Alberta court refuses to stay bankruptcy proceedings in favour of family law proceedings

Wife's matrimonial property claims should be addressed in the bankruptcy proceedings: court

Alberta court refuses to stay bankruptcy proceedings in favour of family law proceedings

The Alberta Court of King's Bench has rejected an application to stay bankruptcy proceedings in favour of family law proceedings, stating that ongoing family law litigation does not eliminate an individual's right to file for bankruptcy.

In Metanczuk (Re), 2024 ABKB 270, Cathy Metanczuk sought to annul her former husband, Mark Metanczuk’s, bankruptcy assignment and discharge and stay the Alberta bankruptcy proceedings in favour of ongoing family law proceedings in British Columbia. The bankrupt estate’s trustee sought to compel Cathy to attend questioning and produce documents relevant to the bankruptcy.

Cathy and Mark Metanczuk married in 1990, separated in 2016, and had four children. They earned income through Winchelsea Communications Ltd. Cathy initiated family law proceedings in British Columbia in 2017, seeking an unequal division of matrimonial property. A consent order in March 2017 restrained both parties from disposing of any property involved in the proceedings.

In March 2021, Mark filed for bankruptcy, which Cathy argued breached the consent order. The bankruptcy estate included Mark's interest in the matrimonial home and the Company. Despite being notified and participating in the bankruptcy proceedings, Cathy delayed her application to annul the bankruptcy until after Mark's discharge in December 2021.

The Court of King’s Bench dismissed Cathy’s application to annul Mark’s bankruptcy and discharge. It held that the assignment did not breach the consent order, which required explicit language to abrogate Mark’s right to declare bankruptcy. The transfer of Mark's estate to the trustee occurred by law, not through transactions specified in the consent order.

The court found no evidence of fraud in Mark’s bankruptcy filing, despite Cathy questioning some debts listed in his bankruptcy filings. It also dismissed Cathy’s claim that Mark used bankruptcy to avoid obligations under family law claims, noting that ongoing family law litigation does not deprive an individual of the right to bankruptcy.

Furthermore, the court denied Cathy’s application to stay the bankruptcy proceedings in favour of family law proceedings. It held that Cathy’s matrimonial property claims should be addressed in the bankruptcy proceedings under s. 81 of the Bankruptcy and Insolvency Act (BIA).

The court granted Cathy’s application for a declaration that the stay imposed by s. 69.3 of the BIA does not apply to her family law claim. Her matrimonial property claim is not provable under section 121 of the BIA, and thus, it is not stayed by s. 69.3.

Ultimately, the Alberta Court of King's Bench denied Cathy Metanczuk’s application to annul Mark Metanczuk’s bankruptcy and discharge but granted her request to exclude her family law claim from the bankruptcy stay.

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