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BDO Canada Ltd. v. Dorais, 2014 CarswellAlta 1988 (Alta. Q.B.)


The Applicant sought an order lifting a stay of proceedings and authorizing it to pursue two legal actions commenced by creditors of the bankrupts.

The deceased, Michel Dorais, and a group of companies which he controlled (the "Dorais Companies"), were adjudged bankrupt in January 2012 and the Applicant, BDO Canada Limited (the "Trustee"), was appointed as trustee. The Respondent Shauna Dorais is the widow of Mr. Dorais and the Respondent Grant Dewar had loaned money to Mr. Dorais and/or the Dorais Companies.

Mr. Dorais died in June 2009. In August 2009, Anthony Gerrow was appointed as a receiver of many of the Dorais Companies in the Receivership Action.

In December 2009, Jon and Neris Havelock and Francesco Valle commenced an action against a number of the Dorais Companies, Ms. Dorais, Mr. Dewar and others (the "Havelock Action"), alleging that the Dorais Companies were organized in a fashion to deceive investors and there had been some fraudulent misrepresentations. In the Havelock Action, the Plaintiffs sought the return of their funds, or equivalent damages. They also sought declarations that they were entitled to a constructive trust over the life insurance proceeds paid to Ms. Dorais and that the assignment of the life insurance policy to Mr. Dewar was null and void.

In May 2011, Mr. Gerrow, as a receiver, commenced an action against Ms. Dorais and Mr. Dewar (the "Gerrow Action"). The Gerrow Action alleged that the Dorais Companies were all interrelated, the proceeds from certain life insurance policies were the property of the Dorais Companies and not Ms. Dorais, and that an assignment of another life insurance policy to Mr. Dewar was a fraudulent preference. In the Gerrow Action, the receiver sought damages and declarations that he was entitled to all life insurance proceeds paid to Ms. Dorais and that the assignment of the life insurance policy to Mr. Dewar was null and void.

In June 2011, Terry and Patricia Metz commenced an action against the Estate of Dorais, most of the Dorais Companies, Mr. Dewar, Ms. Dorais and others (the "Metz Action"). The Metz Action made similar allegations to, and sought the same type of relief as that sought in the Havelock Action.

In December 2011, the Havelock, Gerrow and Metz Actions, and other claims, were stayed by an order made in the Receivership Action (the "Stay Order").

A second order made in December 2011 directed Gerrow, as receiver, to assign into bankruptcy all of the Defendants in the Receivership Action. A Bankruptcy order was made in January 2012.

The statement of claim in the Gerrow Action was not served in time.

In January and February 2014, the Plaintiffs in the Havelock and Metz Actions assigned and transferred their actions to the Trustee.

On this motion, the Trustee applied to lift the Stay Order in the Havelock and Metz Actions and to authorize the Trustee to pursue those Actions to recover real property and insurance proceeds for the benefit of the Estates of Mr. Dorais and the Dorais Companies.

In support of its application, the Trustee relied on subsections 30(1)(d) and 72 of the Bankruptcy and Insolvency Act ("BIA") and two case authorities: Hess, Re (1977), 23 C.B.R. (N.S.) 215, 1977 CarswellOnt 68 (Ont. S.C.), and Robinson v. Countrywide Factors Ltd. (1977), 1977 CarswellSask 5, [1978] 1 S.C.R. 753, 72 D.L.R. (3d) 500, 14 N.R. 91, 23 C.B.R. (N.S.) 97, [1977] 2 W.W.R. 111, 1977 CarswellSask 138 (S.C.C.). The Trustee took the position that the statutory provisions gave it the power to bring legal proceedings relating to the property of the bankrupts and avail itself of all rights and remedies provided by provincial law, including those in statutes dealing with preferential transactions.

In argument, the Trustee conceded that it was seeking to pursue the Havelock and Metz Actions because it would be faced with a limitations problem if it commenced similar proceedings in its own name.

The Respondents took the position that the Trustee had not complied with section 69.4 of the BIA, i.e., it had not met the test to lift the Stay Order, the Trustee lacked the power to purchase and assume control of the Havelock and Metz Actions, that it was improper for the Trustee to pursue claims against the bankrupts because of the potential for a conflict of interest, and that the Havelock and Metz Actions were unlikely to be successful.

The issues before Thomas J. were whether the Trustee had the power to pursue the Havelock and Metz actions and whether the stay order should be lifted.

In arguing that the Trustee lacked the power to purchase and assume control of the Havelock and Metz Actions, the Respondents relied on subsection 30(1)(d) of the BIA, Hess, supra, and Toyota Canada Inc. v. Imperial Richmond Holdings Ltd. (1997), (sub nom. International Warranty Co. (Bankrupt), Re) 202 A.R. 274, 54 Alta. L.R. (3d) 183, 1997 CarswellAlta 110, [1997] 10 W.W.R. 335 (Alta. Q.B.). In Toyota, Clarke J. noted that "the trustee is a creature of statute so the trustee has only those rights or powers that are given to it by statute". Thomas J. therefore, stated that the issue of whether the Trustee had the power to purchase, and assume control of, the Havelock and Metz Actions had to be resolved by examining the powers which the BIA conferred on the Trustee.

Section 30(1)(d) of the BIA empowers the trustee, "with the permission of the inspectors, ... [to] bring, institute or defend any action or other legal proceeding relating to the property of the bankrupt[s]". Thomas J. noted that there was no suggestion that the Trustee did not obtain the requisite permission of the inspectors. Therefore, the question was whether the Trustee's power to bring, institute or defend any action or other proceedings relating to the bankrupts' property includes the power to receive assignments of, and continue, actions of the bankrupts' creditors.

Justice Thomas went on to note that the legal authorities which the parties provided did not provide the answer's specific question. Hess was an appeal from a decision reducing the remuneration of a bankruptcy trustee. Countrywide Factors supported the Trustee's argument that section 72 of the BIA entitled it to avail itself of all rights and remedies provided by provincial law, including those in statutes dealing with preferential transactions. However, Thomas J. indicated that it did not shed any light on the question of whether section 30(1)(d) empowered the Trustee to receive assignments of, and continue, actions of the bankrupts' creditors.

Justice Thomas found the Toyota case to be more helpful. The Toyota case referenced Principal Group Ltd. (Trustee of) v. Alberta (1993), 8 Alta. L.R. (3d) 73, 18 C.B.R. (3d) 163, 15 C.P.C. (3d) 102, (sub nom. Principal Group Ltd. (Bankrupt) v. Alberta) 139 A.R. 26, [1993] 4 W.W.R. 92, 1993 CarswellAlta 417 (Alta. Q.B.) [Principal, 1993], which in turn referenced Principal Group Ltd. (Trustee of) v. Principal Savings & Trust Co. (1990), 1990 CarswellAlta 260, 80 C.B.R. 313, 80 C.B.R. (N.S.) 313, 111 A.R. 81 (Alta. Q.B.) [Principal, 1990], adopted by Virtue J. in Principal Group Ltd. (Trustee of) v. Alberta (1993), 8 Alta. L.R. (3d) 73, 18 C.B.R. (3d) 163, 15 C.P.C. (3d) 102, (sub nom. Principal Group Ltd. (Bankrupt) v. Alberta) 139 A.R. 26, [1993] 4 W.W.R. 92, 1993 CarswellAlta 417 (Alta. Q.B.) where Virtue J. stated:

The Bankruptcy Act authorizes the Trustee to institute "proceedings relating to the property of the bankrupt" (section 30) and imposes a duty and power on the Trustee to obtain possession of the property of the bankrupt (sections 16 and 17). If the property of the bankrupt was misappropriated, misused or misapplied, or if the bankrupt itself was deprived of property by a fraudulent scheme, it is clearly the duty and responsibility of the Trustee to pursue recovery. If successful, the recovered property accrues to the benefit of the creditors of the bankrupt. The Bankruptcy Act, however, does not authorize the [Trustee] to commence actions to recover the property of individual creditors of the bankrupt who may have fallen victim to the same fraudulent scheme or misrepresentations. The Trustee is not and cannot be the agent of the individual investors in [the bankrupt] for this purpose: Clarkson Co. v. Muir (1982), 43 C.B.R. (N.S.) 259, 109 A.P.R. 609, 1982 CarswellNS 38, 53 N.S.R. (2d) 609 (N.S. C.A.).

The Trustee argued that it was taking the action for the entire class of creditors acting for the benefit of everyone who had an interest in the bankrupt estate. Thomas J. found that this argument was flawed. Thomas J. noted that the fact that the Trustee sought to pursue the Havelock and Metz Actions for the benefit of the Estates of the bankrupts did not change the fact that, in pursuing those actions, the Trustee would be (a) pursuing the bankrupts' creditors' claims that they were victims of a fraudulent scheme as to their investments, and (b) looking to recover the bankrupts' creditors' investments. In other words, the Trustee would merely be stepping into the shoes of the individual plaintiffs in the Havelock and Metz Actions to pursue their causes of action.

Justice Thomas summarized that as it appeared to be the law in Alberta that subsection 30(1)(d) of the BIA does not give a bankruptcy trustee the power to pursue an individual claim of a particular creditor, the Trustee did not have the power to pursue the Havelock and Metz Actions. Had Parliament intended to give a bankruptcy trustee the power to pursue claims of the creditors of the bankrupt for the benefit of the bankrupt's estate, it could have done so in a provision similar to section 38 of the BIA.

Accordingly, Thomas J. concluded that receiving assignments of, and continuing, legal actions commenced by the creditors of Mr. Dorais and the Dorais Companies were not avenues available to the Trustee to avoid a limitation problem. The Trustee's application to lift the stay order was dismissed.

See Houlden & Morawetz, Bankruptcy and Insolvency Law of Canada:
C§53 — Powers of Trustee Conferred by Section 30
C§57 — Legal Proceedings
C§84 — Actions by Creditors Where a Trustee Refuses to Take Proceedings
C§91 — Assignment of Trustee's Title
C§93 — Scope of Proceedings
F§170 — Provincial Statutes Relating to Property and Civil Rights

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