In this Motion before Madam Justice Vallee in the Ontario Superior Court of Justice on March 18, 2013, the court grappled with the issue of an assignment in bankruptcy by one party in the course of an application for equalization of net family property.  In this thoughtful yet concise judgment, Justice Vallee examines the circumstances under which Mr. Warner, the Respondent Husband, filed for an assignment in bankruptcy and motive for doing so.

Factual Background

The parties in this matter had a long history in court consisting of case conferences, a settlement conference and trial management conferences due to the Respondent Husband’s delay in obtaining a valuation of his pension and other property including his RRSP.  When it finally became clear that the matter was set to proceed to trial, and that the pension asset would be divided along with the other equalization property, the Respondent Husband filed a consumer proposal on October 10, 2012, resulting in a stay of proceedings.

Interestingly, the Husband’s proposal showed only relatively small debts; namely, a debt to Scotiabank in the amount of $11,130.00 and $11,800.00 in unpaid taxes to Canada Revenue Agency (CRA), both of which were incurred post-separation.  As Justice Vallee notes, “the main purpose of the consumer proposal was an attempt by Mr. Warner to avoid his equalization payment to his wife.

The Consumer Proposal was rejected and the stay of the family court proceedings was eliminated.”  Subsequently, the Respondent Husband made an assignment in bankruptcy, which was the subject of the Applicant Wife’s Motion.

The Court’s Analysis

Justice Vallee began by reviewing the law under s. 181(1) of the Bankruptcy and Insolvency Act which authorizes a court to annul a bankruptcy if it is of the opinion that an assignment ought not to have been filed.  As Madame Justice Vallee suggests, if such an order is made, “all actions taken by the Trustee are valid but the property of the bankrupt shall vest in any person the court may appoint.”

In determining whether a bankruptcy should be annulled, the court has wide discretion; a court will consider both the circumstances surrounding the assignment as well as the debtor’s motive in determining whether an abuse of process or fraud has occurred.

Mr. Klotz, the Applicant Wife’s counsel, further submitted that pursuant to s. 2(3) of the Family Law Rules, a family court has the authority to annul an assignment in bankruptcy, as the rules state that their primary objective is “to enable the court to deal with cases justly, ensuring that the procedure is fair to all parties and saving expense and time among other things.”

Madame Justice Vallee examined the timing of the assignment in bankruptcy (just a day prior to an intended Motion) as well as the Respondent Husband’s apparent motive, and concluded that the Respondent had filed for bankruptcy merely to avoid his equalization payment.  At paragraph 11, Justice Vallee states,

It is significant that while Mr. Warner has $22,000 in debts, his share in the matrimonial home is approximately $122,000.  His assets exceed his liabilities.  His RRSP and pension are exempt from the bankruptcy proceedings.  He is far from insolvent.  It is odd that someone with this amount of equity would make an assignment in bankruptcy.  There is no evidence that Mr. Warner made any efforts to have discussions with his creditors to work out payments…A bankruptcy is not a preferable approach to ordering Mr. Warner’s affairs.  In fact, it is probably the worst approach, as the assets may be sold for less than the amount that could be obtained in a private sale.

In the end, Madame Justice Vallee was unconvinced by the Respondent Husband’s excuse for filing for bankruptcy, claiming that his legal fees were escalating and they were “beyond his scope.”  Madame Justice Vallee, finding that Mr. Warner was solvent when he made the assignment in bankruptcy and that his only motivation was to stay the family law proceedings and avoid his equalization payment, ordered that the bankruptcy be annulled.

The court further ordered that the Respondent Husband not be allowed to commence another proposal proceeding under the BIA until the final disposition of Ms. Warner’s equalization claim and enforcement against Mr. Warner’s pension; and that certain property, including Ms. Warner’s half-interest in the matrimonial home and Mr. Warner’s RRSP vest immediately in Ms. Warner.

Although Ms. Warner had claimed an advance on her equalization, Madame Justice Vallee denied this claim on Motion, stating that the Applicant Wife must bring a further motion to have that issue determined after the property transfers and payments noted in her Order had been affected.