SUPERIOR COURT OF JUSTICE – ONTARIO
(IN BANKRUPTCY AND INSOLVENCY)
RE: In the Matter of the Consumer Proposal of Kamaljit Singh
BEFORE: Associate Justice Rappos
COUNSEL: Gregory Tuffman, for Gurmeet Nagra (moving party)
Marryam Singh, for Kamaljit Singh
Paul Ihnatiuk, representative of BDO Canada Limited
HEARD: October 24, 2023 (by videoconference)
REASONS FOR DECISION
Nature of Motion
1Does the Court have the authority under the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (the "BIA")1 to annul a consumer proposal that has been approved by creditors and fully performed by the consumer debtor, and where the administrator has been discharged?
2That is the first issue that must be determined on this motion. If the answer is yes, then the Court must decide whether it should exercise its discretion to grant the requested annulment.
3For the reasons that follow, the Court has statutory authority to annul a fully completed consumer proposal under subsection 66.3(1), and I hereby exercise my discretion to annul the consumer proposal. As a result, the motion to annul the consumer proposal is granted.
Issue 1: Authority to Annul a Completed Consumer Proposal
Facts
4Only a brief summary of facts is required to determine this first issue.
5On September 16, 2019, Kamaljit Singh filed a consumer proposal with BDO Canada Limited as administrator for the consumer proposal (the "Administrator").
6A meeting of creditors took place on December 11, 2019, at which time an amended proposal was approved by the voting creditors in accordance with the provisions of the BIA.
7The Administrator completed a Certificate of Full Performance of Proposal, which confirmed that the amended proposal was fully performed as of March 2, 2023.
8The Administrator completed a Certificate of Compliance and Deemed Discharge of Administrator, which resulted in the Administrator being discharged as of June 2, 2023.
Legal Principles for Consumer Proposals
9It is useful for the purposes of context to set out some of the basic principles applicable to consumer proposals under the BIA.
10A consumer proposal may be made by a "consumer debtor", subject to certain exceptions.2 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.3
11A consumer proposal shall be made to the creditors generally.4 The time with respect to which the claims of creditors shall be determined is the time of the filing of the consumer proposal.5
12At 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.6
13A 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).7
14Once a consumer proposal is fully performed, the administrator is required to issue a certificate, which has the same effect as a discharge from bankruptcy.8
15Unless 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).9
16Where a consumer proposal is annulled, the rights of the creditors are revived for the amount of their claims less any dividends received.10
17Lastly, the stay of proceedings contained in subsection 69.2(1) comes to an end once a consumer proposal is annulled.11
Principles of Statutory Interpretation
18The 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.12
19As 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.13
20The 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."14
21The 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.15
Test for Annulment of a Consumer Proposal
22The test for the annulment of a consumer proposal is set out subsection 66.3(1), which provides that:
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.
23Subsection 66.3(1) does not contain language that restricts the timing when such an application for an annulment of a consumer proposal may be made.
24This differs from the language of subsection 66.3(3), which provides that a consumer proposal may be annulled after it is "accepted or approved" where the consumer debtor is afterwards convicted of any offence under the BIA.
25Both parties refer to two cases in their facta: (a) the decision of the British Columbia Supreme Court in Automotive Finance Corporation v. Davies ("Automotive Finance");16 and (b) the decision of the Saskatchewan Court of Queen's Bench in Minister of National Revenue v. Engdahl ("Engdahl").17
26In both cases, a party moved to annul a consumer proposal after it had been approved and the consumer debtor had completed its requirements and received a certificate of compliance.18
27In Automotive Finance, Justice Boyd did not discuss whether a completed consumer proposal could be annulled.19
28In Engdahl, the consumer debtor argued that once a consumer proposal has been completed and a certificate issued by the administrator, there is no consumer proposal left to annul. Justice Gunn disagreed with this argument and held that subsection "66.3(1)(a) is very clear in providing authority to the Court, without limitation, to annul a consumer proposal if the debtor was not eligible to make a consumer proposal when the consumer proposal was filed. It cannot depend on how long the debtor's true financial affairs are unknown whether due to any advertent or inadvertent actions on the part of the debtor or others."20
29The decision in Engdahl was upheld by the Saskatchewan Court of Appeal, although in its brief reasons, the Court of Appeal only refers to the exercise of Justice Gunn's discretion under subsection 66.3(1) and does not refer to the issue of the applicability of the section to a completed consumer proposal.21
30Having considered the principles of statutory interpretation and the purposes of the BIA, I agree with Justice Gunn's conclusion from the Engdahl. To interpret the section in any other way could result, in theory, with a consumer proposal not being annulled even where "the approval of the court was obtained by fraud",22 simply because the consumer proposal was completed prior to the discovery.
31In my view, such a situation being possible cannot be what was intended when this section was introduced into the BIA.
32Accordingly, the Court has the authority under subsection 66.3(1) to annul a completed consumer proposal.
Issue 2: Whether the Consumer Proposal Should be Annulled
33The moving party is Gurmeet Nagra, who is the father-in-law of Mr. Singh. Mr. Singh is separated from Mr. Nagra's daughter.
Background - Mr. Nagra's Judgment and Writ
34On February 25, 2019, Mr. Nagra commenced an action against Mr. Singh for payment of $87,000 plus interest and costs.
35On March 12, 2019, Mr. Singh was personally served with the statement of claim. Mr. Singh says that he provided the claim to his criminal lawyer "with the expectation of the claim being disputed."
36On April 9, 2019, default judgment was issued against Mr. Singh in the amount of $91,403.50 and costs of $1,404, with interest accruing at the rate of 3.0% per year.
37On April 29, 2019, a writ of seizure and sale was filed with the Sheriff in the Regional Municipality of Durham in the amounts set out in the judgment.
38Mr. Singh claims that he did not receive any further documents by personal service from Mr. Nagra, and that he was no longer able to collect his regular mail at the matrimonial home following his arrest and the issuance of a restraining order. Mr. Singh states that he was not served with a copy of the default judgment.
39Mr. Singh says that he learned of the existence of the writ on October 1, 2022, as he and his separated spouse were in the process of selling their former matrimonial home.
40On October 18, 2022, Mr. Singh e-mailed Mr. Nagra's lawyer regarding the existence of the writ. In that e-mail, Mr. Singh acknowledged that he had received the claim in 2019.
41On February 21, 2023, Mr. Singh's lawyer e-mailed Mr. Nagra's lawyer regarding removal of the writ so that the sale of the matrimonial home could be completed.
42The sale closed on February 28, 2023 and the writ was lifted and $103,631.63 was paid into trust. That is the amount Mr. Nagra claims was owed to him as of that date.
43The sum of $103,631.63 continues to be held in trust. Mr. Singh served a motion record to set aside the default judgment, but subsequently withdrew the motion.
44Much of Mr. Singh's evidence for this motion is him explaining that the money provided by Mr. Nagra were joint gifts to himself and his former spouse, and that he, with the assistance of his mother, has repaid $63,410 to Mr. Nagra in installments from June 2018 to December 2019.
Background – Consumer Proposal Proceeding
45Mr. Singh's statement of affairs dated September 16, 2019 listed unsecured liabilities totaling $81,555, and a contingent amount of $60,000 for Canada Revenue Agency ("CRA").
46Mr. Nagra was not included as a creditor in the list of creditors or statement of affairs.
47Mr. Nagra claims that $94,027.98 was owed to him under the judgment as of the date the consumer proposal was filed.
48Mr. Singh states that he was not aware of the existence of the default judgment when he had discussions with the Administrator prior to filing his consumer proposal, or at the meeting of creditors.
49The Administrator's report dated September 18, 2019 refers to an estimated total amount of claims of $81,555. The report also indicates that Mr. Singh's interest in his matrimonial home was between $30,222 and $75,222, and that Mr. Singh was unable to sell or refinance the property at that time.
50The minutes from the creditors meeting held on December 11, 2019 show that there was a total of $136,833.54 in voted claims, which included $75,596.40 for CRA. CRA was the sole creditor that voted in favour of the consumer proposal. The other six proven creditors voted against the consumer proposal.
51The consumer proposal passed with a vote of 55.25% given the value of CRA's claim.
52The Dividend Sheet prepared by the Administrator, with a declaration date of March 9, 2023, shows:
(a) $162,326.40 in proven claims; and
(b) $35,373.23 in dividends being paid to the creditors.
53Based on a comparison of the statement of affairs and Dividend Sheet, the change from claims totaling $81,555 to $162,326.40 was due to: (a) CRA having proven a claim of $73,770.60; and (b) the proven claims of the remaining nine (9) creditors being in aggregate $7,000.80 higher than the amounts listed in the statement of affairs.
Factors to Consider When Exercising Discretion Under Subsection 66.3(1)
54The authority to annul a proposal is discretionary. In exercising such discretion, the Court should take into account the interests of the debtor and his or her creditors and balance their interests while maintaining the integrity and confidence of the public.23
55Based 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.
Analysis
Knowledge of the Debtor
56Mr. Singh was personally served with the statement of claim. He did not take any steps to defend that claim.
57Mr. Singh states that even if he had been aware of the existence of the default judgment and the writ, he would not have disclosed them to the Administrator because he did not believe that he owed any amount to Mr. Nagra given the payments he and his mother had made to him.
58While 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
59In 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
60It was open to Mr. Singh to take the position with the Administrator that Mr. Nagra's claim should be listed as a contingent amount. This was how the claim of CRA was treated in the statement of affairs.
61Mr. Singh suggests that he relied on the Administrator to have performed due diligence in connection with filing his consumer proposal, and that they did not discover the existence of the default judgment or the writ.
62The Administrator did not file a report in connection with the motion, but a representative made submissions at the hearing.
63I note that an administrator is required to investigate, or cause to be 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 his insolvency,26 and to prepare and file a list of creditors.27
64In my view, the steps, if any, taken by the Administrator to investigate Mr. Singh's affairs did not absolve Mr. Singh from the requirement to notify the Administrator of the fact that he had been served with a statement of claim in the previous six months.
65As well, Mr. Singh learned of the existence of the writ on October 1, 2022, and there is nothing in his affidavit indicating that he informed the Administrator of its existence.
66As 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.
Knowledge of the Creditor
67Mr. Nagra states that he first learned about the consumer proposal proceeding on June 9, 2023 based on correspondence received by his counsel from counsel to Mr. Singh. He says that, had he been notified of the consumer proposal, he would have participated in the process and opposed the proposal.
68Mr. Singh claims that Mr. Nagra was aware of the consumer proposal since 2019, as his daughter also filed a consumer proposal. He provides no evidence in support of this statement.
69Based on my review of the evidence, I accept Mr. Nagra's statement that he did not become aware of the consumer proposal until June 9, 2023, which was after the consumer proposal had been completed and the Administrator had been discharged.
Eligibility to File a Consumer Proposal
70Mr. Nagra argues that Mr. Singh was ineligible to file a consumer proposal, and thus the consumer proposal should be annulled under subsection 66.3(1)(a). Mr. Nagra relies on the fact that, at the time of the completion of the consumer proposal, there was $162,326.40 in proven claims, which, together with his claim of $94,027.98, exceeds the $250,000 consumer proposal threshold.
71Mr. Singh contests the amount he is said to owe to Mr. Nagra. However, Mr. Nagra has judgment against Mr. Singh, and that judgment has not been set aside.
72An administrator cannot file a consumer proposal if he or she has reason to believe that the consumer debtor is not eligible to make a consumer proposal.28
73As of September 16, 2019, if Mr. Nagra's claim of $94,027.98 had been added to the $81,555 listed in the statement of affairs, along with the $60,000 contingent amount for the CRA, the total amount of claims would have $235,582.98.
74The materials before the Court do not confirm the timing of each proven claim having been accepted by the Administrator. However, given that by the December 11, 2019 creditors meeting, CRA had a proven claim of $75,596.40, the total amount of claims would have increased to $251,179.38.29
75As a result, Mr. Singh would no longer have been eligible to complete a consumer proposal by the time of the creditors meeting if Mr. Nagra's judgment was known to the Administrator.
76The fact that Mr. Singh was no longer eligible to make a consumer proposal is not, in my view, dispositive of the motion. As the Administrator noted during submissions, a consumer proposal is not invalid by reason only that the debtor was not eligible to make the consumer proposal. If an administrator determines, after the filing of a consumer proposal, that it should not have been filed because the consumer debtor was not eligible to make a consumer proposal, all that is required of the administrator is that he or she shall forthwith inform the creditors of this fact.30 It is on the creditors to commence an application to annul the consumer proposal.
Amount and Nature of the Debt
77While the amount is disputed by Mr. Singh, Mr. Nagra has a judgment in the amount of $94,027.98. That represents approximately 36.68% of the total claims proven against Mr. Singh. It is a significant claim.
78The nature of the claim must also be taken into account. As acknowledged by Mr. Nagra in his materials, as he is Mr. Singh's father-in-law, they are connected by marriage and he and Mr. Singh are deemed to be related persons under the BIA.31
79Subsection 66.19(2) provides that a creditor who is related to the consumer debtor may vote against but not for the acceptance of the consumer proposal.
80Based on what happened at the meeting of creditors, where $75,596.40 of claims voted in favour of the consumer proposal, and $61,237.14 voted against the consumer proposal, had Mr. Nagra been able to file a proof of claim in an amount in excess of $14,400 and voted against the consumer proposal, the consumer proposal would have failed.
81An additional factor to be taken into consideration is the impact of subsection 178(1)(f), which provides that, unless a creditor had notice or knowledge of the bankruptcy and failed to take reasonable action to prove his claim, the liability for the dividend a creditor would have been entitled to receive on any provable claim not disclosed to the trustee is not released when a bankrupt is discharged, and by extension is not released upon completion of a consumer proposal.32
82This section does not easily apply to a consumer proposal since, as is the case here, if Mr. Nagra had known about the consumer proposal and voted against it, there would not have been any dividend to share in because the consumer proposal would have been rejected.
Timing of the Application
83There is no issue with the timing of Mr. Nagra's motion to annul the consumer proposal. He learned of the consumer proposal on June 9, 2023 and submitted a request to the Bankruptcy Court Office to schedule the motion on July 13, 2023.
Interest of the Debtor and the Creditors
84As noted above, Mr. Singh's proven creditors received $35,373.23 in dividends on account of $162,326.40 in proven claims. This amounts to a recovery of 21.79 cents on the dollar. In the event that the consumer proposal is annulled, these creditors, along with Mr. Nagra, will be permitted to take steps to recover additional amounts, which would include the $103,631.63 from the sale of the matrimonial home.
85As a result, it is clearly in the interest of the creditors to annul the consumer proposal.
86Unsurprisingly, it would be to Mr. Singh's detriment if the consumer proposal is annulled, since his creditors' claims would be revived, and they could take steps to recover the $103,631.63 that he currently is entitled to keep.
87In my view, the balancing of the interests between Mr. Singh and his creditors weighs in favour of the creditors and annulling the consumer proposal. If the consumer proposal is not annulled, Mr. Singh will be permitted to only pay $35,373.23 in dividends to his creditors and keep $103,631.63, because he did not inform the Administrator of the existence of Mr. Nagra's claim. This would be an unfair result in my view, and negatively impact the integrity of the consumer proposal process under the BIA, which is discussed below.
Integrity and public confidence in the BIA and the process of consumer proposals
88Mr. Singh argues that the public's confidence in the BIA and the process of consumer proposals would be lost if "innocent debtors" like him could have their consumer proposals annulled.
89In my view, the integrity of the system would be undermined if a debtor was permitted to benefit from not disclosing a potential claim to his or her administrator at the commencement of the process, that, if disclosed, could have a material impact on whether a consumer proposal would be accepted by creditors. The system requires that creditors have confidence that they will be provided with proper notice of a consumer proposal and have the ability to elect to participate in the process if they so choose.33
Disposition
90The Court has the discretion to annul a consumer proposal under subsection 66.3(1), even where the consumer proposal was fully completed.
91Having considered all of the circumstances and factors listed above, Mr. Nagra has satisfied me that his motion fits under subsection 66.3(1)(a), and that this is an appropriate case in which to exercise my discretion to annul the consumer proposal.
92As a result, Mr. Nagra's motion is hereby granted.
93I strongly urge the parties to come to an agreement on costs. If they are unable to do so by February 23, 2024, they may contact my Assistant Trial Coordinator to receive direction regarding the filing of costs submissions.
Associate Justice Rappos
DATE: February 9, 2024
Footnotes
- All references herein to sections or subsections are to provisions of the BIA.
- Subsection 66.12(1).
- Section 66.11.
- Subsection 66.12(3).
- Subsection 66.28(1).
- Subsection 66.19(1).
- Subsection 66.28(2)(a).
- Subsection 66.38(1); Houlden, Morawetz and Sarra, Bankruptcy and Insolvency Law of Canada, 4th ed., §4:169 (Westlaw Edge Canada).
- Subsection 66.32(1).
- Subsection 66.32(2).
- Subsection 69.2(1).
- R. v. Greater Sudbury (City), 2023 SCC 28, para. 77.
- Interpretation Act, R.S.C. 1985, c. I-21, as amended, s. 12.
- Marquette & Fils Inc. v. Mercure, [1977] 1 S.C.R. 547, para. 15.
- Orphan Well Association v. Grant Thornton Ltd., 2019 SCC 5, para. 67.
- 2002 BCSC 509 ["Automotive Finance"].
- 1994 CarswellSask 27, 1994 CarswellSask 27 ["Engdahl"].
- Automotive Finance, paras. 15 and 28; Engdahl, paras. 8 and 13.
- Automotive Finance, para. 21.
- Engdahl, para. 38.
- 1994 CarswellSask 28, 1994 CarswellSask 28.
- Subsection 66.3(1)(c).
- Engdahl, paras. 39 and 47.
- Subsection 66.13(1).
- Automotive Finance, para. 33.
- Subsection 66.13(2)(a).
- Subsection 66.14(b).
- Subsection 66.13(3)(a).
- This is the sum of $94,027.98 for Nagra, $81,500 for the other creditors, and $75,596.40 for CRA.
- Subsection 66.13(4).
- Subsection 4(2).
- All provisions of the BIA (except Division I of Part III), in so far as they are applicable, apply to consumer proposals, with such modifications as the circumstances require - subsection 66.4(1).
- Automotive Finance, para. 33.