Bischke (Re), 2011 ABQB 422

Court of Queen ’ s Bench of Alberta Citation: Bischke (Re), 2011 ABQB 422 Date: 20010704 Docket: BE01 484806 Registry: Calgary In the Matter of the Bankruptcy of Matthew James Craig Bischke _______________________________________________________ Reasons for Judgment of J.T. Prowse, Registrar in Bankruptcy _______________________________________________________ When and where a determination is to be made whether a judgment against Bischke survives his discharge from bankruptcy [ 1 ]

Section 178 of the Bankruptcy and Insolvency Act (“BIA”) lists certain types of debts and liabilities which survive a bankrupt’s discharge from bankruptcy. [ 2 ] Included in the list, as section 178(1)(d), is “any debt or liability arising out of fraud, embezzlement, misappropriation or defalcation while acting in a fiduciary capacity ...”. [ 3 ] The substantive issue, which will ultimately be the subject of a hearing in court, is whether the $2.8 million judgment which Columere Park Developments Ltd. (“Columere”) holds against a bankrupt, Matthew James Craig Bischke (“Bischke”), falls under section 178(1)(d). [ 4 ] The procedural issue, which is what I am asked to decide as Registrar pursuant to section 192(1) (

k) of the BIA , is when and where the substantive issue will be adjudicated.

[5] There are at least five different possibilities as to when and where the substantive issue might be addressed: 1. In bankruptcy court in Calgary when Bischke’s application for discharge is brought forward. 2. In civil court in Calgary (The Court of Queen’s Bench of Alberta) prior to Bischke’s discharge application 3. In civil court in Cranbrook (The Supreme Court of British Columbia) prior to Bischke’s discharge application. 4. In civil court in Calgary (The Court of Queen’s Bench of Alberta) after Bischke is discharged from bankruptcy. 5.

In civil court in Cranbrook (The Supreme Court of British Columbia) after Bischke is discharged from bankruptcy. [6] Columere applies for leave to pursue alternative # 3. It wishes to seek, at this time, a declaration from The Supreme Court ofBritish Columbia that Columere’s judgment against Bischke will survive Bischke’s discharge. [7] Columere seeks leave because of the stay found in

section 69.3 of the BIA, which states: “ .... on the bankruptcy of anydebtor, no creditor has any remedy against the debtor or the debtor’s property, or shall commence or continue any action, execution, orother proceedings, for the recovery of a claim provable in bankruptcy”. [8] The stay of proceedings under

section 69.3 would typically last until Bischke’s trustee is discharged. However,

section 69.4of the BIA allows the court to declare that the stay provided by

section 69.3 no longer operates in respect of a creditor. The court isallowed to make such a declaration if it is satisfied: (

a) that the creditor or person is likely to be prejudiced by the [continuation of the stay], or, (

b) that it is equitable on other grounds to make a declaration. It is clear from

section 69.4 that the onus is on Columere to show why a lifting of the stay is warranted: see Re: Ma, (ON CA), 2001 CarswellOnt 1019, 24 C.B.R. (4th) 68 (C.A.). There must be compelling reasons to set aside the stay even if only for a limited purpose: Re: Osprey Energy Inc., 2006 BCSC 216, 2006 CarswellBC 388, 20 C.B.R. (5th) 187. Arguments for and against lifting the stay [9] Counsel for Columere argues that lifting the stay will allow its proposed substantive application to be heard by the samejudge in Cranbrook who awarded judgment against Bischke.

It is argued that it is preferable to make this application sooner, rather thanlater, while the evidence from the trial remains fresh in the trial judge’s mind. Columere says that the trial judge would have the bestunderstanding of the nuances of the facts surrounding Bischke’s liability. [10] Counsel for Bischke replies that it is not necessary for the judge who heard the trial of the claim against Bischke to hear theapplication over whether that judgment should survive Bischke’s discharge from bankruptcy.

He points out, correctly, that the courthearing these applications typically basis its decision on the pleadings, reasons for judgment, and judgment, as contained in the courtrecord. He has not been able to find a single example where the trial judge is later asked to also rule on the survival of the judgmentfrom a discharge in bankruptcy. He says that it is not necessary, or even appropriate, for the evidence at trial to be considered in such an

application. [ 11 ] Counsel for Bischke notes that the BIA directs where bankruptcies are to occur, which is the ‘location of the debtor’, and not the location of the creditor(s). Counsel for Bischke states that, by proposing to seek a ruling in British Columbia, Columere is essentially seeking to move the location of the bankruptcy to British Columbia. Moving the location of a bankruptcy is allowed under

section 187 of the BIA, but only where it is shown that costs will be reduced by making the move. [ 12 ] Counsel for Bischke asks for leave to be refused. He submits that Columere needs to wait and pursue its relief upon or after Bischke’s discharge from bankruptcy. The purpose of a stay [ 13 ] In considering whether to lift a stay, one must first consider the policy reasons for having a stay in the first place. As noted in Houlden & Morawetz (A§2), the BIA provides a regime whereby the creditors of the bankrupt can pursue their claims by collective action.

The assets of the debtor can be liquidated to satisfy the creditors pari passu. [ 14 ] The stay prevents creditors from trying to jump to the front of the line by collecting for themselves only. It saves time and money by avoiding multiple seizures and other collection efforts. [ 15 ] Columere is not attempting to jump to the head of the line.

If it succeeds in obtaining a declaration that its judgment survives Bischke’s discharge, it would not, without further leave of the court, be entitled to interfere with the bankruptcy by attempting to attach Bischke’s assets, which are now, in any event, vested in the trustee pursuant to the BIA . Has Columere met the onus of showing why the stay should be lifted? [ 16 ] Is Columere being prejudiced by the continuation of the stay?

Alternatively, what equitable grounds exist for lifting the stay? [ 17 ] Columere acknowledges that it could await Bischke’s discharge, and then apply to the Supreme Court of British Columbia for a declaration that the judgment survives Bischke’s discharge. Counsel for Bischke does not dispute that Columere could apply in British Columbia following Bischke’s discharge. [ 18 ] Columere does not point to any collection efforts which it is holding off due to the stay.

Contrast this with the situation in MG Electric v. (CSE) Control Systems , 2004 MBQB 145 , 2004 CarswellMan 274 (para. 22 ), where the creditor was being prevented from pursuing trust funds. [ 19 ] The only justification for Columere proceeding now, as opposed to when Bischke is discharged, is that the evidence from the British Columbia trial is fresher now. In my view, even if that evidence were admissible on the section 178(1)(

d) application, and I do not decide that, this justification seems marginal at best. All the evidence will have been recorded and portions relevant to the section 178(1)(

d) issue could be reproduced if necessary. [ 20 ] I am dismissing Columere’s application for leave, not because it amounts to moving the bankruptcy to British Columbia, but rather because Columere has not met the onus on it to show why the substantive issue regarding survival of its judgment needs to be determined prior to Bischke’s discharge from bankruptcy. Columere has not shown that it is being prejudiced by the automatic stay in any substantive way, nor has it persuaded me that there are equitable grounds for proceeding with its section 178(1)(

d) application prior to Bischke’s discharge. Costs

[ 21 ] If counsel cannot agree as to costs they may approach me for a determination within 30 days of the date of these reasons. Heard on the 14 th day of June, 2011. Dated at the City of Calgary, Alberta this 4 th day of July, 2011. J.T. Prowse Registrar in Bankruptcy Appearances: Mr. James P. Flanagan Ms. Jody Sutherland (Student-at-Law) McLennan Ross LLP for the Applicant Stanley Carscallen, Q.C. Lindsay R. Grice Carscallen Leitch LLP for the Respondent