Although Scotiabank says it was within its rights to freeze a Ballet British Columbia bank account and use its funds to pay off a credit-card debt, an expert in insolvency law suggests such actions could be in violation of the Bankruptcy and Insolvency Act.
Asked whether a bank is allowed to access a debtor’s account to settle a debt after a notice of intention to file a proposal under the Bankruptcy and Insolvency Act (NOI) has been filed, Heather Ferris, a partner with Lawson Lundell LLP and chair of the Canadian Bar Association’s insolvency subsection, told the Straight: “The answer’s no.”¦In general, if there’s a stay of proceedings, there’s a stay of proceedings.” Ferris stressed that she was not familiar with the Ballet B.C. case, adding: “I don’t know what other deals there were there.”¦But in general terms you’re not supposed to do anything [after an NOI has been filed].”
On December 2, Ballet B.C. sought protection from its creditors and filed an NOI. Scotiabank later froze a company account and used it to pay off a Visa debt of $16,949 on December 10.
Scotiabank’s actions were revealed by Ballet B.C. chair and president Graeme Barrit at a December 12 news conference-ironically held at the Scotiabank Dance Centre, where the company has its offices. Barrit called on the bank to return the funds, which represent about 20 percent of the company’s available cash, and said the loss means the group could run out of cash before it is able to access money from the sale of tickets to its presentation of the Moscow Classical Ballet’s Nutcracker later this month.
“The pool of cash that’s in Ticketmaster, that was allocated to retire the debt”¦and we can’t access it until after the show,” he said. “The other cash, which is part of what they [Scotiabank] just used [to pay off the credit-card debt], is what we’re using to get from here to there.”
Scotiabank spokesperson Frank Switzer told the Straight the bank’s actions were taken under the “right of offset”, a legal principle often written into credit-card contracts that allows a bank to offset a debt using funds in an account held at the same institution. “It’s not something that the bank does lightly,” said Switzer, who rejected Barrit’s plea to reinstate the funds. “It’s an unfortunate situation, but it’s a very straightforward transaction on a case like this,” he added. “We wish Ballet B.C. the best of luck as they move forward, but we’re comfortable with the action we took.”
Section 69 of the Bankruptcy and Insolvency Act reads, in part, “On the filing of a notice of intention”¦by an insolvent person”¦no creditor has any remedy against the insolvent person or the insolvent person’s property, or shall commence or continue any action, execution or other proceedings, for the recovery of a claim provable in bankruptcy.”