Can Life In Bankruptcy Get Any More Complicated: Recent Personal Bankruptcy Cases

Mr. Justice Stanley J. Kershman

Ontario Superior Court of Justice

Fifth Annual Pan-Canadian Insolvency and

Restructuring Conference

September 30 – October 1, 2009

Fairmont Chateau Laurier Hotel, Ottawa, ON

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INDEX

Student Loans ......................................................................................... 3

RRSPs ...................................................................................................... 7

Family Law Maters .............................................................................. 10

Opposition by the Official Receiver or the Office of the

Superintendent of Bankruptcy ........................................................... 21

The assistance of Teresa DuBois, Judicial Law Clerk,

Superior Court of Justice is gratefully acknowledged

in the preparation of this paper.

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The following are examples of recent decisions rendered by various Canadian courts

involving personal bankruptcy and issues surrounding student loans, RRSPs, family law

matters and oppositions to discharge by the Official Receiver or the Office of the

Superintendent of Bankruptcy.

Student Loans

Re Sova, 2009 NBQB 122 (Judgement rendered May 5, 2009 by Registrar M.J.

Bray)

S filed an assignment on January 16, 2008 and applied for his discharge. The application

was opposed by the Department of Human Resources Development (DHRD) due to his

unpaid Canada student loan debt.

DHRD alleged that S had the present ability to pay, that he could have made payments in

the past and that to discharge this debt would undermine the integrity of the Canada

Student Loans program.

S attended university for two years to study for a degree in Biology and did not obtain the

degree. He then attended college between for two years, financing his studies to become a

registered operator of computer information systems with student loans.

The amount claimed at the discharge hearing with interest was $29,353.77.

S testified that he was unable to find employment with adequate remuneration after

graduation and, when he failed to make payment which became due in January 1998 the

loan was assigned for collection approximately six months later. He testified that he had

been subjected to verbal harassment and unreasonable phone calls on the part of the

collection agency.

S joined the Canadian Armed Forces in 1998. He consulted a financial counsellor at

Camp Gagetown and believed that she had contacted the collection agency to offer

payments of $600.00 per month but that this offer was refused. He believed that she had

advised the RCMP concerning allegations of harassment. He left the problem in the

hands of the military financial advisor and made half-a-dozen inquiries as to the status

over an undetermined period but took no independent action.

On December 14, 2006, the Minister of National Revenue obtained a summary judgment

on the principal amount of $16,093.27 with interest of $10,556.41, costs of $375.00 and

disbursements of $238.00 for a total of $27,262.68.

Because the assignment into bankruptcy was undertaken more than ten years after the

completion of studies the student loan debt would be released by discharge unless it is

found that the nature of the debt is such that special consideration is warranted. Registrar

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M.J. Bray undertook to decide whether there were any particular criteria in this case that

would require special consideration.

The registrar found that in the present instance it was difficult to conclude that S

deliberately attempted to avoid his student loan liabilities. He disclosed to his employer

that they had been assigned for collection, he trusted his employer to act as his agent,

allowed them to make an offer on his behalf to the collection agency and made

occasional inquiries as to whether the matters was resolved. He was satisfied that S did

not deliberately act as an impediment to such resolution.

He did find that S’s present salary did permit payments on surplus income pursuant to the

directives of the Superintendent of Bankruptcy. He ordered that S should continue to

make payments for the general benefit of his creditors up to October 16, 2009, at which

date he would be discharged if all payments have been made. If S’s circumstances

required an earlier discharge, he could consent to a judgment in favour of the Trustee in

the amount of $6,350.00 less the value of any surplus income payments made from the

date of assignment to the date of judgment.

***

Re Fournier, [2009] O.J. No. 2561 (Sup. Ct.) (Judgement released June 19, 2009 by

Registrar S.W. Nettie)

This was the application of F, under s. 178(1.1) of the BIA, for a declaration that s.

178(1)(g) BIA no longer applied with respect to her student loans outstanding under both

the federal and Ontario student loan programs. The application was opposed by both the

Attorney General of Canada and the Attorney General of Ontario.

F was discharged from her March 2000 assignment in bankruptcy on February 23, 2001.

While F did not complete the studies for which she had obtained the loans, her studies

directly contributed to her gaining full time employment with the federal public service.

She is currently employed with the Office of the Superintendent of Bankruptcy, and she

earns roughly $53,000 per year.

The registrar accepted F’s evidence that she has faced many difficulties related to her

health and to being a single parent. As well, he accepted that, but for her position with the

OSB, she would have made a Division I proposal or filed another assignment, which

would have released her student loan debts on discharge. She would have been

transferred within the public service, out of the office of the OSB had she made a

proposal or filed a second bankruptcy.

The test under s. 178(1.1) of the BIA is whether or not the Applicant has acted in good

faith in connection with her liabilities under the student loan or loans; and whether she

has and will continue to experience financial difficulty to such an extent that she will be

unable to repay the loans.

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The registrar found that F had acted in good faith towards her student loan obligations up

until June 2007, when she disposed of her old car in favour of a new Volkswagen. Her

monthly budget now includes transportation costs of about $800, while the evidence

showed no reason why she could not use public transportation at a cost of $200 per

month. The registrar found that F was no longer acting in good faith, because she had

made a personal choice with regards to transportation that put her in a position of

financial difficulty.

The registrar found that F’s current financial difficulty was of her own choosing,

specifically with regards to her car. The registrar found that there were other expenses in

F’s budget, such as a cell phone for her teenaged son, that were not necessities. The

registrar found that F would be in a better position to pay the student loans in the future,

as she progressed in the public service and her son became financially independent.

Finally, the registrar considered the fact that F is enrolled in the National Insolvency

Qualification Program, and hopes one day to become a licensed trustee in bankruptcy,

and commented that: “Not only would this enable her to handily repay these loans, but I

fear that most Canadians would find it troubling that the loans for the very schooling

which led to the public service job, which in turn may lead to a professional designation,

have not been repaid.”

***

Re Doucet, 2009 NBQB 183 (Judgement released June 30, 2009 by Deputy Registrar

M.A. Gleixner)

D applied under s. 178(1.1) of the BIA for an order releasing her from the liabilities

associated with her student loans. The application was opposed by the Caisses populaires

acadiennes. No one appeared on behalf of the Canada Student Loans Program.

D was first in her class in high school and decided to pursue a medical degree. She

encountered significant academic difficulties at university, and she was forced to repeat

two full academic years. She abandoned her medical studies after six years. She has

worked as an administrative assistant in a hospital, making a net salary of at least $1800

per month, since 1999.

D made a voluntary assignment in bankruptcy in June 2000. She was discharged from

bankruptcy on October 30, 2008; however, her discharge was granted effective June 20,

2002 given previous administrative errors.

As of February 3, 2009, D owed approximately $43,000 in Canada Student Loans, of

which $24,000 is principal, and $21,962.83 in Provincial Students Loans, of which

$14,046.08 is principal. Since the end of her studies, she has accumulated almost $28,000

in interest. She admitted that she made no payments on her student loans between 1999

and 2007.

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The deputy registrar outlined the purpose of this provision of the BIA, as summarized in

the decisions Re Minto (1999), 14 C.B.R. (4th) 235 (Sask. Q.B.) and Re Legault (1994),

88 B.C.L.R. (2d) 242 (B.C.C.A.).

The deputy registrar also noted that: “In addition, section 178(1.1) provides for some

auxiliary relief for a bankrupt after the passage of five years to students who act in good

faith and make an honest attempt to repay the loans to his or her best ability. These

requirements are critical to counteract the potential abuse of the Act previously

mentioned …”

The deputy registrar stated that the courts have identified a number of factors to consider

in determining whether the bankrupt has acted in good faith, including the following

factors (cited in Re Lee, [2003] O.J. No. 5325 (Sup. Ct.), Re Cook (2006), 20 C.B.R. (5th)

192 and Re Sararas, 2005 MBQB 177):

(a) whether the loan proceeds were used for a purpose other than the intended

one;

(b) what efforts, if any, has the applicant made to repay the loan;

(c) whether the applicant adopted any effort to avoid repayment when it was

possible to pay;

(d) whether the applicant has given a preference to the payment of other liabilities

over the student loan liabilities; and

(e) whether there has been any unreasonable denial of liability.

The deputy registrar found that D had not acted in good faith. D admitted that she had

lost control of her finances during her medical studies. She began to live as though she

were already making the salary of a doctor. Among her expenses was a brand new Honda

Civic LX, which she repaid during her bankruptcy while making no payments on her

student loans.

The deputy registrar noted that D admitted during the hearing that "she could have made

payments" during bankruptcy towards her student loan liabilities. In December 2000,

excluding "other expenses" such as movies, sports, tobacco, presents and restaurants from

her list of expenses, her financial statement showed a surplus income of almost $680.

The deputy registrar felt that even a percentage of this amount could and should have

been put aside or voluntarily paid to her student loan creditors. Had D started voluntarily

repaying her student loans when she acquired the financial means to do so, the deputy

registrar found that she would not have accumulated the same amount of interest during

the last 10 years and her debt load would have been significantly lower.

The deputy registrar also found that D had not established that she has and will continue

to experience financial difficulty to such an extent that she will be unable to pay the

student loans. D had volunteered in 2007 to pay $250 per month in light of her discharge.

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The application was dismissed. The deputy registrar noted that the result would probably

have been different if the good faith part of the test had been met.

RRSPs

Re Biblow, 2009 SKQB 76 (Judgement delivered February 17, 2009 by L.M.

Schwann)

B applied for a discharge from bankruptcy. The discharge was opposed by both the

trustee and the Official Receiver (OR). The Springside Credit Union did not oppose the

discharge, but an employee of the Credit Union made submissions in her role as inspector

which amplified the positions of the opposing parties.

At the time of B’s assignment into bankruptcy in December 2007, caused in large part by

a gambling problem, he had declared assets of $837,442 against unsecured debts of

$244,720 and secured debts of $16,300. Of the declared assets, more than $765,000 was

in the form of RRSP's, and was therefore exempt from execution by virtue of provincial

law.

B had been employed in the credit union system rising through its ranks to the branch

manager position; however within months following assignment B was terminated from

his employment. Prior to the loss of his employment, B and his wife lived in a house

owned by the credit union.

The trustee’s opposition was premised on B’s failure to disclose certain assets and the

fact that B brought on his bankruptcy by gambling. B had surplus income obligations

outstanding for the first nine months of bankruptcy in the amount of $1,642. The trustee

recommended that additional surplus income payments be made for the ensuing 12 month

period calculated at the rate of $750 per month for a total of $9,000. In total, $10,642 was

the recommended amount of surplus income. The trustee also recommended a suspension

of six to 12 months, owing to the causes of B’s bankruptcy.

The OR took the position that the facts of the case warranted a conditional order in the

amount of $30,000, representing loans outstanding to the Springside and Torquay Credit

Unions obtained by B to acquire exempt RRSPs. These loans were arranged on the eve of

bankruptcy and at a time when he was gambling heavily. B used his position at the Credit

Union to arrange the loans. His conduct only came to light through the diligence of

inspectors and creditors and not through his own candour.

According to the inspector, B’s senior position with the Credit Union allowed him to

advance money to himself with little or no oversight and with which he purchased RRSPs

knowing them to be exempt from execution. She maintained that his knowledge of the

system and ability to easily facilitate loans to himself along with loan extensions - while

knowing himself to be insolvent - should be sanctioned. Anything less would put lending

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institutions on notice and potentially cast a pall on lending practices for purposes of

purchasing exempt RRSPs.

After reviewing the case law in this area, L.M. Schwann concluded that, balancing the

interests at play, the third factor recognized in Re Shakell, 70 C.B.R. (N.S.) 270, that of

the integrity of the system itself and the public perception of that integrity, had to take

precedence in this case. He concluded that reasonable people would be offended if B

were to exit bankruptcy with such a sizable amount of exempt assets. The first two

factors are the interest of the creditors who claim money that is properly owing to them

and the interest of the bankrupt who, faced with insurmountable debt obligations, seeks

the process provided by the system for some relief from those obligations to the extent

that he/she is unable to discharge them from his/her own resources.

L.M. Schwann decided that this would be an appropriate case for the bankrupt to make a

sizeable contribution to his estate, which was fixed at $20,000. He further ordered B to

pay surplus income of $6,000. An order of discharge was to issue conditional upon

payment of $26,000, with payment to be made monthly at the rate of $500 per month

until fully paid. The discharge was suspended for a period of six months following

compliance with the terms of the conditional order.

This decision was reached based on the following facts: 1) that B was a seasoned

employee occupying a senior position in the financial lending sector and likely had

knowledge of debtor-creditor law, which he used to acquire exempt RRSPs and allow

himself loan extensions at a time when he was insolvent; 2) that his insolvency did not

arise because he was unfortunate but came about through gambling; and 3) that B failed

to make proper disclosure of his assets at the time of assignment and information about

these assets only came to light after much prodding and digging by the trustee and

creditors.

In coming to this decision, L.M. Schwann was mindful that B will exit bankruptcy with

in excess of $765,000 in RRSPs plus pension and he will be relieved of his unsecured

debts. L.M. Schwann concluded that this amount is a fairly sizeable nest egg for most

people and one which he can look to in retirement. Payment to his estate for the benefit of

creditors of a small amount would not impose an undue burden on B nor undermine his

financial viability in the short or long term.

Further, although nearing the end of his working career, B was in good health and fully

capable of working for several years to come. He presented himself as an articulate,

polished businessman whose skills and training could be put to good use for several more

years. While he would encounter difficulty in finding a replacement job in his chosen

field, he was not precluded from finding a reasonably well paying job elsewhere.

***

Re Fraser, 2009 BCSC 399 (Judgement released April 16, 2008 by Master B.M.

Young)

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F applied for a discharge from bankruptcy. He had been petitioned into bankruptcy by his

bank. This was his second application for discharge. The first application was adjourned

because he did not perform the duties imposed on him.

This second bankruptcy arose out of the business failure of Kamloops Forest Products

Ltd., which ceased operation in July 2006 after its loans were called by HSBC Bank of

Canada. F was a shareholder of the company and had signed guarantees. He owed HSBC

Bank of Canada approximately $2.3 million pursuant to that guarantee. There was an

extensive history of court proceedings in the receivership and bankruptcy of Kamloops

Forest Products Ltd. There were allegations made that assets had gone missing, although

there was no evidence with regards to that matters before the master.

The trustee’s ongoing concerns were F’s failure to provide bank records and return

correspondence, retention of investment funds and failure to provide an accounting of

monthly expenses. F had still not provided all bank statements and had just provided his

expense and income statements when the hearing was scheduled. F had not made it clear

whether his wife earned income, had sold assets or owned a company.

Another concern was the fact that F had liquidated an RRSP after he was petitioned into

bankruptcy. He had sworn an affidavit on November 17, 2008 saying that he did not

remember whether the RRSP had been liquidated prior to his bankruptcy or afterwards.

However, he had signed a statement of affairs on February 22, 2007 declaring that he had

$4,763 in an investment account in Wood Gundy. The master found that, had he

reviewed his own statement of affairs, F would have remembered that he did have that

investment at the time of bankruptcy and subsequently liquidated it.

Given the conflicting information and the “cloud of suspicion” created by F’s actions, it

was clear that he was not being entirely forthcoming. The master chose to adjourn the

application. Had there been sufficient information about F’s income, a conditional

discharge could have been granted. However, there was insufficient information to

impose conditions.

Since F’s conduct was better characterized as lackadaisical then egregious, the

application was adjourned, rather then refused. F was ordered to provide a full accounting

of the income he had lived on since his bankruptcy. The trustee was directed to alert the

Superintendent of Bankruptcies to the concerns and invite him to conduct an

investigation.

***

Thibodeau v. Thibodeau, [2009] O.J. No. 1965 (Sup. Ct.) (Judgement released May

11, 2009 by N.L. Backhouse J.)

The parties were involved in lengthy and protracted matrimonial proceedings. They

submitted to voluntary arbitration, which led to the wife receiving, in May 2008, the right

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to a lump sum for spousal support arrears, an equalization payment and costs under the

arbitration award.

The wife brought a motion returnable October 15, 2008. The husband declared

bankruptcy on October 16, 2008. The wife was granted a court order on October 17, 2008

incorporating the terms of the two arbitration awards, facilitating the sale of the

matrimonial home and directing that the husband's share of the net proceeds of sale be

held in trust pending the determination of entitlement to such proceeds. The wife was

also granted leave to continue with the matrimonial proceeding, with the trustee in

bankruptcy added as a party.

This motion raised the issue of whether the wife has priority over other creditors to the

husband's half-share of the sale proceeds of the jointly owned matrimonial home. It also

raised the issued of whether the court could order the transfer of the husband's RRSPs to

the wife.

Backhouse J found that the court was able to entertain the wife's claim to the RRSPs

under s. 9.1 of the Family Law Act. Once the order was made incorporating the

arbitration award, it was then subject to all the powers of the court. Rule 59.06(2) of the

Rules of Civil Procedure applied because the bankruptcy was a fact arising after the

award.

Backhouse J declared that: “Neither s. 196(2) of the Insurance Act (which provides that

the monies are “exempt from execution or seizure”) nor s. 67(1)(b.3) of the BIA (which

excludes RRSPs from “the property of a bankrupt”) fetters the court's jurisdiction under

s. 9(1)(d) of the FLA to transfer, vest, secure or impose a trust against property.”

The judge further commented that it was clear, based on his behaviour, that the husband

would not satisfy his obligations to the wife without a more intrusive order, and that he

was satisfied that this is a proper case for an award transferring the husband's RRSP to

the wife by way of spousal rollover.

Family Law Matters

Thibodeau v. Thibodeau, [2009] O.J. No. 1965 (Sup. Ct.) (Judgement released May

11, 2009 by N.L. Backhouse J.)

See above under “RRSPs”.

Re O'Shaughnessy, [2009] O.J. No. 2092 (Sup. Ct.) (Judgement rendered by

Registrar S.W. Nettie May 22, 2009)

O applied for discharge from bankruptcy. The application was opposed by her former

husband (S), but not by the trustee. S was not present at the hearing, but his counsel was

in attendance and participated throughout.

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O is 48 years old, divorced and mother of three adult children from her first marriage.

Her most recent divorce was from S, and they had no children together. This was her first

assignment in bankruptcy, made April 24, 2008. She was fully employed as a store

manager. She earns a net amount monthly of $3,729.00. She comprises a family unit of

one, and has, therefore monthly surplus income against Superintendent’s Standards of

approximately $1,860.00.

In September 2003, O met S on a cruise for single people. They were married in the

summer of 2004. O sold her home in Ontario and paid off all her debts before moving to

Alabama to take up residence with S. She also resigned her very well paying position as a

store manager with the same chain for which was working at the time of the hearing and

took up a similar position for less pay in Alabama. The registrar found that she was more

or less equally well employed in the US as she had been in Ontario.

O and S lived a “very nice lifestyle” for the next three years. S is a well paid US civil

servant with the Department of Defence and receives a veteran’s disability payment in

addition to his salary of US$120,000.00 per year. Even though he made more than O, O

appeared to keep up with him dollar for dollar in funding their expenses. She co-signed

car loans and loans to build an addition on the house. She went seriously into debt on her

MBNA credit card to finance their business enterprise and assumed debt for at least one

upgraded time share unit. O’s evidence was that regularly drew down on her Canadian

RRSPs to provide cash for her share of the spending.

Some months after taking up residence in Alabama, O’s health allegedly deteriorated.

She became depressed and had to resign from her job. In 2005, O spent some time

helping out her parents-in-law with their business. She and S started their own antiques

store in March 2006. O incurred approximately CDN$35,000 in debt on her MNBA

credit card to finance the business, which lasted approximately 13 months. O left S a few

months later and returned to Canada. She took with her all of her debt and none of the

underlying assets. She did not declare an interest in the business on her Statement of

Affairs which, the registrar noted, is technically a s. 173(1)(o) fact.

O returned to Canada having gone, on her evidence, from having $89,400.00 in free and

clear assets, to having assets of $43,800.00 against liabilities of $37,000.00. She gained

employment and serviced her debts up until the time of the assignment in bankruptcy in

April 2008. She nets a monthly income of $3,729.00. It was disclosed for the first time at

the hearing that she expected to receive a bonus of $8,000.00 gross in April 2009. The

registrar found this to be another failure to perform her duties, constituting a fact under S.

173(1)(o).

O learned in July 2007 that S had commenced matrimonial proceedings in Alabama. She

wrote to the court in December 2007 to say that she was not able to hire an attorney, but

she did not appear otherwise and a judgement for payment of many amounts to S was

granted March 11, 2008. No steps were taken to expunge S’s Proof of Claim of based on

that Judgment, and no steps were taken to avoid its enforceability in Ontario.

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In April 2008, O received a demand letter from Ontario counsel for S requiring payment

of US$64,777.95. She filed for bankruptcy two to three weeks later.

The registrar noted that three issues flowed from this decision: (1) she made no effort to

make payment arrangements or compromise the debt with S; (2) she made no efforts

through her trustee to put forward a proposal under the BIA; and (3) the facts at bar

attracted a consideration of the proper disposition of a discharge application where the

only or principal reason for the bankruptcy is to shed matrimonial indebtedness.

The registrar found that O could have made a proposal at 30% of her declared debts.

Even factoring in a premium on the US dollar debt, and estimating her debts at

approximately $140,000.00, this would have resulted in a $42,000.00 proposal. This was

almost exactly 60 months of payments at $694.50 - the amount she paid the Trustee

during the bankruptcy. These facts combined constituted a fact under S. 173(1)(o).

The registrar relied on Re Crew (1987), 63 C.B.R. (N.S.) 244 to find that, the principal

reason for the bankruptcy being to shed matrimonial indebtedness, some further payment

by O was required as a condition of her discharge. Given the s. 173 BIA facts found by

the registrar, an absolute discharge was statutorily precluded.

The registrar noted that O made some minor and materially insignificant omissions from

her Statement of Affairs and that she failed to remit monthly statements of income and

expenses to the trustee. He found that this was an appropriate matters for a discharge, not

for a refusal or even a suspension.

Finally, the registrar found that O failure to have assets equal to 50 per cent of liabilities

was not something for which she should be held liable as there was not sufficient

evidence as to the amount of the dissipated assets squandered on lifestyle as opposed to

spent on the business or business debt.

The registrar found it appropriate to order that the discharge be granted, conditional upon

payment to the trustee of $42,000.00 in minimum monthly payments of $694.50 with

interest on default. An order was made for costs in favour of S at $6200.00 from the

Estate out of first proceeds.

***

S.S.V. v. G.J.V., 2009 NBQB 195 (Judgement by B.L. Baird J. released July 10,

2009)

Application by Mrs. V for custody of Mr. and Mrs. V’s two children, child support,

spousal support, shared special expenses related to the children’s sports and equalization

of property.

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Several orders were made on consent, including an order granting sole custody of the two

children to Mrs. V, an order assessing Mr. V’s income at $60,480.00 per annum for the

purposes of child support, an order for child support to be paid by Mr. V and orders for

division of Mr. V’s pension and retirement allowance.

Factual Background

Mr. and Mrs. V were married on June 1, 1990 at North Bay, Ontario. There was a

permanent separation between them on April 20, 2008. The two children were born

January 16, 1994 and March 11, 1996. They reside with Ms. V.

Mrs. V finished High School and has been periodically employed in low paying jobs

since that time. Mr. V joined the Canadian Armed Forces on completion of High School.

Following marriage, the family was required to move many times as a result of Mr. V’s

various postings. Following separation, Mrs. V. moved to Petawawa, Ontario, where she

has family support. Mr. V. lives in a three bedroom home located in the permanent

married quarters of CFB Gagetown.

Mrs. V is currently employed as a housekeeper in a senior citizens home averaging about

70 hours monthly at $15.85 per hour. Her "top up" allowance from employment

insurance was to expire in June or July. Her income from employment insurance plus

current employment income is $25,711.16. When her employment insurance benefits

expire, she expects to receive employment income of $16,000.00.

Mr. V continues to advance in his military career. His 2008 income from employment

was $60,480.00.

Mr. V. agreed to pay basic child support pursuant to the Federal Child Support

Guidelines, but he was not prepared to pay all of the extracurricular expenses requested

by Mrs. V. The children are involved in both hockey and soccer. Mr. V. has paid the

hockey registration fees and soccer registration fees, and nothing more. Mrs. V sought a

further contribution towards equipment costs and transportation costs for tournaments.

On marriage breakdown, the marital home was sold, and after the bills for property taxes,

high speed satellite, mortgages with CIBC and HBSC, legal, real estate fees, and

registration fees, there was a profit of $7,061.09, which was paid to Mrs. V.

The remaining marital debts as agreed verbally between the parties were divided with

Mrs. V paying two credit cards in her name and the debt associated with the family van

and Mr. V paying the other credit cards and the Scotia line loan.

Mrs. V paid the debts that she assumed. Mr. V and rolled his share of the debt into the

bankruptcy, including the Scotia line loan for $15,000.00, which he believed was

registered in his name alone, and which would be eliminated as a result of the

bankruptcy. In fact, the Scotia line account was a jointly registered debt; the Bank of

Nova Scotia has demanded payment from Mrs. V.

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During his testimony at trial, Mr. V. acknowledged that the Scotia debt was his

responsibility and that he would pay it. When pressed concerning when, he would not

commit to a specific date. Mrs. V. was concerned about the effect any collection

proceedings would have on her credit rating. She sought an order requiring Mr. V. to pay

this debt by a certain date, or an order giving her sufficient spousal support to allow her

to make the payments.

Mrs. V. sought non time limited spousal support in the amount of $1,500.00 monthly.

The spousal support advisory guideline calculations included in her post hearing brief

suggested a range between $0-$147.00 monthly. Mr. V. did not want to pay spousal

support and submitted that Mrs. V. was underemployed and could generate a significantly

higher income if she worked more hours. He wanted the court to impute income to her

for spousal support purposes.

In September 2008, Mr. V. had agreed to help Mrs. V purchase a home in Petawawa, as

her income was not sufficient to allow her to qualify for a mortgage. Mr. V. cosigned the

mortgage and paid $322.00 monthly on that mortgage since then. The deed to the home

was registered in joint tenancy between he and Mrs. V. The parties had verbally agreed

that should Mrs. V sell this home, the net proceeds of sale would be divided equally

between them, but Mr. V. stated that he has no interest in receiving any of those

proceeds.

Children’s Extraordinary Activities

The court ordered that Mr. V and Mrs. V are to share costs of registration and equipment

to enable the children to participate in hockey and soccer, with the parents agreeing on

the equipment expenses and every effort being made to minimize the costs. The parents

were also to share costs of uninsured health/dental payments exceeding $100.00 per child

per annum.

Scotia line Account

Mr. V was ordered to make his best efforts refinance the Scotia line account so as to

remove Mrs. V’s name within 30 days of the order and provide proof that Mrs. V had

been removed from the debt. If he was not able to do so, the payment of the bank line

was to become the responsibility of Mrs. V.

Spousal Support

Baird J noted that this was an eighteen year marriage during which time Mr. V. advanced

in his chosen military career to the rank of Sergeant and Mrs. V. worked in a variety of

low paying jobs, on a part-time or full-time basis, depending on where they were living,

and depending on their maternity decisions. There were periods of time when she was out

of the workforce so that she could stay at home with the children. He also noted that Mrs.

15

V is 39 years old, and there was no evidence to suggest that she is ill, or suffers from any

condition that would prevent her from working.

After assessing their monthly expenses and income, Baird J acknowledged that the

parties were both having difficulties making ends meet. The distinguishing factor was

that Mrs. V had much higher payments for housing, even though Mr. V was subsidizing

her monthly mortgage payment by $322.00.

Baird J found that Mrs. V was entitled to support. However, she found that the

entitlement should not go on indefinitely, and found that, in the circumstances, Mr. V

could afford to pay $450.00 monthly to Mrs. V for her support for a period of 60 months

from the date of the decision, at which time the would be subject to review.

Imputation of Income

The court refused to impute income to Mrs. V.

The court also ordered that, in the event that Mr. V did not, or was not able to refinance

the Scotia line account as ordered previously in the decision, and Mrs. V. had to make the

payments, Mr. V’s spousal support obligation would increase. The issue was to be

remitted back to the court with Mrs. V providing further information, including

mathematical calculations.

Financial Disclosure

The parties were ordered to exchange copies of their filed income tax returns on or before

June 1 of each year, commencing June 1, 2010.

Pro Rata Shares

Formulas for calculating the parties share of the children’s extraordinary expenses, with

Mr. V paying 70%.

The court ordered Mrs. V to make every effort she can within 90 days to refinance this

property so that she could assume sole financial responsibility for it. In that event, the

court ordered that Mr. V. execute a deed conveying his interest in the property to Mrs. V.

for no consideration.

***

16

Hatcher v. Hatcher, [2009] O.J. No. 3342 (Sup. Ct.) (Judgement by J.W. Quinn J on

August 5, 2009)

The three issues before the court were remnants from decisions that Quinn J made in two

earlier motions involving the parties: (1) Should $55,000 in costs already ordered to be

paid by Mr. H to Mrs. H in a change motion be enforceable as child support? (2) What

sentence should be imposed on Mr. H following a finding that he was in contempt of an

access order? (3) What costs should Mr. H pay to the applicant in respect of her

successful contempt motion?

The parties were married in 1990 and separated in 1999. They are in their 50s and have

four children. In 2000, Mrs. H commenced divorce proceedings. After several days of

testimony in the divorce trial, the parties signed minutes of settlement that led to a final

order made on June 21, 2002. Pursuant to the divorce order, the parties had a shared-

parenting arrangement regarding their children and the husband was to pay periodic child

support.

Paragraph 7 of the divorce order addressed the matters of bankruptcy: “Any lump sum

equalization payment or payments shall be a domestic obligation within the meaning of

the Bankruptcy Act and will not merge on a bankruptcy by either party.” Paragraph 10(1)

required the husband to pay to the wife "the sum of $10,000 on or before the 27th day of

June 2002," and it went on to say: “... Despite paragraph 5(1) herein regarding child

support arrears, the payment by the [husband] to the [wife] pursuant to this paragraph

shall be in full satisfaction of both child support arrears and children's extraordinary

expenses from the date of separation to the 30th of June 2002 and equalization of net

family property.” Paragraph 10(3) obligated the husband to provide specified annual

documentary disclosure concerning his income.

Mr. H did not pay the $10,000 lump sum and so Mrs. H commenced garnishment

proceedings in September of 2003. In December of 2003, Mr. H made an assignment in

bankruptcy. He obtained a stay of the garnishment proceedings, thereby preventing Mrs.

H from taking further steps to enforce payment of the $10,000 lump sum. In this

proceeding, Quinn J found that the bankruptcy was solely intended to avoid garnishment

of that debt.

In September of 2005, Mrs. H obtained an order from the Deputy Registrar in

Bankruptcy. In part, it granted leave to her to continue with her garnishment proceedings

in respect of the $10,000 lump sum and to bring a motion to change the divorce order.

new notice of garnishment. A new notice of garnishment was issued on behalf of Mrs. H

in February of 2006, a motion to change having been brought as a result of problems with

Mr. H’s access to the children and the fact that Mr. H had neither made the $10,000

payment nor provided the required income disclosure.

In March of 2006, Mr. H delivered a dispute to the new notice of garnishment issued by

Mrs. H. In July of 2006, a consent order was entered into providing for written

interrogatories in the change motion “regarding further financial disclosure,” to be

17

followed by out-of-court questioning if the answers were considered unsatisfactory by the

questioning party. By letter dated September 1, 2006, Mr. H’s counsel confirmed that he

“recognizes his obligation to satisfy the judgment in the sum of $10,000 and is

canvassing opportunities to satisfy same.”

“Questions on Written Examination for Discovery” were forwarded on behalf of Mrs. H

in December of 2006. Mr. H responded with his answers in the form of an affidavit sworn

in February of 2007.

Mr. H finally paid the $10,000 lump sum on January 30, 2007.

An order was made in March of 2007 stating that, “this matters will proceed by way of a

trial with oral evidence” and that “each party shall file an affidavit of documents within

30 days and each party shall be required to attend for questioning thereafter if required by

the other party.” Mr. H submitted to out-of-court questioning in November of 2007.

In May of 2008, an order was made that Mr. H’s mother was to produce her bank

statements relating to accounts into which monies were deposited on behalf of Mr. H

since July 2002.

The change motion was set to proceed to trial on July, 2008, but the parties filed minutes

of settlement on that day addressing all issues with the exception of costs. Submissions

were heard with regards to costs.

Mrs. H had served two offers to settle in her change motion. Both were at least as

favourable to her as the minutes of settlement. And, her second offer did not withdraw

the first offer. Both offers were expressed to be “open for acceptance until five minutes

after the commencement of evidence at trial.” Therefore, both offers were outstanding

until the minutes of settlement were signed and the husband could have accepted either of

them.

Mr. H had served an offer to settle which sought to delete the paragraph in the divorce

order that designated the residence of the wife as the principal residence of the children

and the provision giving to the wife the day-to-day decision-making power over the

children.

In his costs reasons, Quinn J held that, but for instituting her change motion, the wife

would never have seen a penny of the $10,000 lump sum payment. He could not ascribe a

legitimate motive for the protracted insistence by the husband that the $10,000 lump sum

was a debt that merged with his bankruptcy.

Quinn J further found that between 2002 and 2006, Mrs. H never was in a position to

ascertain the income of her husband for support purposes, as he flagrantly ignored the

income-disclosure obligations in the divorce order and, essentially, admitted as much in

the written interrogatories and during his out-of-court questioning.

18

Quinn J condemned the husband's catch-me-if-you-can approach to his income disclosure

and concluded that such conduct alone warranted full-recovery costs. He fixed the costs

of Mrs. H at $55,000.00, all-inclusive.

With regards to the costs, Quinn J noted in this proceeding that: “The advantages of an

order under this provision are that the costs award is enforceable by the Family

Responsibility Office and the order is not discharged in a bankruptcy by virtue of s.

178(1)(c) of the Bankruptcy Act, R.S.C. 1985, c. B-3": see Wildman v. Wildman (2006),

82 O.R. (3d) 401 (C.A.) at para. [54].”

Quinn J noted that, where possible, a court should determine what portion of costs are

applicable to the issue of support and order only that amount to be enforceable. However,

he found that the presence of multiple issues in this case made such an exercise

impracticable. He found that the scandalous conduct of the husband would make it unjust

to do so, even if it were arithmetically possible. Without the costs being enforceable

under the FRSEA, the husband, who professed to be unemployed, undoubtedly would

make an assignment in bankruptcy to avoid payment. That would be a travesty of justice

and make a mockery of the costs award.

For those reasons Quinn J made an order that the costs of $55,000, ordered on January 5,

2009, would be enforceable under the FRSEA as child support. He also ordered that Mr.

H would receive a suspended sentence following his contempt finding of March 24, 2009

in relation to access. Mr. H was also ordered to pay to the wife the sum of $5,435 as costs

of the contempt hearing and, as costs of the current hearing, the further sum of $1,625

(being the amount requested).

***

Re Terry, [2009] O.J. No. 3447 (Sup. Ct.) (Judgement released August 19, 2009 by

A.M. Gans J.)

T made an assignment in bankruptcy in June 2008, while in the middle of a matrimonial

dispute. Through this application, T’s wife sought to have the assignment annulled so that

T’s interest in the matrimonial home would be available to satisfy whatever order for the

equalization of the net family property might be made in the matrimonial proceedings.

T was not present at the annulment proceedings, as he was working in Alberta and there

was evidence that he had been informed of the proceedings no objection to the matters

proceeding in his absence.

T and his wife were married in 1989 and separated in late December 2005. At that time,

they jointly owned a home in Ajax, Ontario. T lived in the home until early 2008, at

which time T moved out and T’s wife returned to live there. The parties retained lawyers

near the end of 2007, as there was a dispute as to T’s equity in the home. T’s wife

claimed at least $40,000 by way of an equalization payment.

19

Following the first matrimonial case conference in June 2008, T fired his family law

lawyer and attended on the Trustee in Bankruptcy to discuss the possibility of making an

assignment, which was done on June 20, 2008. In the months leading up to the

assignment, T had voluntarily left a long standing job as an electrician and started another

job from which was laid off shortly thereafter. He was unemployed at the time of the

assignment but secured a well-paying position in Alberta a few weeks later.

Between the date of the assignment and May 2009, the trustee made several requests for

an offer from T’s wife to purchase T’s interest in the home in Ajax, if only to satisfy the

claims of the unsecured creditors. When no offer was forthcoming in November 2008,

the trustee obtained an order permitting the sale of the matrimonial home. He had to seek

a further order for vacant possession in May 2009 in order to effect the sale.

In the latter part of May 2009, T’s wife called Senior Bankruptcy Analyst at the OSB and

suggested that the assignment was improper either because Mr. Terry was not insolvent at

the time or that the bankruptcy was undertaken for an improper purpose. Following that

call, the OSB continued with its investigation, which culminated in a Report prepared and

filed under s. 170.3 of the BIA.

The annulment motion was brought under ss. 181 and 182 of the BIA. Gans J noted that

the case law has shown the power to annul a bankruptcy to be broad and discretionary.

He noted that the leading case in the area which speaks to the intersection of Bankruptcy

and Family Law is the reported decision of O'Connor J. in Re Wale (1996), 45 C.B.R.

(3d) 15. In that case, O'Connor J. made the following observations at paras. 26 and 17,

respectively, which Gans J cited:

“Under s. 181 the Court has a wide discretion when considering an annulment

application. An exhaustive review of the circumstances surrounding the assignment

should be made by the Court. There is no single test or principle to be applied.”

“An annulment will be granted only where it is shown either the debtor was not an

insolvent person when he made the assignment or where it is shown that the debtor

abused the process of the court or committed a fraud on his creditors.”

Gans J first considered whether T was an insolvent person at the moment of the

assignment. He acknowledged that T’s inability to meet his obligations as they generally

became due, might have been occasioned by unaccounted-for if not improper

“preferential” payments or withdrawals from his bank account in the days and weeks

preceding the assignment, but that his liabilities, both secured and unsecured, in the

aggregate exceeded his net realizable assets. T’s assets were largely represented by his

equity in the Ajax Property, which he could not realize upon without a sale or as a result

of his interest being purchased. T’s remaining assets were tied up in pension-like

contributions, which did not appear to be readily accessible either.

Gans J noted that the T’s trustee, who had years of experience, had been concerned

enough about T’s behaviour prior to the assignment that he called the OSB. The trustee

20

concluded, based on the OSB’s response at the time, concluded that the proposed

assignment met the strictures and objectives of the BIA. Gans J concluded that, T was

insolvent at the time of assignment “…if only marginally so”.

Gans J next considered whether there had been abuse of process on the part of T. He

considered the questions posed by O’Connor J in Re Wale:

(1) Is the debtor's financial situation genuinely overwhelming or could it have

been managed?

(2) Was the timing of the assignment related to another agenda or was bankruptcy

inevitable in the near or relatively near future?

(3) Was the debtor forthcoming in revealing his situation to his creditors or did he

hide assets or prefer some creditors over others?

(4) Did the debtor convert money or assets to himself which would otherwise

have been assets in the bankruptcy?

(5) What had been the debtor's relationship with his creditors, particularly his

major ones? Was it such that they might have assisted him, if he had

approached them, by granting time or terms of repayment or had any good-

will been destroyed by past unfulfilled promises?

(6) Are there other relationships -- business partnerships, shareholder

arrangements, spousal, competitors for an asset, or simply personal

associations which could cast light on a possible bad faith motive for making

an assignment?

He concluded that that the debtor's failure to meet each or most of the above-cited criteria

is not dispositive of the matters, but he noted that the circumstances leading up to the

assignment did cause concern. In particular, it appeared that T was not being harassed by

his creditors, seemingly left a secure employment position for reasons that remain

unexplained, and apparently made payments to his girlfriend, and possibly his brother,

that suggested a preference.

In the final analysis, Gans J was not persuaded that the assignment amounted to an abuse

of process or that T intended or committed a fraud on his creditors, including his wife. He

noted that the mere fact that the assignment was made in the wake of the first

matrimonial case conference is a far cry from one being made in the middle of a

matrimonial trial where there were orders outstanding that had not been honoured, as

occurred in Re Wale. He also noted that there were no orders which T was seeking to

avoid in the instant case at the time of the assignment. Statements made in anger by T to

his wife at the end of the case conferences that she should sell the house, upon which

much reliance was placed, were found to be, at best, equivocal.

Gans J noted that, even if he was persuaded that there had been abuse of process, he

would not in the circumstances of this case exercise his discretion to annul the

assignment for the following reasons:

21

(a) There were two orders of the Court made during the currency of the assignment

would continue, regardless of any annulment, and he was not persuaded that he

would be permitted to review or permit some form of appeal from those orders (a)

without further argument; and (b) without some compelling authority that would

permit him to avoid the operation of s. 181(2) of the BIA.

(b) Ms. Terry has not filed a proof of claim in bankruptcy. It would seem to me that if

one were filed any award to which she might otherwise be entitled as part of the

matrimonial proceedings that were fast approaching, could properly be dealt with

as a claim or an amended claim in the bankruptcy.

(c) As was evident from the material filed, the dealings between the parties, if not

their respective counsel, had been anything but cordial and had raised more

questions for which answers may yet be forthcoming. Gans J was concerned that

matterss had been delayed inordinately and a more expeditious resolution might

result if the powers provided for under the BIA could be utilized to the fullest

extent possible.

Opposition by the Official Receiver or the Office of the Superintendent of Bankruptcy

Re Tregear, 2009 BCSC 430 (Judgement rendered by Registrar C.P. Bouck on April

1, 2009)

T, a 73-year-old realtor, applied for his discharge from bankruptcy. The discharge was

opposed by the trustee, one creditor and the OSB, all on somewhat different grounds.

This was T’s first assignment into bankruptcy.

The trustee recommended that T’s discharge be conditional upon the payment of $1,312

into the estate. The OSB suggested that T’s conduct justified an order that he pay the

estate the sum of $70,000 for the benefit of creditors. Mr. Jacquemin, a creditor, asked for

even more stringent terms including what amounts to a refusal of the discharge.

T operated a business, incorporated in 1998, called Commission Advance Services Ltd.

(CAS). He issued loans to realtors in advance of commissions being received. The loans

were secured by the commission that was already earned and were to be repaid upon

receipt of the commission once the sale or purchase of property completed.

T and his partner provided the star-up monies for CAS. They recruited other investors to

fund the loans; the investors were told that their monies were secured by the commissions

to be paid on completed transactions and that notice would be given of any change in the

business practice. T personally guaranteed the investors’ loans, but he took the position

that he did not actively market CAS.

22

Mr. Jacquemin invested over $200,000 in CAS and received a 12% per annum return on

his investment, paid on a monthly basis, until the business fell into trouble.

Over time, CAS changed its lending practice and began to make unsecured loans, most of

which were made to realtors at Ocean City Realty Ltd. T was, and remains, the principal

of Ocean City Realty Ltd. These loans were made so that realtors would stay with the

firm. The investors were not told of this change in the business practice. When the

realtors defaulted on their loans, they simply left the employ of Ocean City Realty Ltd.

Many of the realtors went bankrupt, resulting in no repayment of monies to CAS.

By early 2008, CAS was unable to meet its obligations to investors. Having personally

guaranteed the loans and with limited means to meet those obligations, T made this

assignment. At the same time, his government pensions were being garnisheed by the

CRA for non-payment of income taxes. T’s statement of affairs signed May 1, 2008

discloses debts of $599,098.02. Mr. Jacquemin's claim is the largest debt at $237,250.34.

Other investors are listed as creditors. T also owed significant amounts on his credit

cards.

Not reported in the statement of affairs are debts owing to T’s family members for their

investment in CAS. The debts total $145,000. Two of these family members were repaid

their $20,000 investment in preference to other creditors. The monies for the repayment

came from T’s common law spouse. The trustee was made aware of these debts but notes

that none of the family members have made a claim in the bankruptcy.

In his list of assets, T discloses ownership in 100% of the shares in DJT Management

Ltd. The value of the shares is stated as nil. Similarly, the value of T’s 100% ownership

in the shares of Ocean City is nil.

Upon his assignment, T resigned as a director of CAS, DJT and Ocean City. He continues

to operate Ocean City but does not sign trust cheques. No new directors have been

appointed to any of the companies. T and another partner are operating CAS with the

apparent intention of repaying as many investors as possible. T identified two realtors

working at Ocean City who are presently repaying loans through commissions received.

In the course of the OR’s examination of T, it was revealed that DJT is the sole

shareholder in CAS. Financial statements subsequently produced by the bankrupt indicate

that the value of the CAS shares as of November 30, 2006, was $45,000. The OR also

determined that T failed to disclose to the trustee the true value of some pottery and

artwork. T denied any attempt to hide these assets. He uses the pottery as every-day

dishes. The appraised value of the pottery collection and artwork is $1,700.

Also revealed in that examination was the sale by T of his condominium approximately

five years ago. The proceeds of the sale went to a business associate. This payment was

made at a time when the CAS loans were in jeopardy.

23

When questioned by the OR, T minimized the involvement of CAS in his bankruptcy

assignment. He attributes poor health and resulting hospitalization as the major cause for

his insolvency. The ill health led to reduction in income as he was unable to generate

sufficient business through Ocean City. To the extent that the operations of CAS

contributed to the assignment, T acknowledges bad judgment on his part in allowing the

loans without the necessary security.

Mr. Jacquemin had been provided with various business and financial records related to

CAS. The records confirm that CAS was in financial difficulty well before the

bankruptcy assignment. In the year before this hearing, CAS had made at least 16

separate loans to realtors in the amount of $5,000 each. The realtors paid interest on the

loans. Upon repayment from commissions, the monies had gone mostly to CAS investors

on a pro rata basis. Mr. Jacquemin had received approximately $11,000.

Since the assignment, Mr. T had operated Ocean City as the managing broker. He claims

to have reported all of his income to the trustee including a $100 payment received from

CAS. As the CRA was no longer garnishing T’s pension income, he was required to pay

a modest amount of surplus income during the bankruptcy term. Not all of that surplus

income was paid on time.

The trustee recommended a payment of $3,700 representing the payment of surplus

income ($250) for 15 months.

The OSB felt that the trustee’s recommendation was too lax and suggested that a number

of s. 173 (BIA) facts could be proven. Considering these facts, the amount owing to

creditors and the bankrupt's conduct pre and post assignment, a far greater payment to the

estate was warranted than that recommended by the trustee). The OSB submitted that: (1)

T is blameworthy for the manner in which CAS conducted its business and should be

held responsible; (2) T should not have continued to allow CAS to take investors and

make unsecured loans, knowing that CAS was insolvent; (3) T failed to perform duties

imposed by the BIA, including the omission of the $145,000 owed to family members in

his statement of affairs.

Mr. Jacquemin argued that Mr. Tregear failed to: keep proper books of account (s. 173(1)

(b)); account satisfactorily for loss of assets with respect to the condominium sale (s.

173(1) (d)); and/or make a viable proposal instead of the bankruptcy assignment (s.

173(1) (o)). He asked that a number of conditions be attached to the discharge, including

restitution, the return of the monies paid to family members with a distribution of those

monies to al creditors pro-rata and the payment of surplus income for the remainder of

T’s life.

The registrar found that T’s operation of CAS was the principal cause of the bankruptcy.

T’s conduct was found to be blame worthy; accordingly, a fact under s. 173(1) (a) was

proven. T was also found to have failed in his duties by not listing the debt to family

members; thus, a fact under s. 173(1) (b) was also proven. The registrar was not able to

find other s. 173 facts, as the bankruptcy in question was that of T and not that of CAS.

24

The registrar noted that when considering an appropriate order for discharge, he was

obligated to balance the need for rehabilitation against the rights of creditors to receive a

dividend. The registrar found that, given T’s age and current financial circumstances, the

trustee’s recommendation was not unreasonable In contrast, he found that the conditions

suggested by the OSB and the opposing creditor were too onerous and amounted to a

refusal of the discharge. He found that T’s conduct was not so exceptionally egregious to

warrant such an order. He noted that the bankruptcy court is not a forum to meet out the

type of punishment that might be seen in criminal or quasi-criminal proceeding.

The registrar considered various factors in determining the appropriate financial

conditions for discharge, including T’s personal circumstances and future earning

capacity; the amount owing to creditors; the proven facts under s. 173; and T’s conduct

before and after the bankruptcy assignment. He noted that while T had not “snubbed the

process”, his explanations for not disclosing the debts to family members was weak, and

he had neglected to pay all of his surplus income. He also noted that T fails to recognize

that it was more than bad judgment that led to the assignment. He found that further

rehabilitation was required.

At 73 years of age and with ongoing health issues, the registrar felt that it was improbable

that T would be capable of generating the income necessary to meet significant monetary

conditions. However, he observed that T continued to manage his real estate brokerage

firm and involve himself in the operation of CAS. He found that the appropriate order

was for T to be discharged upon the payment of $5,000 for the general benefit of

creditors.

***

Re Biblow, 2009 SKQB 76 (Judgement delivered February 17, 2009 by L.M.

Schwann)

See above under “RRSPs”.