Egan (Re), 2016 ABQB 709

Court of Queen’s Bench of Alberta Citation: Egan (Re), 2016 ABQB 709 Date: 20161215 Docket: B103 760874 Registry: Edmonton In the Matter of the Division I Proposal of Wanda Lynne Egan Between: Faber Inc. Applicant - and - Wanda Lynne Egan Respondent _______________________________________________________ Reasons for Judgment of the Honourable Mr. Justice B.R. Burrows _______________________________________________________ [ 1 ] Wanda Lynne Egan made a proposal to her creditors under BIA Division I on November 18, 2013. Faber Inc. is the Trustee of the Proposal.

The Trustee has applied for the annulment of the Proposal pursuant to BIA s. 63. Ms. Egan opposes. [ 2 ] For nearly 20 years, Ms. Egan was the owner and operator of a successful landscaping business which she founded. As a result of the fraud of a trusted employee, the business failed and the corporation, through which Ms. Egan ran it, made an assignment into bankruptcy in June 2013. Ms. Egan’s personal finances also went into a state of severe distress.

In her affidavit, she attributes that to the loss of her company and its business and the physical, emotional and mental health consequences that loss had for her personally. [ 3 ] Also in June 2013, Ms. Egan signed a Notice of Intention to Make a Proposal to her creditors pursuant to Division I of the BIA. After three extensions of the deadline for making the proposal, the Division I Proposal was filed with the Official Receiver on

November 20, 2013. [ 4 ] The Statement of Affairs included with the Proposal indicated that Ms. Egan had three significant assets: 1. Her principal residence, an acreage, which was shown as having an estimated value of $600,000.00, secured charges of $390,000.00 and a net realizable value of $149,750.00. 2. A lake property which was shown as having an estimated value of $225,000.00, secured charges of $115,738.77 and a net realizable value of $109,261.23. 3. A property in Mexico which was shown as having an estimated value and net realizable value of $200,000.

It was shown to be free and clear of any secured charges. [ 5 ] The Statement of Affairs also indicated that Ms. Egan had unsecured debts of $138,004.00. The value of Ms. Egan’s assets was significantly greater than her debts. As I understand the materials, however, she did not have an income sufficient to pay her debts as they came due. [ 6 ] Ms. Egan’s obligations under the Proposal were described as follows: [Ms.

Egan] shall contribute to the Trustee the sum of $167,000 for payment of Trustee’s fees and disbursements in priority to all claims, payment of the Superintendent’s levy and for distribution, where applicable to the preferred creditor . . . and to the unsecured creditors . . . . . . [Ms. Egan] has provided the Trustee with an initial deposit of $5,000. The balance of $162,000 shall be paid to the Trustee as follows: (

i) The estimated sum of $70,000, representing 100% of the net sales proceeds less $39,261.23 deduction for living expenses, from the sale of the real property, municipally described as 611 Blue Heron Drive, Sandy Beach, Alberta; and $92,000 representing sale proceeds from the sale of [Ms. Egan’s] principal residence located at . . . on 5 acres, St. Albert, Alberta. [ 7 ] The plan set out in the Proposal, therefore, was that: - two of Ms.

Egan’s three real property assets, the acreage and the lake property, would be sold, - the entire net proceeds of the sale of the acreage, expected to be $92,000, would be paid to the Trustee, - about $40,000 of the proceeds of the sale of the lake property would be kept by Ms. Egan, and, - the balance of the proceeds of the sale of the lake property, estimated to be $70,000, would be paid to the Trustee. The total payment to the Trustee, $162,000, would be used to pay the administration costs and the unsecured creditors.

The Proposal would result in all unsecured creditors making full recovery. [ 8 ] The Statement of Affairs listed six unsecured creditors (two debts to CRA were listed). Three of these voted in favour of the Proposal. No unsecured creditor voted against it. The Proposal was approved by the Court on January 15, 2014. (The court file indicates that at some point before approval, the Proposal was amended but nothing on the court file indicates what was amended.

From the materials I understand that the amendment did not affect the above described plan of disposition of assets and payments to the Trustee.) [ 9 ] Subsequent to the approval of the Proposal, Ms. Egan was unable to sustain herself financially for many months. Unemployed and desperate, she refinanced the lake property. After payment of the prior charges against the property, the refinancing resulted in Ms. Egan receiving $26,266.04 which she used to sustain herself through the winter. It appears that $10,000 of this may have been paid to Faber Inc. in connection with either Ms.

Egan’s company’s bankruptcy or her own proposal to creditors, but the materials are not clear in that regard. [ 10 ] Ms. Egan sold the lake property in late May 2014 for $220,000. The net proceeds, $38,918.94 were paid to Ms. Egan. Through the refinancing and the sale, Ms. Egan received $66,184.98 from the lake property. The Proposal had contemplated she would receive $39,261.23. She received $26,923.75 (or perhaps $16,923.75 if $10,000 was paid to Faber Inc.) more than the Proposal contemplated she would.

The sale of the property would have produced that amount, $26,923.75, for the unsecured creditors and Trustee, not the $70,000 contemplated in the Proposal. [ 11 ] The acreage has not been sold. It now appears (and there is no dispute on this point) that the sale of the acreage would not produce any funds to pay unsecured creditors.

It was either significantly overvalued in the Proposal or it has lost significant value since the date of the Proposal or both. [ 12 ] In the result, whereas the Proposal contemplated that the sale of the two properties would produce $167,000 which would be sufficient to satisfy the unsecured debts in full, the amount actually realized from the disposition of the two properties was only $26,923.75. [ 13 ] The Trustee takes the position that Ms.

Egan’s refinancing of the lake property and her taking of $26,923.75 more of the equity in that property than the Proposal contemplated (or $16,923.75 if $10,000 was paid to Faber Inc.) constitutes a default in the performance of the Proposal on her part, and that the Court should therefore annul the Proposal pursuant to BIA s. 63. Upon the annulment of the Proposal, Ms. Egan would be deemed to have made an assignment in bankruptcy ( BIA s. 63(4)).

[ 14 ] The Trustee observes that there is unencumbered equity of $200,000 in the Mexico property which was not proposed to be sold in the Proposal. In a bankruptcy, that would be liquidated and the unsecured creditors would make full recovery. Indeed, less than half of the net proceeds of the disposition of the property would be required to satisfy them. The proven unsecured claims (as opposed to the unsecured claims listed in the Statement of Affairs at the time of the Proposal) amount to $95,495.67. [ 15 ] Ms.

Egan proposes that rather than annulling the existing Proposal, I should permit her to propose an amendment of the Proposal to her unsecured creditors by which she would pay $25,000 to the Trustee. Ms. Egan’s counsel, Mr. Cranston, recognizes that such a payment would very likely not result in any significant recovery by the creditors. It would probably all be required for the Trustee’s fees. However, Mr. Cranston also believes that there is a reasonable prospect that Ms. Egan’s creditors, if they were aware of her circumstances, might be willing to forego recovery of the debts owed to them.

I should note that Mr. Cranston himself is representing Ms. Egan pro bono . [ 16 ] Mr. Cranston may be correct. However, in my view it is not appropriate in these circumstances for me to use whatever authority the court may have to amend the existing Proposal as Ms.

Egan suggests (if, indeed, BIA s. 63 gives me authority to amend the Proposal in any circumstance). [ 17 ] Given that a payment of $25,000 would not produce any recovery for the unsecured creditors, but bankruptcy would produce full recovery, assuming the realizable value of the Mexico property has been accurately estimated, the proposed amended Proposal would not be just unless all creditors and the Trustee agreed to it. [ 18 ] A proposal binds all unsecured creditors if a simple majority in number and a two-thirds majority in value of those who attend a meeting of creditors vote in favour of it. ( BIA s. 54(2)(d)) In my view, it would be improper to use the proposal provisions of the BIA to require a minority of creditors to be charitably generous against their will. [ 19 ] In my view, I should not give the direction Ms.

Egan seeks. [ 20 ] However, I cannot see that any party would be prejudiced if I were to given Ms. Egan and Mr. Cranston time to seek the unanimous consent of the proven unsecured creditors, and of the Trustee, to the amendment of the Proposal to require Ms. Egan to pay $25,000 to the Trustee. If there is unanimous consent, then the charitable response to Ms.

Egan’s circumstances will have come from those whose decision it should be to extend it, if it is to be extended at all. [ 21 ] If there is not unanimous agreement of the unsecured creditors and the Trustee in a reasonable time, then in my view, the order the Trustee seeks should go. In my view, whether or not it can be said that Ms.

Egan defaulted in the performance of the Proposal, given that, as things have developed, the approved Proposal has been incapable of producing funds in the amount required to satisfy the unsecured creditors as was expected when they were asked to approve it, and given that there is another asset from which they could be wholly satisfied if the Proposal were annulled, in this case “the proposal cannot continue without injustice.” ( BIA s. 63(1)). [ 22 ] Unless the unsecured creditors and Trustee unanimously accept the suggested amendment to the Proposal, there should be an order annulling the Proposal and deeming Ms.

Egan to have made an assignment in bankruptcy. [ 23 ] I will adjourn this application until March 1, 2017. If by that date, Ms. Egan files evidence that all creditors and the Trustee have agreed to an amendment to the Proposal by which she will be required to pay $25,000 by April 1, 2017 to the Trustee, an order will go directing and approving such an amendment. If such evidence is not filed, an order will go annulling the Proposal and deeming Ms. Egan to have made an assignment in bankruptcy. [ 24 ] I anticipate that the Trustee will facilitate Mr.

Cranston’s communication with the unsecured creditors. [ 25 ] On my own motion, I enjoin Ms. Egan from mortgaging, selling or otherwise impairing her equity in the Mexico property pending the entry of one or other of the orders described in paragraph [23] or further order. Heard on the 2 nd day of December, 2016. Dated at the City of Edmonton, Alberta this 15 th day of December, 2016. B.R. Burrows J.C.Q.B.A. Appearances: Dan Faber, the principal of the Applicant

appeared without counsel Donald R. Cranston and Odessa M. O’Dell for the Respondent