Ontario Civil

Bankruptcy and Insolvency

Owners ought to be placed in position to prove entitlement to insurance

Motion by property owners for order lifting stay of proceedings flowing from bankrupt’s bankruptcy. Bankrupt was land use consulting company. Owners engaged bankrupt to provide services concerning proposed redevelopment. Owners contended bankrupt provided negligent advice that caused them losses. Owners commenced action against bankrupt in May 2010 for damages for negligence. Successful claim would be covered by insurance policy held by bankrupt. Bankrupt assigned itself into bankruptcy in July 2012. Owners’ action was consequently stayed pursuant to s. 69.3 of Bankruptcy and Insolvency Act (Can.). Motion granted on terms. Stay of proceedings was lifted with expectation that owners would amend statement of claim to change claim from one of damages to one of declaration that bankrupt was trustee of chose in action represented by insurance policy for benefit of owners. Unless good reason was established to contrary, rights of bankrupt under insurance policy were to be assigned to owners by trustee in bankruptcy on notice to other creditors, and only owners could pursue those rights. Owners ought to be placed in position to endeavour to prove their entitlement to insurance that was purchased by bankrupt specifically to provide recovery in event of proven negligent act. This approach was in keeping with expectation of parties prior to bankruptcy. This approach was also consistent with approach taken in other provinces. Commercial reality and justice dictated that refusing to lift stay would be contrary to principles of equity.

Iplan Corp., Re (Jun. 28, 2013, Ont. S.C.J., Reg. D.E. Short, File No. Newmarket 31-1643308) 229 A.C.W.S. (3d) 942.

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