Canada: Expedient And Just: B.C. Court Of Appeal Addresses Approval Of Claims By Trustee In Bankruptcy

Under the Bankruptcy and Insolvency Act1, trustees have considerable discretion to administer a bankrupt's estate in an expedient manner. However, the British Columbia Court of Appeal recently confirmed that trustees must exercise such discretion within the limits of relevant statutory provisions and common law principles.

In Roberts v. E. Sands & Associates Inc.2, the Court of Appeal allowed an appeal from a decision confirming the trustee's approval of approximately 650 proofs of claim despite the appellant's contention that the claims were barred by a statutory limitation period. While it was appropriate to expeditiously deal with the claimants as a group, the trustee and the lower court erred in allowing the claims by postponing the limitation period contrary to well-established discoverability principles.


The Roberts decision arises from the bankruptcy of Vancouver businessman, Cem Ali, and his Horizon group of investment firms. The Horizon group solicited investments pursuant to an offering memorandum, as required by the Securities Act. The investors' funds were then placed with a New York investment firm, Razor FX Inc., for trading on the foreign exchange market. Unfortunately for the investors, Razor FX was a Ponzi scheme. In January 2008, the investors received an email from Horizon informing them of the fraud.

One of the investors, Mr. Roberts, immediately sought legal advice and shortly thereafter commenced an action for damages for misrepresentations in the offering memorandum pursuant to section 132.1(1) of the Securities Act. Section 140 of the Securities Act requires that if such an action is commenced within six months of the plaintiff learning of the misrepresentations, then the plaintiff is not required to prove that they relied on the misrepresentations, merely that such misrepresentations were made in the offering memorandum. In February 2009, Mr. Roberts obtained judgment against Mr. Ali and two Horizon group companies.

In August 2009, Mr. Ali and the Horizon group made a proposal under the BIA to their creditors, supported by the trustee's report which informed the investors that the offering memorandum was not prepared with appropriate due diligence by Horizon's lawyers. The proposal was not accepted and Mr. Ali and the Horizon group firms were deemed to have assigned into bankruptcy.

In the bankruptcy, Mr. Roberts claimed approximately $330,000 based on his judgment while another over 650 investors (the "Other Investors") filed claims totalling approximately $22 million. The Other Investors had failed to commence an action for damages for misrepresentation prior to the bankruptcy. Nonetheless, the trustee approved the Other Investors' claims, without evidence regarding their reliance on the misrepresentations in the offering memorandum, on the basis that the Securities Act limitation period did not begin to run until the August 2009 trustee's report. The trustee also treated the Other Investors as one group, rather than address their claims individually, relying on the principle that the BIA is meant to provide for an expeditious and inexpensive method of distributing the bankrupt's property amongst the creditors.

The British Columbia Supreme Court dismissed Mr. Roberts application to disallow the trustee's approval of the Other Investors' claims under section 135(5) of the BIA.3 The Court did not accept his position that the Securities Act limitation period commenced in January 2008 when Horizon informed investors of the fraud. The Court also addressed the unsettled procedure for such an application and determined that it was appropriate to hold a fresh hearing of the evidence, not an appeal limited to the evidence before the trustee, with the onus on the applicant to establish on a balance of probabilities that the claims should be expunged.4 This procedure was not challenged on appeal.5

The Appeal

The Court of Appeal allowed Mr. Roberts's appeal and ruled the limitation period under the Securities Act began to run in January 2008, expiring before the bankruptcy commenced. While the lower court had correctly stated that a limitation period does not begin to run until the claimant knows the necessary material facts and the claimant must be diligent in discovering those facts, the Court of Appeal held it had erred in how it applied those principles to this case.

Noting that the trustee's report referred to the fraud becoming public knowledge in January 2008, the Court of Appeal stated that the Other Investors should have reviewed the offering memorandum for misrepresentations when Horizon informed them of the fraud.6 An offering memorandum, according to the Court of Appeal, is not merely an advertisement without binding force but an offer which creates a contractual duty on the investor to read and understand the offering memorandum. Moreover, the right of action provided for in the Securities Act requires the investor to exercise reasonable diligence in their review of the offering memorandum. It would have been reasonable to expect, as a matter of diligence, that the Other Investors would review the offering memorandum in January 2008 when they learned of the fraud.7

While the Court of Appeal set aside the trustee's approval of the Other Investors' claims, it did concur that the trustee was within its discretion to treat the Other Investors as a group. However, that discretion must be exercised within the confines of relevant statutory provisions and common law principles. "The duty of the trustee," the Court of Appeal said in its decision, "is to deal with proofs of claim in accordance with the law of limitations, and then, having sorted them out, to process them according to the principles of expediency."8

The Court of Appeal's decision in Roberts is a reminder that expediency does not trump the proper application of relevant law in the administration of a bankrupt's estate.


1 RSC 1985, c B-3[BIA].

2 2014 BCCA 122 [Roberts BCCA].

3 Roberts v. E. Sands & Associates Inc., 2013 BCSC 902 [Roberts BCSC].

4 Roberts BCSC, at paras 35-37, citing Alberta Permit Pro Inc., Re (2011), 79 CBR (5th) 169 (Alta QB) and Ted Leroy Trucking Ltd., Re, 2012 BCCA 511, at para 16.

5 Roberts BCCA, at para 26.

6 Roberts BCCA, at paras 34-35.

7 Roberts BCCA, at paras 37-39.

8 Roberts BCCA, at para 49.

The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.

© McMillan LLP 2014

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions