70(1) Precedence Of Bankruptcy Orders And Assignments

PRACTICE

Registrar Cancels Judgments in Favour of Crown Bodies

The registrar cancels judgments in favour of Crown bodies such as the Employment Standards Branch, the Labour Relations Board, and the Workers’ Compensation Board after giving notice under s. 294.6(e) or s. 303(e) of the Land Title Act. See material on the Employment Standards Act, Labour Relations Code, and the Workers Compensation Act at chapter 69 (Government Liens, Charges, and Administrative Penalties).

CROSS REFERENCES AND OTHER SOURCES OF INFORMATION

See Di Castri, Registration of Title to Land, vol. 2, §16:37 and §16:38.

CASE LAW

Priorities

The claim of a trustee in bankruptcy prevails over that of a judgment creditor under any of the execution procedures mentioned in s. 70 unless there has been payment to the creditor or the creditor’s agent. It is not sufficient that the fund may have been stopped in the hands of the garnishee or that it may be in court subject to further order or even subject to payment out on an order already issued. Nor does it matter when the money was attached or paid into court. The only question is—has the execution procedure been completed by payment to the creditor or the creditor’s agent? (Canadian Credit Men’s Trust Association v. Beaver Trucking Ltd., 1959 CanLII 58 (SCC)).

A holder of a builders lien is a secured creditor and is not affected by s. 70 of the Bankruptcy and Insolvency Act (Re Victoria Bed and Mattress Company Limited, 1960 CanLII 279 (BC SC)). See also s. 21 of the Builders Lien Act at chapter 37 (Builders Lien Act, S.B.C. 1997, c. 45).

A real estate developer ran into financial difficulties and its property was foreclosed and sold. Sale proceeds were paid into court pending further orders. The applicants obtained judgment against the developer and an order for payment out. Before payment was received, the developer made an assignment in bankruptcy. The issue on this application was whether the order for payment out was an “other process against the property of a bankrupt” within the meaning of s. 70(1) of the Act. The court found that the purpose of s. 70(1) is to prevent unsecured creditors from obtaining preference over other unsecured creditors and that, unless the money in court was the property of the creditor and removed from the reach of s. 70(1), taking steps to enforce or realize on a judgment is a form of execution operating as a “process against the property of a bankrupt”. In this case, the parties agreed that the funds in court were the property of the bankrupt. As a result, s. 70(1) gave the trustee in bankruptcy priority over the funds and the court dismissed the application (Re Power Tek Developments Inc., 2002 BCSC 1735).

On September 19, 2006, the court approved a receiver’s application to sell the assets of a company, including its land. On September 27, 2006, the company made an assignment in bankruptcy under the Bankruptcy and Insolvency Act. The sale of the land closed on October 18, 2006. The province brought this application for an order that it was a secured creditor for an amount owing in taxes pursuant to a lien in its favour under the Taxation (Rural Area) Act. The court found that, while the order of September 19 authorized the receiver to pay the taxes from the proceeds of the sale of the company’s land, it did not set aside any then-existing fund from which the taxes were to be paid. On September 19, there were no proceeds and there might never have been. On September 27, when the company went bankrupt, the company owned the land as an asset that was the subject of a contract of purchase and sale. On that date, the lien for provincial taxes became subject to the terms of the Bankruptcy and Insolvency Act and the province ceased to have priority as a secured creditor (Azura Management (Hemlock) Corp. v. Hemlock Valley Resorts Inc., 2007 BCSC 1761).