inform the superintendent in bankruptcy and creditors of any subsequently uncovered information that affects the consumer proposal, including that the consumer proposal had been mistakenly filed and lacks jurisdiction; and

d) to schedule a meeting of the creditors where a valid request has been made.

14. As a result of the statutory duties identified above, the defendants owed Arista a duty of care. In the alternative, the defendants owed the plaintiff a common law duty of care. The defendants' conduct fell below the required standard of care.

15. The defendants' negligence led to Arista having to bring lengthy and costly proceedings to annul the consumer proposal and has delayed Arista's ability to execute on the Judgment. The defendants' negligence also gave Santhikumar further opportunities to dissipate her assets to avoid collection.

16. The defendants' negligence caused or will cause Arista to incur damages, including but not limited to:

(a) Any unrecovered damages from the Judgment which result from Santhikumar making herself judgment proof through using the period of delay caused by the Administrator; and

(b) Extra legal costs to annul the consumer proposal which are not recovered from Santhikumar.

17. To the extent the Administrator's negligence resulted from the conduct of Judd, or any other employees at KSA, the Administrator is vicariously liable.”

[22] I note that Arista issued the Statement of Claim in the Arista Administrator Action on December 22, 2023 with Ed Hiutin and Wei Jiang (“Jiang”) as counsel of record on the Statement of Claim.

[23] This was a mere 9 DAYS AFTER the very same Jiang attended before me at the Case Conference, where he failed to mention AT ALL that Arista was going to commence an action against the Administrator, and the LIT’s Kunjar and Judd in their personal capacities, for general and punitive damages approaching $1 Million, with respect to the same facts on which Arista was seeking to annul the Consumer Proposal at the Annulment Motion that Arista brought.

[24] Had Jiang deigned to mention to the Court the intention of Arista to do so, this Motion would not have been heard as a short zoom motion, and, most particularly, would not have been heard until a motion for leave was brought by Arista to the Bankruptcy Court under s.215 of the BIA enabling it to do so.

[25] The Toronto Bankruptcy Court had the capacity in December of 2023 to schedule the hearing of both leave motions under s.69.4 and s.215 prior to the actual hearing date of the Annulment Motion in June 2024, so there is no “Court Backlog” excuse available to Arista.

[26] Had Jiang also deigned to mention to the Court at the Case Conference that Arista had already commenced the Newmarket Application against the Consumer Debtor a year previously on October 3, 2022, again without first obtaining leave under s.69.4 of the BIA, I would have pointed out to Arista the following passage Houlden & Morawetz:

“The Ontario Superior Court of Justice invalidated a plaintiff's judgment because the plaintiff knowingly commenced an action against an undischarged bankrupt. Justice Kershman found that based on the material non-disclosures by the plaintiff, the default judgment obtained by the plaintiff against the bankrupt was invalid. Justice Kershman held that in the event that he was incorrect in his analysis and the judgment was not invalid, he would not exercise his authority to lift the stay of proceedings to allow the matter to proceed. Lifting a stay under s. 69.4 of the BIA is at the discretion of the court and there must be sound legal reasons to lift the stay of proceedings. Justice Kershman was aware of case law that says a proceeding commenced or continued by a creditor without obtaining leave does not make the proceedings a nullity, but merely an irregularity and in, appropriate circumstances, leave can be granted nunc pro tunc. In this case, Kershman J. did not find that the plaintiff's actions resulted in mere irregularity, but rather, invalidity. The Court invalidated the judgment: Re O'Leary, 2021 CarswellOnt 1173, 2021 ONSC 431 (Ont. S.C.J.).” (“O’Leary”)

[27] I would have urged Jiang to very carefully read the reasons of Kershman, J. in O’Leary, and their factual applicability to the Newmarket Application, which at the time of the Case Conference, had been issued, and no application for leave under s.69.4 had been made by Arista, for 1 year 2 months and 10 days, and as of the date of these reasons, 2 years 1 month and 19 days.

“26 By obtaining judgment, using wording consistent to section 178(1)(d) of the BIA, without lifting the stay of proceedings and without notifying the Court of Mr. O'Leary's bankruptcy, the Plaintiff acted in a totally inappropriate and misleading way. Furthermore, there is no evidence that the Trustee in bankruptcy was served with the Statement of Claim.

27 Notwithstanding the differences between the present case and the L-Jalco case, the Court finds that, based on the material non-disclosures by the Plaintiff, the default judgment obtained by the Plaintiff against Mr. O'Leary is invalid. These material non-disclosures and failure to comply with the BIA requirements should not reward a party seeking judgment against a then undischarged bankrupt.

30 The lifting of a stay under section 69.4 is at the discretion of the Court.

31 The concept of judicial discretion was dealt with in the case of Brown v. Sparrow, [1982] 3 All E.R. 739 (Eng. C.A.). In that case, at page 745, the Court of Appeal said that judicial discretion must be exercised in accordance with the rules of reason or justice, not according to private opinion, benevolence or sympathy. It should be based on reasons that relate to the particular facts of the case.

32 The concept of judicial discretion was also dealt with in the case of Conexus Credit Union 2006 v. B. Bergen Holdings Ltd., 2011 SKCA 132, 377 Sask. R. 115 (Sask. C.A.). The Court, at paragraphs 24 and 25, reviews the case of Simpson v. Saskatchewan Government Insurance Office (1967), 1967 436 (SK CA), 65 D.L.R. (2d) 324 (Sask. C.A.) and, in para. 25, cites Simpson for the proposition that "each case should be considered in the light of its own peculiar circumstances and, the court in the exercise of its judicial discretion, should be determined to see that justice is done."

33 As stated previously, the lifting the stay of proceedings is discretionary. There must be sound legal reasons to lift the stay of proceedings.

34 The Court finds that the Plaintiff did not provide any reason for any of the following concerns:

1. Why it started a Small Claims Court Action after Mr. O'Leary filed for bankruptcy and before he was discharged;

2. Why it did not apply to lift the stay of proceedings prior to commencing the Small Claims Court Action and obtaining judgment;

3. Why it did not advise the Court in its Small Claims Court pleadings that Mr. O'Leary had filed for bankruptcy even though the Plaintiff was aware of the bankruptcy and had filed a proof of claim and proxy in the bankruptcy; and

4. Why it delayed for 28 months before applying to seek the relief set out in the Notice of Motion.

40 In the present case, the Plaintiff knew that Mr. O'Leary had filed for bankruptcy, and started the action knowing full well that it had not obtained an order to lift the stay of proceedings pursuant to section 69.4 of the BIA. No mention of Mr. O'Leary's bankruptcy was made in the Statement of Claim, even though the Plaintiff was aware of it and had filed a proof of claim prior to starting the Small Claims Court action.

41 Secondly, in the Rohimian case, the Plaintiff moved to lift the stay of proceedings on October 28, 2014 nunc pro tunc, approximately 6 months after the bankrupt in that case filed his assignment in bankruptcy.

42 In the present case, the Plaintiff has never moved to lift the stay of proceedings. It is now proceeding 28 months after the default judgment was obtained. There was no explanation for the delay.

43 Thirdly, Mr. Rohimian was noted in default, after the stay of proceedings was lifted.

44 In the present case, the Plaintiff started the action and obtained judgment without seeking to lift the stay of proceedings. To this date, the stay of proceedings has not been lifted.

45 Fourth and finally, in the Rohimian case, the bankrupt did not defend the action despite having notice of Master Wiebe's order lifting the stay of proceedings.

46 In the present case, the Bankrupt was served, noted in default and judgment was obtained prior to the Bankrupt and the Trustee being discharged. As stated previously, no motion to lift the stay of proceedings was brought.

47 The Court finds that the fact pattern in the Rohimian case is distinguishable from the fact pattern in the present case. The Court finds that, based on the differences between the two cases, Rohimian does not apply to this case and therefore the Court is not required to follow that decision.

48 The Court is aware of case law which says a proceedings commenced or continued by a creditor without obtaining leave does not make the proceedings a nullity, but merely an irregularity and in, appropriate circumstances, leave can be granted nunc pro tunc: FlagTrusts & Guarantee Co. v. Brenner [1932 CarswellOnt 28 (Ont. C.A.)]; Simon v. Simon(1984), 1984 2001 (ON SC), 45 O.R. (2d) 534, 7 D.L.R. (4th) 128 (Ont. Div. Ct.); Keeling, Re(1976), 22 C.B.R. (N.S.) 192 (Ont. H.C.).

49 The Court has reviewed those cases and finds that they are not similar to the fact pattern of this case. The Court finds those cases to be distinguishable from the present case.

50 On the other hand, in the case of Bank of British Columbia v. Alden(1981), 38 C.B.R. (N.S.) 320 (B.C. S.C.), the Court held that the delay on the part of the applicant for leave to proceed against the Bankrupt is a factor that could be considered by the Court in exercising its discretion. In that case, the Court was not satisfied with the explanation provided by the bank for the delay and dismissed the application for leave.

51 In the present case, the Court does not find that the Plaintiff's actions result in mere irregularity but rather invalidity. The Plaintiff's Small Claim Court Action was taken deliberately at a time when both Mr. O'Leary and the Trustee were undischarged. Further, the Plaintiff knowingly chose not to seek to lift the stay of proceedings.

52 The Court applies the decision in the Bank of British Columbia v. Alden to the present case.

53 Based on the specific facts of this case, the Court will not use its discretion to lift the stay of proceedings. This discretion is not being applied arbitrarily, but rather is being applied based on the facts of this case.

54 The Court finds that the Plaintiff should not be rewarded with a lifting of the stay of proceedings, based on its non-compliance with the BIA.

55 The Court also finds that the Plaintiff is not materially prejudiced by the continued operation of the stay of proceedings.

56 Furthermore, based on the previous analysis, the Court does not believe that it would be equitable on other grounds to make a declaration lifting the stay of proceedings.

57 The onus is on the Plaintiff to show a good reason why the stay of proceedings should be lifted. The Court is not satisfied that the Plaintiff has met this onus.

58 Based on the facts of this case, the Court does not find that this would be an appropriate circumstance to grant leave to proceed nunc pro tunc.”

[28] I would also have had to consider whether the hearing of the Annulment Motion, which required the Administrator to file responding materials, would prejudice the position of the Administrator, Kunjar and Judd, and their insurers, in defending the Arista Administrator Action.

[29] In the Ontario Court of Appeal in Title v. Canadian Asset Based Lending Enterprise (CABLE) Inc., 2011 ONCA 715 stated:

“[21] The BIA, s. 215 provides:

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.

[22] I agree with the motion judge's conclusion that failure to obtain leave is an irregularity that can be cured: see New Alger Mines Ltd. v. Thorne Riddell Inc. (1986), 1986 2530 (ON CA), 54 O.R. (2d) 562, [1986] O.J. No. 144 (C.A.). However, until that irregularity has been cured, the action cannot proceed in the face of s. 215. It follows, [page78 ]in my respectful view, that the motion judge erred by failing to grant a stay of the action against Druker unless and until "the court" grants leave pursuant to s. 215.

[23] I would add that it is my view that "the court" refers to the court with jurisdiction over the bankruptcy proceedings, namely, the Quebec Superior Court. "Court" is defined in s. 2, with exceptions not relevant here, as "a court referred to in subsection 183(1) or (1.1) or a judge of that court, and includes a registrar when exercising the powers of the court conferred on a registrar under this Act"

[30] I would also have directed Jiang to s.197 of the BIA as well the decision of Newbould, J. in Kaptor Financial Inc. v. SF Partnership, LLP, 2016 CarswellOnt 17052, 41 C.B.R. (6th) 262, 2016 ONSC 6607 (Ont. S.C.J. [Commercial List]), the Court of Appeal in Doyle Salewski Inc. v. BDO Canada Ltd. 2016 CarswellOnt 16195, 2016 ONCA 748, 271 A.C.W.S. (3d) 841, 41 C.B.R. (6th) 169 and my decision Re Bannikova 2023 CarswellOnt 14017, 2023 ONSC 5131, 2023 A.C.W.S. 4499.

[31] Given the obvious breaches of duties by Arista as described above, and later in these reasons, and also allegedly by the Consumer Debtor, I would also have invited the OSB to determine whether it wished to intervene at the hearing of the Annulment Motion under the provisions of s.5(4)(a) of the BIA, given the systemic and policy issues that can arise as a consequence of the breaches of duties by both the Consumer Debtor and Arista, or to determine whether the OSB wished to conduct an investigation of the behaviour of either the Consumer Debtor and Arista, prior to the hearing of the Annulment Motion.

[32] However, Jiang’s material non-disclosure to the Court prevented me from remedying their persistent non-compliance with the BIA at some point prior to discovering Arista’s misconduct while reading the court materials filed for the Annulment Motion in June 2024.

[33] I am not deciding the still un-brought leave motions by Arista in these Reasons. But the conduct of Arista is very relevant to the annulment tests in Singh, the exercise by the Court of its discretion to annul the Consumer Proposal as requested by Arista, and particularly the determination by the Court under the mandatory provisions of s.4.2 of the BIA of whether Arista or the Consumer Debtor were acting in good faith.

[34] All underlined and bolded text in these reasons is emphasis added by me for these reasons.

[35] The Court has considered all materials and arguments raised by all of the parties on this Discharge Hearing. Any failure by the Court to refer in these reasons to specific arguments and materials raised does not reflect that the Court has not considered those arguments.

POLICY CONTEXT FOR CONSUMER PROPOSALS

[36] Consumer Proposals, since the 2009 amendments to the BIA increasing the eligible debt limit for Consumer Proposals from $75,000 to $250,000, are, by far, the most commonly used insolvency proceeding in Canada.

[37] In the Insolvency Statistics in Canada—Annual Report 2023 issued by the OSB, it was reported that of the 123,233 total consumer insolvency filings in Canada in 2023, 97,017 or 78.7% were Consumer Proposals.

[38] The total volume of insolvencies in Canada under the BIA, not counting CCAA Proceedings were reported as 128,043, including in that amount 4,810 business (both individual, partnership and corporate) insolvencies under the BIA, but not including receiverships.

[39] There were 64 CCAA proceedings commenced in 2023 in all of Canada, and 474 Receiverships, making them statistically meaningless insofar as the total number of insolvency filings in Canada in 2023 is concerned.

[40] Thus Proposals filed by consumers constituted by number 76% of all proceedings commenced under the BIA in 2023, consumer and business, which compromised in excess of $10 Billion of debts declared by Consumers in those proposals in 2023.

[41] Houlden & Morawetz§ 4:152. Consumer Proposals Generally states the following with respect to the general policy provisions underlying the Consumer Proposal provisions of the BIA:

“The provisions for Consumer Proposals were added to the Act to help prevent consumer bankruptcies. Previously, consumers who owed $75,000 or less, excluding mortgages on their principal residences, were able under Division II to negotiate with their creditors for the reduction or extension of the time for payment of their debts. That amount increased to $250,000 in 2009. “Consumer proposal” is defined in s. 2(1). See definition of “proposal”.

Consumer proposals are intended to be less labour intensive and less costly for smaller debtors than Division I proposals: Re Jalal (2003), 2003 64273 (ON SC), 42 C.B.R. (4th) 260, 2003 CarswellOnt 1750 (Ont. S.C.J.).

Division II can only be used by individuals. The making of a consumer proposal under Division II is cheaper and simpler than the making of a proposal under Division I. Except in unusual cases, there is no meeting of creditors and no application to court for approval of the proposal: see s. 66.15(1), s. 66.18(1) and s. 66.22(2). Similarly, the amendment of a consumer proposal for default can in most cases without the necessity of applying to the court for an order annulling it: s. 66.31.

The purpose of the consumer proposal sections is to permit consumer proposals to be handled quickly, efficiently and with a minimum of administration and attendant expense. Negotiations, correspondence and discussion must be carried on within a very narrow time frame: Re Sutherland (1995), 1995 9206 (AB KB), 34 Alta. L.R. (3d) 356, [1996] 2 W.W.R. 379, 36 C.B.R. (3d) 208, 1995 CarswellAlta 732 (Q.B.).”

[42] The deemed statutory approvals by creditors and the Court, where objections are not filed with the Administrators within the statutory time periods, are mandatory and not discretionary on Administrators, and are a key feature of the Consumer Proposal process intended to lessen administrative costs in order to increase the efficiency of distributions of smaller amounts to creditors.

[43] This is also facilitated by the fee tariff imposed under Bankruptcy and Insolvency General Rule 129 for Administrators of Consumer Proposals (the “BIA Rules”) , to ensure that professional costs do no reduce amounts payable to creditors. The Rule reads:

129 (1) For the purposes of paragraph 66.12(6)(b) of the Act, the fees and expenses of the administrator of a consumer proposal that must be provided for in a consumer proposal are as follows:

(a) $750, payable on filing a copy of the consumer proposal with the official receiver;

(b) $750, payable on the approval or deemed approval of the consumer proposal by the court;

(c) 20 per cent of the moneys distributed to creditors under the consumer proposal, payable on the distribution of the moneys;

(d) the costs of counselling referred to in subsection 131(1);

(e) the fee for filing a consumer proposal referred to in paragraph 132(c);

(f) the fee payable to the registrar under paragraph 3(b) of Part II of the schedule; and

(g) the amount of applicable federal and provincial taxes for goods and services.

[44] In the case of this Consumer Proposal, the entirety of the fee payable to the Administrator, not including taxes and counseling fees, would be $1500 plus an additional maximum amount of $4,800 (20% of $24,000) if the Consumer Debtor successfully completed her payments over a 60 month period.

[45] In Jalal 2003 64273 (ON SC), 2003 CarswellOnt 1750, 42 C.B.R. (4th) 260 (“Jalal”) in a situation such as this one, where a later filed claim caused the consumer proposal to exceed the then $75,000 limit for aggregate debts that were eligible to be compromised under a consumer proposal (that since 2009 is now $250,000 under the provisions of s.66.11) Deputy Registrar Nettie stated:

“6 The answer to the first question is no. The Act sets out a comprehensive regime for the making of consumer proposals by those defined therein to be consumer debtors. That regime differs materially from the regime prescribed for proposals under Division I, in that a meeting of the creditors for the purposes of approving the consumer proposal and an application to the Court for its approval are clearly anticipated to be done on an exception basis. Proposals under Division II are intended to be less labour intensive and less costly for smaller debtors, and the regime recognizes that creditors in those smaller estates are less likely to be inclined to commit their resources to meetings and the like, as are required for Division I proposals. It is clear from the Act that Parliament anticipated, given less formal review, that some persons might make a consumer proposal where all concerned believed that the proponent was a consumer debtor, only to discover at some point in the process that the proponent was ineligible to make a consumer proposal. Section 66.13(4) of the Act speaks directly to that point. It provides:

Where the administrator determines, after filing a consumer proposal under paragraph (2)(d), that it should not have been filed because the debtor was not eligible to make a consumer proposal, the administrator shall forthwith so inform the creditors and the official receiver, but the consumer proposal is not invalid by reason only that the debtor was not eligible to make the consumer proposal. [emphasis added]”

[46] In Singh, Associate Justice Rappos set out the general principles for interpreting the BIA :

“18 The principles of statutory interpretation require that the words of the BIA be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the BIA, the object of BIA and the intention of Parliament.

19 As well, every statute is deemed remedial, and is to be given such fair, large and liberal construction and interpretation as best ensures the attainment of its objects.

20 The Supreme Court of Canada has held that the BIA (then known as the Bankruptcy Act) has its origins in the business world, and its interpretation must take these origins into account. — “To interpret it using an overly narrow, legalistic approach is to misinterpret it.”

21 The Supreme Court has also held that the BIA is intended to further two purposes: (a) the financial rehabilitation of the bankrupt or debtor; and (b) the equitable distribution of the bankrupt’s or debtor’s assets among his or her creditors.”

[47] MacPherson J. in Royal Bank v. Sefel Geophysical Ltd. 1989 3454 (AB KB), 1989 CarswellAlta 354, [1989] A.W.L.D. 816, [1989] C.L.D. 1096, 16 A.C.W.S. (3d) 249, 76 C.B.R. (N.S.) 29 at para.14 set out the spirit and framework of the BIA:

“The spirit and framework of the Bankruptcy Act is to provide a commercial machinery whereby creditors can regulate their affairs as businessmen in a practical and lawful way. Litigation and court proceedings are hopefully to be avoided, thus maximizing the return to creditors”

[48] In, Port Alice Specialty Cellulose Inc., Re 2005 CarswellBC 1280, 2005 BCCA 299, [2005] B.C.W.L.D. 4392, [2005] B.C.W.L.D. 4439, [2005] B.C.J. No. 1205, 11 C.B.R. (4th) 279, 11 C.B.R. (5th) 279, 139 A.C.W.S. (3d) 620, 212 B.C.A.C. 310, 254 D.L.R. (4th) 397, 350 W.A.C. 310, 41 B.C.L.R. (4th) 259 the British Columbia Court of Appeal in interpreting s.81.1 of the BIA stated:

“27 In interpreting the BIA, courts have noted that it is a commercial statute used by business people and should not be given an overly narrow or legalistic approach: see McCoubrey, Re, 1924 300 (AB KB), [1924] 4 D.L.R. 1227 (Alta. T.D.), at 1231-32; A. Marquette & fils Inc. v. Mercure (1975), 1975 195 (SCC), [1977] 1 S.C.R. 547 (S.C.C.), at 556; Maple Homes Canada Ltd., Re, 2000 BCSC 1443 (B.C. S.C.) at para. 21.

36 In Bruce Agra Foods Inc. v. Everfresh Beverages Inc. (Receiver of) (1996), 1996 8278 (ON SC), 45 C.B.R. (3d) 169 (Ont. Gen. Div.), the issue was whether a claim for repossession (of orange juice) could be made against an interim receiver. Rejecting the claim, Farley J. said (at para. 5):

The 30 days rights of section 81.1 are not triggered unless the purchaser (Everfresh here) is a bankrupt or there is a section 243(2)(b) receiver. While section 12 of the Interpretation Act, R.S.C. 1985, Chapter I-21 provides that "every enactment is deemed remedial and shall be given such fair, large and liberal construction and interpretation as best ensures the attainment of its objects," this does not provide that proper regard not be paid to the canons of statutory interpretation and where the legislature confers a right or benefit on persons which they would not have had at common law, the conditions which the legislature prescribes for the acquisition of that right or benefit are mandatory.”

[49] In Toronto-Dominion Bank v. Phillips 2014 CarswellOnt 11878, 2014 ONCA 613, 122 O.R. (3d) 181, 17 C.B.R. (6th) 127, 243 A.C.W.S. (3d) 533, 325 O.A.C. 141, 376 D.L.R. (4th) 566, 46 R.P.R. (5th) 163, Peppall, J.J.A. found that claims of creditors with judgments and executions in Consumer Proposals, such as Arista, are ordinary unsecured claims, with no priority over other ordinary unsecured creditors:

“7 In bankruptcy, it has long been established that an execution creditor is not a secured creditor: see Quebec (Attorney General) v. Bélanger (Trustee of), 1928 514 (UK JCPC), [1928] A.C. 187 (Canada P.C.), at p. 197; Sklar, Re (1958), 1958 193 (SK CA), 37 C.B.R. 187 (Sask. C.A.) at p. 194; Ontario Development Corp. v. I.C. Suatac Construction Ltd. (1976), 1976 876 (ON CA), 12 O.R. (2d) 465 (Ont. C.A.), at p. 476; and James Hunter & Associates Inc. v. Citifinancial Inc. (2007), 2007 56505 (ON SC), 40 C.B.R. (5th) 149 (Ont. S.C.J.), at para. 22. Rather, unless the execution has been completed by payment to the creditor, the debt of the execution creditor is treated rateably with other unsecured debt.

28 This jurisprudence relies in part on the need to treat unsecured creditors equally under the bankruptcy regime and on s. 70 of the BIA and its predecessor, s. 50 of the Bankruptcy Act, R.S.C. 1970, c. B-3. Section 70(1) of the BIA is found under the sub-heading General Provisions in Part IV of the BIA. It states:

Every bankruptcy order and every assignment made under this Act takes precedence over all judicial or other attachments, garnishments, certificates having the effect of judgments, judgments, certificates of judgment, legal hypothecs of judgment creditors, executions or other process against the property of a bankrupt, except those that have been completely executed by payment to the creditor or the creditor's representative, and except the rights of a secured creditor. [Emphasis added.]

29 This sub-section speaks of the precedence of bankruptcy orders and assignments. Arguably a proposal or an order approving a proposal is not a bankruptcy order or assignment and does not fall within the ambit of that provision. However, s. 66.4(1) of the BIA provides that:

All the provisions of this Act, except Division I of this Part, in so far as they are applicable, apply, with such necessary modifications as the circumstances require, to consumer proposals.1

30 In my view, section 66.4(1) directs that certain general provisions of the BIA, including s. 70(1), should be read to apply to consumer proposals even though there is no such express reference. Moreover, quite apart from the statutory language, the policy rationale of treating unsecured creditors equally applies to the proposal regime: see Hancor Inc. v. Systèmes de Drainage Modernes Inc. (1995), 1995 3536 (FCA), 37 C.B.R. (3d) 117 (Fed. C.A.), at p. 72. In short, I would conclude that the hierarchy reflected in s. 70(1) applies with equal force to consumer proposals.

31 Section 27 of the Mortgages Act therefore could not serve to elevate BMO's status to achieve priority over the appellant's other unsecured creditors. The decisions of National Bank of Canada v. Young, [2002] O.J. No. 3823 (Ont. S.C.J.) and Polsak, Re (1978), 1978 1456 (ON SC), 19 O.R. (2d) 570 (Ont. H.C.), do not assist. The former did not engage the provisions of the BIA, and the latter involved a secured creditor who clearly took priority over any claim of the mortgagors to residue.

32 At the time the proposal was filed and approved, BMO was an execution creditor and its debt was unsecured. Consistent with this characterization, BMO filed a proof of its unsecured claim in the appellant's proposal proceedings. Its debt was paid only after TD commenced its court application, BMO appeared and made submissions, and the parties consented to payment.

(3) Stay of Proceedings

33 Pursuant to s. 69.2(1)(a), BMO's claim against the appellant was stayed once the proposal was filed. The stay of proceedings is akin to the stay imposed in a bankruptcy, which is designed to prevent creditors from gaining an unfair advantage and to allow for an orderly restructuring or liquidation: see Cohen, Re (1948), 1948 282 (ON CA), 29 C.B.R. 111 (Ont. S.C.), at pp. 113-14, aff'd [1948] 4 D.L.R. 808 (Ont. C.A.); Dilollo, Re, 2013 ONCA 550, 117 O.R. (3d) 81 (Ont. C.A.), at para. 40.

34 Accordingly, I would find that BMO was precluded from executing any remedy against the appellant or her property by virtue of the operation of the statutory stay of proceedings.”

[50] My colleague Associate Justice Rappos in Singh summarized the statutory regime for Consumer Proposals:

“10 A consumer proposal may be made by a “consumer debtor”, subject to certain exceptions. [Subsection 66.12(1)] A “consumer debtor” is defined to mean an individual who is bankrupt or insolvent and whose aggregate debts, excluding any debts secured by the individual’s residence, are not more than $250,000 or any other prescribed amount. [Section 66.11]

11 A consumer proposal shall be made to the creditors generally. Subsection 66.12(3) The time with respect to which the claims of creditors shall be determined is the time of the filing of the consumer proposal. [Subsection 66.28(1)]

12 At a meeting of creditors, the creditors may by ordinary resolution, voting all as one class, accept or refuse the consumer proposal as filed or as altered at the meeting or any adjournment thereof, subject to the rights of secured creditors. [Subsection 66.19(1)]

13 A consumer proposal accepted, or deemed accepted, by the creditors and approved by the court is binding on creditors in respect of all unsecured claims (subject to certain exceptions). [Subsection 66.28(2)(a)]

14 Once a consumer proposal is fully performed, the administrator is required to issue a certificate, which has the same effect as a discharge from bankruptcy. Subsection 66.38(1); [Houlden, Morawetz and Sarra, Bankruptcy and Insolvency Law of Canada, 4th ed., §4:169 (Westlaw Edge Canada).]

15 Unless the court orders otherwise, where a consumer proposal is annulled, the consumer debtor may not make another consumer proposal, and is not entitled to any relief provided by sections 69 to 69.2, until all claims for which proofs of claim were filed and accepted are either paid in full or are extinguished by the operation of subsection 178(2). [Subsection 66.32(1)]

16 Where a consumer proposal is annulled, the rights of the creditors are revived for the amount of their claims less any dividends received. [Subsection 66.32(2)]

17 Lastly, the stay of proceedings contained in subsection 69.2(1) comes to an end once a consumer proposal is annulled. [Subsection 69.2(1)]”

[51] Also in Singh, after the review of the prior authorities, Associate Justice Rappos comprehensively synthesized from that prior jurisprudence the following test for annulment of a Consumer Proposal:

“55 Based on my review of the Automotive Finance and Engdahl decisions, the following are factors to be taken into consideration when the Court is considering exercising its discretion to annul a consumer proposal:

(a) the knowledge of the debtor;

(b) the creditor’s knowledge of the consumer proposal;

(c) the eligibility of the consumer debtor to file a consumer proposal;

(d) the amount and nature of the debt;

(e) the timing of the application;

(f) the interest of the debtor and creditors; and

(g) the integrity and public confidence in the BIA and the process of consumer proposals.”

THE CONSUMER PROPOSAL PROCEEDINGS

[52] The Bankrupt is a first time Consumer Debtor and has never been Bankrupt.

[53] On this Annulment Motion the Administrator has filed a Report dated August 2, 2024 (the “Report”) attaching the Creditors Package sent to all creditors, including Arista, both directly and through its counsel at Exhibit “C” (the “Creditors Package”).

[54] The Consumer Debtor on November 9, 2021 filed the Consumer Proposal dated November 8, 2021 with the Administrator, and the Administrator filed it with the OSB according to the OSB Certificate at Exhibit B to the Report. Therefore the starting date for all time periods in this Consumer Proposal estate is November 9, 2021.

[55] From the Creditors Package it appears that Arista was sent the Creditors Package directly by mail on November 12, 2021 to “600 Applewood Crescent Vaughn ON L4K 4B4”, and again the same day at 2:35 PM by email to email address “homecare@artistahomes.com.”

[56] Counsel for Arista, appearing on this Annulment Motion, was also sent the Creditor’s Package by mail on November 12, 2021 to the Attention of Ed Hiutin at “200-7501 Keele St. Vaughan ON L4K 1Y2”, and also by fax at 7:54 PM the same day to “1-416-599-7910”.

[57] In support of the Annulment Motion Arista filed the Affidavit of Vijay Perinparajah, sworn May 31, 2023 (the “Arista Affidavit”). At Exhibit K to the Arista Affidavit is an email dated November 17, 2021 at 1:43 PM from Jiang to the Administrator’s general email box (the “Arista November 17 Email”) attaching the Creditors Package and stating:

“Good afternoon,

We have received the attached consumer proposal. We act on behalf of Arista Homes, which has not been identified as a creditor and instead is listed as just a liability in the amount of $1.

This is not correct.

Please see attached judgment of Justice Bird dated December 17, 2020 wherein Malbow Santhikumar is held to be jointly and severally liable to pay Arista Homes $402,574.12 please interest. Please promptly amend the consumer proposal so as to not give other creditors a misleading picture of the liability situation.

Please also advise when the first meeting of creditors is to be held.”

[58] So it is clear, and not denied in the Arista Affidavit, that Arista and its counsel were aware of the Consumer Proposal on November 17, 2021. What they did with that knowledge is the crucial issue on this Annulment Motion. The implications of their conduct must be considered in the context of how Consumer Proposals are to function.

[59] As set in the general policy section, Consumer Proposals are intended to deal with smaller debts, in less complicated situations, in a cost efficient fashion.

[60] As a result the policy choice was made to dispense with many of the procedural features of Division I Proposals, such as multiple mailings to creditors, mandatory creditors meetings and applications for Court Approval, and for consumer proposals to utilize simplified statutorily mandated precedent materials and rigid procedures.

[61] All of this is intended to reduce the administrative friction and expense in estates where by definition, the amounts payable under the proposals tend to be less than the limit for Consumer Proposal of $250,000 in declared debts. This is done in an effort to maximize the realization to creditors from the amount paid by the Consumer Debtor under the Consumer Proposal.

[62] The actual “Proposal Materials” and Creditors Packages are not drafted as independent documents as they would be in a Division I Proposal.

[63] Instead they are usually generated in the Insolvency Estate Management software used by LIT Administrators, using the forms statutorily mandated by the BIA and the OSB, and the data populated throughout the package at intake when provided in the initial interviews with the Consumer Debtor.

[64] In the case of the Creditors Package in this estate that was sent to Arista by the Administrator included:

Form 47 - “Consumer Proposal” (the “Consumer Proposal”) dated November 8, 2021,

Form 48 – “Report of Administrator on Consumer Proposal” dated November 12, 2021 which also attaches the Statement of Affairs sworn by the Consumer Debtor on November 8, 2024 (the “Statement of Affairs”) (collectively the “CP Report”),

Form 49- “Notice to Creditors of Consumer Proposal” dated November 12, 2021 (the “Notice”),

Form 65 “Monthly Income and Expense Statement of the Debtor and the Family Unit” (the “I&E Statement”),

Form 36 Proxy (the “Proxy”),

Form 37.1 Voting Letter (the “Voting Letter”), and

Form 31 Proof of Claim (the “Proof of Claim”)

[65] By design each of these documents are very brief and simple, and are intended for use by creditors that will be unlikely to retain counsel to deal with the Consumer Proposal due to the practicalities of the costs and benefits, in order to implement the policy objectives and efficiencies of the Consumer Proposal Process.

[66] Accordingly, each document is replete with instructions and warnings to creditors about the time periods that they need to respond in order to be permitted to participate in decision making under the Consumer Proposal.

[67] In its entirety, this Consumer Proposal by this Consumer Debtor reads:

“I, Malbow Santhikumar, a consumer debtor, hereby make the following consumer proposal under the Act:

1. That payment of the claims of secured creditors be made in the following manner;

Secured creditors shall operate outside this consumer proposal and shall be paid In the ordinary course of business.

2. That payment of all claims directed by the Act to be paid in priority to other claims in the distribution of my property be made in the following manner:

Payment(s) shall be made in accordance with their claims.

3. That payment of the fees and expenses of the Administrator of the consumer proposal and payment of the fees and expenses of any person in respect of counselling given by this person pursuant to the Act be made in the following manner:

Payment(s) shall be made from the money paid to the estate in priority to payments to the unsecured creditors pursuant to Rule 129(1) of the Bankruptcy and Insolvency Act.

4. That the following payments be made to Kunjar Sharma & Associates Inc., the Administrator of the consumer proposal. for the benefit of the unsecured creditors:

From future employment and/or other income or assistance from family or friends, the Debtor(s) shall pay to the Administrator a total of 60 monthly payments in the amount of $400.00 per month totalling $24,000.00. These payments shall commence in the month following (Deemed) Court Approval and shall be due and payable no later than the last day of each subsequent month.

5. That the Administrator of the consumer proposal distribute the monies received to the unsecured creditors in accordance with the following schedule:

The Administrator will distribute the moneys paid by me (us) to the creditors in accordance with the priorities above once per year in the month of the anniversary of the (Deemed) Court Approval date. The first dividend will be distributed only upon sufficient funds becoming available after payments of priority costs as set out under Section 136 of the Bankruptcy and Insolvency Act.

6. That the proposal includes the following additional terms:

a) The creditors may appoint up to three inspectors of the estate of the consumer debtor, who shall have, in addition to any power of inspectors under this Act, the power to:

(i) receive any notice of default in the performance of a provision of the Consumer Proposal and waive any such default, and

(ii) approve any amendment to the Consumer Proposal without calling a meeting or creditors, if the amendment would alter the schedule for and the amount of the payments to be made by the consumer debtor, but would not change the total amount to be paid; and

b) in the absence of appointed inspectors the Administrator of this Consumer Proposal shall have the power to extend the lime for the making of any payment required to be made pursuant to this Proposal provided that no such extension shall extend beyond the five years following the approval of this Proposal by the court; and

c) the Debtor(s) shall have the right to accelerate monthly payment(s) during the term of this Consumer Proposal”

[68] The CP Report reads, in its entirety:

We, Kunjar Sharma & Associates Inc., the administrator of the consumer proposal of Malbow Santhikumar, a consumer debtor, hereby report to the official receiver as follows:

1 That the consumer debtor made a consumer proposal on the8th day of November 2021 and that we filed a copy of it with the official receiver on the 9th day of November 2021.

2 That we have investigated, or have had investigated, the consumer debtor's property and financial affairs so as to be able to assess with reasonable accuracy the consumer debtor's financial situation and the cause of the consumer debtor's insolvency.

3. That attached to this report is the consumer debtor's statement of affairs and a list of the creditors whose claims exceed $250.

4. That we are of the opinion that the cause or causes of the consumer debtor's insolvency are as follows:

Accumulation of debt due to financial mismanagement.

Furthermore, we comment on the conduct of the debtor as follows:

• Nothing derogatory to report.

5. That we are also of the opinion, for the following reasons, that the consumer proposal is reasonable and fair to both the consumer debtor and the creditors, and that the consumer debtor will be able to perform it:

INCOME

The consumer debtor is gainfully employed and is prepared to commit to a budget to fund the proposal from her income.

SURPLUS INCOME

Based on the consumer debtor's income at this time, the minimum surplus income obligation required pursuant to the Superintendent of Bankruptcy's standards would be $868.31 per month x 21months=

$18,234.51.

HOME EQUITY

The property located at 111 Bethany Leigh Drive, Toronto, Ontario is held in trust. The property was previously held solely by spouse's parent, then jointly by spouse and parent. In November 2020, subsequent to their marriage, the debtor and spouse registered as joint owners of the property. The receipt of the 50% interest in the property was done to facilitate financing and new mortgages registered in November 2020. The Trust Agreement sets out the above arrangements. The Trust Agreement, as it is not registered on title, maybe subject to legal challenge and declaration made that debtor's interest is an asset in bankruptcy scenario.

OTHER ASSETS

All assets are exempt from seizure pursuant to the Ontario Executions Act.

CONCLUSION

Please note that this is a Consumer Proposal, and as such, if it is rejected by the creditors the consumer debtor is not automatically assigned into bankruptcy. Should creditors wish to force the consumer debtor into bankruptcy, they will need to make application to the court for a bankruptcy order and incur whatever additional costs this may entail.

Based on the information above, if the consumer debtor was forced into bankruptcy or made a voluntary assignment into bankruptcy, the creditors may receive an approximate dividend of 46.40%, net of fees and costs, whereas it is estimated that the creditors could receive a dividend of approximately 87.82 % upon the full performance of this Consumer Proposal, net of fees and costs.

It is, therefore, our opinion that based on the consumer debtor's financial and family situation that the consumer debtor will be able to complete the terms of this proposal, and when compared to the potential realizations in a bankruptcy scenario, as detailed above, the proposal is both fair and reasonable to both the consumer debtor and the creditors.”

[69] Most importantly, the relevant portions of the 1 page Notice to Creditors has the following statements, instructions and warnings to the creditors receiving it, including, admittedly, Arista (emphasis mine):

3. Any creditor who has proved a claim may indicate assent to or dissent from the consumer proposal at or prior to a meeting of creditors, or prior to the expiration of the 45-day period following the filing of the consumer proposal (Note: Form 37.1, Voting Letter, may be used by the creditor to indicate assent to or dissent from the consumer proposal and to request that a meeting of creditors be held).

4. Any dissent I receive, however, is not a request for a meeting of creditors for the purpose of paragraph 66.15(2)(b) of the Act, and will not be counted in a vote on the consumer proposal unless I am required to call a meeting of creditors pursuant to section 66.15 of the Act.

5. I will be required to call a meeting of creditors only if, pursuant to section 66.15 of the Act:

(a) I am directed to do so by the official receiver within the 45-day period after the filing of the consumer proposal; or

(b) at the expiration of the 45-day period after the filing of the consumer proposal, creditors having in the aggregate at least 25 percent of the value of proven claims have so requested.

6. If, within the 45-day period mentioned at paragraph 5, I am not required to call a meeting of creditors, the consumer proposal shall, by virtue of subsection 66.18(1) of the Act, be deemed to have been accepted by the creditors, regardless of any dissent(s) I may have received.

7. In the event that the consumer proposal has been accepted or is deemed to have been accepted by the creditors, I will apply to the court to review the consumer proposal only if, pursuant to section 66.22 of the Act, I am requested to do so by the official receiver or any other interested party within 15 days after the day of acceptance or deemed acceptance of the consumer proposal.

8. If, within that 15-day period mentioned at paragraph 7, I am not requested to apply to the court to review the consumer proposal, the consumer proposal is deemed to be approved by the court.”

[70] The “Checklist for Proofs of Claim” attached to the Creditors Package by the Administrator, which appears in the Arista Affidavit at Exhibit J, warns creditors specifically (emphasis mine):

“NOTES

Only creditors who have filed claims in the proper manner before the time appointed for the meeting of creditors are entitled to vote;

Only creditors who filed claims in the proper form with the trustee are entitled to share in any distribution that may be made”

[71] It should be noted that the time periods and statements in this Notice by this Administrator are in the statutorily mandated form language, and in accordance with provisions of s.66.15, 66.18 and 66.22 of the BIA which reads:

66.15 (1) The official receiver may, at any time within the forty-five day period following the filing of the consumer proposal, direct the administrator to call a meeting of creditors.

(2) The administrator shall call a meeting of creditors

a. (a) forthwith after being so directed by the official receiver under subsection (1), or

b. (b) at the expiration of the forty-five day period following the filing of the consumer proposal, if at that time creditors having in the aggregate at least twenty-five per cent in value of the proven claims have so requested,

and any meeting of creditors must be held within twenty-one days after being called.

Notice to be sent to creditors

(3) The administrator shall, at least ten days before a meeting called pursuant to this section, send to the consumer debtor, every known creditor and the official receiver, in the prescribed form and manner, a notice setting out

c. (a) the time and place of the meeting;

d. (b) a form of proxy as prescribed; and

e. (c) such other information and documentation as is prescribed.

Where consumer proposal deemed accepted

66.18 (1) Where, at the expiration of the forty-five day period following the filing of the consumer proposal, no obligation has arisen under subsection 66.15(2) to call a meeting of creditors, the consumer proposal is deemed to be accepted by the creditors.

(2) Where there is no quorum at a meeting of creditors, the consumer proposal shall be deemed to be accepted by the creditors.

Application to court

66.22 (1) Where a consumer proposal is accepted or deemed accepted by the creditors, the administrator shall, if requested by the official receiver or any other interested party within fifteen days after the day of acceptance or deemed acceptance, forthwith apply to the court to have the consumer proposal reviewed.

Where consumer proposal deemed approved by court

(2) Where, at the expiration of the fifteenth day after the day of acceptance or deemed acceptance of the consumer proposal by the creditors, no obligation has arisen under subsection (1) to apply to the court, the consumer proposal is deemed to be approved by the court.

[72] So the deemed creditor acceptance of the Consumer Proposal occurs under s.66.18 if the OSB or sufficient creditors with PROVEN claims do not properly request a meeting under s.66.15 within 45 days of the date of the filing of the Consumer Proposal.

[73] In this case that date for creditors with PROVEN claims to request a meeting was December 24th, 2021.

[74] The deemed Court Approval under s.66.22 occurs if there is deemed, or actual creditor approval, if a meeting of creditors was properly requested, AND if the OSB or creditors do not request the Administrator to apply for a Court review within 15 days of the date of deemed or actual creditor Approval.

[75] In this case that date for the OSB or creditors to request a Court Review was January 8th, 2022.

[76] The key issue for this Annulment Motion, as well as the allegations made by Arista in the Arista Administrator Action, is whether the interactions that Arista had with the Administrator constituted either a request for a meeting in accordance with s.66.18 and/or a Court Review in accordance with s.66.22.

[77] The Consumer Debtor listed Arista on the Statement of Affairs care of its counsel at $0. The other creditors listed were Capital One Mastercard at $900, MBNA at $9500 and TD Canada Trust at $9000 for a total of $19,400 in claims declared by the Consumer Debtor.

[78] As set out in the claims register issued by the Administrator on January 17, 2024, attached to the Notice of Creditors Acceptance and deemed Court Approval sent to the Consumer Debtor by the Administrator at Exhibit D to the Affidavit of Malbow Santhikumar sworn on January 24th, 2024 (the “Consumer Debtor Affidavit”), only one creditor - Melvin Mariathas, who was not initially listed on the Statement of Affairs, filed a proof of claim in the Consumer Proposal in the amount of $1000 that was admitted.

[79] As at January 17, 2024 the claim of Arista was still “Not Proved” and had a “SOA” amount of $1.00.

[80] The Consumer Proposal offered creditors $24,000 over 60 months at $400 per month.

[81] The asset values reported by the Consumer Debtor in the Statement of Affairs, and the realization values as at September 18, 2007 were:

Asset

Value as per Statement of Affairs

Estimated Realizable Value

Furniture

$2,000.00

$0 – exemption

111 Bethany Leigh Drive (Property Held in Trust) Toronto

$1

$0

Total

$2,001

0

THE ARISTA PROOF OF CLAIM

[82] Arista filed a Proof of Claim (the “Arista Proof of Claim”) on January 19, 2022 with the Administrator. The email that attached the Arista Proof of Claim was sent at 1:18 PM by Vijay Perinparajah, a law clerk (the “Arista January 19 Email”) is attached at Exhibit L to the Arista Affidavit and stated:

“Good afternoon,

As you are aware, we are counsel for the creditor, Arista Homes (Boxgrove Village) Inc.

Pls find enclosed:

(1) Proof of claim dated Jan 19, 2022

(2) Affidavit of Wei Jiang sworn Jan 19, 2022

(3) Proxy signed Jan 19, 2022

Pls advise if a creditors meeting has been called? If not, the creditor, Arista Homes, would like to call one.

We look forward to hearing from you.

Vijay”

[83] Exhibit L to the Arista Affidavit does not attach the Proof of Claim, the Affidavit of Wei Jiang or the Proxy. In fact the Proof of Claim of Arista is nowhere in the Motion Record served on the Annulment Motion by Arista.

[84] Fortunately for Arista, the Administrator included the Arista Proof of Claim, as Exhibit F to the Report.

[85] The Arista Proof of Claim is for the amount of $451,710.12 and the details are “pls see attached affidavit”.

[86] However the Arista Affidavit sets out in some detail the nature of the Arista claim against the Consumer Debtor:

“2. Arista Homes (Boxgrove Village) Inc. ("the Creditor") entered into an

Agreement of Purchase and Sale ("APS") with Krishnaveni Manoranjan ("Manoranjan") and Malbow Santhikumar, ("Santhikumar"), collectively the defendant purchasers ("Purchasers"), on April 17, 2017, for a property known municipally as 12 Decast Crescent, Markham. Attached as Exhibit "A" is the APS for the transaction.

3. On or around October 23, 2018, the Purchasers defaulted on the APS. Attached as Exhibit "B" are the emails confirming the default.

4. On or around November 18, 2018, the Creditor directed Stevenson Whelton, lawyers for the Creditor, to bring an action against the Purchasers for damages suffered from the breach of the APS.

Default Judgment

5. On December 5, 2018, the Creditor issued the statement of claim for the damages arising out of the breach of the APS. Attached as Exhibit "C" is the issued claim.

6. On April 17, 2019, Santhikumar delivered a notice of intent to defend the action, attached hereto as Exhibit "D". No defence was ever filed by Santhikumar. Attached as Exhibit "E" is a letter from myself to the Purchasers dated April 30, 2019 informing them that as of April 30, 2019, no defence had been received from Santhikumar nor Manoranjan.

7. On June 3, 2019, Santhikumar was noted in default by the registrar. Attached as Exhibit "F" is proof of the default.

8. On December 17, 2020, Justice Bird granted default judgment against the defendants. Attached as Exhibit "G" is the order. As per the order, the Purchasers are jointly and severally liable for the default, in the amount of $402,574.12 plus $5,284.59 in costs with post-judgment interest of 12% commencing December 17, 2020.”

[87] The Default Judgment of Justice Bird dated December 17, 2020 (the “Arista Judgment”) is at Exhibit G to the Arista Affidavit is in the amount of $402,574.12 plus $5,284.59 in costs with post-judgment interest of 12% commencing December 17, 2020. It appears from the FRANK Court record that the Motion for the Default Judgment against the Consumer Debtor was filed by Arista on December 7, 2020.

[88] In the Affidavit of Wei Jiang attached to the Proof of Claim (the “Arista Proof of Claim Affidavit”) the amount claimed is $451,710.12, but nowhere is there an explanation of how the amount of the Arista Judgment was arrived at, given that the Statement of Claim in Newmarket Action CV-18-00138380 (the “Arista Action”) at Exhibit A to that Affidavit the original claim against the Consumer Debtor was for the amount of $1,269,990.

[89] Presumably there was a resale of the property which the Consumer Debtor signed an agreement of purchase and sale for, but failed to close, but there is no explanation of that in the Arista Proof of Claim Affidavit.

[90] There is also no explanation of whether the co-defendant under the Krishnaveni Manoranjan “Manoranjan”) paid any amount under the Arista Judgment. It appears from the Court FRANK record for the Arista Action that Arista obtained Writs of Seizure and Sale against both Defendants on January 18, 2021 and also had issued a Notice of Garnishment against Manoranjan on February 4, 2021, the same day as the issuance of Notice of Garnishment against the Consumer Debtor. It also appears that Arista obtained an Order from Justice Dawe against Manoranjan alone on February 25th, 2020, for substituted service.

[91] Did Arista ever collect anything from Manoranjan? Arista provides no evidence and neither does the Consumer Debtor or the Administrator.

[92] It appears from the Court FRANK records for the Arista Action that a “Notice of Bankruptcy” was filed with the Court with respect to Manoranjan on March 24th, 2021. It appears from the OSB records that A. Farber was appointed as Trustee in Bankruptcy of Manoranjan on March 9, 2021 and that a stay of proceedings under s.69.3 of the BIA of the Arista Judgment against Manoranjan was imposed on that date. The estate number is 31-2718653. This was a summary administration bankruptcy estate and the Trustee A. Farber was discharged in March of 2023.

[93] Under the provisions of R.11 of the Civil Rules the Arista Action was stayed upon the Bankruptcy of Manoranjan on March 9, 2021 and no further step in that proceeding could be taken under an Order to continue was obtained to comply with R.11. None was obtained by Arista.

[94] Why was this not disclosed anywhere in any materials filed with the Court by Arista, but most particularly in the Arista Affidavit and the Arista Proof of Claim Affidavit?

[95] Did Arista file a proof of claim in the bankruptcy of Manoranjan? Was Arista paid a dividend in that Manoranjan Bankruptcy that Arista had a duty to disclose in the Arista Proof of Claim and the Arista Proof of Claim Affidavit under the provisions of s.201 of the BIA?

[96] If Manoranjan had paid any amounts under the Arista Judgment, was this reflected in the Arista Proof of Claim, and was A. Farber the Trustee of Manoranjan aware that Arista was also pursuing the Consumer Debtor as co-defendant.

[97] All of the relevant direct evidence provided by the Consumer Debtor in the Consumer Debtor Affidavit was:

“4. The Statement of Claim was served on Krishnaveni Manoranjan (the other defendant) personally, but I did not receive a copy directly (there may have been service compliant with the Rules of Civil Procedure, I am not able to accurately dispute this, but I did not reside at 89 Guinevere Road, Markham, Ontario, and never received any mail).

5. I became aware of the Judgment of Justice Bird when my bank account was garnished. I received a copy of the Notice of Garnishment in the mail to 111 Bethany Leigh Drive,

Scarborough, Ontario.

6. I took all documents that I received to the administrator.

7. I have continued to make payments as required. I have paid $11,010.00 so far. Attached and marked as Exhibit “H” is a copy the Trustee’s General Ledger Report.

8. I have never intended to hide any of my liabilities. At the time that I filed the proposal, I was overwhelmed, and did not have any ill intentions. I provided all the documentation I had, and was seeking to have a fresh start.”

[98] However, given that the Consumer Debtor served a Notice of Intent to Defend in April of 2019, but never served a Defence, it appears she was aware of the Action by Arista prior to the Noting in Default in June of 2019. I note that the Notice of Intent to Defend served by the Consumer Debtor on counsel for Arista specifically states specifically the following:

“The defendant Malbow Santhikumar intends to defend this action.(April 17,2019) (Malbow Santhikumar 89 Guinevere Cresecent [sic] Markham, Ontario L18 4R8 )”

[99] How the Consumer Debtor could state that in her Notice of Intent to Defend in 2019 and now state 5 years later in the Consumer Debtor Affidavit “…but I did not reside at 89 Guinevere Road, Markham, Ontario, and never received any mail” is unknown.

[100] However I do note that on the documentation for the purchase of the property that are attached at Exhibit A to the Arista Affidavit, the address provided by the Consumer Debtor to Arista on or about April 11, 2017 (when the purchase documents were signed) is the 111 Bethany Leigh Drive address, which is the subject matter of the Newmarket Application, while the address for Manoranjan is 89 Guinevere Crescent. For whatever reason in the Arista Statement of Claim the address for service provided for both the Consumer Debtor and Manoranjan is the 89 Guinevere address.

[101] So there may have been some initial confusion, but it appears the Statement of Claim came to the sufficient attention of the Consumer Debtor by June of 2019 to prompt her to serve a Notice of Intent to Defend (It does not appear from the Court FRANK record for that the Notice of Intent to Defend was ever filed with the Court.). Based on the evidence of the Consumer Debtor that the Notice of Garnishment was sent to the 111 Bethany Leigh Drive address in the spring of 2021, it is clear that at that point Arista knew where she lived.

[102] If there were service issues it appears that they were sufficiently resolved to have the Consumer Debtor aware of the Action by Arista in sufficient time to file a defence to avoid a default judgment. To raise the issue 5 years later is too late.

[103] There is no dispute by any party that the Arista Proof of Claim was only received by the Administrator on January 19, 2022, AFTER the deemed acceptance of the Consumer Proposal by the Creditors, and deemed approval by the Court.

[104] Arista admits that it received the Creditors Package on or about November 17, 2021 and the Jiang Email from that date substantiates that Arista, by its counsel, was aware of the specific instructions and warnings contained in the statutorily prescribed forms regarding the consequences of not properly requesting a meeting, not filing a proof of claim, and not requesting a review under the strict terms of the BIA.

Necessity of Creditors Filing Proofs of Claim under [BIA](https://www.canlii.org/en/ca/laws/stat/rsc-1985-c-b-3/latest/rsc-1985-c-b-3.html)

[105] Any Creditor who wishes to participate in any kind of insolvency proceeding under the BIA must file Proof of Claim in accordance with the BIA. This was not something dreamt up by the Administrator to inconvenience Arista and its counsel, it is a cornerstone principal under the BIA, whether or not they had obtained the Arista Judgment.

[106] Section 135 requires that creditor, MUST prove their claims, whether or not they already have a judgment against the debtor or Bankrupt. The section reads:

Creditors shall prove claims

124 (1) Every creditor shall prove his claim, and a creditor who does not prove his claim is not entitled to share in any distribution that may be made.

Proof by delivery

(2) A claim shall be proved by delivering to the trustee a proof of claim in the prescribed form.

Who may make proof of claims

(3) The proof of claim may be made by the creditor himself or by a person authorized by him on behalf of the creditor, and, if made by a person so authorized, it shall state his authority and means of knowledge.

Shall refer to account

(4) The proof of claim shall contain or refer to a statement of account showing the particulars of the claim and any counter-claim that the bankrupt may have to the knowledge of the creditor and shall specify the vouchers or other evidence, if any, by which it can be substantiated.

[107] Houlden & Morawetz § 6:144. Necessity for Filing Proof of Claim—Generally summarizes this requirement:

To participate in the bankrupt estate, a creditor must file a proof of claim: s. 124(1). The Form given for a proof of claim is Form 31 effective September 16, 2024 for all claims on or after that day; see post under Forms. By s. 109(1), a person is not entitled to vote as a creditor at any meeting of creditors unless the person has proved a claim provable in bankruptcy: see § 6:24 “Requirements for Proof of Claim”.

Section 124(5) was repealed which required that the creditor set out in the proof of claim whether the creditor was or was not a secured or preferred creditor. Many creditors lacked the knowledge necessary to make this determination. It is a duty of the trustee to determine the status of claims.

A creditor who has not proved a claim is not entitled to a dividend: s. 124(1); Re Wright and Schwalm (1926), 7 C.B.R. 465 (Ont. S.C.). The Bankruptcy and Insolvency Act is a business person's Act, and the court should follow a liberal approach when dealing with proofs of claim; technicalities should be avoided: Atlas Acceptance Corp. v. Fratkin (1978), 1978 2692 (MB CA), 27 C.B.R. (N.S.) 220, [1978] 3 W.W.R. 289 (Man. C.A.).

When a person becomes bankrupt, creditors can no longer take proceedings against the bankrupt to enforce their claims but are given the right to prove their claims with the trustee and to share pro rata with other creditors in the distribution by the trustee of the realization from the bankrupt's assets.

[108] In Re Hayre, 2014 CarswellBC 2625, 2014 BCSC 1672, [2014] B.C.W.L.D. 6931, 244 A.C.W.S. (3d) 521 Registrar Nielsen stated:

“15 Meeting the statutory obligations of s. 124 of the BIA has been held to be mandatory and is to be strictly applied. In Port Chevrolet Oldsmobile Ltd., Re, 2002 BCSC 1874 (B.C. S.C. [In Chambers]), Madam Justice Neilson stated at para. 23:

The provisions dictating the form of a proof of claim are mandatory and to be strictly construed, and the proof of claim should be sufficient to enable the trustee to make an informed decision on its merits: Re G. Totton Publishers Ltd. (1975), 20 C.B.R. (N.S.) 140, (Ont. S.C.); Re Riddler (1991), 1991 1053 (BC SC), 3 C.B.R. (3d) 273 (B.C.S.C.).”

16 This decision was upheld on appeal in Port Chevrolet Oldsmobile Ltd., Re, 2004 BCCA 37 (B.C. C.A.), where the Court of Appeal stated at paragraphs 26 and 27:

[26] ..... Specifically, did the document "contain or refer to a statement of account showing the particulars" thereof, and did it specify the "vouchers or other evidence, if any, by which it could be substantiated"?

[27] I agree with Neilson J. that the answer to these questions is "no".

17 I agree that the Appellant has not complied with s. 124(4) of the BIA and the appeal ought to be dismissed on this basis.

[109] Houlden & Morawetz states at § 6:24. Requirements for Proof of Claim—Generally:

“A person is not entitled to vote as a creditor at any meeting of creditors unless the person has duly proved a claim provable in bankruptcy: s. 109(1). Form 31 effective September 16, 2024 for all claims on or after that day is the general form of a proof of claim. The words “duly proved” in s. 109(1) mean duly proved according to the requirements of the Bankruptcy and Insolvency Act and the Rules: Re G. Totton Publishers Ltd. (1975), 20 C.B.R. (N.S.) 140 (Ont. Reg.).

Although the court in Re Totton suggested that there should be certain latitude given to creditors in filling out proofs of claim, as many are completed by creditors without the benefit of legal assistance, such lenience may not be extended to sophisticated and experienced creditors such as the CRA: Re Port Chevrolet Oldsmobile Ltd. (2002), 2002 CarswellBC 3602, [2002] B.C.J. No. 3206, 2002 BCSC 1874, [2003] G.S.T.C. 168, 49 C.B.R. (4th) 127 (B.C. S.C. [In Chambers]), affirmed (2004), 2004 CarswellBC 354, 2004 BCCA 37, [2004] G.S.T.C. 8, 193 B.C.A.C. 114, 316 W.A.C. 114, 49 C.B.R. (4th) 146, 23 B.C.L.R. (4th) 335 (B.C. C.A.).

[110] In Canadian Imperial Bank of Commerce v. 433616 Ontario Inc. 1993 CarswellOnt 193, 17 C.B.R. (3d) 160, 38 A.C.W.S. (3d) 1086 McWilliam, J. underlines that the onus is on the creditor to prove its claim, in order to participate in proceedings under the BIA:

16 Under s. 135(1) of the Bankruptcy Act the trustee is under a duty to examined every proof of claim and the grounds for it. The trustee may require further evidence in support of the proof of claim. Such evidence must be satisfactory that the debt is a valid debt since not even a judgment recovered against the bankrupt, or covenant given or account stated by him deprives the trustee of his right to make such enquiries. He is entitled to go behind such forms to get at the truth; it is unnecessary for him to show fraud or collusion: Re Van Laun; Ex Parte Chatterton, [1907] 2 K.B. 23 (C.A.). The trustee must take into account the effect upon other creditors in exercising his discretion: Re Cohen (1956), 1956 597 (AB CA), 36 C.B.R. 21 (Alta. C.A.).

17 In Houlden and Morawetz, 3rd ed., G§69, 5-92 and 5-93, the authors say:

It would seem that the onus should be on the claimant to prove his claim, and if he fails to do so on the balance of probabilities, the court should dismiss the appeal: Re Waltson Properties Ltd. (No. 2) (1977), 24 C.B.R. (N.S.) 212, affirmed 28 C.B.R. (N.S.) 269 which was affirmed (1979), 30 C.B.R. (N.S.) 112 (Ont. C.A.).

[111] In response to the Arista November 17 Email the staff of the Administrator sent the following email to counsel for Arista: (Exhibit E to the Report)

“From: Varuniya (Saya) Chandrarjah saya@kunjarsharma.com

Sent: Wednesday, November 17, 2021 2:08 PM

To: 'WJiang@swlawyers.ca' WJiang@swlawyers.ca

Cc: Angela Lee angelalee@kunjarsharma.com

Subject: RE: Consumer proposal of Malbow Santhikumar

Hello,

Thank you for your email.

Please file a proof of claim at your earliest convenience.

A meeting of creditors will be called if requested to do so by 25% of proven creditors. Once we receive your claim, it will be reviewed by the Trustee and processed accordingly.”

[112] Apparently there was no communication with counsel for Arista in response to this timely email from the Administrator, and the next email to the Administrator from counsel for Arista is found in all of the materials before the Court is the Arista January 19 Email attaching the Arista Proof of Claim that I excerpted above.

[113] As noted, this was sent by counsel for Arista AFTER the Consumer Proposal was deemed accepted by the Creditors and approved by the Court under the BIA because no creditor, particularly Arista, had:

1. Proven a Claim in accordance with the BIA; AND

2. Requested a Meeting of Creditors; AND

3. Requested a Review of the Proposal

within the mandatory deemed approval time periods for Consumer Proposals under the BIA.

[114] As I have pointed out in detail, Arista was provided with the Creditor’s Package enclosing the documents in the proper statutorily mandated forms, replete with warnings of the statutory time periods for filing claims and requesting a meeting, and the consequences for not doing so, and were then specifically told by the Administrator what they needed to do by a responding email from the Administrator 26 MINUTES after the Arista November 17 Email.

[115] And yet Arista and its counsel did nothing for 63 DAYS until the January 19 Email, when the statutory time periods had already expired and the Consumer Proposal was deemed approved by the creditors and the Court by operation of the BIA.

Arista Doubles Down

[116] There then ensued a dialogue between the Administrator and Arista where the Administrator attempted to explain the Consumer Proposal provisions of the BIA, to which counsel for Arista was unreceptive.

[117] After prompts from a law clerk working for Counsel for Arista on January 31 and February 4, 2022, the Administrator on February 4, 2022 (Exhibit G to the Report):

From: Varuniya (Saya) Chandrarjah saya@kunjarsharma.com

Sent: Friday, February 4, 2022 5:13 PM

To: Vijay Perinparajah vijay@swlawyers.ca

Subject: RE: Arista Homes (Boxgrove Village) Inc re Malbow Santhikumar

Hello Vijay,

My apologies for the late reply.

The consumer proposal was accepted my majority of the creditors at the 45 days period, on December 24, 2021.

I had sent an email to Mr. Wei Jiang back in November 2021 requesting that a proof of claim be filed at the earliest convenience to be part of the voting process.

I didn’t hear back from him.

At this time, as there is a significant increase in the liabilities, a material change letter will be issued to all creditors advising them of the claim by your office.

I will provide you with a copy of this directly as well.

[118] The Administrator sent a Material Change Report under s.66.251 dated February 7, 2022 to the creditors which stated:

“1. That a Consumer Proposal was lodged with the Administrator on the November 8, 2021 and that it was E-filed with the Official Receiver on November 9, 2021, pursuant to Part Ill, Section II of the Bankruptcy and Insolvency Act;

2. That on January 19, 2022, the Administrator was notified by a Creditor that the following account had a significant amount owing. Since the debts were incurred before the date of the consumer proposal, additional pre-proposal obligations are now part of their consumer proposal as follows:

• Arista Homes (Boxgrove Village Inc) $451,710.12

3. That as of February 7, 2022, the Debtor has already paid $1,200 out of

$24,000 towards her approved consumer proposal;

4. This dilutes and reduces the earlier estimated dividend return to creditors, from 87.82% to 3.66%. However, the estimated recovery through the Consumer Proposal is still better than a possible 1.93% recovery for creditors, in a bankruptcy scenario;

5. That the Debtor has never defaulted on her payments as per the terms of the Proposal;

6. That it is the opinion of the Administrator:

• That Debtor will be able to honour the terms and conditions of the Proposal since its filing with the Official Receiver; and

• That the current Proposal still provides a better recovery to all proven creditors compared to bankruptcy.

7 That the Administrator is providing this information considering the material change in the affairs of the Debtor;”

[119] Counsel for Arista responded with belligerence. In a series of emails at Exhibit I to the Report between Jiang and (ultimately) Judd between February 7, 2022 and February 9, 2022 Jiang took assorted positions that were wrong at law:

February 7, 2022 – Jiang

“Good morning,

I am responding to your email below. With respect, your email is not an accurate description of events. I have attached our actual email exchange for your reference.

You will note that I first reached out to you, attaching the actual judgment our client obtained against Mr. Santhikumar, and noted that Mr. Santhikumar has not included our client as a creditor. This is an issued court order, which does not require proof via an affidavit.

In your response, you indicated that "a meeting of creditors will be called if requested to do so by 25% of proven creditors". You did not indicate at that time that a meeting had been called by 25% of proven creditors. Nor did you notify us at any subsequent time of a meeting of creditors despite having been put on notice that our client is a judgment debtor (supported by an issued judgment of the court).

We will review our client's rights and revert back to you. In the meantime, please forward us the minutes from the meeting of creditors.”

Administrator February 9:

“Hello,

The debtor, Malbow Santhikumar, filed a consumer proposal on November 9, 2021. Your client was listed as a contingent creditor for $1 as the debtor was not certain that a judgement for the claim had been received. Notice of the consumer proposal filing was given to you in the ordinary course. We received your proof of claim on January 19, 2022, which was after the January 8, 2022 date of the deemed court acceptance of the consumer proposal. A formal meeting of creditors was not held as the consumer proposal had been approved by 100% of the creditors who voted by voting letter.

We confirm that your client’s claim will be included for dividend purposes in the consumer

proposal. The expected net recovery to creditors is expected to 3.66%.

Please find the material change notice attached.”

Jiang – February 9, 2022

Please review my email to you this morning. You had an issued court judgment in November, 2021 which clearly showed that the debtor's debts exceeded the monetary threshold for a consumer proposal. A judgment does not require an affidavit to be accepted and enforceable. Our position is that the deemed acceptance is a nullity because the consumer proposal was made beyond jurisdiction to begin with. Please let me know if the trustee is going to do anything about revoking the consumer proposal (which it ought to have done when it received the judgment) within one week from the date of this email. If the trustee does not intend to do anything about this, we may be instructed to bring proceedings to annul the consumer proposal. Our client reserves all rights it has, including with respect to seeking costs.

Judd - February 9, 2022

Mr. Jiang

The consumer proposal process is set out in section 66 of the Bankruptcy and Insolvency Act (“ACT”). Creditors must file a proof of claim to be able to vote and participate in the consumer proposal. Having a judgement does not circumvent this requirement. Your client was listed as a creditor on the debtor’s statement of affairs and notice of the consumer proposal filing was given.

Participating creditors voted to accept the consumer proposal as issued.

Section 66.13(4) of the Act states that: “Where the administrator determines, after filing a consumer proposal under paragraph (2)(d), that it should not have been filed because the debtor was not eligible to make a consumer proposal, the administrator shall forthwith inform the creditors and the official receiver, but the consumer proposal is not invalid by reason only that the debtor was not eligible to make the consumer proposal.”

Accordingly, a material change notice was issued to creditors that proven debts are more than $250,000.

The debtor has filed a consumer proposal which our Administrator’s Report suggests would provide a higher and more certain recovery to creditors then available through a bankruptcy scenario. After considering the dilution effect of your client’s claim, this conclusion does not change.

Kindly review the above and reconsider the merits of making an application to court to overturn the consumer proposal as it would result in a bankruptcy and a lower recovery for your client.

If you would like to discuss this matter, kindly give me a call.”

[120] As I have set out above, and as summarized by Associate Justice Rappos in Singh, the Consumer Proposal was not invalid merely because the claims of creditors exceeded the $250,000, otherwise there would have been no reason for Associate Justice Rappos to have had to decide Singh. So Jiang was incorrect.

[121] Also, despite all the above ex-post facto fist-shaking and arm-waving by Jiang, and despite being previously “pretty-pleased” to file a proof of claim by the Administrator on November 17, 2021 at 2:08 PM, Arista failed to file a proof of claim for another 63 days, as the statutory deeming time periods expired, one after another after another.

[122] Without the proof of claim being filed, Arista had no standing to request a meeting, and no ability to receive dividends from the Consumer Proposal, notwithstanding the magical properties that Jiang attributed to the Arista Judgment.

[123] The statements by Jiang in the above emails:

“This is an issued court order, which does not require proof via an affidavit.”

“Our position is that the deemed acceptance is a nullity because the consumer proposal was made beyond jurisdiction to begin with”

“Please let me know if the trustee is going to do anything about revoking the consumer proposal”

are all profoundly, fundamentally, incorrect in the BIA context, as per the jurisprudence I set out above.

[124] Without a proof of claim substantiating the amounts payable under the Judgment, and providing all payments already received, merely sending a copy of a judgment by email is not sufficient to prove the claim. As will be seen, it is particularly a problematic position in this case as there are many questions that the Court has regarding the Arista Claim, arising from material non-disclosure by Arista.

[125] The BIA clearly states, as set out in detail in Singh, and in s.66.13(4) that deemed acceptance in these circumstances is NOT a nullity only because debts exceed $250,000.

[126] The Administrator had no power under the BIA to “revoke” the Consumer Proposal after deemed acceptance. The Debtor had the power to withdraw the Consumer Proposal, or it could be annulled by Order of the Court.

[127] The reason this Annulment Motion has been brought, is that Arista failed to file a Proof of Claim within the statutory time periods, having admittedly had knowledge of the Consumer Proposal, and despite being prompted by the Administrator directly to file a Proof of Claim, and then Arista engaged in a variety of other hyper-aggressive tactics that also did not fulfil it’s duties as a Creditor under the BIA.

Conduct of the Bankrupt

[128] After the interchange above, Jiang tried a different tack, alleging on February 9, 2022 that the Consumer Proposal should be annulled because the Consumer Debtor had allegedly made a fraudulent conveyance:

“Mr. Santhikumar holds joint title to a house which he did not disclose in the consumer proposal. If we send you the details in some form, will the trustee reconsider its position?”

Judd responded:

“Mr. Jiang

Attached is a copy of the creditors package. Our Administrator’s Report in paragraph 5 references the house.

Is there a second property?

Jiang responded on February 15th:

“There isn't a second property. Can you provide me with a copy of any supporting documents to support the debtor's allegation that the property is being held in trust (e.g. a trust agreement)? Or is the trustee simply trusting the debtor's declaration contained in a document which contains critical statements that has already been proven to be false (i.e. not disclosing the judgment).”

[129] At this point the Administrator sends the requested Trust Agreement to Jiang, and it is the evidence of the Administrator in the Report that the chronology of this Annulment Motion proceeded as follows:

“23. The Administrator understands that Arista has since initiated an application against the Debtor in the Ontario Superior Court of Justice at Newmarket on October 3, 2022 (the "Fraudulent Conveyance Application") to challenge the Debtor's interest in the property. The Administrator is not aware of Arista having commenced any motion for leave of the Court to lift the s.69.2 BIA stay of proceedings to initiate the Fraudulent Conveyance Application against the Debtor.

24. The Administrator takes no position in respect of the alleged fraudulent conveyance at this time other than to note that the conveyance was disclosed by the Debtor to the Administrator and to the Creditors, and that the Fraudulent Conveyance Application appears to have been commenced without leave.

25. On September 13, 2022, six months after the email exchange in which the Administrator was advised that Arista disputed the Consumer Proposal, the Administrator was first advised that Arista intended to make a motion to Court to annul the Debtor's Consumer Proposal (though no notice of motion or materials were served). On the same day the Administrator responded and advised that we would not be opposing this motion. Copies of the emails are attached as Exhibit "K".

26. In a letter dated October 7, 2022 copied to the Administrator, the Debtor's legal counsel advised Arista's counsel that the Debtor would be opposing Arista's motion to annul the Consumer Proposal.

27. The Administrator did not receive motion materials in respect of Arista's motion to annul the Consumer Proposal until May 31, 2023, a further eight months after Arista's advice that it was proceeding with the motion. The notice of motion had no return date.

28. On May 9, 2024, having received no further communications in respect of the Arista motion, a Statement of Claim issued on December 22, 2023 ("Statement of Claim") was served on Kunjar Sharma & Associates, Kunjar Sharma and Gregory Judd by Arista. A copy of the Statement of Claim is attached as Exhibit "L".”

[130] Arista summarized its claim that the transactions involving the 111 Bethany Leigh Drive Property (the “Bethany Property”) constituted Fraudulent Conveyances in the Newmarket Application, issued October 3, 2022 , or 7 ½ months after receiving the Trust Agreement from Judd (the “Bethany Transactions”).

[131] In the Newmarket Application Arista Alleges:

“9. Manoranjan filed for an assignment in bankruptcy on March 9, 2021. Santhikumar filed a consumer proposal bearing court file # 31-OR-2780995 on November 9, 2021.

Fraudulent Conveyance of 111 Bethany Leigh Drive, Toronto

10. Unbeknownst to applicant, on or about November 10, 2020, Santhikumar entered

into a trust agreement with the respondent, Kumar. The trust agreement transferred beneficial ownership in Santhikumar's principal asset, a property located at 111 Bethany Leigh Drive, Toronto, to her spouse, the respondent Kumar.

11. 111 Bethany Leigh Drive is a single family home in Toronto.

12. 111 Bethany Leigh Drive was initially purchased by Santhikumar and Kumar on

November 9, 2020 for $190,110.00.

13. By way of the trust agreement, Santhikumar transferred beneficial ownership in

the property to Kumar for $2.00.

14. Following the execution of the trust agreement Santhikumar continued to reside in

and enjoy full use of the property.

15. The trust agreement and the transfer of beneficial ownership stipulated therein

constitutes a fraudulent conveyance that was entered into with the specific intent of defeating Santhikumar's creditor, Arista Homes (Boxgrove Village) Inc. The applicant relies on s. 2 of the Fraudulent Conveyances Act, R.S.O. 1990, c. F.29.

16. If the trust agreement constitutes a fraudulent conveyance, the applicant states that

Santhikumar's consumer proposal bearing court file # 31-OR-2780995 filed November 9, 2021 should be deemed invalid and not in effect.

17. Furthermore, Santhikumar's consumer proposal is invalid due to lack of jurisdiction as she failed to disclose the judgment of Justice Bird. Had Santhikumar disclosed the judgment of Justice Bird, the amount of her debts would not be within the monetary jurisdiction to make a consumer proposal. The applicant relies on s. 66.11 and 66.3 of the Bankruptcy and Insolvency Act, RSC 1985, c B-3.”

[132] Curiously, the Notice of Application fails to say when the conveyance occurred. Also curiously the Newmarket Application asks the Civil Court in Newmarket to grant relief that is in the jurisdiction of the Bankruptcy Court in Toronto, but never sought leave of the Bankruptcy Court to lift the stay prior to issuing the Newmarket Application.

[133] The Arista Affidavit, sworn by a law clerk, provides the following evidence regarding the alleged fraudulent conveyance:

15 As part of our efforts to enforce the judgment, I conducted a search for any property owned by Santhikumar, and found that she previously jointly held title to 111 Bethany Leigh Drive.

16. The parcel register shows that on November 9, 2020, Rathiruby Santhikumar ("Rathiruby") transferred 111 Bethany Leigh Drive to Santhikumar and Branavan Kumar ("Kumar") as joint tenants for $190,110.50 in consideration.

17. The charge registered as AT5567079, attached as Exhibit "P", shows that Santhikumar and Kumar are spouses. On November 10, 2020, Santhikumar and Kumar entered into a trust agreement for 111 Bethany Leigh Drive. The trust agreement is attached as Exhibit "Q". The trust agreement stated Santhikumar is on title to 111 Bethany Leigh Drive as a joint tenant in her role as a trustee for the purpose of securing a mortgage.

18. On November 9, 2020, two mortgages were secured on 111 Bethany Leigh Drive. The first was in the amount of $716,250 in favour of Haventree Bank. The second in the amount of $90,110 in favour of Rathiruby. Attached as Exhibit "R" is the parcel register for 111 Bethany Leigh Drive.

19. The mortgage in favour of Rathiruby is in default. The default is not listed on the consumer proposal. Attached as Exhibit "S" is the email from the solicitor for Rathiruby confirming the default.

20. I am advised by counsel for the Creditor, Wei Jiang, that after he wrote to

Santhikumar about her intention to bring the within motion, Santhikumar retained counsel. I am further advised that in an attempt to prove the validity of the trustee agreement between Santhikumar and her spouse, Santhikumar provided various documents to Mr. Jiang. The documents provided by Santhikumar are attached at Exhibit "T".”

[134] Curiously, the Arista Affidavit does not attach the contemporaneous version of the “Parcel Register” that the law clerk says he obtained or the date on which he “…conducted a search for any property owned by Santhikumar”, which would tend to establish whether or not Arista was aware of the Bethany Transactions prior to the Consumer Proposal. The parcel register at Exhibit S to the Arista Affidavit was order by an “lenglish” on August 24, 2021.

[135] In the Administrator’s Report on this Motion the Administrator reported:

“21. In a series of emails between February 9, 2022 and February 16, 2022, Arista's counsel raised an issue regarding a property held in the Debtor's name which they understood had not been disclosed on her statement of affairs which may constitute a fraudulent conveyance. Arista and not previously raised any issue with the Debtor's property to the Administrator. The emails and responses are attached as Exhibit "J".

22. The Debtor's Statement of Affairs noted that a property located at 111 Bethany Leigh Drive, Toronto was held in trust by the Debtor. This point was further explained in section 5 of the Administrator's report included as part of Exhibit "D" above:

The property located at 111 Bethany Leigh Drive, Toronto, Ontario is held in trust. The property was previously held solely by the [Debtor's] spouse's parent and then jointly by the spouse and parent. In November 2020, subsequent to their marriage, the Debtor and spouse registered as joint owners of the property. The receipt of the 50% interest in the property [by the Debtor] was done to facilitate financing and new mortgages registered in November 2020. The Trust Agreement sets out the above arrangements. The Trust Agreement is not registered on title, may be subject to legal challenge and declaration made that the debtor's interest is an asset in a bankruptcy scenario.

The creditors had the opportunity to review this information and to call a meeting of creditors to inquire about the transaction, or to refuse the Consumer Proposal on the basis of the transaction.

They did not do so, nor did Arista prove a claim within the prescribed time to be in a position to do so itself.”

[136] The Administrator’s description and analysis of the Bethany Transactions in the Report to Creditors was admittedly within the knowledge of Arista and its counsel from on or about November 17, 2021.

[137] Whatever the actual import of the allegations of the making of a fraudulent conveyance by the Consumer Debtor, Arista cannot say that it was not on notice of the making of that transaction at least by the admitted receipt of the Creditors Package on or about November 17, 2021, well within the time periods for Arista to file a proof of claim, request in writing a creditors meeting after proving its claim, request a copy of the Trust Agreement it ended up requesting in February 2022, and if not successful in rejecting the Consumer Proposal at the Creditors Meeting, in person or by proxy, requesting a Court Review of the Proposal.

[138] But from the 17th of November 2021 onward it is clear on the evidence before me at this Motion that Arista had been put on notice of the Bethany Transactions. As the Bethany Transaction is summarized in the Creditors Package, the allegation that this was a hidden transaction, cannot be sustained from that date forward at least.

[139] I have also excerpted the entirety of the relevant direct evidence of the Consumer Debtor in the Consumer Debtor Affidavit above. The Consumer Debtor was not cross-examined on that affidavit. The Consumer Debtor provided no evidence in the Consumer Debtor’s Affidavit relating to the Bethany Transactions.

[140] No explanation is provided by the Consumer Debtor as to why the date of the Bethany Transactions of November 9 and 10 2020 was almost exactly one year prior to the date the Consumer Proposal being filed on November 9, 2021. There was no evidence before me whether the Consumer Debtor first met with a for-profit debt counselor and received structuring advice, prior to filing the Consumer Proposal.

[141] It is unclear from the following wording in the Arista Affidavit WHEN Jiang wrote to the Consumer Debtor, but presumably wrote after advising the Administrator in September 2022 they would be bringing this Annulment Motion, or almost a year after being advised of the Bethany Transactions in the Creditor’s Package:

“20. I am advised by counsel for the Creditor, Wei Jiang, that after he wrote to Santhikumar about her intention to bring the within motion, Santhikumar retained counsel. I am further advised that in an attempt to prove the validity of the trustee agreement between Santhikumar and her spouse, Santhikumar provided various documents to Mr. Jiang. The documents provided by Santhikumar are attached at Exhibit "T".”

[142] Documents are attached at Exhibit “T” to the Arista Affidavit, received by counsel for Arista from the Consumer Debtor, without any explanation in the affidavit as to their relevance or context to the allegations being made as grounds to annul the Consumer Proposal. They appear to be 34 pages of transaction documents, email communications and settlement documents, involving the Consumer Debtor and her spouse and co-respondent on the Newmarket Application Branavan Kumar:

a) entering into a $716,250 Mortgage with Haventree Bank, variously dated October 2020,

b) a transfer from Rathiruby Santhikumar (“Rathiruby”) who appears to be a parent of the Consumer Debtor, to the Consumer Debtor and Kumar for the consideration of $190,150.50; then

c) a mortgage back to Rathiruby by Consumer Debtor and Kumar to support a promissory note in the amount of $90,150.50,

d) the Trust Agreement between the Consumer Debtor and Kumar;

e) letter from counsel for Rathiruby, which appears to be a demand letter to counsel for the Consumer Debtor and Kumar, making allegations of malfeasance against Kumar, and allegations of abusive behaviour by Kumar towards both the Consumer Debtor and Rathiruby, and demanding repayment of amounts lent by Rathiruby to the Consumer Debtor, and particularly Kumar;

f) an apparent settlement agreement letter in August of 2020 for payment by the Consumer Debtor and Kumar for repayment to Rathiruby of $190,110.50 in exchange for her transfer of her ownership interest in the Bethany Property to the Consumer Debtor and Kumar.

[143] With respect to Rathiruby’s mortgage being default, the Arista Affidavit states:

“19. The mortgage in favour of Rathiruby is in default. The default is not listed on the consumer proposal. Attached as Exhibit "S" is the email from the solicitor for Rathiruby confirming the default.”

but fails to mention in the Arista Affidavit that the communication occurred on December 22, 2021 at 3:25 PM between Ed Hiutin on behalf of Arista and Riaz Ahmed on behalf of Rathiruby.

[144] That is 35 days after the Arista received the Creditors Package and was asked by the Administrator to file a Proof of Claim, and only 31 ½ hours from the date on which the Consumer Proposal was deemed approved by the operation of s.66.18 of the BIA, because Arista had failed to file a Proof of Claim, and then failed to request a meeting of creditors in writing as a Proven Creditor.

[145] Also there is no mention in the Arista Affidavit as to whether Rathiruby completed her threatened power of sale of the Bethany Property, or whether the first mortgagee Haventree Bank stepped in, which would make the Newmarket Application likely moot, and which would tend to also invalidate the argument that the alleged fraudulent conveyance of the Bethany Property in the Bethany Transactions was grounds for annulling the Consumer Proposal.

[146] Rathiruby would have been an unaffected secured creditor under the terms of the Consumer Proposal, and would appear to have priority over unsecured creditors like Arista over the proceeds of sale of the Bethany Property.

[147] It is also possible that both Haventree Bank and Rathiruby could have unsecured shortfall claims against the Consumer Debtor depending on the sale price obtained for the Bethany Property, and the amounts currently owing on their mortgages.

[148] Given the factual density of these documents produced by the Consumer Debtor to Arista, and that they tend not to support the theory that the Bethany Transactions were intended by the Consumer Debtor to defeat creditors, and in particular Arista, the Court would have expected that Arista would mention in their submissions the problems these documents create for their case that the Consumer Proposal should be annulled. They did not.

[149] As an example, based on the Parcel Register at Exhibit R to the Arista Affidavit, Rathiruby appeared to peaceably own the entirety of the Bethany Property from November 25th, 2011 until July 30, 2019 when she appeared to transfer an interest to Kumar. This was about a month after the Consumer Debtor, the spouse of Kumar, served a Notice of Intent to Defend. Then on November 8, 2020 the Bethany Transactions occur giving the Bankrupt an registered interest in all of the Bethany Property.

[150] Both of these transactions occurred after the Consumer Debtor was aware that Arista was suing her for over $1 Million because she had served her Notice of Intent to Defend. One would have thought that, knowing this, the Consumer Debtor would not have gone on title to the Bethany Property, in any way.

[151] Arista argued in its facta there was no other explanation than an intention to defeat creditors, but there are plenty of other explanations stated in just the documents that Arista attached at Exhibit T to the Arista Affidavit.

[152] In particular, it would appear that Rathiruby, if deposed by any party with respect to the contents of those documents and the circumstances of their creation, would provide a transcribed earful of relevant evidence of her intentions in these transactions, and the motivations for the Bethany Transactions on the part of the Consumer Debtor and Kumar.

[153] Also, why would Rathiruby agree to a transaction that would put her formerly 100% owned property at risk to the Arista Action? If she had not made the transfer to the Consumer Debtor and Kumar of her remaining interest in the Bethany Property in the Bethany Transactions, Arista would have absolutely no basis to claim against that property as owned by Rathiruby and Kumar, neither of which Arista otherwise had any claims against.

[154] The statement in paragraph 30 of the Arista Factum:

“The only reasonable explanation for why Santhikumar and Kumar entered into the Trust Agreement is that it was done with the intention of keeping the Property out of the reach of Santhikumar's creditors.”

is therefore demonstrably false, and based on no actual evidence provided by the Affiant of the Arista Affidavit.

[155] To be clear, I am not deciding the Newmarket Application, but Arista chose to make the allegations that the Bethany Transactions were intended to defeat creditors, and in particular Arista, a factual cornerstone of their motion to annul the Consumer Proposal.

[156] They specifically argued in their Facta, that the annulment is necessary so that they pursue their fraudulent conveyance claim in the Newmarket Application, despite commencing that proceeding without leave, and despite taking no steps whatsoever to obtain leave nunc pro tunc in the 801 days that have elapsed since they commenced the Newmarket Application in clear breach of the stay provisions of the BIA.

[157] Since they raised that issue, it needs to be dealt with in this context to determine whether the Court ought to exercise its discretion to annul the Consumer Proposal.

[158] However it is also clear from that position of the Consumer Debtor that under the terms of the unregistered Trustee Agreement she is a mere bare trustee of the interest of Kumar in the Bethany Property for the benefit of Kumar as beneficiary, is not congruent with the state of registered title to the Bethany Property.

[159] This leads to the obvious issue as to whether the mortgagees of the property which were Haventree Bank and Rathiruby were aware of the existence of the Trust Agreement when they made advances to the Consumer Debtor and Kumar, and whether the enforceability and priority of their mortgages are affected by this unregistered instrument allegedly affecting title. Another question is whether they are even aware of the Newmarket Application seeking to declare the transaction that they funded, and involving their collateral, to be a fraudulent conveyance.

[160] Another issue is whether they are aware that one of their borrowers has filed a Consumer Proposal, as neither was declared on the Statement of Affairs by the Consumer Debtor. The Consumer Proposal is not being made to secured creditors, but both Haventree and Rathiruby are at least contingent unsecured creditors of the Consumer Debtor that should have been given notice of the Consumer Proposal. At the very least the Newmarket Application and/or the Consumer Proposal could be events of default under the terms of either of their mortgages.

LAW AND ANALYSIS

The [BIA](https://www.canlii.org/en/ca/laws/stat/rsc-1985-c-b-3/latest/rsc-1985-c-b-3.html)

[161] As a starting point, the sections of the BIA relevant in this case to the annulment of Consumer Proposals read:

66.3 (1) Where default is made in the performance of any provision in a consumer proposal, or where it appears to the court

(a) that the debtor was not eligible to make a consumer proposal when the consumer proposal was filed,

(b) that the consumer proposal cannot continue without injustice or undue delay, or

(c) that the approval of the court was obtained by fraud, the court may, on application, with such notice as the court may direct to the consumer debtor and, if applicable, to the administrator and to the creditors, annul the consumer proposal.

Annulment for offence

(3) A consumer proposal, although accepted or approved, may be annulled by order of the court at the request of the administrator or of any creditor whenever the consumer debtor is afterwards convicted of any offence under this Act.

Annulment effect

(5) Where a consumer proposal made by a bankrupt is annulled,

(a) the consumer debtor is deemed on the annulment to have made an assignment and the order annulling the proposal shall so state;

(b) the trustee who is the administrator of the proposal shall, within five days after the order is made, send notice of the meeting of creditors under section 102, at which meeting the creditors may by ordinary resolution, notwithstanding section 14, affirm the appointment of the trustee or appoint another trustee in lieu of that trustee; and

(c) the trustee shall forthwith file a report thereof in the prescribed form with the official receiver, who shall thereupon issue a certificate of assignment in the prescribed form, which has the same effect for the purposes of this Act as an assignment filed pursuant to section 49.

Singh

[162] All parties referred to the leading case of Singh in their argument and I will structure the analysis using the various tests articulated by Associate Justice Rappos in that case.

[163] Factually, Singh differed from this case, as in that case the consumer proposal was approved by creditors at an actual meeting in December 2019, was fully performed by payment of all amounts payable by the Consumer Debtor in 2023, and the Administrator was discharged in 2023. Singh identified $81,555 in unsecured claims and a $60,000 contingent CRA claim on his statement of affairs.

[164] At the meeting of creditors, $136,833.54 in proven claims voted, including a $75,596.40 CRA proven claim. CRA voted in favour of the consumer proposal and all 6 other proven creditors voted against. CRA had sufficient votes to approve the Singh consumer proposal despite the opposition.

[165] Singh’s father-in-law obtained default judgment against Singh in April of 2019, prior to the consumer proposal, in the amount of almost $92,000 and registered writs against Singh. This debt was not declared on the statement of affairs by Singh and his father-in-law was unaware of the consumer proposal.

[166] The father in law’s evidence was that he found out about the consumer proposal in June of 2023 after it had been fully performed. He brought the annulment motion a month later in July of 2023.

[167] Singh claimed that he was not aware of the default judgment in favour of his father in law and would have disputed it anyway.

[168] As at March 2023 the dividend sheet prepared by Singh’s Administrator showed $162,326 in proven creditor claims receiving payment of $35,373.23 in dividends. With the addition of his father-in-law’s judgment the total claims amounted to $251,179.38, exceeding the $250,000 threshold.

[169] The Singh situation is by far the more common factual “did not disclose” situation than this case.

Knowledge of the Debtor:

[170] One key issue on this motion is whether the Consumer Debtor by advising the Administrator of the claim of Arista, but not its quantum, breached her duties under the BIA, and that the Consumer Proposal should be annulled as demanded by Arista.

[171] The Bankrupt’s evidence in its entirety on this issue was that she found out about the claim when her bank account got garnished and did not know the details of the judgment. She said she gave the documents she had to the Administrator.

[172] The Administrator states that they did not receive the Arista Judgment from the Consumer Debtor, only the Statement of Claim, and it was the Administrator’s understanding from the Consumer Debtor that Judgment had not been obtained. Accordingly the Administrator reported:

“4. As is the Administrator's standard practice, in preparing the Debtor's statement of affairs, the Arista statement of claim was recorded as a contingent claim for $1.00, as the Administrator understood that a Judgment had not yet been issued, and therefore liability and damages (if any) had not yet been determined.”

[173] Arista never obtained leave under BIA Rule 14(1) to cross-examine the Consumer Debtor, and did not cross-examine the Consumer Debtor on the evidence in the Consumer Debtor Affidavit on this crucial issue.

[174] The sum total of the evidence of Arista as to the knowledge of the Consumer Debtor of the Arista Judgment:

“9. The notice of garnishment for Santhikumar was issued on February 4, 2021 and the Creditor commenced garnishment on March 2, 2021. Attached as Exhibit "H" is the issued notice of garnishment together with affidavit in support of the garnishment. The judgment of Justice Bird was served on Santhikumar as part of the garnishment materials on March 3, 2021. Attached as Exhibit "I" is the affidavit of service of the garnishment materials on Santhikumar.”

[175] The Affidavit of Service at Exhibit I to the Arista Affidavit states:

“2 I served the defendant, Malbow Santhikumar, with the garnishment materials by sending a copy by registered mail on or about March 3, 2021 to 111 Bethany Leigh Drive, Scarborough, ON MIV 2N6, the last known address of the defendant. Attached to this affidavit and marked as Exhibit "A" is a true copy of letter.”

[176] The only thing attached at Exhibit A to the Affidavit of Service is a letter dated March 3, 2021 that states:

“Please find enclosed a notice of garnishment issued March 2, 2021, and affidavit for garnishment sworn March 2, 2021, served on you as per the Rules.”

[177] The letter says “Enclosures” but none are attached under that exhibit to the Arista Affidavit, and the next and last page of Exhibit I to the Arista Affidavit is the backer for the Affidavit of Service. The Arista Judgment is not specifically mentioned in the letter. The Arista Judgment is nowhere attached at Exhibit I to the Arista Affidavit, despite what paragraph 9 of the Arista Affidavit states.

[178] The Garnishment Notice at Exhibit H to the Arista Affidavit does attach a Garnishment Affidavit and attaches the Arista Judgment as Exhibit A to the Garnishment Affidavit.

[179] So to summarize, the evidence of the Consumer Debtor is that she did not have details of the Arista Judgment, and only found out when her bank account was garnished.

[180] The Administrator reports that the Consumer Debtor only provided the Arista Statement of Claim.

[181] Arista’s evidence is that they sent the Garnishment Affidavit to the Consumer Debtor by registered mail at the Bethany Address according to the Affidavit of Service at Exhibit I to the Arista Affidavit, and that the Garnishment Affidavit at Exhibit H does attach the Judgment, but that proof is not in Exhibit I, despite what is stated in the Arista Affidavit. Arista had the ability to clearly provide this evidence on this crucial issue in their motion materials on this motion and has failed to do so.

[182] The Factum and Supplementary Factum repeat over and over that the Consumer Debtor was aware of the Judgment and deliberately hid the quantum to qualify for a consumer proposal, but despite having years to prove those assertions prior to the hearing of this Motion Arista has failed to clearly do so, and the Court is left to infer the evidence on this most crucial issue.

[183] It is my supposition that the Garnishment Notice and Garnishment Affidavit were sent to the Consumer Debtor at the Bethany Property by registered mail, but after that there is no direct evidence she received it.

[184] It is also my supposition that the Garnishment Notice provided the Consumer Debtor with the amount of the Arista Judgment even if not attached, and prompted the Consumer Debtor to seek relief under the BIA. But my suppositions are not evidence of her actual knowledge.

[185] I have no reason to disbelieve the Administrator’s Report that the Consumer Debtor provided the Statement of Claim, but not the Garnishment Materials, and she filed a Notice of Intent to Defend, so she was clearly aware of the Arista Action.

[186] However, as stated by Associate Justice Rappos in Singh:

“[58] While Mr. Singh may not have had actual knowledge of the default judgment and the registration of the writ at the time he initially met with the Administrator, he was required under the BIA to provide them with information on his financial situation.[24]

[59] In my view, that obligation required him to inform the Administrator of any potential claims against him, even those he may dispute. As noted by Justice Boyd in Automotive Finance, the BIA consumer proposal process must have at its foundation that “all proper debts and liabilities will be disclosed by debtors seeking the protection of the Act”.[25]

[66] As a result, Mr. Singh’s knowledge of the existence of a claim being pursued by Mr. Nagra, and his failure to disclose this to the Administrator at any time during the course of the consumer proposal proceeding, weighs in favour of annulling the consumer proposal.”

[187] The BIA imposes duties on the Consumer Debtor to provide materials to the Administrator because the Consumer Debtor is best source of those materials, in particular given the context of the restrictions on fees payable to Administrators and the abbreviated time periods and approval procedures in the Consumer Proposal provisions of the BIA that prevent Administrators from being able to conduct extensive investigations, unlike in Division 1 Proposals that do not have these restrictions.

[188] In the murky evidence of whether the Consumer Debtor received the Arista Judgment and provided it to the Administrator, and without cross-examination on the issue, it is difficult to determine with certainty the actual state of knowledge of the Consumer Debtor of the Judgment, but I do believe that the Consumer Debtor received the “Garnishment Materials”, and whether she knew their precise legal implications or not, should have provided them to the Administrator.

[189] If not Arista admittedly receiving the Creditors Package, in sufficient time to prove its claim and request a meeting, making the Consumer Debtor’s lack of compliance less relevant than in the ordinary “did not declare” case, then this conduct by the Consumer Debtor would ordinarily weigh IN FAVOUR of annulling the Consumer Proposal.

The creditor’s knowledge of the consumer proposal;

[190] As I have written in some detail, Arista was on November 17, 2021 admittedly in full knowledge of the Consumer Proposal, and the contents of the documents in the Creditors Package, include the numerous notices in the Creditors Package that participation in the Consumer Proposal Proceedings was conditional upon Arista Proving its claim, which I have detailed in these reasons.

[191] On that date the Administrator additionally told counsel for Arista:

“Please file a proof of claim at your earliest convenience.

A meeting of creditors will be called if requested to do so by 25% of proven creditors. Once we receive your claim, it will be reviewed by the Trustee and processed accordingly”

[192] On November 17, 2021 Arista still had 37 days to file a proof of claim to prove the Arista Claim under the Arista Judgment, which would give Arista the standing to request a meeting of creditors in writing after it did so.

[193] Inexplicably Arista did not do so, and all of the events and proceedings taken by Arista subsequently, including this Annulment Motion, the Newmarket Application and the Arista Administrator Action are a consequence of that failure by Arista.

[194] That is all they needed to do. They didn’t do it. Here we are.

[195] Many arguments were made by Arista that the Consumer Proposal was a nullity merely because they on November 17, 2021 alleged they had a judgment that pushed the amounts owing by the Consumer Debtor beyond the $250,000. That is simply wrong in law given the wording of s.66.13(4) which states:

(4) Where the administrator determines, after filing a consumer proposal under paragraph (2)(d), that it should not have been filed because the debtor was not eligible to make a consumer proposal, the administrator shall forthwith so inform the creditors and the official receiver, but the consumer proposal is not invalid by reason only that the debtor was not eligible to make the consumer proposal.

[196] Arista also argued that the Administrator should have adjourned the “meeting” for further investigation, after having the Arista Judgment (but not a proof of claim that it was mandatory that Arista properly file) emailed to it by Arista, when neither the Administrator, nor for that matter the Court, has the jurisdiction to postpone the time periods for deemed acceptance of a Consumer Proposal.

[197] As stated in Re Sutherland (1995), 1995 9206 (AB KB), 34 Alta. L.R. (3d) 356, [1996] 2 W.W.R. 379, 36 C.B.R. (3d) 208, 1995 CarswellAlta 732 (Q.B.):

“21 The purpose of the new sections of the Bankruptcy and Insolvency Act is to speed up the handling of consumer proposals. This purpose to have proposals handled quickly, efficiently and with a minimum administration and attendant expense.

22 The whole intent of the sections dealing with consumer proposals indicates by its wording and the definitive time limits imposed that the proposals be presented, considered and either accepted or rejected quickly.

23 The whole tone of the sections does not lead to the interpretation that they can be delayed by Fiat.

24 The purpose of the new sections is to mandate a short time to accept or refuse the proposal. Negotiations, correspondence and discussion must be carried on if at all with a very narrow time frame. The Act mandates that the proposal is deemed accepted unless refused by the creditors.

27 The obtaining of the Order was incorrect. The court does not have the jurisdiction to postpone the deemed acceptance. The proposal is either accepted or rejected. There is no in between or postponement. It is either a yes or a no.”

[198] There is also no jurisdiction in the BIA for the Administrator to “Revoke” the Consumer Proposal once Arista did file the Arista Proof of Claim in January of 2022, after it was statutorily deemed accepted, as was also demanded of the Administrator by Arista.

[199] In this case, as counsel for Arista were dealing with this matter, rather than non-legally trained persons, the doctrine in Port Chevrolet Oldsmobile Ltd., Re 2002 CarswellBC 3602, 2002 BCSC 1874, [2002] B.C.J. No. 3206, [2003] G.S.T.C. 168, 49 C.B.R. (4th) 127 affirmed in Port Chevrolet Oldsmobile Ltd., Re 2004 CarswellBC 354, 2004 BCCA 37, [2004] G.S.T.C. 8, [2004] B.C.W.L.D. 369, [2004] B.C.J. No. 101, 128 A.C.W.S. (3d) 436, 193 B.C.A.C. 114, 23 B.C.L.R. (4th) 335, 316 W.A.C. 114, 49 C.B.R. (4th) 146 may also be applicable in the Court’s analysis, as given the sophistication of Arista and its counsel, the expectation would be that they would be held to a higher standard of adhering to the formal requirements of filing a proof of claim under the BIA than an ordinary creditor proceeding without legal representation:

“31 I recognize that Totton, supra, suggests there should be some latitude given to creditors in filling out proofs of claim, as many are completed by creditors without the benefit of legal assistance. I find those comments have limited application, however, to sophisticated and experienced creditors such as CCRA.”

[200] The best “investigation” that could possibly have occurred in this case would have been if Arista had filed its proof of claim in a timely manner.

[201] Arista also argued that the court approval of the Consumer Proposal was obtained by fraud due to the non-disclosure of the Arista Judgment by the Consumer Debtor. It was not. Court approval was obtained due to the failure of Arista to file a proof of claim within the time periods prescribed in the BIA and requesting a meeting.

[202] Arista cites Automotive Finance v Davies 2002 BCSC 509 at paragraphs 33-34 (“Automotive Finance”) as supporting their case. But in that case, like Singh is a “did not disclose” case where the creditor did not know about the consumer proposal, at all.

[203] This case is much more factually similar to the unreported case Re Chao (31-2644762) cited by Arista that was decided by my colleague Registrar Jean on February 3, 2022 (“Chao”). In that case:

i) deemed approval was determined by the Court to have occurred by an error of counsel for the creditor to check a box on the voting letter requesting a meeting of creditors, while voting against the consumer proposal, after filing the proof of claim within the proper time periods.

ii) the consumer debtor was found by Registrar Jean to have understated her assets as the consumer debtor had contemporaneously sworn a Statutory Declaration that she owned a property with $1 Million in equity, which is not the issue here;

iii) the consumer debtor was found to have understated the amount of the claim of the moving creditor to come in under the $250,000 consumer proposal threshold;

iv) the consumer debtor blamed the Administrator for that understatement;

v) the admitted proof of claim of the creditor caused the debts being compromised to exceed the threshold.

[204] In this case the Consumer Debtor, also stated she provided “all of the documents” to the Administrator. Registrar Jean stated on that issue in Chao:

“The debtor appears to lay blame on the administrator for the under-valuation of Tiffany’s indebtedness. She claims that she gave all the documents concerning the litigation to the administrator. I do not accept that the administrator is responsible for any inaccuracies of the statement of affairs. It is the debtor’s responsibility to fully and accurately disclose the state of her financial affairs and the statement of affairs is a document that is sworn by the debtor.”

[205] With respect to the issue of error of counsel Registrar Jean states:

“Lastly, I am of the view that Tiffany’s remedies ought not be over-ridden by the inadvertence of counsel in the circumstances of this case.

This case is one where the summary process for consumer proposals should not be slavishly followed so as to prejudice the legitimate interests of a creditor and so as to potentially detract from the integrity of the insolvency process.”

[206] The litany of itemized errors of omission and commission made by Arista in this case is far greater than the missing of a box-tick in a voting letter to request a meeting for a properly proven claim, within the statutory time periods, like in Chao.

[207] Another similar case where the issue was the solvency of the consumer debtor not the debt limit, Proposition de Pilon, 2021 CarswellQue 18300, 94 C.B.R. (6th) 220, 2021 QCCS 4632 (C.S. Que.), (“Pilon”) the decision of Belanger, J.C.S. was summarized as follows in Houlden & Morawetz: § 4:164. Annulment of a Consumer Proposal:

The Superior Court of Québec dismissed an application to annul a consumer proposal. Justice Bélanger held that exercising the discretion of the court under s. 66.3 of the BIA would be contrary to the objectives of speed and efficiency underlying the BIA's mechanisms for consumer proposals as it would allow the creditor to annul the proposal 10 months after its filing for a reason of which she was aware at the time of filing. Justice Bélanger noted that a creditor may rely on s. 66.3(1) in order to request annulment of a proposal by showing that the consumer debtor was not insolvent at the time of its filing. The status of insolvent person is an essential condition for filing a bankruptcy or proposal under the BIA such that a solvent person is not, within the meaning of s. 66.3 of the BIA, entitled to file a proposal. An application must be made by the creditor within a reasonable time. Justice Bélanger held that the court must assess the injustice that may result from the maintenance of a proposal filed by a person when he was not insolvent. A fundamental objective of the consumer proposal mechanisms is to establish an expeditious, efficient, and inexpensive regime for settling the debts of the consumer debtor. Justice Bélanger held that creditors must therefore react promptly to assert their rights when notified of the filing of a consumer proposal; otherwise, they run the risk of being bound by a proposal that they do not consider favourable by the mere expiry of the 45-day period. Justice Bélanger held that the court must find the right balance between the efficiency requirements that underlie consumer proposal mechanisms and the misuse of these mechanisms that can lead to injustice against creditors. This fair balance must be assessed according to the facts of each case. In this case, it did not seem clear that the continuation of the proposal would lead to an injustice towards creditors. The request for annulment of the proposal was dismissed

[208] In particular Belanger, J.C.S. states:

“29 Ces impératifs d'efficacité et de célérité expliquent que la proposition de consommateur ne soit pas obligatoirement soumise à un vote des créanciers et réputée acceptée si 25 % des créanciers titulaires de créances prouvées n'exigent pas la tenue d'une assemblée pour fins de vote.

30 Les créanciers doivent donc réagir promptement pour faire valoir leurs droits lorsqu'avisés du dépôt d'une proposition de consommateur; à défaut, ils courent le risque d'être liés par une proposition qu'ils ne considèrent pas favorable par le seul écoulement du délai de 45 jours du dépôt de la proposition.”

[209] In this case this Singh factor weighs in favour of NOT annulling the consumer proposal.

The eligibility of the consumer debtor to file a consumer proposal;

[210] Whatever the lack of clarity as to what the Consumer Debtor knew of the Arista Judgment, when she knew it, and how the Consumer Proposal was formulated and implemented, and why Arista did not file the Arista Proof of Claim in a timely manner, it is absolutely clear that with the admission of the Arista Proof of Claim of $451,710.12, additional to the $19,401 declared on the Statement of Affairs by the Consumer Debtor, the “aggregate debts” of the Consumer Debtor exceeded the $250,000 permitted in the definition of “consumer debtor” in s.66.11:

“66.11 In this Division,

consumer debtor means an individual who is bankrupt or insolvent and whose aggregate debts, excluding any debts secured by the individual’s principal residence, are not more than $250,000 or any other prescribed amount; ”

[211] Unlike Chao, although there may be some unresolved-to-date set offs, the Arista Proof of Claim as admitted is based on the Arista Judgment, and therefore a liquidated amount. As of the date of the Consumer Proposal the Arista Claim under the Arista Judgment was $451,710.12.

[212] As a result I must conclude that on the date of the Consumer Proposal the Consumer Debtor was not a “Consumer Debtor” eligible to make the Consumer Proposal.

[213] As stated by Registrar Jean in Bouillion, Re, 2001 28450 (ON SC):

“6 The question then is whether the Court can authorize the administrator to file a consumer proposal despite the debtor’s ineligibility. In my view, the court does not have such jurisdiction, despite the fact that filing a consumer proposal may be advantageous to the debtor.

7 It is not for the Court to defeat the intention of Parliament as to the statutory limit for consumer proposals. If an increase in the statutory limit is desirable, it is within Parliament’s power to amend section 66.11 of the BIA or to prescribe some other statutory limit. My conclusion is further reinforced by paragraph 66.13(3)(a) of the BIA which provides that consumer proposals may not be filed by the administrator if the administrator has reason to believe that the debtor is not eligible to make a consumer proposal.

8 In arriving at this conclusion, I am reminded of the following comments of Farley J. in Wasserman, Arsenault Ltd. v. Sone (unreported, December 15, 2000) [(2000), 2000 22507 (ON SC), 22 C.B.R. (4th) 153 (Ont. S.C.J. [Commercial List])] at para. 7:

While the Superior Court of Justice in Bankruptcy is vested by s. 183(1) of the BIA with jurisdiction in law and equity, that does not confer on this Court the ability, capacity, or jurisdiction to do something not allowed by the BIA in the sense that that statute provides otherwise.”

[214] The provisions of the BIA s.66.3, and the jurisprudence, specifically allows the Court to exercise its discretion to not annul a Consumer Proposal despite a finding that the debtor had been found not to fit the definition of a “consumer debtor” as per the Schryburt (Re), 2011 ONSC 880 case cited by the Consumer Debtor (“Schryburt”):

“[23] With respect to the question of the ineligibility of the Debtors to file a consumer proposal, I agree with the Administrator that ineligibility alone will not prevent a court from approving a consumer proposal, if the ineligibility arose after the time the Proposal was filed. See Re: Jalal, 2003 64273 (ON SC), 2003 CarswellOnt 1750 (Sup.Ct). That is particularly the case where the Proposal is found by the court to be an appropriate case to approve a consumer proposal.”

[215] In Jalal, cited by the Consumer Debtor, (as well as in Schryburt), Registrar Nettie makes the distinction between cases like Boullion where at the time of the filing of the Consumer Proposal the debtor was not eligible to make it, to the “subsequent discovery” of a claim cases where the claim was not in existence at the time of the making of the consumer proposal, but came into existence or became liquidated after the approval of the Consumer Proposal.

[216] That discretion must be exercised judicially, as stated by Kershman, J. in O’Leary:

“31 The concept of judicial discretion was dealt with in the case of Brown v. Sparrow, [1982] 3 All E.R. 739 (Eng. C.A.). In that case, at page 745, the Court of Appeal said that judicial discretion must be exercised in accordance with