IN THE SUPREME COURT OF BRITISH COLUMBIA
Citation:	Bankruptcy of Williams	Date:	20050127
	2005 BCSC 108	Docket:	B0523783
Registry:  Prince George
IN BANKRUPTCY   IN THE MATTER OF THE PROPOSAL OF BONNIE WILLIAMS

 

 

DECISION OF    MASTER BAKER   AS REGISTRAR

 

 

Counsel for the Trustee:	J. Christiansen
Date and Place of Hearing:	January 24, 2005
	Prince George, BC

ISSUE

[1]                 Mr. Hagen, the administrator / trustee (“the Trustee”) for Ms. Williams, seeks a declaration that a particular term of a consumer proposal is valid and permissible.  That term is:

10(b)     In the absence of appointed Inspectors the Administrator of this Consumer Proposal shall have the power to extend the time for the making of any payment required to be made pursuant to this Proposal provided that no such extension shall extend beyond the five years following the approval of this Proposal by the Court;

[2]                 Apparently this term’s inclusion in the proposal concerns the Office of the Superintendent of Bankruptcy Canada, whose representatives advised Mr. Hagen, the Trustee, that they did not consider it an appropriate inclusion in a consumer proposal.  Interestingly, however, the Superintendent’s formal position, as stated in a letter to the Trustee’s counsel, Mr. Christiansen, is that “…the Superintendent intends to take no position in respect of the application which is currently before the Court.”  Mr. Christiansen was therefore in the interesting position of placing all perspectives and all arguments, both for and against the term, before the court.

ANALYSIS

[3]                 The Bankruptcy and Insolvency Act[1] (the Act) imposes two important chronologies upon consumer proposals; the proposal must be completed within five years[2] and a default in any payments required by the proposal for three consecutive months results in a deemed annulment of the proposal[3].   A deemed annulment in a consumer proposal does not, as with conventional proposals, result automatically in bankruptcy.  Rather, the party simply reverts to his/her pre-proposal circumstance, and creditors may pursue their remedies unhindered by the Act.

[4]                 Swinton J. of the Ontario Superior Court considered the effect of s. 66.31 in Re Wiggins[4].  Ms. Wiggins’ situation is precisely the situation and statutory result that Mr. Hagen’s term attempts to avoid; after Ms. Wiggins failed for three months to make her payments, her proposal was deemed annulled.  Despite her deemed annulment, however, Ms. Wiggins’ administrator “…allowed her to pay the arrears and has continued to make distributions to creditors as if the consumer proposal remained in effect.”[5]

[5]                 After noting that the BIA contains no specific authority permitting the court to waive default after a deemed annulment, Swinton J. concluded[6] that neither does the court have any inherent jurisdiction to waive default once the proposal is deemed annulled.  Simply put, any application to waive default or to amend the proposal must be done before the three month period expires.

[6]                 It is interesting to note that, despite this black letter law statement, the Superintendent issued a “Position Statement” in May of 2004 which recognized the potential difficulties for consumer proposals that Wiggins noted.  The Superintendent therefore instructed Trustees that:

If, despite the deemed annulment of a proposal, the debtor has fully satisfied his or her financial obligations under the proposal prior to the administrator / trustee taking the actions prescribed by section 66.31, the administrator / trustee must forthwith issue a Certificate of Full Performance.

In other words, Trustees were directed by the Superintendent to ignore the clear effect and direction given by Wiggins.  The Superintendent’s directive, apparently, was meant as a temporary solution to address possible inequities created by s. 66.31, and was to apply for 30 days, after which the Superintendent “…will insist on the rigorous application of section 66.31.”  It is hard to see how such a directive and consequent Certificate could withstand a challenge by, say, a creditor.  Still, it points to the Superintendent’s justifiable concern (in my view) that the deemed annulment aspect of s. 66.31 can have mischievous effects.  The Superintendent gave further directions as to how Trustees were to treat deemed annulments if the debtor had resumed payments after a deemed annulment, but had not yet completed all required payments.

[7]                 It is also interesting to note that the Superintendent, following on ss. 5(4)(e) and 66.13(2) of the Act has prescribed Form 47 for use in Consumer Proposals, para. 6(a)(i) of which provides:

The creditors may appoint up to three inspectors responsible for the consumer proposal of the consumer debtor.  The inspectors may have, in addition to any powers of inspectors under the Act, the power to

(i)         receive any notice of default in the performance of a provision of the consumer proposal and waive any such default

(Emphasis added)

As this form and its term imply, an attempt is made to fill a gap in the Act: there is no authority in the Act for inspectors in a Consumer Proposal to waive default.  Mr. Christiansen points to the irony of the Superintendent promulgating a form which gives inspectors rights that the Act does not, while disagreeing with an analogous term respecting Trustees.

[8]                 Other authorities should be noted at this point.  The authors of Bankruptcy & Insolvency Law of Canada[7] state:

There can be a variety of plans put forward in a proposal.  The only limits are the ingenuity of the draftsman and the necessity for finding terms which will be acceptable to creditors.

As well, in Re McManus[8], Low J., of the Supreme Court of British Columbia, concluded (albeit in respect of a proposal that was not a Consumer Proposal):

Section 62(1) requires the trustee to file a copy of the proposal with the official receiver.  It does not give the official receiver any discretion to refuse to accept it.  It is nothing more than a procedural notice requirement.  I can find nothing in the Act that gives the official receiver any control over the content of the proposal.  Whether the proposal is legally valid and reasonable are judicial determinations which fall to the court under s. 59, not to the official receiver under s. 62(1).

These comments, taken together, in my view permit the Trustee and the debtor a great deal of flexibility in crafting a Consumer Proposal, the only limitation being that the proposed terms not offend or violate the terms of the Act.  Moreover, the Superintendent’s standing to question the legality of such terms is very limited.

[9]                 The Superintendent’s representatives advised Mr. Hagen that, in addition to there being no authority in the Act for the inclusion of the impugned term, the Superintendent considered that the term created a conflict of interest for the Trustee.  One assumes that the possible conflict arises from the Trustee’s entitlement to a fee for his / her services, payment of which is given priority by s. 66.26(1).  As Mr. Christiansen pointed out in argument, Trustees constantly balance rights, including, to a degree, theirs, in administering estates.  Moreover, it is hard to see how the  Trustee’s rights might bear unduly on a decision to waive default; in waiving default and extending the time for completion of the proposal the Trustee would, presumably, wait for payment of his / her fee in the same manner that creditors await payment.

CONCLUSION

[10]             I cannot, therefore, see how the impugned term offends, or is prohibited by, the Act.  Its inclusion seems, with respect, aimed at the general purpose of insolvency legislation, namely to assist well intentioned but unfortunate debtors in ameliorating or rehabilitating their financial circumstances.  While the specific authority for the provision is not found in the Act, the term is as reasonable and useful as the analogous provision suggested by the Superintendent in the promulgation of Form 47.  Finally, the term comes well within the ambit of the observations of Houlden and Morowitz, above, at para. 8.  The term is therefore a valid, permissible, and binding term for inclusion in Consumer Proposals.

[11]             The Trustee is entitled to his costs of this application, paid from the estate as requested.

“Master D. Baker as Registrar”