Ntes n Bankruptcy & Land Registratin in Nva Sctia Fr The Canadian Bar Assciatin, Nva Sctia Branch Octber 18,2007 (Revised Octber 25, 2007) Garth C. Grdn, Q.c. TMC LAW, Kentville, Nva Sctia General 1. In these ntes a. "BIA" means the Bankruptcy and Inslvency Ad; b. "H&M" means The 2007 Anntated Bankruptcy and Inslvency Act-, the standard BIA reference; c. "legacy judgments" means judgments recrded in a parcel register that predate the registratin f that parcel under the Land Registratin Act - refer t paragraphs 10 and 32; d. "LRA" means the Land Registratin Act, S.N.S. 2001, c.6 as amended; and e. "prteeted judgments" are judgments in favur f the Crwn (federal r prvincial) r a Wrker's Cmpensatin Bard that are prtected by BIA ss.86 and 87 as identified in paragraph 30. Prblems t be addressed 2. Trustees in bankruptcy d nt always register their interests in a bankrupt's real prperty in a timely fashin and smetimes nt at all. As well they d nt always disclaim unrealizable parcels t their bankrupts befre they are discharged as Trustees. Mst ften this ecurs in smaller estates where bankrupts' hmes are invlved, the Trustees determine that there is little r n realizable equity and the Trustees strive t minimize administratiin csts. These missins can lead t significant prblems fr lawyers and thers wh deal with a bankrupt's r frmer bankrupt's real prperty. The prblems ccur because either a. the bankrupt remains as the apparent wner f the real estate in the public recrd when he, she r it is nt the wner, r b. the Trustee remains as the registered (r unregistered) wner f unrealizable real prpeliy that ught t have been returned t the bankrupt under BIA sao( 1). Unfrtunately, the prblems initiated by these missins are ften aggravated by lawyers wh are nt familiar with BIA. R.s.c. 1985, c.b-3, as amended. Llyd W. Hulden & Geffrey B. Mrawetz, Thmpsn * Carswell, Trnt, Canada. Bankruptcy Ntes Page 1 f 31
3. A Trustee can prevent mst f these prblems and better prtect its beneficiary creditrs by simply a. registering a certified cpy f the Receiving Order r Assignment prmptly after its appintment against the bankrupt's real estate interests in which there is realizable equity, and b. befre its discharge 1. returning unrealizable real prperty t the bankrupt under BfA s.40( 1), and 11. re:gistering r recrding, as apprpriate, an rder under BfA s.40(2) respecting any real prperty that will remain in the estate after the Trustee is discharged. A "Trustee Prcess fr Real Estate Interests" is annexed t these Ntes. Registratin and! recrding f interests in real prperty in Nva Sctia - an verview 4. Nva Sctia is mving frm a Registry Act real prperty registratin system t a Land Registratin Act system. T determine the interests in a parcel under the Registry Act a searcher must cnduct a prperty search t review dcuments registered in the Land Registratin Office fr the district in which the parcel is lcated - generally fr a search perid greater than frty years. Under the LRA system cnslidated current title infrmatin abut a parcel is maintained in real time n-line in the parcel register fr that parcel. 5. Judgmentsjr the recvery f mney may be recrded in names-based Judgment Rlls fr each Registratin District. LRA s.64(2) states: "A judgment creditr may recrd a judgment fr the recvery f mney in the judgment rll fr a registratin district." Under LRA s.65(4): "A judgment recrded in a judgment rll binds and is a charge upn any registered interests f the judgment debtr within the registratin district, whether acquired befre r after the judgment is recrded, frm the date the judgment is recrded until the judgment is remved frm the rll." Judgments which affect LRA titles but are nt judgments fr the recvery f mney are registered r recrded in parcel registers accrding t their legal effect. 6. The LRA system "flats n existing law" s there are very few changes in substantive law affecting real prperty between the tw systems - LRA simply changes the way in which parties hlding interests in real prperty place ntice f thse interests in the public recrd. Bankruptcy Ntes Page 2 f 31
7. The prcess f transferring the registratin f a parcel frm the Registry Act system t the LRA system is referred t as "migratin". 8. LRA, s.46, prvides fr the cmpulsry migratin f parcels n the ccurrence f specified "triggering events" - principally the sale r mrtgage f a Registry Act parcel. Sectin 46 wrks by prhibiting a Registrar f Deeds frm accepting specified dcuments fr registratin under the Registry Act thereby requiring the party with the interest t ensure the parcel is migrated. LRA des nt specify wh is respnsible fr migratin. By cmmn practice vendrs migrate their parcels befre selling them. Hwever, there is nthing t stp a Trustee wh is selling a bankrupt's Registry Act registered parcel frm making the purchaser respnsible fr migrating that parcel as a term f their agreement f purchase and sale. 9. The autmatic vesting f title in a Trustee n a bankrupt's bankruptcy by peratin f law des nt trigger migratin. 10. On migratin, utstanding judgments against the current parcel wner r wners and their predeessrs in title are recrded in the parcel register s they will be carried frward and be determinable until released by the judgment creditr, expire r are therwise re:leased. These are the "legacy judgments" defined abve. II. Using the Prperty Online system a searcher can readily determine: a. the parcels in which a party has a registered wnership interest - this search may be cnducted prvince-wide r by Registratin District, and b. by Registratin District - ifthere are judgments against a party. POL als permits an inquiry fr "All interest hlders" that will return parcels in which the name searched has recrded interests as well; this can be a prvince-wide search. Prperty search results shw whether parcels are registered under the Registry Act r LRA. The system will nt return parcels in which the name searched has a beneficial interest and is nt shwn as a grantee in the enabling instrument. Registratin and Recrding under the Land Registratin Act - the new LRA System 12. When we use "recrd' and "registratin" in the cntext f LRA in these ntes we use these terms and variants f these terms as they are used in LRA3. Under LRA, s.17, changes in wnership - a fee simple estate; a life estate and the remainder interests; and an interest f Her Majesty - are registered; changes in ther interests are" recrded'. There is sme difference f pinin in the Prperty Bar whether interests categrized as "benefits" r "burdens" under LRA are registered r recrded. That difference is nt material t these ntes. Refer t ss.3( 1 )(r) and 3( 1 )(t). Bankruptcy Ntes Page 3 f 31
13. Refer t the annexed table "Registering & recrding bankruptcy interests" cncerning the mechanics f these prcesses. My thanks t Mark Cffin and Janice McNenly fr their assistance with this table; any errrs are the authr's alne. Special thanks als t Janice McNenly fr preparing the sample frms attached t this paper which shw hw t prepare the necessary frms t effect the registratins and recrdings utlined in the table. 14. BIA s. 7 4( 4) requires Land Registratin Office fficials t register any bankruptcy rder, assignment r ther dcument tendered by r n behalf f a Trustee as fllws: (emphasis added) "7 4( 4) Every fficial t whm a trustee tenders r causes t be tendered fr registratin any bankruptcy rder, assignment r ther dcument shall register it accrding t the rdinary prcedure fr registering within the fficial's ffice dcuments relating t real prperty r immvables." "Registratin" as used in this sectin appears t include LRA "recrding". 15. Sectin 30, LRA, requires a Registrar t register receiving rders r assignments as fllws: "30 A registrar shall accept a certified cpy f a receiving rder r assignment in bankruptcy pursuant t the Bankruptcy and Inslvency Act (Canada) as a directin t revise a registratin as t the wnership f any registered interest f the bankrupt specified by the trustee and shall register the rder r assignment." Accrding t the rdinary prcedure under LRA a Trustee must register instruments that evidence its fee simple interest in a parcel and recrd instruments affecting its nn-fee simple interests in a parcel if it elects t put them in the public recrd. 16. Because LRA certifies wnership f fee simple interests in parcels, nly authrized lawyers may register instruments r rders changing fee simple wnership interests. When registering an instrument authrised lawyers certify the legal effect f the instrument t the system which in tum relies n that certificatin in its certificatin f the fee simple t the public. An authrized lawyer registering an Assignment in Bankruptcy r Receiving Order respecting a bankrupt's fee simple interest in a parcel under LRA will have t prepare the registratin frm cnsidering cnsequential changes in the parcel register t prperly shw utstanding interests in the parcel. Changes will include, but nt be limited t: a. remving unprtected legacy judgments against the bankrupt recrded in the parcel register, and b. recrding in the parcel register prtected judgments against the bankrupt fund in the Judgment Rll. Bankruptcy Ntes Page 4 f 31
Nn-fee simple interests in parcels are recrded under LRA. Recrding invlves n certificatin f the interest invlved therefre recrding des nt require an authrized lawyer. Registratin under the ld Registry Act System 17. If a bankrupt's parcel is registered under the Registry Act the Trustee must register the Assignment r Receiving Order under the Registry Act if it elects t put the Assignment r Receiving Order in the public recrd. The Trustee will use a LRA Frm 44 which des nt require an authrised lawyer's signature. 18. Until a. the Trustee vluntarily "migrates" the parcel (registers the parcel under LRA), r b. a subsequent event like a sale r mrtgage "triggers" migratin under LRA s.46 the parcel will remain registered under the Registry Act. Paragraphs? and 53 discuss triggering events that may ccur when a Trustee releases r disclaims its interest in a parcel. Registratin, Recrding and Legal Ethics 19. If a lawyer becmes aware that title t an interest in real prperty is vested in a Trustee as the result f a bankruptcy, the lawyer must nt: a. assist any party ther than the Trustee t cnvey the interest; b. migrate the interest t the LRA system in the name f any registered wner ther than the Trustee; r c. assist any party t acquire the interest except frm the Trustee. Sectin 21.3 f the Nva Sctia Barristers' Sciety Legal Ethics Handbk states: "21.3 The lawyer has a duty nt t subvert the law by cunseling r assisting in activities which are in defiance f it and has a duty nt t d anything t lessen the respect and cnfidence f the public in the legal system f which the lawyer is a part." Knwingly participating in any f the abve types f fraudulent transfer may result in very serius cnsequences fr the lawyer. 20. If the persn receiving an interest vested in a Trustee frm smene ther than the Trustee is aware f the bankruptcy, it is unlikely that the persn's title will be prtectedrefer t Tim Hill's case cmment (cited in paragraph 68.a.) discussing the peratin f LRA ss.4( 4) (fraud) and 20(3) (cnditins fr enfrcement f pririty under LRA). If the persn relied n a lawyer t ensure the persn received marketable title t the parcel, the Bankruptcy Ntes Page 5 f 31
lawyer may be liable t the persn in negligence ifhe r she was aware f the bankruptcy. 21. Cnsider hwever, the quaere cncerning the pssible applicatin f estppel principles in paragraph 47 respecting ld and apparently drmant bankruptcies in a chain f title. Autmatic vesting f bankrupt's title in Trustee 22. The bankrupt's interests in real prperty vest in the Trustee n bankruptcy. This was cnfirmed t Registrar General Mark Cffin by Elizabeth Lang, Acting Deputy Superintendent, Regulatry Affairs & Cmpliance, Industry Canada by letter dated May 18,2007; she wrte: "... Yu have asked fr clarificatin as t when and hw the vesting prvisins f the Bankruptcy and Inslvency Act (BIA) apply, as yu feel there is sme cnfusin regarding this matter. It wuld seem that the reasn fr this uncertainty is that tw very different issues are being cnfused. Sectin 71 f the BIA prvides that the assets f the bankrupt vest in the trustee upn the filing f an assignment r the granting f a bankruptcy rder. This vesting is autmatic. A trustee must take certain actins, hwever, ifhe wants t register the estate's interest in certain assets such as real prperty. Sectin 74 deals with the requirements/prcess fr registering n title. The fact that a trustee has been appinted des nt mean that he is autmatically registered n title f assets at the Land Titles ffice and Sectin 74 prvides that "... bankruptcy rders r assignments may be registered by r n behalf f the trustee... ". It is a key duty f a trust'ee t prtect such assets if there is equity fr the benefit f the estate by registering his interest. In fact, a failure t d s which results in a lss t an estate may he cnsidered an issue fr prfessinal cnduct. Perhaps the cmmentary in Hulden & Mrawetz (2007 Anntated Bankruptcy and Inslvency Act, pg. 448) n this matter is als helpful; The purpse f registratin f the assignment r receiving rder is nt t vest the bankrupt's interest in real estate in the trustee, since this ccurs by virtue f s. 71 (2); rather the purpses are the fllwing: (a) t establish the necessary chain f title frm a bankrupt wner t a purchaser; (b) t give ntice f the bankruptcy t persns dealing with the prperty; and ( c) t amplify the prvisins f s. 70(1) that the dcuments referred t in the subsectin are superceded by a receiving rder r assignment. I trust this reslves yur cncerns." Bankruptcy Ntes Page 6 f 31
BIA s.71 states: "On a bankruptcy rder being made r an assignment being filed with an fficial receive:r, a bankrupt ceases t have any capacity t dispse f r therwise deal with their prperty, which shall, subject t this Act and t the rights f secured creditrs, immediately pass t and vest in the trustee named in the bankruptcy rder r assignment, and in any case f change f trustee the prperty shall pass frm trustee t trustee withut any assignment r transfer." In Re Mailman 4, Hill, Reg., states at paragraph 7: "7 By virtue f s. 71 (2) f the Bankruptcy and Inslvency Act the Bankrupt's interest in these prperties vested in the Trustee upn the Bankrupt's assignment." BfA s.71 is the frmer s. 71 (2) as amended by the Federal Law-Civil Law Harmnizatin Act. N. 25. Sectin 71(2) stated: "71(2) On a receiving rder being made r an assignment being filed with an fficial receiver, a bankrupt ceases t have any capacity t dispse f r therwise deal with his prperty, which shall, subject t this Act and t the rights f secured creditrs, frthwith pass t and vest in the trustee named in the receiving rder r assignment, and in any case f change f trustee the prperty shall pass frm trustee t trustee withut any cnveyance, assignment r transfer." The amendments d nt materially affect the peratin f this prvisin. 23. Under BIA s.67(l)(c) the prperty f the bankrupt divisible amng his r her creditrs cmprises "all prperty wherever situated f the bankrupt at the date f his bankruptcy r that may be acquired by r devlve n him befre his discharge... " This may include fee simple interests r interests less than fee simple - fr t~xample, a mrtgagee's interest in a third party's prperty. Nte the definitin includes prperty acquired by, r devlved n, the bankrupt befre his, her r its discharge. Trustee receives bankrupt's title 24. The Trustee receives nly the bankrupt's interest in the bankrupt's prperty s the Trustee may receive less than perfect title. In Trask v. Trask 6 the Curt held that the husband's Trustee in Bankruptcy tk the husband's undivided half interest in the matrimnial hme subject t the nn-bankrupt wife's right t ccupy the matrimnial hme. In Citifinancial Canada East Crp. v. Mrrw Estate (Trustees j/ a Trustee 4 2000 CarswellNS 327 (N.S.S.C.). S.C. 2004, c.25, s.44. 6 (1997),166 N.S.R. (2d) 344 (N.S.S.C.). 2006 NBQB 132,21 C.B.R. (5 th ) 12,44 R.P.R. (4th) 154,784 A.P.R. 240, 302 N.B.R. (2d) 240. Bankruptcy Ntes Page 7 f 31
was held t take the bankrupt's title subject t an unregistered equitable mrtgage f which the Trustee had actual knwledge. Matrimnial interests 25. A detailed cnsideratin f Matrimnial Prperty Act, "MPA", issues in bankruptcy is beynd the scpe f these ntes but a few cmments are in rder. First, the transfer f title n bankruptcy ccurs by peratin f law and is nt a dispsitin r encumbrance by the bankrupt 8. Secnd, where a matrimnial hme is invlved be careful t fully cnsider the matrimnial prperty rights f the bankrupt's spuse in the hme. Third, the MPA, s.8(3), restrictin n dispsitin f real prperty withut spusal cnsent applies nly t "matrimnial hmes". 26. Under MP A, s.3( I) "matrimnial hme" means the dwelling and real prperty ccupied by a persn and that persns spuse as their family residence and in which either r bth f them have a prperty interest ther than a leasehld interest. Under MPA, s.2(d) "dwelling" includes a huse, cndminium, cttage, mbile hme, trailer r bat ccupied as a residence. By definitin a parcel withut a dwelling n it is nt a matrimnial hme therefr its transfer des nt require the cnsent f the bankrupt's nn-wning spuse. 27. Fr further infrmatin n matrimnial interests refer t a. H&M F 4 - Effect f Family Law Acts and Matrimnial Prperty, and b. the MacKeigan/Radfrd CLE paper nted in paragraph 68.b. Subject t this Act 28. The phrase "subject t this Act" in BfA s.7l has been held t mean that prperty imprperly sld by a bankrupt t an inncent purchaser fr adequate cnsideratin is lst t the Trustee under BfA s.75 9 - see the discussin in paragraph 41. It culd als refer t ther express exclusins under BfA, fr example, the exclusin frm the In Neustaedter v. Neustaedter Estate (1986), 60 C.B.R. (N.S.) 173, (sub nm. Neustaedter v. Armitage) 56 O.R. (2d) 769, 32 D.L.R. (4th) 627 the Ontari Supreme Curt in Bankruptcy stated, inter alia: " 15 The trustee here did nt acquire the husband's interest by way f dispsitin r encumbrance. The assignment in bankruptcy was nt a dispsitin r encumbrance in the sense f a cnveyance, but rather an act f bankruptcy triggering the prvisins f s. 50(5) f the Bankruptcy Act t vest in the trustee the husband's wn interest, whatever it was. The trustee acquired his interest by the general law f bankruptcy reflected in s. 50(5) f the Act, and nt by any dispsitin r encumbrance f the husband." 9 H&M, F 59(4) - Subject t the Act, at p.440. Bankruptcy Ntes Page 8 f 31
bankrupt's estate f prperty held by the bankrupt fr any ther persn - BfA s.67(1 )(a). As cnfirmed by the A/Deputy Superintendent Regulatry Affairs and Cmpliance in her May 18, 2007 letter t the Registrar General, abve, "subject t this Act" des nt mean vesting in the Trustee depends upn the Trustee electing t register the Assignment r Receiving Order - the vesting in the Trustee is autmatic. RIA, LRA & Judgments 29. The "precedence" affrded by bankruptcy ver judgments permits a Trustee t cnvey a bankrupt's real prperty tree f judgments against the bankrupt ther than prtected judgments nted in paragraph 30. BfA s. 70(1) states: (emphasis added) "70. (I) Every bankruptcy rder and every assignment made under this Act takes precedence ver all judicial r ther attachments, garnishments, certificates having the effect f judgments, judgments, certificates f judgment, legal hypthecs f judgment creditrs, executins r ther prcess against the prperty f a bankrupt, except thse that have been cmpletely executed by payment t the creditr r the creditr's representative, and except the rights f a secured creditr." BfA s.74(2) prvides that the Trustee will be "... registered as the wner f the real prperty... r hlder f the charge free f all Emcumbrances r charges mentined in subsectin 70(1)... " In Re Ledrew l, under sectin 8 under the heading "What is the Impact f Sectin 70 f the BfA n CRA's Status as a Secured Creditr" fllwing paragraph 26, the Ontari Superir Curt f Justice cnsidered the impact f sectin 70 n Canada Revenue Agency's status as a secured creditr under BfA ss.86 and 87. The curt stated, inter alia, that: "Cunsel fr the Trustee has raised the questin f whether subsectin 70(1) f the BIA has any impact n the status f CRA as a secured creditr f LeDrew with a charge against the family hme. The nly decisin n the subject appears t be Giguere, Re (1998),2 C.B.R. (4th) 292 (Que. S.C.) where the curt held that an assignment in bankruptcy tk precedence ver an attachment issued by the Crwn against a debtr's prperty fr unpaid incme tax. The situatin in that case appears t be that the Crwn had nt registered its claim as a memrial thrugh a land registratin system and accrdingly, it was described as an "extra judicial attachment". The case is accrdingly distinguishable frm the case at bar. Subsectin 70( 1) f the [ITA] is smewhat difficult t interpret particularly in view f the phrase at the end "and except the rights f the secured creditr". I must cnclude, hwever, that in view f the specific prvisins cntained in sectins 86 and 87 f the BIA prviding fr the registratin f Crwn claims as secured claims, the mre general prvisin f subsectin 70(1) cannt be read s as t verride the rights created in the Crwn by virtue f sectins 86 and 87 f the BfA." II) [2005] W.D.F.L. 3356, [2005] W.D.F.L. 3355,13 C.B.R. (5th) 63,18 R.F.L. (6th) 417. Bankruptcy Ntes Page 9 f 31
30. Paul E. Radfrd discusses deemed trusts, ther super pririties and prtected judgments in his September 17, 2004 CLE paperll. He lists the fllwing prtected judgments at page 9: "When examining an abstract, ne may cnsider that all judgments registered prir t the bankruptcy f the judgment debtr are discharged as encumbrances n the real prperty f the judgment debtr by reasn f s. 70( 1) f the BIA, except: judgments against a bankrupt wh cnveyed the prperty t a third party after the judgments and prir t bankruptcy (Starratt v. Turner) (1989) 78 CBR (NS) 83 NSCA); judgments in favur f the federal r prvincial Crwns r Wrkers' Cmpensatin Bards which are registered in the Registry f Deeds r land registratin ffice befre a petitin is filed against a debtr, a debtr makes an assignment, a debtr files a ntice f intentin t make a prpsal r a debtr files a prpsal if: the judgment is fr amunts wing under the Incme Tax Act and registered n r after June 18 t h, 1998 (when s. 223(11.1) f the Incme Tax Act was prclaimed); the judgment is fr amunts wing under the Excise Tax Act and registered n r after Octber 20 th, 2000, when s. 316(10.1) f the Excise Tax Act was prclaimed; the judgment is fr amunts wing under the Custms Act and registered n r after Nvember 29,2001, when s. 97.24(15) f the Custms Act was prclaimed; r the judgment is fr amunts wing under any ther federal r prvincial statutes after the date that such statute states the judgment is a secured claim in accrdance with s. 86(2) and 87 BIA - this wuld include mst f the statutes creating Crwn liens that prvide fr registratin f a memrial - see discussin in sectin 5 abve." Add t the freging list f prtected judgments a memrial recrded under sectin 74 f the Air Travelers Security Charge Act, S.C. 2002, c. 9. 31. Lawyers must check the legislatin relevant t any Federal Gvernment, Prvincial Gvernment and Wrkers Cmpensatin Bard judgments against a bankrupt fund in their search t determine if thse judgments are prtected by BfA ss.86 and 87. II "Deemed Trusts and Other Super Pririties", The Agny and the Equity f... Mrtgages, September 17 th, 2004, Canadian Bar Assciatin Nva Sctia Cnference. Bankruptcy Ntes Page 10 f 31
32. The Trustee's lawyer will remve legacy judgments against a bankrupt that are nt prtected judgments frm the parcel registers f the bankmpt's LRA parcels when registering the Assignment in Bankruptcy r the Receiving Order in thse parcel registers - BIA ss.70(1) and 74(2). 33. The Trustee's lawyer must review the Judgment Rll fr each registratin district in which the bankrupt is the registered wner f a parcel. If there are judgments against the bankrupt that are nt prtected judgments, the lawyer will rely n the precedence affrded the Trustee's interest by BIA ss. 70(1) and s. 74(2) when registering the Trustee as wner f the bankrupt's interest. lfthe lawyer finds prtected judgments against the bankrupt, the lawyer must recrd thse prtected judgments in the parcel registers fr the parcels in which the bankrupt hlds a registered interest. Recrding these prtected judgments in the parcel registers means they will be fund in searches after the Trustee's name replaces the bankrupt's name as the registered wner f the bankrupt's interest in the parcel register. 34. Judgments prtected by BIA ss.86 and 87 like thse listed in paragraph 30 must be dealt with accrding t their pririties. 35. While a Trustee cnveys the bankrupt's real prperty clear f judgments that are nt prtected, judgments against the bankrupt are nt released by an assignment in bankruptcy; they may cntinue t have sme effect fr ther purpses. See H&M, page 434, paragraph F 55(5), abut the effect f bankruptcy n pririties f judgments: "(5) - Change in Pririties by Reasn f Sectin 70(1) Sectin 70( 1) des nt say that, as the result f the making f a receiving rder r the filing f an assignment, a creditr hlding a judgment, executin, etc., lses any pririty that the creditr pssesses; rather it gives the receiving rder r assignment "precedence" ver the judgment, executin, etc. As a result f s. 70( 1), the psitin f the creditr hlding the judgment, executin, etc., is superseded by that f the trustee in bankruptcy but there is n lss f pririty: Re Nishi Industries Ltd., 28 C.B.R. (N.S.) 261, [1978] 6 W.W.R. 736, 91 D.L.R. (3d) 321 (C.A.). Hence, if prir t bankruptcy, an executin creditr has pririty ver a secured creditr, that pririty will nt be eradicated by the bankruptcy, nr will the pririty f the secured credit be imprved r altered by the bankruptcy: Re Nishi Industries Ltd., supra. The trustee in bankruptcy will be entitled t the pririty pssessed by the executin creditr." Lawyers may prefer t err n the side f cautin when dealing with judgments in the Judgment Rll. It is safer t simply rely n the statutry precedence affrded by BIA s. 70( 1) when recrding an Assignment r Receiving Order and nt cancel unprtected judgments recrded in the Judgment Rll against a bankrupt. Leaving these judgments in the Judgment Rll will nt affect the dispsitin f the bankrupt's real prperty free f thse judgments and may preserve third party pririties. 36. Subject t s" 178( 1), BIA s.178(2) releases the debts f the bankrupt upn his, her r its discharge. I am grateful t W. Augustus Richardsn, Q.c., fr his bservatin in Bankruptcy Ntes Page 11 f 31
persnal cmmunicatin that unprtected judgments against a bankrupt, including Starratt v. Turner judgments, may becme unenfrceable after the bankrupt's discharge unless the underlying debt is preserved by BfA s.178(1). He cited Franklin v. Schultz [1967] 2 O.R. 149, 62 D.L.R. (2d) 643 in which the Ontari Curt f Appeal held that a sheriff "... culd n lnger, fr the realizatin f a judgment debt which had ceased t exist, sell either lands which the bankrupt had cntinued t wn dwn t the date f his bankruptcy r lands which the bankrupt had, after the writs ffifa came int the sheriffs hands but befre the bankruptcy, cnveyed t a third party." The Curt based its decisin n s.135(2) f the Bankruptcy Act (nw BfA s.178(2)) which prvided that an rder f discharge releases the bankrupt frm all claims prvable in bankruptcy ther than thse specified in s.135(1 )(nw BfA s.178(1 )). Registratin and Recrding under RIA 37. BfA s.74 prvides fr registratin f Assignments, Receiving Orders and Caveats as fllws: 74. (I) Every bankruptcy rder, r a true cpy certified by the registrar r ther fficer f the curt that made it, and every assignment, r a true cpy certified by the fficial receiver, may be registered by r n behalf f the trustee in respect f the whle r any part f any real prperty in which the bankrupt has any interest r estate, r in respect f the whle r any part f any immvable in which the bankrupt has any right, in the registry ffice in which, accrding t the law f the prvince in which the real prperty r immvable is situated, deeds r transfers f title and ther dcuments relating t real prperty, an immvable r any interest r estate in real prperty r any right in an immvable may be registered. (2) If a bankrupt is the registered wner f any real prperty r immvable r the registered hlder f any charge, the trustee, n registratin f the dcuments referred t in subsectin (1), is entitled t be registered as wner f the real prperty r immvable r hlder f the charge free f all encumbrances r charges mentined in subsectin 70(1). (3) If a bankrupt wns any real prperty r immvable r hlds any charge registered in a land registry ffice r has r is believed t have any interest, estate r right in any f them, and fr any reasn a cpy f the bankruptcy rder r assignment has nt been registered as prvided in subsectin (1), a caveat r cautin may be ldged with the fficial in charge f the land registry by the trustee, and any registratin made after the ldging f the caveat r cautin in respect f the real prperty, immvable r charge is subject t the caveat r cautin unless it has been remved r cancelled under the prvisins f the Act under which the real prperty, immvable, charge, interest, estate r right is registered. ( 4) Every fficial t whm a trustee tenders r causes t be tendered fr registratin any bankruptcy rder, assignment r ther dcument shall register it Bankruptcy Ntes Page 12 f 31
accrding t the rdinary prcedure fr registering within the fficial's ffice dcuments relating t real prperty r immvables. R.S., 1985, c. B-3, s. 74; 1997, c. 12, s. 70; 2004, c. 25, s. 47. 38. BfA s.74 permits, but des nt require, a Trustee t register r recrd its interest in a bankrupt's real prperty. This may be dne by registering the Assignment r Receiving Order (r by certified cpies f either). Fr Registry Act parcels this will be dne with a Frm 44. Fr LRA parcels any dcument evidencing the trustee's vested wnership f the bankrupt's fee simple interest in the real prperty must be registered using a Frm 24. The Trustee may recrd dcuments evidencing its nn-fee simple interests in LRA parcels using Frm 26. 39. Registratin simply puts ntice f the Trustee's interest n the public recrd t prtect its beneficiary creditrs frm unauthrized dispsitins by the bankrupt as apparent wnerl2. As stated abve in her letter f May 18,2007 t Registrar General, Mark Cffin, Elizabeth Lang, Acting Deputy Superintendent, Regulatry Affairs & Cmpliance, Industry Canada, citing H&M, page 448, states: "The purpse f registratin f the assignment Of' receiving rder is nt t vest the bankrupt's interest in real estate in the trustee, since this ccurs by virtue f s. 71l (2); rather the purpses are the fllwing: (a) t establish the necessary chain f title frm a bankrupt wner t a purchaser; (b) t give ntice f the bankruptcy t persns dealing with the prperty; and ( c) t amplify the prvisins f s. 70(1) that the dcuments referred t in the subsectin are superceded by a receiving rder r assignment." Registratin, as nted, is essential, t establish the necessary chain f title in the public recrd. A prudent Trustee registers r recrds its realizable interests prmptly 40. Fr a recent Nva Sctia example f prblems that can arise when a Trustee des nt prmptly register its realizable interest in real prperty and lawyers are nt mindful f BIA s.71 see: Re LeBlanc l3, Tim Hill's case cmment cited in paragraph 68.a. and the attached summary f that case. 41. If a Trustee fails t register its interests in real estate prmptly it will be much easier fr a bankrupt t imprperly sell r mrtgage his, her r its apparent interests t third parties. If a Trustee des nt register r recrd its interests, BfA s.75 will prevent the Trustee frm recvering an imprperly sld r mrtgaged prperty frm inncent purchasers. A Trustee's failure t register which results in a lss t an estate may result in the Trustee being liable in negligence fr the lsses t its beneficiary creditrs. Als, as nted by Ms. Lang findustry Canada, abve, "... failure t register which results in a lss t an estate may be cnsidered an issue fr prfessinal cnduct." 11 13 Supra nte 4 at para. 8. (2007),250 N.S.R. (2d) 225, 2007 NSSC 18,27 C.B.R. (5th) 299, 796 A.P.R. 225, (Cregan, Reg.). Bankruptcy Ntes Page 13 f 31
42. BfA s.75 des nt license r penn it a bankrupt t sell r mrtgage the assets in his, her r its estate in bankruptcy. Quite the ppsite is true. Such a sale r mrtgage is cntrary t s.71 and is an ffence under s.198. In Re Laramie 14 bankrupts were cnvicted f an ffence under s.198 f BfA after mrtgaging their estates' lands. It wuld be gd practice t recrd the assignment r receiving rder in the Judgment Rll 43. It wuld be gd practice t simultaneusly recrd (Fnn 488) the Assignment r Receiving Order in the Judgment Rll when registering it under LRA r the Registry Act. This recrding will invlve n additinal recrding fee. Recrding the Assignment r Receiving Order in the Judgment Rll will give early ntice f the bankruptcy t searchers and thers. Early recrding may als "catch" a bankrupt's undisclsed interest In a. parcels acquired by the bankrupt during the bankruptcy but after the riginal statement f affairs, b. parcels in which the bankrupt has a beneficial interest nt shwn in the parcel register r Grantee indices, and c. parcels missed by a Trustee's initial search fr a bankrupt's real prperty. Parties acquiring interests in parcels will nnnally d a title search; that search will include a search fr judgments against the wner. An Assignment r Receiving Order recrded against the bankrupt in the Judgment Rll will warn the searching party t detennine if the Trustee has an interest in any parcel which the bankrupt is attempting t transfer. Recrding in the Judgment Rll may als save ptential judgment takers the cst f btaining fruitless judgments. Trustee cannt divest by inactin r ral abandnment 44. A Trustee cannt divest itself f an interest in real estate by mere inactin r by an ral abandnment. H&M C 16 - Disclaimer f Prperty, p.64, states: (emphasis added) "Sectin 20 permits the trustee, with the permissin f the inspectrs, t divest all r part f the trustee's right, title r interest in any real prperty f the bankrupt by a ntice f quit claim r disclaimer. A trustee cannt divest itself f an interest in real estate by mere inactin r by an ral abandnment. The quit claim r disclaimer must be Apprved by the inspectrs: [cites authrities]" 14 (2001),25 C.B.R. (4th) 268 (Alta. Q.B.). Bankruptcy Ntes Page 14 f 31
In Re Mailman ls, Hill, Reg., states: "7 By virtue f s. 71 (2) f the Bankruptcy and Inslvency Act the Bankrupt's interest in these prperties vested in the Trustee upn the Bankrupt's assignment. While s. 20(1) f the Bankruptcy and Inslvency Act allws a Trustee t divest the Trustee's interest in real prperty by a ntice f quit claim r disclaimer, the Trush:~e cannt divest himself f an interest in real estate simply by inactin: Jnes v. McClean (1931),12 C.B.R. 238, [1931] 1 W.W.R. 315, 39 Man. R. 321, [1931] 2 D.L.R. 244 (Man. C.A.)." Neither the discharge f the Trustee nr the discharge f a bankrupt revests prperty in the bankrupt 45. The bankrupt's prperty vests in the Trustee until: a. the Trustee transfers the prperty I. with the Inspectrs' permissin, by sale under BIA s.30, II. with the Inspectrs' permissin, by release f the Trustee's interest under BIA s.20, 111. with the Inspectrs' permissin, by release f the Trustee's interest t the bankrupt where the prperty is incapable f realizatin 16, r IV. as directed by curt rder issued under BIA s.40(2); r b. the interest is expressly released by peratin f ther BIA prvisins. The Trustee may nt need the Inspectrs' permissin t sdl r release a bankrupt's prperty in Summary Administratins 17 15 16 Supra nte 4 at para. 7. "40. (I) With the penn iss in f the inspectrs, any prperty f a bankrupt fund incapable f realizatin shall be returned t the bankrupt prir t the trustee's applicatin fr discharge." 17 Cnsent f the Inspectrs may nt apply in Summary Administratins. See BIA, ss.49(6) and ISS - Paul E. Radfrd, "Bankruptcy: Effects n Judgments and Pririties in a Title Search", 1996 Real Estate Cnft~rence and Wrkshp, The Cntinuing Legal Educatin Sciety f Nva Sctia, April 12, 1996, at page 3. But cnsider Re Mailman, supra. nte 3 at para. I (I as t whether a Curt rder may be required absent inspectrs: " I (I Firstly, the Bankrupt's interest in the tw prperties is already vested in the Trustee. The Trustee can take whatever steps the Trustee deems apprpriate t realize n the Estate's interest in the prperties. If the Trustee is t sell that interest, either t the Bankrupt r t his spuse, there being n Inspectrs, the Trustee will need t btain Curt apprval.... The ther alternative fr the Trustee is bviusly t prceed t btain an rder fr partitin and sale f the prperties." Bankruptcy Ntes Page 15 f 31
46. Neither the discharge f the Trustee nr the discharge f the bankrupt revests any estate prperty in the bankrupt - H&M C 71, p.116. See Re Mailman '8, Re Marin '9 and Re Jhnsn 20 As neither type f discharge transfers any prperty interest neither discharge is registerable r recrdable as an "interest" (see LRA s.3(1 )(g)) in real prperty except as stated in paragraph 61. The LRA system culd help prevent prblems arising frm recrded discharges by restricting their recrding t thse situatins nted in paragraph 61. Estppel 47. A Trustee may be prevented frm dealing with a parcel by estppel as in Re Jhnsn and Re Mrin. See als Re Shelsn 21 Estppel did nt apply in Re Dvgala 22 r Husehld Realty Crp. v. Davis23. Quaere. If a lawyer dealing with a parcel learns f an unregistered bankruptcy affecting the parcel and that bankruptcy is bth 1. several years ld, and 11. apparently drmant, may the lawyer rely n estppel vis-a-vis the Trustee withut btaining a release frm the Trustee r a curt rder? Des the length f time since the bankruptcy affect this exercise f prfessinal judgment? What if the discharged bankrupt has sld, mrtgaged r therwise dealt with the parcel since the bankruptcy? Of what effect is the practice f sme Trustees in nt registering assignments r receiving rders r prviding disclaimers t bankrupts when unrealizable parcels have been invlved? 1 H 19 20 21 22 Supra nte 4. at para. 12. (2004),2 C.B.R. (5th) 290, 189 O.A.C. 14, (sub nm. Delilte & Tuche LLP v. Marin) 72 O.R. (3d) 274 (Ont. C.A.). (2006).250 N.S.R. (2d) 45, 2006 NSSC 384, 28 C.B.R. (5th) 150 (N.S. S.c.). (2004).184 O.A.C. 161.236 D.L.R. (4th) 591, 70 O.R. (3d) 17,4 C.B.R. (5 th ) 76 (C.A.). (2005).14 C.B.R. (5 th ) 182 (Ont.S.C.J). (2007), ONCA 283. 222 O.A.C. 320. 30 C.B.R. (5th) 269. Bankruptcy Ntes Page 16 f 31
Trustee's duty t return unrealizable prperty t bankrupt r btain a BIA s.40(2) rder 48. Trustees may determine that certain real prperty interests in a bankrupt's estate cannt be realized 24. H&M, C 71 Disclaimer f Prperty, p.116, states that: "In rder fr prperty t be incapable f realizatin, the trustee must first make necessary and prper attempts t realize upn the assets... " Under BfA sao(1) the Trustee may release r disclaim its interest in a bankrupt's registerable and recrdable interests in real prperty with the permissin f the Inspectrs 25, 49. BIA s.40 requires the Trustee t return unrealizable prperty t the bankrupt prir t the Trustee's applicatin fr discharge r t btain an rder respecting the prperty. There can be serius prblems if the Trustee des nt meet this bligatin: a. Sectin 71 f BfA prevents the bankrupt frm dealing with the prperty until the Trustee disclaims the prperty t the bankrupt; the bankrupt may be in limb indefinitely - e.g. n sale, n mrtgages. b. Subject t the pssible applicatin f estppel principles, the bankrupt is at risk f the Trustee selling the estate prperty indefinitely. Refer t paragraph 47, fr estppl~l references. C. If the Trustee is discharged befre it disclaims the prperty t the bankrupt r realizes n the prperty, the bankrupt may have t I. negtiate with, r 11. bring an actin against the Trustee t btain the disclaimer t which he r she may be entitled. Fr example, this authr knws f ne situatin in which a Trustee neither registered the Assignment in Bankruptcy nr cnveyed t the bankrupts their matrimnial hme prperty after selling them the equity f redemptin befre the Trustee was discharged. After their discharge the then frmer bankrupts sught t mrtgage their hme. As the Trustee still held title, albeit unregistered, the frmer bankrupts had t have the discharged Trustee reappinted s it culd cnvey the parcel t them. This prcess cst the frmer bankrupts abut $1,000 in Trustee fees. It is this authr's view that the cst f reappintment fr this purpse ught 24 Directive N. 22 (Pre-I 992) Realizatin f Estate Assets (Still Active) published by the Office f the Superintendent f Bankruptcy Canada utlines the Superintendent's psitin abut Trustees' duties t realize estate assets. Supra nte 17 at page 3. Bankruptcy Ntes Page 17 f 31
t have been brne by the Trustee fr its failure t return the unrealizable prperty befre its discharge as required by BIA. 50. It is als this authr's view that there is n issue with the Trustee, befre its release, prviding the bankrupt with a certified cpy f the Assignment r Receiving Order, a Trustee's deed r disclaimer fr unrealizable prperty and a clear instructin t have a lawyer register bth as quickly as pssible. This may save the Trustee frm becming invlved in the migratin f a Registry Act parcel apart frm cnsenting t the migratin and swearing a LRA Frm 5 as registered wner. If the bankrupt then fails t register his, her r its title it is the bankrupt's respnsibility. Release r Disclaimer f Registry Act parcels may trigger LRA migratin 51. Migratin is required when a Trustee releases its fee simple interest in a parcel that is registered under the Registry Act t a party withut cnsideratin but the transferee assumes an utstanding mrtgage against the parcel. The attached cpy f the Registrar General's email sent t lawyers - Gifting f encumbered parcels -- cnversin trigger - dated April 16, 2004 explains the reasns fr this psitin. Hwever, at the CBANS Cntinuing Legal Educatin meeting abut BIA n Octber 18, 2007 the Registrar General stated that a disclaimer t a bankrupt subject t a mrtgage t which the bankrupt was already a party wuld nt be cnsidered an "assumptin" thus wuld nt trigger a migratin. 52. Migratin is required when a Trustee releases its fee simple interest in a parcel that is registered under the Registry Act t a party (including a bankrupt) and the deed transfer tax affidavit disclses that the transfer is made fr a sale price r value. 53. Migratin is nt required when a Trustee releases its interest in a parcel that is registered under the Registry Act t a party withut cnsideratin and there is n mrtgage against the parcel. Status f Trustee under BIA ss.40 & 41 befre and after its discharge 54. In Re Marin the Curt set frth the applicable prvisins f BIA at paragraph 2: "2 The prvisins f the Bankruptcy and Inslvency Act, R.S.C. 1985, c. B-3 ("the Act") are relevant in the fllwing rder, with emphasis added: 7l.(2) On a receiving rder being made r an assignment being filed with an fficial receiver, a bankrupt ceases t have any capacity t dispse f r therwise deal with his prperty, which shau, subject t this Act and t the rights f secured creditrs, frthwith pass t and vest in the trustee named in the receiving rder r assignment, and in any case f change f trustee the prperty shall pass frm trustee t trustee withut any cnveyance, assignment r transfer. 74.(2) Where a bankrupt is the registered wner f any land r charge, the trustee, n registratin f the dcuments referred t in subsectin (1), is Bankruptcy Ntes Page 18 f 31
entitled t be registered as wner f the land r charge free f all encumbrances r charges mentined in subsectin 70(1). 40.( I) With the permissin f the inspectrs, any prperty f a bankrupt fund incapable f realizatin shall be returned t the bankrupt prir t the trustee's applicatin fr discharge. (2) Where a trustee is unable t dispse f any prperty as prvided in this sectin, the curt may make such rder as it may cnsider necessary. 41.( 10) Ntwithstanding his discharge, the trustee remains the trustee f the estate fr the perfrmance f such duties as may be incidental t the full administratin f the estate. 37. Where the bankrupt r any f the creditrs r any ther persn is aggrieved by any act r decisin f the trustee, he may apply t the curt and the curt may cnfirm, reverse r mdify the act r decisin cmplained f and make such rder in the premises as it thinks just. 41.( 11) The curt, n being satisfied that there are assets that have nt been realized r distributed, may, n the applicatin f any interested persn, appint a trustee t cmplete the administratin f the estate f the bankrupt, and the trustee shall be gverned by the prvisins f this Act, in s far as they are applicable." 55. The curt then cnsidered the effect f BfA ss.40 and 41. It stated that: (Emphasis added) "20 After discharge as Mrs. Marin's trustee, Delitte & Tuche cntinued in its psitin nly fr "such duties as may be incidental t the full administratin f the estate" (s. 41(10)). If realizatin f the prperty was mre than "incidental" t the administratin f this estate, r if a curt was satisfied that assets f the bankrupt remained unrealized r undistributed, the trustee culd seek re-appintment as a trustee t cmplete the estate's administratin (s. 41(11)). N such relief was r has been requested. 21 Absent any applicatin fr re-appintment, and even thugh the prperty vested in the trustee, the trustee had n authrity t deal with it unless such dealing was "incidental" t the administratin f Mrs. Marin's estate. 22 The sale f Mrs. Marin's interest in the hme was nt, hwever, merely incidental t the administratin f her estate. On the facts, Mrs. Marin's interest in the hme was her nly asset f any significance: it was her estate. Accrdingly, the trustee had n authrity t make a claim against Mrs. Marin's interest in the hme. Bankruptcy Ntes Page 19 f 31
24 The trustee's claim against Mr. Marin's interest is different frm its claim against Mrs. Marin's interest because the trustee had nt been discharged with respect t Mr. Marin's bankruptcy, althugh it had applied fr discharge. Accrdingly, with respect t Mr. Marin's estate, the trustee was nt restricted t "incidental" duties, as it was with respect t Mrs. Marin's estate (s. 41(10))." 56. Based n Marin a discharged Trustee hlding title t a parcel as the nly significant estate asset will have n pwer t cnvey the parcel until the Trustee is reappinted 26. Caveats 57. Caveats are a frm f ntice used fr registering certain interests in real prperty in sme Trrens land registratin jurisdictins. Presumably caveats are referred t in BfA s.74(3) t accmmdate the Trrens land registratin regimes in thse prvinces and territries. Fr example, the Alberta Land Titles Prcedures Manual, Prcedure # CA V -1 Caveats, dated February 2, 2006, lists assignments in bankruptcy as ne f many interests which may be recrded using a "caveat". As discussed in paragraph 60 "caveats" in Nva Sctia generally refers t mere ntices f claims that d nt meet the definitin f "instrument" under LRA s are neither registerable r recrdable. There is n frm f caveat prescribed by either the Registry Act r LRA under which ne might register r recrd a bankrupt's Assignment r Receiving Order. 58. BfA s.74(3) must be read with BfA s.74(4) which requires land registratin fficials t register any bankruptcy rder, assignment r ther dcument accrding t the rdinary prcedure fr registering within the fficial's ffice. In Nva Sctia prescribed frms are used t register r recrd interests in land rather than caveats. If a caveat under BfA (if such exists in Nva Sctia) is t be put in the public recrd in Nva Sctia it wuld be registered r recrded under LRA accrding t its legal effect r registered under the Registry Act fr Registry Act parcels. 59. In Re Jhnsn27, decided in 2006, the Registrar stated: "18 The usual practice in Nva Sctia is where a bankrupt cntinues t have pssessin f the hme and arrangements have nt been made whereby the bankrupt can btain the release f the trustee's interest, r have been made and the bankrupt has neglected t cmply with them, the trustee will after the passage f a re'asnable time apply t the curt t btain its discharge and fr permissin t maintain a caveat n the prperty. If the bankrupt des nt appear r appears but des nt bject, the applicatin is nrmally granted. The caveat stays in place until the bankrupt's circumstances (such as the need t refinance) change and the matter is brught t a head with the terms f the lifting f the caveat either settled by agreement r by the curt. In substance this is what is befre the curt in this applicatin." 26 Supra nte 19 at paras. 20-22. Supra nte 20 at para. 18. Bankruptcy Ntes Page 20 f 31
This passag1e appears t relate t rders issued under BfA s40(2). An Order under BfA s40(2) respecting a LRA registered parcel will be a. registered if it rders a change in registered fee simple wnership, and b. recrded if it permits the Trustee t be discharged withut first dispsing f the real prperty invlved r therwise affects the Trustee's ability t deal with the parcel. An rder under BfA s40(2) respecting a Registry Act parcel will be registered under that Act using a Frm 44. If the Trustee has already registered the Assignment r Receiving Order under the applicable Act it is the registered wner f the parcel and requires n further registratin r recrding t evidence its wnership f the parcel. If the Assignment in Bankruptcy r Receiving Order is nt already registered, the Trustee must register it befre the BfA s40(2) rder is registered r recrded t establish the chain f title r t make current the parcel register that is t be amended by the rder. 60. D nt cnfuse "caveats" f the BfA s.74(3) nature with ntices f mere claims. In Nva Sctia neither the Registry Act nr LRA prvide fr registratin r recrding f "caveats" purprting t give ntice f "mere claims". A title examiner must lk at the substance f the instrument nt the "caveat" label when determining its legal effect fr registratin r recrding. Outside the BfA cntext in Nva Sctia, a caveat is nt cnsidered t be an interest in land28. In Blades and Quinlan v. AtwcP the Curt held at paragraphs 31 and 32: "31. A dcument in the nature f a caveat therefre is a registered statutry declaratin in which the declarant ges beynd a mere recitatin f facts and gives ntice f an actin respecting real prperty rights, actually begun r merely cntemplated, r f a claim, fr the purpse f warning ff ptential purchasers f land by fixing them with ntice f the actin r claim. If permitted t stand as ntice relevant t a purchaser under s. 17 f the Registry Act, the statutry declaratin wuld have the practical effect f an injunctin r an attachment rder, interfering with the rights f prperty wners withut the safeguards f the prper prcedures. It wuld be available unilaterally and might remain in effect indefinitely. Despite its utward resemblance t a prper statutry declaratin, it is nt an instrument changing r affecting title t land, r a recrdable dcument within the purview f the Registry Act. 32. Because such dcuments are held t be withut frce and effect, and may be liable t be struck frm the recrds f the Registry f Deeds, it fllws that they are nt ntice f any facts they might cntain." Church v. Frbes and Church (1983),60 N.S.R. (2d) 211 (Hall,1.). 29 (1990),95 N.S.R. (2d) 348 (Freeman, L.J.S.C.). Bankruptcy Ntes Page 21 f 31
Recrded Discharges f Bankruptcy 61. A Discharge f Bankruptcy, a "Discharge", des nt transfer any interest in a bankrupt's prperty as "interest" is defined in LRA s.3(1)(g). Fr that reasn a Discharge is nt prperly registerable r recrdable under LRA unless used a. t rele:ase an unprtected legacy judgment in a parcel register when apprpriate (paragraph 32), b. t evidence the bankruptcy in the Judgment Rll (paragraph 43) 1. as ntice that earlier unprtected judgments against the bankrupt were superseded by the bankruptcy, r 11. perhaps, t put the date f discharge n recrd s searchers will knw that prperty acquired by, r devlving n, the frmer bankrupt after that date did nt vest in the Trustee as part f the frmer bankrupt's estate in bankruptcy. 62. Again with thanks t W. Augustus Richardsn, Q.C., the wner f a parcel subject t an unprtected "Starratt v. Turner judgment" culd cnsider recrding the judgment debtr's Discharge as a vehicle t remve that judgment frm the parcel register. This may be justified by Franklin v. Schultz (paragraph 36 abve) if the underlying debt was released by BfA s.178(2) n the bankrupt's discharge. 63. Cautins. a. Recrding a Discharge in a parcel register in the belief that the recrding will return an interest t the bankrupt may backfire. The recrding transfers n interest t the frmer bankrupt but it will give title searchers ntice f the Trustee's wnership fthe interest n the bankruptcy3. b. D nt rely n a previusly registered discharge f bankruptcy as evidence that the Trustee has released its interest in the parcel t the bankrupt. As Tim HiIl states in his case cmment n Re Leblanc nted in paragraph 68.a.: "It may well be that a Trustee is just sitting n the estate's interest in the prperty, expecting t be paid when it is cnveyed r mrtgaged. D nt get caught relying n a discharge rder. Make the call and get the disclaimer r a Quit Claim Deed." Sme debts survive bankruptcy 64. BfA s.178(1) lists debts that are nt discharged by bankruptcy. These will nt affect title t a bankrupt's real prperty cnveyed by the Trustee during its administratin f the bankrupt's estate. These may preserve the fundatin f a "Starratt v. Turner 30 Cnsider the quaere in paragraph 47. Bankruptcy Ntes Page 22 f 31
judgment" as the debt upn which the judgment is based is nt released n the bankrupt's discharge as was the debt in Franklin v. Schultz. Prtected judgments will als survive a discharge frm bankruptcy. Jint tenancy is severed by bankruptcy 65. If a jint tenant becmes bankrupt his, her r its jint tenancy in a parcel is severed 3!. 66. If the bankrupt later recvers his r her half interest it will be as a tenant-in-cmmn with the ther c-wner(s). If the c-wners d nt re-establish their jint tenancy an unintended prbate r administratin may result n the death f the first c-wner t die. That deceased wner's estate will nt be able t transfer the deceased's interest in the parcel under LRA 32 withut the prbate r administratin f his r her estate. POL LRA resurces 67. The fllwing Land Registry Client Resurce Material 2007 (On-line POL resurce) materials may be f interest: a. b. c. d. e. f. g. Hw t Migrate a Parcel Subject t an Assignment in Bankruptcy, Assignments n AFR's, Land Registratin Act Directive, Plicy and Prcedures fr Lawyers and Surveyrs, March 2006 under the heading "Assignments in Bankruptcy" (this sectin is under review by the Registrar General) Frm #5 Guideline, Instrument Types and Assciated Frms Fr LR Dcuments, and Hw T Shw Certain Interests On The AFR. 3! Re White (1928), 8 C'.B.R. 544, 33 O. W.N. 255, [1928] I D.L.R. 846 (Ont. S.C.) at paragraph 14: " 14 The cnclusin I have cme t is that there is n survivrship in a jint tenancy, except upn the death f ne f the jint tenants, and the assignment fr the benefit f creditrs by the debtr perated as a severance f the jint tenancy, and upn the severance each f the parties t the jint deed became wners f an undivided ne-half interest in the severed prperty, and the ne-half interest f the debtr vested in the trustee as prperty belnging t the debtr within the meaning f The Bankruptcy Act, subject t the payment f ne half f whatever encumbrances there may have been registered against the prperty." 32 ss.24-26. Bankruptcy Ntes Page 23 f 31
Other resurces 68. The fllwing CLE resurces are available at the Nva Sctia Barristers' Sciety website (http://www.nsbs.rg/dbtw-wpdlqsets/2dsurceslqbe.htm) under Library Services, Secndary Surces: a. Hill, Tim, Leblanc (Re), 2007 NSSC 18,27 C.B.R. (5th) 299,796 A.P.R. 225, 250 N.S.R.. (2d), 2007 Carswell 27 (Registrar): a case cmment (July 2007), in Nva Sctia Law News vl. 32 n. 3 p. 160. b. MacKeigan, Rbert G., Q.c., and Radfrd, Paul E, "Cnveyancing Standards f Practice: 3.11 and 3.14" (Speaking ntes fr presentatin t the Nva Sctia Real Estate Lawyers Assciatin, Real Estate Practice Seminar Series, February 2003). c. Paul E. Radfrd, "Bankruptcy: Effects n Judgments and Pririties in a Title Search" (Paper presented t The Cntinuing Legal Educatin Sciety f Nva Sctia 1996 Real Estate Cnference and Wrkshp, April 12, 1996). d. 1. Craig McCrae, "Buying Cmmercial Prperty frm a Receiver r Trustee" (Paper presented t The Cntinuing Legal Educatin Sciety f Nva Sctia cnference, Real Estate, Octber 9, 1992). 69. Refer t Practice Standard 3.l1 Bankruptcy and Receivership, Prfessinal Standards Real Prperty Transactins in Nva Sctia, Nva Sctia Barristers' Sciety. 70. The attached Bankruptcy & Real Prperty (LRA) diagram summarizes the BfA prcesses fr real prperty. N:IHtDcs9lBankruptcy Ntes OI.WPT printed Octber 26.2007 (8:35am) Bankruptcy Ntes Page 24 f 31
BIA Case Study: Re LeBlanc 2007 NSSC 18, January 18,2007 1. 2004-06-15: 8ankrupt "8" made assignment in bankruptcy, Trustee "T" was appinted 8's trustee in bankruptcy: a. 8's Debts included $5,000 wed t his Uncle "U"; and b. 8's assets included tw wd lts registered under the Registry Act. 2004-07-08: U filed a prf f claim with T asserting a claim f$5,000 secured as t $3,500. 3. 4. 5. 6. 7. 2005-03-03: T disallwed U's claim fr the security - n prf prvided by U. 2005-03-16: T re:ceived appraisal f wd lts stating value t be $10,000. 2005-03-23: T wrte 8 ffering t sell the tw wd lts t 8 fr $10,000 inviting 8 t cntact T t make payment arrangements. 8 did nt respnd. 2005-04-15: 8 was granted an abslute discharge frm bankruptcy. 2006-05-08: 8 deeded the tw wd lts t U fr $8,200 - a $5,000 credit fr 8's debt t U and the remainder in cash. 8. 2006-05-09: lawyer "L" cmpleted migratin f the tw wd lts in H's name under the Land Registratin Act. The Registrar states that "80th the slicitr fr [U] and the slicitr fr [8] in making the cnveyance accrding t evidence submitted knew f his bankruptcy." The Registrar states "This raises the questin whether the migratin and cnveyance were prper." As neither the uncle nr the slicitrs were befre the Registrar, the Registrar wrte: "Accrdingly, I make n cmment as t whether the Trustee may have a remedy against them." 9. 2006-05-17: L registered the deed frm 8 t U under a Frm 24 certified by L. The LRO revised the registered wner f the tw wd lts frm 8 t U. 10. 2006-05-18: T ldged a certified cpy f 8's Assignment in 8ankruptcy fr recrding with the LRO under a Frm 26 signed by T. (T explained the 23 mnth delay between the date f the Assignment and the date f its recrding by telling the Registrar: "These things take time".) II. 2006-05-18 the LRO registered T as an wner f ne f the tw wd lts under the Frm 26 submitted fr recrding and recrded the Assignment in the ther parcel register. Nw bth U and T are shwn as wners f the tw wd lts under the deed t U and the Assignment in ne parcel register. 12. 2007-01-18: On T's applicatin the Registrar, under BIA s.180( 1), annulled 8's discharge prviding that 8 will be entitled t a discharge upn paying T $5,700 at $200 per mnth. The Registrar gave 8 the benefit f the dubt when calculating the lss "... because the Trustee culd have avided the prblem by being mre diligent in its respnsibilities t prtect its title... " The Registrar des nt cmment further n T's failure t recrd the Assignment prmptly after its appintment. 13. 8 has imprperly dealt with the wd lts cntrary t BIA s.71. U, by his knwledge f the bankruptcy, cannt claim prtectin fr his purchase under BfA s.75. Quaere the slicitrs' psitins arising frm their invlvement in the migratin and transfer f the parcels if the Registrar's cmment abut their knwledge f the bankruptcy is crrect. T expsed itself t a pssible claim fr a deficiency frm its beneficiaries and t prfessinal cnduct actin by Industry Canada. The LRO registered am Assignment submitted under a Frm 26 fr recrding. 14. Cnsider hw easily this situatin culd have been prevented if either T had registered 8's Assignment under the Registry Act prmptly after its appintment as Trustee r the slicitrs, if they knew f the bankruptcy, had apprached the Trustee fr a release befre assisting their clients t migrate then transfer the tw wd lts. Bankruptcy Ntes Page 25 f 31
Registering & recrding bankruptcy interests (Revised Octber 25, 2007 t include LRAfPOL update) Sample frms prepared by Janice McNenly are annexed fr yur assistance. "Cnveyance" includes "releases", "quit claims", "disclaimers" and ther instruments f transfer under BIA. Dcument t be registered f Instrument Type Frm recrded T register the bankrupt's fee simple Assignment f Frm 24. Qualifier will be "Trustee". Remve interest in a LR registered parcel in Bankruptcy (110) unprtected legacy judgments against the the Trustee's name und,er the bankrupt frm the parcel register - BIA, ss.70 & Assignment in Bankruptcy r 74(2). See the first sample frm. Receiving Order ("AfRiQ"). LRO cdes as Simultaneusly use Frm 48B t recrd the Assignment f AfRO in the Judgment Rll. See the secnd Bankruptcy re sample frm. Judgment Rll (729) T register the bankrupt's fee simple LRO cdes as Frm 44 interest in a Registry Act registered Assignment f parcel in the Trustee's name under the Bankruptcy (I 10) A/RO. LRO cdes as Simultaneusly use Frm 48B t recrd the Assignment f AfRO in the Judgment Rll. See the secnd Bankruptcy re sample frm. Judgment Rll (729) T recrd the bankrupfs nn-fee Assignment f Frm 26. See the third sample frm. This is simple interest in a third party's LR Bankruptcy re Nn similar t assigning a mrtgage. Under Interest registered parcel in the Trustee's Fee Simple (448) Hlder Name, instruct the LRO t change the name under the AfRO - e.g. a mrtgagee's interest. bankrupt's name t "Interest Assigned". This retains the riginal interest in the parcel register. Next, instruct the LRO t add the Trustee's name as wner with qualifier "Trustee". The AfRO enables this interest. T recrd the bankrupt's nn-fee LRO cdes as Frm 44. N new registratin is required if the simple interest in a third party's Assignment f AfRO is already registered under the Registry Act. Registry Act registered parcel in the Bankruptcy re Nn Find these nn-fee simple interests with an "All Trustee's name under the AfRO. Fee Simple (448) interest hlders" Grantee search f the bankrupt's name. T recrd a discharge f Judgment Remval Frm 48A. D nt remve legacy judgments bankruptcy in the parcel register f a frm Register - N against the bankrupt that are prtected by BIA LR registered parcel t remve legacy Satisfactin (728) ss.86 &87 - see BIA, ss.70 & 74(2). judgments. N.B. Discharges f bankruptcy may be used t discharge legacy judgments. They shuld nt be recrded t give ntice f the bankruptcy because they neither release a Trustee's wnership fa parcel t the bankrupt nr cnvey any "interest" in a parcel as "interest" is defined under LRA s.3( I )(g). Only "interests" and "prescribed cntracts" may be recrded. T put the discharge "n recrd" recrd it in the Judgment Rll - see the next rw. T recrd a discharge f LRO cdes as Frm 48B. See furth sample frm. This will bankruptcy in the Judgment Rll as Discharge f alert searchers t determine the effect f the ntice f the bankruptcy. Bankruptcy re bankruptcy n any judgments recrded against the Judgment Rll (730). bankrupt in the Judgment Rll. Bankruptcy Ntes Page 26 f 31
T recrd an rder made under BIA Order (Nt Frm 26. in the parcel register f a LR Transferring I Nt registered parcel registered in the Judgment) (412) N.B. If an rder under BfA s.40(2) permits the Trustee's name where that rder des Trustee t hld its interest in the parcel beynd nt transfer a fee simpk interest. As the Trustee's discharge, determine whether the these are nt judgments fr the Trustee must be reappinted befre dealing with recvery f mney they are nt the parcel again - BIA s.41 (10), Re Marin (para recrded in the Judgment Rll - LRA, 54 f this paper). s.65( 1 ). T recrd an rder made under BIA Assignment f Frm 24. First, the Trustee must register the in the parcel register f a LR Bankruptcy (110) A/RO in the parcel register - LRA s.30 & BfA, registered parcel nt registered in the s.74(2) - t establish the chain f title int the Trustee's name where that rder Trustee per the rdinary prcedure fr registering des nt transfer a fee simple interest. under LRA - BfA, s.74 (4). As these are nt judgments fr the recvery f mney they will nt be Order (Nt Frm 26, Nw the Trustee may recrd the rder. recrded in the Judgment Rll - LRA, Transferring I Nt s.65( I ). Judgment) (412) T recrd an rder made under BIA LRO cdes as Order Frm 44. respecting a parcel registered under (Nt Transferring I the Registry Act. Nt Judgment) (412) T register a cnveyance f an LR Deed (l01) Frm 24. See the fifth sample frm. registered parcel registered in the Trustee's name frm the Trustee t anther under BIA ss. 20, 30 r 40( I). T register a cnveyance f an LR Assignment f Frm 24. First, the Trustee (r the bankrupt) registered parcel nt registered in Bankruptcy (1 10) must register the A/RO t establish the chain f the Trustee's name frm the Trustee title int the Trustee. See the fifth sample frm. t anther under BIA ss. 20, 30 r 40(1 ). Frm 24. The Trustee r bankrupt may then Deed (101) register the cnveyance. T recrd a transfer f a nn-fee Deed (101) Frm 26. See the sixth sample frm. simple interest in a Lit registered parcel by the Trustee. T register a cnveyance f a LRO cdes as Deed Frm 44. *Refer t the Cautin belw. Registry Act registered parcel under (101 ) BIA ss. 20, 30 r 40( I) when the A/RO has been registered under the Registry Act. T register a cnveyance f a LRO cdes as Frm 44. The Trustee (r the bankrupt) must Registry Act registered parcel under Assignment f first register the A/RO under the Registry Act t BIA ss. 20, 30 r 40( I) when the Bankruptcy (110) change the registered wner t the Trustee. AfRO has nt been registered under the Registry Act. LRO cdes as Deed Frm 44. Then the Trustee r bankrupt may (10 I) register the cnveyance under the Registry Act. *Refer t the Cautin belw. *Cautin - cnsider the Registrar General's Email t Lawyers- Gifting f Encumbered Parcels- Cnversin Trigger dated AprillC), 2004 which states that parcels cnveyed subject t an encumbrance t be assumed by the grantee must be migrated. The Registrar General stated n Octber 18, 2007 that this will nt apply t transfers frm a Trustee t a bankrupts when the bankrupt is is a party t the mrtgage and there is n ther cnsideratin paid t the Trustee by the bankrupt. Bankruptcy Ntes Page 27 f 31