



COURT OF APPEAL FOR ONTARIO

CITATION: Osztrovics Estate v. Osztrovics Farms Ltd., 2015
    ONCA 463

DATE:  20150622

DOCKET: M45166 (C60373)

Brown J.A. (In Chambers)

In the Matter of the Bankruptcy
    of Victor Osztrovics of the Town of Burford, in the Province of Ontario

BETWEEN

PricewaterhouseCoopers Inc. in its capacity as
    Trustee of the Estate of Victor Osztrovics, a Bankrupt

Responding Party

and

Osztrovics Farms Ltd., Elysia Osztrovics and
    Violet Osztrovics

Moving Parties

Alastair J. McNish, for the moving parties

Christopher Horkins, for the responding party

Heard: June 12, 2015

ENDORSEMENT

OVERVIEW

[1]

The applicants, Osztrovics Farms Ltd. (OFL), Elysia Osztrovics and
    Violet Osztrovics (collectively the Osztrovics Applicants), seek leave
    pursuant to s. 193(e) of the
Bankruptcy and Insolvency Act
, R.S.C.
    1985, c. B-3, to appeal from the order of Wilton-Siegel J. dated April 9, 2015
    (the Order) (reasons reported at 2015 ONSC 2079). The Order dismissed the
    Osztrovics Applicants appeal from the order of Registrar Short dated August 6,
    2014 (reasons reported at 2014 ONSC 4405), and granted the cross-appeal of PricewaterhouseCoopers
    Inc., the Trustee in bankruptcy of the estate of Victor Osztrovics, who held
    shares in OFL.

[2]

Back in November, 2012, the Trustee requested from OFL certain
    information that it required to value the bankrupts shares in the corporation. 
    To date, OFL has refused to provide this information.  The effect of the Order
    is to require OFL to disclose to the Trustee a list of documents pursuant to
BIA
s. 164 and to require Elysia, the bankrupts wife, and Violet, the bankrupts
    mother, to submit to oral examinations pursuant to
BIA
s. 163.

[3]

As a preliminary matter, the Trustee submits that the Osztrovics
    Applicants missed, by one day, the deadline for bringing their leave motion
    specified by the
BIA
and its rules.  Given that it was obvious the
    Osztrovics Applicants intended to appeal the Order, in my view the justice of
    the case supports granting the applicants an extension of time so that this
    matter can be dealt with on its merits:
Bankruptcy and Insolvency General
    Rules
, C.R.C. 1978, c. 368, s. 31(1).  For the reasons that follow, the
    application for leave to appeal is dismissed.

BACKGROUND FACTS

[4]

OFL is incorporated under the Ontario
Business Corporations Act
,
    R.S.O. 1990, c. B.16, and operates a tobacco farm. Elysia and Violet are directors
    of OFL, as was the bankrupt prior to his bankruptcy on June 21, 2011.

[5]

Violet owns 51.7% of OFLs Class A voting shares. Prior to his
    bankruptcy, the bankrupt owned 51 OFL common shares and 48% of the companys Class
    A voting shares. Those shares are now registered in the name of the Trustee.

[6]

On November 20, 2012, the Trustee wrote to OFLs counsel requesting all
    information and documents relating to OFLs operations. In its First Report
    dated July 11, 2013, the Trustee reported that it needed documents about OFLs
    business affairs in order to value the bankrupts shares in OFL. Those shares
    constitute the bankrupts most significant asset. The Trustee reported that OFL
    had refused to provide the requested information and documents. In its Report,
    the Trustee stated that it was seeking an order under
BIA
s. 164(1)
    compelling OFL to provide the requested documents, and orders under
BIA
s. 163(1) compelling Elysia and Violet to attend examinations under oath.

[7]

The Trustees motion initially was heard by the Registrar. Wilton-Siegel
    J. summarized the Registrars decision at para. 7 of his reasons:

In his reasons dated August 6, 2014, (the "Reasons")
    the Registrar concluded that the language of ss. 163 and 164 was sufficiently
    broad to encompass documents of a corporation respecting its business and
    affairs, i.e. that such documents may also relate "in whole or in part to
    the bankrupt, his dealings or property. The Registrar further concluded in
    paragraph 73 of the Reasons that, in this case, the Trustee had demonstrated
    the necessary link between the Information and the Bankrupt, his dealings or
    property. On this basis, he ordered the disclosure of the Information. He also
    ordered the examinations of Elysia and Violet for the same reason, although he
    considered that the "proportionality principle" required a
    "hybrid solution" to the order sought under s. 163 in respect of
    Violet, being the delivery of responses to written interrogatories.

The Registrar ordered that each party should bear its
    own costs of the motion.

[8]

The Osztrovics Applicants appealed the Registrars order, and the
    Trustee cross-appealed that part of the order which required Violet to answer
    written interrogatories instead of submitting to an oral examination. The
    motion judge dismissed the Osztrovics Applicants appeal, granted the Trustees
    cross-appeal, and set aside the Registrars cost order, instead awarding the
    Trustee its partial indemnity costs.

[9]

The Osztrovics Applicants seek leave to appeal the Order, submitting
    that the motion judge erred by:


(i)

interpreting the Trustees right to access under
BIA
ss. 163
    and 164 as one which entitled the Trustee to disclosure from a private
    corporation of such information as is relevant to permit a valuation of shares
    of a bankrupt in such corporation;


(ii)

setting aside a confidentiality term the Registrar had attached to OFLs
    disclosure of information pursuant to
BIA
s. 164;


(iii)

authorizing the
BIA
s. 163 examination of Violet and requiring
    that the examination be an oral one, instead of one conducted by way of written
    interrogatories; and,


(iv)

interfering with the Registrars cost decision.

APPLICABLE TEST

[10]

Section
    193 of the
BIA
provides that in any case other than those enumerated
    in
BIA
ss. 193(a) to (d), an appeal lies to the Court of Appeal only
    with leave of a judge of the Court of Appeal. In
Business Development Bank
    of Canada v. Pine Tree Resorts Inc.
, 2013 ONCA 282, 115 OR (3d) 617, at
    para. 29, Blair J.A. summarized the principles applicable on a leave to appeal
    motion under
BIA
s. 193(e):

Beginning with the overriding proposition that the exercise of
    granting leave to appeal under s. 193(e) is discretionary and must be exercised
    in a flexible and contextual way, the following are the prevailing
    considerations in my view. The court will look to whether the proposed appeal,

a)

raises an
    issue that is of general importance to the practice in bankruptcy/insolvency
    matters or to the administration of justice as a whole, and is one that this
    Court should therefore consider and address;

b)

is
prima
    facie
meritorious, and

c)

would
    unduly hinder the progress of the bankruptcy/insolvency proceedings.

[11]

In
    respect of the merits of an appeal, an applicant must be able to convince the
    court that there exist legitimately arguable points so as to create a
    realistic possibility of success on the appeal:
Re Ravelston Corp.
,
    24 C.B.R. (5th) 256, [2005] O.J. No. 5351 (C.A.), at paras. 28-29;
Re
    Ravelston Corp. Ltd.
, 2007 ONCA 268, 31 C.B.R. (5th) 233, at para. 12.

ANALYSIS

The Trustees power to demand documents

[12]

The
    Osztrovics Applicants submit that the motion judge erred in concluding that
BIA
s. 164 authorized the Trustee to demand internal corporate records from a
    privately-held corporation in which the bankrupt owned shares. They contend
    that
BIA
s. 164 only permits a trustee to gain access to records in
    the hands of third parties that pertain directly to a bankrupts business and
    dealings, such as the records of the auditors and accountants of the bankrupt.

[13]

The
    general importance and merit of the issue, the applicants argue, is supported
    by the Trustees inability to cite a single case where a corporation in which
    a bankrupt individual owned shares was ordered to produce its internal
    corporate records. They contend that the determination of the proper scope of
BIA
s. 164 would be of significant interest to the practice in bankruptcy/insolvency
    matters, as would the issue of whether the motion judge erred in finding that
    no operational conflict existed between
BIA
ss. 163 and 164 and the duties
    of care imposed on directors by
OBCA
s. 134.

[14]

In
    the specific circumstances of this case, I do not regard the issue raised by
    the applicants concerning the scope of
BIA
s. 164 as
prima facie
meritorious.
BIA
s. 164(1) authorizes a trustee to require a person to
    produce any documents or records in his possession of any kind relating in
    whole or in part to the bankrupt, his dealings or property. After noting that
    the Registrar had concluded that the information sought by the Trustee was
    relevant to the valuation of the bankrupts shares in OFL, the motion judge
    stated, at paras. 13 through 16 of his reasons:

The disclosure contemplated by ss. 163 and 164 of the
BIA
is
    directed toward ensuring that the trustee can fulfill its responsibilities to
    investigate and value, or otherwise establish, the assets and the liabilities
    of the bankrupt. In this regard, the valuation of any shares owned by a
    bankrupt is an important element, particularly where, as in the present
    circumstances, such shares represent the most significant asset of the estate.

Accordingly, while there may be issues regarding the relevance
    of particular documents of a corporation for any valuation of the shares of
    such corporation, I think that the principle is clear. A trustee in bankruptcy
    is entitled to disclosure from a private corporation of such information as is
    relevant to permit a valuation of shares of a bankrupt in such corporation. Further,
    I do not accept the implicit premise of the Appellants' argument  that
    corporate documentation pertains solely to the business and affairs of the
    corporation. In the present circumstances, where the former shares of the
    Bankrupt in OFL constitute the most significant asset of his estate and
    represent a significant shareholding in OFL, there is no reason why the
    Information cannot pertain to both the Bankrupt and OFL for the purposes of s.
    164 of the
BIA
.

[15]

Without
    accepting the breadth of the principle articulated by the motion judge, I see
    no viable argument that he erred in affirming the Trustees authority to demand
    the information sought from OFL in the specific circumstances of this case 
    i.e. where the bankrupt held a significant number of the issued shares of OFL,
    those shares constitute the most significant asset of the bankrupts estate,
    and the information sought from OFL is necessary to value the bankrupts
    shares. The position advanced by the applicants  that the Trustees power to
    demand documents under
BIA
s. 164 does not extend to disclosure from a
    private corporation of information relevant to permit a valuation of the bankrupts
    shares in OFL  asks the court to read into the section limiting language not
    suggested by s. 164 nor which finds any support in the case law. Moreover, such
    a limitation on the powers of the Trustee under s. 164 would frustrate its
    ability to discharge its duty to the bankrupts creditors to value and realize
    upon the most significant asset in his estate  his shares in OFL.

[16]

As
    to the applicants argument that the motion judge erred in finding no
    operational conflict existed between
OBCA
s. 134 and
BIA
ss.
    163-164, apparently it was the Registrar who first raised the issue of the
    possible application of the doctrine of federal paramountcy, but he concluded
    that no operational conflict existed. Putting to one side the question of why
    the applicants would wish to raise this as an issue on appeal when a finding of
    operational conflict would result in the federal legislation  i.e.
BIA
s. 164  prevailing, I see no viable argument that the motion judge erred in
    principle when he concluded, in paras. 29 through 31 of his reasons, that:

I am not persuaded that the Registrar erred in law in
    concluding that there was no operational conflict between s. 134 of the
OBCA
and ss. 163 and 164 of the
BIA
.

The Appellant's argument incorrectly posits a conflict between
    the directors' duty or discretion, on the one hand, and a trustee's power to
    investigate. The real operational question is between the trustee's right to
    disclosure as a shareholder and its right to disclosure as a trustee in
    bankruptcy. The former is complementary to the latter, not in conflict with it.

There is also no conflict between the provisions of s. 134 of
    the
OBCA
and the
BIA
. As the Appellants note, s. 134 merely
    codifies the obligations of directors to act in the best interests of a corporation.
    Any determination that directors may make regarding the best interests of a
    corporation is necessarily restricted by the obligation of the corporation to
    comply with statutorily mandated powers, whether derived from federal or
    provincial statutes.

[17]

I
    conclude that there is no realistic possibility that the Osztrovics Applicants
    could succeed on appeal were leave to appeal granted on this issue.

The remaining grounds of appeal
    involving
BIA
ss. 163 and 164

[18]

The
    Osztrovics Applicants seek leave to appeal on two other
BIA
ss. 163
    and 164 issues:


(i)

the decision of the motion judge to set aside para. 2 of the Registrars
    order, which had stipulated that commercially sensitive information of OFL
    that is disclosed to the Trustee, and corporate records of OFL which disclose
    such commercially sensitive informationshall not be disclosed to the creditors
    or the inspectors that have been appointed by the creditors; and,


(ii)

the order that Violet submit to a
BIA
s. 163 examination by way
    of oral examination.

[19]

As
    to the first ground, the applicants submit that the motion judge exceeded his
    jurisdiction as an appeal judge under
BIA
s. 192(4) by dealing with
    para. 2 of the Registrars order because that term of the order was not under
    appeal. I see no merit in this argument: the Osztrovics Applicants Notice of
    Motion by way of Appeal asked to set aside the Registrars decision in its
    entirety.

[20]

As
    to the
BIA
s. 163 examination of Violet, the bankrupts mother and a
    director of OFL, the motion judge quite reasonably observed, at para. 50 of his
    reasons, that the Registrar had determined Violet was a person who had
    knowledge of the affairs of [the] bankrupt, and the applicants advance no
    argument as to how the Registrar erred in making that finding of fact.  Given the
    Registrars finding of fact, it is difficult to see how Violet can fashion a
    viable argument resisting submitting to a
BIA
s. 163 examination.

[21]

The
    Osztrovics Applicants submit that the Registrar possessed the power to impose
    confidentiality conditions on the disclosure of information to the Trustee and
    to direct that the examination of Violet proceed by way of written
    interrogatories, and the motion judge therefore erred in setting aside those
    portions of the Registrars order.

[22]

Irrespective
    of the strength or weakness of the merits of those arguments, to grant leave to
    appeal on these issues in the specific circumstances of this case would unduly
    hinder the progress of this bankruptcy proceeding. The Trustee made its initial
    demand for information about OFL on November 20, 2012. Over the past 2.5 years
    the Osztrovics Applicants have refused to provide the requested information.
    Their refusal has prevented the Trustee from valuing the most important asset
    in the bankrupts estate  his shares in OFL. To permit an appeal would further
    delay the administration of an estate whose affairs already have been impeded
    unduly by the applicants refusals.

Leave to appeal the costs award

[23]

The
    Registrar ordered that each party bear their own costs notwithstanding that the
    Trustee had succeeded in obtaining generally what it was seeking. The motion
    judge set aside that order and awarded the Trustee partial indemnity costs. The
    Osztrovics Applicants submit that there was no basis for the motion judge to
    interfere with the Registrars discretionary costs order. Regardless of any
    merits in that argument, the correctness of the costs award does not raise an
    issue that is of general importance to the practice in bankruptcy/insolvency
    matters or to the administration of justice as a whole, and I am not satisfied
    that leave to appeal that issue should be granted.

DISPOSITION

[24]

I
    dismiss the Osztrovics Applicants motion for leave to appeal. I agree with the
    applicants that the partial indemnity costs of $12,180.68 sought by the Trustee
    on this leave motion are too high. In my view, a fair and reasonable award of
    costs to the Trustee would be $6,000, which I order the Osztrovics Applicants
    to pay to the Trustee within 10 days of the date of this order.

David Brown J.A.


