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ADMINISTRATION OF ESTATE - Actions by and against estate

Monday, March 15, 2021 @ 9:25 AM  

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Appeal by the Trustee in Bankruptcy from a decision of a case management judge striking out or summarily dismissing various parts of the Trustee’s claim and from a cost award awarding the respondent Rose enhanced costs against the Trustee. Cross-appeal by the respondents from the judge’s refusal to dismiss the trustee’s claim under s. 96 of the Bankruptcy and Insolvency Act. The Trustee challenged an asset transaction that was part of a pre-bankruptcy, multistep corporate reorganization and sale of assets on the basis that it was at an undervalue and not at arm’s length. The transaction was also challenged under the oppression provisions and on public policy grounds. There was a related claim against the respondent Rose for breach of her duties as a director of the bankrupt. The challenged transaction involved the transfer of shallow natural gas assets associated with significant future Abandonment and Reclamation Obligations to the bankrupt for 10 dollars. In a subsequent share transaction, the respondent Perpetual Energy Parent sold all the shares of the bankrupt for one dollar to a numbered company. The bankrupt assumed the Abandonment and Reclamation Obligations. Eighteen months after the transaction, the bankrupt assigned itself into bankruptcy. The oppression claim was struck for failure to disclose a cause of action, because the Trustee in Bankruptcy was not a proper person to be a complainant or because the oppression claim lacked merit. The pleading respecting the public policy claim was struck for failure to disclose a cause of action. The claim against Rose was struck for failure to disclose a cause of action and was also summarily dismissed on the merits and because the Resignation & Mutual Release signed by her was a complete defence. The claim under s. 96 of the Bankruptcy and Insolvency Act was neither struck nor summarily dismissed.

HELD: Appeal allowed. Cross-appeal dismissed. The corporate oppression and public policy pleadings were restored. The Trustee was granted complainant status to pursue the corporate oppression claim if it so elected. The interpretation, scope and legal effect of the Resignation & Mutual Release were returned to the trial court. The Trustee was granted leave to amend any portions of the statement of claim. The costs award was set aside. None of the claims could be struck out or dismissed for failing to disclose a cause of action or because they lacked merit. There was no legally relevant evidence to rebut the presumption that the related members of the Perpetual Energy group who were engaged in the Asset Transaction were not operating at arm’s length. In declining to grant the Trustee status as a complainant, the case management judge failed to appreciate the collective nature of the role of a trustee in bankruptcy and that the oppression action was being brought on behalf of the bankrupt’s estate, not individual creditors. There was no principled basis to deny the Trustee complainant status to launch an oppression action. The pleadings did disclose a cause of action. While neither public policy nor illegality were causes of action, the public policy pleadings should not have been struck out. To the extent necessary, they could have been clarified by amendment, or enhanced with particulars. They set out and engage an important underlying issue in this litigation that could only be resolved at trial. While there was facial merit to the claims of breach of director’s duties, most of her potential liability to the bankrupt was released by the Resignation & Mutual Release. While some portions of the claim as against Rose were properly summarily dismissed, there was no basis on which the claim could be struck for failing to disclose a cause of action. The Release could not be interpreted on this record. The costs award was made on the assumption that Rose had been completely successful in defending the action against her. As there were some aspects of the claim that are yet unresolved, the costs award must be set aside, and the costs of the summary judgment and striking application must be returned to the case management judge. There was, however, no principled basis on which to award enhanced costs.

PricewaterhouseCoopers Inc. v. Perpetual Energy Inc., [2021] A.J. No. 84, Alberta Court of Appeal, M.S. Paperny, J. Watson and F.F. Slatter JJ.A., January 25, 2021. Digest No. TLD-March152021001