Gehlen Dabbs Lawyers
Call Us
T: 604 642 6422
Call Us : 604 642 6422
Main navigation

Renewing a Judgment Against a Bankrupt

Two recent decisions involving renewal of a judgment against a bankrupt highlight the fact that a bankruptcy does not necessarily extinguish a judgment.

Alberta Securities Commission v. Hennig

In Alberta Securities Commission v. Hennig, 2020 ABQB 48, the issue was whether the Alberta Securities Commission (the “Commission”) could renew a judgment against Mr. Hennig given that he had received his discharge from bankruptcy.

In June, 2008, the Commission found Mr. Hennig in breach of the securities legislation. In December, 2008, the Commission assessed an administrative penalty of $400,000 and costs of $175,000 against Mr. Hennig in respect of his conduct. The decisions of the Commission were filed with the Alberta Court of Queen’s Bench, as provided for by section 200 of the Alberta Securities Act, and thus had “the same force and effect as if it were a judgment of the Court of Queen’s Bench.” Mr. Hennig’s appeal was unsuccessful.

Mr. Hennig made an assignment in bankruptcy in 2011 and was discharged in 2015. The issue came before the court on an application by the Commission that the judgment against Mr. Hennig survived his bankruptcy under sections 178(1)(a), (d) or (e) of the Bankruptcy and Insolvency Act (the “BIA”). The Commission sought to renew the judgment against Mr. Hennig for a further ten years.

Sections 178(1)(a), (d) and (e) of the BIA provide that:

An order of discharge does not release the bankrupt from

(a) any fine, penalty, restitution order or other order similar in nature to a fine, penalty or restitution order, imposed by a court in respect of an offence, or any debt arising out of a recognizance or bail;

(d) any debt or liability arising out of fraud, embezzlement, misappropriation or defalcation while acting in a fiduciary capacity or, in the Province of Quebec, as a trustee or administrator of the property of others;

(e) any debt or liability resulting from obtaining property or services by false pretences or fraudulent misrepresentation, other than a debt or liability that arises from an equity claim.

Justice Romaine concluded that the judgment was one to which section 178(e) applied, but if she was wrong, that she would have found that section 178(1)(a) applied. She concluded section 178(1)(d) did not apply.

While the underpinnings of the decision are likely open for challenge, and the decision is under appeal, the case is an example of the type of case in which the fact of a bankruptcy and subsequent discharge will not result in the extinguishment of the judgment against the bankrupt, thereby allowing the creditor to apply to have the judgment renewed.

Bank of Nova Scotia v. Avramenko

Bank of Nova Scotia v. Avramenko, 2020 SKQB 54, highlights the point that a judgment stays alive until the bankrupt is discharged. In this case, the Bank obtained judgment against Mr. Avramenko who later became bankrupt. He was granted a conditional discharge that required him to pay $120,000 to the estate. He failed to perform that condition and the trustee in bankruptcy later obtained its discharge. Mr. Avramenko remained an undischarged bankrupt.

The Bank applied to renew its judgment. On the application, Mr. Avramenko “argued that the conditional discharge of his bankruptcy made the renewal of the judgment inappropriate” and “that the conditional discharge rendered the judgment essentially unenforceable”. This submission was not accepted.

Justice Elson concluded that the judgment could be renewed. He relied on the fact that the stay of proceedings created by section 69.3(1) of the BIA no longer applied to the Bank. Section 69.3(1.1) specifically provides that:

Subsection (1) ceases to apply in respect of a creditor on the day on which the trustee is discharged.

Since the trustee had been discharged, the Bank was no longer stayed in the enforcement of its judgment.

Justice Elson went on to say that even if the trustee had not been discharged, he would have allowed the renewal of the judgment in any event. He stated:

I am compelled to add, perhaps in obiter, that I would have granted the renewal, even if the trustee had not been discharged. In my view, and construing s. 69.3(1) purposively, the stay of proceedings does not apply to steps a judgment creditor takes to [preserve]{.underline} a position it already enjoys. As much as s. 7.1 of The Limitations Act and Rule 10–12 contemplate active steps by commencing a proceeding on the judgment, the reality is that these are steps to preserve a judgment. They are neither new proceedings nor are they steps to execute on the judgment. To conclude otherwise would be to force a judgment creditor to stand aside while its judgment expires through circumstances that may well be beyond its control.

While the comment may be obiter, the reasoning within the context of the case, is not open to challenge.

Lessons Learned

These decisions are of importance to both creditors and debtors.

Creditors should give consideration to whether a judgment that may have been obtained (or might be obtained) in respect of the bankrupt is one that could survive bankruptcy. If so, the creditor must be sure to renew the judgment to preserve the rights under the judgment even after the bankrupt has obtained his or her discharge.

Even if the judgment is not one that would survive bankruptcy, creditors should not be complacent during the course of a bankruptcy and thereby allow a judgment to expire due to effluxion of time. In doing so, there could be a loss of rights as against the bankrupt should the bankrupt not obtain his or her discharge and the trustee is discharged.

For debtors, prior to and after bankruptcy, they need to be alive to the risk that a judgment that will survive bankruptcy might be obtained. Consulting with an insolvency lawyer may assist in identifying this potential risk.

Once bankrupt, the debtor needs to be aware that the stay against creditors that is achieved by the bankruptcy will be lost if the trustee is discharged before the bankrupt is discharged. Should that occur, creditors will be able to renew their efforts to recover their debts. Seeking discharge from bankruptcy in a timely manner, and if conditions to the discharge are set, satisfying those conditions for discharge in a timely manner, will eliminate the risk of the trustee being discharge before the bankrupt.

contact us today

Submit button