Albert Gelman Inc. vs 152949, 2021 ONCA 784

December 08, 2021

Can the limitation period for a trustee to bring a claim begin prior to the date of bankruptcy?

In October 2013, the court made a bankruptcy order against the bankrupt and appointed the respondent as Trustee. Subsequently, the Trustee took steps to recapture certain assets of the bankrupt. The Trustee brought a summary judgment motion seeking orders setting aside two transactions: (a) the transfer by the bankrupt of his 50% interest in his home to his wife (the individual appellant); and (b) the transfer of his shares in a company to the corporate appellant.

The appellants brought a cross-motion seeking the dismissal of the Trustee’s claims on two grounds. First, they argued that the proceedings constituted a misuse of the bankruptcy process and an attempt by the main creditor to obtain double recovery from the bankrupt. Second, they submitted that the claims were time-barred under the Limitations Act, 2002.

The motion judge found in the Trustee’s favour on all issues, and set aside the transfers. She concluded that the bankrupt’s transfer of his 50 per cent interest in the residence was both an “undervalue” transfer within the meaning of s. 96(1) of the Bankruptcy and Insolvency Act and a fraudulent conveyance under s. 2 of the Fraudulent Conveyances Act.

She was also satisfied that the transfer of the shares was made with intent to prefer the corporate appellant—a non-arms length creditor—and with intent to defeat the interest of other creditors. The transfer of the shares had been made only a few days before the bankruptcy application. The face value of the shares substantially exceeded the amount of the loan purportedly made to the bankrupt.

On appeal, the appellants argued that, because the main creditor was aware of the facts underlying the claims advanced by the Trustee more than two years before the Trustee advanced those claims, the Limitations Act, 2002 barred the Trustee from advancing those claims. The claims were made so that certain property owned by the bankrupt may be brought back into the bankrupt’s estate for the benefit of the creditors.

The Court of Appeal agreed with the motion judge that, for the purposes of the claims made by the Trustee in this proceeding, the Trustee could not be “the person with the claim” under s. 5(1) of the Limitations Act, 2002 until the Trustee had been appointed by the court. The limitation period in respect of the claims advanced here could not begin to run until the appointment of the Trustee in October 2013. Even then, the provisions of the Limitations Act, 2002 must be read with regard to the powers given to the Trustee to recover the assets of the bankrupt. As well, section 12 of the Limitations Act, 2002 did not have any effect on the Trustee’s right to bring forward the claims. The Trustee was not “a person claiming through a predecessor in right, title or interest”. The Trustee was claiming in its own right.

The appellants further argued that, even if the limitation period runs from the appointment of the Trustee, the claim with respect to the shares was not made until the Trustee amended the statement of claim in 2018, some five years after the Trustee commenced the action and three years after the two-year limitation period would have run. The Court of Appeal rejected that argument, holding that the amendments did not allege a new cause of action, but merely clarified the relief sought in the existing action.

Accordingly, the Court of Appeal concluded that the motion judge properly rejected the appellants’ submissions based on the Limitations Act, 2002, and dismissed the appeal.

Judges: Doherty, Miller and Sossin JJ.A.

Counsel: Steven Bellissimo, Kristina Bezprozvannykh and Frank Bennett of Chappell Partners LLP for the appellants; Lou Brzezinski and Alex Fernet Brochu of Blaney McMurtry LLP for the respondents