In In re Entringer Bakeries, Inc.,1 the United States Court of Appeals for the Fifth Circuit affirmed the viability of the “earmarking doctrine” as a judicially-created defense to a preference action under section 547(b) of the Bankruptcy Code.
Reprinted with permission from the May 6, 2011 issue of The Legal Intelligencer © 2010 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.
Over the last 12 months there has been a substantial increase in the number of preference recovery actions filed. The irony created by the current economic environment is that many such defendants are themselves financially distressed and unable to fully satisfy any judgment that might be rendered against them.
In a pivotal decision released May 19, an Alberta court ruled in favour of Grant Thornton Limited, the Receiver and Trustee in the Redwater Energy Corporation (Redwater) receivership and bankruptcy proceedings, upholding its right to disclaim Redwater’s non-producing oil wells and sell its producing ones. Gowling WLG served as co-counsel to Grant Thornton throughout the proceedings.
The court will not always set aside a property transfer order in matrimonial proceedings where the party transferring the property, as part of a clean break order, becomes bankrupt shortly afterwards, and there are allegations of lack of consideration or transfer at an undervalue.
In 2008, the Supreme Court of Canada ruled in Saulnier5 that a commercial fishing licence constitutes ‘property’ within the context of the Bankruptcy and Insolvency Act (“BIA”) and the Nova Scotia PPSA6, thereby allowing the trustee in bankruptcy to seize the licence from the bankrupt.
The bankrupt’s trustee applied for a possession order of his home. The bankrupt unsuccessfully appealed his bankruptcy, the order in litigation that had led to his bankruptcy and the possession order, but he refused throughout to give up possession and applied for a committal order. The court found the bankrupt in contempt of court for failing to give possession and sentenced him to six months’ imprisonment.
The Insolvency Service has published its policy, which came into effect on 1 December 2010, on realising a bankrupt's principal residence where the Official Receiver (OR) is appointed as the trustee in bankruptcy.
The policy provides that the OR will not take any steps to market the bankrupt's interest in the property for a period of two years and three months from the date of the bankruptcy order. However, the OR can accept any unsolicited offer in relation to the property if it is in the best interest of creditors. After the expiry of the two years and three months:
A husband and wife jointly owned their property. In matrimonial proceedings, the husband was ordered to transfer his interest in the property to the wife. Following his bankruptcy, the husband’s trustee applied to set aside the property transfer on the basis that it had been made at an undervalue, and the wife had given no consideration in money or money’s worth within the meaning of s339 of the Insolvency Act 1986. The wife contended that the fact that she had foregone ancillary relief claims was capable of amounting to consideration.
A party cannot appeal a decision made in bankruptcy proceedings by reason only of a personal interest in the outcome. An economic interest is a pre-requisite.
This was confirmed by the court in Sands and another v Monem and another, in which the bankrupt had transferred the interest in his home to his wife before being made bankrupt. The transfer was made allegedly in order to settle a debt, although this was not reflected in the documentation. That transfer was successfully set aside as a preference by the bankrupt's trustee.
MB had been the secured tenant of a property in which she lived with B, and which she had bought at a substantial discount. The property was conveyed into the joint names of MB and B as joint tenants. Although MB’s mortgage company had insisted the property be in joint names, she claimed that the intention had always been that B would only have a minimal interest in it. He had made no contribution to the purchase price, mortgage repayments or household expenses. When MB had ascertained the effect of the joint tenancy, she gave notice of severance to B.