Author: Lee Marriner
The Bankruptcy and Insolvency Act‘s current process to claim property or interest in property
Section 81 of the Bankruptcy and Insolvency Act, RSC 1985, c B-3 outlines a process for a person to claim property or an interest in property that was in the possession of a bankrupt at the time of bankruptcy.
When such a claim is made, a trustee in bankruptcy must either admit or dispute the claim within 15 days. In the event of a disputed claim, the claimant then has a further 15 days to appeal the trustee’s decision, to the court, failing which the claimant is deemed to have relinquished any right to or interest in the property.
This abbreviated, summary claim process can make it challenging for a claimant to gather and submit all relevant evidence in support of a property claim, particularly for more complex trust claims in relation to real property. When a claimant fails to do so, the claimant is left to seek permission from the court to rely on additional evidence at the appeal.
Considerations for permitting fresh evidence on appeal
In the recent decision of White (Re), 2021 BCSC 2031, the court considered the nature of a property claim appeal and what the court ought to consider when deciding whether to permit a claimant to rely on fresh evidence on an appeal. The case involved a property claim by the spouse of a bankrupt, who claimed that the bankrupt’s interest in the matrimonial home was held by the bankrupt in trust for her.
Mr. Justice Gomery noted that the procedure in the BIA is more naturally applicable to personal property such as “a valuable painting loaned by a friend of the bankrupt” than trust claims to real property, even though such trust claims must follow the procedure.
After confirming, based on previous case law, that a property claim appeal is a “true appeal” (and not a “trial de novo” in which additional evidence can be presented without leave of the court), Gomery J. considered whether the claimant ought to be permitted to rely, on appeal, on new affidavits that had not been submitted to the trustee to support her claim.
Gomery J. noted that the court in previous property claim appeal cases had not strictly applied the test for “fresh evidence” that applied in ordinary civil proceedings. Gomery J. held that such a test was not appropriate in the context of a bankruptcy property claim appeal, given the “enormous procedural differences” between the s. 81 process in the BIA as a “businessperson’s statue” and formal, protracted litigation. Gomery J. considered a “hard-edged” rule to be inappropriate in the s. 81 process, and to risk a loss of property rights that could lead to injustice. Instead, he held that court should consider the following in deciding whether fresh evidence was in the interests of justice:
- the availability of the evidence at the time the claim was submitted to the trustee;
- the explanation for the failure to bring the evidence forward, and whether the claimant acted reasonably;
- the credibility of the additional evidence;
- the materiality of the evidence to the appeal;
- the nature of the claim; and
- what will best facilitate the just, speedy, and inexpensive resolution of the appeal, bearing in mind the bankruptcy context.
The importance of seeking advice at an early stage
White (Re) provides important clarification regarding the proper considerations for permitting additional evidence in a property claim appeal under the BIA. Given these considerations and the tight timelines that apply to property claims under the BIA, potential claimants should seek advice at an early stage.