Bankruptcy and Insolvency Law - SCJ

A priority dispute arose between two mortgagees over lands on Queen Street East following a $400,000 advance intended to fund a principal payment under a vendor take-back mortgage.

Funds advanced by a second mortgagee were delivered by certified cheque to the first mortgagee but were subsequently returned to the borrower after arrangements between the borrower and the first mortgagee to defer the principal installment.

The second mortgagee argued that deposit of the cheque constituted acceptance of payment under the first mortgage and a re‑advance to the borrower, thereby affecting priority.

The court reviewed extensive email communications and evidence surrounding the transaction and raised credibility concerns about the first mortgagee’s knowledge of the source and purpose of the funds.

The court directed brief viva voce evidence and potential cross‑examination to resolve the factual dispute before determining priority.

In a receivership-related motion arising from alleged fraudulent investment activities, the receiver sought authorization to utilize frozen funds held by entities subject to prior court orders to pay ongoing investigation costs.

The court held that the circumstances differed from typical insolvency proceedings because many affected entities were not parties and no specific allegations had been pleaded against them.

Exercising discretion under the prior freezing order, the court declined to allow prepayment of the receiver’s investigative expenses from the frozen funds.

The court also rejected a request for a sealing order due to the strong presumption of open courts but granted a confidentiality order restricting the receiver from voluntarily providing information to tax or criminal authorities.

Costs were not awarded due to divided success.

The applicant sought recognition and enforcement in Ontario of an amended monetary judgment issued by the United States Bankruptcy Court for the Central District of California arising from a fraudulent transfer action.

The foreign judgment included reconveyance of California properties and a monetary award exceeding $4 million USD against the respondents.

The court considered whether the foreign court had a real and substantial connection to the dispute and whether any defences such as fraud, breach of natural justice, or public policy applied.

Finding that the respondents had attorned to the California court’s jurisdiction and that the judgment was final and conclusive, the court concluded that the requirements for recognition of a foreign judgment were satisfied.

As no responding parties appeared or raised any defences, the Ontario court ordered recognition and enforcement of the California judgment.

Following a fraudulent conveyance trial in which allegations of conspiracy and damages against a defendant were rejected, the successful defendant sought substantial indemnity costs.

Although the court had found the defendant assisted in attempts to hinder collection efforts, it declined to impose damages and granted no substantive relief against her.

The court held that her status as a contemnor did not bar a costs award, particularly given that the plaintiffs had pursued duplicative litigation contrary to earlier representations and had failed to prove damages.

Substantial indemnity costs were warranted due to unproven allegations of fraud and the breach of a prior representation to the court.

Costs of $665,990.96 were awarded jointly and severally against the opposing parties, with a solicitor’s lien recognized under the Bankruptcy and Insolvency Act.

The defendants, previously found in contempt of multiple court orders relating to bankruptcy and asset disclosure, sought an order requiring broad disclosure of documents from the plaintiffs for an upcoming contempt sanction hearing.

The court considered privilege claims over numerous documents, including solicitor‑client communications, settlement communications, and materials arising from joint retainers.

The court held that several documents were not protected or that privilege was displaced by competing public interests, including the integrity of ex parte orders and prior incarceration resulting from the proceedings.

Evidence suggesting potential fraud by related corporate actors and possible nondisclosure in earlier applications justified expanded disclosure.

The court ordered production of specified materials and directed that the corporate plaintiff produce all further relevant documents subject to a privilege schedule.

In a divorce proceeding, the respondent spouse sought a lump‑sum spousal support award to be satisfied through division of the applicant’s pension after the applicant’s post‑separation bankruptcy eliminated any potential equalization payment.

The court held that an equalization claim constitutes a provable debt in bankruptcy and is extinguished upon discharge unless the stay is lifted during the bankruptcy process.

The respondent had knowledge of the bankruptcy but failed to take timely steps to lift the stay and therefore could not indirectly pursue equalization through a lump‑sum spousal support award.

The court rejected compensatory and unjust enrichment claims but awarded limited periodic spousal support due to economic hardship caused by joint debts addressed through a consumer proposal.

Support was ordered to commence when the applicant resumed employment or received long‑term disability benefits and to terminate on December 31, 2015.

Following an earlier order expunging a creditor’s claim in bankruptcy, the bankrupt sought costs against the creditor.

The court held that costs should follow the cause and found no reason to depart from that principle.

The court allowed the bankrupt’s claimed disbursements for transcripts, copying, commissioners’ fees, and travel, as well as legal fees incurred from prior counsel in connection with the expungement motion.

The creditor was ordered to pay the total amount of the claimed costs.

Following an appellate ruling that set aside a trial decision and declared a trust declaration void, the court was asked to determine costs after the original trial judge retired.

The successful plaintiff sought substantial indemnity costs exceeding $200,000, relying on findings that the defendant had engaged in fraudulent misrepresentations in connection with a loan transaction and a trust declaration.

The defendants argued that costs should be deferred pending the disposition of a counterclaim and challenged the scale and scope of the claimed costs.

The court held that substantial indemnity costs were justified given the findings of dishonest conduct but deferred determination of most pre‑trial costs because the majority related to the outstanding counterclaim.

The court fixed immediate costs of $20,500 for trial attendance and preparation of cost submissions, payable jointly and severally by the defendants.

A bankruptcy trustee brought a motion to set aside the bankrupt’s automatic discharge after failing, through inadvertence, to send the statutory notices of impending discharge to creditors.

The court considered whether it had jurisdiction under the Bankruptcy and Insolvency Act to invalidate an automatic discharge arising from such procedural irregularity.

Applying prior authorities and the principles under s. 187(9) of the Act, the court held that the failure to provide notice constituted an irregularity in a bankruptcy proceeding causing potential injustice to creditors who were deprived of the opportunity to oppose the discharge.

Evidence indicated unresolved issues concerning the bankrupt’s disclosure obligations and potential surplus income, suggesting that a discharge hearing could lead to a materially different result.

The court therefore set aside the automatic discharge and directed the trustee to issue proper notices to creditors.

In matrimonial litigation following a long marriage, multiple motions arose after the husband assigned himself into bankruptcy while substantial support and equalization issues remained unresolved.

The wife sought consolidation of related corporate litigation concerning ownership of a property, annulment of the husband's bankruptcy under the Bankruptcy and Insolvency Act, and related relief.

The court found significant overlap between the corporate property dispute and the matrimonial proceedings and ordered consolidation.

While the court expressed serious concerns about the husband's credibility and the bona fides of the bankruptcy, it declined to annul the bankruptcy due to evidentiary gaps but lifted the statutory stay to permit the matrimonial action to proceed to an expedited trial.

The husband's motions to vary spousal support and to sever the divorce from corollary relief were dismissed.

In an action brought under s. 38 of the Bankruptcy and Insolvency Act seeking to recover alleged debts and set aside transactions under ss. 95 and 96, the plaintiff brought a refusals motion following the examination for discovery of a former chairman of the bankrupt corporation.

The court considered several refusals relating to questions about payments received from the bankrupt and communications with other directors and related parties.

The court held the questions were relevant to pleaded issues, including the defendant’s receipt of payments and whether certain parties were dealing at arm’s length with the debtor.

The defendant was ordered to re-attend for examination to answer the specified questions and any arising from those answers.

Costs of the motion were fixed in favour of the plaintiff.

Judgment creditors applied for a bankruptcy order against a debtor who owed over $350,000 under a judgment arising from a failed real estate transaction.

The debtor asserted he had no income or assets and that his wife paid all household and credit obligations.

The court held that a debtor ceases to meet liabilities when he personally stops paying them, even if a third party voluntarily covers the payments.

Evidence also raised suspicious circumstances regarding asset transfers, including the transfer of the debtor’s interest in the matrimonial home after judgment and dealings with luxury vehicles.

The court found the debtor had ceased meeting liabilities generally and that special circumstances justified bankruptcy under the Bankruptcy and Insolvency Act.

An insolvent developer applied for interpretation of a subdivision agreement and standby letter of credit securing municipal works in a development project.

The developer argued that the municipality could use proceeds from the letter of credit to pay unsecured trade creditors who had supplied goods and services before the developer’s insolvency.

The court held that the agreement limited the municipality’s entitlement to prospective costs associated with completion or rectification of municipal works and did not authorize retroactive payment to unsecured creditors.

The court rejected reliance on the autonomy doctrine governing letters of credit, noting that permitting such retroactive payments would be fraudulent where the bank had not secured those obligations.

The application for the requested interpretation was dismissed.

A bankrupt applied for an absolute discharge nearly nine years after being adjudged bankrupt under the Bankruptcy and Insolvency Act.

Creditors and the trustee opposed an unconditional discharge, alleging the bankrupt failed to satisfactorily account for significant pre‑bankruptcy assets and had not fully disclosed financial information.

The court found the bankrupt had not adequately explained the disappearance of substantial assets including cash, RRSPs, securities, and real property, engaging s. 173(1)(d) of the Bankruptcy and Insolvency Act.

The court also found the bankrupt had remained voluntarily unemployed while living comfortably through financial support from family.

While the court concluded the bankruptcy itself arose from circumstances for which the bankrupt was not justly responsible, the failures of disclosure and conduct during bankruptcy warranted a conditional discharge requiring payment to the estate.

Following a prior trial addressing spousal support and child-related expenses, the applicant advanced claims for constructive trust based on unjust enrichment, lump sum spousal support, and post-retirement spousal support after her equalization claim became unenforceable due to the respondent’s completed consumer proposal under the Bankruptcy and Insolvency Act.

The court held that although the applicant had made significant indirect contributions during the marriage, the enrichment resulting from the respondent’s bankruptcy process constituted a juristic reason defeating the unjust enrichment claim.

The court also declined to award lump sum spousal support because the respondent lacked financial means and such an order would effectively redistribute assets.

However, the court ordered that spousal support be subject to review upon the respondent’s retirement, with consideration of pension income accrued during the marriage.

Following extensive trial reasons in complex bankruptcy and fraud proceedings, the court issued a second case conference memorandum addressing outstanding procedural and remedial issues.

The court directed that issues concerning damages recoverable by a creditor, tracing relief, and costs orders against certain defendants be scheduled before the associate chief justice who presided over related contempt proceedings.

The memorandum also clarified that a previously ordered constructive trust over the bankrupt’s property should be incorporated into the final order without further submissions.

The court established a timetable for written submissions on post‑judgment interest relating to an earlier judgment and on the terms of a Mareva injunction in aid of execution.

The decision functioned primarily as case management to finalize remaining issues in the litigation.

A creditor brought a motion under s. 38 of the Bankruptcy and Insolvency Act seeking authorization to continue foreign enforcement proceedings after the trustee refused to proceed.

The proceedings in Taiwan sought recognition and enforcement of Ontario contempt costs orders against property owned by a defendant abroad.

The trustee opposed the motion, arguing the claims lacked merit, raised potential set‑off issues, and conflicted with settlements and releases.

The court held the creditor met the threshold under s. 38 because the costs orders remained outstanding and the proposed claim was not spurious.

Leave was granted permitting the creditor to continue the Taiwan proceeding at its own expense with assignment of the trustee’s interest for that limited purpose.

The respondent in the underlying family proceeding sought a declaration that a costs sanction imposed for civil contempt had been extinguished by her discharge from bankruptcy.

The sanction arose from repeated breaches of court-ordered access involving the parties’ child.

The court held that it had jurisdiction to determine whether the debt survived bankruptcy.

Applying s.178 of the Bankruptcy and Insolvency Act, the court found the costs award constituted a sanction similar to a fine or penalty imposed for an offence and therefore survived bankruptcy.

The court also rejected the argument that the debt had been satisfied through alleged set-off for childcare, airfare expenses, or matrimonial property proceeds.

In ongoing proceedings under the Companies’ Creditors Arrangement Act, the applicants sought approval of an Employee Hardship Application Process and an extension of the stay of proceedings.

The requested hardship process was unopposed and approved.

Certain noteholders sought conditions requiring enhanced reporting and procedural safeguards in relation to the claims process and employee claims.

The court held that the statutory test under s. 11(6) of the CCAA was satisfied because the circumstances warranted the extension and the applicants had acted in good faith and with due diligence.

The stay extension was granted, while proposed procedural changes to the claims process were found more appropriately addressed through a motion to vary existing orders.

In CCAA proceedings involving shipping companies, the court addressed issues arising from a Claims Process Order and a referee’s report adjudicating maritime claims.

The court held that the referee was best positioned to determine entitlement to costs arising from the claims adjudication and directed that the referee address costs in accordance with the draft order.

The court declined to restrict cost submissions to certain claimants, holding that all claimants should be on equal footing.

A request to reconsider the referee’s decision or to receive further evidence was premature because no formal motion had been served.

The referee’s report was confirmed, the monitor’s eighth report was approved, and the monitor was discharged subject to conditions.