Re Bankruptcy of Zeev Saban

2012 ONSC 6700 | Court File No. 31-1127752 | Ontario Superior Court of Justice — Commercial List (Justice Newbould)

Commercial Litigation Bankruptcy & InsolvencyBy Paul H. Starkman | Starkman & Zhang Lawyers

A creditor appealed a bankrupt’s conditional discharge, alleging perjury and fraud and seeking absolute refusal of discharge. We anchored on the appellate standard of review and the settled Ontario authorities holding that bankruptcy discharge hearings are summary. Justice Newbould dismissed the appeal.

The Commercial Problem

Our client, Mr. Zeev Saban, was a bankrupt seeking a discharge under the Bankruptcy and Insolvency Act. On November 15, 2011, Deputy Registrar Mills granted Mr. Saban a conditional discharge from bankruptcy. The discharge was suspended for 36 months consecutive to: (i) Mr. Saban paying $1,500 to the Trustee for outstanding fees; (ii) paying $4,500 to his estate; and (iii) banning him from obtaining credit for five years. This was a real conditional discharge with real conditions.

A creditor — Mr. Marek Machtinger — appealed under the BIA. He sought:

An order refusing Mr. Saban an absolute discharge because of alleged perjury at the discharge hearing before the Registrar;
A declaration that fraud was committed by Mr. Saban under the Criminal Code and the BIA;
A declaration that debts incurred by Mr. Saban survive bankruptcy;
Leave to lift the stay under the BIA to commence an action against Mr. Saban for fraud;
Other consequential relief.

The notice of appeal was, in effect, an attempt to relitigate every adverse fact at the discharge hearing — with affidavit material from the appellant alleging many instances of perjury. Mr. Saban’s conditional discharge would be substituted with an absolute refusal, fraud declarations under two statutes, and a stay-lift to permit a fresh civil fraud action.

For a bankrupt who has just secured a conditional discharge through a contested hearing before the Registrar, this is the structural problem: a creditor with the means and motivation can appeal under the BIA, file affidavit material setting out factual disputes, and ask the Superior Court to redo the discharge analysis. If allowed to proceed as a re-trial, the bankrupt loses the discretionary protection the Registrar has already granted. The question was whether the appeal could be terminated on the appellate standard of review — without engaging on the merits of the alleged perjury and fraud.

Strategic Decisions

Decision 1: Anchor on the appellate standard of review — palpable and overriding error — not on the underlying facts

A BIA discharge appeal is not a trial de novo. The appellate court considers only the evidence that was before the Registrar; affidavit evidence to prove a fact not before the Registrar is not permissible. The appellant must establish that the Registrar erred in principle, erred in law, or failed to take a proper factor into account or took an improper factor into account that demonstrably led to a wrong conclusion. Errors of fact must be palpable and overriding. Re Borden (2010), 69 C.B.R. (5th) 251 per Hoy J.; Clarke v. Caister (2000), 17 C.B.R. (4th) 49 (B.C.C.A.).

The defensive instinct on appeal is to engage on the underlying factual disputes — was the bankrupt’s testimony about the car accident insurance settlement accurate? When was the business name registered? What did the surplus income calculation actually show? We did not. We anchored on the standard of review and worked through each ground of appeal showing that, even if the Registrar had erred on a small fact, the error was either “trifling” (Newbould J.’s word at para. 18), “irrelevant” (para. 19), or made no difference because the Registrar’s ultimate conclusion did not turn on it (para. 20).

Decision 2: Build a procedural firewall — perjury allegations belong with the Registrar, not on appeal

The appellant’s strongest substantive complaint was that Mr. Saban had committed perjury at the discharge hearing. If the Superior Court accepted that proposition, it could substitute an absolute refusal of discharge.

We took the position that an application to vary the Registrar’s decision on the basis of alleged perjured evidence is better made to the Registrar who heard the matter or to another Registrar — not on appeal where the trier of fact has not heard the witness or seen the demeanour. Justice Newbould adopted that procedural firewall directly (para. 3): “if an application is to be made to vary a decision of the Registrar on the basis of perjured evidence, it is better made to the Registrar who heard the matter or another Registrar. I declined to hear that application.”

Decision 3: Anchor on Re Horwitz and Re Gura — bankruptcy discharge hearings are summary; fraud not to be explored unless previously established

The appellant pressed several grounds asking the Registrar (and now the appellate court) to make findings of fraud under s. 173(1)(k) of the BIA and under s. 362(4) of the Criminal Code. The natural defensive instinct would be to engage on whether fraud actually occurred. We did not.

We anchored on the settled Ontario authority: Re Horwitz (1984), 52 C.B.R. (N.S.) 102 (Osborne J., as he then was), aff’d (1985), 53 C.B.R. (N.S.) 275; and Re Gura (1989), 73 C.B.R. (N.S.) 250 (Granger J.). In Ontario, unlike some other provinces, the weight of authority is that “an application for discharge was always intended to be a summary hearing. Issues such as settlements or fraudulent preference or fraudulent representations leading to the extension of credit are not to be explored on a discharge application” (Horwitz at para. 10). Fraud is a factor to be considered — only after it has been previously established. Justice Newbould adopted this framework directly (paras. 13–17): the Registrar’s refusal to make express findings of fraud was “in conformity with the settled law of Ontario regarding the proof of fraud required in a discharge hearing.”

Outcome

Justice Newbould dismissed the creditor’s appeal in its entirety (para. 23). The Deputy Registrar’s November 15, 2011 conditional discharge order stood — including all three conditions ($1,500 to Trustee, $4,500 to estate, 5-year credit ban, 36-month suspension).

Specifically, Justice Newbould found:

Perjury allegations: declined to hear; better made to the Registrar (para. 3);
Lift-of-stay request: not before the Registrar; should be raised on a proper motion before the Registrar; declined (para. 4); observed potential serious limitations issue;
Failure to consider Official Receiver’s report: no error by Registrar (para. 7);
Minimization of alleged fraud (para. 5 of Registrar’s reasons): no error (para. 8);
No express finding of fraud under s. 173(1)(k): in conformity with settled Ontario law (paras. 13–15);
No fraud finding under Criminal Code s. 362(4): per Re Horwitz / Re Gura (para. 17);
Insurance settlement testimony: Registrar’s mistake was “trifling” and not palpable and overriding (para. 18);
Business name registration: “irrelevant error” even if Registrar was wrong (para. 19);
Bankrupt’s duty compliance: makes no difference; Registrar found s. 173(1)(o) proven (para. 20);
Family unit income / surplus income: hearsay statements ignored; Registrar entitled to rely on Trustee’s report (para. 21);
Failure to keep books and records (s. 173(1)(b)): evidence didn’t establish (para. 22).

Mr. Saban’s request for costs on a substantial-indemnity basis was reserved for written submissions (no longer than three pages, within 10 days; reply within 10 days).

If we had engaged on the merits of the perjury and fraud allegations, the appeal would have become a hearing on the underlying facts — with the Superior Court being asked to redo the Registrar’s factual analysis on a record already before her. By anchoring on the standard of review and the procedural firewall (perjury belongs with the Registrar; fraud belongs in a separate civil action where it can be properly proved), we kept the appellate inquiry narrow. Each of the appellant’s eleven grounds of appeal was disposed of on procedure or on the “palpable and overriding error” standard. Mr. Saban’s conditional discharge was preserved without re-engaging the underlying facts. This is a defensive win — we did not get Mr. Saban an absolute discharge — but we preserved exactly what the Registrar had given him.

Three Takeaways for Bankrupts and Trustees Facing a BIA Discharge Appeal

1. A BIA discharge appeal is not a trial de novo. Anchor on the standard of review (palpable and overriding error) — not on the underlying facts. The appellate court considers only the evidence before the Registrar. Affidavits filed on appeal to prove new facts are not permissible (Re Borden; Clarke v. Caister). Most creditor appeals fail because they ask the appellate court to relitigate the facts. Defence counsel should anchor on the standard and work through each ground of appeal showing the alleged factual errors are either trifling, irrelevant, or made no difference to the Registrar’s ultimate conclusion.

2. Perjury allegations belong with the Registrar — not on appeal. If the appellant’s real complaint is that the bankrupt lied at the discharge hearing, the proper procedural vehicle is an application to the Registrar (or another Registrar) to set aside or vary the discharge order. The Superior Court on a BIA appeal does not have the witness before it and cannot make credibility findings on a paper record. Justice Newbould treated this as a procedural firewall in Re Saban — declining to hear the perjury application on the appeal.

3. Bankruptcy discharge hearings in Ontario are summary — fraud is not to be explored unless previously established. Re Horwitz (Osborne J.) and Re Gura (Granger J.) are the operative authorities. A discharge hearing is not the forum to determine whether there has been a settlement, fraudulent preference, or fraudulent representations leading to the extension of credit. Those are matters to be weighed and considered after they have already been established in another forum. Defence counsel should resist any creditor effort to turn a discharge hearing (or appeal) into a mini-fraud trial.

Are you a bankrupt or trustee facing a BIA discharge appeal?

BIA discharge appeals are not trials de novo. The appellate court considers only the evidence before the Registrar. The decisive question is whether each ground of appeal can be characterized as a procedural matter (proper forum, timing, jurisdiction) or as factual error subject to the “palpable and overriding error” standard — not as a fresh fact-finding exercise.

We recommend a 60-minute legal posture assessment before the appeal hearing. We will review the discharge hearing record, the notice of appeal, the appellant’s affidavit material, and the realistic path to dismissing the appeal on procedural and standard-of-review grounds. This is a litigation-focused diagnostic, not a sales meeting.

Book a Consultation Call 905-477-3110

Legal Foundation

This case engaged the following framework and authorities:

Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 — including ss. 143 (factors on discharge); 173(1) (grounds to refuse, suspend or grant a conditional discharge); 178(1) (debts not released by discharge)
Re Borden (2010), 69 C.B.R. (5th) 251 (per Hoy J. as she then was) — standard of review on a BIA appeal: palpable and overriding error for factual findings
Clarke v. Caister (2000), 17 C.B.R. (4th) 49 (B.C.C.A.) — appellate review of bankruptcy discharge decisions
Houlden, Morawetz and Sarra, 2012-2013 Annotated Bankruptcy and Insolvency Act (Carswell), at I§61
Re Horwitz (1984), 52 C.B.R. (N.S.) 102 (Osborne J., as he then was), aff’d (1985), 53 C.B.R. (N.S.) 275 — bankruptcy discharge hearings are summary; fraud not to be explored unless previously established
Re Gura (1989), 73 C.B.R. (N.S.) 250 (Granger J.) — same principles
Criminal Code, R.S.C. 1985, c. C-46, s. 362(4) — offence of obtaining anything by means of a dishonoured cheque (the appellant’s asserted basis for fraud finding)
Court file: 31-1127752 (Ontario Superior Court of Justice, Commercial List) — endorsement of Justice Newbould released November 26, 2012 (heard November 20, 2012)

Note on scope: This page describes only the November 2012 BIA appeal endorsement. The conditional discharge order made by Deputy Registrar Mills on November 15, 2011 was preserved by the appeal’s dismissal; subsequent procedural and substantive developments are outside the scope of this page. The 2012-2013 framework cited continues to apply with subsequent annual updates to the BIA and supporting regulations.

This case is publicly issued. All parties are named in the public record. This page summarizes our work for informational purposes only and does not constitute legal advice. Each BIA discharge appeal turns on the specific record built before the Registrar, the grounds advanced by the appellant, and the standard of review applied to each ground. To discuss a specific matter, please contact us.