The Proof, Valuation, and Payment of Claims
Author | Roderick J. Wood |
Pages | 260-294 |
260
CHAPTER 9
THE PROOF,
VALUATION, AND
PAYMENT OF CLAIMS
After the property of the bankrupt estate has been assembled and li-
quidated, the proceeds are distributed to the participating creditors.
The bankruptcy claims process involves two fundamental questions:
Who is eligible to participate in the proceeds of the bankruptcy estate?
How will these funds be distributed among the participating claim-
ants? The first question is addressed in the provisions of the BIA that
deal with the proof of claims. The second question is dealt with in pro-
visions that address the scheme of distribution in bankruptcy.
The right to prove a claim against a bankrupt estate is “based upon
the theory that the debtor’s business has come to an end and that all
obligations whether already incurred or merely contingent are to be
disposed of and cleared off in the bankruptcy proceedings.”1 This al-
lows as many claimants as possible to participate in the process and
share in the liquidation proceeds.2 This means that creditors will be
entitled to share in the bankrupt estate even though the debtor may
not have been in default of a contractual obligation at the date of the
bankruptcy and even t hough a debt was not due until some future d ate.
The right to prove a claim in bankr uptcy is subject to the principles
that govern executory contracts.3 A claimant cannot prove a claim
if the trustee affirms the contract, since the claimant will receive the
1 Re McKay (1922), 2 CBR 462 (Ont HCJ).
2 Newfoundland an d Labrador v AbitibiBowater In c, 2012 SCC 67 at para 35
[AbitibiBowater].
3 See Chapter 6, Sect ion B.
The Proof, Valuation, and Pay ment of Claims 261
agreed-upon performance. If the trustee disclaims the contract, the claim-
ant is entitled to prove a claim for breach of contract in the bankruptcy.
A. PROVABLE CLAIMS
A creditor must file a proof of claim with the trustee in order to partici-
pate in the distribution of the assets of a bankrupt estate.4 The filing of
a proof of claim also permits the creditor to vote at meetings of credit-
ors.5 A failure to file a proof of claim before the first meeting of credit-
ors does not preclude the creditor from participating i n the distribution
of assets. However, it is unwise for a creditor to wait too long before
filing a proof of claim, since th at cred itor wi ll not be entitled to disturb
the dividends that have already been paid out to other creditors.6
The concept of a provable claim is significant in a number of other
respects. First, a provable claim is subject to the automatic bankruptcy
stay of proceedings. This prevents the creditor from commencing or
continuing any action or enforcing any remedy against the bankrupt
or the bankrupt’s property.7 If the claim is not provable, the stay of
proceedings does not affect it. Second, the discharge of an individ-
ual bankrupt ordinarily releases the bankrupt from claims provable
in bankruptcy.8 These events do not depend upon whether or not the
creditor has filed a proof of claim. Rather, they arise if the claim falls
within the definition of a provable claim.
Possessing a claim that is provable in bankruptcy against an indi-
vidual bankrupt is not necessarily a good thing from the point of view
of a creditor. Although the creditor is able to participate in a bank-
ruptcy dividend, the cred itor’s clai m will usually be exting uished upon
the discharge of the bankrupt. If there are few or no assets in the bank-
rupt estate, the creditor may be better off with a non-provable claim. A
creditor with a non-provable claim cannot enforce it against the prop-
erty of the bankrupt estate, since the debtor no longer holds title to the
property. However, the creditor will be able to enforce it against future,
post-discharge assets of the debtor, since a non-provable claim is not
released when the debtor obtains a discharge.
4 BIA, s 124(1).
5 See Chapter 8, Sect ion A(2).
6 BIA, s 150.
7 Ibid, s 69.3(1) and see Chapter 6, Section A.
8 BIA, s 178(2). Certain t ypes of claims li sted in s 178(1) are not release d. See
Chapter 10, Section G.
BANKRUPTCY AND INSOLVENC Y LAW262
The situation is different if the bankrupt is a corporation. Bank-
ruptcy signals the end of the line for the corporation, unless all of
the claims of the creditors are satisfied.9 Without a provable claim, a
creditor will recover nothing. The corporation will cease to carry on
operations and all of its as sets will be distributed to creditors who have
proven their claims in the bankruptcy.
1) The Proof of Claim Procedure
A bankrupt is required to submit to the trustee a statement of affairs
that sets out the names and addresses of all the creditors.10 The trustee
uses this information to identify the creditors in order to send them
the prescribed proof of claim form together with the notice of the first
meeting of creditors.11 The trustee also publishes a notice of the bank-
ruptcy in a local newspaper12 and will provide the proof of claim forms
to creditors who respond to the advertisement.
The proof of claim must make reference to a statement of account
showing the particulars of the claim and make reference to vouchers
or other evidence by which it can be substantiated.13 The statement of
account and supporting evidence must be sufficient to enable the trust-
ee to make an informed decision as to whether the claim has merit.14
The creditor also gives particulars of any security held by the creditor
and indicates any payments received by the creditor in the past three
months.15 Proof of claims for unpaid wages owing to workers can be
made in a single proof by a union, a federal or provincial labour depart-
ment, or other person acting on behalf of the creditors.16
Once the proof of claim is completed, the creditor delivers it to
the trustee.17 After examining it, the trustee may admit the claim or
9 BIA, s 169(4).
10 Ibid, s 158(d).
11Ibid, s 102(2).
12Ibid, s 102(4). It is not neces sary to do so in summa ry administrat ion bankrupt-
cies. See BIA, s 155(c).
13 See Re Port Chevrolet Olds mobile Ltd (2004), 49 CBR (4th) 146 (BCCA).
14Re Nor ris (1988), 67 CBR (NS) 246 (Ont HCJ), rev’d on other grounds (1989), 75
CBR (NS) 97 (Ont CA).
15The period is twelve month s in the case of a related par ty. This information is
relevant for the pur poses if any of the payment s might be avoided as prefer-
ences. See Chapt er 7, Section B .
16BIA, s 126(2).
17Ibid, s 124(2).
To continue reading
Request your trialUnlock full access with a free 7-day trial
Transform your legal research with vLex
-
Complete access to the largest collection of common law case law on one platform
-
Generate AI case summaries that instantly highlight key legal issues
-
Advanced search capabilities with precise filtering and sorting options
-
Comprehensive legal content with documents across 100+ jurisdictions
-
Trusted by 2 million professionals including top global firms
-
Access AI-Powered Research with Vincent AI: Natural language queries with verified citations

Unlock full access with a free 7-day trial
Transform your legal research with vLex
-
Complete access to the largest collection of common law case law on one platform
-
Generate AI case summaries that instantly highlight key legal issues
-
Advanced search capabilities with precise filtering and sorting options
-
Comprehensive legal content with documents across 100+ jurisdictions
-
Trusted by 2 million professionals including top global firms
-
Access AI-Powered Research with Vincent AI: Natural language queries with verified citations

Unlock full access with a free 7-day trial
Transform your legal research with vLex
-
Complete access to the largest collection of common law case law on one platform
-
Generate AI case summaries that instantly highlight key legal issues
-
Advanced search capabilities with precise filtering and sorting options
-
Comprehensive legal content with documents across 100+ jurisdictions
-
Trusted by 2 million professionals including top global firms
-
Access AI-Powered Research with Vincent AI: Natural language queries with verified citations

Unlock full access with a free 7-day trial
Transform your legal research with vLex
-
Complete access to the largest collection of common law case law on one platform
-
Generate AI case summaries that instantly highlight key legal issues
-
Advanced search capabilities with precise filtering and sorting options
-
Comprehensive legal content with documents across 100+ jurisdictions
-
Trusted by 2 million professionals including top global firms
-
Access AI-Powered Research with Vincent AI: Natural language queries with verified citations

Unlock full access with a free 7-day trial
Transform your legal research with vLex
-
Complete access to the largest collection of common law case law on one platform
-
Generate AI case summaries that instantly highlight key legal issues
-
Advanced search capabilities with precise filtering and sorting options
-
Comprehensive legal content with documents across 100+ jurisdictions
-
Trusted by 2 million professionals including top global firms
-
Access AI-Powered Research with Vincent AI: Natural language queries with verified citations
