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In the Bankruptcy of Ya Jie Chao, (February 3, 2022), Toronto, Court File No. 31-2644762

Can a creditor annul a consumer proposal on account of ineligibility and fraud?

The debtor agreed to purchase a residential property for a purchase price of $2.12 million. The debtor initially paid deposits totalling $250,000. The debtor also executed and delivered to the creditor, Tiffany Park Homes (“Tiffany”), a statutory declaration that she had sufficient assets to close the transaction, being $1.1 million in equity in an Ontario property and $1 million in savings. Tiffany required this proof to satisfy its construction lender that the debtor was financially able to close on the purchase transaction.

The debtor was not able to close the purchase transaction as required, despite having been granted an extension. Tiffany subsequently commenced an action against the debtor. To mitigate its damages, Tiffany re-listed the property and sold it for a substantially lower price of $1,479,000. The difference in the purchase price, after taking into account $258,000 in deposits paid by the debtor, was $383,000. Tiffany offered to settle the litigation for $330,000.

The debtor filed the consumer proposal, and disclosed only two creditors: Tiffany at $63,000 and RBC Visa at $6,500. The debtor further disclosed that she sold the Ontario property and paid her half interest in the sale proceeds in the amount of $167,000 to her mother as a repayment for her mother’s contribution to the down payment for that property. The debtor did not disclose the $1 million in savings and investments which she disclosed in the statutory declaration or disclose its disposition.

Tiffany filed a proof of claim and was subsequently advised that the consumer proposal had been deemed approved given that there was no request to call a meeting of creditors. Tiffany sought to annul the consumer proposal on the basis that the debtor was not eligible to make a consumer proposal because she had debts in excess of $250,000, and the value of Tiffany’s debt disclosed by the debtor at $63,000 was not accurate.

The debtor attempted to justify the value that she ascribed to the Tiffany indebtedness on the basis that she thought the amount of her deposit should be deducted from the offer to settle amount. The Court found that the debtor was aware that the Tiffany claim was in excess of the $63,000 disclosed in her statement of affairs. First, the amount of the $330,000 offer less the $258,000 deposit equaled $72,000, not the $63,000 figure disclosed in the statement of affairs. Second, the $330,000 offer to settle amount was not the true measure of Tiffany’s indebtedness. It was the compromised amount of money that Tiffany was prepared to accept in settlement of the litigation. Third, the debtor was a real estate agent. She was aware of the very significant lower price achieved by Tiffany on the re-sale of the property. She was aware of the significant decline in the real estate market at the relevant time.

Accordingly, the Court concluded that the consumer proposal should be annulled on this ground alone. The debtor was not eligible to make a consumer proposal as she did not meet the definition of “consumer debtor” because her debts exceeded the $250,000 threshold. Further, the debtor knew that her debts exceeded the threshold.

Secondly, the Court held that approval of the consumer proposal was obtained by fraud as a result of the non-disclosures and inaccuracies in the statement of affairs and statutory declaration. The debtor knew that the offer to settle at $330,000 exceeded the threshold, yet she swore a statement of affairs that valued the claim at $63,000. The debtor also failed to disclose assets that she by statutory declaration claimed she owned. The non-disclosure warranted investigation by the administrator and an annulment of the consumer proposal.

The Court granted Tiffany’s motion to annul the consumer proposal.

Judge: Associate Justice Jean

Counsel: Sean Zeitz of Lipman Zener & Waxman for the moving party/creditor, Tiffany Park Homes (Woodbridge) Ltd.; Howard Manis of MANIS LAW for the debtor, Ya Jie Chao

Fullcase: https://mcusercontent.com/a3e2039936cbf8a31bda45ab3/files/4f05bd5f-f387-13e2-0786-6ab91c29eeac/31_2644762_Chao_Final_Reasons_26_Oct_2021.pdf

By Matilda Lici