Jennings (Re), 2023 ABKB 537

Court of King’s Bench of Alberta Citation: Jennings (Re), 2023 ABKB 537 Date: 20230926 Docket: B203 670575 Registry: Edmonton In the Matter of the Bankruptcy of Kevin Ronald Jennings _______________________________________________________ Memorandum of Decision of B.W.

Summers , Registrar in Bankruptcy _______________________________________________________ [ 1 ] The Licensed Insolvency Trustee (“LIT”) of the estate of Kevin Ronald Jennings (“Bankrupt”) applies for the advice and directions of the Court as to whether the conditions of discharge of the Bankrupt ought to be varied due to a change in circumstances. [ 2 ] On September 12, 2022 I granted a Conditional Order of Discharge requiring the Bankrupt to pay the LIT the sum of $3,458.52 by making monthly instalments of $1,729.26 in September and October 2022 (“Discharge Order”).

Those instalments were paid by the Bankrupt. [ 3 ] The LIT’s calculation of surplus income was $58,378.95 being the sum of $2,779.95 for 21 months. The Bankrupt had paid $15,399.91 toward surplus income and the LIT received $3,175.00 pursuant to a

section 68 Order, leaving a balance owing of $36,345.52.

However, when the application for the Bankrupt’s discharge was made, the only amount needed to pay out the entire estate liability inclusive of claims, interest and costs was the sum of $3,458.52. [ 4 ] At the discharge application, the LIT’s representative reported that he understood that Canada Mortgage and Housing Corporation (“CMHC”) might have a claim in the bankruptcy for a deficiency in a foreclosure action, but CMHC had never filed a proof of claim, notwithstanding the fact that the LIT had sent a number of pieces of correspondence to CMHC urging it to file a claim, including a notice to file under s 149(1) of the Bankruptcy and Insolvency Act (“ BIA ”). [ 5 ] I subsequently wrote to the LIT seeking further evidence as to the exact date that the s 149(1) notice was sent to CMHC.

I received an affidavit (“Supplemental Affidavit”) with the following information regarding service of CMHC with respect to this bankruptcy proceeding: (

a) The LIT uses Promeric Technologies Inc Ascend (“Ascend”) insolvency software for administering bankruptcy and this software is a widely adopted insolvency software in Canada; (

b) Ascend’s National Creditor List reflected the email address for CMHC to be dsinsolvency@collectlink.com which the LIT knows to be the email address of FCT Default Solutions (“FCT”), a service provider in insolvency matters who acts as agent in the receipt of notices; (

c) On September 9, 2020 the LIT sent the package of initial bankruptcy documents (Notice of Impending Automatic Discharge, Statement of Affairs, Monthly Income and Expense Statement of the Bankrupt and Proof Claim) to CMHC at dinsolvency@collectlink.com ; (

d) On June 23, 2021 the LIT sent to CMHC a notice requiring person to prove claim under s 149(1) of the BIA (in the prescribed form) to CMHC at nrc@cmhc.ca , which is the National Recovery Centre at CMHC;

(

e) On May 5, 2022 the LIT sent a second identical notice under s 149(1) of the BIA to CMHC at nrc@cmhc.ca; (

f) On July 15, 2022 the LIT sent a third identical notice under s 149(1) of the BIA to CMHC at nrc@cmhc.ca; (

g) On August 17, 2022 the LIT sent to CMHC an email seeking to have CMHC file its claim and stated in part: “We arereaching out to you today as Mr. Jennings presently remains in bankruptcy and we are currently looking to account for all claims, mostspecifically this the largest anticipated claim, as we are looking to confirm the equitable amount that Mr. Jennings ought to fund into hisbankruptcy.... Can you please review your records regarding any amounts owed and provable by Mr.

Jennings and be advised, thatfailure to prove a claim may result in either no or reduced recoveries in the bankruptcy (in the event that you do not eventually file aclaim).” [6] At the discharge application the LIT recommended to the Court payment of $3,458.52 only, as the LIT had not received aproof of claim from CMHC and did not anticipate receiving one given all of the efforts that the LIT had made. [7] Without any further contact from the LIT, CMHC filed its proof of claim with the LIT in the amount of $224,739.84.CMHC’s proof of claim was received by the LIT on September 23, 2022.

CMHC’s proof of claim stated that all notices were to beprovided to CMHC at a post office box in London, Ontario, although the email address of dinsolvency@collectlink.com was alsoprovided. [8] In this application for advice and directions, the LIT asks the Court whether the Discharge Order should be varied so that theBankrupt is required to pay the balance of calculated surplus in the amount of $36,345.52 less the amount paid under the ConditionalOrder. [9] I asked the LIT’s representative if there was any case authority addressing this issue and he advised that he is not aware ofany. [10] Subsection 187(5) of the BIA provides that “Every court may review, rescind or vary any order made by it under itsbankruptcy jurisdiction”. [11] The decision of Schwann, J in Vince v Cinezeta Internationale Filmproduktionsgesellschaft MHB & Co KG, 2013 SKQB423 is a very helpful decision in providing guiding principles on a court’s use of s 187(5) of the BIA.

In that case, on behalf of thebankrupt company Just Friends Production Company Inc (“Just Friends”), the Applicant, Ms. Vince, applied for an order rescinding theBankruptcy Order made with respect to Just Friends and a

section 38 order granted in favour of the Respondent creditor, that had soughtand obtained both orders. Ms. Vince alleged that the Respondent obtained these court orders based upon evidence that was not true. Ms.Vince’s application was made under s 187(5) of the BIA. The Court stated the following (at paragraphs 26-27): [26] Relief under s. 187(5) is discretionary in nature. This Court’s discretion must be exercised judicially with regard to recognizedprinciples and applicable case authority.

In general terms, courts have consistently recognized and adopted the following principles inrelation to the exercise of s. 187(5) of the BIA: • this jurisdiction should be sparingly exercised (Carlson v. Carlson, 2012 ABCA 173, 90 C.B.R. (5th) 328; Elias v. Hutchison, (1981)1981 ABCA 31 , 121 D.L.R. (3d) 95, 37 C.B.R. (N.S.) 149 (Alta. C.A.)); • while no time limit is prescribed to bring a s. 187(5) application, it nonetheless must be brought promptly and could fail for laches ifnot done so (Re 354828 Ontario Ltd. (1979) 30 C.B.R. (N.S.) 176, [1979] O.J. No. 3346 (QL) (Ont.

S.C.); 1064521 Ontario Ltd. (1998) (ON SC), 38 O.R. (3d) 407), [1998] O. J. No. 920 (QL) (Ont. Ct. J.)); • s. 187(5) should not be used as a substitute for an appeal, particularly after the appeal period has passed (Re HOJ National LeasingCorp. 2008 ONCA 390, 42 C.B.R. (5th) 208); • a change in circumstance must be established, i.e. the applicant must bring forward new evidence of a substantial nature that wasotherwise not available at the time of the original hearing; (Re Strachan (1980), 34 C.B.R. (N.S.) 136, [1980] O.J.

No. 2963 (QL) (Ont.S.C.); Re Northlands Café Inc. (1996) (AB KB), 44 C.B.R. (3d) 170, 192 A.R. 211 (Alta. Q.B.)); • the onus is on the applicant to establish the new facts or evidence relied upon in support and to demonstrate that rescission is anappropriate remedy in the circumstances. (Christiansen v. Paramount Developments Corp., 1998 ABQB 1005, 8 C.B.R. (4th) 220). [27] The Alberta Court of Queen’s Bench in Re Garritty, 2006 ABQB 238, 62 Alta. L.R. (4th) 68 provides a useful

summary andworkable framework for judicial consideration of s. 187(5) applications: 46 The principles governing an application under s. 187(5) are that:

i) The issue on the application is whether the order should remain in force because of changedcircumstances or fresh evidence and not, as on appeal, whether it ought to have been made. ii) Fresh evidence in this context means that it is material, substantial in nature, and somethingthat, with reasonable diligence, could not have been known at the time of the original application. iii) The application must be made promptly, within a reasonable time of acquiring knowledge ofthe order. iv) Review jurisdiction is exercised sparingly; it is a matter of indulgence that must be carefullyguarded.

v) In exercising its discretion, the court must consider the rights not only of the debtor and of the

creditors but also of the public. vi) The court should resort to its s. 187(5) jurisdiction if it is just and expedient in the control of its own process. vii) Trustee conduct is a factor where statutory non-compliance results in lack of notice, particularly if it negatively affects the integrity of the bankruptcy system. viii) The applicant bears the onus of establishing that exercise of the review jurisdiction is warranted. .... [ 12 ] The LIT representative stated in his Supplemental Affidavit that “...I believe it to be appropriate for the Court to vary the Conditional Order of Discharge in these circumstances given the intention of the Order granted and the additional information that became available after the discharge application.” [ 13 ] Receipt of CMHC’s proof of claim after the Discharge Order is “new evidence of a substantial nature” that was unavailable to the LIT at the time of the discharge application. [ 14 ] However, over the course of approximately 14 months CMHC was served with three prescribed notices under s 149(1) of the BIA .

That subsection (and subsection (2)) state: 149

(1) The trustee may, after the first meeting of the creditors, send a notice, in the prescribed manner, to every person with a claim of which the trustee has notice or knowledge but whose claim has not been proved. The notice must inform the person that, if that person does not prove the claim within a period of 30 days after the sending of the notice, the trustee will proceed to declare a dividend or final dividend without regard to that person’s claim.

(2) Where a person notified under subsection (1) does not prove the claim within the time limit or within such further time as the court, on proof of merits and satisfactory explanation of the delay in making proof, may allow, the claim of that person shall, notwithstanding anything in this Act, be excluded from all share in any dividend, but a taxing authority may notify the trustee within the period referred to in subsection (1) that it proposes to file a claim as soon as the amount has been ascertained, and the time for filing the claim shall thereupon be extended to three months or such further time as the court may allow. [ 15 ] Although the evidence before the Court on this application is that the notices were served by email to CMHC’s Recovery Centre, there is no evidence that the notices were not received by CMHC.

Notice of this application was served upon CMHC, but it did not appear or provide submissions directly, or through the LIT. [ 16 ] On the evidence before me, CMHC was told three times to file its proof of claim within 30 days and did not do so. The evidence also indicates that the LIT’s representative also sent an email to CMHC, about 4 weeks before the discharge application explaining the need for and importance of CMHC filing its proof of claim.

If this was in fact the catalyst that moved CMHC to finally send the proof of claim to the LIT, it is indeed unfortunate that the proof of claim was not received until after the discharge application. [ 17 ] In so far as the LIT bringing this application to vary the Discharge Order, laches is not a consideration as I believe that the LIT brought this motion relatively promptly. However, laches on the part of CMHC providing its proof of claim is another matter. [ 18 ] In this case, I am not prepared to exercise my discretion under s 187(5) of the BIA to vary the Conditional Order.

I granted the Conditional Order based upon the recommendation made to the Court by the LIT, which the LIT made based upon the information that it had. I am mindful that s 187(5) of the BIA is to be used sparingly and is an indulgence to be carefully guarded. [ 19 ] In refusing to exercise my discretion under s 187(5) of the BIA , I am most mindful that it would be manifestly unfair to the Bankrupt to require him to make further substantial payments over a considerable period of time.

As far as the Bankrupt is concerned, I am sure that he believes himself to be entitled to a discharge, or even that he has been discharged. I do not think that it is just and expedient to exercise my discretion as is now being suggested. [ 20 ] Finally, I wish to note that I am aware that this decision could potentially create an injustice to the creditor or creditors that filed proof(

s) of claim before the original discharge application was heard, as they would have received 100% of their claim(

s) before CMHC’s tardy filing. Whether CMHC’s claim ought to be accepted now, to share in the dividend, may be an issue for further consideration. Heard on the 15 th day of February, 2023. Dated at the City of Edmonton, Alberta this 26 th day of September, 2023.

B.W. Summers Registrar in Bankruptcy Appearances: Steven Cooke Hudson & Company Insolvency Trustees Inc No one else appearing