• Post category:Court Cases

MacFarlane (Re), 2019 NSSC 201

When will a bankruptcy discharge be annulled?

The Bankrupt made an assignment in bankruptcy on August 4, 2016. One of his assets was a 2014 Ford Flex. The Trustee determined that the purported security on the vehicle was invalid and disallowed that security. The disallowance was not appealed, and the vehicle became an estate asset with a value distributable among the estate’s creditors.

The Bankrupt agreed to repurchase the vehicle for a discounted price of $15,702.50, and the Conditional Sales Agreement was perfected under the Nova Scotia Personal Property Security Act (the “PPSA“). He made various payments totalling $7,040, leaving a balance of $8,662.50.

During his bankruptcy, the Bankrupt also had surplus income within the meaning of s. 68 of the Bankruptcy and Insolvency Act (the “BIA“). As of the date of his discharge hearing, the Bankrupt paid less than 25% of what he should have under s. 68. When applying for the Bankrupt’s absolute discharge, the Trustee purported to “waive” the s. 68 surplus income balance. The discharge was issued.

The Bankrupt ceased payments in August 2018. The Trustee sought to annul the discharge. The Bankrupt argued that, as a discharged bankrupt, his duties were at an end, and that he was entitled to the $6,500 exemption in the PPSA. Further, he claimed that the Conditional Sales agreement was the entire agreement between the parties and that such contractual disputes should not be dealt with under the BIA process.

The Court’s jurisdiction to deal with this matter is found in s. 180(1) of the BIA. The Court held that the Bankrupt failed to perform the duties imposed on him by the BIA, and his conduct did not warrant any further latitude or discretion by the Court in respect of those duties. Duties are not suggestions, or actions to be undertaken when convenient or if life doesn’t get in the way. It was inappropriate for the Bankrupt to unilaterally decide that he was now the outright owner of the subject vehicle, sell it and pocket the money.

The Bankrupt’s obligations to the Trustee were not, in fact, a contractual matter. They were rooted in a repurchase agreement that was made in the course of bankruptcy proceedings. The only options available to the Bankrupt were to surrender the subject vehicle for the benefit of creditors, or repurchase it on terms acceptable to the Trustee. Even if the Court agreed that the PPSA exemption applied in this case, that would still leave an unpaid balance of $2,162.50, which the Bankrupt admitted he had no excuse for not paying.

Had the Bankrupt acted equitably and in good faith, the personal difficulties he cited may have invited empathy and accommodation from the Court in terms of modifying the payment terms. The Court held that he emphatically did not. The Court annulled the discharge and held that the Bankrupt owed his estate the sum of $8,662.50 in respect of the subject vehicle.

AppearancesJason Breeze, for the Trustee, BDO Canada Limited