Executive Summary: Key Legal and Evidentiary Issues

• Classification of advances from Thomasfield Homes Limited as either “total income” or liabilities (loans) under s. 68(2)(a) of the Bankruptcy and Insolvency Act (BIA) during Mr. Shaw’s bankruptcy.
• Competing characterizations of the Thomasfield funds as advances on future earnings (Trustee’s view) versus stand-alone, interest-bearing loans not tied to guaranteed future services (Mr. Shaw’s and Thomasfield’s evidence).
• Evidentiary significance of written promissory notes, loan agreements, proof of claim, and invoices for consulting work in determining whether the payments were remuneration or indebtedness.
• Application of modern principles of statutory interpretation to the broad words “revenues of whatever nature or from whatever source” in the BIA definition of “total income.”
• Consideration of the bankruptcy “rehabilitation principle” and the practical unfairness of forcing a bankrupt to “repay” the same advances twice (once as surplus income and again to the lender).
• Impact of advice from the Trustee’s office that Mr. Shaw was “allowed to apply for loans” during bankruptcy, and whether it would be equitable to later reclassify those loans as income.

Background and parties

This proceeding, Re Shaw, 2025 ONSC 6385, arises in the Ontario Superior Court of Justice (in Bankruptcy and Insolvency) from the personal bankruptcy of Ricky Martin Shaw. Mr. Shaw, a self-employed real estate consultant, made an assignment in bankruptcy on April 5, 2024. His statement of affairs disclosed that he provided consulting services to Thomasfield Homes Limited and that he owed Thomasfield $146,579 as of the date of bankruptcy, supported by a letter from Thomasfield dated March 20, 2024. BDO Canada Limited acts as the trustee in bankruptcy of Mr. Shaw’s estate. On this motion, the Trustee asks the Court for directions on how to treat certain amounts advanced to Mr. Shaw by Thomasfield after the bankruptcy date. The Office of the Superintendent of Bankruptcy (OSB) also participates through counsel, given its oversight role in the surplus income regime.

Mr. Shaw’s bankruptcy and financial position

When he filed for bankruptcy, Mr. Shaw reported that he was a self-employed real estate consultant and that he had both business income and significant debt to Thomasfield. In Form 65 (the Monthly Income and Expense Statement), he disclosed gross self-employment income of $2,700 per month and a monthly budget deficit of $2,505. Based on this information and discussions with Mr. Shaw, the Trustee initially determined that Mr. Shaw had no surplus income payable under the BIA guidelines, which meant he qualified as a first-time bankrupt for an automatic discharge after nine months. In the months following the bankruptcy filing, however, the Trustee observed repeated deposits of $8,000 from Thomasfield into Mr. Shaw’s account in April, May, and June 2024. Mr. Shaw reported these as loans, not income, and did not include them as income in his monthly reports to the Trustee for those months.

Financial relationship between Shaw and Thomasfield

Mr. Shaw has a long-standing relationship with Thomasfield and its president, Tom Krizsan. Mr. Shaw described himself as an independent consultant who sources land acquisition opportunities for Thomasfield. Mr. Krizsan confirmed that Mr. Shaw investigates and acquires potential development land for Thomasfield and that the company has made several loans to him over time. Before bankruptcy, Thomasfield advanced substantial funds to Mr. Shaw, documented by written loan agreements. Thomasfield’s proof of claim shows that between October 19, 2021, and January 10, 2024, it advanced a total of $170,000 in loans, of which only $33,402.44 was repaid through commissions, leaving $136,597.56 in principal outstanding, plus $9,981.44 in interest. Each pre-bankruptcy loan agreement provided for interest, was payable on demand, and stated that commissions earned on land deals “brought in” by Mr. Shaw would be applied as payment towards the loan. After the bankruptcy commenced, Thomasfield continued to advance funds to Mr. Shaw. He produced to the Trustee three promissory notes for $8,000 each, dated April 12, May 7, and June 5, 2024, each bearing 10% annual interest, with principal and interest due in April 2026 and permitting prepayment without penalty. A further example is an April 30, 2025 promissory note for $16,000, also bearing 10% interest, maturing in April 2027, with commissions payable by Thomasfield to Mr. Shaw to be set off against the outstanding balance.

Consulting work and invoiced income

Parallel to these loan arrangements, Mr. Shaw continued to perform consulting services for Thomasfield as an independent contractor. He issued invoices to Thomasfield for his consulting work dated July 2, August 21, September 17, September 30, October 31, and December 2, 2024. Each invoice was for $3,000 plus HST, representing 50 hours of work at $60 per hour, for professional services relating to “Grand Valley lands” during the preceding month. Mr. Shaw’s evidence emphasized that this consulting work and the invoiced fees were distinct from the loans, which were separate financial transactions. In his view, the loans were not paid in exchange for guaranteed future services; rather, repayment could come from any future means, including, but not limited to, commissions if suitable land transactions were successfully completed for Thomasfield.

Discussions about borrowing during bankruptcy

Before and shortly after his bankruptcy filing, Mr. Shaw sought guidance from BDO about whether he could borrow money while bankrupt. In January 2024, he spoke with a senior insolvency advisor at BDO and was told that if he could find someone willing to lend, it was permissible so long as he told the lender that he was in bankruptcy. In April 2024, he also obtained written confirmation from BDO in an email that he was “allowed to apply for loans as long as you disclose that you are in a bankruptcy.” Mr. Shaw relies heavily on this advice as the basis for his belief that these advances from Thomasfield were legitimate loans and not income. After the Trustee discovered the recurring $8,000 deposits from Thomasfield, BDO staff raised the issue internally. In September 2024, Mr. Shaw was advised by a BDO insolvency analyst that the deposits would be treated as income on the basis that taking loans during bankruptcy “goes against the rehabilitation principal.” This reclassification would result in a calculated average monthly surplus income of approximately $4,150, extending his automatic discharge period from nine to 21 months. Although another BDO trustee reiterated that Mr. Shaw was entitled to borrow funds provided he disclosed his bankruptcy, he also pressed Mr. Shaw on how he intended to repay the loans; Mr. Shaw replied that both he and Thomasfield expected repayment from future real estate opportunities, but such opportunities were not guaranteed.

The Trustee’s motion and the central legal issue

Faced with these facts, BDO, as Trustee, brought a motion for directions asking the Court to determine whether the sums advanced by Thomasfield during the bankruptcy period should be characterized as “total income” under section 68(2)(a) of the BIA. If characterized as income, those amounts would be included in Mr. Shaw’s “total income” calculation and generate “surplus income” payable to the Trustee for the benefit of creditors. The Trustee argued that the Thomasfield advances were effectively advances on future earnings—akin to income—because Mr. Shaw used them to cover his ongoing monthly deficit and service his living expenses during bankruptcy. On that view, the advances protected Mr. Shaw’s standard of living during the bankruptcy and should therefore be treated like other income streams captured by the broad statutory language “revenues of whatever nature or from whatever source.”

Legal framework under the Bankruptcy and Insolvency Act

The Court reviewed the modern principles of statutory interpretation, emphasizing that statutory language must be read in its entire context and in a manner consistent with the scheme and purpose of the Act. In the BIA context, section 68 governs the treatment of a bankrupt’s income during the bankruptcy and is designed as a comprehensive scheme for dealing with salary, wages, and other remuneration. Under s. 68(2)(a), “total income” includes a bankrupt’s “revenues of whatever nature or from whatever source” earned or received during the bankruptcy, with specific examples such as damages for wrongful dismissal, pay equity settlements, and workers’ compensation payments. Certain items, like gifts, inheritances, and windfalls, are expressly excluded. “Surplus income” is the portion of total income that exceeds the amount considered necessary to maintain a reasonable standard of living, based on guidelines set by the OSB. The Court noted that the phrase “salary, wages or other remuneration” is to be interpreted broadly and that courts take a purposive approach in deciding whether a particular receipt is income under s. 68. Courts often look at the nature or character of the payment, and various cases treat lost wages, disability payments, severance, and tax refunds as substitutes or equivalents for income. Academic commentary likewise lists other types of payments that have been treated as total income—for example, certain pay equity or support payments.

No insurance policy terms or contractual clauses at issue

Unlike some commercial or insurance cases, this decision does not turn on the wording of an insurance policy or a complex private contract with detailed coverage clauses. Instead, the controlling “terms” are those of the BIA itself, particularly the definition of “total income” in s. 68(2)(a), and the content of the promissory notes and loan agreements between Mr. Shaw and Thomasfield. Those loan documents consistently show interest-bearing, time-limited debts, with provisions that commissions earned by Mr. Shaw on land deals could be set off against the outstanding loan balance. The Court treats those loan provisions as indicia of indebtedness, not as clauses converting the advances into guaranteed remuneration.

Court’s analysis of the advances as loans versus income

Assessing all the evidence, the Court focused on the true nature of the Thomasfield advances during the bankruptcy. The judge acknowledged the Trustee’s concern that Mr. Shaw was using the advances to cover his ongoing negative budget and that his ability to repay them depended, in part, on his future success in earning commissions from Thomasfield. However, the Court emphasized that there was no guarantee Mr. Shaw would ever be able to earn such commissions. The pre-bankruptcy history illustrated this uncertainty: despite receiving $170,000 in loans from Thomasfield over more than two years, Mr. Shaw earned only $33,402.44 in commissions, leaving the remainder outstanding as a debt at the time of bankruptcy. This lack of guaranteed future income weighed strongly against treating the advances as income or advances on income. The Court also stressed that the advances bore the hallmarks of loans: they accrued interest, were repayable on fixed dates, and allowed prepayment at Mr. Shaw’s option. Importantly, they remained repayable even if Mr. Shaw never performed any further consulting services or earned commissions from Thomasfield; he could, at least in theory, repay them from any other source, including borrowing elsewhere. On that analysis, the Court concluded that the amounts were liabilities, not income, and that the broad statutory language “revenues of whatever nature or from whatever source” could not, by itself, transform a bona fide loan into income. The types of payments that courts have historically treated as “total income” share a common feature: they are akin to wages or salary and typically are not repayable by the recipient to the payer. By contrast, Mr. Shaw’s advances from Thomasfield had to be repaid to the lender.

Equity, rehabilitation, and the risk of double payment

The Trustee argued that permitting a bankrupt to take on significant new debt during bankruptcy to fund his lifestyle undermines the rehabilitation principle of the BIA, which aims to give the honest but unfortunate debtor a fresh start. While the Court agreed that the rehabilitation principle is fundamental to bankruptcy law, it held that this policy concern does not change the statutory definition of “total income.” The key interpretive question remains whether the amounts are akin to income or remuneration, which the Court found they were not. The judge also considered the potential unfairness of requiring Mr. Shaw to “repay” the same sums twice: once by treating them as surplus income payable to the Trustee, and again by repaying the principal and interest to Thomasfield as lender. Because income-type payments generally do not have to be repaid to the payer, classifying these loans as income would create a duplicative and inequitable burden. Finally, the Court attached weight to the fact that BDO had explicitly advised Mr. Shaw that he was allowed to apply for loans during bankruptcy, provided he disclosed his status. Mr. Shaw reasonably relied on that advice in structuring his financial affairs with Thomasfield, and he was never warned that these loans might later be treated as income for surplus income purposes. In the Court’s view, it would be unfair to reclassify those advances as income after the fact, in a manner that significantly worsened his position.

Ruling and overall outcome

In the result, the Court held that the sums advanced by Thomasfield Homes Limited to Mr. Shaw during his bankruptcy are liabilities in the nature of loans and do not fall within the definition of “total income” in s. 68(2)(a) of the Bankruptcy and Insolvency Act. Consequently, those advances are not to be included in Mr. Shaw’s total income calculation for surplus income purposes, and the Trustee cannot require surplus income payments from Mr. Shaw on the basis of those funds. Substantively, this outcome favors Mr. Shaw, who successfully resists the Trustee’s attempt to reclassify the advances as income. The decision does not specify any quantified award of damages, costs, or other monetary relief in his favour; it is declaratory and interpretive in nature. Accordingly, while Mr. Shaw is the successful party on the central legal issue, no exact total amount of monetary award, costs, or damages ordered in his favour can be determined from this decision.