Experienced Equipment Sales & Rentals Inc. (Re), 2012 ABQB 160

Court of Queen ’ s Bench of Alberta Citation: Experienced Equipment Sales & Rentals Inc. (Re), 2012 ABQB 160 Date: 20120307 Docket: BK03 115459 Registry: Edmonton In the Matter of The Bankruptcy and Insolvency Act , R.S.C. 1985, c. B-3, as amended And in the Matter of Experienced Equipment Sales & Rentals Inc. Between: 1204590 Alberta Ltd. Applicant - and - Deloitte & Touche Inc. Trustee _______________________________________________________ Memorandum of Decision of the Honourable Mr. Justice Brian R.

Burrows _______________________________________________________ [ 1 ] One of the “assets” of the bankrupt is a builder’s lien claim for $872,865 against land on which the bankrupt made improvements. In early 2011 the Trustee assigned the cause of action in relation to the builder’s lien claim to Gordon Chaban who is an officer and director of the bankrupt. Subsequently the Trustee realized that under BIA s. 30(4) it required court approval of that transfer since the transferee is a person “related” to the bankrupt. It applied for approval.

The application was opposed by 1204590 Alberta Ltd. (who has since filed a claim in the bankruptcy). 1204590 is the owner of the land on which the builder’s lien was filed.

[ 2 ] On May 24, 2011, I ordered the Trustee to prepare a report evaluating the merits of the builder ’ s lien claim. [ 3 ] The Trustee has now filed the report directed. It assesses each of the factors listed in BIA s. 30(6). [ 4 ] From the submissions of counsel at the hearing of this application I understand these to be the relevant circumstances: The bankrupt leased the land from 1204590. It expected to buy the land and to subdivide the land after it bought it.

It did some work on the land, clearing and grading, in preparation for the contemplated subdivision. [ 5 ] The bankrupt filed a caveat claiming an interest pursuant to an agreement to buy the land. The owner of the land, 1204590, denied that there was a sale agreement. It excluded the bankrupt from the land.

The bankrupt filed a builder ’ s lien in respect of the value of the work it had done on the land and commenced action on the builder ’ s lien. [ 6 ] 1204590 defended and counterclaimed for slander of title claiming that the caveat filed by the bankrupt prevented it from selling the land for a period of time during which its value plummeted. [ 7 ] The Trustee in bankruptcy determined that it was not in the best interests of the estate to pursue the builder ’ s lien action.

With the approval of the Inspector, an employee of the principal secured creditor, it assigned the cause of action on the builder ’ s lien to a director of the bankrupt company for a payment of $25,000. [ 8 ] It appears that the Trustee received two offers to purchase the builder ’ s lien claim: the one it accepted and one from the land owner, 1204590. Both offers were in the same amount. [ 9 ] The Trustee has set out in detail its reasons for accepting the director ’ s offer.

It has set out a number of very good reasons to justify the conclusion that it is not in the interests of the bankrupt estate to pursue the claim. Among them are difficulties of valuing the work done on the property, and, significantly, the strong possibility that as the work was not done at the request of the owner no lien claim actually exists. [ 10 ] Further, it appears that at the time the Trustee accepted it, the director ’ s offer was considered preferable because the director is a guarantor of the secured creditor ’ s claim.

If the director pursues the claim, and is successful, he is more likely to be able to honour his guarantee to the secured creditor – who, it presently appears, will not recover its whole claim in the bankruptcy. The trustee appears to have reasoned that, as between two otherwise equal offers, one that offers a possible collateral benefit to a creditor is preferable to one that does not. [ 11 ] It appears that the sale of the asset for $25,000 to the director was prudent at least at the time the Trustee decided to proceed that way. [ 12 ] At that time, however, 1204590 was not a claimant in the bankruptcy.

Now it is. The claim it has filed is for $1,221,800. It is a contingent claim the value of which the Court has directed will be determined in the counterclaim in the builder ’ s lien action. ( See 2011 ABQB 641 .) [ 13 ] It seems to me very relevant to the question before me that the Trustee presently holds only $47,399.48 in trust for this bankrupt estate. This includes the $25,000 received from the director for the assignment of the builder ’ s lien claim. The Trustee expects to receive a further $147,113.75. There are no other assets to liquidate. [ 14 ] The CRA has a deemed trust property claim of $62,982.45.

The Royal Bank has a secured claim for $250,746.90 which

charges the remainder of the funds held by the Trustee. There were other secured creditors whose claims totaled $4,263,891.27. Many of them had specific security on specific assets and have realized on that security. Unsecured creditors have filed claims totaling $2,727,096.81. This does not include 1204590's contingent unsecured claim. [ 15 ] In my view the Trustee ’ s conclusion that prosecution of the builder ’ s lien claim is not in the best interests of the estate continues to be appropriate. The existence of 1204590's unsecured contingent claim does not affect that conclusion.

There will be no reason for the Trustee to defend that claim. The bankrupt ’ s assets will not extend to satisfying any part of it. [ 16 ] The assignment by the Trustee of the builder ’ s lien claim to Gordon Chaban or his delegate is approved pursuant to BIA s. 30(4). Heard on the 29 th day of February 2012. Dated at the City of Edmonton, Alberta this 7 th day of March 2012. Brian R. Burrows J.C.Q.B.A. Appearances: Jeremy H. Hockin for the Applicant Kentigern A. Rowan for the Trustee