Will the court approve a proposal in this current environment without an open hearing?
The application to approve a Division I proposal pursuant to s. 58 of the Bankruptcy and Insolvency Act (the “BIA“) was originally docketed for April 3, 2020. In light of the Covid-19 pandemic and restricted “normal” hearings, the Registrar was asked to approve the Division I proposal on a “desktop” basis; that is, without appearance by the Trustee.
The Trustee acknowledged that the Court was not physically sitting. It asked for the matter to “proceed without the requirement for Trustee attendance.” The Registrar refused to approve, or adjudicate, the matter without an open hearing (whether physical or virtual), with the capability of affected parties to appear and be heard. The matter continues to be adjourned without day.
The Court noted that, in times of crisis, it is more important than ever that not only does the rule of law prevail, but that it be seen as an open, steadying and consistent hand. Applications to approve Division I proposals are heard in open Court. Creditors receive notice. In this case, a creditor who wished to appear would have received notice of the time and place of hearing, but there was nobody in Court at the appointed intersect. Chances are, an attendant creditor or other interested person would not have been admitted to the building.
It is highly inappropriate to ask the Court to “sign off” outside of Court when it is not known what, if any, creditor objects. The Registrar only has jurisdiction to approve proposals when they are not opposed, or if the relevant parties consent to its hearing the matter. The Registrar currently has no way of knowing if there are any objecting creditors. Even if there is no objecting creditor, alternate hearing methods, including virtual ones, do not displace the Open Court principle.
It is even more important at a time when individuals are placed under constraints and restrictions for collective health and welfare, that rights and liberties that are not required to be compromised unequivocally are not. When a matter is heard other than in open court, or if part or all of a file is not available to the public at large, there has to be a good reason in law, such as is sometimes the case in family or criminal matters. Mere personal efficacy is not one of them, even if nobody from the media or public shows an interest and even if nobody except the Court objects.
The Court held that when the matter is eventually heard, it will be in an accessible proceeding. Affected parties, including creditors, would be required to be served with the date, time, and method of hearing, and of their means of participation (e.g. video or teleconference coordinates). It was inappropriate for the trustee to suggest a method that short circuits any element of due process.
The Court then considered whether the matter falls under the “urgent or essential” criteria currently in effect under the essential services delivery model. The Debtor filed for his first bankruptcy in 2000. He filed a consumer proposal on May 30, 2019, which was deemed approved on July 29, 2019. The Debtor defaulted, almost immediately, on August 1, 2019. He subsequently filed a Division 1 proposal on January 29, 2020—just under six months after his default.
There seems to have been little urgency on the part of the Debtor either to take care of his 2000 bankruptcy, or to address his August 2019 default by way of expediting the proposal currently before the Court. The creditors do not appear to have pushed the matter forward and they are all institutional lenders. There are no non-exempt assets in which there is any distributable equity. The proposal has only a limited net benefit to creditors over what is anticipated to be received in a bankruptcy.
The Court was not convinced that this case fell within the narrow “urgent or essential” criteria currently in effect.
Judge: Raffi A. Balmanoukian, Registrar