Jedynak (re), 2022 NSSC 79

SUPREME COURT OF Nova Scotia IN BANKRUPTCY AND INSOLVENCY Citation: Jedynak (re) , 2022 NSSC 79 Date: 20220317 Docket: No. 43450 Registry: Halifax Estate Number : 51-2536589 In the Matter of: The bankruptcy of Stephan Peter Jedynak Registrar: Raffi A. Balmanoukian, Registrar in Bankruptcy Heard: September 10, 2021, in Halifax, Nova Scotia Final Written Submissions: September 10, 2021 Counsel: Francyne Myers, for the trustee, Allan Marshall & Associates Inc. Jeffrey P. Flinn, for the objecting creditor, Valour Mortgage Services Inc.

Stephan Peter Jedynak, self-represented Balmanoukian, Registrar: [ 1 ] Rising tides lift all boats. When that boat is non-exempt property of a bankrupt, and the tide has risen before the bankrupt receives an order for discharge, or setting out the terms of discharge, who gets the benefit? [ 2 ] On paper, this is a non-extraordinary, opposed, application for discharge of the bankrupt, Stephan Peter Jedynak. In reality, it raises a major issue about valuation dates and to whom accrue changes in non-exempt asset values between bankruptcy and discharge.

Accordingly, it provides this Court with a useful opportunity to provide direction in this jurisdiction to stakeholders. Background [ 3 ] Mr. Jedynak, now 53, is a first time bankrupt. He filed a Division I proposal under the Bankruptcy and Insolvency Act , RSC 1985, c. B-3 as amended (the “ BIA ”). This was in August 2019; the objecting creditor, Valour Mortgage Services Inc. (“Valour”), was the major declared unsecured creditor. The proposal was defeated and Mr. Jedynak was accordingly bankrupt as of October 16, 2019. [1] [ 4 ] On his statement of affairs, Mr.

Jedynak listed a condominium with a declared value of $219,000; no source of that value (debtor opinion, assessment, comparative market analysis [sometimes called a “CMA”], or appraisal) was cited. At that value, in 2019, the property would have been fully encumbered by a mortgage in favour of Bank of Montreal, and potentially under water [2] . Municipal taxes and condominium fees were also listed as “notice” amounts ($1.00) and those will take their proper place in this narrative. [ 5 ] At a declared estimated income of 3000 Euros per month (exchanged to $4400 Canadian per month) at the time of bankruptcy, Mr.

Jedynak would have had surplus income payment obligations pursuant to s. 68 of the BIA . [ 6 ] At the time of the Trustee’s s. 170 report (May 19, 2020), the bankrupt had done little. Income and expense statements (and payment of any surplus, or towards the bankrupt’s fee agreement) were outstanding. A TFSA had not been realized or repurchased. And the 2018 tax return information was outstanding. By the time of the June 14, 2021 hearing, the TFSA had been realized, as I understand the Trustee.

A family trust was declared, and assessed by the Trustee, as having no realizable value. [ 7 ] More significantly, however, Valour took issue with whether the listed condominium was indeed fully encumbered. It says that this Court should value the property at present, not as of the date of bankruptcy, and that the Trustee should realize on it accordingly.

Valour also says that any equity resulting from any ‘pay down’ in the mortgage should accrue to the estate and not to the bankrupt. [ 8 ] The bankrupt says that the property should be valued as per the Statement of Affairs, and that in any event the property suffers from various and myriad defects which render it either unmarketable, or substantially less valuable than its peer group in what is agreed to be a robust current real estate market.

He further says that many or most of these problems are the fault of the Condominium Corporation, for which he is seeking separate remedies, including having embarked upon a private criminal prosecution.

Discussion – general review of the valuation evidence [ 9 ] It is conceded, properly, that the non-exempt “property of the bankrupt,” within the meaning of s. 67 of the BIA , has vested in the Trustee by virtue of s. 71 of the BIA . This is the case with or without recording. However, the Trustee quite rightly registered the assignment in the parcel register [3] . By order dated July 23, 2021, the Trustee remains on title pending further order of the Court. It appears that Mr.

Jedynak remains in occupancy, or at least has the benefit, of the premises. [ 10 ] I also ordered the Trustee to obtain an updated appraisal, at estate expense, and for the bankrupt to cooperate with that process. The bankrupt commissioned a CMA, as well. None of the authors were presented, or sought to be presented, to the Court. [ 11 ] Ray C. Baltzer, CRA, prepared a retrospective appraisal report dated October 25, 2021 [4] with a value of $197,000 as of October 30, 2019 (ie proximate to the bankruptcy), citing damage and defects pre-existing October 2019.

He prepared a second report valuing the property as of August 23, 2021 at $296,000. He had access to the property. The defects remain. [ 12 ] The bankrupt commissioned a CMA from Terrance Brennan, a Halifax-area licensed real estate agent. He recommended an “as is” selling price of $240,000 to $260,000 as of September 21, 2021. [ 13 ] The objecting creditor, Valour, presented an affidavit from Trevor Behan, another Halifax-area Realtor.

He performed a CMA (there is no reference to having had interior access, where the shortcomings are most evident) and recommended a listing price of $285,000 in June 2021 and opined that it would sell “over asking” within 10 days of listing. It will be noted this is broadly consistent with the updated full appraisal of $296,000 commissioned by the Trustee pursuant to my Order. [ 14 ] As of September 2, 2021, the mortgage payout amount was $244,874.36.

It is not in evidence whether, or to what extent, this is in arrears or how much this differs from the balance as at the date of bankruptcy. [ 15 ] The status of real property taxes from time to time, and whether included or excluded in the mortgage account, was not in evidence. [ 16 ] As of May 4, 2021, the condominium corporation claimed outstanding levies and fees of $15,300 including $500 legal costs, pursuant to an accompanying schedule. There is no indication of the balance as of the date of bankruptcy, but the balance as of January 1, 2020 was nil.

The bulk of the outstanding balance is a $10,000 special assessment levied in April 2021. [5] Given the alleged defects in the property, and Mr. Jedynak’s assertion that the Condominium Corporation is responsible for some or most of them, the nature of this assessment is relevant to whether it should be included or excluded in calculating Mr. Jedynak’s equity.

I will return to this at disposition. [ 17 ] It is common ground that the changes in value of the property are entirely due to market forces; in other words, any escalation in value is from a general increase in real estate prices in the region, and not from any physical improvement to the property; conversely, the shortcomings and defects much referenced by Mr. Jedynak have been exacerbated, if at all, only by passage of time and not from any “trashing” of the premises by himself or by others.

Discussion – valuation principles [ 18 ] In this decision, I will be speaking of principles applicable to unrealized, non-exempt assets. I am not addressing situations in which the Trustee has disposed of or disclaimed its interest, or in which there are adequate receipts in the estate to pay for such assets if allocated on an “assets first, surplus income second” basis [6] . I also am not addressing situations in which the Trustee may have disclaimed or conveyed a property imprudently or on questionable calculation matrices. Lastly, I am not speaking of situations in which there is an estoppel argument.

None of those circumstances apply to Mr. Jedynak. [ 19 ] It is well established that the last date of valuation of a bankrupt’s obligations to the estate is the date of the dispositive discharge hearing [7] ; once there is a discharge order (absolute, conditional, or suspended), the bankrupt’s rights and obligations are “solidified,” subject to any variation under ss. 172(3), 172.1(6), or 187(5) as the case may be.

Any post-order increase or decrease in value of the corresponding asset is for the account of the bankrupt: Re Ross , 2020 NSSC 36 at para. 31 et. seq.; Re Wadden , 2018 NSSC 217 at para. 30 ; re McInnis , 2020 NSSC 64 ; Re Gavel , 20221 NSSC 5 at paras. 14-15. [ 20 ] As I said in Gavel [8] , however, the “last date” is not the “only date,” and situations may arise where another date may be appropriate: [15 ] This does not mean the discharge hearing date is the only potential V-day.

It may be equitable in the circumstances of a particular case to select another antecedent date or dates – for example, where the debtor has had the extended benefit of an asset (especially a depreciating asset) with no or minimal cost; where the debtor has incurred significant risk or expended substantial money or money’s worth subsequent to the bankruptcy; where market forces completely dehors the efforts of the parties have been at play (for instance, publicly-traded stocks held in a non-exempt fund); or where the debtor has substantially enhanced or wasted an asset between the date of bankruptcy and the date of the final discharge hearing.

I leave the equities of “other dates” to another time as they do not arise on any of the facts in evidence before me. [ 21 ] As I will develop, I believe the default position should be to value non-surrendered, non-exempt appreciating assets as at the date of the dispositive discharge hearing; non-surrendered, non-exempt depreciating assets should be valued as of the date of bankruptcy. In other words, in both cases it will normally be the higher value.

Deviations from these default positions to account for non-market influences on value [9] are possible if fairness requires it and if there is evidence to support it. [ 22 ] I will later expand on how this reinforces fair treatment and consistency, and the interests of expediency and prompt resolution. For now, it is adequate to state that the uncontradicted evidence is that the movement in value of the property at issue in these proceedings is entirely due to market forces; Mr.

Jedynak has not expended anything in evidence to improve or even for the most part maintain the property, and he has had the benefit of it.

[ 23 ] I have previously been clear that any so-called “agreement” between the Trustee and the bankrupt with respect to valuation or purchase of an asset is not binding on the Court: Gavel , paras. 40-60. The need for consistency at the Court level, and for expectations of both bankrupts and creditors to be treated consistently between and among Trustees, has recently been corroborated by Justice Bodurtha in BDO Canada Ltd. v. Carrigan-Warner , 2022 NSSC 16 at para. 28 . This Court has developed, discussed, and enforced a notional valuation matrix for real property: McInnis, Gavel , and Carrigan-Warner, supra .

That matrix will be applied here. [ 24 ] In this instance, there is no such ‘agreement’ to consider, nor issue of transfer or disclaimer by the Trustee. Mr. Jedynak considers there to be no equity – or if there is any, he is entitled to it either by virtue of a different valuation date or by virtue of the hardship he says he has faced in dealing with the Condominium Corporation. [ 25 ] I accept neither proposition.

The difficulties he claims with the Condominium Corporation – with the possible exception of the special assessment which I will discuss later – are between he and it, and with the possible intervention of the criminal justice process. That is a different forum with different issues and a different burden of proof. As to the valuation date, as I will now explain further, there is no reason in fact or in equity in this case to deviate from default protocol for valuation – by which, as I will also now explain further, will generally mean the higher of the date as of bankruptcy and the date of hearing.

Discussion – changes in value between bankruptcy and discharge, and why – market forces and paydown of secured debt [ 26 ] Valour submitted what can only be described as a skeletal brief, in addition to its CMA and affidavits. The argument was a scant three pages (the fourth being for signature), with a supplemental two pages (again, signature on a third). The second essentially reiterated the first and indicated that counsel would not attend a resumed hearing in September 2021 [10] .

Instead, in both briefs Valour relied upon a single case, namely Re Lepage , both at the hearing level ( 2015 ONSC 4525 ) and on appeal ( 2016 ONCA 403 ). [ 27 ] At hearing, Justice Beaudoin said that “an increase in the equity in real property” between bankruptcy and discharge constituted “after acquired property” within the meaning of s. 67 BIA and is thus distributable among creditors. [ 28 ] At bankruptcy, Mr. Lepage had a property valued at $375,000 with a mortgage of $346,803.78. At discharge, the values were $455,000 and $305,854 respectively.

Justice Beaudoin held that the increase in market value was for the account of creditors, but the decrease in the mortgage principal was for the account of the bankrupt. [ 29 ] On appeal, a unanimous Court held that there ‘was no basis for the motion judge to distinguish between the mortgage principal payments and the other payments.” The Court asserted that to do so would effectively reimburse the debtor for living expenses, insofar as these constituted principal repayments on the mortgage. [ 30 ] While neither decision is binding on me, it goes without saying that appellate authority deserves due consideration.

With the greatest respect, I reach the same conclusion as the Ontario Court of Appeal as to treatment of principal repayments, but for quite different reasons. [ 31 ] In Re Gwizd , 2017 BCSC 1975 , Registrar Taylor referred to the appellate decision in Lepage as a “one off,” prompted by its status as a tax-driven bankruptcy.

Lepage has also been considered by our Supreme Court in Re Ross, supra , but on the issue of promissory estoppel and not on the issue of “inherent increases in value or equity, or why they arose.” [ 32 ] Respectfully, I am not sure either the appeal decision in Lepage , or the “results-oriented analysis” in Gwizd , hit the mark. The concern in Lepage is that the bankrupt would be reimbursed reasonable living expenses, if permitted to keep the equity built up by a mortgage paydown. I disagree that this is the applicable prism.

I believe that the proper analysis for living expenses is under s. 68 of the BIA , the so-called “surplus income” calculation provision; if either the bankrupt or a creditor believes that the s. 68 guidelines are unjust in the circumstances, or disagrees as to what extent they apply, they can make application to the Court for a determination under s. 68(10) or s. 68(11). [ 33 ] Further, the amount (if any) by which secured debt principal is reduced in a given period will vary from person to person, and not necessarily be within their unfettered control.

Interest-only security products have proliferated in popularity in recent years, meaning any change in equity during a bankruptcy would be solely by voluntary principal payments, physical change to the property, or market forces. Conversely, a debtor may be compelled to a given amortization

schedule by lender or regulatory requirements. [11] Creditors and other stakeholders should neither benefit nor be prejudiced by the particular loan product at hand, or be on a different footing because Debtor A has a homeowner line of credit (perhaps resulting in a readvance that could increase the debt between bankruptcy and discharge) and Debtor B is on the last few years of their mortgage with payments mostly going to principal. [ 34 ] Although Gwizd thought of Lepage as tax-inspired or result oriented, there is little to so indicate.

Lepage came within the rubric of s. 172.1 of the BIA (the so-called “high tax debt” provision) and was a second bankruptcy.

As a result, the bankrupt was not eligible for an automatic, or early, discharge and my reading of the decisions both at hearing and on appeal is that they turned on those provisions, not on any contortionate reasoning to obtain an otherwise unavailable result. [ 35 ] I conclude, with the greatest respect to the Ontario Court of Appeal and in the absence of binding authority upon me, that although the debt should be valued at the date of bankruptcy (that is, the debtor should not get credit for principal repayments made between the time the asset is surrendered or repurchased), it is not because credit for principal repayments constitutes a refund of living expenses.

It is because first, it puts debtors and creditors on the same footing regardless of the mortgage product and second, because as I will discuss later it is part of the compensation for the debtor’s use and benefit of a non-exempt asset which would otherwise be available for distribution amongst stakeholders. [ 36 ] From a practical perspective, the Trustee will generally have a proof of claim from the mortgagee as of the date of bankruptcy, or close to it, together with an accounting for any payments made shortly before the bankruptcy.

Using a “date of filing” calculation for the debt will enable both commercial efficacy in calculating equity at various relevant times, and enable creditors to assess their position accordingly.

Discussion – reasons for using market force increases in value between bankruptcy and discharge as the proper value [ 37 ] There are numerous reasons for the default position to be the date of the discharge hearing [12] as the valuation date for an asset which has appreciated due to market forces. In the case of a non-surrendered, non-exempt depreciating asset, the default position should be the date of the bankruptcy, given that the bankrupt has its use during the time its value “amortizes” downward. For an appreciating asset, different considerations apply when that appreciation is due to market forces.

These reasons, which I find compelling, include the following: [ 38 ] Consistency between actual and notional calculations : by using a default discharge hearing date for the appreciating asset, real outcomes become consistent with notional ones. If the bankrupt had surrendered the asset to the Trustee, the Trustee would realize upon the asset and obtain the value available to the general body of creditors, whatever that value turned out to be at the time of realization. If sold early in the estate, it would fund the estate or an interim dividend. If later, it would be the subject of increased realization.

The bankrupt should not be allowed to “freeze” their obligation by keeping the non-exempt asset (or saying they will buy it) from bankruptcy onward and then paying an historic rather than current value for it later in time, making creditors wait in the process. [ 39 ] In both McInnis and Carrigan-Warner , the Trustee had calculated notional equity; the properties then actually sold prior to a discharge, or a dispositive order respecting a discharge. In McInnis , the Trustee sought to retain the actual amount realized, rather than the notional calculation. I agreed.

In Carrigan-Warner , the Trustee inexplicably took the position that although there was some $50,344.58 net of realization costs and encumbrances in the estate, the estate should only retain $18,940 of this and the bankrupts should have the rest.

I disagreed, on the grounds that the bankrupts had not received any prior dispositive order, the asset disposed of was an asset of the estate, and it was both incongruous and wrong that they be discharged and walk away with some $31,404.58 from the sale of an asset that wasn’t theirs. [ 40 ] In other words, it would have been incorrect for the McInnises or the Carrigan-Warners to be able to “pocket” the difference between notional calculation and the actual proceeds of disposition when no conditional, absolute, or suspended order was in effect; it follows that it is equally incorrect for a bankrupt whose non-exempt asset has not been sold to “pocket” the difference between a net realizable value calculated sometime in the past, when that difference is solely due to market forces and when there is evidence before the Court as to what it is worth at the time of the dispositive discharge hearing. [ 41 ] Using the higher value encourages expeditious discharges, and is consistent with the longer timelines for second and subsequent bankruptcies, or for those with surplus income : First time bankrupts are eligible for discharge in 9 or 21 months, depending on whether or not they have surplus income.

Second time bankrupts have a 24 or 36 month default timetable. Third or subsequent bankruptcies must have their dispositions determined by the Court, and I have opined in many cases that those conditions are usually longer or more onerous [13] .

It is a principle of the BIA that the more times you file, the longer it will generally take, and the more difficult it will usually be to earn a discharge. [ 42 ] In the case of a second time or subsequent bankrupt with a market-appreciating, non-exempt and non-surrendered asset, it stands to reason that their corresponding financial obligation to retain it should be enhanced, if paid for later in time. [ 43 ] Conversely, a first or second time bankrupt who is eligible for an automatic discharge is encouraged to comply with their ss. 68 and 158 obligations; by failing to do so they put themselves in a situation in which they may, down the road, be before a Court with a substantial unrealized market gain on an asset.

They may be called upon to pay for its appreciation which accrued over 4 or 5 years rather than the amount by which it went up in value over a year or two.

As a general principle, the debtor should not be able to “freeze” their obligation and in effect get an interest-free loan on an appreciating asset that they should have paid for over the 9, 21, 24, or 36 month period of their bankruptcy, only to pay for it substantially later by reason of their own default. [14] [ 44 ] The debtor has the use and benefit of the asset : In principle, if a debtor retains a non-exempt asset, rather than surrendering it to the Trustee, it is incumbent upon the bankrupt to pay for it.

In the case of a depreciating asset, they could have turned it over to the Trustee for optimal realization; by keeping it, they have its use and creditors should not have the cost of its diminishment.

In the case of a market-driven appreciating asset, the debtor has it and is using it, and should not be permitted to do so “at a profit” when, had it been surrendered, the Trustee could have obtained either an earlier realization (for funding or dividend), or obtained a higher actual later realization (as was the case, for example, in Carrigan-Warner ). [ 45 ] It accounts, at least in part, for “occupation rent :” It will be recalled that one of the concerns both at hearing and on appeal in Lepage was that the debtor had and used the asset and “rode the market” until the discharge.

While I consider s. 68 to be the proper place for a consideration of “carrying costs” such as ordinary scheduled mortgage payments, taxes, and insurance, capital appreciation due to market forces is on a different footing. The debtor should be required to compensate the estate for any market-driven value increase that accrues during their usage, as part of their compensation for having the use and benefit of the asset, pending a conditional, absolute, or suspended order.

Put another way, not only should the debtor compensate the estate for the use and benefit of the asset, they should compensate the estate for the time value of money resulting from the estate getting value later than would be the case had the non-exempt asset been surrendered and realized. [ 46 ] It parallels treatment of decreased values due to unforeseen or uncontrolled factors : I am occasionally asked to dispose of a case in which an asset has decreased in value other than by reason of normal wear and tear or amortization. Examples can include uninsured loss, declines in stock prices, theft, or the like.

It is often and perhaps usually recognized that when the debtor reasonably did not surrender the asset and the loss is outside of their reasonable control [15] , they should not have to compensate the estate (at least not fully) as a condition of their discharge. It follows that the same should be the same for an appreciating , non-surrendered and non-exempt asset when that appreciation is outside of their reasonable control.

That change should be for the account of the estate. [ 47 ] It is consistent with valuation of surrendered assets : I have noted above that using a “dispositive discharge hearing date for market-appreciating assets” as a default makes the notional and real dispositions consistent. So, too, does it make surrendered and non- surrendered assets consistent. The debtor who surrenders an asset to the Trustee for realization effectively walks away from that asset and it is for the Trustee to deal with it appropriately. What comes in the door on the sale is what it is. So, for example, the person who

has a non-exempt portfolio worth $5000 at bankruptcy and surrenders it, gets nothing if it’s worth $6,000 when the Trustee sells it. Similarly, the bankrupt who seeks to keep a $5,000 asset that has increased in value by market forces to $6,000 should not be able to “pay 5 and keep 6” when a dispositive order has not previously been issued. [ 48 ] It is consistent with stakeholder sensibilities and fair dealing : The BIA is a commercial statute. Its

interpretation must reflect those objects, “harmoniously with the scheme of the Act…and the intention of Parliament” (Houlden, Morawetz and Sarra, The 2021 Annotated Bankruptcy and Insolvency Act at s. A5). [ 49 ] Would a commercial party, acting reasonably, believe that it is consistent with business sensibilities and fair play for a debtor to retain an asset worth (say) $100,000 at the time of bankruptcy, continue to use it, and be discharged at a time that it is worth (say) $150,000, paying the estate only the lower figure and leaving a shortfall among creditors?

On the other hand, would the same parties think it reasonable for a debtor to retain a $100,000 asset, have its use, and then say to the estate, “it’s now only worth $80,000 and that’s all I should have to pay although I could have turned it over when it was worth $100,000?” The answer to both, from a commercial standpoint, must be “no.” [ 50 ] It encourages, where appropriate, timely crystallization of rights and obligations : The debtor, who is otherwise BIA compliant but lacks the resources to repurchase non-exempt assets during the BIA timeframe applicable to them, may be eligible for a conditional order which establishes their outstanding obligations and circumstances under which they are to be completed.

Once a conditional order is in place, again, the rights and obligations are “set,” subject to the statutory provisions for variation discussed already.

By establishing that an appreciating asset is a moving target until such an order is obtained, and by making it clear that the debtor will be called upon to pay the higher value until such an order is in place, the debtor is incentivized to be in a position to seek such an order as early as practicable, or to surrender the asset. [ 51 ] It encourages compliance with the BIA : As a corollary to the above, a non-compliant debtor who eschews their BIA obligations is unlikely to obtain a conditional, suspended, or absolute order.

By telling them that they do not get to be non-compliant and “ride” the appreciation of a non-exempt asset, they are encouraged to complete their ss. 68 and 158 obligations in a timely fashion. [ 52 ] It is consistent with the vesting principle : “Property of the bankrupt” vests in the Trustee. The bankrupt no longer owns it, even if they are in possession and use of the non-exempt asset. The ride up, or down [16] , in value is for the account of the owner, not the party from whom it has been divested.

That only ends when the asset has been disposed of, or is the subject of a dispositive order (that is to say, the conditional, suspended, or absolute order crystallizing the rights and obligations of the bankrupt, including with respect to the subject asset). [ 53 ] It does not discourage an actual sale during the bankruptcy: The McInnis and Carrigan-Warner cases provide neat illustrations of this concept.

In the McInnis situation, the Trustee had calculated notional equity of some $7700 based on the estimated asset value at the time of bankruptcy; on an actual sale, the net proceeds turned out to be just under $68,000. With Carrigan-Warner, the notional figure at bankruptcy was (mis)calculated by the Trustee at about $19,090 versus an actual realization of $50,344.48. In both cases, the “at bankruptcy” figure was based on outside opinions (a CMA with the McInnises and an appraisal for Carrigan-Warner).

It is not clear whether the valuations were low, or the market rose, but in both cases the actual realization was substantially greater than estimated. It goes without saying that both sets of bankrupts would have been perfectly happy to pay the calculated balance with the knowledge that they could turn around and sell the day after obtaining a dispositive order and pocket the difference. If there is evidence, at the discharge hearing, either of increased market value or prior incorrect valuation, it would be a frustration of the asset-optimization purposes of the BIA to allow the lower value to be used.

By using the higher value on both a notional or actual disposition, the bankrupt is put to their election: pay what the asset is worth at the time of the dispositive order, or surrender it for the benefit of the estate. Using the historic “at filing” lower number discourages asset optimization prior to a dispositive order. [ 54 ] It could encourage proposals, or refinancing: A proposal, by its nature, sets out the available assets and income resources of the bankrupt at the time of the proposal, and is evaluated by stakeholders in that light as to both realization and viability.

Often if not usually, these considerations will include a comparison to what creditors would likely realize in a bankruptcy. Proposals are often presented to creditors and to the Court as being superior to net realization in a bankruptcy. A bankrupt who believes their retained non- exempt assets will increase over the timeframe of a bankruptcy may be encouraged to reconsider their options, and to make and perform a proposal.

This may increase recovery to creditors without the debtor “rolling the dice” as to the fate, and value, of non-exempt assets they seek to retain. [ 55 ] Further, an “asset rich, cash poor” debtor who has appreciable equity in an asset may be incentivized to look at their options to monetize that asset, whether by refinancing or by orderly disposition.

Recent insolvency experience suggests, anecdotally, that such persons with liquidity issues have taken recent advantage of robust real estate and stock markets to do both, and arrange their financial affairs either inside or outside of the BIA process in a fashion that benefits all. That is to be encouraged. [ 56 ] It is consistent with the statutory duty of good faith :

Section 4.2 of the BIA now enshrines a statutory duty of good faith. I leave to another day the extent, if any, this codifies, modifies, or supplements the common law. For now, it is adequate to say that a matrix in which an appreciating asset is dealt with at the time it is disposed of or subject to a disposition order; and a depreciating asset is dealt with at the time the bankrupt elected to be surrender or retain it, is entirely consistent with this duty as part of asset optimization and rejection of “heads I win, tails you lose” valuations or asset elections.

I note that s. 4.2(2) allows the Court, on application, to make “any order that it considers appropriate in the circumstances” if an interested person breaks faith.

In my view, that broad discretion includes an order that puts the stakeholders in the same position as if the duty of good faith had been discharged, and that in turn includes a monetary order that reflects the valuation and calculation principles discussed herein. [ 57 ] It allows for corrections of prior miscalculations : Statements of Affairs, and initial valuations, are sometimes ad hoc exercises; at other times, the subject of detailed pre-filing inquiry.

They can include debtor estimates; historic purchase price, with or without modification [17] ; property tax assessment [18] ; current appraisal; appraisal at some point in the proximate past; CMAs; “black book” or NADA value; or a browse of Kijiji or other online sales forums. None of these are inherently “wrong,” subject to any guidance to the contrary from competent authority. Neither are they scientific. If there is an indication that these are improvident, outdated, incorrect,

not in keeping with Court or other authority, or superseded by actual events (as was the case in McInnis and Carrigan-Warner ), it should be open for an interested party, or the Court on its own initiative, to call for current and better information based on market conditions at the time of hearing; or to effect corrections based on actual events. [ 58 ] The Trustee can cover itself : The Trustee is not left alone and without resources on valuation judgments. If it has questions with respect to its valuation or calculation, it can apply to the Court for direction under s. 34 of the BIA .

The Court can then weigh in. The Trustee does not have to take the chance that a “Monday Morning Quarterback,” in the form of a Registrar or Justice, begs to differ. This can be particularly useful if an asset is problematic in some way (such as title issues, speciality of use, etc.) or is the subject of dispute. Such an application, of course, should be accompanied by appropriate evidence. [19] [ 59 ] A bankrupt can be discharged with undistributed assets : What of the situation where a non-exempt asset that is capable of realization, has not been realized but the debtor has otherwise complied with the BIA ?

As I have noted above, in my view using a default “higher of at filing and at discharge” method encourages timely compliance by the debtor, and optimum realization to creditors. The situation can arise in which the debtor has neither retained, nor the Trustee disposed of, the non-exempt asset.

In such a situation, obviously present realizable value will prevail, since by definition the asset is and remains with the Trustee. [ 60 ] I have disapproved of a bankrupt retaining an unpaid-for non-exempt asset and obtaining an absolute discharge, and disagree with the notion that such a bankrupt has complied with all of their duties under s. 158 of the BIA [20] . That

section obliges the bankrupt to “make discovery of and deliver all his [sic] property” ( s. 158 (a)), aid in the realization of property (158(k)), and cooperate with the preparation of statements of affairs and inventory (158(

d) and (e )). The Trustee who, improvidently, allows a bankrupt to be discharged with outstanding property obligations may find themselves chasing the asset against a recalcitrant debtor, and with cost consequences: Re MacFarlane , 2019 NSSC 201 , affirmed on this point at 2020 NSSC 45 at paras 56-9 . [ 61 ] That is not to say that in every case where there is a realizable but unrealized non-exempt asset, a debtor cannot be discharged.

I have quite frequently issued orders in which a bankrupt has “ghosted” the Trustee with respect to a particular un-surrendered, non- exempt asset or for whatever (likely improvident) reason, the bankrupt has been allowed to proceed to an automatic discharge. In such cases, the Trustee has been permitted (or directed) to retain its claim on title (with registration, where available), and not to disclaim or convey without prior permission of the Court.

That order generally provides that the amount to be received by the Trustee is to be the calculated value at the time of the order, or at the time of disposition, whichever is the higher (and as approved by the Court). The bankrupt can then proceed with their life but the principle of “the higher number is the one to use” preserved. [ 62 ] This is distinct from a situation in which the debtor seeks to retain the non-exempt asset and has arrangements in place to service that obligation, or in which the Court deems it appropriate to put those arrangements in place.

That generally results in a conditional order with the “crystallization” consequences already discussed. [ 63 ] It is consistent with s. 172 of the BIA : Lastly, s. 172 provides the Court with a broad discretion as to conditions of discharge. When a s. 173 “fact” has been proven, the court may require the bankrupt to “comply with such other terms as the Court may direct,” pursuant to s. 172(2). A s. 173 “fact” includes a failure to perform duties under the BIA , which as I have said includes certain property duties.

In my view, this discretion includes the discretion to order a bankrupt to pay the “at filing” value of a depreciating, un- surrendered and non-exempt asset, or the “at discharge” value of an appreciating one.

Summary of valuation principles [ 64 ] A

summary and recapitulation of valuation principles is in order. [ 65 ] First, valuations of assets and liabilities must, by their very nature, be valued on the Statement of Affairs as known as of the date of bankruptcy; there is at that point no other ascertainable date for use. [ 66 ] Assets and liabilities, and realizable values which are capable of choate valuation should be listed on a consistent basis and in accordance with any prior relevant direction from this Court. [ 67 ] In the case of an asset realized by the Trustee, the actual value received will be the value used, assuming a reasonable and prudent process was used by the Trustee and, where applicable, Court approval had and obtained.

Actual receipts will prevail over notional estimates ( McInnis, Carrigan-Warner ). In the case of a non-exempt asset retained or to be repurchased by the bankrupt, any established directive or matrix provided by this Court shall be applied to calculate notional realizable value ( ibid ); if the Trustee has doubts, it may obtain direction from the Court under s. 34 BIA or, in the case of the sale to a person related to the bankrupt, s. 30(4) BIA .

The capacity of a Trustee to sell with the approval of inspectors (or on its own volition if there are no inspectors) does not relieve the Trustee either of its duty to adhere to directions or matrices of this Court ( Carrigan-Warner ), or of its duty of good faith ( BIA s. 4.2(1) , BIA General Rules 36, 48, and 53); failure therein may attract sanction including in costs or fees ( Carrigan-Warner ). [ 68 ] Debt payments made by the debtor, or readvancements to the debtor under secured credit facilities, after the date of bankruptcy should not be included in the equity calculation, unless there are reasons in law or fairness to direct otherwise.

These reasons may include situations in which a balloon or windfall payment has been applied, but in general ordinary blended payments of principal and interest on a principal residence, auto loan, or other such disbursement should not be factored into the realizable value calculation. Different considerations may apply to commercial receipts and disbursements [21] , and those considerations are left to an appropriate case. [ 69 ] Payments or disbursements made by the Trustee are, by definition, in first instance for the account of the estate.

The Trustee may seek as a condition of the bankrupt’s discharge, payment for any such amount for which the bankrupt received a personal benefit, such as estate payment of carrying costs on a bankrupt-occupied residence. [ 70 ] If the Trustee has information prior to the bankrupt’s discharge of a substantial change in the value of a non-exempt asset, the Trustee should bring it to the attention of the Court together with any known or suspected reasons, for an order or direction that is just in the circumstances; such an order may include a professional valuation or re-evaluation.

[ 71 ] The last and usual, but not universal, date of valuation is the date of the dispositive discharge hearing. This will usually be the “higher of bankruptcy and discharge hearing dates,” when the asset has been retained or for the use and benefit of the bankrupt or the bankrupt’s family. Thus in the case of a depreciating asset retained, used, or repurchased by the bankrupt, the presumed date of valuation would be as of the date of bankruptcy; in the case of an appreciating asset retained by, used by, or to be repurchased by the bankrupt, the presumed date would be that of the dispositive discharge hearing.

A bankrupt who is not prepared to abide by such valuations should surrender the asset to the Trustee as soon as possible, or determine if they may be able to make a viable proposal. The usual date of valuation may, in the Court’s discretion, be varied if the circumstances of the case and the interests of justice require.

The Court should not use this discretion as a pretext to create an asset exemption where one does not exist at law by using “creative economics.” The “fresh start” principle, as well, should not be used to relieve a debtor of an obligation to pay for, or surrender, a non- exempt asset. [ 72 ] Valuations should be based on evidence, not conjecture.

The Court may direct stakeholders to provide such evidence where it is lacking, or as a condition of discharge require the bankrupt to surrender or realize upon the non-exempt asset in such manner as the Court may direct or approve. [ 73 ] If a creditor or other stakeholder objects to the valuations listed in the statement of affairs or s. 170 report, it is incumbent upon them to object, with evidence; subject to the “marked departure” comments above, it is not for the Trustee to re-examine each non- exempt asset in minute detail.

This does not preclude the Court’s own challenge or direction where appropriate. [ 74 ] That said, in many instances the only valuation information before the Court may be from the Statement of Affairs.

The Court may take judicial notice of general marketplace trends where they have reached sufficient notoriety and overall public knowledge to meet the test for judicial notice, and especially where there has been a significant time lag between the filing and the dispositive hearing; however, it may not take judicial notice of specific properties or assets and should either proceed on the evidence before the Court, or direct that adequate evidence be brought before the Court in order to effect a just disposition. [ 75 ] The Court has jurisdiction to re-calculate values or methodologies employed by any stakeholder; agreements between or among stakeholders do not bind the Court ( Gavel ).

The Court does not owe deference to the Trustee or any other stakeholder in such calculations, when the asset is choate and especially when the Court has provided valuation guidance or direction. [ 76 ] Failure of the Trustee to be prudent or to act in accordance with Court practices and procedures may attract sanction, including cost or fee consequences ( Carrigan-Warner ).

If it has allowed the bankrupt to obtain a discharge with property obligations outstanding, such sanctions may also apply ( MacFarlane ). [ 77 ] Once a conditional, absolute, or suspended order is in effect, any rise or fall in value is (unless the order otherwise specifies or is varied), for the account of the debtor and not the estate ( Ross, Wadden ); when there is no such order, the Court may use the valuation dates and methods that accord with prior decisions and matrices (including this decision), and the interests of justice. [ 78 ] The reasons for any significant delay between filing and discharge will be relevant to a consideration of whether the Court’s acceptance of a different valuation date is just in the circumstances.

In general, a debtor may not rely upon their own default as a reason to select a date other than the dispositive discharge hearing for the valuation of a non-surrendered appreciating asset. Application to Mr.

Jedynak, and disposition [ 79 ] In this case, there is no reason to value the condominium, vested in the Trustee and in the custody of the bankrupt, other than as at the date of the dispositive discharge hearing, and with the associated mortgage debt as at the date of bankruptcy. [ 80 ] Valour’s CMA, for what it is worth, suggests a list price of $285,000 and that the property would be expected to be sold, quickly, for more than that. The Trustee’s updated appraisal broadly accords with this, valuing the property at $296,000.

This appraisal is of greater utility, given its comprehensive nature, than the bankrupt’s CMA of $240,000 to $260,000 or for that matter Valour’s CMA. I accept that $296,000 as of immediately prior to the dispositive hearing date of September 10, 2021 is the best evidence before the Court, and I affix this value for the purposes of this case accordingly.

I hypothesize that the value as of this decision in March 2022 may be greater yet, but as discussed above I consider the dispositive hearing date, not the dispositive decision date, to be appropriate. [ 81 ] Against that, I apply the Court’s known and consistent matrix for notional valuations as follows: Mortgage payout balance as of bankruptcy including any penalty if known (or if not known, 3% for 3 months ie 0.75% of the principal balance); commission at 5% plus HST; $1,000 inclusive of HST for legal fees; and any outstanding real property tax arrears as of filing. [ 82 ] I have had more difficulty with the condominium assessment. $5,300 of the $15,300 claimed appears to be for regular fees, and a claim for legal costs.

Those regular fees, and costs, would be for the debtor as “carrying costs.” The post-filing $10,000 special assessment may, or may not, be related to the building defects. If it is, then the building presumably will get the corresponding improvement, and improvement to value; one would presumably offset the other and should be for the account of whomever ultimately realizes upon the asset (meaning the Trustee or the bankrupt, as the case may be).

If it does not so relate and is a special assessment for another purpose, it is likely a post-bankruptcy carrying cost and should be for the account of the bankrupt, whatever may be the condominium’s ultimate disposition. [ 83 ] I direct the Trustee to make the associated inquiry as to the mortgage balance at bankruptcy, taxes at bankruptcy, and the special assessment, and to report to the Court. The Trustee should ensure that tax arrears at bankruptcy, if any, are not double-counted in the mortgage balance, or condominium fees. A copy is to be provided to Mr.

Jedynak and he will have 15 days from its receipt to provide any comment. [ 84 ] I will thereupon calculate the notional equity in accordance with this decision, matrix, and direction, and advise the parties of the resultant amount payable by Mr. Jedynak, should he wish to repurchase the property. Mr. Jedynak will have 30 days thereafter to elect whether to repurchase the property from the Trustee, and to make financial arrangements satisfactory to the Trustee and to the Court in which to do so. If he is unable or unwilling to do so, or if he makes no election, he shall forthwith thereafter vacate the premises

and the Trustee shall take possession of and realize upon the property. I remind the Trustee that the order requiring consent of this Court for any disposition remains in effect. Mr.

Jedynak is not to cause or suffer any waste to the property. [ 85 ] All post-bankruptcy carrying costs, including post-bankruptcy property taxes, insurance, ordinary condominium fees, the condominium special assessment if this Court so orders, and utilities shall be for the account of the bankrupt up to the time he repurchases the condominium, or vacates. [ 86 ] If he does not surrender possession if applicable within the required time frame, the Trustee may obtain an order to that effect, and is directed to seek the same forthwith upon expiration of the relevant timeframe. [ 87 ] Although I am crystallizing the amount of notional equity for the purposes of putting Mr.

Jedynak to his election and acquisition (or failing fruition of same, directing the Trustee to take possession and sell), I am not prepared to make a conditional order of discharge. Mr. Jedynak has numerous duties outstanding and it would be inappropriate to put him on an autopilot to discharge at present. The discharge application itself is refused with leave to reapply upon completion of all of Mr. Jedynak’s ss. 68 and 158 duties.

As I understand it as of September 2021, these continue to be filing of income and expense statements, provision of tax information, compliance with the fee agreement (to which I add the cost of Trustee’s appraisal, pursuant to this Court’s prior order), and payment of any s. 68 surplus income in accordance with the applicable Superintendent’s guidelines. I understand the TFSA has been realized; if I am incorrect, these are also to be realized before Mr.

Jedynak may re-apply for his discharge. [ 88 ] Valour, although primarily successful in its objection, chose not to participate in the September 2021 dispositive hearing other than by filing its very brief brief. Its original filings were untimely. The best adjective I can come up with is “cavalier.” Accordingly, I award no costs, which in any event were not sought. [ 89 ] The trustee shall prepare a draft order for my review. Balmanoukian, R.