NEW HOME WARRANTY PROOF OF CLAIMS: THE END IS NEAR

There are many strata corporations who filed Proof of Claims against New Home Warranty ("NHW") for defects in the construction of their buildings. When NHW assigned itself into bankruptcy, it was unclear whether the strata corporations would receive any money for their claims. The processing of these claims has taken some time. Some of the difficulty was caused by the fact that many of these strata corporations were seeking compensation from the developers, consultants, and contractors for the deficiencies. Any settlement or judgment the strata corporation received from these types of lawsuits would partially offset that strata corporation’s loss and have the effect of reducing the amount payable by NHW under the proof of claim (the "net loss"). Therefore, in order to determine how the assets of NHW would be distributed amongst its creditors, every strata corporation’s net loss needed to be determined, which required that these lawsuits be settled or concluded.

These lawsuits have taken a while to make their way through the legal system. However, it appears that most have settled, with only a few left. Given the uncertainty of when many of the remaining lawsuits would conclude, on September 23, 2005, KPMG, the Trustee in Bankruptcy for NHW, applied to Court for further directions to allow the winding up of the bankruptcy to conclude. As a result of the hearing, the Court made an order that all claimants must provide information necessary to calculate their "net loss" by October 27, 2005. This would allow KPMG to calculate the total amount of each claim and determine how much money is left to distribute the remaining assets of NHW among all the creditors. For those who indicated their intention to initiate lawsuits for the deficiencies in the construction of their buildings, regardless of the stage of the proceeding, the Court told KPMG to assume those strata corporation’s recovered 35% of their claim from the defendants of the lawsuit. This will now allow KPMG to use this fixed recovery rate of 35%, instead of waiting until the lawsuit is settled, to calculate a strata corporation’s net loss. For those who had received a settlement and had not advised KPMG of the amount of their settlement, the strata corporations were given until October 27, 2005 to provide the necessary information. Any strata corporation that failed to provide the information requested by KPMG would risk having their entire proof of loss denied.

Now that October 27, 2005 has passed and the information has been provided, KPMG is in the process of calculating the total amount of the net loss for each claim in order to determine the final dividend that will be paid to each creditor. As a result, strata corporations with outstanding approved proofs of claim will be receiving a cheque comprising their final dividend. With a little luck, the money might reach the strata corporations in time for Christmas or early in 2006.

Veronica Franco, Clark Wilson Law Firm