VOL. XX. EXCHEQUER COURT REPORTS. 327 TORONTO ADMIRALTY DISTRICT. 1921 January 26. BETWEEN WHITE & COMPANY, LIMITED .. PLAINTIFF; • AND THE. SHIP IONIA. DEFENDANT. Exchequer Court in Admiralty—Bankruptcy Act—Mortgage--Rights of secured creditors. ' Held: That an assignment under the Bankruptcy Act does not interfere with or lessen the rights of a secured creditor to enforce or retain his security. 2. That inasmuch as the assignment itself only vests the property of the debtor in the assignee subject to the rights of secured creditors it can only affect what the debtor owns, namely, the equity of redemption in the property. 3. That such an assignment did not prevent the holder of a mortgage upon a vessel from enforcing his security before the Exchequer Court in Admiralty, and that a motion by the 'assignee to set aside the writ of summons and warrant of arrest issued in said court by the mortgagee against the ship for its condemnation in the amount of the mortgage therein and interest should be dismissed with costs, which costs should be added to the mortgage debt. 4. That in the premises the only right of the assignee under the bankruptcy Act is to defend the action and that he could not otherwise interfere therein. Quaere: Does the fact that creditor fails to file an affidavit under section 46 of the Bankruptcy Act valuing his security deprive him of the .right to participate in any dividend? MOTION in Chambers to set aside the service of the Writ of Summons and Warrant of Arrest issued by a mortgagee to condemn a ship in the amount of their mortgage thereon and interest. January 17th,, 1921.
328 EXCHEQUER COURT REPORTS. VOL. XX. 1921 Motion argued in chambers before the Honourable WHITE & Mr. Justice Hodgins. COMPA NY LIMIIED. V. Tun SHIP IONIA. A. D. MacKenzie for the authorized assignee under Reasons for the Bankruptcy Act. Judgment. Hodgins, L.J.A. G. M. Willoughby for plaintiffs. The facts are stated in the reasons for judgment. HODGINS, L. J. A. now (January 26, 1921) delivered judgment. Motion by assignee to set aside the service of the writ and warrant of arrest and to stay proceedings in this action, brought by mortgagees to enforce their mortgage by sale of the ship. The assignment was made on 11th November, 1920, the writ herein was sued out on the 23rd December, 1920, and served on the ship and on the assignee on the 28th December, 1920, and the 5th January, 1921, respectively. The ship was arrested on 28th Decem-ber, 1920, by warrant issued in this action and is now in the custody of the marshall of the Exchequer Court. The plaintiffs filed with the assignée on the 23rd November, 1920, an affidavit of claim which stated the security held but did not value it pursuant to section 46 of the Bankruptcy Act and no proceeding to enable or compel the assignee to elect to take or refuse the security has been had. The affidavit is not in compliance with the Act and does not effect any change in the positions of the plaintiffs or of the assignee. It is simply a careless and useless proceeding.
Vol,. XX. EXCHEQUER. COURT REPORTS. The provisions of the 'Bankruptcy Act respecting secured creditors are definite and precise. By making w~ an authorized assignment the assignor commits an act of bankruptcy, enabling his creditors td seek aTAE receiving order but the assignment in itself does not appear to make the assignor a bankrupt under the Act. Under section 2, s.s. (q) he is "an insolvent assignor whose debts provable under this Act exceed — $500.00." See also s.s. (t) . By section 4, s.s. 6, the Court can refuse to make a receiving order and may allow the estate to be administered under the assign- ment. The bankruptcy of a debtor commences only Oil the service of a petition on which a receiving order is made, section 4, s.s. 10. Under section 6, s.s. 1, when a receiving order- is made the trustee is constituted receiver of the bankrupt's property but it is expressly provided that "this section shall not affect the power of any secured creditor to realize or otherwise deal with his security in the same manner as he would have been entitled to realize or deal with it if this section had not been passed." Under Section 10, the effect of an authorized assignment is stated to be "Subject to the right of secured creditors" and by section 11 such an assignment takes precedence over attachments or debts and the attachments, executions or other process-against the property. But as the assignment itself only vests the property subject to the rights of secured creditors it can only affect what the debtor owned, namely, the equity of redemption in the property. (See section 46, s.s. 6, and the Merchants Shipping Act, R.S.C., e. 113, s. 45.) 329 1 921 CO I M ',D PAN Y LIMITED N s i P Io A. Reasons for 'uagme"t. H L n! .
330 EXCHEQUER COURT REPORTS. VOL. XX. 1921 The combined effect of sections 6 and 10 is to declare WHITE COMPAN & Y that the bankruptcy proceedings do not interfere LIMIiiw with, or lessen the rights of a secured creditor (defined v. THE SHIP IONIA. in section 2, s.s. (gg) as a person holding a mortgage Reasons for hypothec, pledge, charge, lien or privilege on or Judgment. against the property of the debtor) to enforce or T Â retain his security unaffected by bankruptcy proceedings. It ,is a question, however, whether he is not bound by section 46 to file an affidavit valuing that security, at the risk of losing the right to participate in any dividend (s.s. 10). The assignee has, in my judgment, at the present time, no right to interfere in this action, otherwise than by defending it, if he so desires. I extend. the time for his appearance to the writ for one week, and dismiss his motion with costs to be taxed, and added to the mortgage debt. Judgment accordingly.
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