2017 ONSC 1070, 2017 ONSC 1070

CITATION : Gawri (Re), 2017 ONSC 1070 COURT FILE NO.: 31-457550 DATE: 20170127 SUPERIOR COURT OF JUSTICE – ONTARIO COMMERCIAL LIST RE: IN THE MATTER OF THE BANKRUPTCY OF POONAM GAWRI OF THE CITY OF VAUGHAN IN THE REGIONAL MUNICIPALITY OF YORK IN THE PROVINCE OF ONTARIO BEFORE: Conway J. COUNSEL: S. Zeitz, for Bankrupts, moving parties R. Moses, for Royal Bank of Canada J.

Satin, for Trustee HEARD: January 27, 2017 ENDORSEMENT ( Handwritten Reasons Delivered in Court ) [ 1 ] The Bankrupts move for an order that would permit a discharge hearing to be scheduled for them, notwithstanding the ongoing fraudulent conveyance action by RBC against them and others. [ 2 ] The relevant facts are as follows: 1. RBC provided a loan to XTC Design Clothing. The loan was guaranteed by the Bankrupts and secured against, inter alia , two properties (Santa Barbara and Siderno) owned by some of the Bankrupts. 2. RBC demanded on the loan in November 2009. 3.

Since that time, there have been ongoing discussions and negotiations to forbear or resolve/repay the loan. 4. RBC started a claim in February 2010 against the corporate debtor and Bankrupts. In October 2012, RBC obtained partial

summary judgment against them. 5. In February 2011, the Bankrupts granted a mortgage on the two properties to Raj (a brother) to secure $513,900 advanced by Raj to 1749815 Ontario Ltd., owned solely by Satish (another brother of the Bankrupts). RBC asserts that this was a fraudulent conveyance and amended its Statement of Claim and obtained CPLs against the two properties. 6. In November 2013, RBC obtained bankruptcy orders against the Bankrupts. Resolution discussions have been ongoing. 7. The Bankrupts sought RBC's consent to their discharge. RBC opposed.

The Trustee did not move forward with a discharge hearing. The Bankrupts did not themselves apply for a discharge hearing. 8. The fraudulent conveyance action (FCA) is now set down for trial (as of December 2016). RBC is attending trial scheduling court in April 2017 and seeks a trial date and pre-trial date as soon as possible. [ 3 ] The Bankrupts argue that their discharge hearing (DH) should be scheduled now and that it should not await the outcome of the FCA.

They argue that the case law in which a DH has been adjourned does not adequately factor in the interests of the bankrupt, and the impact and potential for abuse that any such adjournment can have on the bankrupt. [ 4 ] I have reviewed the case law put forth by counsel (in particular, Lechcier-Kimel (Re), 2016 ONSC 1185 ; Pantziris ( Re) , 2016 ONSC 1325 ; Kemila , Re , 1987 Carswell BC 236 and Re Horwitz 52 C.B.R. (NS) 102 ). [ 5 ] The following principles emerge from that review:

1. A DH is intended to be a

summary process and not the forum in which the court investigates allegations of fraud (see Saban, Re , [2012] O.J. No. 5640, at para. 13 ). 2. Courts have adjourned a DH where a secured creditor seeks to rely on findings in a civil action under s. 173(1)(

l) of the BIA as a factor in whether, or on what terms, a discharge should be granted. 3. Whether the DH should be adjourned is a matter of discretion . The factors to be taken into account in the exercise of that discretion are set out in Pantziris and include prejudice to the parties, the interests of the parties, the interests of society in tri-partite hearings, the court's ability to control its own process, and what (if any) has been the course of dealing in the civil action. I disagree with Mr.

Zeitz that the courts have not taken into account the interests of the bankrupt in moving forward with a DH (see for example, Master Jean's comments set out in para. 11 of Pantziris ). It is clear that all of the interests are to be taken into account - the bankrupt's, the creditors' and the court's. For that reason, it is not automatic that a DH be postponed if there is an ongoing action nor is it automatic that a DH be scheduled regardless of the ongoing action. It depends on the facts of the case and the exercise of the court's discretion.

I also note that courts have enabled a bankrupt to reapply for a DH if there has been delay in moving the civil action forward (see Sidhu, Re , 2004 BCSC 1589 and Kemila, Re , 1987 Carswell BC 236 ). [ 6 ] This motion has been brought before me as a matter of first instance. I have expressed to counsel that it should have proceeded before Master Jean, as is the usual procedure. However, they agreed and Justice Hainey permitted them to proceed before a Commercial List judge.

As such, and taking into account the principles set out above, I am determining the motion and exercising my discretion. [ 7 ] I am exercising it to adjourn the DH for the following reasons: 1. The FCA outcome could have a bearing on the DH. It is relevant for the court to know whether any facts are established that go to the conduct of the Bankrupts and the relief to be granted at a DH. 2. There is no evidence of delay by RBC in pursuing the FCA. 3. The FCA has been set down for trial and a trial date is to be obtained shortly. RBC has indicated that it is seeking to expedite the trial.

This is not an indefinite adjournment. 4. The progress of the litigation has been affected by ongoing resolution and discussions. 5. There is no evidence that this FCA has been brought for ulterior or improper reasons or to seek a shakedown. 6. The Bankrupts, I understand, do want to move forward with their lives. However, I must balance all of the interests in this case, including those of the creditors and the integrity of the system in taking into account relevant facts and factors on a DH. 7.

If any delay or other factors arise that could or would change this exercise of discretion, the Bankrupts may reapply to

schedule the DH. [ 8 ] I therefore dismiss the Bankrupts' motion without prejudice to their reapplying for a DH as a later date. [ 9 ] With respect to costs, I am of the view that the Bankrupts as the unsuccessful parties should be responsible for costs, notwithstanding their circumstances. They brought the motion and were unsuccessful - RBC and the creditors should not have to shoulder all of that burden. That said, and considering all of the Rule 57 factors, and in particular the reasonable expectation of the parties, I award costs to RBC on a partial indemnity scale of $16,000 all in.

The Trustee responded to the motion but filed virtually no materials and made short submissions today. I award $1,500 all in to the Trustee on a partial indemnity basis. Conway J. Date of Reasons: January 27, 2017 Date of Release : February 21, 2017