



COURT OF APPEAL FOR ONTARIO

CITATION: Impact Tool
& Mould Inc. (Re), 2015 ONCA 393

DATE: 20150603

DOCKET: C59719

Feldman, van Rensburg and Huscroft JJ.A.



In the Matter of the Bankruptcy of Impact Tool
& Mould Inc. of the City of Windsor, County of Essex



BETWEEN

Doyle
Salewski Inc., in its capacity as Court Appointed

Interim Receiver of Impact
Tool & Mould Inc.

Applicant

(Appellant)

and

BDO Dunwoody Limited, Trustee of the Estate of
Impact Tool & Mould Inc., a Bankrupt and Kevin OBrien

Respondents



Justin R. Fogarty and Jason Dutrizac, for the appellant

Benjamin G. Blay, for the respondent BDO Dunwoody
Limited

Nicolas M. Rouleau, for the respondent Kevin OBrien

Heard: May 4, 2015

On appeal from the order of Justice Joseph G. Quinn of
the Superior Court of Justice, dated November 25, 2014, reported at 2014 ONSC
6811.

ENDORSEMENT

Introduction

[1]

The appellant is the interim receiver of a subsequently bankrupt
company, who filed a proof of claim with the respondent trustee in bankruptcy claiming
fees and disbursements incurred in the course of its duties. The trustee
disallowed the proof of claim under s. 135(2) of the
Bankruptcy and
Insolvency Act
, R.S.C. 1985, c. B-3 (
BIA
). The interim receiver
appeals the dismissal of its appeal of the trustees disallowance.

[2]

The sole issue on this appeal is whether the interim receivers claim ought
to have been disallowed. For the reasons that follow, the appeal is dismissed.

Facts

[3]

The
appellant
Doyle Salewski
Inc.
(DSI) was appointed interim receiver of Impact Tool & Mould
Inc. (Impact), pursuant to s. 47 of the
BIA
and s. 101 of the
Courts
of Justice Act
, R.S.O. 1990, c. C.43, by the order of Patterson J. dated
March 7, 2003. The appointment was made on the application of the two major
shareholders of Impact who were also secured creditors and officers of Impact. The
appointment order granted DSI a priority charge over Impacts property for its fees
and disbursements properly incurred in its role as interim receiver. The order
stated that the charge was binding on all persons, including any trustee in
bankruptcy of Impact. The order also provided that DSI shall from time to time
pass its accounts. DSI has never been discharged as interim receiver.

[4]

As interim receiver, DSI sold Impacts assets  with court approval  to
Impacts two major shareholders. On May 20, 2003, DSI assigned Impact into
bankruptcy at the request of Unique Tool & Gauge Ltd. (Unique), an
unsecured judgment creditor of Impact. The respondent BDO Dunwoody Limited
(BDO) was appointed trustee in bankruptcy. The respondent OBrien, a
representative of Unique, was appointed as an inspector of the estate. The fees
of the trustee and inspector were paid by Unique.

[5]

There are currently no assets in Impacts estate. However, DSI and the
trustee have been embroiled in litigation since 2006. The details of the
various disputes are not material to the issue before this court, although they
provide context and illustrate why the parties are continuing to litigate over
the disallowance of an interim receivers proof of claim at a stage when there
are no assets left in the bankrupt estate. In 2010, DSI applied under s. 37 of
the
BIA
for an order that the fees of BDO and OBrien, paid by Unique,
be returned to Impacts estate because of alleged contraventions of the
BIA
.
BDO moved to dismiss the application on the basis that DSI was not a creditor
of Impact, and therefore was a stranger to the estate. Section 37 of the
BIA
provides:

Where the bankrupt or any of the creditors or any
other person is aggrieved by any act or decision of the trustee, he may apply
to the court and the court may confirm, reverse or modify the act or decision
complained of and make such order in the premises as it thinks just.

[6]

DSI had previously filed a proof of claim for fees and disbursements with
the trustee in 2003. The context was a demand for the payment of monies in
Impacts lawyers trust account which were paid to BDO post-bankruptcy. That proof
of claim asserted a secured claim for $15,000 and referred to DSIs charge
against all property, assets and undertaking of Impact pursuant to the appointment
order. Attached to the proof of claim was a statement of account showing all
invoices and receipts of the receiver from March 13, 2003 to July 23, 2003. BDO
ultimately paid to DSI the funds it received from the lawyers trust account.

[7]

In 2011, DSI filed an amended proof of claim with BDO for $457,040.29,
which included a secured claim of $96,561.74 and an unsecured claim of $360,744.93.
DSI again referred to its charge against all property, assets and undertaking
of Impact pursuant to the appointment order, and claimed as security, funds due
to be returned by the Trustee and Inspector Kevin OBrien in the total amount
of $96,561.74.

[8]

The trustee disallowed DSIs amended proof of claim on September 17, 2014,
five days before the scheduled hearing of the motion to dismiss the s. 37
application. The reason for the disallowance was communicated to DSI as follows:

The debt claimed is not a debt or liability, present or future,
to which the bankrupt was subject on May 20, 2003 or to which the bankrupt
would become subject before the bankrupts discharge by reason of any
obligation incurred before May 20, 2003 and is therefore not a provable claim
in the bankruptcy.

[9]

DSI brought an application to appeal the disallowance to a Superior
Court judge under s. 135(4) of the
BIA
.

Decision Below

[10]

In
his reasons for dismissing DSIs appeal of the trustees disallowance, the
application judge formulated the question before him as follows: Was DSI a
creditor with a debt provable in Impacts bankruptcy, under s. 121(1) of the
BIA
?

[11]

Section
121(1) provides:

All debts and liabilities, present
or future, to which the bankrupt is subject on the day on which the bankrupt
becomes bankrupt or to which the bankrupt may become subject before the
bankrupts discharge by reason of any obligation incurred before the day on
which the bankrupt becomes bankrupt shall be deemed to be claims provable in
proceedings under this Act.

[12]

The
application judge concluded that DSI was never a creditor of Impact and did not
have a claim provable in Impacts bankruptcy. He observed that DSI was appointed
under the order of Patterson J. as interim receiver, and once appointed became
an officer of the court. DSIs powers and method of remuneration as interim
receiver were provided for in the appointment order. The appointment order
provided security to DSI for its accounts through a priority charge, but did
not create a debt or a creditor-debtor relationship between Impact and DSI.

Analysis

(1)

Improper Procedure

[13]

The
narrow question at both levels of appeal was whether DSI, a court-appointed
receiver, can have a claim for its fees and disbursements provable under s. 121(1)
of the
BIA
that should not have been disallowed by the trustee.

[14]

However,
the subtext of this proceeding is the impending s. 37 application and the issue
of whether DSI is a creditor within the meaning of the
BIA
for the
purpose of that application. What appears to have occurred here is that DSI
filed an amended proof of claim after BDO gave notice of its motion to dismiss
the s. 37 application, which motion was brought on the argument that DSI
was not a creditor of the bankrupt estate. BDO then took the step of
disallowing DSIs proof of claim just five days before the motion to dismiss
the s. 37 application was scheduled to be heard. It appears that the purpose of
DSIs filing of its proof of claim was to establish its status as a creditor of
the bankrupt estate; the purpose of BDOs subsequent disallowance was to refute
that status, resulting in DSIs appeal of the disallowance. The effect was to have
the creditor issue decided in the context of the appeal from the disallowance
of the proof of claim rather than in the context of the s. 37 application.

[15]

This
was the next move in what appears to be a strategic game that was not fully
explained to the court, despite numerous questions posed during oral argument.
There was no need for the appeal of the disallowance of the proof of claim to
be heard and decided before the previously scheduled motion in the s. 37 application,
where the creditor issue was to be argued. However, that is what occurred.

(2)

The Requirement that a Receiver Pass its Accounts

[16]

In
Re Confectionately Yours Inc.
(2002), 164 O.A.C. 84 (C.A.), leave to
appeal to S.C.C. refused, (2003), 41 C.B.R. (4th) 28 (also referred to as
Re
Bakemates International
), this court discussed the purpose of requiring
court-appointed receivers to pass accounts. The court endorsed the statement in
F. Bennett,
Bennett on Receiverships
, 2nd ed. (Toronto: Carswell,
1999), at pp. 459-460, that the purpose of passing accounts is to satisfy the
court that the fees and disbursements incurred were fair and reasonable, and to
afford interested parties the opportunity to question the receivers activities
and conduct. The court reproduced, at para. 36, the following excerpt from
Bennett
on Receiverships
:

The passing of accounts allows for a detailed analysis of the
accounts, the manner and the circumstances in which they were incurred, and the
time that the receiver took to perform its duties. If there are any
triable issues, the court can direct a trial of the issues with directions.

[17]

The
court held, at paras. 37-38, that it is a receivers duty to pass detailed accounts
and provide an accompanying affidavit to substantiate the hours spent and the
disbursements incurred.

[18]

Court
supervision of receivers remuneration is essential to the integrity of the insolvency
regime. An interim receiver is not entitled to bypass the procedural
requirement of passing accounts by submitting its unliquidated and non-approved
fees to a trustee in bankruptcy in the form of a proof of claim. An appeal from
a trustees disallowance is not the proper forum in which to obtain court
approval of such costs.

[19]

The
appointment order of Patterson J. explicitly required DSI to pass its accounts
from time to time. There is nothing in the record that indicates why DSI should
be permitted to omit this procedural step prior to asserting any claim. The
trustee was therefore entitled to disallow DSIs proof of claim.

[20]

That
conclusion is sufficient to address the issue of the propriety of the
disallowance of the proof of claim by the bankruptcy trustee and to dismiss the
appeal.

[21]

There
is no need for the court to decide in this proceeding whether a court-appointed
receiver is a creditor of the bankrupt estate that was the subject of the
receivership. In this case that issue should be decided on the motion to
dismiss the s. 37 application.

Conclusion

[22]

For
these reasons, the appeal is dismissed. Costs are payable by the appellant to
the respondents, in the sum of $10,000 to the respondent BDO and the sum of
$5,000 to the respondent OBrien, both amounts inclusive of applicable
disbursements and taxes.

K. Feldman J.A.

K. van Rensburg J.A.

Grant Huscroft J.A.


