2011 MBCA 41, 2011 MBCA 41

Citation: Forbes (Bankrupt), Re, 2011 MBCA 41 Date: 20110509 Docket: AI 10-30-07303 IN THE COURT OF APPEAL OF MANITOBA Coram: Madam Justice Barbara M. Hamilton Mr. Justice Martin H. Freedman Madam Justice Holly C. Beard BETWEEN : KEITH G. COLLINS LTD. ) R. W. Schwartz ) for the Appellant (Applicant) Appellant ) ) I. D.

Perlov - and - ) for the Respondent ) CANADIAN IMPERIAL BANK OF ) Appeal heard: COMMERCE ) November 2, 2010 ) (Respondent) Respondent ) Judgment delivered: ) May 9, 2011 HAMILTON J.A. 1 The appellant trustee in bankruptcy (the trustee) appeals the dismissal of its application to have a payment received by the respondent bank (CIBC) declared invalid as a fraudulent preference under s. 95 of the Bankruptcy and Insolvency Act (the BIA ). 2 On September 29, 2006, Franklin Forbes (the bankrupt) settled his TD and CIBC Visa accounts out of the proceeds of a new mortgage on his house.

One month later, on October 27, 2006, he declared bankruptcy, citing indebtedness on three other credit cards. 3 After the trustee’s demand for repayment, TD Visa repaid the amount it received from the bankrupt to the bankrupt’s estate. CIBC refused, taking the position that the payment was not a preference under s. 95 . 4 The application judge dismissed the trustee’s application.

He concluded that the evidence was insufficient to prove that the bankrupt was insolvent at the time of the payment to CIBC or that the bankrupt’s intention was to prefer CIBC over other creditors. 5 The trustee’s appeal of this decision is accompanied by its motion to have fresh evidence considered by this court. The BIA 6 The pertinent portions of s. 95 read as follows: Preferences 95. (1) … [A] payment made … by an insolvent person

(

a) in favour of a creditor who is dealing at arm’s length with the insolvent person … with a view to giving that creditor a preference over another creditor is void as against … the trustee if it is made … during the period beginning on the day that is three months before the date of the initial bankruptcy event and ending on the date of the bankruptcy; ... . . . . . Preference presumed

(2) If the … payment … has the effect of giving the creditor a preference, it is, in the absence of evidence to the contrary, presumed to have been made … with a view to giving the creditor the preference – even if it was made … under pressure – and evidence of pressure is not admissible to support the transaction. 7

Section 2 of the BIA defines “insolvent person” by three different tests:

Definitions 2. In this Act, . . . . . “insolvent person” means a person who is not bankrupt and who resides, carries on business or has property in Canada, whose liabilities to creditors provable as claims under this Act amount to one thousand dollars, 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 valuation, sufficient, or, if disposed of at a fairly conducted sale under legal process, would not be sufficient to enable payment of all his obligations, due and accruing due; . . . . . 8 Amendments to s. 95 were proclaimed in force while this case was on reserve in the court below. See S.C. 2007, c. 36, s. 42, proclaimed in force on September 18, 2009. The judge cited the current version of s. 95 in his reasons and counsel agreed that he was correct to do so. Because no substantive changes were made to s. 95 that must be considered for this appeal, I have cited the current version as well. The

Section 95 Application and the Evidence 9 In support of its application, the trustee filed the affidavit of Douglas Collins. He attached various documents and correspondence to his affidavit, including the bankrupt’s Assignment for the General Benefit of Creditors and Statement of Affairs (Non- Business Bankruptcy), as well as correspondence related to the settlement and payment of the bankrupt’s CIBC Visa account. In his affidavit, Mr. Collins referred to the bankrupt’s “three other credit card accounts”:

As appears from his Statement of Affairs, the Bankrupt had at least three other credit card accounts, none of which were paid any of the refinancing proceeds. Given that CIBC and TD VISA were paid only one month prior to bankruptcy, then, it appeared to me that those two creditors had been preferred. 10 In response, CIBC filed the affidavit of Jeffrey Loranger, an employee of CBV Collection Services Ltd., the collection agent for CIBC. Mr. Loranger outlined the dealings that he had with respect to the settlement of the CIBC Visa account.

He concluded his affidavit by stating: Based on my conversations with [the bankrupt] and [the mortgage broker], I do verily believe that [the bankrupt] had carried out an arrangement to restructure debts of his to make his situation more manageable with his creditors, and that the payment of $15,000.00 to CIBC was part of that arrangement. 11 Mr. Loranger attached to his affidavit a copy of the

summary of account from CIBC Credit Card Services for the bankrupt’s CIBC Visa account for the period from September 14, 2006, to October 13, 2006. 12 Neither party cross-examined on the other’s affidavit and neither party provided evidence directly from the bankrupt.

The Evidence from the Affidavits 13 The bankrupt, who was retired, made his assignment in bankruptcy on the basis of “being unable to pay my debts as they become due.” He declared a modest pension income of less than $1,000 monthly and unsecured indebtedness of $22,001 to three creditors, identified as follows: 1) Bank One - Visa ($8,795); 2) Citibank Canada Mastercard ($6,715); and 3) Hudson ’s Bay Company - Recovery Department ($6,491). 14 He also declared that he owed Sun Mortgage Company $45,000, which was secured by the new mortgage (shown on title to be in the amount of $39,000) against his house, which he valued at $55,000.

His other assets (cash, furniture and personal assets) were minimal, totalling only $1,459. 15 In the information accompanying his Statement of Affairs, he declared that he had not “[m]ade payments in excess of the regular payments to creditors” within the 12 months prior to the date of the bankruptcy. 16 By September 29, 2006, TD Visa had obtained judgment against the bankrupt (for an amount not made known to the judge) and the

summary of account for the CIBC Visa account showed that the “[t]otal minimum payment due” was $18,223: Account

summary Previous balance $17,902.42 . . . . . Interest 320.59 Total debits + 320.59 New Balance = $18,223.01 Minimum payment due

You must immediately pay the greater of: The amount over your credit limit $1,723.01 or The amount past due from last month 17,902.42 17,902.42 Please pay the current Amount due by Nov 8 + 320.59 Total minimum payment due = $18,223.01 17 At the time of the bankrupt’s discharge in June 2007, the trustee was unaware of any potential payments offending s. 95. 18 After investigating the payments made to TD Visa and CIBC Visa in the spring of 2008, the trustee demanded that thepayments be repaid to the bankrupt’s estate. After CIBC refused, the trustee brought its application under s. 95. The Law 19

Section 95 applies to a payment that was made by a bankrupt (described as “the debtor” in the rest of this

section on “TheLaw”) prior to bankruptcy, provided that: 1) it was made within the prescribed period of time prior to the date of bankruptcy; 2) thedebtor was insolvent on the date of the impugned payment; and 3) the debtor had the intention to prefer one creditor over another.

Onthis appeal, there is no issue that the bankrupt’s payment to CIBC fell within the applicable three-month period prescribed by s. 95. 20 The trustee has the initial burden to prove the debtor was insolvent by establishing that at least one of the three tests set out inthe definition of insolvent person existed on the date of the impugned payment. The court is not to presume insolvency. See Black &White Hat Shop Ltd., In re (1925), (MB CA), 35 Man.R. 9 (C.A.), and Van der Liek, Re (1970), 14 C.B.R. (N.S.) 229(Ont. S.C.).

Some cases describe the need for the evidence of insolvency to be “clear and convincing.” For example, see Krawchenko(Bankrupt), Re, 2005 MBQB 97 at para. 11, 198 Man.R. (2d) 120. 21 While I have no quarrel with that description, it must be understood in its proper context of a shifting evidentiary onus. Oncethe trustee establishes a prima facie case of insolvency, the onus shifts to the defendant creditor to adduce evidence to rebut that primafacie case. See Robinson v. Countrywide Factors Ltd., (SCC), [1978] 1 S.C.R. 753. McQuaid J.A. explained the onusin Lotito Estate v.

Scantlebury-MacDougall (1996), (PE SCAD), 43 C.B.R. (3d) 23 (P.E.I.S.C. (A.D.)) (at para. 14): …. The appellant had the burden of establishing a prima facie case that one of these three alternative situations [under s. 95] existed. If,on a balance of probabilities, the appellant established such a prima facie case, the evidentiary onus shifted to [the creditor] to rebut theprima facie evidence. See: Robinson v.

Countrywide Factors Ltd. (1977), (SCC), 23 C.B.R. (N.S.) 97 (S.C.C.) at pp.135-136 …. 22 Once the trustee has established that the debtor was insolvent on the date of the impugned payment, the next question iswhether the debtor had the intention to prefer one creditor over another by that payment. 23 It is not enough that a payment creates a preference in fact. The trustee must establish that the debtor had the intent to preferone creditor over another. The cases refer to this intent as “the dominant intent.” The intent of the creditor who received the payment isirrelevant.

As stated by Belzil J.A. in Norris, Re (1996), 1996 ABCA 357 , 44 C.B.R. (3d) 218 (Alta. C.A.) (at para. 16): …. The state of mind of the debtor at the time of making the payment is ultimately the paramount consideration to be addressed by thecourt. The intent or state of mind of the preferred creditor is irrelevant, Hudson v. Benallack (1975), (SCC), 21 C.B.R.(N.S.) 111 (S.C.C.). 24 The dominant intent is based on an objective assessment of the circumstances.

In other words, the intention will be what thedebtor’s conduct objectively demonstrates when reasonably construed and not what the debtor (or others) may claim was his or herintention long after the payment was made. The point is made in the oft-cited decision in Holt Motors Ltd., Re (1966), (MB KB), 9 C.B.R. (N.S.) 92 (Man. Q.B.) (at p. 95): …. The test which I consider should be applied is an objective and not a subjective one; that is to say, the intention which should be

attributed to the parties will always be that which their conduct bears when reasonably construed and not that which, long after the event,they claim they believe was present in their minds. 25 In Coast Wire Rope & Supply Ltd. (Trustee of) v. Trans Pacific Hardware Inc., 1999 BCCA 217, 9 C.B.R. (4th) 255, FinchJ.A. also emphasized the objective nature of the test (at para. 8): …. … [T]his Court has held in Ferrostaal Metals Canada Ltd. v. Olympic Steel Ltd. (Trustee of), [[1985] B.C.J. No. 2276 (QL)], at p. 6,that the intention of the debtor is to be determined objectively and not subjectively. Mr.

Justice Carrothers for the Court said at para. 17: The relevant intention governing determination of whether the prima facie presumption of a preference has been rebutted is that intentionwhich the conduct of the parties bears when reasonably construed. It is an objective rather than a subjective test. In other words, the conduct of the parties may be a better measure of the debtor’s intention than his expressed words. See also West End Furniture Co. (Trustee of) v. Sinnott’s Ltd. (1989), (NL CA), 75 C.B.R. (N.S.) 209 (Nfld. C.A.)and St. Anne-Nackawic Pulp Co. (Trustee of) v.

Logistec Stevedoring (Atlantic) Inc. [Logistec Preference Appeal], 2005 NBCA 55, 13C.B.R. (5th) 125. 26 Section 95(2) is crucial to the analysis. It creates the presumption of preference referred to by Finch J.A. in the above quote. Once a preference in fact has been established, this presumption of intent to prefer applies. The creditor receiving the payment mustrebut the presumption. M.A. Springman, George R. Stewart & J.J.

Morrison, Frauds on Creditors: Fraudulent Conveyances andPreferences, looseleaf (Toronto: Thomson Reuters Canada Limited, 2009), describes the presumption and the process (at p. 20-37): …. … [T]he threshold issue for the trustee on the question of intent should be whether the transaction had the effect of conferring apreference. If it can be established that the transaction in question had that effect then, pursuant to section 95(2) of the Act, the intentionto prefer will be presumed unless the creditor preferred can establish on the evidence that there was no intention to prefer.

Therefore,where the presumption of section 95(2) arises, the question of intention should arise only where the presumption has been establishedand the creditor is called upon to rebut it. When the question of intent arises, the creditor must argue from the circumstances that theintent of the debtor was something other than to prefer the creditor. …. The Judge’s Decision 27 The judge identified the two questions that he had to address: 1) whether the bankrupt was insolvent on the date the paymentwas made to CIBC (September 29, 2006); and 2) if he was insolvent, whether the payment was a preference under s. 95.

He answeredboth questions in favour of CIBC and dismissed the trustee’s application. 28 When answering the first question, the judge highlighted the lack of evidence from the trustee concerning the existence ofthe “three other credit cards” on September 29, 2006. As a result, he was “not satisfied that the bankrupt was ‘insolvent’ on the date ofpayment (September 29, 2006)” (at para. 13). 29 The judge addressed the second question in the event he was wrong in concluding that the bankrupt was not insolvent onSeptember 29, 2006.

He concluded that (at para. 14): …. … CIBC has established that this is one of those “diligent creditor” scenarios referred to in the authorities. … [T]hat the bankrupt’sdominant intention at the time of the payments to CIBC and TD Visa was to obtain new financing at a lower interest rate …. 30 Just before stating this conclusion, he again focussed on the absence of evidence about the existence of the “three other creditcards” on September 29, 2006 (ibid.): …. Clearly, if the three credit card accounts … were in existence on September 29, 2006, any such plan [to refinance] was improvidentand unreasonable.

However, I have no proper evidence before me to support that conclusion. Again, particulars of these debts couldhave been proven by the Trustee and may well have supported the overall positions of the Trustee. ….

Positions of the Parties The Trustee 31 The essence of the trustee’s position is that the judge erred when he focussed on the absence of evidence rather than the evidence before him. The trustee does not assert that the judge did not explain the law correctly, rather it says that he applied it incorrectly to the evidence. 32 The trustee argues that the evidence establishes that the bankrupt was insolvent on September 29, 2006, under any of the three applicable tests.

However, it says that one need not go further than the first test because the evidence demonstrates that the bankrupt was “unable to meet his obligations as they generally [became] due.” 33 The trustee asserts that the judge made several palpable and overriding errors, such as: 1) concluding that the bankrupt’s monthly payment to CIBC was $320 when the account was in collection and the total amount was due and owing; 2) failing to infer that the bankrupt had not been meeting his obligations as they became due in the face of the evidence that the indebtedness to TD Visa was by way of judgment; and 3) failing to consider the three other creditors listed in the bankrupt’s Statement of Affairs. 34 Further, the trustee argues that the judge failed to take into account that the bankrupt lied when he declared he had not paid any creditors in excess of the regular payments within 12 months of the date of bankruptcy when, in fact, he had paid out TD Visa and CIBC, and that Mr.

Collins’s unchallenged opinion as an officer of the court was that the bankrupt was insolvent at the material time. 35 With respect to the preference issue, the trustee asserts that the judge erred when he found that CIBC had rebutted the presumption of preference. It says that given the preference in fact to CIBC, the presumption applied and the judge erred in not applying it properly. It says that the effect of the judge’s approach was to shift the onus incorrectly onto the trustee when he should have drawn an adverse inference against CIBC for not adducing evidence from the bankrupt.

The trustee says that this is a palpable and overriding error, if not an error of law. CIBC 36 CIBC responds that the judge made no errors of law and no palpable and overriding errors and therefore, this court cannot intervene and must show deference to the findings of the judge. 37 More particularly, CIBC asserts that the judge could not give credence to the bankrupt’s information in the Statement of Affairs because the bankrupt was not credible for the very reason argued by the trustee.

In any event, it says that the Statement of Affairs spoke from the date of bankruptcy and not as of the date of the payment to CIBC, one month earlier. Further, it says that the judge was entitled to conclude that the evidence of insolvency was “sketchy” (at para. 13) and therefore did not meet the standard to prove insolvency. 38 With respect to the preference issue, CIBC acknowledges that it had the onus to prove that the bankrupt did not make the payment to CIBC with the intention of giving it a preference. It says that Mr.

Loranger’s evidence demonstrates that CIBC was pressing the bankrupt for payment, which resulted in the payment to settle the indebtedness. The payment, it asserts, was part of a reasonable plan to avoid bankruptcy by refinancing and restructuring and was in response to CIBC acting as a diligent creditor. 39 CIBC acknowledges that the judge made a palpable error when he stated that the bankrupt was only required to pay $320 monthly to CIBC rather than payment in full of $18,223.

However, it asserts that the error was not overriding given the evidence that, on the date of payment, the bankrupt had reached a settlement with CIBC to pay $15,000. 40 Finally, CIBC says that the judge did not err when he did not draw an adverse inference against CIBC for not adducing evidence from the bankrupt and that there was no shifting of onus, as argued by the trustee.

As for the judge’s comments that he had no evidence of the amounts owing by the bankrupt at the date of payment, CIBC asserts that the judge was simply pointing out that the trustee had failed to meet its initial onus of proving insolvency and a preference in fact.

Analysis and Decision Issues and Standard of Review 41 This appeal is not about how the judge articulated the law or the issues. Rather, it is about how he applied the legal tests tothe evidence before him and the inferences that he made or failed to make. Thus, the issues raised by the trustee are either questions offact or questions of mixed fact and law which do not entail any extricable legal principles. The standard of review is therefore palpableand overriding error. See Canada (Director of Investigation and Research) v. Southam Inc., (SCC), [1997] 1 S.C.R.748 at para. 35; Housen v.

Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235; H.L. v. Canada (Attorney General), 2005 SCC 25, [2005] 1S.C.R. 401; and Knock v. Dumontier et al., 2006 MBCA 99, 208 Man.R. (2d) 121. 42 The two overarching issues in this appeal are: 1) Did the judge err in not finding the bankrupt insolvent on September 29, 2006? 2) If the bankrupt was insolvent on September 29, 2006, did the judge err when he did not find that the payment to CIBC was apreference under s. 95?

Did the Judge Err in Not Finding the Bankrupt Insolvent on September 29, 2006? 43 After explaining the onus on the trustee to prove insolvency, the judge commented upon the absence of evidence from thetrustee (at para. 10): …. Here, there is proof that the bankrupt was having some financial problems in August and September 2006 in that he was not meetingsome of his obligations (to CIBC and TD Visa). There is no evidence as to whether he was making payments on any other debts heowed at that time.

I have no evidence from the bankrupt himself, no evidence of the amounts of any other unsecured accounts that mayhave existed as at the date of the payment (September 29, 2006), and no evidence of the amount owed or paid to TD Visa as at that date(albeit, whatever the amount was, it was subsequently recovered by the Trustee). …. [emphasis added] 44 Because of this absence of evidence, he concluded that the trustee had not met its onus to establish that the bankrupt wasinsolvent on September 29, 2006 (at paras. 11-13): Dealing firstly with the third test noted above [para. (c)], I am not prepared to infer or conclude, absent evidence which was readilyavailable and compellable, that the three credit card accounts referred to in the October 27, 2006 statement of affairs existed and (or)were in arrears as at September 29, 2006.

Clearly, the amounts and the dates create a suspicion; however, to conclude this withoutspecific evidence (particularly when that evidence is available) would be mere speculation. As to the other two tests (paras. (

a) and (

b) noted above), I respectfully disagree with the conclusions urged by the Trustee. Prior to thesettlement with CIBC, the monthly payment on this indebtedness was $320.59. I have no evidence as to what amount was owed to TDVisa or what regular payment was required, although it appears that this debt was reduced to judgment and probably required payment infull.

Absent proof of any other existing debts at September 29, 2006 (other than the new mortgage loan used to pay CIBC and TD Visa),the evidence falls short of establishing that the bankrupt was “unable” to meet his obligations as they generally became due or that hehad ceased paying his current obligations as they generally came due. At best, he had decided to refinance these two loans by way of amore manageable mortgage loan. Clearly, the monthly payment owed to CIBC was a significant portion of the bankrupt’s gross monthlyincome.

However, this debt carried interest at 24% per annum and the bankrupt may well have been able to meet the monthly paymenton the new mortgage. The mortgage would probably bear interest at a considerably lower rate than either CIBC or TD Visa (whateveramount was owed to TD Visa). … [T]he Trustee’s evidence on this issue is “sketchy”, “less than clear and convincing”, and “does not meet the standard required” (see

para. 12 of the decision of Suche J. in Krawchenko , supra ). I am not satisfied that the bankrupt was “insolvent” on the date of payment (September 29, 2006), notwithstanding that the evidence establishes his insolvency on the date of bankruptcy (October 27, 2006). …. [emphasis added] 45 The judge had every reason to note the evidence that he did not have and to be critical of the trustee for not providing it. More direct evidence about the existence of the three credit card debts on September 29, 2006, would have been helpful and preferable.

Having said that, there was evidence that had to be considered and by focussing on the absence of evidence as the judge did, he failed to do so. 46 The question for the judge was whether the evidence that he did have from the trustee was sufficient to infer, on a prima facie basis, that the indebtedness that existed on October 27, 2006, also existed on September 29, 2006.

In my view, the only reasonable inference to be drawn from that evidence is that the indebtedness that existed on October 27, 2006, or at least almost all of it, was far more likely than not in existence one month earlier. 47 A review of the evidence properly includes the declarations of the bankrupt as to his assets and liabilities. I do not accept CIBC’s argument that this evidence was not credible because the bankrupt declared that he had not paid any creditors within the 12 months prior to his bankruptcy.

In my view, the evidence pertaining to the bankrupt’s assets and liabilities as at October 27, 2006, was properly considered because it was not challenged in any way by other evidence. 48 I review the evidence to demonstrate my conclusion. As of September 29, 2006, TD Visa had obtained judgment against the bankrupt on its credit card account and the CIBC Visa account was in collection. Both accounts were paid out of the new mortgage proceeds. Obviously, the bankrupt had not been paying these accounts as they became due.

As of October 27, 2006, the bankrupt had assets, apart from his house, totalling $1,459 and he owed $22,001 on the “three other credit cards.” His income was minimal and he said that he was “unable to pay my debts as they become due.” His Hudson’s Bay account was noted as being with the “Recovery Department.” 49 Simply put, these facts speak to the bankrupt’s inability to pay his credit card indebtedness as it became due. When the bankrupt declared he was unable to pay his indebtedness as it became due on the three credit cards, the only reasonable inference is that he was unable to pay them one month earlier.

Therefore, the evidence establishes, at least on a prima facie basis, that the three credit card debts existed on September 29, 2006. 50 None of the evidence filed by CIBC rebutted this prima faci e evidence. In fact, it supported it.

It confirmed the bankrupt’s inability to pay his debts as they became due as the monthly payments to CIBC Visa were not current and the account was in collection. 51 To conclude, the only reasonable inference to be drawn from all of the evidence, when considered in totality, is that the bankrupt’s accounts for the “three other credit cards” existed on September 29, 2006, and were unpaid.

Given that the bankrupt did not have sufficient assets to pay these debts on September 29, 2006, the trustee did establish on the balance of probabilities that on that date, the bankrupt was unable to meet his obligations as they became due. 52 Given that conclusion, I need not address whether the trustee established insolvency under the other two tests. 53 However, I wish to comment briefly on the second test.

The definition of person in the BIA is broad and includes “a partnership, an unincorporated association, a corporation, a cooperative society or a cooperative organization.” The second test for insolvency is whether the person “ceased paying his current obligations in the ordinary course of business as they generally become due.” It appears from the record and the judge’s reasons that the second test was at play. I question the applicability of the second test to the circumstances here because the bankrupt was retired and not carrying on business.

Given that this question was not an issue before the judge, or on appeal, I simply highlight my query and suggest that any party relying on this provision in the future address the question of whether it applies to any person or only those who were carrying on business. Did the Judge Err When He Did Not Find that the Payment to CIBC was a Preference Under

Section 95? 54 The judge addressed this question in the event that he was wrong in his conclusion that the trustee had not demonstrated that the bankrupt was insolvent on September 29, 2006, because of his indebtedness on the “three other credit cards.” As will be explained, I am of the view that the judge made two palpable and overriding errors in his analysis. 55 The first was that he wrongly focussed on the absence of evidence.

The judge wrote (at para. 14): …. … [I]f the three credit card accounts evidenced in his statement of affairs (totalling $22,001) were in existence on September 29, 2006, any such plan was improvident and unreasonable. However, I have no proper evidence before me to support this conclusion. …. [emphasis added]

56 This was an error because, at this stage of the inquiry, he had to assume that the trustee had proven the bankrupt’s insolvencyon the basis of the very existence of the indebtedness on the “three other credit cards.” 57 The second error was that the judge placed too much emphasis on the bankrupt’s subjective intention, as established throughMr. Loranger. In effect, he placed the onus on the trustee and failed to give effect to the presumption under s. 95(2), as argued by thetrustee. 58 There can be no question that the payment to CIBC had the effect of preferring CIBC over the three other creditors.

In otherwords, there was a preference in fact. In these circumstances, s. 95(2) comes into play and the intention of the bankrupt to prefer ispresumed unless CIBC has shown that the bankrupt did not have that intention. There is no such evidence. 59 The evidence of Mr. Loranger was that he understood that the bankrupt was attempting to reorganize his affairs.

However,as explained earlier, the bankrupt’s intention is determined based on an objective analysis of the circumstances and not the subjectiveintent of the bankrupt, or the intent of the creditor. 60 A plan by an insolvent person to reorganize his or her financial affairs must be objectively reasonable to rebut thepresumption. See Coast Wire Rope & Supply. In Dubois-Vandale (Bankrupt) v. MBNA Canada Bank, 2006 MBQB 258, 209 Man.R.(2d) 268, Hanssen J. explained this well (at paras. 16-18): To rebut the presumption, MBNA must show on a balance of probabilities that Ms.

Dubois-Vandale’s dominant intention was not toprefer a creditor. The court must look at all of the circumstances and determine if there was in fact an intention on her part to giveMBNA a preference. Where, as here, a bankrupt asserts that it was her intention to reorganize her affairs and avoid bankruptcy, herintention must also be objectively reasonable. See Holt Motors Ltd., Re (1966), (MB KB), 9 C.B.R. (N.S.) 92 (Man.Q.B.). MBNA has failed to show, on a balance of probabilities, that Ms. Dubois-Vandale’s dominant intention was not to prefer it. Ms.

Dubois-Vandale selected the accounts which she wanted to pay in full on January 28, 2004. She paid these accounts knowing that other debtswould receive only a minimal payment or no payment whatsoever. While I am satisfied Ms. Dubois-Vandale’s plan was to try to secure financing to consolidate the remainder of her debts and avoidbankruptcy, her plan was not objectively reasonable. She was hopelessly insolvent.

Her debts greatly exceeded her [assets] and she didnot have sufficient income to service a loan of the magnitude she required to consolidate her debts. [emphasis added] 61 Here, the bankrupt’s conduct, viewed objectively, is that he preferred CIBC to the other three creditors that existed onSeptember 29, 2006. His plan was “improvident and unreasonable” (at para. 14), using the judge’s own words. It was not objectivelyreasonable. 62 Therefore, the payment to CIBC is a fraudulent preference pursuant to s. 95 and is void.

Conclusion 63 The judge erred when he failed to consider evidence of indebtedness and concluded that the evidence was insufficient toestablish that the bankrupt was insolvent on the date of payment to CIBC. The judge also erred when he concluded that the evidence didnot establish that the bankrupt had the intention to prefer CIBC to other creditors.

Because these errors are palpable and overriding, theconclusions of the judge are not entitled to deference. 64 For the reasons set out above, I am of the view that the trustee established that the bankrupt was unable to pay his obligationsas they became due on September 29, 2006, and, therefore, he was an insolvent person on that date. I am also of the view that thepresumed intent to prefer arising from the preference in fact in favour of CIBC was not rebutted by CIBC.

Therefore, the payment toCIBC on September 29, 2006, is void as a preference under s. 95 of the BIA. 65 Given the foregoing, the fresh evidence motion is moot and need not be addressed. 66 I would allow the trustee’s appeal, declare that CIBC received a preference in the amount of $15,000 and order that CIBCpay the trustee $15,000 plus interest calculated at five per cent per annum from the date of bankruptcy to the date of payment, as soughtby the trustee in its notice of application. I would order costs in favour of the trustee in this court and the court below.

J.A. I agree: J.A. I agree: J.A.