Impact of stay on right to claim trust funds held by bankrupt

Arguably, if trust funds are not part of the estate then leave is not required to commence claim to such funds. However, some cases say that where funds impressed with a trust under the Builders Lien Act are held by the bankrupt leave is required to lift the stay of proceeding, and the trustee should be named as a defendant to the action seeking payment out of the trust funds. In Preferred Steel Construction Inc. v. M3 Steel (Kamloops) Ltd., 2013 BCSC 664 the steel subcontractor, M3 Steel, made an assignment in bankruptcy and Preferred Steel Construction Inc. (a subcontractor to M3) claimed entitlement to funds which M3 had recently received from the general contractor. The court noted that the trustee should be made a party defendant and that a lifting of the stay is required to allow the claim to continue:
 
If a mechanics’ lien action is commenced in which the bankrupt has been owner, contractor or sub-contractor, the usual practice is to obtain the trustee’s consent to being made a party defendant and to obtain an order to proceed from the court sitting in bankruptcy. Leave is not necessary to enforce the mechanics’ lien, but a personal judgment [with respect to the trust funds] cannot be given unless leave is obtained.
(Preferred Steel Construction Inc. v. M3 Steel (Kamloops) Ltd., 2013 BCSC 664  at para. 28 citing The 2012-2013 Annotated Bankruptcy and Insolvency Act: Holden and Morawetz, p. 452, section F§117).
 
The original action had been commenced without a prior order lifting the stay, but the court noted that an order lifting the stay may be made nunc pro tunc and made the following order: 
 
Nunc pro tunc, s. 69(1) no longer operates in respect of the claimant in Supreme Court of British Columbia Prince George Registry Action No. S-S1139880, subject to the qualification that cessation of the stay is solely for the purpose of the plaintiff in that action asserting a claim as beneficiary against a trust created under s. 10 of the BLA in relation to the Project as pleaded in that notice of civil claim
(Preferred Steel Construction Inc. v. M3 Steel (Kamloops) Ltd., 2013 BCSC 664 at para. 38).
 

 

 

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