It’s Not Easy Without Green: Party Prevented From Continuing to Interfere in Bankruptcy Proceedings Due to Unpaid Costs Awards
In Re Proex Logistics, 2025 ONSC 51, Justice Steele of the Ontario Superior Court of Justice (Commercial List) recently made a number of holdings related to the process for trustees accepting claims in a bankruptcy and other parties seeking to challenge those decisions. The Court held that:
- the Court will not authorize the acceptance of claims by a trustee after that acceptance has already been made;
- a party may be prohibited from objecting to a claim filed in the bankruptcy if they have unpaid costs awards related to those proceedings; and
- an equity holder does not have standing to object to a claim filed by another equity holder.
Background
A group of trucking companies – RGC – were placed into receivership and then bankruptcy as a result of a dispute between the two principals, Paul and Rana. The proceeds from the estate were expected to be sufficient to pay all creditor claims and leave a surplus to be distributed to Paul and Rana as equity holders. Paul filed a proof of claim consisting mostly of an equity claim, which was accepted by the trustee. Several costs awards had been issued against Rana in the aggregate amount of $1.048 million which remained unpaid for over a year.
After Rana filed a late proof of claim, the trustee brought a motion for, among other things, authorization to accept Paul’s previously filed and accepted proof of claim. In the context of that motion, Rana sought to challenge Paul’s claim.
Court Will Not Authorize Trustee to Accept Claims Ex Post Facto
The trustee requested authorization to accept Paul’s previously filed and accepted claim pursuant to section 34(1) of the Bankruptcy and Insolvency Act (“BIA”) which authorizes trustees to seek directions from the Court on matters affecting the administration of the estate. The trustee noted that courts had previously given advice and directions prior to the trustee disallowing a claim (see Dexior Financial Inc. (Re), 2011 BCSC 348).
The Court declined to grant that authorization, noting that BIA, s. 135 provides that trustees will accept or reject claims and provides avenues for the debtor and creditors to challenge that decision. The BIA does not contemplate the court accepting an approval that has already been made by the trustee which nobody challenged within the relevant time periods.
The Court was prepared to grant the trustee’s alternate request for a declaration that all appeal rights with respect to Paul’s claims had expired and any claim against the trustee for allowance of the claim would be a collateral attack, which provides protection for the trustee through another means against a claim (by Rana) that it should not have accepted Paul’s proof of claim.
Rana Prohibited from Challenging Paul’s Claim Due to Unpaid Costs Award
The Court noted that it had jurisdiction under Rules 57.03 and 60.12 of the Rules of Civil Procedure (Ontario) to stay or dismiss proceedings, strike pleadings and make any other order as is just due to the non-payment of costs awards. The Court cited the following principles to be considered when deciding whether to grant relief due to the non-payment of costs awards, which were originally set out by Justice Dunphy in Rana v. Unifund Assurance Company, 2016 ONSC 2502:
- Where there has been non-compliance with an order of the court, the court should be alive to the possibility that its process is being abused; failing to act may deprive the moving party of justice according to law and risks rendering the court a paper tiger;
- The right of access to the courts must be accompanied by the responsibility to abide by the rules of civil procedure and to comply with orders of the court – to exempt impecunious parties from the enforcement of costs orders when made would amount to granting “carte blanche to continue to ignore the rules and orders of the court and take unsupportable steps in the action without fear of consequences”;
- The court ought not to sit in appeal of the prior costs awards – the respondent will have had the opportunity to make submissions about impecuniosity at the prior hearings that resulted in the costs orders and seeking to relieve against prior costs orders constitutes a collateral attack on orders previously made;
- The court may have regard to a pattern of unnecessary and unreasonable steps taken in the proceeding, including appealing numerous orders without chance of success or knowing the risk thereby imposing costs upon the other party;
- If the orders of the court are “cavalierly ignored” and if a litigant “continuously fails to comply with her obligations as a litigant and then fails to abide by the costs consequences attendant upon that behaviour, the court is justified in bringing some finality to the action”;
- Impecuniosity is not a shield for unreasonable conduct of litigation and a dismissal order may be made even if it resolves the mater on procedural rather than substantive grounds;
- Self-represented litigants, while entitled to some accommodation and assistance to ensure a fair hearing, are not entitled to abuse the system or the party opposite and failure to enforce orders once made against self-represented parties is unfair to the parties opposite and undermines respect for the court and the civil justice system;
- “Courts usually talk in terms of prejudice that cannot be compensated for by costs. But, at some point, costs themselves become an inadequate form of compensation for prejudice, especially where the party on whom they are imposed refuses to pay them”.
The Court held that Rana would not be permitted to raise any further objections to Paul’s claim due to the unpaid costs awards. The costs awards were substantial (over $1 million), had been outstanding for over a year and, while Rana pleaded impecuniosity, there was evidence of dissipation of his assets such as large gifts to relatives. This provides a precedent for relief that can be sought to shut down attempts by vexatious participants in bankruptcy proceedings with outstanding costs awards to continue obstructing the proceedings.
No Appeal of Acceptance of Equity Claim by Another Equity Holder
The Court held that, in any event, Rana did not have standing to challenge the acceptance of Paul’s proof of claim. The Court noted that BIA, s. 135(5) provides that only the debtor and creditors can apply to expunge a proof of claim. In YG Limited Partnership and YSL Residences Inc. (Re), 2023 ONCA 505, which we previously commented on here, the Ontario Court of Appeal held that equity holders did not have standing to challenge proofs of claim filed by creditors even where that would reduce or eliminate a surplus available for distribution to the equity holders. Justice Steele held that Rana, as an equity holder and not a creditor, did not have standing to challenge Paul’s proof of claim. This applies the holding in YG to equity holders challenging equity claims, not just creditor claims, which is consistent with the wording of BIA, s. 135(5).
Ontario Superior Court of Justice Trustee in Bankruptcy Bankruptcy and Insolvency Act Receivership