





COURT OF APPEAL FOR
BRITISH COLUMBIA




Citation:



Dondale
(Re),









2009 BCCA
  10




Date: 20090115

Docket: CA035253

IN BANKRUPTCY AND INSOLVENCY

IN THE MATTER OF THE JOINT PROPOSAL OF

Ronald Manning
Dondale
and
Lynell
Marie
Dondale

Corrected Judgment: 
The text of the judgment was corrected at paragraph 9 on August 4, 2009




Before:



The
  Honourable Madam Justice Prowse





The
  Honourable Mr. Justice Hall





The
  Honourable Mr. Justice Low









D.
Nygard



Counsel for the Appellant





J.I.
McLean and S.
Pivnick



Counsel for the Respondents





Place and
  Date of Hearing:



Vancouver, British Columbia





16 October 2008





Place and
  Date of Judgment:



Vancouver, British Columbia





15 January 2009





Written
  Reasons by
:





The
  Honourable Mr. Justice Low





Concurred
  in by:





The
  Honourable Madam Justice Prowse
The Honourable Mr. Justice Hall






Reasons
for Judgment of the Honourable Mr. Justice Low:

[1]

Lynda Vogt, an official
receiver, acting on behalf of the Superintendent of Bankruptcy under the
Bankruptcy
and Insolvency Act
,
R.S.C.
1985, c. B-3 (the
Act
), invoked her power under s. 66.22(1) of the
Act
to require the administrator to apply to the court for review of a joint
consumer proposal made by Ronald Manning
Dondale
and
Lynell
Marie
Dondale
pursuant to
Division II of Part III of the
Act
.  The Superintendent now
appeals the order of Mr. Justice
Burnyeat
approving
the proposal.  At issue is the legality of clause 7(b) of the
proposal.  We are told that the clause is in common use and that a
decision at the appellate level will serve to guide administrators in the
preparation and approval of proposals made under Division II.

[2]

Clause 7 of the
Dondale
proposal reads:

(a)
the
creditors may appoint up to three inspectors responsible
for the Consumer Proposal of the consumer debtor. The inspectors may have, in
addition to any powers of inspectors under the Act, the power to

(
i
)
receive
any notice of default in the performance of a provision of the Consumer
Proposal and waive any such default, and

(ii)     
approve any amendment to the Consumer Proposal without calling a meeting of
creditors, if the amendment would alter the schedule for and the amount of the
payments to be made by the consumer debtor, but would not change the total
amount to be paid; and

(b)
in
the absence of appointed Inspectors the
Administrator of this Consumer Proposal shall have the power to extend the time
for the making of any payment required to be made pursuant to this Proposal
provided that no such extension shall extend beyond the five years following
the approval of this Proposal by the court.

[Emphasis added]

[3]

The Superintendent
contends that clause 7(b) overrides a provision in the
Act
that
mandates the consequences of default by a debtor in making payments under the
proposal, and that it permits the administrator of the proposal to amend it
without resort to the proposal amendment provision in the
Act
.

[4]

Division II creates a
summary process for an insolvent person to make a proposal to creditors to
retire debt by making payments over time.  It is not necessary to describe
this statutory scheme in complete detail to determine the narrow point at
issue.  It will suffice to observe that the scheme applies to
non-corporate
debtors
whose aggregate debt does not
exceed $75,000, excluding debt on the debtors principal residence.  The
debtor may make a proposal to his or her creditors generally.  Section
66.13(1
)(
a) of the
Act
requires the
debtor to obtain the assistance of an administrator in preparing the consumer
proposal.  An earlier section designates trustees in bankruptcy as
administrators.  In the present case,
Abakhan
& Associates Inc. is the administrator and is the respondent in this
appeal.

[5]

On 1 February 2007, the
Dondales
made a consumer proposal that they pay $400
per month for sixty months to retire their joint unsecured debt.  They had
assets of $173,786.74, secured debt of $136,300 and unsecured debt of
$54,409.  The proposal went to their fourteen creditors.  All the
creditors who voted approved the proposal.  They represented unsecured
debt of $43,244.61.  Under the payment schedule, the debtors would pay off
$24,000 of their unsecured debt, less administrative costs.

[6]

On 8 February 2007, the
administrator reported to the creditors as follows:

4.       That we
are of the opinion that the cause or causes of the consumer debtors insolvency
are as follows:

The debtors
advise that their debt load has been slowly mounting over the course of the
last few years.  In January of 2006 Mr.
Dondale
was forced to take time away from work at a reduced income due to heart
problems leaving less money to service their debt.  The situation was
further compounded by the fact that Mrs.
Dondale
is a
casual
LPN
, whose work schedule is irregular and infrequent
due to her being in school.  As a result of these factors and poor
financial management the debtors now find themselves in a position where they
can no longer continue to service their debt obligations as they come due and
feel that their creditors will be better off if they make a consumer proposal
rather than an assignment in bankruptcy.

5.       That we
are also of the opinion, for the following reasons, that the consumer proposal
is reasonable and fair to both the consumer debtor and the creditors, and that
the consumer debtor will be able to perform it:

As noted in
Appendix A in a bankruptcy, the unsecured creditors may receive approximately a
$0.08 recovery for every dollar they are owed.  This proposal provides a
better return for all the unsecured creditors of approximately $0.30 for every
dollar they are owed.

[7]

Under ss. 66.15(1) and
(2
)(
b) of the
Act
, a meeting of the
creditors can be required by the official receiver or by creditors holding 25%
of the proven debt claims.  At such a meeting, the creditors can appoint
inspectors from among their number.  Otherwise, under s. 66.18, the
proposal is deemed to have been accepted by the creditors.  In the present
case, no meeting was required so no inspectors were appointed.  This seems
to be the norm under the consumer proposal provisions of the
Act
. 
In most cases, the administrator becomes the ongoing connection between the
debtor and the creditors.

[8]

Because no inspectors
were appointed, clause 7(b) of the
Dondale
proposal
became operative.

[9]

Court approval of a
proposal is required only if requested by the official receiver or any other
interested party within fifteen days after the day of acceptance or deemed
acceptance  (s. 66.22(1)).  Otherwise the proposal is deemed to have
been approved by the court (s. 66.22(2)).

[10]

Under s. 66.24, the court can either
approve or refuse to approve the proposal.  Subsection 66.24(3) provides
that the court
shall
refuse approval if the proposal does not comply
with ss. 66.12(5) and 66.12(6) of the
Act
(reproduced below at
para
. 15).  Under s. 66.24(2), the court
shall
refuse approval where it is of the opinion that the terms  are not reasonable
or are not fair to the consumer debtor and the creditors ; and the court
may
refuse approval if the debtor has committed any of certain offences under the
Act
or was not eligible to make the proposal when it was filed.

[11]

In the present case, the
Superintendent argues that the chambers judge should have refused approval of
the proposal on the basis that it does not comply with the
Act
. 
It is not clear to me whether this argument is based on the assertion that
clause 7(b) of the proposal renders the proposal unreasonable or unfair to the
creditors; or on the assertion that the court should have rejected the proposal
under a residual discretion in s. 66.24(4), which reads: subject to
subsections (1) to (3), the court may either approve or refuse to approve the
consumer proposal.  It seems to me that if a proposal is in conflict with
the legal requirements of the
Act
, it ought to be rejected as
being unreasonable or unfair.

[12]

The official receiver required the
administrator to apply for court review of the proposal.  In an earlier
letter to the administrator, the official receiver set out a number of concerns
about the proposal.  The principal concern related to clause 7 and was
expressed in the letter as follows:

·

It
is not reasonable to expect
creditors to recognize that paragraph (7) bypasses the requirement to send the
Notice of Deemed Annulment when payments are not made.  As a result, the
Administrator may (or may not) send notice when payments are not made  for up
to five years.



·

It
appears the purpose of paragraph #7
is to bypass the Notice of Deemed Annulment when payments are in arrears in
excess of 3 months; which diminishes the integrity of Bankruptcy and Insolvency
Act and compromises the credibility of the proposal process.

[13]

No creditor appeared at the hearing
of the administrators application to the court for approval of the
proposal.

[14]

Two trustees in bankruptcy employed
by the administrator swore affidavits amplifying the reasons for the content of
the proposal in general and for clause 7 in particular.
At
para
.
9 of his reasons, the
chambers judge set out the crux of their evidence:

(a) Richard Robinson:

The family income is sufficient to allow for the payment of $400.00 per month
but with little room for error. However, Mrs.
Dondale
is currently attending school to become a fulltime nurse and currently earns
$375.00 per month. It is anticipated that when she completes her schooling in
September of 2009, the family income should increase by approximately $2,500.00
per month.  .

Paragraph 7 of the Proposal allows the creditors flexibility in whether or not
to terminate the Proposal and induce a bankruptcy. In the absence of
inspectors, the Trustee is given the ability to defer payments and avoid a
default under the Proposal.

The Trustee would only rely on that provision if:

(a) the
Debtor had a valid reason for missing payments, such as loss of employment or
illness, and that the Debtor was confident that he or she still had the ability
to complete the terms of the Proposal; and

(b)
the
Trustee was satisfied that the creditors as a whole
would be better off allowing the Proposal to continue than they would be were
the Debtors to become bankrupt.

In this case, it is possible that the Debtors could miss payments before Mrs.
Dondale
achieves fulltime employment as a nurse. It may
well not be in the creditors interest to terminate this Proposal were the
Debtors to miss three payments if that were to occur at a time when it still
appears that Mrs.
Dondale
would become a fulltime
nurse with the resultant substantial increase in the family income.

(b) George
Abakhan
:

The Office of the Superintendent of Bankruptcy
has expressed concern with the inclusion of paragraph 7 in the Consumer
Proposal filed by Mr. and Mrs.
Dondale
.

This provision is a term that is used by
Abakhan
& Associates Inc., and other Trustees, as a
common practice in consumer proposals.

Consumer proposals typically involve
individuals with relatively modest incomes.

Consumer proposals usually call for regular
payments to be made by the consumer debtor (the Debtor) over a period of
three to five years.

It is difficult for this type of Debtor to
predict the future with precision what the Debtors income will be over a three
to five year period. The flexibility that paragraph 7 of the proposal provides
allows the Debtor to be confident that he or she will not be in default under
their proposal should there be a temporary interruption in their employment or
unanticipated expenses over the term of the proposal.

Temporary employment interruption is fairly
common in the resource sectors of the British Columbia economy.

The flexibility allowed to a Debtor under
paragraph 7 of the Proposal allows the Debtor to make proposals to his or her
creditors so that the Debtor would pay more in a proposal than in a bankruptcy.

Our experience with consumer proposals is that
only about 5% to 10% of them have defaults. Many of these catch up payments in
arrears during the course of the proposal.

In the typical consumer proposal the creditors
will consist almost exclusively of financial institutions, credit card
companies and Canada Revenue Agency.

These creditors will each have either an
internal department that specializes in dealing with loans that are in default
or will outsource this to a third party who specializes in administering
default loans.

It is the policy of our firm to advise Debtors
of their respective rights and costs in a bankruptcy situation and in a
settlement proposal situation to ensure Debtors understand the alternatives and
the costs relating thereto.

The advocacy of our firm is to encourage the
Debtors to consider proposals to maximise the return to Creditors which
invariably would receive NIL in a bankruptcy. Therefore, the need for Clause 7
referred to above is to allow flexibility in the successful completion of the
proposal.

In the vast majority of the consumer proposals,
there is never a meeting of the creditors.

It is also rare to ever have inspectors
appointed by the creditors in a consumer proposal.

[15]

Parliament has seen fit to give
sparse direction under the
Act
as
to the form and content
of consumer proposals.  The
Act
states:

66.12(5)
A
consumer
proposal must provide that its performance is to be completed within five
years.

(6)      A
consumer proposal must provide

(a)
for
the payment in priority to other claims of all
claims directed to be so paid in the distribution of the property of the
consumer debtor;

(b)
for
the payment of all prescribed fees and expenses

(
i
)
of
the administrator on and incidental to proceedings arising out of the consumer
proposal, and

(ii)
of
any person in respect of counselling provided
pursuant to paragraph 66.13(2)(b); and

(c)
for
the
manner of distributing dividends.

[16]

Section 66.2 of the
Act
provides
that the creditors may include in the proposal, subject to the consent of the
debtor, such provisions or terms  with respect to
the supervision of the
affairs of the consumer debtor
as they may deem advisable [emphasis
added].  In my opinion, whether it was initiated by the debtors or by the
creditors, clause 7(b) in the subject proposal is such a provision. 
Supervision must be seen to include adjustment of the payment schedule.

[17]

Just as s. 66.12 is sparse, so s.
66.2 is very broad.  Together they evince an intention of Parliament to
permit creditors to consent to, and to permit the court to approve, consumer
proposals containing flexible provisions.  These two sections of the
Act
permit the parties to structure the payment provisions
and the
supervision of payment
in such manner as they see fit.

[18]

The Superintendent contends that
clause 7(b) of the proposal in question cannot be approved because it provides
for an amendment of the proposal unilaterally and without compliance with the
legal requirements for amendment found in the statute.  The Superintendent
says that the clause forestalls the effect of default as dictated by the
statute.  The sections in question are ss. 66.3(1), 66.31(1), 66.31(2),
and 66.37(1).  These provisions read:

66.3(1)
Where
default is made in the performance of any provision in a consumer proposal
,
or where it appears to the court

(
a
)
that
the debtor was not eligible to make a consumer
proposal when the consumer proposal was filed,

(
b
)
that
the consumer proposal cannot continue without
injustice or undue delay, or

(
c
)
that
the approval of the court was obtained by fraud,

the
court may, on application
, with such notice as the court may
direct to the consumer debtor and, if applicable, to the administrator and to
the creditors,
annul the consumer proposal
.



66.31
(1) Independently of section 66.3,

(
a
)
where
payments under a
consumer proposal are to be made monthly or more frequently and
the consumer
debtor is in default to the extent of three months

payments
, or

(
b
)
where
payments under a
consumer proposal are to be made less frequently than monthly and the consumer
debtor is in default for more than three months on any payment,

the
consumer proposal shall
thereupon be deemed to be annulled
unless the court has previously ordered
otherwise or unless an amendment to the consumer proposal has previously been
filed, and the administrator shall forthwith so inform the creditors and file a
report thereof in the prescribed form with the official receiver.

(2)
Where an
amendment to a consumer proposal filed before the deemed annulment of the
consumer proposal by virtue of subsection (1) is withdrawn or refused by the
creditors or the court, the consumer proposal shall thereupon be deemed to be
annulled.

...

66.37 (1) Where an administrator files an
amendment to a consumer proposal

(a)
before
the withdrawal, refusal, approval or deemed approval
by the court of the consumer proposal, or

(b)
after
the approval or deemed approval by the court of the
consumer proposal and before it has been fully performed or annulled or deemed
annulled,

the
administrator shall call a meeting of
creditors to be held within twenty-one days after the amendment is filed, to
consider the consumer proposal as amended.

[Emphasis added]

[19]

The chambers judge correctly stated
the law of statutory interpretation as it applies to the
Act
by
quoting the following passages from the judgment of Levine
J.A.
in
Port Alice Specialty Cellulose Inc. (Bankruptcy) v. ConocoPhillips Co.
2005 BCCA 299; 41
B.C.L.R.
(4th) 259:

[25]    There is no dispute that
the proper approach to the interpretation of s. 81.1 [of the Act] is that
described in
E.A.

Driedger's

Construction of Statutes
(2nd ed. 1983), at p. 87:



Today there
is only one principle or
approach,
namely, the words
of an Act are to be read in their entire context and in their grammatical and
ordinary sense harmoniously with the scheme of the Act, the object of the Act,
and the intention of Parliament.

[26]    This approach has been
approved by the Supreme Court of Canada in numerous cases. The Supreme Court
has also said that this approach is confirmed by s. 12 of the
Interpretation
Act
,
R.S.C.
1985, c. I-21, which provides that
every enactment "is deemed remedial, and shall be given such fair, large
and liberal construction and interpretation as best ensures the attainment of
its objects": see
Barrie Public Utilities v. Canadian Cable Television
Assn.
, [2003] 1
S.C.R.
476 at
para
.
20;
Bell
ExpressVu
Limited
Partnership v. Rex
, [2002] 2
S.C.R.
559 at
para
.
26.



[27]    In interpreting the
BIA
,
courts have noted that it is a commercial statute used by business people and
should not be given an overly narrow or legalistic approach: see
Re
McCoubrey
, [1924] 4
D.L.R.
1227 at 1231-32 (Alta.
S.C
);

Mercure
v. Marquette &
Fils
,
[1977] 1
S.C.R.
547 at 556;
Re Maple Homes Canada Ltd.
, 2000
BCSC
1443 at
para
. 21.

[20]

The judge also referred to
conflicting decisions on the point in question.  In
Bankruptcy of
Williams
, 2005
BCSC
108, Master Baker,
sitting as a Registrar, considered a term in a proposal identical to clause
7(b) in the present case.  He concluded his analysis with the opinion that
there is a great deal of flexibility in crafting a Consumer Proposal, the only
limitation being that the proposed terms not offend or violate the terms of the
Act
 (
para
. 8).  He found no
conflict between the clause and the provisions of the
Act
. 
In Ontario, Registrar Nettie reached the opposite conclusion in
Re
Sztojka
, [2005]
O.J.
No.
5551 (
S.C.J.
).  Although he agreed that there is
a great deal of flexibility in crafting a consumer proposal, he was of the
opinion that creditors cannot cure a default in payment under a Division II
proposal, except by acceptance of a properly filed amended proposal in
accordance with [s. 66.37] of the Act  (at
para
.
15).  For the reasons that follow, I prefer the conclusion on the point
reached by Master Baker.

[21]

The chambers judge described the
issue before him as follows:

[32]     the question which
arises is whether I should refuse to approve this consumer proposal on the
basis that it is not reasonable or not fair to the consumer debtor and the
creditors (s. 66.24(2) of the
Act
) or whether, in interpreting the
Act in a way which is not overly narrow or legalistic, I should approve or
refuse to approve the Consumer Proposal (s. 66.24(4) of the
Act
).

He considered the reasonableness and fairness clause and the residual
discretion clause.

[22]

The chambers judgment concludes with
nine paragraphs containing ten reasons why the court should approve the
proposal.  In these paragraphs, the judge conflated the issues of legality
and reasonableness.  It seems to me that those two issues should be
considered separately.  If the proposal in question does not comply with
the
Act
, it cannot be approved because it is presumptively
unreasonable.  If it does comply, there should then be a subjective
consideration of its reasonableness.

[23]

The Superintendent contends that the
Dondale
proposal is not legal because clause 7(b) has
the effect of permitting the debtors to miss three monthly payments with the
administrator then having the power to effectively override the legal effect of
those missed payments under s. 66.31(1).  In other words, says the
Superintendent, a deemed annulment under that section can be excused by the
administrator.  The Superintendent argues further that clause 7(b)
conflicts with the proposal amendment provision, s. 66.37(1).

[24]

I do not agree with these
submissions.  The purpose and effect of clause 7(b) is not to override the
annulment provision in the
Act
.  Rather, it is to avoid it
before it becomes operative.  If the
Dondales
have legitimate difficulty in meeting the payment schedule at any time during
the five-year period because their income flow is erratic, the administrator
can rearrange the payment schedule from time to time to make the monthly
payments correspond more closely to the flow of their income.  However, if
they miss three payments in a row before the schedule can be adjusted by the administrator,
or if they miss three payments in a row under the adjusted schedule (or if the
adjusted payment schedule provides for payments less frequently than monthly
and one payment falls in arrears for more than three months), s. 66.31 will
become operative and there will be a deemed annulment.

[25]

In my opinion, s. 66.31(1) does not
purport to dictate the content of proposals and how they are to be
administered.  It only provides that a proposal is automatically annulled
if the debtor is in default for three months, except as provided therein. 
It does not define default and is not specific as to how default may come
about.  In the present case, the creditors have agreed that the
administrator can alter the payment schedule to create flexibility to meet
changing conditions during the term of the proposal.  The provision would
likely reduce administration costs that otherwise might be incurred.  It
does not give the administrator the power to forgive any part of the debt
payment.  Nor does it offend s. 66.12(5) by permitting the debtor to make
payments beyond the five-year term.

[26]

Section 66.31(1
)(
a)
requires default under a consumer proposal for three months before there is an
automatic annulment of the proposal.  Clause 7(b) of the subject proposal
permits a summary and efficient rearrangement of the payment schedule by the
administrator.  It seems to me that this does not offend s. 66.31(1)(a)
because there can be no default under the consumer proposal until the debtors
have missed three months of payments or have been in default for three months
under the payment schedule as modified by the administrator under his delegated
authority.  This is what the creditors and the debtors agreed to and I see
no reason under the statutory scheme to reject the proposal as being in
conflict with the
Act
.  To the contrary, it seems to me that
it builds into the proposal flexibility that is administratively efficient and
potentially less costly.

[27]

I do not see clause 7(b) as being in
conflict with s. 66.37(1) of the
Act
.  Empowerment of the
administrator to adjust the payment schedule during the five-year term of the
proposal is simply designed to make the payment schedule flexible, to make it
adjustable to future exigencies.  If such an adjustment is properly viewed
as an amendment of the proposal and not just its implementation (which I am
inclined to think is the case), there is nothing in the
Act
that
says that the procedure under s. 66.37(1) is the only way that an amendment can
be brought about.  That section is concerned with the filing of an
amendment by the administrator.  It does not provide that its procedure is
the only available mechanism for adjustment of a payment schedule.  The
creditors and the debtors can agree to a procedure that is more efficient
administratively and is less costly.

[28]

The above is in keeping with
Parliaments overall purpose in enacting Division II of Part III.  If
Parliament had intended to restrict the way consumer proposals are to be worded
and administered, it would have used more specific and restrictive language in
ss. 66.12(5) and (6), and in s. 66.2.

[29]

I do not understand the
Superintendent to argue that if clause 7(b) of the proposal is not in conflict
with the
Act
, the proposal is nonetheless unreasonable. 
Therefore, it is not necessary for us to consider that issue.

[30]

I would dismiss the appeal.

The
Honourable
Mr. Justice Low

I agree:

The
Honourable
Madam Justice Prowse

I agree:

The
Honourable
Mr. Justice Hall


