Gill (Re), 2012 ABQB 139

Court of Queen ’ s Bench of Alberta Citation: Gill (Re), 2012 ABQB 139 Date: 20120229 Docket: BE03 1512337 Registry: Edmonton In the Matter of the Bankruptcy of Gurvinder Singh Gill Between: 1223209 Alberta Ltd. Plaintiff - and - Gurvinder Singh Gill Defendant _______________________________________________________ Memorandum of Decision of W. S. Schlosser, Registrar in Bankruptcy _______________________________________________________ [ 1 ] This is an application to approve a Consumer Proposal.

The only real issue is whether a portion of one of the creditor’s claims should survive. [ 2 ] The debtor filed the proposal June 23, 2011. The creditors were deemed to have accepted it effective August 7, 2011, by

virtue of s. 66.14 (b) (iv) of the Bankruptcy and Insolvency Act. [3] The proposal is reasonable and fair to both the consumer debtor and the creditors. The proposal is not in default. The proposal is of greater benefit to the creditors than a bankruptcy would be. [4] One of the creditors, 1223209 Alberta Ltd., says: 7. It is my belief that the amount owing to the creditor by the debtor is a debt or liability arising out of fraud, embezzlement,misappropriation or defalcation the debtor was acting in a fiduciary capacity.

Furthermore, it is my belief that the amount owing to thecreditor by the debtor is a debtor liability resulting from obtaining property or services by false pretenses or fraudulent misrepresentation.I believe that, based upon the facts in this case, any order of discharge should not release the debtor from the debt owing to the creditor. [5] A copy of the Statement of Claim in QB Action No. 0903 06773 is attached to the Affidavit. There, the Plaintiff, 1223209Alberta Ltd., sued the consumer debtor and several others.

The Statement of Claim sounds in conversion, breach of contract, negligenceand “unjust enrichment”. Fraud was not pleaded or proved. The consumer debtor consented to judgment in the amount of $137,186.95. [6]

Section 66.28 (2.1), one of the 2009 Amendments to the Bankruptcy and Insolvency Act, reads: 2.1 When consumer debtor is released from debt - A consumer proposal accepted, or deemed accepted, by the creditors andapproved, or deemed approved, by the court does not release the consumer debtor from any particular debt or liability referred to insubsection 178(1) unless the consumer proposal explicitly provides for the compromise of that debt or liability and the creditor inrelation to that debt or liability voted for the acceptance of the consumer proposal. (emphasis added). [7] The proposal does not explicitly release the debt or liability now in question. [8] This leads us to s. 178(1), which is as follows: 178(1) Debts not released by order of discharge - An order of discharge does not release the bankrupt from (

d) any debt or liability arising out of fraud, embezzlement, misappropriation or defalcation while acting in a fiduciary capacity or, inthe Province of Quebec, as a trustee or administrator of the property of others; [9] In Canada (Attorney General) v. Bourassa (Trustees of), 2002 ABCA 205 , Mr. Justice McClung, writing for themajority, said: 6 The case law reflects the various ways in which [s. 178] orders can be sought.

For example, when a pre-bankruptcy judgment doesnot contain an express finding of fraud, a creditor can either seek a declaration of fraud at the time of the discharge application or he canseek a declaration from the Court of Queen’s Bench after the discharge: Berthold v. McLellan, (1994), 1994 ABCA 122 , 19Alta. L.R. (3d) 28 (C.A.). Furthermore, if no judgment exists at the time of the bankruptcy, a creditor may subsequently initiate an actionto recover the debt, pleading fraud.

If the creditor can prove fraud, the existence of the discharge from bankruptcy will be no defence tothe action: Moose Jaw Credit Union Limited v. Kennedy (1981), (SK KB), 13 Sask. R. 252 (Q.B.); CanadianImperial Bank of Commerce v. Aksoy 91989), 75 C.B.R. (N.S.) 248; [1989] O.J. No. 867 (Ont. Dist. Ct.). On the other hand, when ajudgment, which pre-dates the bankruptcy, expressly finds fraud, no further court order would be needed before the creditor may pursuecollection of its debt: Smith (Re), (1985), (SK KB), 43 Sask. R. 27 (Q.B.), aff’d, (1986), (SK CA),45 Sask. R. 240 (C.A.).

The same is true of a consent judgment from which an admission of fraud can be inferred: Beneficial Finance v.Williamson (1971), 16 C.B.R. (N.S.) 30 (Ont. Co. Ct); Demitor (Re) (1993), (AB KB), 137 A.R. 381 (Master).

[10] In this case, there is a pre-existing Consent Judgment. The first question is whether the Consent Judgment acts as a bar to thecreditor making out a case under s. 178(1)(d). Fraud was not pleaded in the Statement of Claim and no admission of fraud can beinferred. [11] In Re Phillips, , Registrar Funduk concluded that the plaintiff in the underlying case was not obliged tohave pleaded a case which, would, if proved, have brought the claim within s. 178. In other words, Plaintiffs are not obliged to anticipatea bankruptcy in their pleadings. In that case, Registrar Funduk directed a trial of an issue.

See also Re Page (Bankrupt), 2006 ABQB 430per Waller, R. [12] This case is different in that it is a proposal and not a discharge under consideration. However, the consequences are thesame. Neither the Consent Judgment nor the proposal act as a bar. [13] Since there is no finding or inference of fraud, this issue must be determined judicially. The creditor requires a judicialfinding of fraud in order to pursue its debt beyond the accepted proposal. Such a finding cannot be made on the materials now before theCourt. At the very least, Mr.

Gill deserves a chance to make a full and proper reply to the allegations made against him. [14] The proposal is accepted. I direct a trial of an issue whether Mr. Gill’s liability falls within section 178(1). As in the Phillipscase, the issue has been defined, and there is no need for pleadings. 1223209 Alberta Ltd. will be the Plaintiff and the Consumer Debtorthe Defendant for the purposes of the burden of proof. The parties are otherwise entitled to all of their procedural rights under the Rulesof Court. [15] Costs of this application will be in the cause. Heard on the 16th day of February, 2012.

Dated at the City of Edmonton, Alberta this 29th day of February, 2012. W. S. Schlosser Registrar in Bankruptcy Appearances: Barinder S. Pannu for Garvinder Singh Gill R. Fotty

Fotty Stevenson & Wilson for 1223209 Alberta Ltd. Barry Nykyforuk Administrator