The Ontario Court of Appeal’s decision in msi Spergel Inc. v. I.F. Propco Holdings (Ontario) 36 Ltd., 2013 ONCA 550 confirms that a stay of proceedings under the Bankruptcy and Insolvency Act (“BIA”) does not suspend the two year limitation period on a motion to set aside a preference.
In Spergel, the trustee brought a motion under section 95 of the BIA to declare a payment made by a bankrupt to a creditor for $1.1365 million constituted a preference and argued unsuccessfully that the limitation period was suspended under section 20 of the Limitations Act as a result of the appeal of the bankruptcy order.
The main issue before the Court was whether the trustee’s motion was time-barred. The trustee commenced the motion to set aside the alleged preference on August 24, 2012 but acknowledged that it was aware of the alleged preference on January 11, 2010, the date of the bankruptcy order. However, the trustee argued that the appeal of the order under section 195 of the BIA (which provides that all proceedings under appeal are stayed until the appeal is disposed of) suspended the running of the limitation period until the disposition of the appeal. The Court of Appeal disagreed.
The key dates and events are as follows:
- January 11, 2010 – bankruptcy order and trustee appointed;
- January 20, 2010 – appeal of bankruptcy order filed;
- September 27, 2010 – appeal of bankruptcy order dismissed;
- January 11, 2012 – two-years after the preference; and
- August 24, 2012 – trustee commences preference motion under section 95 of the BIA.
The trustee argued that section 195 of the BIA operated as a “suspension” under section 20 of the Limitations Act(which deals with the variation of time limits imposed by statutes) during the appeal of the bankruptcy order. The trustee argued that this had the effect of suspending the limitation period with respect to setting aside the preference until after the disposition of the appeal. The result being, the limitation period would have expired on September 18, 2012 (taking into account the nine days between the bankruptcy order and the filing of the appeal), well after the trustee commenced the preference motion on August 24, 2012.
Section 20 of the Limitations Act provides that that Act does not affect the extension, suspension or other variation of a limitation period or other time limit by or under another statute. The Court of Appeal held that section 195 of the BIAdoes not contain language that has the effect of extending, suspending or varying the two-year limitation period contained in the Limitations Act.
As section 195 of the BIA contains no such language, section 20 of the Limitations Act was inapplicable as it is concerned with provisions in other statutes which provide for extension, suspension or variation of limitation periods contained in those statutes.
Ultimately the Court of Appeal held that the limitation period expired on January 11, 2012, instead of September 18, 2012.
In doing so, the Court of Appeal recognized that a stay under section 195 of the BIA does not extend, suspend or vary the limitation period to set aside a preference. Rather, the purpose of the stay is to preserve the status quo on an appeal to ensure that no steps are taken that cannot be unwound if the appeal succeeds.