John Trevor Eyton (Re), 2021 ONSC 3646

May 26, 2021

Can a statute-barred claim still be a provable claim in bankruptcy if it was included on the debtor’s statement of affairs?

The bankrupt gave the appellant a promissory note in the amount of $250,000 dated April 10, 2001 due on October 10, 2001. On September 15, 2009, the bankrupt and the appellant entered into an agreement where:

  1. the bankrupt acknowledged his default with respect to certain “indebtedness” and that he had no defence to an action to recover the indebtedness;

  2. the bankrupt acknowledged that the debt in question amounted to $400,000 as of October 1, 2009 including unpaid and accrued interest;

  3. the bankrupt agreed that commencing October 1, 2009, interest would be calculated at the rate of 12% per year compounded monthly; and

  4. the bankrupt agreed to make monthly payments of $6,000 beginning October 1, 2009 until the debt was repaid in full.

The bankrupt made no further payments after April 2016 and there was no evidence of any written acknowledgement of the debt thereafter.

The bankrupt was deemed to have filed an assignment in April 2019, following the failure of a proposal. The Form 79 Statement of Affairs filed by the bankrupt listed a claim of $600,000 in the name of the appellant. The appellant filed an unsecured proof of claim dated July 27, 2020 in the amount of $888,620.67. The schedule of indebtedness attached to the proof of claim did not show $400,000 owing as of October 1, 2009. Further, the September 15, 2009 agreement made no reference to the promissory note or even the fact that the advance was made in 2001.

The Trustee disallowed the appellant’s filed claim because “the last payment was made in April 2016 which is more than two years prior to the bankruptcy, this would result in the claim being statute barred”. The creditor appealed the disallowance of its claim to the Registrar pursuant to s.135(4) of the Bankruptcy and Insolvency Act, which appeal was unsuccessful.

The subsequent appeal from the Master’s order raised a narrow point: is a claim which is statute-barred under the Limitations Act, 2002 provable in bankruptcy? The appellant submitted that section121(1) of the BIA defines provable claims without any qualification in relation to debts affected by provincial limitation periods. Further, section 4 of the Limitations Act, 2002 is only procedural in effect because it does not purport to extinguish a debt subject to its provisions.

Section 4 of the Limitations Act, 2002 provides that “a proceeding shall not be commenced in respect of a claim” that is barred. The term “proceeding” is an intentionally broad term encompassing remedies of all kinds. Section 124 of the BIA requires every creditor to prove its claim in order to share in any distributions from the estate. Creditors do not automatically receive a distribution—they must file a proof of claim to be eligible to receive one and that action is a “proceeding”.

While a statute-barred claim continues to exist in the sense that it has not actually been extinguished, it is not a claim upon which any proceeding to enforce payment may be brought. The right to enforce is permanently extinguished by s. 4 of the Limitations Act, 2002, even if the underlying obligation is not.

The underlying policy of the BIA is to provide for the equitable distribution of the assets of the bankrupt among all creditors of the same rank. A statute-barred claim is not of the same rank as an enforceable claim because the creditor cannot enforce payment of it. The Court held that the argument advanced by the appellant, if followed, would lead to an absurd result. It would require the Court to find that a claim that was statute-barred and quite unenforceable one day becomes enforceable the next by virtue of a bankruptcy intervening.

Accordingly, the appellant’s claim was not provable in bankruptcy within the meaning of s. 121(1) of the BIA because it was not a claim to which the bankrupt was subject. The Court dismissed the appeal.

Judge: S.F. Dunphy J.

Counsel: Sam Babe of Aird & Berlis for the Appellant Forty-One Peter Street Inc.; J. Ross Macfarlane of Flett Beccario for the Trustee Harris & Partner Inc.; Jacqueline Dais-Visca and Adrian Scotchmer for the Superintendent in Bankruptcy