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Citation: Hefler (Bankruptcy), Re
PROVINCE OF NOVA SCOTIA
DISTRICT NO: 1
COURT NO: 19804
IN THE SUPREME COURT OF NOVA SCOTIA
IN THE MATTER OF THE PROPOSAL OF
G. ROYCE HEFLER
HEARD BEFORE: Tim Hill,
Registrar in Bankruptcy
DATE HEARD: April 25, 1997
DECISION RENDERED May 7, 1997
COUNSEL: John S. McFarlane, Q.C., representing the Trustee, Deloitte & Touche Inc.
D. Bruce Clarke and Pamela J. Clarke-Priddle representing Lloyd's of London
The Insolvent, G. Royce Hefler, is 75 years of age. He has been active as a businessman in the local community for almost 60 years. As a result of this business activity Mr. Hefler accumulated a significant number of assets over the years. Unfortunately, the net realizable value of those assets is minimal. It appears that there is either no market for the resale of the assets, or the companies in which investments were made by Mr. Hefler do not have the cash capacity to repay loans or redeem shares within any reasonable period of time.
Mr. Hefler participated as a "name" in a Lloyds of London Insurance syndicate. As a result of losses suffered by the syndicate, Mr. Hefler was called upon to contribute his share of those losses. Mr. Hefler was also re-assessed by Revenue Canada in respect to various transactions in which he had been engaged. This re-assessment resulted in a substantial income tax liability.
Sometime in the summer of 1996 Mr. Hefler approached Deloitte & Touche Inc. (the "Trustee"), and subsequently a proposal was filed under Part III of the Bankruptcy and Insolvency Act ("BIA").
In July of 1996 Lloyds made an offer to Mr. Hefler to settle his outstanding obligations to the syndicate. To say the least, the offer is voluminous. It contains a huge amount of detail. For the purpose of this application it is only necessary to refer to the basic terms.
The offer was accompanied by a document entitled "Finality Statement Summary - August 1996". This document showed Mr. Hefler's total liabilities to be 301,212 Pounds. The document also set out certain debt credits in the amount of 212,392 Pounds. This left an amount due of 88,820 Pounds.
The offer was required to be accepted by the Offeree on or before August 28, 1996. Payment of the amount shown in the Finality Statement after the application of the credit shown in that statement was to be made by September 30, 1996. This requirement is referred to on many occasions throughout the settlement offer. The following extract, from page 64 of the Settlement offer, is typical:
An accepting Name will not be entitled to the benefit of the allocation of the combined litigation settlement funds and debt credits and will not be eligible for a refund of the members special Central Fund contribution, even if he has signed and returned his form of acceptance on time, unless he meets the 30 September 1996 deadline and pays the amount calculated as described in Section B. If he does not do so, he will not receive these benefits.
In summary, the settlement offer requires that acceptance be made on or before August 28, 1996. It further requires that in order to benefit from the credits shown in the Finality Statement, the monies were to be paid to Lloyds on or before September 30, 1996. As I have indicated, the total liability shown in that statement was 301,212 Pounds. This would be reduced to 88,820 Pounds if that latter amount were paid by September 30, 1996.
Sometime in early September the Trustee had a telephone conversation with an individual at Lloyds. This was followed by correspondence faxed to Lloyds on September 9, 1996. This correspondence advised Lloyds that a proposal was to be forthcoming, and included the following paragraph:
Mr. Hefler has signed his acceptance of the Lloyds proposal to the "Names" of which he is one and the acceptance is attached. Formal notice under the proposal arrangement will be forthcoming shortly. Mr. Hefler has signed acceptance of the Lloyds offer on the understanding that Lloyds will be satisfied with a plan of arrangement and confirm that it is owed 88,820 Pounds.
On October 18, 1996 Mr. Hefler received a letter from Actium, which appears to be an underwriting firm acting for Lloyds in respect to the settlement agreement. This correspondence acknowledges acceptance of the settlement offer (although the acceptance appears to have been sent late) but notes that Mr. Hefler had not paid the full amount owed by the due date of September 30, 1996. The letter made it clear that Mr. Hefler had forfeited all benefits to which he was entitled under the settlement offer. Presumably this refers to the debt credits of 212,391 Pounds. The letter goes on to encourage Mr. Hefler to make payment of 88,820 Pounds, whereupon the writer indicates that he will make representations on behalf of Mr. Hefler to Lloyds to encourage Lloyds to accept that amount in final settlement of the claim of Lloyds against Mr. Hefler. The writer makes it clear, however, that he is not in a position to commit Lloyds to such acceptance.
On October 30, 1996 the Trustee wrote to Actium advising that Mr. Hefler was at that time forwarding a final proposal under the BIA. This correspondence sought acknowledgement that Mr. Hefler had complied with Lloyds' requirements in all respects and that his liability would be limited to 88,820 Pounds.
It appears Lloyds received a copy of the proposal. On November 20, 1996 Lloyds wrote to the Trustee enclosing a Proof of Claim. The amount show in the Proof of Claim was 301,212 Pounds. The correspondence makes it clear that as a result of Mr. Hefler's failure to make payment by September 30, 1996 he had lost the benefit of debt credits set out in the Finality Statement Summary.
The Trustee again wrote to Lloyds on January 2, 1997. In that correspondence the Trustee advises that the claim was accepted to the value of 88,820 Pounds. The Trustee requested further satisfactory evidence from Lloyds so as to establish a valid debt. The Trustee did acknowledge that he had satisfied himself that a claim by Lloyds in the amount of 88,820 Pounds was fully supportable by the evidence available.
Lloyds replied on January 13, 1997. In essence, Lloyds' reply was that if the Trustee had accepted the amount of 88,820 Pounds, which was the amount due net of debt credits, then the Trustee must have accepted that the full amount of 301,212 Pounds was originally due. The correspondence refers to the provisions of the Settlement Agreement. The correspondence ends with Lloyds requesting that the Trustee acknowledge Lloyds' claim in full.
On February 20, 1997 the Trustee issued a Notice of Disallowance of Claim under s. 135(3) of the BIA. The operative part of the Notice of Disallowance stated:
G. Royce Hefler accepted the settlement from Lloyds of London set out in his Finality Statement in the amount of 88,820 Pounds. The settlement offer included the requirement that G. Royce Hefler was required to pay, or 'otherwise satisfy his obligation to pay', all amounts due from him in respect to his Finality Statement. It is the opinion of the Trustee that acceptance of the proposal by the required majority of creditors under the Bankruptcy and Insolvency Act (Canada) amounts to satisfaction of the amount due from G. Royce Hefler pursuant to his acceptance of the settlement offer. For this reason the Trustee hereby denies that portion of the claim of Lloyds of London in excess of 88,820 Pounds.
Lloyds appeals to this Court from the disallowance of the claim by the Trustee.
On this appeal, the Trustee raises three issues. Interestingly, none of these three issues relate to the reason for disallowance given in the Notice of Disallowance.
Section 135(3) of the BIA provides:
Where, pursuant to subsection (2), the Trustee disallows, in whole or in part, any claim, any right to a priority or any security, the Trustee shall forthwith provide, in the prescribed manner, to the person whose claim, right to a priority or security was disallowed, a notice in the prescribed form setting out the reasons for the disallowance. (emphasis added).
In essence, the Notice of Disallowance should set out the case that the appellant creditor has to meet. In this case it did not. The grounds relied upon by the Trustee were only raised in the memorandum of counsel delivered one day prior to the hearing.
The BIA has often been described to be a "businessman's statute". Notwithstanding this, there are certain provisions in the Act which should be rigorously adhered to. In my view, the requirement to set out the grounds of Disallowance in a Notice of Disallowance claim is one of those provisions. While the failure to accurately set out the grounds should not always disqualify the Trustee from relying on other grounds, it is my view that the Trustee should, within a reasonable time prior to a hearing, provide the appellant creditor with an amended Notice of Disallowance of Claim clearly setting out the amended grounds upon which the claim is denied. It may be that in some circumstances the failure to provide such an amended notice of disallowance of claim will preclude the Trustee relying upon grounds other than those set out in the original notice of disallowance of claim.
In this case the creditor declined an adjournment so as to have additional time to address and review the issues set out in the written submission of the Trustee raising the new issues. That being the case, the matter proceeded. Under those circumstances I will address each of the arguments put forward by the Trustee in support of the disallowance of the claim of Lloyds.
The Trustee firstly argues that the Trustee has investigated the claim of Lloyds and has not received sufficient evidence to justify the claim over and above the sum of 88,820 Pounds accepted in the settlement offer by Mr. Hefler. In this regard, the Trustee argues that it was prepared to accept the sum of 88,820 Pounds without any satisfactory invoices or accounting because there was an offer by Lloyds and an acceptance or attempted acceptance of this offer by Mr. Hefler. This, in the view of the Trustee, gives rise to a novation or new contract formed between Lloyds and Mr. Hefler.
In considering this argument it is essential to refer to the form of acceptance signed by Mr. Hefler whereby he accepted Lloyds' settlement offer. This signed form of acceptance states in part:
This form must be read in conjunction with your finality statement, the accompanying guidance notes and the settlement offer document, including the settlement agreement set out and described therein. By signing and returning this form you irrevocably accept the settlement offer and become bound by the terms and conditions of the settlement agreement.
Above Mr. Hefler's signature the following is to be found:
I have carefully read the settlement offer document, including the settlement agreement set out and described therein. In consideration for the mutual covenants and agreements and other good consideration, I hereby irrevocably accept the settlement offer, agree to be bound by the terms and conditions set out in the settlement agreement, make all releases, waivers, assignments and other dispositions and grant all powers of attorney, authorities and appointments thereunder.
As can be seen, Mr. Hefler accepted the settlement offer. He agreed to be bound by the terms and conditions set out in the settlement agreement. He had read the Finality Statement. That statement makes it clear that he is required to pay 88,820 Pounds prior to September 30, 1996. If payment was not made by that date, the documents are equally clear that the amount he would be required to pay would be 301,212 Pounds. This agreement was made by Mr. Hefler well before any proposal was filed. The proposal is dated October 31, 1996, and it was filed on November 4, 1996. The creditors' meeting at which the proposal was approved took place on November 22, 1996. The order approving the proposal is dated December 16, 1996. It appears clear that prior to the proposal being initiated Mr. Hefler acknowledged his debt to Lloyds. He both acknowledged that the total debt was 301,212 Pounds, and he accepted the offer to settle that for the amount of 88,820 Pounds provided that sum was paid on or before September 30, 1996. It was not.
The Trustee further argues that although Mr. Hefler had not paid the amount owing in the Finality Statement, his acceptance of the settlement offer in light of the Trustee's letter to Lloyds dated September 9, 1996, has the effect of limiting the debt owed by Mr. Hefler to the settlement amount of 88,820 Pounds. I do not accept this. There is absolutely nothing in the correspondence from Lloyds to indicate any acceptance at any time by Lloyds of this proposition. It is trite to say that if this were indeed the case, some acknowledgement and acceptance of the proposition by Lloyds would be required, particularly as the proposal is clear that payment of the settlement amount was required by September 30, 1996.
Finally, the Trustee argues that it does not have sufficient evidence before it to accept the amount claimed by Lloyds. In answer to this I would again refer to the written acceptance signed by Mr. Hefler. In my view, that acceptance, taken with the contents of the Finality Statement and the Settlement Proposal, amounts to an unequivocal acknowledgement on the part of Mr. Hefler that should payment of the sum of 88,820 Pounds not be made by September 30, 1996, he would be liable for the full obligation of 301,212 Pounds.
In my view, certainty is never the test in determining whether or not a claim should be disallowed: Re H.D.Y.C. Holdings Limited (1995), 35 C.B.R. (3d) 293 (B.C.S.C.). The question is whether, on the balance of probabilities, the claim should be either allowed or disallowed. In my view, given the facts I have alluded to, this claim should be allowed. There is uncontradicted evidence that Mr. Hefler acknowledge and accepted his obligation to pay the full sum of 301,212 Pounds should the lesser settlement amount not be paid on or before September 30, 1996. That lesser sum was not paid. Mr. Hefler is therefore obligated to pay the greater sum.
The appeal of Lloyds is allowed. I will hear the parties on costs if they wish.
Dated at Halifax, Nova Scotia this 7th day of May; 1997.
Registrar in Bankruptcy