Dornan (Re), 2016 ABQB 259

Court of Queen ’ s Bench of Alberta Citation: Dornan (Re), 2016 ABQB 259 Date: 20160506 Docket: B103 1895178, 1603 05464 Registry: Edmonton Action No: B103 1895178 In the Matter of the Division I Proposal of Frederick Stephen Dornan Action No: 1603 05464 And Between: Terry Dingwall Plaintiff/Respondent - and - Frederick Stephen Dornan and Bartley Dornan Defendants/Applicants Corrected judgment: A corrigendum was issued on May 13 2016; the corrections have been made to the text and the corrigendum is appended to this judgment. _______________________________________________________ Reasons for Judgment of W. S.

Schlosser , Registrar in Bankruptcy _______________________________________________________ [ 1 ] This is an application for a Stay pending an appeal of a Registrar’s Order to a Judge. The Order appealed from was granted March 24, 2016. It permitted an action under

section 38 of the Bankruptcy and Insolvency Act , RSC 1985, c B-3 as amended, naming the insolvent person and his son as defendants. Mr. Dornan is not bankrupt. There is a Division 1 Proposal pending. [ 2 ] The

section 38 action seeks to set aside what the creditors say is an undervalue transfer from the insolvent person to his son. Fred Dornan owned half of the shares of a numbered holding company which, in turn, owned all of the shares of the Norwood Foundry, an operating business. Bart Dornan owned the other shares of the numbered company.

[ 3 ] In March, 2014, the Court of Appeal affirmed a $4.1 million dollar judgment against Fred Dornan in favor of the

section 38 creditors. Twenty six days later, Fred Dornan sold his half of the numbered holding company to his son, Bart, for $325, 000.00. The creditors say that wasn’t enough. [ 4 ] The purpose of the action is to set aside this transfer and recover the shares for the benefit of the proposal or, alternately, to obtain judgment against Bart Dornan for the difference between the transfer value and the fair market value of the shares. The Statement of Claim contains an interesting mix of remedies under provincial and federal legislation, including the Statute of Elizabeth , 1571 (13 Eliz) 1, C-5. An appeal of the Order granting permission for the

section 38 action is scheduled to be heard May 27, 2016. In the meantime, the

section 38 creditors have issued the Statement of Claim and have served it. The time for a defence was April 21, 2016. The

section 38 creditors would not extend the time. [ 5 ] There is a growing procedural history in this matter. In 2015, an application was made by the now

section 38 creditors to examine Bart Dornan and an accounting firm about this transfer. I permitted questioning ( Re Dornan , 2015 ABQB 408 ). That decision was appealed and the appeal was allowed in part to give the persons to be questioned an opportunity to make further argument on a point that was raised in the course of the application which they said caught them by surprise. ( Re Dornan , 2015 ABQB 647 , per Veit,

J) The follow-up argument has not been made. Questioning has not occurred. In the meantime the underlying application was brought and permitted by the Registrar. The

section 38 creditors want information. Whether the transaction can be impugned is another thing. [ 6 ] The applicant for the Stay has not filed any evidence in support of his application. Instead he relies on the materials already on the court file. List of Authorities Cited: 1. Cybersurf Corp v Mercury Partners & Company Inc , 2004 ABCA 265 2. Modry v Alberta Health Services, 2015 ABCA 328 3. Medical Laboratory Consultants Inc v Calgary Health Region , 2006 ABCA 398 4. Toyota Canada Inc v Toronto-Dominion Bank, 1994 ABCA 261 5. Mutual Trust Co v Scott, Pichelli & Graci Ltd, 1999 Carswell Ont 2190 6.

Dornan (Re), 2015 ABQB 647 By the Court: 7. Airco Aircraft Charters Ltd v Edmonton Regional Airports Authority , 2012 ABCA 388 8. Chevalier v Sunshine Village Corporation , 2011 ABQB 295 9. P Burns Resources Limited v Honourable Patrick Burns Memorial Trust , 2015 ABCA 390 Some interesting issues for the Appeal [ 7 ] The appellant raises some interesting issues for the appeal. He argues that the transfer sought to be impugned as a preference was not made to a ‘creditor’: section 95(1)(

a) and (b), and, further, that it makes a difference that the trustee here is a proposal trustee as opposed to a bankruptcy trustee.

Section 101.1 of the Act permits the application of sections 95 and 96 to proposals (‘with any modification that the circumstances require’). However, both sections contemplate refusing to allow a transfer to be set up against the trustee. But, as yet, (since we are still at the proposal stage), the insolvent person’s property has not vested in the trustee. Despite the temptation to accept the invitation in

section 101.1 and become ‘a Parliament of one’; sections 95 and 96 would apply only with substantial modification. In any event, the proposal trustee has not stated any opinion of the value of the transfer which may be a pre- requisite for the operation of

section 96. [ 8 ] The applicant also raises issues about the applicability of provincial legislation in this context. I make no comment about the prospects of any of these arguments, only that there are some interesting questions raised. The guidance of a Queen’s Bench Judge on these points will be greatly appreciated. The Test for a Stay [ 9 ] The

section 38 creditors argue that the test for granting a Stay here is the tripartite test familiar to applications for an injunction. This test has almost universally been used as the basis for the granting of a Stay in other contexts. The requirements are: a serious issue; irreparable harm not compensable in damages, and the balance of convenience favouring a Stay. In my view it is not necessary to apply this test here.

It is too tall an order for these circumstances. [ 10 ] At the application I granted the Stay until the appeal hearing before the Judge, at which point the Stay can be revisited. [ 11 ] Counsel were unable to find any authorities directly on point. As such, I have a relatively free hand. I acknowledge that the tripartite test has been applied to an interlocutory order in a civil action that required document production from non-parties pending an appeal. ( Cybersurf (above)).

[ 12 ] The Stay being sought is for a relatively short period of time (just over a month). [ 13 ] The Bankruptcy and Insolvency Act is intended to be ‘a businessperson’s statute’ and formalism is to be rejected in favour of pragmatism and common sense. The tripartite test is not particularly accessible, or user-friendly; especially for self-represented litigants. [ 14 ] If we put this in perspective, what is being sought is a stay of one, perhaps two procedural steps in the action. The steps are governed by the Alberta Rules of Court (AR 124/2010 and Bankruptcy and Insolvency General Rules , rule 3: Can Reg 368).

The Statement of Claim, having been issued and served, would have required a Statement of Defence by April 21. The

section 38 plaintiffs could then file their Affidavit of Records on the 22 nd (or shortly afterwards). This would trigger the time for a defendant’s Affidavit of Records, which is 60 days from service of the plaintiff’s Affidavit of Records. [ 15 ] Alberta Rules of Court rule 13.5 permits the Court to extend procedural deadlines. Alberta Rules of Court rule 1.4 permits this as well. The time for a Statement of Defence is commonly extended as a courtesy between counsel. The penalty for late production of an Affidavit of Records is usually a monetary sanction ( Alberta Rules of Court rule 5.12).

The sanction is not absolute and only requires “sufficient cause” as an excuse to avoid the penalty. From a purely practical perspective, very little of any merit or significance would happen in this lawsuit between now and the appeal hearing. The significant step would be the production of records (for both sides), which may be rendered unnecessary if the Appeal succeeds. [ 16 ] An extension of time to file an Affidavit of Records was given in Chevalier v Sunshine Village Corporation , 2011 ABQB 295 (per Laycock, M). At para 13, the learned Master noted ‘the efficiencies of time and expense’ in doing so.

Extending the time for disclosure under

Part 5 of the Alberta Rules of Court is discretionary. (See rule 5.3(1)(

b) and P Burns Resources Limited. ) By comparison, the decided cases tell us that saving expense does not count as ‘irreparable harm’ for the purposes of the tripartite test: Airco Aircraft Charters Ltd v Edmonton Regional Airports Authority , 2012 ABCA 388 . [ 17 ] Finally, I note, that an appeal of a bankruptcy matter from a Judge to the Court of Appeal operates as an automatic Stay (section 195, Bankruptcy and Insolvency Act ). [ 18 ] All of these considerations weigh against mechanically applying the tripartite test in this context. I am not suggesting that there are no circumstances where it would be useful.

However, here, the efficiencies of time and expense support granting a Stay. Heard on the 14 th day of April, 2016. Dated at the City of Edmonton, Alberta this 6 th day of May, 2016. W. S. Schlosser Registrar in Bankruptcy Appearances: Donald Wilson DLA Piper (Canada) LLP for the Respondent Michael McCabe, Q.C. Reynolds Mirth Richards & Farmer LLP for the Applicant, Bartley Dornan

_______________________________________________________ Corrigendum of the Reasons for Judgment of W. S. Schlosser W. S. Schlosser, Registrar in Bankruptcy _______________________________________________________ The Docket number has been changed to include the bankruptcy action number.