IN THE SUPREME COURT OF NOVA SCOTIA
IN BANKRUPTCY AND INSOLVENCY
Citation: LeBlanc (Re), 2007 NSSC 18
Date: January 18, 2007
Docket: B-27537
Registry: Halifax
District of Nova Scotia
Division No. 04 - Yarmouth
Court No. 27537
Estate No. 51-743970
In the Matter of the Bankruptcy of Rene Robert LeBlanc
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D E C I S I O N
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Registrar: Richard W. Cregan, Q.C.
Heard: December 20, 2006
Counsel: D. Bruce Clarke representing the Trustee,
McCuaig & Company Inc.
Rene Robert LeBlanc, the bankrupt,
representing himself.
[1] Rene Robert LeBlanc lives in Weymouth, Digby County. He works in the logging industry operating a logging machine. He had been working on his own, but unable to handle his debts he made an assignment in bankruptcy on June 15, 2004. His major creditor was the Canada Revenue Agency. The other creditors were small businesses and his uncle Anselm LeBlanc to whom he owed $5000, being money borrowed in 2002 to help him purchase a tractor.
[2] Two wood lots were listed as assets in his statement of affairs. Note was made of them being mortgaged to his uncle. On July 8, 2004 the Trustee received a proof of claim from the uncle’s solicitor in the amount of $5000. The claim asserted that security was held for $3500, leaving $1500 unsecured. The Trustee asked for supporting documentation . The solicitor responded by saying that the uncle did not have any security on the lots and did not keep proper accounting records. The Trustee disallowed the claim in full on March 3, 2005. Apparently, Mr. LeBlanc had given his uncle his deed to the lots as security. This might well have resulted in an equitable mortgage in the uncle’s favour. However, not being registered against the title it could not be effective against the Trustee.
[3] On March 16, 2005 the Trustee received an appraisal of the lots. $10,000 was the value given. On March 23, 2005 the Trustee sent the appraisal to Mr. LeBlanc. The covering letter said:
We enclose a copy of an appraisal performed on your two lots of land in Weymouth Mills, Nova Scotia. The land has been appraised at $10,000. If you wish to keep this land we ask that you begin to make contributions into your estate in bankruptcy for this asset, please contact us upon receipt of this letter to make payment arrangements.
[4] The Trustee received no response from Mr. LeBlanc. He was granted an absolute discharge on April 15, 2005.
[5] On May 18, 2006 the Trustee recorded its interest in the lots at the Registry of Deeds. No previous notice had been recorded. On September 15, 2006 the Trustee obtained a property search of the lots. It indicated that Mr. LeBlanc had conveyed the property to his uncle by a deed dated May 8, 2006. The deed was registered on May 17, 2006, the day before the Trustee registered its interest. Prior to making this conveyance it was necessary to migrate the property under the Land Registration Act, S.N.S. 2001, c.6. There is no mention in the request filed for this purpose, Form 24, that Mr. LeBlanc had been bankrupt.
[6] Mr. LeBlanc explains his action this way. He thought that having been discharged, the lots were his again. He engaged a different solicitor to effect the migration and convey the lots to his uncle. His understanding with his uncle was that the lots were worth $8200. This became the purchase price. The uncle paid it by forgiving the $5000 loan and giving Mr. LeBlanc the remainder in cash. As between uncle and nephew the relief afforded by the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, the “Act”, was not intended to apply.
[7] The migration and conveyance could not have taken place, if the Trustee had earlier registered the appropriate notice. The Trustee’s explanation of this delay was simply that these things take time.
[8] The law is clear that the lots are property of the bankrupt. With the assignment by virtue of Section 71 of the Act they immediately passed to and vested in the Trustee. Mr. LeBlanc then lost the capacity to dispose of them. Nothing has happened since to restore his capacity. Conveying the lots to his uncle was a wrongful act on his part. He is deemed to know this. In effect he was dealing with property that did not belong to him. However, with the migration of the lots under the Land Registration Act, they have been effectively conveyed to the uncle, the Trustee’s claim notwithstanding.
[9] The uncle would have known of Mr. LeBlanc’s status as a bankrupt. Both the solicitor for the uncle and the solicitor for Mr. LeBlanc in making the conveyance according to evidence submitted knew of his bankruptcy. This raises the question of whether the migration and conveyance were proper. The uncle and the solicitors are not before me. Accordingly, I make no comment as to whether the Trustee may have a remedy against them.
[10] The remedy sought by the Trustee is that Mr. LeBlanc’s discharge be annulled under Section 180 of the Act and that he be given a new discharge conditional upon him paying to his estate a sum in fair compensation for the lots which he has wrongfully taken from the Trustee.
[11] Subsection 180(1) says:
Where a bankrupt after his discharge fails to perform the duties imposed on him by this Act, the court may, on application, annul his discharge.
[12] Subsection 158 says:
A bankrupt shall
(a) make discovery of and deliver all his property that is under his possession or control to the trustee or to any person authorized by the trustee to take possession of it or any part thereof . . .
(k) aid to the utmost of his power in the realization of his property and the distribution of the proceeds among his creditors . . .
(o) generally do all such acts and things in relation to his property and the distribution of the proceeds among his creditors as may be reasonably required by the trustee, or may be prescribed by the General Rules, or may be directed by the court by any special order made with reference to any particular case or made on the occasion of any special application by the trustee, or any creditor or person interested. . . .
[13] It is clear that, if the conveyance had not taken place, the lots would remain vested in and within the control of the Trustee and be now available for realization to the benefit of the creditors.
[14] The Trustee gave full details and documentation of how Mr. LeBlanc had been instructed in his responsibilities to the Trustee at the time of his assignment. Mr. LeBlanc says that he thought being discharged the responsibilities no longer apply and the lots were in effect his again. This is of course a convenient conclusion for him, but is not right in law. It would have been better had the point been driven home again by the Trustee at the time of the application for discharge. Mr. LeBlanc has a limited education and has limited literacy skills. Providing him with the standard package of fine print instructions to bankrupts is not necessarily an effective way to communicate with him. This and other cases recently before me demonstrate the need for trustees at the time of discharge application to very carefully review the status of real property still in the bankrupt’s possession. The whole problem of course would have been avoided had the Trustee promptly registered a notice in the Registry of Deeds.
[15] I have authority under Subsection 180(1) to annul Mr. LeBlanc’s discharge. He has failed to perform duties required of him with respect to the Trustee’s ability to realize on his property. He has failed under Subsection 158(k) to “aid to the utmost of his power in the realization of his property” by taking advantage of the situation in putting the lots beyond the reach of the Trustee. This is also in breach of the more general requirements of Subsection (a) and (o). Accordingly his discharge is to be annulled.
[16] I must now consider what Mr. LeBlanc must do to be discharged again. The Trustee must be reasonably compensated for what it has lost by the conveyance of the lots. This would be what the Trustee would be reasonably expected to net on their sale.
[17] The appraisal obtained by the Trustee valued the property at $10,000. Mr. LeBlanc sold it to his uncle for $8200. Legal services would be required to migrate the lots and to effect the conveyance. This would be at least $1000. The Trustee would have had to do some extra work to effect the sale. A real estate agent might have been engaged. These items might cost $1500. Because the Trustee could have avoided the problem by being more diligent in its responsibilities to protect its title, I am giving Mr. LeBlanc the benefit of the doubt. I set the value of the lots as $8200. From that I deduct possible legal fees of $1000 and expenses of $1500. This leaves $5700 as my determination of the loss incurred by the Trustee.
[18] Evidence was led of his present circumstances. He has stable employment. I see no factors to justify further mitigation of his responsibility to cover the Trustee’s loss.
[19] Accordingly he will be entitled to a discharge upon paying the Trustee $5700. There should be a payment schedule such as $200 per month in the order.
[20] As the Trustee is partly responsible for this matter coming before the court, no costs are allowed.
R.
Halifax, Nova Scotia
January 18, 2007