In Re: IC Creative Homes Inc. (2005) Carswell BC 3157
(Master) the Bankruptcy Court had previously granted an order under
section 38 of the BIA allowing a creditor of the bankrupt to
commence proceedings against the bankrupt's accounting and
business advisor for alleged misconduct and negligence relating to
the operations of the bankrupt prior to its bankruptcy.
Section 38 of the BIA provides:
38(1) Proceeding by creditor when trustee refuses to act - Where
a creditor requests the trustee to take any proceeding that in his
opinion would be for the benefit of the estate of a bankrupt and
the trustee refuses or neglects to take the proceeding, the
creditor may obtain from the court an order authorizing him to take
the proceeding in his own name and at his own expense and risk, on
notice being given the other creditors of the contemplated
proceeding, and on such other terms and conditions as the court may
2) Transfer to creditor - On an order under subsection (1) being
made, the trustee shall assign and transfer to the creditor all his
right, title and interest in the chose in action or subject-matter
of the proceeding, including any document in support thereof.
(3) Benefits belong to creditor - Any benefit derived from a
proceeding taken pursuant to subsection (1), to the extent of his
claim and the costs, belongs exclusively to the creditor
instituting the proceeding, and the surplus, if any, belongs to the
4) Trustee may institute proceeding - Where, before an order is
made under subsection (1), the trustee, with the permission of the
inspectors, signifies to the court his readiness to institute the
proceeding for the benefit of the creditors, the order shall fix
the time within which he shall do so, and in that case the benefit
derived from the proceeding, if instituted within the time so
fixed, belongs to the estate.
The proposed defendant applied to the Court ex parte
and obtained an order staying the section 38 Order pending a full
hearing as to whether or not the Court should set aside, vary or
review the section 38 Order.
Referring to a previous decision of the British Columbia Court
of Appeal (Coroband Plastics Ltd. (citation omitted)), the
Bankruptcy Court concluded that a proposed defendant has no right
to notice of the application under section 38, has no standing to
oppose such an application, and has no standing to appeal any order
made under section 38.
The Bankruptcy Court also held that section 187(5) of the BIA
(which permits a Court to review, vary or rescind its previous
orders) cannot be utilized by a potential defendant to give that
defendant standing, or be used by a potential defendant to
otherwise challenge the existing section 38 Order.
Finally, the Court commented on the test under section 38,
noting that the applicant creditor need only demonstrate a
prima face case, which means that the section 38
application will not be granted where the claim is obviously
The Order of Master Keighley was appealed to the British
Columbia Supreme Court. Master Keighley's Order was affirmed by
Justice Rice. Leave to Appeal the Order of Rice J. was denied.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
The Canadian bankruptcy regime was designed with two key purposes in mind – provide options to ‘honest but unfortunate' debtors struggling with an unmanageable financial load and create an orderly means for creditors to recover amounts owed them.
The Court of Queen's Bench of Alberta authorized a disposition of a debtor's assets by a receiver immediately upon appointment and without being forced to conduct a marketing process within the receivership proceedings.
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).