Bankruptcy and Insolvency - Avoidance of Transactions Prior To Bankruptcy - Fraudulent preferences
Applicants obtained judgment against their respondent neighbours in amount of $25,565.64 in relation to flooding incident. Several months later, one respondent voluntarily made assignment into bankruptcy 15 days after applicants tried to enforce their judgment by serving notice of examination. In her Statement of Affairs, respondent disclosed having assets of less value than by court’s determination. Applicants brought application to annul respondent’s assignment into bankruptcy, contending she was not insolvent person and that her bankruptcy was abuse of process as well as sought to annul consumer proposal filed by other respondent prior to judgment. Application judge dismissed applicants’ application to annul respondent’s consumer proposal but accepted applicants’ submission that respondents’ jointly held property was valued much higher than respondent alleged in her Statement, and that their mortgage debt was in good standing after having been reduced over time. However, application judge was not satisfied that applicants discharged onus of showing respondent was not insolvent on date of her bankruptcy. Application judge made decision according to respondent’s Monthly Income and Expense Statement, which listed expenses exceeding income by about $2,000 per month and as result held applicants had not shown respondent could meet her obligations generally as they became due and that her bankruptcy was not abuse of process. Applicants appealed. Appeal allowed. At date of her filing bankruptcy, respondent was not insolvent person as defined by s. 2 of Bankruptcy and Insolvency Act. Value of her assets greatly exceeded her liabilities and were available to satisfy them. Only evidence of any obligation she had not paid was debt owed to applicants from flooding incident. Respondent clearly did not meet any criteria of definition of “insolvent person” and because bankruptcy was reserved for “clear cut situations where the liabilities on which the petition is founded and the act of bankruptcy are clearly established by sound and convincing evidence.”. Fact that respondent reduced her mortgages and absence of any mortgage default belied any claim she could not meet her expenses as they became due or had ceased to pay her current obligations. Electing to structure her affairs to run monthly deficit of $2,000 did not mean she was insolvent since she had significant assets available to satisfy this deficit and debt to applicants. Therefore, applicants satisfied onus of demonstrating that respondent was not insolvent person at date of her bankruptcy and respondent’s bankruptcy was ordered annulled.
Kormos v. Fast (2019), 2019 CarswellOnt 7969, 2019 ONCA 430, Robert J. Sharpe J.A., S.E. Pepall J.A., and L.B. Roberts J.A. (Ont. C.A.); reversed (2018), 2018 CarswellOnt 16831, 2018 ONSC 6044, Cavanagh J. (Ont. S.C.J.).
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