Superior Court of Justice – Ontario

Court File No.: 31-2861687
Date: 2025-04-24

In the Matter of the Bankruptcy of 1631651 Ontario Inc.

Before: Associate Justice Rappos

Counsel:
Jonathan Thoburn, for City of Toronto and Adam Vaughan
Dom Magisano, for Crowe Soberman Inc.

Heard: April 24, 2025 (via videoconference)

Endorsement

[1] City of Toronto and Adam Vaughan are creditors of 1631651 Ontario Inc. (the “Bankrupt”) pursuant to the Judgment of Justice Pollak dated July 21, 2022. The Bankrupt served a notice of appeal, and then subsequently filed for bankruptcy on September 1, 2022.

[2] The Bankrupt paid $100,000 into Court pursuant to the Order of Justice Dow dated October 1, 2021 rendered in connection with the creditors’ motion for security for costs.

[3] As part of the Judgment, Justice Pollak directed the Accountant of the Superior Court to release the funds in trust to counsel to the creditors.

[4] The creditors have been unable to recover the money from the Accountant to date. As a result, they bring a motion seeking, among other things, an order that the assignment in bankruptcy does not take precedence over the order for payment, and an order directing the Accountant release the funds to their counsel.

[5] Subsection 70(1) of the Bankruptcy and Insolvency Act provides that every bankruptcy assignment takes precedent over all judicial or other attachments, garnishments, certificates having the effect of judgments, judgments, certificates of judgements, 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 creditors or the creditor’s representative.

[6] In support of their motion, the creditors rely on Re Careen, 2004 NLSCTD 132, a decision of the Newfoundland and Labrador Supreme Court Trial Division. In that case, an assignment in bankruptcy was filed and later that same day the court registrar paid funds out of court to a plaintiff. The funds had been paid into court by the bankrupt pending disposition of the trial of the plaintiff’s claim.[1]

[7] The trustee brought a motion for an order pursuant to subsection 70(1) of the BIA that the funds should be returned to the trustee. Justice Russell dismissed the motion, holding that the plaintiff had done everything necessary to obtain payment, and the funds did not fall under subsection 70(1) as they were specifically earmarked for the plaintiff and were no longer property of the bankrupt.[2] As well, Justice Russell noted that the trial judgment was aware of the pending bankruptcy and put his mind to the payment out of the funds.[3]

[8] Re Careen was cited by the Court of Queen’s Bench of Alberta in Toronto Dominion Bank v 1287839 Alberta Ltd, 2021 ABQB 205, in support of the statement that “A judgment creditor may trump a trustee’s priority to funds paid into court if the funds are sufficiently ‘earmarked’ and the creditor has ‘done all that it could’ to access the funds”.[4]

[9] I have noted up these decisions, and it appears that they have not been cited or referred to by an Ontario Court.

[10] A decision of a court from another jurisdiction is not binding on a court of another province and only acts as persuasive authority.

[11] As I raised with counsel during the hearing, at first instance I do not believe that Re Careen would be considered good law in Ontario. From a quick search on WestLaw, I was able to locate Tradmor Investments Ltd. v. Valdi Foods (1987) Inc. affirmed Tradmor Investments Ltd. v. Valdi Foods (1987) Inc., and Stabile v. Milani, which on their face appear to hold that a litigant does not have any trust or security interest in funds paid into court that remained in court at the time of bankruptcy, and the funds are property of the bankruptcy estate.

[12] I also noted to counsel that I am aware of a body of Ontario case law that funds recovered by a sheriff in connection with judgments, writs and garnishments does not have precedence over the assignment in bankruptcy even where the sheriff was on the brink of distributing the funds.

[13] As a result, I am adjourning this motion to allow the creditors to consider these decisions and principles, and review and consider all other Ontario decisions that have applied subsection 70(1) in similar circumstances. The creditors shall have until May 30, 2025 to serve and file a supplemental factum to address these issues. The supplemental factum shall also be e-mailed to the Bankruptcy Court Office to my attention.

[14] I shall deal with the motion in writing, unless I require further oral submissions from counsel in response to the supplemental factum.

Associate Justice Rappos
Date: April 24, 2025

Endnotes

[1] Re Careen, 2004 NLSCTD 132, paras. 1-15.
[2] Ibid., paras. 22-32.
[3] Ibid., para. 33.
[4] Toronto Dominion Bank v 1287839 Alberta Ltd, 2021 ABQB 205, para. 13.