Section 38 of the Bankruptcy and Insolvency Act permits a creditor to obtain the court’s authorisation to commence a proceeding in the creditor’s own name. The need for the court’s authorisation doesn’t operate to extend the limitation period.
In King Insurance Finance (Wines) Inc. v. Byers, the court in a bankruptcy proceeding issued an order authorising the plaintiff to commence proceedings in its own name to recover assets the bankrupt may have transferred. The plaintiff argued that the limitation applicable to this claim didn’t commence until the date of the order.
Justice Faieta correctly rejected the argument as baseless:
[34] In my view, the need for approval under section 38 of the BIA does not operate to extend the limitation period under the LA, 2002.
[35] There is nothing under the LA, 2002 or the BIA which supports the Plaintiff’s submission.
[36] The interaction of the BIA and the LA, 2002 was resolved by the Ontario Court of Appeal in in Indcondo Building Corp.v Sloan, 2010 ONCA 890 (CanLII), 103 O.R. (3d) 445 where the Court found that a creditor commencing an action under section 38 of the BIA acquired no higher right than the Trustee. The Court ruled, at paragraph 20, that:
The application of s. 12(1) [of the LA, 2002] to a creditor claiming through the trustee will be to make effective the earlier discoverability date of either the assignor or the assignee, so that an assignment cannot have the effect of re-starting the running of a limitation period. Ordinarily, this would operate to the benefit of the defendant. If the creditor were aware of the underlying facts under s. 5(1)(a) of the LA, 2002 and failed to bring a proceeding within the limitation period, the creditor would be statute barred from taking advantage of enhanced recovery under a s. 38 order.
