IN THE SUPREME COURT OF NOVA SCOTIA
IN BANKRUPTCY AND INSOLVENCY
Citation: Rizkallah (Re), 2005 NSSC 345
Date: 20051215
Docket: B 28393
Registry: Halifax
District of Nova Scotia
Division No. 01 - Halifax
Court No. B 28393
Estate No. 51-779119
In the Matter of the Bankruptcy of Rodolphe Rene Rizkallah
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D E C I S I O N
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Registrar: Richard W. Cregan, Q.C.
Heard: December 9, 2005
Counsel: David G. Coles representing Mark Kent, Vicky Kent, and Elshemga Enterprise Inc.
Jane O’Neill representing the Bankrupt,
Rodolphe Rene Rizkallah
[1] This is an application under subsection 163(2) of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, as amended, (the “Act”), for an order for the examination of the bankrupt, Rodolphe Rene Rizkallah.
[2] The application is brought by Mark Kent, Vicky Kent and their company, Elshemga Enterprise Inc. ( the “Applicants”). The Applicants filed a proof of claim which was disallowed by the Trustee. This is presently under appeal. The subject matter of the claim is the same as in an outstanding counterclaim by the Applicants against Mr. Rizkallah.
[3] The Applicants want to examine Mr. Rizkallah because they say they have reason to believe that an examination may reveal assets of Mr. Rizkallah not known to the Trustee. This proceeding potentially will be to the benefit of the creditors generally. It is not their intention to use the examination as a means of discovery for their benefit in pursuing the Counterclaim or appealing the Trustee’s disallowance of the proof of claim.
[4] Let me quote subsection 163(2).
On the application to the court by the Superintendent, any creditor or other interested person and on sufficient cause being shown, an order may be made for the examination under oath, before the registrar or other authorized person, of the trustee, the bankrupt, an inspector or creditor, or any other person named in the order, for the purpose of investigating the administration of the estate of any bankrupt and the court may further order any person liable to be so examined to produce any books, documents, correspondence or papers in the person’s possession or power relating in all or in part to the bankrupt, the trustee or any creditor, the costs of the examination and investigation to be in the discretion of the court.
[5] The Applicants have standing. Whether they are creditors depends on the appeal of the Trustee’s disallowance of their proof . However, I think it is clear that at least, they are other interested persons. In any event, Mr. Rizkallah’s solicitor admits that they have standing.
[6] The question then is whether they can show sufficient cause. The Applicants’ submission is that they may rely on three matters, the pleadings in the Counterclaim, a statement of belief on the part of Mr. Kent and evidence regarding the transfer of ownership in the sole share of a company by Mr. Rizkallah to his wife.
[7] Care must be given in relying on pleadings in an application of this nature. The Amended Counterclaim makes allegations of fraud against Mr. Rizkallah. I was asked to consider them. I think this is not proper. They are only allegations. No material in proof of them was presented. Except as a convenient source of information regarding dates of events, which are not disputed, I cannot rely on the Counterclaim or other pleadings.
[8] It was urged that the following paragraph from Mr. Kent’s affidavit should be considered.
29. THAT I believe the Bankrupt continues to be the directing mind of a number of businesses from which he derives undisclosed benefits;
[9] This paragraph is simply one of belief without any particulars or background to substantiate the belief. It is of no assistance to me.
[10] However, Mr. Kent attaches to his affidavit a copy of what he understands from his solicitor to be the Share Register for Rudy’s Catering Limited.
[11] It shows that the incorporating share was issued on October 24, 1991 to Tanya Wiggins and was transferred the same day to Mr. Rizkallah. On May 12, 2000 it is shown as transferred to Maria Rizkallah, Mr. Rizkallah’s wife. This was four days before May 16, 2000, the date on which an action was commenced by Mr. Rizkallah’s company The Touch-Up Factory Limited against the Applicants and is the action in which the Counterclaim is made.
[12] Mr. Rizkallah made his assignment in bankruptcy on February 16, 2005. This is about 3 months short of 5 years after the transfer of the share.
[13] The law is briefly summarized in the following from the Applicants’ Brief:
As pointed out in the Bankrupt’s submissions to this Court, the Nova Scotia Court of Appeal in Re Nova Scotia Diesel Power Inc [1997] N.S.J. No. 195 recognized that orders for Section 163 examinations issue almost as a matter of course. Deputy Registrar Nettie agreed with this assessment in the decision of Re Bradford [2003] O.J. No. 1299, stating the threshold with respect to Section 163(2) and the demonstration of “sufficient cause” is a fairly low one.
In another decision with respect to Nova Scotia Diesel Power Inc, [1998] N.S.J. No. 303, the Court of Appeal established that there must be sufficient cause shown to warrant issuing an order for the examination sought. The Court quoted decision of Justice Hood, the Trial Judge, at paragraph 34:
...There must be some demonstrated connection between the evidence, if any, of something being amiss and the ability of the named person to shed some light on it as it relates to the administration of the Estate.
[14] It is not unreasonable to wonder about whether the commencement of the action four days after the transfer of a share is something more than a mere coincidence. Prudence would dictate that one make further inquiry. The transfer could be a settlement subject to subsection 91(2) of the Act.
[15] The threshold is fairly low. The situation bears need for Mr. Rizkallah to give an explanation of this transaction.
[16] There is a similarity with the situation in Gervais (Re), [1993] O.J. No 1911, where it was found that the mere ownership of property by the bankrupt’s spouse did not constitute sufficient cause. In the present case what is material is not that Mrs. Rizkallah owns property but that the property was transferred to her immediately before he commenced an action on behalf of his company against the Applicants and within the 5 year period which could deem the transfer a settlement, if no proper consideration was given.
[17] I think therefore that sufficient cause has been made and that an order for examination will issue.
[18] In considering the examination it will be for the Applicants to use care in limiting inquiry to matters related to the administration of the estate, matters which may result in benefits to the creditors generally. The examination is not a proper forum for dealing with the issues in the Counterclaim and consequently the appeal of the disallowance of the Applicants’ proof of claim. These proceedings center around the proof of fraud which in this case appears to be sufficiently complex to require the proceedings in a civil action and are not amenable to the summary proceeding of the Bankruptcy Court.
[19] If the Applicants and Mr. Rizkallah are unable to agree on how the examination will be conducted, I shall hear them, set the procedure, and, if needed, shall preside.
R.
Halifax, Nova Scotia
December 15, 2005