



COURT OF APPEAL FOR ONTARIO

CITATION: Kormos v. Fast, 2019 ONCA 430

DATE: 20190523

DOCKET: C66117

Sharpe, Pepall and Roberts JJ.A.

BETWEEN

Jonathan Kormos and
    Elizabeth Kormos

Applicants
(Appellants)

and

Jonathan Crawford Fast and Katherine Anne
    Fast

Respondents
(Respondents)

James P.E. Hardy, for the appellants

Kenneth Page, for the respondents

Heard: May 17, 2019

Appeal from the order of Justice P. Cavanagh of the
    Superior Court of Justice, dated October 11, 2018, with reasons reported at
    2018 ONSC 6044.

REASONS FOR DECISION

[1]

The appellants appeal from the dismissal of their application under s.
    181(1) of the
Bankruptcy and Insolvency Act
, R.S.C. 1985, c. B-3 (
BIA
),
    to annul the bankruptcy of the respondent, Katherine Anne Fast.

[2]

The appellants and the respondents are neighbours.  On November 2, 2016,
    the appellants obtained a Small Claims Court judgment against the respondents, in
    the amount of $25,565.64, for water damage to their property.

[3]

On April 25, 2017, Mrs. Fast made a voluntary assignment into bankruptcy,
    fifteen days after the appellants attempted to enforce their judgment by
    serving on her a notice of examination.  In her Statement of Affairs filed, she
    disclosed assets having a value of $722,461, including her RRSPs of $83,461 and
    real property that she estimated at $630,000. Her liabilities were listed as
    $653,313.19, including two mortgages in the total amount of $606,866.85, and
    the debt owed to the appellants.

[4]

The appellants brought an application to annul Mrs. Fasts assignment
    into bankruptcy, arguing that she was not an insolvent person and that her
    assignment was an abuse of process.

[5]

Unbeknownst to the appellants, on August 24, 2016, the respondent,
    Jonathan Crawford Fast, had filed a consumer proposal.  In their application,
    the appellants
also sought to annul Mr. Fasts consumer
    proposal.  They do not appeal from the dismissal of that part of the
    application judges order.

[6]

The application judge accepted the appellants opinion of value of the
    respondents jointly held property and found that its market value at the date
    of Mrs. Fasts bankruptcy was between $1,300,000 and $1,400,000, and not
    $630,000 as she alleged in her Statement of Affairs.  He also accepted that the
    mortgages appeared to be in good standing and that the mortgage debt had been
    reduced over time.  An apparent mortgage debt of $900,000 in 2012 was now
    stated to be $476,565.  Nevertheless, the application judge was not satisfied
    that the appellants had discharged their onus of showing that Mrs. Fast was not
    an insolvent person on the date of her bankruptcy.

[7]

The application judges decision turned on his acceptance that according
    to Mrs. Fasts Monthly Income and Expense Statement, monthly expenses of $4,910
    exceeded monthly income of $2,900 by $2,010.  As a result, the application
    judge concluded that the appellants had not shown that Mrs. Fast was able to
    meet Mrs. Fasts obligations generally as they became due or that she had not
    ceased paying her current obligations in the ordinary course of business as
    they generally became due.  He also rejected that her bankruptcy was an abuse
    of process.  He dismissed the application.

[8]

The appellants submit that the application judge erred by failing to
    find that Mrs. Fast was not an insolvent person or that her bankruptcy application
    was an abuse of process, and he thus legitimized an unjustified asset
    management strategy.

[9]

We agree that the application judge erred in failing to find that Mrs.
    Fast was not an insolvent person.  It is therefore unnecessary for us to
    determine whether her bankruptcy was an abuse of process.

[10]

At
    the date of her bankruptcy, Mrs. Fast was not an insolvent person as that
    term is defined under s. 2 of the
BIA
.  Her assets greatly exceeded and
    were available to satisfy all her liabilities.  Other than the unexplained
    monthly deficit, there was no evidence that she could not meet or had ceased
    paying her obligations as they generally came due.  Rather, the unchallenged
    evidence was that she could.  The only evidence of any obligation she had not
    paid was the debt owed to the appellants.

[11]

Under
    s. 181(1) of the
BIA
, a court may annul a bankruptcy order if it is of
    the opinion that it ought not to have been made.  The circumstances under which
    the courts jurisdiction pursuant to s. 181(1) of the
BIA
should be exercised
    were addressed in
Re Wale

(1996), 45 C.B.R. (3d) 15, at para.
    17:

An annulment will be granted only where it is shown either the
    debtor was not an insolvent person when he made the assignment or where it is
    shown that the debtor abused the process of the court or committed a fraud on
    his creditors.

[12]

Section
    2 of the
BIA
defines an insolvent person as follows:

Insolvent person means a person who is not bankrupt and who
    resides, carries on business or has property in Canada, whose liabilities to creditors
    provable as claims under this Act amount to one thousand dollars, and

(a) who is for any reason unable to meet his obligations as
    they generally become due,

(b) who has ceased paying his current obligations in the
    ordinary course of business as they generally become due, or

(c) the aggregate of whose property is not, at a fair valuation,
    sufficient, or, if disposed of at a fairly conducted sale under legal process,
    would not be sufficient to enable payment of all his obligations, due and
    accruing due.

[13]

Mrs.
    Fast clearly did not meet any criteria of the definition of insolvent person. 
    Bankruptcy is reserved for clear cut situations where the liabilities on which
    the petition is founded and the act of bankruptcy are clearly established by
    sound and convincing evidence:
Sangha v. Crowe MacKay & Company Ltd
.
,
    2016 BCSC 260 (CanLII), at para. 20, citing Houlden & Morawetz,
Bankruptcy
    & Insolvency Law of Canada
, 3d ed. Looseleaf (Toronto: Carswell 2002),
    at p. 2-93.  That is not the case here.

[14]

The
    application judge erred by failing to consider Mrs. Fasts ability to meet her
    obligations, in the light of her access to substantial assets, with a view to
    determining whether she was unable or merely unwilling to satisfy her
    outstanding obligations.

[15]

At
    the date of her bankruptcy, the total value of Mrs. Fasts assets in excess of
    her liabilities, including her share in the appraised value of the property,
    was $417,581.24.  The only evidence of any default is the debt that Mrs. Fast owes
    to the appellants in the amount of $25,565.64 plus interest.  As the
    application judge noted, it is likely that Mrs. Fast was prompted to take this
    action by the steps that were taken on behalf of the [appellants] to enforce
    their judgment.  The fact that she reduced her mortgages and the absence of
    any mortgage default belie any claim that she cannot meet her expenses as they
    come due or has ceased to pay her current obligations.  That Mrs. Fast may have
    elected to structure her affairs to run a monthly deficit of $2,010 in order to
    build up her equity in the property, or for any other purpose, does not mean
    she is insolvent when she has available significant assets to satisfy this
    deficit and the debt to the appellants.  As this court concluded in
Thorne
    Riddell v.

Fleishman
, 1983 CarswellOnt 201, 47 C.B.R.
    (N.S.) 233, at para. 22, if, as here, a person has ample funds to meet
    obligations and chooses not to do so, that person is not insolvent.

[16]

For
    these reasons, we are satisfied that the appellants have met their onus of demonstrating
    that Mrs. Fast was not an insolvent person as at the date of her bankruptcy. 
    Accordingly, we allow the appeal and order the annulment of Mrs. Fasts
    bankruptcy.

[17]

The
    appellants are entitled to their partial indemnity costs of the appeal in the amount
    of $2,000, inclusive of disbursements and applicable taxes.

Robert J. Sharpe J.A.

S.E. Pepall J.A.

L.B. Roberts J.A.


