Mutter (Bankrupt), Re, (2009) 471 A.R. 99 (QB Reg.)

• Court: Court of Queen's Bench of Alberta (Canada)
• Case Date: November 06, 2008
• Citations: (2009), 471 A.R. 99 (QB Reg.);2009 ABQB 28

Mutter (Bankrupt), Re (2009), 471 A.R. 99 (QB Reg.)

MLB headnote and full text

Temp. Cite: [2009] A.R. TBEd. JA.170

In The Matter Of the Bankruptcy of Darren Micheal Mutter (BK01 089252; 2009 ABQB 28)

Indexed As: Mutter (Bankrupt), Re

Alberta Court of Queen's Bench

In Bankruptcy and Insolvency

Judicial District of Calgary

Alberstat, Registrar

January 16, 2009.

Summary:

A trustee in bankruptcy applied for advice and direction respecting the distribution 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, held that the requirements to pay issued to the trustee were invalid. The court directed the trustee to pay the $40,000 exemption to the bankrupt.

Bankruptcy - Topic 4

General principles - Purpose of bankruptcy law - A trustee in bankruptcy applied for advice and direction respecting the distribution 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 (Alberta Civil Enforcement Act (CEA), s. 88(g); Civil Enforcement Regulations (CE Regulations), s. 37(1)(e)) or whether that amount was payable to the Minister of National Revenue pursuant to garnishment provisions in the Income Tax Act and the Excise Tax Act - The Minister sought to recover post-bankruptcy tax debts - A Registrar of the Alberta Court of Queen's Bench, In Bankruptcy and Insolvency, considered the dual purpose of the Bankruptcy and Insolvency Act (BIA) and stated that the debtor's exemption was an important component of the second purpose (allowing the debtor to remain a viable economic unit) - The BIA was binding on the Minister (s. 4.1) - Generally, the BIA prohibited property which was exempt under provincial laws from being distributed among a debtor's creditors (s. 67(1)(b)) - The BIA adopted the CEA and the CE Regulations by reference and they applied to the Minister - Therefore, at least notionally, the Minister should respect the $40,000 exemption - Whether the BIA applied more specifically to the situation depended on whether the Minister was a "creditor" of the bankrupt as defined in s. 2 of the BIA - Debts considered "provable as a claim" under the BIA included post-petition debts (BIA, s. 121(3)) - The tax debts fell within the scope of s. 121(3) of the BIA and were provable in bankruptcy - Thus, the minister was bound as a creditor in the BIA process - The BIA required that creditors prove their claims (s. 124(1)) - Regardless of whether creditors proved their claims, the BIA prohibited creditors from doing anything else to recover debts (s. 69.3(1)) - The exceptions to the application of 69.3(1) were not applicable - The requirements to pay issued by the Minister was a "remedy against the Debtor or the Debtor's property" and were prohibited by s. 69.3(1) - See paragraphs 12 to 27.

Bankruptcy - Topic 402

Property of bankrupt - General - What constitutes - A trustee in bankruptcy applied for advice and direction respecting the distribution 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 (Alberta Civil Enforcement Act, s. 88(g); Civil Enforcement Regulations, s. 37(1)(e)) or whether that amount was payable to the Minister of National Revenue pursuant to garnishment provisions in the Income Tax Act (ITA) and the Excise Tax Act (ETA) - A Registrar of the Alberta Court of Queen's Bench, In Bankruptcy and Insolvency, stated that the issue was whether the trustee giving the $40,000 exemption to the bankrupt was a payment as contemplated by s. 224(1) of the ITA and s. 317(3) of the ETA - Although the bankrupt had lost the ability to dispose of or deal with his property, the property still remained the bankrupt's property, even when in the hands of the trustee (Bankruptcy and Insolvency Act (BIA), s. 71) - The BIA did not specify how the exemption amounts were to be returned to the bankrupt when property valued in excess of the allowable exemption amount was sold - The BIA only prohibited the exemption amounts from being distributed among the bankrupt's creditors (BIA, s. 67(1)(b)) - As the exemption amounts were always the bankrupt's property, once those amounts were severed from those amounts payable to the creditors, the bankrupt regained the ability to deal with that property - Although the trustee might transfer funds to give control over the property back to the bankrupt, this was not the type of "payment" contemplated by s. 224(1) of the ITA and s. 317(3) of the ETA - Further, s. 317(3) of the ETA was specified to apply "despite ... any other enactment of Canada other than the Bankruptcy and Insolvency Act." - As such, s. 317(3) of the ETA was subject to the BIA and the prohibition from distributing the exemption amounts to the bankrupt's creditors governed - This effectively prohibited the Minister from issuing the requirements to pay to the trustee under the ETA - See paragraphs 28 to 35.

Bankruptcy - Topic 410

Property of bankrupt - General - Transfer of exempt assets - Effect - [See Bankruptcy - Topic 402 ].

Bankruptcy - Topic 483

Property of bankrupt - Exemption or exclusions - Property exempt from seizure under provincial laws - [See Bankruptcy - Topic 4 and Bankruptcy - Topic 402 ].

Bankruptcy - Topic 483

Property of bankrupt - Exemption or exclusions - Property exempt from seizure under provincial laws - A trustee in bankruptcy applied for advice and direction respecting the distribution 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 (Alberta Civil Enforcement Act (CEA), s. 88(g); Civil Enforcement Regulations, s. 37(1)(e)) or whether that amount was payable to the Minister of National Revenue pursuant to garnishment provisions in the Income Tax Act (ITA) and the Excise Tax Act (ETA) - A Registrar of the Alberta Court of Queen's Bench, In Bankruptcy and Insolvency, stated that the Minister's suggestion that the bankrupt's exemption could be circumvented by using the garnishment provisions of the ITA and the ETA was troubling - Such would allow the Minister to take all of the bankrupt's possessions, leaving him destitute and falling on the care of the state - This was not an acceptable position - Whether exemptions applied to the ITA's and the ETA's garnishment provisions had to be considered in the context of the other collection provisions within those statutes - There was a presumption that the components of each statute would be internally consistent and fit logically into a general scheme (i.e., internal coherence) - The Registrar reviewed the three main methods for collecting unpaid taxes under the two Acts - The Registrar concluded that to give effect to the exemptions recognized in ss. 223 and 225 of the ITA, the legislature could not have intended to allow the exemptions to be garnished under s. 224 - The analysis applied equally to ss. 321, 316 and 317 of the ETA and exemptions could not be garnished under s. 317 - With respect to conflict with the CEA, the court stated that although taxation under the ITA and ETA served a general public purpose, the specifically defined and beneficial purposes of debtor's exemptions should not be disturbed lightly - The language of the CEA was mandatory, while the ITA and ETA language was permissive - Any conflict could be reconciled by reading an exception into the ITA and the ETA which prohibited the Minister from issuing requirements to pay to garnish the transfer of exemption amounts to debtors - See paragraphs 36 to 54.

Bankruptcy - Topic 485

Property of bankrupt - Exemptions or exclusions - Residence - [See Bankruptcy - Topic 4 , Bankruptcy - Topic 402 and second Bankruptcy - Topic 483 ].

Bankruptcy - Topic 4485

Preferred creditors - Claims by Crown - For income tax - [See Bankruptcy - Topic 402 and second Bankruptcy - Topic 483 ].

Bankruptcy - Topic 4486.1

Preferred creditors - Claims by Crown - For goods and services tax (GST) - [See Bankruptcy - Topic 402 and second Bankruptcy - Topic 483 ].

Bankruptcy - Topic 6786

Practice - Stay of proceedings - Proceeding for the recovery of a claim against the bankrupt - [See Bankruptcy - Topic 4 ].

Income Tax - Topic 9233

Enforcement - Collection - Garnishment - Third party demand - Property affected - [See Bankruptcy - Topic 402 and 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 Bankruptcy - Topic 402 and second Bankruptcy - Topic 483 ].

Statutes - Topic 522

Interpretation - General principles - Taxing statutes - [See second Bankruptcy - Topic 483 ].

Statutes - Topic 1409

Interpretation - Construction where meaning is not plain - General principles - Avoidance of conflict with other statutes - [See second Bankruptcy - Topic 483 ].

Statutes - Topic 2617

Interpretation - Interpretation of words and phrases - Modern rule (incl. interpretation by context) - Harmonization of statutes - Presumption of coherence - [See second Bankruptcy - Topic 483 ].

Cases Noticed:

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. 9].

Husky Oil Operations Ltd. v. Minister of National Revenue et al., [1995] 3 S.C.R. 453; 188 N.R. 1; 137 Sask.R. 81; 107 W.A.C. 81, refd to. [para. 13].

Harris, Re (1984), 55 A.R. 6 (Q.B.), refd to. [para. 25].

McClurg v. Minister of National Revenue, [1990] 3 S.C.R. 1020; 119 N.R. 101, refd to. [para. 31].

Marcoux v. Canada (Procureur général) (2001), 278 N.R. 19; 2001 FCA 92, refd to. [para. 42].

Investors Group Trust Co. v. Eckhoff et al., [2008] 3 C.T.C. 432; 307 Sask.R. 164; 417 W.A.C. 164; 2008 SKCA 18, refd to. [para. 43].

Friends of the Oldman River Society v. Canada (Minister of Transport and Minister of Fisheries and Oceans), [1992] 1 S.C.R. 3; 132 N.R. 321, refd to. [para. 45].

Murphy v. Welsh, [1993] 2 S.C.R. 1069; 156 N.R. 263; 65 O.A.C. 103, addendum 157 N.R. 372; 66 O.A.C. 240, refd to. [para. 46].

Stoddard v. Watson - see Murphy v. Welsh.

Eurig Estate v. Ontario Court (General Division), Registrar, [1998] 2 S.C.R. 565; 231 N.R. 55; 114 O.A.C. 55, refd to. [para. 49].

Statutes Noticed:

Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, sect. 69.3(1) [para. 24]; sect. 71 [para. 32]; sect. 121(3) [para. 21].

Civil Enforcement Act, R.S.A. 2000, c. C-15, sect. 88(g) [para. 18]; sect. 89(5), sect. 98(1) [para. 51].

Civil Enforcement Act Regulations (Alta.), Civil Enforcement Regulation, Reg. 276/95, sect. 37(1)(e) [para. 18].

Civil Enforcement Regulation - see Civil Enforcement Act Regulations (Alta.).

Excise Tax Act, R.S.C. 1985, c. E-15, sect. 316 [paras. 39, 44]; sect. 317(3) [para. 29]; 321 [paras. 39, 44].

Income Tax Act, R.S.C. 1985 (5th Supp.), c. 1, sect. 223 [para. 39 et seq.]; sect. 224(1) [para. 28]; 225 [para. 39 et seq.].

Authors and Works Noticed:

Alberta, Law Reform Institute, Enforcement of Money Judgments, Report No. 61 (1991), vol. 1, pp. 254, 255 [para. 14].

Côté, Pierre-André, Interpretation of Legislation in Canada (3rd Ed. 2000), p. 307 [para. 8].

Driedger, Elmer A., Construction of Statutes (2nd Ed. 1983), p. 87 [para. 7].

Hogg, Peter W., Constitutional Law of Canada (5th Ed.) (2007 Looseleaf Supp.), vol. 1, p. 10-19 [para. 18].

Houlden, Lloyd W., and Morawetz, Geoffrey B., Bankruptcy and Insolvency Law of Canada (3rd Ed.) (2005 Looseleaf Update), vol. 2, p. 3-51 [para. 12].

Counsel:

George F. Body (Department of Justice Canada), for the Crown;

George Lomas (Meyers Norris Penny Limited), the Trustee.

This application was heard at Lethbridge, Alberta, on November 6, 2008, by Alberstat, Registrar, of the Alberta Court of Queen's Bench, In Bankruptcy, Judicial District of Calgary, who delivered the following reasons for judgment on January 16, 2009.