Contempt motions can be stayed by bankruptcy proceedings

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A debtor owes money and is ordered to attend a judgment debtor examination. The debtor fails to show up. The creditor subsequently seeks an order requiring the debtor to attend an examination and to produce a number of relevant documents. On the day before the scheduled examination, the debtor files for bankruptcy and then shows up at the examination, taking the position that the order is automatically stayed under the provisions of the Bankruptcy and Insolvency Act (BIA). Can the debtor be held in contempt of the order?

Last year, in Walchuk v. Houghton, the Ontario Superior Court found the debtor, Houghton, to be in contempt of court. But a recent decision by the Ontario Court of Appeal overturned the finding and makes clear that the provisions within the BIA that impose a stay of proceedings against a debtor can apply to contempt motions – notably for those in which the contempt arises after an assignment into bankruptcy.

Timing of the contempt is key

The original judgment cited past cases in which contempt motions were not stayed by bankruptcy filings. However, the appeal judge noted that in all such cases, the contempt had occurred before the debtors’ filing for bankruptcy. In the cases of Walchuk v. Houghton, Houghton failed to produce the required documentation only after his bankruptcy filing.

The provisions of the BIA are intended to effect an orderly and fair distribution of the proceeds of a debtor’s assets amongst creditors. Upholding contempt motions related to the kind of proceedings that bankruptcy filings are specifically designed to stay – such as debtor examinations – would frustrate some of the most basic principles of the bankruptcy process.

The Walchuk v. Houghton decision makes clear that stay provisions within the BIA can apply to certain contempt proceedings.

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