Mutter (Bankrupt), Re, 2014 ABCA 176

• Judge: Côté, Watson and Slatter, JJ.A.
• Court: Court of Appeal (Alberta)
• Case Date: May 08, 2014
• Citations: 2014 ABCA 176;(2014), 575 A.R. 180

Mutter (Bankrupt), Re (2014), 575 A.R. 180; 612 W.A.C. 180 (CA)

MLB headnote and full text

Temp. Cite: [2014] A.R. TBEd. MY.086

Her Majesty the Queen in Right of Canada as represented by the Minister of National Revenue (appellant) v. Meyers Norris Penny Limited and Darren Michael Mutter (respondents)

(1001-0125-AC; 2014 ABCA 176)

Indexed As: Mutter (Bankrupt), Re

Alberta Court of Appeal

Côté, Watson and Slatter, JJ.A.

May 28, 2014.

Summary:

A trustee in bankruptcy applied for advice and direction respecting the distribution of proceeds from the forced sale of the bankrupt's principal residence. At issue was whether the bankrupt was entitled to a $40,000 exemption amount or whether that amount was payable to the Minister of National Revenue pursuant to the garnishment provisions in the Income Tax Act and the Excise Tax Act.

A Registrar of the Alberta Court of Queen's Bench, In Bankruptcy and Insolvency, in a decision reported at 471 A.R. 99, held that the requirements to pay issued by the Minister to the trustee were invalid. The court directed the trustee to pay the $40,000 to the bankrupt. The Minister appealed.

The Alberta Court of Queen's Bench, in a decision reported at 485 A.R. 175, dismissed the appeal. In addition to confirming the Registrar's order, the court quashed the requirements to pay that had been issued to the trustee. The Minister appealed.

The Alberta Court of Appeal allowed the appeal. The requirements to pay were valid and the funds were to be paid to the Minister.

Bankruptcy - Topic 483

Property of bankrupt - Exemptions or exclusions - Property exempt from seizure under provincial laws - At issue on an appeal by the Minister of National Revenue was whether the Bankruptcy and Insolvency Act (BIA) applied to the enforcement of post-bankruptcy debts even if they were not provable in bankruptcy - The amicus curiae asserted that s. 69.3 of the BIA (suspension of other remedies during the bankruptcy process) should apply as the scheme for the orderly liquidation of assets would be disrupted if the post-bankruptcy class of claimants could still use creditors' remedies - Further, the policy of the Act to rehabilitate debtors would be undermined if the exemptions in s. 67(1)(b) (property exempt from seizure under provincial laws) were lost - The Alberta Court of Appeal stated that "It can be acknowledged that the BIA does not deal seamlessly with the collection of post-bankruptcy debts that are not provable in bankruptcy. The BIA does not contemplate that an insolvent debtor who takes refuge in the bankruptcy regime would continue to run up debts, at least without notice to creditors: s. 199(a). An undischarged bankrupt has very limited access to credit, apart from situations (like tax remittances) where debts can be generated without the specific consent of the creditor. The concerns raised by the amicus curiae are genuine. However, the broad policy considerations behind the BIA cannot override its specific wording. ... Section 121, which defines claims 'provable in bankruptcy', is complemented by the definition of 'creditor:' ["a person having a claim provable as a claim under this Act"] ... A person who has a claim, but one that is not provable in bankruptcy, is not a 'creditor' for the purposes of the BIA. The BIA addresses claims 'provable in bankruptcy', and the persons who have such claims. This provides certainty as to which claims are discharged by the process under s. 178(2). Both s. 69.3 and s. 67 refer to 'creditors', and it follows that they have no application to those who do not have claims provable in bankruptcy. In that sense, the BIA is a closed system and does not deal with these external claims." - See paragraphs 15 to 17.

Bankruptcy - Topic 483

Property of bankrupt - Exemptions or exclusions - Property exempt from seizure under provincial laws - A trustee in bankruptcy applied for advice and direction respecting the distribution of proceeds from the forced sale of the bankrupt's principal residence - The bankrupt asserted that he was entitled to a $40,000 exemption amount (Alberta Civil Enforcement Act, s. 88(g); Civil Enforcement Regulations, s. 37(1)(e)) - The Minister of National Revenue asserted that the funds were payable to the Minister pursuant to garnishment provisions in the Income Tax Act and the Excise Tax Act - At issue was whether the Minister had been entitled to issue a requirement to pay against the trustee in bankruptcy - The Alberta Court of Appeal, after holding that the Minister was not constrained by the stay in s. 69.3 of the Bankruptcy and Insolvency Act nor limited by provincial exemptions pursuant to s. 67(1)(b) of that Act respecting the collection of the bankrupt's post-bankruptcy tax debts, held that the special Requirement to Pay remedies were available to the Minister provided the trustee in bankruptcy was vulnerable to them - The $40,000 was in the trustee's bank account and, if exempt, it had to be transferred to the bankrupt's bank account - That clearly involved a "payment" that could be captured by a requirement to pay - The requirements to pay were validly issued - See paragraphs 15 to 23.

Bankruptcy - Topic 485

Property of bankrupt - Exemptions or exclusions - Residence - [See second Bankruptcy - Topic 483 ].

Bankruptcy - Topic 2902

Claims provable - What constitutes - [See first Bankruptcy - Topic 483 ].

Bankruptcy - Topic 2902

Claims provable - What constitutes - At issue was whether a bankrupt's post-bankruptcy tax debts were "provable in bankruptcy" - The Alberta Court of Appeal stated that s. 121 of the Bankruptcy and Insolvency Act deemed two types of claims to be provable in bankruptcy - Both types of claims had to relate to obligations that existed on the date of the bankruptcy - The Supreme Court of Canada in Newfoundland and Labrador v. AbitibiBowater Inc. et al. (2012) summarized the three requirements for a debt provable in bankruptcy: "First, there must be a debt, a liability or an obligation to a creditor. Second, the debt, liability or obligation must be incurred before the debtor becomes bankrupt. Third, it must be possible to attach a monetary value to the debt, liability or obligation." - The post-bankruptcy tax debts in issue here did not qualify, as they related to obligations that arose in taxation years after the bankruptcy - Section 121(3) provided that a claimant "may" prove a debt in the bankruptcy, even if it was not yet due - That appeared to contemplate obligations that were owed on the date of bankruptcy, but that required future performance - Even if s. 121(3) could be read as contemplating a claimant electing to prove a post-bankruptcy debt, the Minister had not made such an election here - It followed that the post-bankruptcy tax debts in issue were not claims provable in the bankruptcy, and the Minister was not a creditor for purposes of the bankruptcy - See paragraphs 11 to 17.

Bankruptcy - Topic 3626

Creditors - General - What constitutes a provable claim - [See first Bankruptcy - Topic 483 and second Bankruptcy - Topic 2902 ].

Bankruptcy - Topic 4485

Preferred creditors - Claims by Crown - For income tax - [See second Bankruptcy - Topic 2902 ].

Bankruptcy - Topic 4486.1

Preferred creditors - Claims by Crown - For goods and services tax (GST) - [See second Bankruptcy - Topic 2902 ].

Bankruptcy - Topic 6786

Practice - Stay of proceedings - Proceeding for the recovery of a claim against the bankrupt (incl. lifting of stay) - [See both Bankruptcy - Topic 483 ].

Income Tax - Topic 9233

Enforcement - Collection - Garnishment - Third party demand - Property affected - [See second Bankruptcy - Topic 483 ].

Sales and Service Taxes - Topic 5204

Goods and services tax (incl. harmonized sales tax) - Administration, collection and enforcement - Requirement to pay - [See second Bankruptcy - Topic 483 ].

Cases Noticed:

Newfoundland and Labrador v. AbitibiBowater Inc. et al., [2012] 3 S.C.R. 443; 438 N.R. 134; 2012 SCC 67, refd to. [para. 12].

Davis v. Davidson (2003), 42 C.B.R.(4th) 8; 2003 ABPC 81, refd to. [para. 14].

Richardson & Co. v. Storey, [1942] 1 D.L.R. 182; 23 C.B.R. 145 (Ont. S.C.), refd to. [para. 14].

Venneri v. Bomasuit, [1951] 1 D.L.R. 399; 31 C.B.R. 150 (Ont. S.C.), refd to. [para. 14].

Black v. Rob, [2012] O.J. No. 6625 (Sup. Ct.), refd to. [para. 14].

Kalles (Harvey) Real Estate Ltd. v. Bleeman et al., [2007] O.T.C. Uned. F93 (Sup. Ct.), refd to. [para. 14].

A.Y.S.A. Amateur Youth Soccer Association v. Canada Revenue Agency, [2007] 3 S.C.R. 217; 367 N.R. 264; 2007 SCC 42, refd to. [para. 20].

McClurg v. Minister of National Revenue, [1990] 3 S.C.R. 1020; 119 N.R. 101, refd to. [para. 20].

Statutes Noticed:

Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, sect. 67(1)(b) [para. 4]; 121 [para. 11].

Excise Tax Act, R.S.C. 1985, c. E-15, sect. 317(3) [para. 6].

Income Tax Act, R.S.C. 1985 (5th Supp.), c. 1, sect. 224(1) [para. 6].

Counsel:

G.F. Body, for the appellant;

No appearance for G. Lomas (Trustee) and Meyers Norris Penny Limited;

No appearance for Darren Michael Mutter;

K. Kashuba, amicus curiae.

This appeal was heard on May 8, 2014, by Côté, Watson and Slatter, JJ.A., of the Alberta Court of Appeal. The court filed the following memorandum of judgment at Calgary, Alberta, on May 28, 2014.