Background
Helen Chan Sun was adjudged bankrupt by the Supreme Court of British Columbia after creditors alleged debts exceeding $45 million to Lanyard Investments Inc. and approximately $74 million to TCC Mortgage Holdings Inc. The bankruptcy judge also refused Sun’s request for a one-week adjournment, which arose from her counsel’s newly identified potential conflict of interest. The judge was concerned about an unexplained change in the directorship of companies connected to Sun’s Foster Martin real estate development and counsel’s inability to confirm her continuing ownership of those companies.
Sun appealed both the bankruptcy order and the refusal of an adjournment. Her appeal automatically stayed proceedings under s. 195 of the Bankruptcy and Insolvency Act. The respondent creditors applied to lift that stay in part so the trustee in bankruptcy could take possession of Sun’s books, records, and assets and exercise powers needed to identify and preserve the estate, while remaining prohibited from disposing of or distributing assets pending the appeal.
The Court’s Holding
Justice Brundrett, sitting in chambers, granted the creditors’ application and partially lifted the automatic stay. The record supported the bankruptcy judge’s discretionary refusal of an adjournment: Sun had filed no supporting materials, evidence, or articulated legal basis, and her counsel could not confirm her ownership of the relevant development companies even after receiving additional time. Although the merits of the appeal from the bankruptcy order were less clear because the judge had not expressly identified an act of bankruptcy within the preceding six months, there was support for the conclusion that Sun had failed to establish sufficient cause to dismiss the bankruptcy application.
The Court found that preventing the trustee from identifying and preserving assets created a risk of dissipation and potential irreparable harm to the creditors. Sun produced no evidence that the limited order would prejudice her. Because the trustee could preserve and inventory assets but could not dispose of or distribute them pending appeal, the order was appropriately tailored, and the balance of convenience favoured the creditors.
Key Takeaways
- An appellate court may partially lift the automatic stay imposed by s. 195 of the Bankruptcy and Insolvency Act when necessary to protect the bankruptcy estate pending appeal.
- A debtor challenging the refusal of an adjournment faces a highly deferential standard, especially where the request lacked supporting evidence and unresolved asset-ownership concerns created a risk of dissipation.
- A preservation-focused order may authorize a trustee to locate and secure books, records, and assets while withholding authority to sell or distribute assets until the appeal is decided.
Why It Matters
The decision shows that an appeal from a bankruptcy order does not necessarily prevent a trustee from taking protective steps. Where leaving the statutory stay intact could expose assets to dissipation, the Court may craft a limited order that preserves the estate without prejudging the appeal or permitting realization and distribution.
It also underscores the importance of a proper evidentiary record when seeking an adjournment or resisting a bankruptcy application. Assertions about illiquidity, secured debt, or collateral consequences will not by themselves displace the debtor’s statutory burden to demonstrate an ability to pay or another sufficient reason why a bankruptcy order should not issue.