Feser (Re), 2023 ABKB 509

Court of King’s Bench of Alberta Citation: Feser (Re), 2023 ABKB 509 Date: 20230907 Docket: B203 462129 Registry: Edmonton In the Matter of the Bankruptcy of Trevor Joseph Feser Between: Dawna Candelora Applicant - and - Trevor Joseph Feser Respondent _______________________________________________________ Memorandum of Decision of the Honourable Justice James T.

Neilson _______________________________________________________ [ 1 ] The Applicant, Dawna Candelora (“Candelora”), makes an application for an order annulling the bankruptcy of the Respondent, Trevor Joseph Feser, pursuant to s 181(1) of the Bankruptcy and Insolvency Act that provides as follows: “If, in the opinion of the Court, a bankruptcy order ought not to have been made or an assignment ought not to have been filed, the Court

may by order annul the bankruptcy.” [ 2 ] The Respondent, Trevor Joseph Feser (“Feser”), made an assignment for the general benefit of the Creditors on January 10, 2019, pursuant to s 49 of the Bankruptcy and Insolvency Act ,

summary administration. The Trustee and Bankruptcy for the Estate of Feser is Barry Nykyforuk & Associates Inc. [ 3 ] In support of her Application, Candelora alleges that Feser made the assignment in bankruptcy to fraudulently reduce his child support obligation, claiming an income 80% lower than the actual amount, and to avoid a judgment against him for cyber-bullying, and to force the sale of the matrimonial home on terms favorable to himself. Feser, it is alleged, seeks to avoid enforcement of arrears of child support while an undischarged bankrupt.

Background Facts [ 4 ] The parties were married on November 28, 2006. There is one child of the marriage, X, born on February 10, 2009. [ 5 ] The couple were separated on October 9, 2017.

The child lives with Candelora in the former matrimonial home, in Dartmouth, Nova Scotia. [ 6 ] On October 22, 2018, Candelora filed a motion for relief claiming interim child support, retroactive and prospective, in the Supreme Court of Nova Scotia Family Division. [ 7 ] In December of 2018, Candelora brought legal proceedings against Trevor Feser and Sonia Dadas pursuant to the Intimate Images and Cyber-Protection Act , S.N.S. 2017, c 7 . [ 8 ] Feser made the assignment into bankruptcy on January 10, 2019, in Alberta. [ 9 ] Candelora filed an unsecured claim against the bankrupt estate in the amount of $64,224, claiming a right to priority under s 136 of the BIA , as it pertains to child support.

The Trustee partially disallowed the claim, allowing a total outstanding child support of $10,281 with priority under s 136(d.1) of the BIA . The Trustee’s decision was based on the most recent agreement between the parties, in October 2017, that Feser would pay $1,398 a month in child support. He stopped making payments in May 2018. [ 10 ] In his bankruptcy assignment, Feser claimed annual income of $74,865.

This amount has been contested by Candelora asserting that his annual income was much higher than he had reported, as a subcontractor from Sancon and subsequently, EVI, for work performed at the Conoco Phillips Site near Fort McMurray. [ 11 ] Candelora pursued the application for interim child support. On July 3, 2019, her application was allowed by Justice Chiasson of the Supreme Court of Nova Scotia Family Division, Feser v Candelora (Feser) 2019 NSSC 388 . In that application, Feser restated the amount of his annual income, namely $74,865.

This amount was challenged by Candelora and, based on the evidence before her, Justice Chiasson imputed an annual income to Feser of $224,000. Given that he was then resident in Alberta, the table amount of child support payable is $1,939.60 per month commencing August 1, 2019 and the first of each month thereafter. Child support is payable from the date of separation to July 31, 2019.

The quantum of support will be addressed at the final hearing before the Nova Scotia Court. [ 12 ] The Interim Order by Justice Chiasson was not appealed, and to date, the Interim Order has not yet been varied. [ 13 ] The Cyber-Protection Act action proceeded to a hearing in July 2019, in Halifax. Reasons for Decision were issued by Justice Arnold, in Candelora v Feser 2019 NSSC 370 , concluding that the applicant, Candelora, has established that the respondents are liable for cyber-bullying under the Act . The matter then proceeded to a hearing on damages in February 2020, Candelora v Feser 2020 NSSC 177 .

In his Reasons for Decision, Justice Arnold awarded Candelora general damages against the Defendants, Feser and Dadas, in the amount of $50,000, aggravated damages in the amount of $20,000 and punitive damages in the amount of $15,000.

Costs were subsequently awarded in the amount of $15,000. [ 14 ] An appeal of the Cyber Protection Act Order was dismissed by the Nova Scotia Court of Appeal, in Feser v Candelora 2021 NSCA 49 , with costs of $6,300 inclusive of disbursements payable to Candelora. [ 15 ] The primary asset of the bankrupt vested in the Trustee that is available to satisfy creditors is the former matrimonial home in Nova Scotia.

Based on an estimated value of the home, net of the outstanding mortgage, there is an estimated gross equity of about $201,000, leaving a gross equity for Feser’s share in the amount of $100,500. [ 16 ] The Trustee has applied to the Court in Nova Scotia for an Order for Partition and Sale of the former matrimonial home. That application was stayed by that Court pending the ruling of this Court on the Application to annul the bankruptcy.

However, if that application does proceed, the gross equity would be decreased by the anticipated fees and costs incurred to effect the partition and sale. [ 17 ] In bringing this Application to annul the bankruptcy, Candelora seeks to get complete ownership of the matrimonial home if the bankruptcy is annulled. Feser’s share in the equity would no longer vest with the Trustee. Rather, it would be made available for enforcement of her outstanding claims. Having said that, if the property is no longer vested in the Trustee, then other creditors may advance their own claims against Feser’s interest in the home.

Also, if the bankruptcy is annulled, s 181(2) of the BIA provides that, if an annulment order is made under subsection (1), all sales, dispositions of property, payments duly made and acts done before the making of the order by the trustee or other person acting under the trustee’s authority, or by the court, are valid.

The Trustee asserts that, in the event that the bankruptcy is annulled, it seeks a vesting order or a charge against property of the bankrupt for costs of administration, including but not limited to trustee fees, disbursements, up to an amount the court considers just and appropriate, and costs against Feser. [ 18 ] In any event, if the Court orders partition and sale of the property upon the Trustee’s motion, it cannot be said that this would be on terms favourable to Feser, as Candelora contends.

Legal Principles to be applied in an application under s 181(1) [19] The power to annul a bankruptcy is discretionary and is a remedy that must be used sparingly by the Court: Re Regional SteelWorks (Ottawa – 1987) Inc, (1994) (ON SC), 25 C.B.R. (3rd) 135 (Ont. Gen. Div), Im v Im 2011 ONSC 3993 , 2011, 81 C.B.R. (5th) 53 (Ont.

SCJ). [20] In order to establish grounds to annul a bankruptcy, it must be demonstrated that the person was not insolvent at the time ofthe assignment into bankruptcy, or had abused the process of court, or had committed a fraud on his or her creditors: Re Wale (1996), (ON SC), 45 C.B.R. (3rd) 15. [21] As the Court of Queen’s Bench of Alberta established in Lazic v Lazic 2015 CarswellAlta 2062 at para 85, citing Re FantasyConstruction, the Court may consider the following factors in determining whether to exercise its discretion under s 181(1): 1.

Is the debtor’s financial situation genuinely overwhelming or could it have been managed? 2. Was the timing of the assignment related to another agenda or was bankruptcy inevitable in the near or relatively nearfuture? 3. Was the debtor forthcoming revealing his situation to his creditors or did he hide assets or prefer some creditors over others? 4. Did the debtor convert money or assets to himself which would otherwise have been assets in the bankruptcy? 5. What had been the debtor’s relationship with his creditors, particularly his major ones?

Was it such that they might haveassisted him, if he might have approached them, by granted time or terms of repayment or had any goodwill been destroyed by pastunfulfilled promises? 6. Are there other relationships - business partnerships, shareholder arrangements, spousal, competitors for an asset, or simplypersonal associations which could cast light on a possible bad faith motive for making an assignment? [22] Furthermore, in considering the application to annul under s 181(1), events must be considered at the time that the assignmentwas filed.

Post-assignment events cannot be used to support a s 181(1) application: Re Giesbrecht (1998) (SK KB), 6 C.B.R. (4th) 239, 175 Sask.R. 229(QB); Im v Im supra. Insolvency [23] At the time of his assignment, the Trustee determined that Feser faced significant CRA liabilities, in addition to various creditcard debts. The Trustee’s findings with respect to insolvency are set out in his report dated May 25, 2022, at paras 11-45 and 11-61,together with the supplemental Trustee’s Report dated August 16, 2022. In the Trustee’s analysis, CRA had a proven claim in thebankruptcy for just over $59,000.

However, at the time of the assignment, Feser had good reason to believe he would be further assessedfor corporate liabilities of his company, which owed over $62,000 in GST and source deductions, and in excess of $90,000 for corporateincome tax. Subsequently, he was not personally assessed for the GST and source amounts because, due to Covid 19, CRA missed itstwo-year limitation period to raise the assessment. [24] To date, the Trustee has admitted claims of $159,511.77.

CRA has indicated to the Trustee it is still reviewing whether it maybe able to raise assessments based on arms-length transfers from the company, as such assessments are not subject to the two-yearlimitation period. [25] Proven claims to date do not include the Cyber-bullying judgment of approximately $100,000, as Candelora has not submitteda proof of claim for that debt.

Section 2 of the BIA provides the following definition of “insolvent person”: Insolvent person means aperson who is not bankrupt and who resides, carries on business or has property in Canada, whose liabilities to creditors provable asclaims under this Act amount to $1,000 and (

a) who is for any reason unable to meet his obligations as they generally become due, (

b) who has ceased paying his current obligations in the ordinary course of business as they generally become due, or (

c) the aggregate of whose property is not, at a fair evaluation, sufficient, or, if disposed of at a fairly conducted sale under legalprocess, could not be sufficient to enable payment of all of his obligations, due and accruing due. [26] It is the opinion of the Trustee that the assets available at the date of bankruptcy were insufficient to satisfy Feser’s liabilities.He was insolvent, regardless of whether his true income may have been higher than reported. Therefore, as of the date of bankruptcy,Feser met the definition of “insolvent person” pursuant to s 2 of the Bankruptcy and Insolvency Act.

I find, as the Trustee has submitted,that Feser was insolvent at the time of his assignment. Abuse of Process or Fraud [27] Having found that Feser was insolvent at the time of his assignment, I must also consider factors that may supportCandelora’s claim that the assignment was an abuse of process or

an act of fraud by Feser. [28] There is no evidence before me that Feser’s creditors have assisted him, if he approached them, by granting time or terms ofrepayment. In the Trustee’s opinion, it was understandable that Feser opted for bankruptcy, particularly concerning his actual or

expected CRA liability, even with an income higher than was initially reported. [ 29 ] The submission by Candelora is that the timing of the assignment was related to another agenda by Feser, namely to avoid child support obligations and prosecution under the Cyber-bullying proceedings that had been commenced. The assertion is that his assignment was made in bad faith, with a spousal relationship motive.

Feser was also not forthcoming regarding his actual income, as subsequently established. [ 30 ] However, by the time of the assignment, Feser was not honouring his obligation to pay child support, with or without the bankruptcy assignment. Failure to Fully Disclose Income [ 31 ] With considerable effort, Candelora through counsel was able to uncover undisclosed payments that came to Feser through Sancon and then EVI, for services he rendered as a subcontractor at the Conoco Phillips Project.

Clearly, he was not forthcoming in disclosing all of his income at the time of the assignment. [ 32 ] The Trustee submits that it is not uncommon in consumer insolvencies to encounter bankrupts who try to minimize personal income through corporate arrangements, sometimes with the goal of reducing their surplus income obligations or their family support obligations, or both. In this case, however, after the assignment Candelora has pursued Feser for child support in the Nova Scotia Court, as she was entitled to do.

In presenting evidence in that application substantiating undisclosed income by Feser, the Court imputed annual income of $224,000, yielding, at the time of application, the table amount of child support payable of $1,939.60 per month, commencing August 1, 2019. Since then, Candelora has cited evidence derived from documentation produced in relation to payments to Feser through Sancon and EVI that he averaged $323,000 per annum in 2018, 2019 and the first three months of 2020.

Part of those payments were claimed to be reimbursements for business expenses, although the Trustee has not made a calculation of the portion of those amounts that could legitimately be considered business rather than personal expenses. [ 33 ] As the Trustee has submitted, there are mechanisms within the bankruptcy process to deal with such conduct on the part of Feser.

The Trustee is permitted, under s 68 of the BIA , to impute a fair and reasonable income to a bankrupt, including where he is employed by a related entity. [ 34 ] In addition, the Trustee can determine the amount of any surplus income to be paid into the estate for the benefit of creditors.

Also, the Trustee or any creditor can object to the bankrupt’s discharge, and the Court can impose further payment conditions if appropriate. [ 35 ] I now turn to the specific complaints by Candelora concerning the avoidance by Feser of his obligation to pay child support, and avoidance of the judgment against him in the Cyber-bullying action.

Claim for Child Support Benefits under the BIA [ 36 ] With respect to Candelora’s assertion that Feser’s assignment was intended to avoid his child support obligations, it is important to note the provisions of the BIA as they apply to the enforcement of child support obligations. [ 37 ] In reviewing the provisions of the BIA , it is apparent that Feser could not use the provisions of the Act in order to avoid his obligation to pay child support for his son. [ 38 ] A claim for child support is a provable claim under the Act pursuant to s 121(4) which provides as follows: A claim in respect of a debt or liability referred to in para 178(1)(

b) or (

c) payable under an order or agreement made before the date of the initial bankruptcy event in respect to the bankrupt and at a time when the spouse, former spouse, former common-law partner or child was living apart from the bankrupt, whether the order or agreement provides for periodic amounts or lump sum amounts, is a claim provable under this Act . [ 39 ] Section 178(1) provides that an Order of Discharge does not release the bankrupt from...(

c) any debt or liability arising under a judicial decision establishing affiliation or respecting support or maintenance, or under an agreement for maintenance and support of a spouse, former spouse, former common-law partner or child living apart from the bankrupt. [ 40 ] In this case, there had been a consent separation agreement between the parties after separation providing for the payment of child support for the child on a monthly basis.

Feser subsequently and unilaterally reduced the amount of payments he was making, and then stopped making the payments entirely. [ 41 ] However, as she was entitled to do, subsequent to the assignment, Candelora brought legal proceedings against Feser in Nova Scotia seeking an order for ongoing payment of child support. In making its ruling, the Court concluded that Feser had not made full disclosure of his actual income and made a monthly award of $1,900 a month based on deemed annual income of $224,000 not $74,865 as had been advanced by Feser in his assignment, and in Candelora’s subsequent court application.

The interim ruling by the Court was not appealed and has not been varied. [ 42 ] A Stay of Proceedings under s 69.3(1) is not applicable to a claim pursuant to s 121(4)(1). [ 43 ] Section 136(1) of the BIA sets out the priority of claims. Section 136(1)(d.1), referring to the claims in respect of debts or liabilities referred to in para 178(1)(b), if provable by virtue of ss 121(4), gives priority for periodic amounts accrued in the year before the date of the bankruptcy that are payable, plus any lump sum that is payable. The Trustee has a prior claim under s 136(1)(

b) for the cost of administration in the following order:

i. the expenses and fees of any person acting under a direction made under paragraph 14.03(1)(a), ii. the expenses and fees of the trustee, and iii. legal costs [ 44 ] The claims described in s 136(1) listed after claims pursuant to subparagraph (d.1) do not have priority over the child support claim, with respect to the proceeds realized from the property of a bankrupt. [ 45 ] With respect to ongoing income, the Trustee is empowered to determine whether the bankrupt has surplus income and can seek an order directing payment of surplus income into the estate.

However, with respect to income not declared to be “surplus” under the Act , a claim may be made to attach at least some portion of the non-surplus income for child support benefits accruing due to and payable after the date of assignment. Maintenance Enforcement proceedings may pursue recovery of such benefits from the bankruptcy non-surplus income. The difficulty in this case is that Feser appears to reside now at an undisclosed address in Montreal. It will be up to Maintenance Enforcement to take appropriate enforcement steps against Feser. [ 46 ] Finally, as provided in s 178(1)(

c) the bankrupt’s obligation to pay child support is not released by an Order of Discharge. [ 47 ] Therefore, if Feser considered that, by assigning himself into bankruptcy, he would avoid his obligation to pay child support benefits in relation to his son, he is mistaken in that regard. That he has moved to another jurisdiction, and is apparently avoiding collection, is another issue but does not detract from the remedies that are available for pursuing child support payments under the provisions of the BIA .

Cyber-bullying Litigation [ 48 ] Shortly before the assignment into bankruptcy, Candelora filed an application against Feser and his wife seeking relief under the new Cyber-bullying legislation and acted in the province of Nova Scotia. This application subsequently proceeded to a trial and the Nova Scotia Supreme Court awarded damages, including punitive and aggravated damages, against the defendants in excess of $100,000. This decision was appealed by the defendants, and their appeal was dismissed. [ 49 ] Under s 69.3 of the Act , all proceedings against the bankrupt are stayed at the time of the assignment.

However, it appears that no party raised the issue of a stay in the Cyber-bullying proceedings before the Court in Nova Scotia. In any event, the defendants attorned to the jurisdiction of the Court to make a determination in that application and unsuccessfully appealed the decision. Therefore, the issue of a stay is now moot. [ 50 ] Candelora has not filed a claim with respect to this judgment with the Trustee.

Candelora takes the position that it is an obligation that would, in any event, survive following the discharge from the bankruptcy, either pursuant to s 178 of the BIA or because of impugned conduct that occurred post-bankruptcy. [ 51 ] Therefore, if Feser considered that he would avoid any obligation that the Court may direct in the Cyber-bullying Application, he was mistaken. Again, while he resists any obligation to make payment by avoiding enforcement, this is not the result of the operation of the provisions of the Bankruptcy and Insolvency Act .

Delay and Limitation [ 52 ] The Trustee submits that a further ground for the Court to consider in exercising its jurisdiction as to whether the bankruptcy should be annulled, is delay on the part of Candelora to bring the application to the Court seeking an annulment order. The Trustee states that it has been approximately three years that have elapsed between the assignment and the Application to this Court. In the case of Locke (Re) , 2023 BCSC 1195 , the Court noted at para 20 where there has been a delay seeking an annulment, this is a relevant factor considering the exercise of discretion under s 181.

However, in that case, the delay had been over seven years between the bankrupt’s assignment and the application for annulment. In view of the conclusion that I will make in this Application, I do not consider that any delay here precludes the Court from exercising its discretion under s 181(1). [ 53 ] Candelora asserts that the Application before this Court is barred by s 3 of the Limitations Act , RSA 2000, cL-12 having been brought more than two years after the assignment into bankruptcy.

Section 3(1) of the Limitations Act provides that, if a claimant does not seek a remedial order within two years after the date on which the claimant first knew, or in the circumstances ought to have known, that the injury had occurred, was attributable to the conduct of the defendant and this warrants bringing a proceeding, the defendant may plead this as a defence and is entitled to immunity from liability. However, s 1(

i) defines “remedial order”, to mean a judgment or an order made by a court in a civil proceeding requiring a defendant to comply with a duty or to pay damages for the violation of a right, but excludes a declaration of rights and duties, legal relations or personal status. In this case, the Application under s 181(1) is declaratory in nature, and is not seeking damages for an injury. Therefore, the Limitations Act provisions do not apply to this Application. [ 54 ] Furthermore, there is no specific time limitation in the BIA relating to an application under s 181.

It may be an open question whether provincial limitation statutes apply to proceedings under the BIA , or whether the BIA sets out a complete code for proceedings, some of which do have time limit periods within the legislation. However, I do not make any ruling with respect to the application of provincial limitation statutes to the provisions of the BIA , as this determination is not required for the conclusion that I will make in this Application. Conclusion

[ 55 ] The power to annul a bankruptcy is discretionary and is a remedy that must be used sparingly by the court. I have found that, at the time of the assignment, Feser was insolvent as established by the Trustee. Feser’s submission to the provisions of the BIA was not an abuse of process. Rather, the bankruptcy must be administered by the Trustee as required for the benefit of creditors, including Candelora. Furthermore, if Feser considered that the bankruptcy would protect him from his child support obligations or enforcement of the Cyber-bullying judgment and costs, he is mistaken in that regard.

His intent does not reach the level of fraud. [ 56 ] In considering all of the evidence and submissions before me, I conclude that I will not exercise my discretion to annul this bankruptcy for the reasons stated. Accordingly, the Application by Candelora to annul the Feser bankruptcy is dismissed. [ 57 ] As the Trustee is successful in responding to this Application, I award costs to the Trustee payable by Candelora pursuant to Column 1 of

Schedule C of the Alberta Rules of Court for an application requiring a written brief, in the amount of $1,350. Because of his failure to fully disclose his income within the bankruptcy, no costs of this Application are awarded to Feser. Heard on the 30 th day of August, 2022. Dated at the City of Edmonton, Alberta this 7 th day of September, 2023. James T. Neilson J.C.K.B.A. Appearances: William Leahey Leahey Legal Services for the Applicant (Dawna Candelora) Scott Matheson Field LLP for the Applicant (Dawna Candelora) Michael N. Bergman Bergman & Assoc. for the Respondent (Trevor Joseph Feser) Daniel Jukes Miles Davison LLP for the Trustee and Bankruptcy (Barry Nykyforuk & Associates Inc)