• Post category:Court Cases

Levick (Re), 2019 NSSC 45

Can a creditor file a claim after a dividend has been declared when it did not file a proof of claim within the time limited by the BIA?

In January 2016 Mr. Levick was assessed as a third party pursuant to the Income Tax Act. That was in relation to outstanding corporate income tax debt of El-Al Realty Company Limited. On October 31, 2016, Mr. Levick filed a Proposal under the Bankruptcy and Insolvency Act  (the “BIA”). Mr. Levick was subsequently deemed to be bankrupt.

CRA did not file a proof of claim in the bankruptcy. On August 22, 2017, Mr. Levick was discharged from bankruptcy. CRA did not file a proof of claim. It had been contacted by the trustee and invited to file a claim. CRA advised the trustee that no claim would be filed. The trustee sent CRA a Notice Requiring Person to Prove Claim, under s. 149 of the BIA. CRA did not respond to that notice. After the expiry of the 30-day notice period the trustee declared a final dividend in the estate. That happened on December 19, 2017.

After an inquiry from the Superintendent of Bankruptcy, CRA filed a proof of claim on January 9, 2018. Why it took that long to get CRA to respond is not clear. The trustee filed an amended Statement of Receipts and Disbursements providing for the payment of a dividend to CRA. The filing of the proof of claim by CRA was outside the 30-day period set out in the BIA. Mr Levick sought therefore to have the claim by CRA disallowed.

Section 149 of the BIA states that when a trustee has notice that a creditor appears to have a claim against a bankrupt estate, the trustee should send a notice to the creditor to prove the claim. If a creditor who has received a notice does not prove a claim within 30 days, that creditor’s claim is excluded from “all share in any dividend.” Here, CRA did not file a proof of claim within 30 days. CRA could have applied to the Court for an extension of that time and did not. CRA was outside the time limits set out in the BIA.

Section 150 of the BIA provides that a creditor who has not proved his claim before the declaration of any dividend is entitled on proof of the claim to be paid out of money that is still in the hands of the trustee. The creditor is not entitled to disturb the distribution of a dividend declared before his claim was proven, except on terms as may be ordered by the Court.

Counsel for Mr. Levick has argued that s. 150 does not apply to creditors who have received a notice to file a proof of claim. He says that the reason for that is obvious. If s. 150 could be used where notice had been given under s. 149(1), then s. 149(2) which excludes a person who has not proven a claim within the time limit from a share in any dividend, would be meaningless.

The interpretation to be given to s. 150 is significant. That section suggests that the proof of claim and the timing of the distribution of the dividend are related. If the claim is not proven before the distribution has been made, the creditor is not entitled to disturb that dividend. If the money is still in the hands of the trustee, the creditor may still prove his claim even if out of time.

The Court looked to two cases in arriving at its decision:
  • In Bank of Nova Scotia v. Janzen (Trustee of) (1989), the Bank of Nova Scotia was the creditor. The bank filed a proof of claim although it was not in proper form. It was returned by the trustee. Due to negligence, the bank failed to return a properly completed proof of claim. The trustee prepared a dividend sheet and the bank became aware that its claim had been excluded. The bank then filed a properly completed proof of claim prior to the actual distribution of the dividend. In this case, Justice Hallett allowed the bank’s claim, noting that “to disallow a creditor’s proof of claim filed before the distribution of a dividend is too harsh a penalty, even if the creditor was negligent in filing its proof of claim in the first instance.” His reasoning was based on an older expression of general rule that “so long as there remain undistributed assets in bankruptcy a creditor is entitled to come in and prove, as is the case in an administration suit so long as there are assets unadministered.” 
  • On the other hand, in 125258 Canada Inc. (Trustee of) v. Walker, the creditors had received two notices to prove their claims and had failed to do that. After the time had expired to prove their claims, they filed claims. The trustee disallowed them, and the creditors appealed to the registrar. The registrar concluded that the remedial provisions that allowed a creditor to file a proof of claim and participate in any dividends to be paid by the trustee, without upsetting the previous distribution, did not apply where the creditor had received notice to prove a claim. The time limits are meaningless if a creditor can simply rely on the remedial provision to file the proof of claim out of time.

Here, the Court concluded that the reasoning in Janzen was more persuasive. A just distribution requires that some consideration be given to the rights of a just claim made by a negligent claimant. The use of s. 150 to allow for late filing does not mean that the filing limits have no meaning. The creditor who files late has lost the benefit of participating in any distribution that has already been made. The claim may be subject to other conditions to reflect the lack of diligence on the part of the creditor. 

The motion made by Mr. Levick was denied.

CounselTim Hill of BOYNECLARKE LLP for the Applicant and Deanna Frappier of the Department of Justice for Canada Revenue Agency.