N.B. court lifts bankruptcy stay for construction lawsuits, with safeguards for other creditors

Two construction customers can resume lawsuits involving a bankrupt contractor after the New Brunswick Court of Appeal found that keeping him outside the litigation would materially prejudice their ability to pursue claims against him and his spouse.

In Casey and Provost v. Clarke and Allan Marshall & Associates Inc., 2026 NBCA 118, released October 29, 2026, the court lifted the bankruptcy stay for John Casey and David Provost, subject to conditions protecting other creditors.

The decision permits their claims to proceed. It does not establish the alleged fraud, determine liability for the unfinished work or award damages under the construction contracts.

Unfinished projects and disputed transfers

Casey and Provost entered contracts for garage construction involving Timothy Blaine Clarke or his company. Provost asserted that he had made more than $87,000 in progress payments before work stopped. Casey claimed payments exceeding $200,000, along with amounts paid directly to suppliers, before his project was allegedly abandoned.

Their lawsuits alleged that the Clarkes diverted contract payments for personal benefit and improvements to their home. They also challenged a transfer of Clarke’s interest in the home to Amanda Jayne Clarke under New Brunswick’s Debtor Transactions Act.

The Clarkes denied that company funds were misappropriated. They maintained that Timothy Clarke had not acted personally, that Amanda Clarke had not been involved in the company, and that the property transfer formed part of a separation settlement for reasonable consideration. They also counterclaimed against Provost.

Clarke’s bankruptcy in June 2025 triggered a statutory stay. A motion judge refused to lift it for Casey, Provost and a third claimant, Higher Life Church. Only Casey and Provost appealed.

Discovery as a party mattered

The Bankruptcy and Insolvency Act generally stops creditors from pursuing claims against a bankrupt or the bankrupt’s property. The stay protects an orderly administration and distribution of assets, preventing individual creditors from improving their position at others’ expense.

Section 69.4 nevertheless allows a court to lift the stay where its continuation would likely cause material prejudice or where doing so would otherwise be equitable.

Writing for the unanimous court, Justice Robichaud found that Clarke was a necessary party to the complete resolution of the property-transfer, conspiracy and fraud claims involving his spouse.

The motion judge had relied on a court rule allowing a person with relevant information to be examined with permission. The appeal court held that this was not an adequate substitute for discovery from a party. Permission was not automatic, could carry conditions and did not provide the same procedural tools.

Keeping Clarke outside the actions also risked duplicate proceedings and inconsistent outcomes. The availability of a bankruptcy procedure for challenging transactions did not itself prevent the customers from continuing lawsuits raising other issues and involving other parties.

The court emphasized that lifting a stay is not routine. Applicants need sound reasons consistent with the bankruptcy scheme, though they need not establish a prima facie case. Here, the pleadings and evidence met the low threshold of showing at least some chance of success.

Permission to litigate is not priority to collect

The court imposed an important condition on the resumed actions. If either customer obtains an order recovering assets legally or beneficially owned by Clarke, they must seek directions from the Court of King’s Bench about whether those assets belong to the bankrupt estate for all creditors’ benefit.

The court also added the trustee, Allan Marshall & Associates Inc., as a defendant. Unless it defends, continues the counterclaim or takes a position in the actions, the trustee need not participate in documentary or oral discovery and will not be liable for costs.

If the trustee separately seeks to set aside the challenged transactions under the Bankruptcy and Insolvency Act, the reasons call for court directions to avoid duplicated proceedings or conflicting results.

Each appellant received $2,500 in appeal costs against the Clarkes. No costs were awarded to or against the trustee. Other appeal grounds did not need to be decided, and the court’s order did not extend relief to the church, which had not appealed.