Presley (Re), 2012 ABQB 437

Court of Queen ’ s Bench of Alberta Citation: Presley (Re), 2012 ABQB 437 Date: 20120704 Docket: BE01 168035, BE01 168062 Registry: Calgary, Alberta BE01 168035 In the Matter of the Bankruptcy of Beverly Lydia Presley and BE01 168062 In the Matter of the Bankruptcy of Percy Darwin Presley _______________________________________________________ Memorandum of Decision of J.B.

Hanebury, Registrar in Bankruptcy _______________________________________________________ [ 1 ] At issue in this case is the question of who should receive a lottery windfall won by a couple who had received conditional orders of discharge from bankruptcy. [ 2 ] On December 2, 2009, Mr. and Ms. Presley were granted conditional orders of discharge which required the payment of certain funds prior to May 31, 2012. [ 3 ] In December, 2011, Mr. Presley learned that his office pool had won a lottery and he received lottery winnings of $50,000, which he split equally with Ms.

Presley. [ 4 ] Both bankrupts paid the funds into their estates and they were applied toward the payments required under the conditional order of discharge. They both received absolute orders of discharge on February 16 th , 2012, effective as of January 12, 2012. [ 5 ] After payment of the conditional orders, a surplus was left of $22,005.00 for Mr. Presley and $17,316.00 for Ms. Presley. Both former bankrupts have proven unsecured claims in excess of these sums.

[ 6 ] The trustee has the excess funds in trust and asks for the advice of the court as to whether they should be the property of the trustee to be used for the benefit of the creditors or the property of the now-discharged bankrupts. ANALYSIS [ 7 ] The Bankruptcy and Insolvency Act describes property in s. 2 as “any type of property, whether situated in Canada or elsewhere, and includes money, goods, things in action, land and every description of property, whether real or personal, legal or equitable, as well as obligations, easements and every description of the estate, interest and profit, present or future, vested or contingent, in, arising out of or incident to property.” [ 8 ]

Section 67.1(

c) provides that the property of the bankrupt divisible among his creditors shall comprise “[a]ll property wherever situated of the bankrupt at the date of the bankruptcy or that may be acquired by or devolve on the bankrupt before their discharge …” [emphasis added]. [ 9 ]

Section 172.1 provides that, upon hearing an application for a discharge, the court may “grant an order of discharge subject to any terms or conditions with respect to any earnings or income that may afterwards become due to the bankrupt or with respect to the bankrupt’s after-acquired property.” [ 10 ] In some instances a conditional order of discharge makes a specific provision that subsequent earnings or property will be the property of the bankrupt’s estate and payable to the trustee, or alternately, will be the property of the bankrupt: (Re) P ., 2000 BCSC 71 ; and, Re: Speranza , 2010 67 C.B.R. (5 th ) 225 (NBQB) .

However, this type of specificity is not found in the conditional orders of discharge granted in this case, and I note that such orders are not common in this jurisdiction. [ 11 ] Regardless of whether or not a conditional order of discharge is specific as to after-acquired property,

section 176.1 provides that the bankrupt who is in the process of complying with a conditional order of discharge is under an obligation to give the trustee such information as he or she may require with respect to his or her earnings and after-acquired property and income and, not less than once a year, file with the court and with the trustee a statement verified under oath showing the particulars of any property or income the bankrupt may have acquired subsequent to the order for his discharge.

The trustee or any creditor has the right to demand the bankrupt attend for questioning under oath with respect to his or her earnings, income, after-acquired property or dealings. [ 12 ] From the definition of property it appears that lottery winnings are property of the bankrupt and s. 67(1)(

c) provides that they vest with the trustee to be available to the bankrupt’s creditors up to the date of discharge. Therefore the question is: when is a bankrupt discharged; upon the granting of a conditional order of discharge, or only after the satisfaction of the conditions found in the order? [ 13 ] In Sindaco (Re) , 2003 BCSC 1396 (Master), a bankrupt won $500,000.00 in a lottery during a period when he was subject to the terms of a conditional order of discharge.

The issue in that case was whether the trustee, who had been discharged, had the right to freeze the bankrupt’s accounts so that he could attach the lottery winnings. In the course of determining the powers of a discharged trustee, the court noted at paragraphs 22 and 23 that “there is no question...that lottery winnings are after-acquired property...[and are] divisible among the creditors.” [ 14 ] In light of earlier case law dealing with a similar question in relation to other types of windfalls, this statement of the law appears well-founded. [ 15 ] In Re Gray , (1988) 67 C.B.R. (N.S.) 161 (Ont.

S.C.) the bankrupt was granted a conditional order of discharge and required to pay $10,000.00 to the trustee. No mention was made in the order of after-acquired property. He then separated from his wife, which in law gave him a share in the family assets, including the matrimonial home. Six months later, the bankrupt paid the $10,000.00 to his trustee and a order confirming his discharge was granted. The trustee sought advice and direction as to whether the matrimonial property vested in the bankrupt or the trustee.

[ 16 ] The Court, relying on re Hawkins; Ex Parte Official Receiver , [1892] 1 Q.B. 890 , held that as the property vested before the bankrupt had fully satisfied the conditions of his discharge, the property vested with the trustee. In other words, a bankrupt remains in bankruptcy unless and until he fulfills the conditions of his or her discharge and his or her property is available to the creditors until the conditions are fulfilled. [ 17 ] Other cases have considered and followed this decision. [ 18 ] In Harrison (Re), [1996] M.J.

No. 170 , life insurance proceeds received after a conditional order of discharge and before the completion of its terms were held to be after-acquired property that vested in the trustee. The court noted at paragraph 6 that “the law is well settled that until a bankrupt has obtained an absolute discharge the trustee may claim any after-acquired property as an asset of the estate.” [ 19 ] In Kratko (Trustee of) v. Kratko Estate, 2003 SKQB 341 , the bankrupt was given funds by a friend to pay out his conditional order of discharge.

The friend had also paid, on the bankrupt’s behalf, the premium on an accidental death policy that had the bankrupt’s estate as the beneficiary. The bankrupt did not completely pay off the amount required in the conditional order before he died. His will designated the friend as both executrix and beneficiary of his estate. The friend sought payment to her of the proceeds of the insurance policy.

The court held that the proceeds were the property of the trustee. [ 20 ] In Hoff (Re), 2003 ABQB 300 , an inheritance that arose between the date of the conditional order of discharge and the completion of the conditions was held to vest in the trustee. [ 21 ] A somewhat different outcome occurred in Speranza (Re), 2010 NBQB 139 . In that case the conditional order of discharge provided that the bankrupt was authorized to dispose of his after-acquired property so long as he paid the lesser of the net proceeds or the balance under the conditional order. The

preamble in the order referred specifically to inherited property. [ 22 ] Before completing the terms of the conditional order, the bankrupt inherited some shares. The trustee argued that they were after-acquired property and vested with the trustee. The Court disagreed, pointing out that the order had been drafted by the trustee and he would have to live with its terms. The bankrupt was allowed to pay out the balance of the conditional order and keep the inheritance.

CONCLUSION [ 23 ] I agree with the law as stated in Sindaco (Re) that the lottery winnings held by the trustee are the property of the bankrupts’ estates and available to the creditors. Heard on the 16th day of May, 2012. Dated at Calgary, Alberta this 3 rd day of July, 2012.

J.B. Hanebury Registrar in Bankruptcy Appearances: Jim Jones for MNP Ltd. Trustee in Bankruptcy