Levick v. Canada Revenue Agency, 2020 NSCA 2

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?

On appeal, the Debtor argued that he should be discharged from a tax debt which he went bankrupt to avoid, while retaining virtually all his assets, owing to Canada Revenue Agency’s failure to promptly pursue its claim. The Debtor relied on section 149 of the Bankruptcy and Insolvency Act (the “BIA“), which requires a creditor to file its proof of claim within 30 days of receiving notice to do so by the Trustee.

CRA alleged that the Debtor received a benefit arising from property transfers to him from his solely owned company, which owed taxes. The Debtor subsequently filed a Proposal under the BIA, identifying the CRA debt as his principal liability. CRA filed a proof of claim in the Proposal for $161,477.56 and voted against the Proposal, which resulted in its defeat. The Debtor was therefore deemed to have made an assignment in bankruptcy and his property vested in the Trustee.

On November 16, 2017, the Trustee forwarded to CRA a “Notice Requiring Person to Prove Claim” on or before December 18, 2017.  No response was received from CRA within those 30 days.  On December 19, 2017, the Trustee issued a Statement of Receipts and Disbursements identifying a surplus of $108,512.44 to be remitted to the Debtor.

On January 9, 2018, CRA filed a proof of claim with the Trustee. The Trustee issued an Amended Statement of Receipts and Disbursements which acknowledged CRA’s claim and provided for the payment of a dividend to CRA of $103,086.82. The Debtor objected that CRA had filed out of time.

Section 149(1) of the BIA provides for notification to creditors of proposed payment of a dividend. Section 149(2) forecloses the claim of notified persons, unless the Court extends time to file a proof of claim. The CRA relied on the broad remedial authority of s. 150 of the BIA. The Debtor argued that s. 149 is a complete “code” when notice to file a proof of claim has been given.  A person so notified may still prove a claim within thirty days—or within such further time as a court may allow—but otherwise is excluded from “all share in any dividend”.  So the remedial provisions of s. 150 can have no application.

The Court reviewed the legislative amendments that resulted in the language of sections 149 and 150, as well as the available Hansard evidence. It noted that neither of these sources supported the draconian interpretation of s. 149(2) for which the Debtor contended. However, it held that it need not answer that question to adjudicate this case.

In the BIA, sections 149 and 150 appear under the main heading “Dividends”.  The subheading for s. 149 specifically says “Notice that final dividend will be made”. The Notice sent to CRA was a Notice that a dividend would be paid within the meaning of s. 149(1). Because it would be impossible to declare a dividend if CRA did not file its proof of claim, the facts fell outside the language of s. 149(1). Therefore, the prohibition in s. 149(2) precluding payment of a dividend notified under s. 149(1) could not apply.

In contrast to s. 149, s. 150 preserves the longstanding policy of courts administering bankruptcy law to allow a creditor to prove a claim “at any time during the administration” provided that the creditor does not interfere with the prior distribution of the estate, unless the Court so permits. Section 150 applied to the circumstances of this case because CRA had not yet filed and no dividend could be declared by the Trustee as contemplated by s. 149(1). This interpretation furthers the objective of equitable treatment of creditors, prior to the payment of any surplus to the debtor.

The Court dismissed the appeal.

CounselTimothy Hill, Q.C. and Meaghan Kells of BOYNECLARKE LLP for the appellant and Deanna Frappier, Q.C. of the Department of Justice for Canada Revenue Agency.

 

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