Annulling a consumer proposal that has been fully performed?

Re Singh, 2024 ONSC 837
Does the Court have the authority under the BIA to annul a consumer proposal that has been approved by creditors and fully performed by the consumer debtor, and where the administrator has been discharged?

Overview: In this case, the Court annulled a consumer proposal that had been fully performed because the debtor had failed to disclose a potential claim against him. The Court found that the integrity of the system would be undermined if a debtor were permitted to benefit from not disclosing a potential claim to his or her administrator at the commencement of the process, that, if disclosed, could have a material impact on whether a consumer proposal would be accepted by creditors.

In September 2019, Singh filed a consumer proposal with the Administrator for the consumer proposal. A meeting of creditors took place in December 2019, at which time an amended proposal was approved by the voting creditors in accordance with the provisions of the Bankruptcy and Insolvency Act. The Administrator completed a Certificate of Full Performance of Proposal, which confirmed that the amended proposal was fully performed as of March 2, 2023, as well as a Certificate of Compliance and Deemed Discharge of Administrator, which resulted in the Administrator being discharged as of June 2, 2023.

On February 25, 2019, Nagra, who was the former father-in-law of Singh, commenced an action against Singh for payment of $87,000 plus interest and costs. A default judgment was subsequently issued against Singh in the amount of $91,403.50 and costs of $1,404, and a writ of seizure and sale was filed with the Sheriff in those same amounts. Singh and his former spouse sold the matrimonial home on February 28, 2023 and Nagra’s writ was lifted and $103,631.63 was paid into trust. That was the amount Nagra claimed was owed to him as of that date, and he moved to annul the proposal.

Singh’s statement of affairs dated September 16, 2019 listed unsecured liabilities totaling $81,555, and a contingent amount of $60,000 for CRA. Nagra was not included as a creditor in the list of creditors or statement of affairs. He argued that $94,027.98 was owed to him under the judgment as of the date the consumer proposal was filed. Singh argued that he was not aware of the existence of the default judgment when he had discussions with the Administrator prior to filing his consumer proposal, or at the meeting of creditors.

The minutes from the creditors meeting held show that CRA was the sole creditor that voted in favour of the consumer proposal. The other six proven creditors voted against the consumer proposal. The consumer proposal passed with a vote of 55.25% given the value of CRA’s claim.

The test for the annulment of a consumer proposal is set out subsection 66.3(1) of the BIA. Subsection 66.3(1)(a) is very clear in providing authority to the Court, without limitation, to annul a consumer proposal if the debtor was not eligible to make a consumer proposal when the consumer proposal was filed—even where the consumer proposal was fully completed. It cannot depend on how long the debtor’s true financial affairs are unknown whether due to any advertent or inadvertent actions on the part of the debtor or others.

The authority to annul a proposal is discretionary. In exercising such discretion, the Court should take into account the interests of the debtor and his or her creditors and balance their interests while maintaining the integrity and confidence of the public. When considering whether to exercise its discretion to annul a consumer proposal, the Court will take into account:

1. the knowledge of the debtor;

2. the creditor’s knowledge of the consumer proposal;

3. the eligibility of the consumer debtor to file a consumer proposal;

4. the amount and nature of the debt;

5. the timing of the application;

6. the interest of the debtor and creditors; and

7. the integrity and public confidence in the BIA and the process of consumer proposals.

In this case, Singh was personally served with the statement of claim but did not take any steps to defend that claim. While he may not have had actual knowledge of the default judgment and the registration of the writ at the time he initially met with the Administrator, he was required under the BIA to provide information on his financial situation. That obligation required him to inform the Administrator of any potential claims against him, even those he may dispute. Singh’s knowledge of the existence of a claim being pursued by Nagra, and his failure to disclose this to the Administrator at any time during the consumer proposal proceeding, weighed in favour of annulling the consumer proposal.

Nagra argued that Singh was ineligible to file a consumer proposal, and thus the consumer proposal should be annulled under subsection 66.3(1)(a). He relied on the fact that, at the time of the completion of the consumer proposal, there was $162,326.40 in proven claims, which, together with his claim of $94,027.98, exceeded the $250,000 consumer proposal threshold. Given that by the December 11, 2019 creditors meeting, CRA had a proven claim of $75,596.40, the total amount of claims would have increased to $251,179.38. As a result, Singh would no longer have been eligible to complete a consumer proposal by the time of the creditors meeting if Nagra’s judgment was known to the Administrator.

Moreover, Nagra’s judgment represented approximately 36.68% of the total claims proven against Singh. Had Nagra been able to file a proof of claim in an amount in excess of $14,400 and voted against the consumer proposal, the consumer proposal would have failed.

In the Court’s view, the balancing of the interests between Singh and his creditors weighed in favour of the creditors and annulling the consumer proposal. The integrity of the system would be undermined if a debtor were permitted to benefit from not disclosing a potential claim to his or her administrator at the commencement of the process, that, if disclosed, could have a material impact on whether a consumer proposal would be accepted by creditors. The system requires that creditors have confidence that they will be provided with proper notice of a consumer proposal and have the ability to elect to participate in the process if they so choose. Accordingly, the Court granted Nagra’s motion.

.Judge: Associate Justice Rappos

Professionals: Gregory Tufman of Tufman & Associates for Gurmeet Nagra (the moving party); Marryam Singh of A&M Lawyers for Kamaljit Singh; Paul Ihnatiuk, representative of BDO Canada Limited