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Insolvency - BIA - Litigation Stay. Phillips v. Kheil
In Phillips v. Kheil (Ont CA, 2026) the Ontario Court of Appeal dismissed an appeal, this brought against "a judgment which dismissed his action against the respondents (the “Action”) on the basis that he was an undischarged bankrupt at the relevant time and thus lacked capacity to commence it".
The court considers the meaning of 'property' in the BIA, here in the context of an exception to the litigation stay:A. Relevant statutory provisions
[15] Pursuant to s. 71 of the BIA, following the filing of an assignment in bankruptcy, all property of the bankrupt vests in the trustee in bankruptcy and the bankrupt has no capacity to deal with their property:71. On a bankruptcy order being made or an assignment being filed with an official receiver, a bankrupt ceases to have any capacity to dispose of or otherwise deal with their property, which shall, subject to this Act and to the rights of secured creditors, immediately pass to and vest in the trustee named in the bankruptcy order or assignment, and in any case of change of trustee the property shall pass from trustee to trustee without any assignment or transfer. [16] The term “property” is defined broadly in s. 2 of the BIA and has been interpreted to include tort and contract claims in relation to property: Wallace v. United Grain Growers Ltd., 1997 CanLII 332 (SCC), [1997] 3 S.C.R. 701, at para. 41. Therefore, the bankrupt person loses the capacity to commence legal proceedings in relation to their property, which must, instead, be brought by the trustee. This is made explicit by s. 30(1)(d) of the BIA which grants the trustee (with the permission of any inspectors appointed by the creditors) the authority to “bring, institute or defend any action or other legal proceeding relating to the property of the bankrupt”.
[17] At the same time, certain claims are so inherently personal in nature that they do not form part of a bankrupt’s property that is vested in the trustee. This would include claims for such matters as physical injury, mental distress, or loss of reputation, which may continue to be pursued by the bankrupt in their own right: Wallace, at para. 38; Meisels v. Lawyers Professional Indemnity Company, 2015 ONCA 406, 126 O.R. (3d) 448, at para. 13. Such personal causes of action are excluded from the property that is vested in the trustee because “it is not the policy of the law to convert into money for the creditors the mental or physical anguish of the debtor”: Re Holley (1986), 1986 CanLII 2586 (ON CA), 54 O.R. (2d) 225 (C.A.), at p. 240.
[18] Also relevant is s. 30(1)(l) of the BIA, which, as noted above, authorizes the trustee to “appoint the bankrupt to aid in administering the estate of the bankrupt in such manner and on such terms as the inspectors may direct”. Courts in Ontario as well as other provinces have held that a trustee may assign a bankrupt the authority to commence legal proceedings, but in all such cases cited by the appellant this has been done through an express authorization or assignment: see e.g. Stec v. Blair, 2021 ONSC 6212, 93 C.B.R. (6th) 217, at paras. 10-12; Blackmore v. Abdi, 2019 ONSC 4550, at paras. 21-22, 33-34; Spiroulias c. Chriscon Investments Ltd., 2006 QCCS 2019, 34 C.B.R. (5th) 69, at paras. 7, 23, 31; and Kirschner v. Moore, 2023 BCSC 450, at para. 35.
B. The motion judge did not make a palpable and overriding error in finding that the Trustee did not assign the authority to commence the Action to the appellant
[19] The motion judge accepted that s. 30(1)(l) of the BIA permits a trustee to assign a bankrupt person the right to commence a legal proceeding in respect of the bankrupt’s property. However, the motion judge found that no such assignment was made by the Trustee in this case because the Trustee was unaware of the Action and never granted the appellant the right to commence it – either before it was brought, or retroactively to cure the procedural defect. This was a finding of mixed fact and law reviewable on a standard of palpable and overriding error.
[20] The motion judge did not err in this finding. As noted above, those cases which found that a trustee assigned the right to commence legal proceedings to a bankrupt person featured an express authorization. Requiring the authorization to be express rather than implied is consistent with the wording of s. 30(1)(l), which grants the trustee authority to “appoint the bankrupt … in such manner and on such terms as the inspectors may direct”. The trustee can only “appoint” the bankrupt by taking some positive action authorizing the bankrupt to commence proceedings, as opposed to merely acquiescing in the bankrupt’s decision to commence a legal action. Further, in situations where the creditors have appointed inspectors, the bankrupt’s appointment is on terms directed by the inspectors, which could only be the case if the appointment is made expressly.
[21] This interpretation of s. 30(1)(l) is consistent with a key underlying purpose of the BIA, namely, to ensure equitable distribution of the bankrupt’s assets among their creditors: see Aquino v. Bondfield Construction Co., 2024 SCC 31, 496 D.L.R. (4th) 613, at para. 36. A trustee’s responsibilities and powers under the BIA are intended, in part, to protect the interests of the creditors: GMAC Commercial Credit Corporation — Canada v. T.C.T. Logistics Inc., 2006 SCC 35, [2006] 2 S.C.R. 123, at para. 58. Commencing, continuing, or defending a legal proceeding may require the payment of legal fees and expenses and/or affect the bankrupt’s entitlements and liabilities, including exposure to costs orders. This could, of course, enhance or jeopardize the bankrupt’s assets available to the creditors to settle the bankrupt’s debt. Requiring the bankrupt to obtain the express permission of the trustee in order to institute, continue, or defend legal proceedings related to their property ensures that the interests of all stakeholders have been properly taken into account.
[22] There is no dispute that no such express authorization was provided by the Trustee in this case. As the motion judge pointed out, the Trustee was not even aware of the fact that there had been a fire at the Property, let alone that the appellant was seeking to recover damages for the loss suffered in a legal action. Thus, while the Trustee may have acquiesced in the appellant continuing to manage the Property, this acquiescence was not sufficient to “appoint” the appellant to commence the Action pursuant to s. 30(1)(l). Therefore, the motion judge did not err in finding that the appellant lacked the legal capacity to commence the Action.
C. The motion judge did not make a palpable and overriding error in holding that the appellant’s claim for general damages for loss of enjoyment and use of the Property was a proprietary claim rather than a personal claim
[23] The motion judge found that the appellant’s claim for general damages relating to his loss of enjoyment and use of the Property was proprietary in nature. Because it was not a personal claim, it was not excluded from the property vested in the Trustee and the appellant lacked the capacity to commence proceedings in respect of such a claim.
[24] The motion judge’s characterization of the general damages claim as proprietary rather than personal is one of mixed fact and law reviewable on a standard of palpable and overriding error. I see no such error in the motion judge’s findings.
[25] The motion judge determined that there was “no aspect of damages claimed which would be personal to the [appellant] and therefore exempt from bankruptcy proceedings”. A review of the appellant’s statement of claim confirms this conclusion. The damages that the appellant particularized in his statement of claim are suffered by the Property, rather than the appellant personally. These include replacement of a roof; remediation of physical building elements, electronic components, and smoke and water damage; lost profits; and rent arrears.
[26] There is no standalone personal claim, such as a physical or psychological injury, at issue in this case. The appellant did not plead any facts which allege substantial and unreasonable interference with his health, comfort, or convenience: see Antrim Truck Centre Ltd. v. Ontario (Transportation), 2013 SCC 13, [2013] 1 S.C.R. 594, at paras. 21-23.
[27] The fact that the appellant had possession of the commercial units following the fire does not transform the claim into a personal one, since the damage alleged still relates to the real property, which was vested in the trustee at the relevant time. The appellant’s Action cannot be saved by a nuisance claim which could, in other circumstances, be a personal claim, because in the context of this case it is clearly rooted in proprietary loss which is suffered by the estate in bankruptcy: see Little (Nautilus North Strength and Fitness Centre) v. Bramcan Investments Limited, 2025 ONCA 86, 21 C.B.R. (7th) 236, at para. 9.
[28] The motion judge did not make a palpable and overriding error in her characterization of the appellant’s claim, and the appellant’s motion seeking to amend his claim to add the claim in nuisance was properly dismissed. . Aquino (Re)
In Aquino (Re) (Ont CA, 2026) the Ontario Court of Appeal dismissed a BIA insolvency appeal, this brought against two orders: the first "adjudging the appellant bankrupt and appointing [a] trustee of his bankrupt estate" and the second "determining that a pre-existing Mareva injunction, granted in litigation that resulted in a substantial judgment against the appellant (the “TUV litigation”), remained and continued in full effect until further order of the court (the “Mareva Order”).
The court considers a Mareva injunction, here in an insolvency context - and it's interaction with the BIA litigation stay:3. The Mareva Order
[49] The Mareva Order, styled as having been made in the TUV litigation, by its terms enjoins the appellant for an indefinite period of time as a form of post judgment execution. It does not operate pending the determination of claims or defences in the TUV litigation; those have already been determined. Although pre-trial Mareva injunctions are interlocutory orders, it is difficult to fit this order into that category. In some situations, a post judgment order that finally determines a party’s access to funds is final for the purpose of appeal: B&M Handelman Investments Ltd. v. Curreri, 2011 ONCA 395, 278 O.A.C. 199, at para. 16. This order has an analogous character. Moreover, the order was made after the Bankruptcy Order, the effect of which is to remove the capacity of the appellant with respect to his property, including (once the stay of the Bankruptcy Order terminates by the disposition of the appeal from it) any right to challenge the Mareva Order. In these circumstances, the Mareva Order is final and is appealable as of right pursuant to s. 6(1)(b) of the CJA.
[50] The appellant’s principal argument concerning the propriety of granting the Mareva Order is that the bankruptcy judge failed to address, head on, his assertion that the General Mareva Order, which the bankruptcy judge’s order continued, merged in the judgment in the TUV litigation, and ceased to be in effect. He points to authorities that Mareva injunctions are generally thought of as a pre-trial remedy, and the need to specify in them the exact terms on which they cease to apply. He argues that the General Mareva Order ended when judgment in the TUV Litigation was first given.
[51] I reject this submission. The General Mareva Order specifically stated its termination date. It stated that it remained in effect until varied by further order of the court. It was not varied until addressed, and extended by, the Mareva Order made by the Bankruptcy Judge.
[52] The appellant also submits that the Mareva Order creates uncertainty given the bankruptcy. I do not accept that argument.
[53] Ordinarily, upon the making of a bankruptcy order, a judgment creditor would not be permitted to ask for further post judgment relief against the debtor to assist in execution of its judgment, since s. 69.3(1) of the BIA provides:Subject to subsections (1.1) and (2) and sections 69.4 and 69.5, on the bankruptcy of any debtor, no creditor has any remedy against the debtor or the debtor’s property, or shall commence or continue any action, execution or other proceedings, for the recovery of a claim provable in bankruptcy. [54] However, the court has the power to declare that the stay does not apply to a particular step by a particular creditor: s. 69.4. Although she did not put it in those terms, the bankruptcy judge effectively exercised that power as she stated that she was satisfied that making the Mareva Order was “complementary to the powers afforded to [the appellant’s] trustee in bankruptcy”.
[55] I see no reversible error in that exercise of discretion. It was appropriate to prevent any purported dealings with or dissipation of assets by the appellant while the bankruptcy trustee was readying itself to seek out and take control of the assets legally vested in it. The stay of the Bankruptcy Order resulting from the appellant’s appeal of it confirms the wisdom of keeping the restraints on dissipation of assets in place.
[56] Accordingly, I would dismiss the appeal from the Mareva Order. . Little (Nautilus North Strength and Fitness Centre) v. Bramcan Investments Limited
In Little (Nautilus North Strength and Fitness Centre) v. Bramcan Investments Limited (Ont CA, 2025) the Ontario Court of Appeal dismissed an appeal, this from a motion order that "dismissed his action pursuant to r. 21.01(3)(b)" [SS: R21.01(3)(b) "the plaintiff is without legal capacity to commence or continue the action or the defendant does not have the legal capacity to be sued"].
The court alludes to grounds of action that may be an exception to the BIA litigation stay, the 'personal' action, here citing as an example a mental distress claim associated with a main lost property claim:[9] The appellant also attempts to avoid the result below by asserting that his claim includes a claim for damages for mental distress which he says is also exempt under the BIA: Meisels v. Lawyers Professional Indemnity Company, 2015 ONCA 406, 126 O.R. (3d) 448, at para. 13. That effort does not avail the appellant. The damages claimed for mental distress do not arise out of a standalone claim. They are directly linked to the claim for damages arising from the lost property. If the action arising out of the lost property falls as a nullity, the related claim for mental distress falls with it. As Perell J. said in Stoneman v. Gladman (2005), 2005 CanLII 63796 (ON SC), 16 C.B.R. (5th) 78 (Ont. S.C.), at para. 29: “The plaintiffs are not advancing a claim that is clearly a personal one; rather, they have threaded a personal claim into the fabric of a cloth of a claim that belongs to the estate in bankruptcy.” . Little (Nautilus North Strength and Fitness Centre) v. Bramcan Investments Limited
In Little (Nautilus North Strength and Fitness Centre) v. Bramcan Investments Limited (Ont CA, 2025) the Ontario Court of Appeal dismissed an appeal, this from a motion order that "dismissed his action pursuant to r. 21.01(3)(b) [SS: "the plaintiff is without legal capacity to commence or continue the action or the defendant does not have the legal capacity to be sued"].
This issue turned on the litigation stay that applies to undischarged bankrupts:[2] On April 13, 2018, the appellant made an assignment in bankruptcy under the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (“BIA”). BDO Dunwoody Canada Limited (“BDO”) was appointed as the trustee in bankruptcy.
[3] On September 10, 2020, while an undischarged bankrupt, the appellant started this action against his former landlord, Bramcan Investments Limited, and two of Bramcan’s officers and directors, Catherine Spencer and Geoffrey Crawford. In his action, the appellant claims the value of assets disposed of by the respondents, all of which arose out of a fitness and strength building business that the appellant ran. The statement of claim alleges that the value of these assets was approximately $250,000.[1] The appellant had not included these assets in his Statement of Affairs that he filed with BDO.
[4] The respondents discovered the bankruptcy when conducting a cross-examination of the appellant in August 2023 in response to a summary judgment motion that the appellant had brought. The respondents then brought this motion to dismiss the claim under r. 21.01(3)(b).
[5] The motion judge found that the action was a nullity. He said that only the trustee in bankruptcy had the capacity to commence the action as long as the appellant was an undischarged bankrupt. .... . Hutchingame Growth Capital Corporation v. Independent Electricity System Operator
In Hutchingame Growth Capital Corporation v. Independent Electricity System Operator (Ont CA, 2020) the Court of Appeal considered contractual and bankruptcy disputes between an intended electricity generator and the Independent Electricity System Operator (“IESO”), which is the successor to the Ontario Power Authority. One issue was whether the standard contract between the generator and the IESO terminated on the generator's bankruptcy (as the contract held), in light of s.69.3 of the BIA as the appellant argued:[32] Section 69.3 of the Bankruptcy and Insolvency Act provides:69.3(1) Subject to subsections (1.1) and (2) and sections 69.4 and 69.5, on the bankruptcy of any debtor, no creditor has any remedy against the debtor or the debtor’s property, or shall commence or continue any action, execution or other proceedings, for the recovery of a claim provable in bankruptcy.
[33] The trial judge rejected HGC’s argument that the automatic termination in the RESOP Contract violated the automatic stay imposed by s. 69.3 of the Bankruptcy and Insolvency Act. He noted that the stay only prevents creditors from pursuing claims against the insolvent person: at para. 105.
[34] HGC argues that because the IESO was a creditor of Greenview Power, s. 69.3(1) stayed “any remedial action by [the] IESO to terminate the RESOP Contract.” On this argument, once the stay was in place, the IESO was required to move in bankruptcy court to lift the stay and to provide the written notice to commence the 30-day cure period “that it was required to provide” under the Waiver and Amendment Agreement; or, alternatively, to move in bankruptcy court to appeal or amend the vesting order. But the true reason for HGC’s approach to the stay issue is found in its assertion: “Had [the] IESO taken any of these steps, the matter could have been put before a bankruptcy court and the anti-deprivation rule considered.”
[35] Professor Roderick J. Wood explains: “the automatic stay of proceedings in bankruptcy has never been interpreted as preventing the exercise of [the] right” of “a contracting party [to] terminat[e] an agreement between it and the debtor”: Bankruptcy and Insolvency Law, 2nd ed. (Toronto: Irwin Law Inc., 2015) at p. 167. He notes that the presence of express provisions having that effect in proceedings under the Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36 and in the restructuring provisions of the Bankruptcy and Insolvency Act “supports the view that the automatic stay of proceedings was not intended to extend to the termination of executory contracts, since the provision would not be needed otherwise”: at p. 167.
[36] Professor Wood’s logic is persuasive, especially in the absence of any contrary authority. I agree with the trial judge that s. 69.3 of the Bankruptcy and Insolvency Act did not invalidate the termination provision in the RESOP Contract. ...
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