Piikani Energy Corp. (Bankrupt), Re, 2012 ABQB 187

• Judge: Graesser, J.
• Court: Court of Queen's Bench of Alberta (Canada)
• Case Date: December 22, 2011
• Citations: 2012 ABQB 187;(2012), 537 A.R. 211 (QB)

Piikani Energy Corp. (Bankrupt), Re (2012), 537 A.R. 211 (QB)

MLB headnote and full text

Temp. Cite: [2012] A.R. TBEd. MR.157

Alger & Associates Inc., in its capacity as Trustee of Piikani Energy Corporation (applicant) v. 607385 Alberta Ltd., Stephanie Ho Lem and Dale McMullen (respondents)

Piikani Nation (plaintiff) v. Piikani Energy Corporation (defendant)

Piikani Nation (plaintiff) v. Piikani Investment Corporation (defendant)

(BE01 436014; 0901 15297; 0901 18791; 2012 ABQB 187)

Indexed As: Piikani Energy Corp. (Bankrupt), Re

Alberta Court of Queen's Bench

Judicial District of Calgary

Graesser, J.

March 19, 2012.

Summary:

A trustee in bankruptcy applied to set aside certain payments made by the bankrupt to two individuals, who were at the time officers and directors of the bankrupt, as being fraudulent preferences (Bankruptcy and Insolvency Act (BIA), s. 95).

The Alberta Court of Queen's Bench found that the impugned payments were made at a time when the bankrupt was insolvent with the intent of preferring the individuals as creditors. Those payments thus constituted fraudulent preferences within the meaning of s. 95(1)(b) of the BIA and had to be repaid.

Bankruptcy - Topic 6977

Practice - Legal costs - Trustees - [See Practice - Topic 7110 ].

Bankruptcy - Topic 7210

Setting aside transactions prior to bankruptcy - Fraudulent preferences - General - In a case involving fraudulent preference claims under the Bankruptcy and Insolvency Act, the Alberta Court of Queen's Bench stated that "At the beginning of this analysis, it should be made clear that the term 'fraudulent preference' is in many cases an overly-strong term. A fraudulent preference is a reviewable transaction, not necessarily a dishonest one. The term gives a highly pejorative tone to claims against parties who have been involved in transactions that would have been of no legal consequence had the debtor not gone bankrupt three or twelve months later. It is a term that relates to the intention of the debtor in making the payment, not the creditor in receiving it. Some creditors receiving payments are unfairly tarnished by the term" - See paragraph 97.

Bankruptcy - Topic 7211

Setting aside transactions prior to bankruptcy - Fraudulent preferences - What constitutes a non-arm's length transaction - The Alberta Court of Queen's Bench discussed what was meant by "arm's length" in s. 95(1) of the Bankruptcy and Insolvency Act - Under s. 95(1)(b) the appropriate time for pursuing fraudulent preference claims where the creditor was not dealing at arm's length was 12 months before the date of the initial bankruptcy event and ending on the date of the bankruptcy - In the case of a creditor who was dealing at arm's length with the insolvent person, the time was three months (s. 95(1)(a)) - See paragraphs 99 to 142.

Bankruptcy - Topic 7211

Setting aside transactions prior to bankruptcy - Fraudulent preferences - What constitutes a non-arm's length transaction - A bankruptcy trustee applied to set aside pre-bankruptcy payments made by a corporate bankrupt to two individuals, L and M, as being fraudulent preferences (Bankruptcy and Insolvency Act (BIA), s. 95) - L was pre-paid for consulting services - M's payment was severance related - When the payments were made, L & M were officers and directors of the bankrupt and involved in the payment decisions - L & M argued that they were dealing with the bankrupt at arm's length and, therefore, the trustee had only three months to pursue the fraudulent preference claim (BIA, s. 95(1)(a)) - The Alberta Court of Queen's Bench held that for purposes of the BIA, L & M were not at arm's length to the bankrupt - Accordingly the trustee's application was appropriately brought within the 12 month time period in s. 95(1)(b) of the BIA - See paragraphs 39 to 142.

Bankruptcy - Topic 7212

Setting aside transactions prior to bankruptcy - Fraudulent preferences - What constitutes a fraudulent preference - A bankruptcy trustee applied to set aside pre-bankruptcy payments made by a corporate bankrupt to two individuals, L and M, as being fraudulent preferences (Bankruptcy and Insolvency Act (BIA), s. 95) - L was pre-paid for consulting services (via her consulting company) - M's payment was severance related - When the payments were made, L & M were officers and directors of the bankrupt and involved in the payment decisions - The Alberta Court of Queen's Bench held that both payments were made at a time when the bankrupt was insolvent with the intent of preferring M and L/her company as creditors - Those payments constituted fraudulent preferences within the meaning of s. 95(1)(b) of the BIA and had to be repaid - See paragraphs 1 to 324.

Bankruptcy - Topic 7213

Setting aside transactions prior to bankruptcy - Fraudulent preferences - What constitutes a creditor - A bankruptcy trustee applied to set aside a pre-payment on a consulting retainer agreement made by a corporate bankrupt to an individual L and her consulting company, alleging a fraudulent preference (Bankruptcy and Insolvency Act (BIA), s. 95) - When the payments were made L was an officer and director of the bankrupt and involved in the payment decision - L argued that the failure of the trustee to list her or her company as a creditor in its statements of affairs was fatal to its claim that she was a creditor - Further, L argued that she was not a creditor when the payment was made - The Alberta Court of Queen's Bench rejected both arguments - See paragraphs 255 to 276.

Bankruptcy - Topic 7218

Setting aside transactions prior to bankruptcy - Fraudulent preferences - What constitutes an insolvent person - A bankruptcy trustee applied to set aside payments made by a corporate bankrupt to two individuals, L and M, as being fraudulent preferences (Bankruptcy and Insolvency Act (BIA), s. 95) - L was pre-paid for consulting services (via her consulting company) - M's payment was severance related - When the payments were made, L & M were officers and directors of the bankrupt and involved in the payment decisions - An issue arose as to whether the bankrupt was insolvent at the time of the impugned transactions - The Alberta Court of Queen's Bench examined the finances of the bankrupt, holding that it was at the time of the impugned transactions and at all times thereafter, insolvent (i.e., unable to meet its obligations and its liabilities exceeded its assets) - See paragraphs 143 to 245 and 294 to 296.

Bankruptcy - Topic 7250

Setting aside transactions prior to bankruptcy - Fraudulent preferences - Rebuttal of presumption of preference - A bankruptcy trustee applied to set aside a pre-payment (i.e., unearned portion) on a consulting retainer agreement made by a corporate bankrupt to an individual, L, and her consulting company, alleging a fraudulent preference (Bankruptcy and Insolvency Act (BIA), s. 95) - When the payments were made L was an officer and director of the bankrupt and involved in the payment decision - L argued that she rebutted the fraudulent preference presumption in s. 95, drawing an analogy between the payment arrangements under the consulting agreement and a solicitor's retainer - The Alberta Court of Queen's Bench held that L did not satisfy the burden on her of negating the presumption of a fraudulent preference under s. 95 - See paragraphs 277 to 292.

Courts - Topic 2015

Jurisdiction - General principles - Controlling abuse of its process - [See Practice - Topic 7110 ].

Practice - Topic 7110

Costs - Party and party costs - Special orders - Increase in scale of costs - General - A bankruptcy trustee applied to set aside a payment made by a corporate bankrupt to an individual, M, as being a fraudulent preference (Bankruptcy and Insolvency Act (BIA), s. 95) - M argued that the court should not grant relief because the claim against him was essentially an abuse of process - The Alberta Court of Queen's Bench examined the circumstances and rejected M's argument - There was nothing unfair or inequitable in holding creditors of the bankrupt to s. 95 of the BIA - The court held that the unwarranted and unfounded allegations by M against the trustee, justified an increase in the scale of costs - M was, therefore, liable for a full set of costs on column 3, trebled - See paragraphs 297 to 316 and 327 to 335.

Cases Noticed:

Piikani Investment Corp. et al. v. Piikani First Nation et al., [2008] A.R. Uned. 743; 2008 ABQB 775, refd to. [para. 15].

Viteway Natural Foods Ltd., Re, 1986 CarswellBC 499 (S.C.), refd to. [para. 42].

Consolidated Seed Exports Ltd., Re, 1986 CarswellBC 481 (S.C.), refd to. [para. 42].

Tremblay, Re, 1980 CarswellQue 59 (S.C.), refd to. [para. 42].

Galaxy Sports Inc. (Bankrupt), Re, [2003] B.C.T.C. Uned. 158; 2003 CarswellBC 734 (S.C.), refd to. [para. 42].

Abou-Rached (Bankrupt), Re, [2002] B.C.T.C. 1022; 2002 CarswellBC 1642 (S.C.), refd to. [para. 46].

Tremblay et al. v. Beaudry (1980), 36 C.B.R.(N.S.) 111 (Que. S.C.), refd to. [para. 46].

McLarty v. Minister of National Revenue, [2008] 2 S.C.R. 79; 374 N.R. 311; 2008 CarswellNat 1380; 2008 SCC 26, refd to. [para. 47].

Zameck v. Canada, 2000 CarswellNat 3042 (T.C.C.), refd to. [para. 47].

Gestion Yvan Drouin Inc. v. Canada, 2000 CarswellNat 3296 (T.C.C.), refd to. [para. 47].

Jones and MacLean v. Touchie (J.G.) and Associates Ltd. - see All-Temp Trailer Service Ltd. (Bankrupt), Re.

All-Temp Trailer Service Ltd. (Bankrupt), Re (1994), 147 N.B.R.(2d) 221; 375 A.P.R. 221 (C.A.), refd to. [para. 50].

St. Anne-Nackawic Pulp Co. (Bankrupt), Re (2005), 286 N.B.R.(2d) 95; 748 A.P.R. 95 refd. to. (C.A.), [para. 50].

Appleby Estates Ltd., Re (1984), 5 O.A.C. 39 (C.A.), refd to. [para. 50].

Axelrod, Re (1994), 16 O.R.(3d) 649 (Ont. S.C.), refd to. [para. 50].

Wiebe, Re, [1995] O.J. No. 436 (Gen. Div.), refd to. [para. 50].

Gardner v. Newton, [1916] M.J. No. 41 (K.B.), refd to. [para. 50].

K & C Thermoglass Ltd., Re (1979), 16 B.C.L.R. 33 (S.C.), refd to. [para. 54].

Boutique Euphoria Inc., Re, [2008] Q.J. No. 14591 (S.C.), refd to. [para. 54].

Blenkarn Planer Ltd., Re (1958), 37 C.B.R. 147 (B.C.S.C.), refd to. [para. 54].

Empire Meat Co. (Bankrupt), Re (1989), 78 Sask.R. 160 (Q.B.), refd to. [para. 57].

Collins (Keith G.) Ltd. v. Canadian Imperial Bank of Commerce - see Forbes (Bankrupt), Re.

Forbes (Bankrupt), Re (2011), 268 Man.R.(2d) 30; 520 W.A.C. 30; 2011 MBCA 41, refd to. [para. 73].

Moss (Bankrupt), Re (1999), 137 Man.R.(2d) 199 (Q.B.), refd to. [para. 76].

Carlson (Bankrupt), Re (2010), 497 A.R. 146; 2010 ABQB 701, refd to. [para. 76].

Valewood Products Ltd., Re, 1975 CarswellOnt 174 (S.C.), refd to. [para. 81].

Eland Distributors Ltd. (Bankrupt), Re, [1996] B.C.T.C. Uned. 402 (S.C.), refd to. [para. 81].

Harvey (Bankrupt), Re (2004), 373 A.R. 373; 2004 ABQB 773 (Bktcy. Registrar), refd to. [para. 81].

677960 Alberta Ltd. v. Petrokazakhstan Inc., [2009] A.R. Uned. 235; 2009 ABQB 50, refd to. [para. 81].

Mearns (Bankrupt), Re (2000), 261 A.R. 168; 225 W.A.C. 168; 2000 ABCA 189, refd to. [para. 82].

Norris (Bankrupt), Re (1994), 161 A.R. 77; 1994 CarswellAlta 353 (Q.B. Bktcy.), refd to. [para. 83].

1167970 Ontario Inc. (Bankrupt), Re, [2003] O.T.C. Uned. 773; 2003 CarswellOnt 3820 (Sup. Ct.), refd to. [para. 83].

Deloitte & Touche Inc. v. White Veal Meat Packers Ltd. (2000), 143 Man.R.(2d) 289; 2000 CarswellMan 72 (Q.B.), refd to. [para. 84].

Ramsey (Bankrupt), Re (2006), 399 A.R. 270; 2006 ABQB 337, refd to. [para. 84].

HOJ National Leasing Corp. (Bankrupt) et al., Re, [2007] O.T.C. Uned. 901; 2007 CarswellOnt 3146 (Sup. Ct.), refd to. [para. 85].

Party City Ltd. et al., Re, [2002] O.T.C. Uned. 297; 2002 CarswellOnt 1116 (Sup. Ct.), refd to. [para. 85].

Gosselin v. R., [1997] 2 C.T.C. 2830 (T.C.C.), refd to. [para. 114].

Fournier v. Minister of National Revenue (1991), 91 D.T.C. 746 (T.C.C.), refd to. [para. 114].

Ramsey (Bankrupt), Re (2006), 399 A.R. 270; 2006 CarswellAlta 669 (Q.B.), refd to. [para. 289].

F.H. v. McDougall, [2008] 3 S.C.R. 41; 380 N.R. 82; 260 B.C.A.C. 74; 439 W.A.C. 74; 2008 SCC 53, refd to. [para. 290].

Statutes Noticed:

Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, sect. 95(1)(a) [para. 43]; sect. 95(1)(b) [para. 39]; sect. 97(3) [para. 55].

Authors and Works Noticed:

Canada Revenue Agency, Income Tax Interpretation Bulletin IT-419R2 (2004), para. 24 [para. 116].

Houlden, Lloyd W., Morawetz, Geoffrey B., and Sarra, Janis P., The 2012 Annotated Bankruptcy and Insolvency Act (2011), c. B49 [para. 106].

Counsel:

Andrew R. Robertson, Q.C. (MacLeod Dixon LLP), for Dale McMullen;

Larry B. Robinson and Karen L. Fellowes (Davis LLP), for Stephanie Ho Lem and 607385 Alberta Ltd.;

Richard J.N. Gilborn, Q.C. (Caron & Partners LLP), for Bruce Alger;

Patrick D. Fitzpatrick (Burstall Winger LLP), for PEC Directors.

This application was heard on September 9 and December 22, 2011, by Graesser, J., of the Alberta Court of Queen's Bench, Judicial District of Calgary, who delivered the following decision on March 19, 2012.