Armbruster (Bankrupt), Re, 2010 SKCA 125

• Judge: Lane, Jackson and Ottenbreit, JJ.A.
• Court: Court of Appeal (Saskatchewan)
• Case Date: May 04, 2010
• Jurisdiction: Saskatchewan
• Citations: 2010 SKCA 125;(2010), 362 Sask.R. 200 (CA)

Armbruster (Bankrupt), Re (2010), 362 Sask.R. 200 (CA);

    500 W.A.C. 200

MLB headnote and full text

Temp. Cite: [2010] Sask.R. TBEd. OC.057

KPMG Inc., Trustee in Bankruptcy of the Estate of Veronica Leay Armbruster (appellant) v. Veronica Leay Armbruster (respondent)

(No. 1788; 2010 SKCA 125)

Indexed As: Armbruster (Bankrupt), Re

Saskatchewan Court of Appeal

Lane, Jackson and Ottenbreit, JJ.A.

October 18, 2010.

Summary:

The bankrupt received an absolute discharge in 1996. She was the owner of residential property having an exemption of $32,000. The trustee did not oppose the discharge. In its report prepared under s. 170 of the Bankruptcy and Insolvency Act, the trustee assigned an estimated value of $200,000 to the property. The report noted that the trustee was transmitting an 82% interest in the property to the trustee. That transaction was completed in 1996. The trustee never applied for a discharge. The bankrupt applied under s. 37 of the Act for an order reversing the trustee's decision and restoring the 82% interest to her. Tax information showed that the fair market value of the property in 2009 was $332,700.

The Saskatchewan Court of Queen's Bench, in a decision reported at (2009), 334 Sask.R. 133, allowed the application. The trustee appealed.

The Saskatchewan Court of Appeal dismissed the appeal.

Bankruptcy - Topic 485

Property of bankrupt - Exemptions or exclusions - Residence (incl. homestead property) - In 1995, Armbruster was petitioned into bankruptcy by a single creditor - In 1996, she received an absolute discharge - When the trustee gave notice to Armbruster's creditors regarding her discharge, the trustee also applied at the Land Titles Office to have an 82% interest in Armbruster's residential property transmitted to it - This was calculated on the basis of the total equity ($177,500) being divided 18% in favour of Armbruster (based on her exemption of $32,000) and 82% in favour of the trustee (based on the remaining non-exempt equity) - A new title was issued showing "an undivided 82% interest" in the trustee's name - The trustee remained undischarged - In 2009, Armbruster's application for an order restoring the 82% interest to her was allowed - The Saskatchewan Court of Appeal dismissed the trustee's appeal - The trial judge was correct when he declared that the non-exempt land of Armbruster was incapable of realization - The non-exempt equity represented by the proceeds of sale were realizable, but the land as such was not - A trustee who planned to maintain a claim against the non-exempt equity in a personal residence had to "set forth the value of the non-exempt equity, indicate its intention to file a caveat and take specific steps to inform the creditors and the bankrupt of its intention to do so" - What happened here was that the trustee developed its own procedure, effecting a form of realization that was not contemplated by the legislation or the case law - The trustee had become a tenant in common with Armbruster, becoming an 82% owner of both the non-exempt and the exempt property - The trustee's title was to be cancelled - The court declined to expressly permit the trustee to file a caveat for a reduced claim - A trustee could not convert an absolute discharge into a conditional discharge - Armbruster had been a model bankrupt and had done nothing wrong - She had done what the law permitted her to do: remain in her own home - This litigation could have been avoided if the trustee had followed the proper procedure - See paragraphs 16 to 36.

Bankruptcy - Topic 485

Property of bankrupt - Exemptions or exclusions - Residence (incl. homestead property) - In 1995, Armbruster was petitioned into bankruptcy by a single creditor - In 1996, she received an absolute discharge - When the trustee gave notice to Armbruster's creditors regarding her discharge, the trustee also applied at the Land Titles Office to have an 82% interest in Armbruster's residential property transmitted to it - This was calculated on the basis of the total equity ($177,500) being divided 18% in favour of Armbruster (based on her exemption of $32,000) and 82% in favour of the trustee (based on the remaining non-exempt equity) - A new title was issued showing "an undivided 82% interest" in the trustee's name - The trustee remained undischarged - In 2009, Armbruster's application for an order restoring the 82% interest to her was allowed - The Saskatchewan Court of Appeal dismissed the trustee's appeal - The Exemptions Act (Sask.) declared certain land to be exempt to a certain value, but did not provide a mechanism to allow an execution creditor to seize and sell the excess - A trustee in bankruptcy had no greater power than an execution creditor in that regard - Only when the bankrupt sold the home voluntarily was a creditor or a trustee able to make a claim for the difference - Here, instead of receiving a voluntary transfer from the bankrupt, the trustee had transmitted an interest to itself and, thus, became a "registered owner" of that interest - The law of real property did not permit a trustee in bankruptcy to create an undivided interest where one did not exist before, without the agreement of the bankrupt - A trustee could transmit to itself an undivided interest in land that the bankrupt already held as an undivided interest, or it could receive a voluntary transfer of such an interest, but a trustee could not speculate as to what the future sale price of land would be, subtract the value of any encumbrances and the exemption, and then say that the remaining dollar value gave it "an undivided interest" as a tenant in common in the whole of the land - The interest in land that a trustee in bankruptcy held was a right to "proceeds", a future and contingent interest that only arose if the bankrupt voluntarily sold the land - That interest could not unilaterally be converted to an undivided interest in the land - The trustee's title was cancelled - See paragraphs 23 to 28.

Bankruptcy - Topic 2751

Trustees - Powers of - General - [See both Bankruptcy - Topic 485 ].

Creditors and Debtors - Topic 2254

Seizure or attachment of debtors' property - Exemptions - Principal residence - [See second Bankruptcy - Topic 485 ].

Cases Noticed:

Deloitte, Haskins & Sells Ltd. v. Zemlak (Bankrupt) (1987), 58 Sask.R. 203; 42 D.L.R.(4th) 395 (C.A.), consd. [para. 13].

Royal Bank of Canada v. North American Life Assurance Co. - see Ramgotra (Bankrupt), Re.

Ramgotra (Bankrupt), Re, [1996] 1 S.C.R. 325; 193 N.R. 186; 141 Sask.R. 81; 114 W.A.C. 81, refd to. [para. 22].

Hayes, In re, [1931] 1 W.W.R. 301 (Sask. K.B.), refd to. [para. 24].

Neuls (Bankrupts), Re; Touche Ross Ltd. v. First City Trust Co. et al. (1985), 37 Sask.R. 60; 17 D.L.R.(4th) 554 (C.A.), refd to. [para. 24].

Monteith (Bankrupt), Re (2004), 249 Sask.R. 176; 325 W.A.C. 176; 240 D.L.R.(4th) 506; 2004 SKCA 63, refd to. [para. 24].

McNabb, Re - see Higgins Co. v. McNabb

Higgins Co. v. McNabb (1979), 2 Sask.R. 119; 112 D.L.R.(3d) 407 (C.A.), refd to. [para. 25].

Nelson (Bankrupt) Re; Pinder (Jeffrey) & Associates Ltd. v. Nelson, [1995] 8 W.W.R. 249; 133 Sask.R. 178 (Q.B.), consd. [para. 31].

Authors and Works Noticed:

Anger and Honsberger, The Law of Real Property (3rd Ed. 2006) (2009 Looseleaf), vol. 1, § 14:30.70 [para. 29].

Counsel:

Murray W. Douglas, for the appellant;

Michael J. Krawchuk, for the respondent.

This appeal was heard on May 4, 2010, by Lane, Jackson and Ottenbreit, JJ.A., of the Saskatchewan Court of Appeal. On October 18, 2010, Jackson, J.A., delivered the following reasons for judgment for the court.