Bankruptcy and Insolvency Law - SCJ

The defendant, Ryszard Musiala, brought a motion for summary judgment seeking to dismiss the plaintiff Trustee's claim, lift a Certificate of Pending Litigation on a property, and declare no interest for the bankrupt or Trustee in the property.

The plaintiff, J.P. Graci & Associates Ltd., as Bankruptcy Trustee, opposed the motion, arguing that genuine issues requiring a trial existed regarding the beneficial ownership of the property and the legal impact of a lump-sum mortgage payment made by Musiala.

The court found significant inconsistencies in Musiala's evidence and insufficient facts to confidently determine the parties' interests or the application of equitable remedies like subrogation.

Consequently, the motion for summary judgment was dismissed, as a trial was deemed necessary to resolve the complex factual and legal disputes and avoid inconsistent findings.

The Receiver for the Paramount Group sought an order to appoint itself as receiver over Virk Hospitality Corp.'s assets due to alleged defaults on a $21 million loan.

The court found Virk in default for failing to repay the loan on its two-year maturity date, breaching a postponement agreement by misdirecting funds, and failing to pay property taxes.

The court granted the motion, finding it just and convenient to appoint the Receiver over Virk's property, assets, and undertakings.

The defendants brought a motion to dismiss the action, which sought to set aside an alleged fraudulent conveyance, on three grounds: lack of standing, the claim being statute-barred, and lack of legal capacity.

The court granted the motion, dismissing the action.

The primary reason for dismissal was the plaintiffs' lack of standing under the Fraudulent Conveyances Act, as they were not "creditors or others" at the time of the impugned transfer in 1993.

Additionally, the plaintiffs failed to obtain proper court approval under section 38(1) of the Bankruptcy and Insolvency Act to commence proceedings against the non-bankrupt transferee.

The court disagreed that the claim was barred by the Real Property Limitations Act, finding that an action to set aside a fraudulent conveyance is not an action to "recover land."

The Cetero Group brought a motion seeking entitlement to a $298,243 tax refund (carry-back refund) held by PricewaterhouseCoopers Inc. (PWC), as receiver of PRACS Institute Canada B.C. Ltd. The Cetero Group argued the refund was not validly assigned to PRACS, that PWC would be unjustly enriched, and that they were entitled to the refund through legal or equitable set-off due to PRACS's failure to pay under an operation support agreement.

The court found the carry-back refund was validly assigned to PRACS under an asset purchase agreement, providing a juristic reason for PWC's retention, thus defeating the unjust enrichment claim.

Furthermore, the court determined that neither legal nor equitable set-off applied, as the refund was not a debt owing by BA to PRACS, and the cross-claim for unpaid invoices was not sufficiently connected to the refund to warrant equitable set-off.

The motion was 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.

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 the context of ongoing inspection, receivership, and bankruptcy proceedings involving multiple corporations and a charitable foundation, counsel for the foundation sought a suspension of all proceedings pending determination of a contempt motion brought by the receiver against the foundation’s lawyer.

The moving party argued that the contempt allegation created a professional conflict of interest that would impair counsel’s ability to continue representing the client.

The receiver amended its motion to remove the requested contempt remedy against counsel, while reserving the right to bring such a motion in the future.

The court held that because the contempt relief against counsel had been removed, there was no present basis to suspend the proceedings.

Potential future contempt proceedings were insufficient to justify delaying the matters.

In CCAA proceedings involving the Nortel group, the joint administrators of certain European, Middle Eastern, and African debtor entities brought a motion under Rule 30.10 of the Rules of Civil Procedure seeking production of documents from a non‑party accounting firm relating to transfer pricing arrangements and intellectual property development.

The court reviewed the governing principles for non‑party production, including the requirement that such orders be granted only in exceptional circumstances and where it would be unfair to require the moving party to proceed to trial without the documents.

The court found that many of the requested documents had already been communicated to the client and were likely produced through existing discovery processes.

For documents not communicated to the client, the moving party failed to demonstrate their importance or any evidentiary gap justifying exceptional production.

The court concluded that proceeding to trial without the requested materials would not be unfair and dismissed the motion with costs.

The plaintiff moved for summary judgment against a debtor and sought declarations setting aside an inter-spousal transfer of real property as a fraudulent conveyance intended to defeat creditors.

The debtor consented to judgment on the debt but disputed the declaration that the property transfer to his spouse was fraudulent.

The court held that because the transfer occurred between spouses while the debtor was indebted to the plaintiff, the defendants bore the onus of demonstrating that the transaction was bona fide and for fair value.

The defendants failed to provide cogent, admissible evidence establishing that the debtor’s equity in the property approximated the alleged loan consideration.

The court concluded that the transfer was intended to shelter the property from creditors and granted judgment and declaratory relief to the plaintiff.

A bankrupt sought an absolute discharge from bankruptcy.

The trustee and the federal tax authority opposed an absolute discharge and requested a conditional discharge based on multiple instances of non‑disclosure and misconduct during the bankruptcy process.

The court found that statutory circumstances under s. 173(1)(a) and (j) of the Bankruptcy and Insolvency Act were established, including failure to disclose prior insolvency proceedings and the disproportion between assets and liabilities.

The court also identified several additional concerns including undisclosed asset transfers, RRSP withdrawals without disclosure, concealment of funds and equipment, and significant outstanding tax liabilities.

An absolute discharge was therefore unavailable under s. 172(2), and the court granted a conditional discharge requiring payment obligations tied partly to future income.

A bankrupt sought discharge while the trustee opposed on the basis that the bankrupt abandoned a matrimonial equalization claim that could have generated funds for creditors.

The trustee argued the bankrupt’s change of litigation position caused the estate to incur substantial legal fees and lost a potential recovery.

The court held that the Bankruptcy and Insolvency Act duty requiring a bankrupt to aid in realization of assets does not obligate a bankrupt to alter positions in separate family litigation, particularly where doing so would affect personal family interests.

The trustee’s litigation strategy was reasonable but the costs could not be shifted to the bankrupt absent an agreement or misconduct.

The court granted the discharge with only a short suspension reflecting prior delay.

Applicants sought protection under the Companies' Creditors Arrangement Act and an initial stay of proceedings while pursuing a restructuring and sale process.

The court found the applicants insolvent and eligible for relief, approved the appointment of a monitor, authorized DIP financing, and approved a sale and investment solicitation process.

The court also granted a stay extending to affiliated non-applicant entities due to the integrated nature of their operations.

However, the court modified the proposed initial order by preserving judicial discretion over any future termination of the CCAA proceedings, rejecting language that would have removed the court’s authority after a fixed sunset date.

Former directors and officers of an insolvent corporation sought an order requiring that an environmental remediation claim filed by the provincial environment ministry be adjudicated within ongoing insolvency proceedings under the Companies’ Creditors Arrangement Act.

They also sought to stay an appeal proceeding before the Environmental Review Tribunal concerning a director’s order requiring remediation of a contaminated site.

The court held that the statutory scheme under the Environmental Protection Act assigns jurisdiction over appeals of director’s environmental orders to the Environmental Review Tribunal.

Given that the insolvency restructuring had effectively concluded and no plan of arrangement would compromise claims against the directors and officers, there was no basis for the insolvency court to assume jurisdiction over the environmental order appeal.

The court rejected arguments based on federal paramountcy and interjurisdictional immunity.

The motion was dismissed and the matter left to the Environmental Review Tribunal.

In CCAA proceedings involving the debtor corporations, a significant creditor sought a declaration imposing a constructive trust and super‑priority over litigation proceeds to recover payments it made to a strategic advisor who served as a director and litigation committee chair.

The creditor argued that the payments justified a solicitor’s lien, unjust enrichment, constructive trust, or oppression remedy.

The court held the advisor’s work was performed in the capacity of a director and business advisor rather than as a solicitor, precluding a solicitor’s lien.

The court further held that the criteria for unjust enrichment and constructive trust were not satisfied and that imposing a proprietary remedy would disrupt the established CCAA priority regime.

The motion seeking super‑priority status was dismissed.

The plaintiff brought a motion seeking a declaration that the defendant was in contempt of court for failing to comply with an order requiring attendance and full disclosure at a judgment debtor examination.

The defendant argued that his subsequent assignment in bankruptcy stayed the contempt proceedings under the Bankruptcy and Insolvency Act.

The court held that bankruptcy does not prevent punishment for contempt committed prior to the bankruptcy and relied on prior authority confirming that such proceedings may continue.

After hearing evidence, the court rejected the defendant’s testimony as not credible and found that he deliberately refused to provide candid answers and failed to produce required documents.

The court concluded beyond a reasonable doubt that the defendant intentionally disobeyed the court order.

The plaintiff bank brought a motion seeking leave to amend three consolidated statements of claim to add allegations of fraud and fraudulent misrepresentation against a lawyer and a property appraiser involved in mortgage transactions, and to assert that the claims survived bankruptcy under s. 178 of the Bankruptcy and Insolvency Act.

The defendants opposed the motion, arguing the amendments introduced a new cause of action after the expiry of the applicable limitation period.

The court held that the original pleadings alleged negligence only and did not contain the material facts necessary to support allegations of fraudulent misrepresentation, including knowledge of falsity or intention to deceive.

Because the proposed amendments introduced a fundamentally different cause of action, the limitation period created a presumption of non‑compensable prejudice.

The motion to amend was therefore dismissed.

A bankrupt sought costs following the withdrawal of a motion relating to the scope of a section 163 examination under the Bankruptcy and Insolvency Act.

The examination concerned whether corporate credit cards were being used to pay the bankrupt’s personal expenses and whether income was being diverted through a company controlled by the bankrupt’s spouse.

During argument, the court raised concerns about the procedural posture of the examination and the potential overlap between the trustee’s investigative powers and a separate section 38 action commenced by certain creditors represented by the same counsel.

The motion itself was ultimately withdrawn after the parties reached a partial resolution, leaving only the issue of costs.

Applying proportionality, the court awarded the bankrupt a credit of $2,500 plus HST against obligations owed to the estate.

The applicant sought a bankruptcy order against the respondent, her estranged spouse, relying primarily on arrears of spousal support enforced through the Family Responsibility Office.

The respondent argued the application was brought for an improper collateral purpose and that the alleged debt was subject to a bona fide dispute in ongoing family and civil proceedings concerning allegations of fraud involving family businesses and a request to set aside the separation agreement.

The court held that bankruptcy proceedings should not be used to obtain collateral litigation advantages and that the support obligations and related financial issues were actively disputed in other proceedings.

Exercising discretion under s. 43(7) of the Bankruptcy and Insolvency Act, the court concluded there was sufficient cause to dismiss the bankruptcy application.

A bankruptcy trustee sought directions regarding priority disputes over proceeds of sale from the bankrupt’s property.

The dispute concerned competing claims by a judgment creditor and two mortgage holders.

The court considered the validity of a mortgage granted to an accounting firm for tax services and a later mortgage granted to a lawyer securing unpaid legal fees.

Applying the Bankruptcy and Insolvency Act and the Assignments and Preferences Act, the court held that the earlier mortgage was valid and enforceable but that the later mortgage constituted a preferential transfer granted when the debtor was on the eve of insolvency.

The preferential mortgage was declared void and the proceeds of sale were ordered distributed accordingly.

The plaintiff creditor brought a motion for summary judgment seeking to set aside a transfer of real property from a judgment debtor and his spouse to the spouse alone as a fraudulent conveyance.

The transfer occurred after a default judgment had been obtained and after the debtor failed to attend examinations in aid of execution.

The court considered the badges of fraud under section 2 of the Fraudulent Conveyances Act, including a transfer between close relatives for nominal consideration during circumstances of insolvency.

The respondents argued the transfer was intended to protect the transferee as a legitimate creditor.

The court held that the transfer constituted either a fraudulent conveyance or an improper preference and that no genuine issue requiring a trial existed.