Executive Summary: Key Legal and Evidentiary Issues

• The court examined whether filing a new consumer proposal while a prior proposal is still in effect is permissible under the Bankruptcy and Insolvency Act (BIA).

• A key issue was whether the second consumer proposal violated the five-year limit under section 66.12(5) of the BIA.

• The Minister of National Revenue (MNR) argued that including creditors from a previous proposal created statutory conflicts and procedural unfairness.

• The Registrar's discretionary power to approve proposals was upheld, including authority to order a stay nunc pro tunc.

• The decision clarified that creditors from annulled proposals can hold contingent claims in new proposals.

• The court provided obiter guidance affirming that cascading consumer proposals can be legally valid when properly structured.

Background facts and legal framework

James Peter Froh, an individual debtor, filed a consumer proposal in May 2022 with the help of a trustee, A. Farber & Partners Inc. The proposal outlined payments over 60 months and was approved by his creditors. During the course of performing this proposal, Froh withdrew approximately $69,000 from his RRSP, resulting in a significant new tax liability to the Canada Revenue Agency (CRA). Unable to meet this new obligation, Froh filed a second consumer proposal in April 2024, this time through Cameron Okolita Inc. as the new administrator.

At the time the 2024 proposal was filed, the 2022 proposal was still technically in effect. However, shortly before the scheduled review of the 2024 proposal, the 2022 proposal was deemed annulled due to Froh’s non-payment for over three months. Despite opposition from the CRA, the 2024 proposal was approved by the majority of creditors and subsequently by the Registrar in Bankruptcy. The CRA, represented by the Minister of National Revenue, appealed the Registrar’s approval of the 2024 proposal.

Grounds of appeal and arguments

The MNR appealed the Registrar’s decision on four grounds, arguing that the 2024 proposal:

(a) violated section 66.12(5) of the BIA by exceeding the five-year performance limit,
(b) created a conflict in claim proving and valuation under sections 66.28(1) and (2),
(c) improperly amended a prior proposal to include new debt, and
(d) created procedural confusion and conflict after the annulment of the 2022 proposal.

The MNR also raised broader concerns that cascading consumer proposals—where a debtor files a new proposal while an earlier one is still active—are not compatible with the BIA and risk undermining the integrity of the insolvency process. In contrast, the Superintendent of Bankruptcy, as intervenor, supported the legality and utility of cascading proposals, stating they promote debtor rehabilitation and fairness among creditors when used appropriately.

Registrar’s decision and findings

The Registrar concluded that the 2024 proposal was lawful and fair under the BIA. Although the case initially appeared to involve a cascading consumer proposal, the deemed annulment of the 2022 proposal meant there was only one active proposal by the time of approval. The Registrar emphasized that the BIA must be interpreted liberally and pragmatically, consistent with its objectives of fair distribution to creditors and debtor rehabilitation.

In evaluating the stay of proceedings, the Registrar held that he had the authority under section 66.32(1) to grant a stay nunc pro tunc (retroactively) from the date the 2022 proposal was deemed annulled. He also accepted the administrator’s classification of prior claims as contingent, finding no statutory barrier to their inclusion in the 2024 proposal.

Decision on appeal

Justice Morris of the Court of King’s Bench for Saskatchewan dismissed the MNR’s appeal. The court held that none of the four grounds of appeal disclosed an error in the Registrar’s decision. It ruled that:

• The five-year term under section 66.12(5) applies only to each individual proposal, not cumulatively across multiple proposals.

• Claims bound by a prior proposal can be considered contingent and included in a new proposal once the earlier one is annulled.

• The 2024 proposal was a new and independent proposal, not an improper amendment of the 2022 proposal.

• No actual conflict or administrative issue arose from the finalization of the 2022 proposal.

Additionally, the court provided obiter dicta addressing the broader issue of cascading consumer proposals. Justice Morris concluded that such proposals are permissible under the BIA when properly structured and reviewed by the court. He emphasized that while cascading proposals are not expressly outlined in the BIA, the Act’s remedial nature and overarching purpose support their use to avoid unnecessary bankruptcies, provided creditor rights and fairness are maintained.

Final outcome

The appeal was dismissed. The 2024 consumer proposal filed on behalf of James Peter Froh remains valid and approved. The court did not award costs to any party. The decision affirms the Registrar’s discretion and provides important judicial guidance on cascading consumer proposals under Canadian insolvency law.