RBC v. Gustin, 2019 ONSC 5370

When is a farmer not protected from a creditor’s application for a bankruptcy order?

The Court-appointed Receiver sought the approval of its first report dated August 30, 2019 and various related relief. The only controversy was whether the Court could and should order the relief sought in para. 8 of the proposed draft order, which authorized the Receiver to file an assignment in bankruptcy on behalf of the Debtor.

The Debtor has been a farmer operating a hog and cash crop farm in Petrolia on land he owned and also rented elsewhere. Royal Bank of Canada (“RBC”) holds a mortgage on the property and a first ranking general security agreement. The Debtor is in default, which led to the appointment of the Receiver. 

The Debtor has not been cooperative, and there was evidence that he withheld relevant information and had or had threatened to remove assets from the Receiver’s reach. The Receiver and RBC claimed that he misrepresented that he was the owner of 931 hogs. The hogs may be owned by J. A. Cryderman Farms Inc. They are being managed by a business associate of the Debtor. The Debtor had made eight payments totaling $242,047 to this business associate between March and May 2019. 

The Receiver sought authority from the Court to make an assignment in bankruptcy of the Debtor. It sought to avail itself of the enhanced powers available to a trustee in bankruptcy under ss. 158 and 161-167 of the Bankruptcy and Insolvency Act (the “BIA”). This was necessary given the Debtor’s lack of cooperation and misrepresentations.

In support of the relief sought, RBC submitted that the Debtor had committed acts of bankruptcy as defined in s. 42(1) of the BIA, in particular subsections (f), (g), (h) and (j). He availed himself of the provisions of the Farm Debt Mediation Act, thereby acknowledging his insolvency. Sections 43-48 of the BIA protect farmers from creditor applications for bankruptcy orders.

The Receiver and RBC argued that the Debtor was no longer entitled to the protection afforded by the BIA because he ceased being a farmer when the Receiver was appointed. The Debtor, on the other hand, opposed the relief for the following reasons:
  • an assignment was premature because there was no evidence of what the creditor’s position will be on liquidation;
  • RBC was a single, secured creditor and as a result, must show special circumstances;
  • the cases relied upon by the Receiver and RBC both involved corporations rather than individuals; and 
  • there are remedies available under provincial legislation for improper conveyances etc. and resort to the BIA is unnecessary. 
The Court agreed that the Debtor ceased to fall within the ambit and protection of s. 48 of the BIA upon the appointment of the Receiver. His principal occupation and means of livelihood can no longer be said to be from active farming. 

Further, the Court was empowered to authorize the Receiver to file an assignment in bankruptcy. There was ample authority supporting that conclusion. There was no sound basis to distinguish the referenced jurisprudence simply because the debtors were corporations. There is no legal distinction between a person and a corporation.

While the Court acknowledged that there may well be remedies available under provincial statues, it held that it would be needlessly inefficient and expensive to resort to them. More importantly, it would serve to delay the orderly execution of the Receiver’s undertaking.

The Court granted the Receiver’s relief.

CounselJ. Ross MacFarlane of Flett Beccario for MNP Limited, the Receiver, Timothy Hogan of Harrison Pensa for the applicant, Royal Bank of Canada and Benjamin Blay of Cohen Highley for the respondent

 

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