First creditor’s costs in bankruptcy

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As a general rule, the claims of creditors rank equally in bankruptcy. TheBankruptcy and Insolvency Act makes some exceptions, permitting certain creditor claims to be paid ahead of the general body of creditors. S. 70(2) of the Act gives such preferred status for “one bill of costs” for the creditor who first attached or otherwise pursued execution against the assets of the now-bankrupt.

In Re Walker, 2010 BCSC 489, a creditor made such a claim for the whopping sum of $62,078.33, on account of costs awarded in a hard-fought dispute which had worked its way through the court system, including an unsuccessful application by the debtor for leave to appeal to the Supreme Court of Canada. On the debtor’s bankruptcy, the trustee in bankruptcy denied preferred status for most of the creditor’s claim for costs, allowing as preferred only the initial order for costs in the first contested matter.

Wong J. overturned this ruling, finding that “one bill of costs” in s. 70(2) means all of the costs awarded in the claim including defending appeals and seeking execution. The Court also ruled that it was not necessary for such costs to have been taxed before bankruptcy ensues. It is enough if an order for costs has been made prior to bankruptcy.

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