Case summaries – Office of the Superintendent of Bankruptcy Canada
Getting out of your debts even through a bankruptcy or proposal may not necessarily wipe off all of your debts. As the case summaries published by the Office of the Superintendent of Bankruptcy illustrate, those debtor who in the opinion of the court, have acted in a flagrant and disregarding manner and committed an offence outlined under the Bankruptcy and Insolvency Act, can be held to account for a significant part of their personal debts.
Some of the reasons cited for discharge conditions include:
- Bankrupt brought on, or contributed to, the bankruptcy by rash and hazardous speculations or by unjustifiable extravagance in living
- Bankrupt did not keep proper books and records for the business.
- Bankruptcy failed to perform duties imposed by the Bankruptcy and Insolvency Act
- Bankrupt brought on, or contributed to, the bankruptcy by gambling.
- Bankrupt has been guilty of any fraud or fraudulent breach of trust.
- Bankrupt has allegedly committed an offence.
- Each discharge situation is unique and the specific circumstances of any individual and thus discharge terms are subject to significant variation. Expert advice should be sought from either a bankruptcy trustee or from a lawyer who practices in the insolvency area if you require advice about a specific situation.
Summaries are written for ease of understanding. Users wishing full information on the cases should consult the court decision. The court decision prevails.
Opposition to bankrupt’s discharge by the trustee and the OSB
Court/OSB No.: 11-1514900 (2012)
Background
A woman had 21 credit cards, and every month she paid off any money owing. With a zero balance on her credit cards, she took a trip to Las Vegas. In her two weeks there, she used the credit cards to make purchases and more than 130 cash withdrawals that amounted to $193,000. Two months later, she filed for bankruptcy. During her examination under oath with the Office of the Superintendent of Bankruptcy (OSB), she said that the cash was not for gambling but for an investment that was supposed to pay back a 30-percent return. She could not identify the investment company nor the hotel that held the investment seminar. When she filed for bankruptcy, she had no assets. The trustee and the OSB opposed her discharge.
The decision to oppose the bankrupt’s discharge was based on a number of facts, including:
- Bankrupt brought on, or contributed to, the bankruptcy by rash and hazardous speculations or by unjustifiable extravagance in living.
Court decision
The Court ordered that the bankrupt must pay $30,000 before she can be discharged and must provide her trustee with monthly income and expense statements for three years. She must also file a notice with national credit-reporting agencies that she cannot apply for credit for five years.
Opposition to bankrupt’s discharge by the trustee and a creditorCourt/OSB No.: 35-1393934 (2012)
Background
An individual failed to keep records or submit tax returns for his business for a period of over seven years on the basis that he could not afford the audits required. When he filed for bankruptcy, this first-time bankrupt had unsecured debts of $615,000, including more than $200,000 in back taxes. His trustee and the Canada Revenue Agency opposed his discharge.
The decision to oppose the bankrupt’s discharge was based on a number of facts, including:
- Bankrupt did not keep proper books and records for the business.
Court decision
The Court suspended his discharge for six months and ordered him to pay $100,000 to the bankruptcy estate. Upon the latter of the payment of $30,000 towards the conditional amount or the period of suspension, the bankrupt will be eligible to receive an absolute discharge on the condition of consenting to a judgment in favour of the trustee for the balance owing under the conditional order.
Opposition to bankrupt’s discharge by the OSB
Court/OSB No.: 41-1308169 (2012)
Background
A man who had been bankrupt before was living solely on welfare and family allowance payments. However, when he applied for credit cards, he said he was working and that he earned more than double his actual income. The man obtained more than 25 credit cards, gradually building up a debt of $74,000. In the year before his bankruptcy, he charged an additional $94,000 on credit, including more than $60,000 in cash advances. Some items that he bought on credit were sold or given away, including some that he sold after he had filed for bankruptcy. During his examination under oath with the Office of the Superintendent of Bankruptcy (OSB), he explained that he had had a drinking problem that made him gamble and spend wildly, and that he did not remember what he had bought or what he had done with the cash. The OSB opposed his discharge.
The decision to oppose the bankrupt’s discharge was based on a number of facts, including:
- Bankrupt brought on, or contributed to, the bankruptcy by unjustifiable extravagance in living or by gambling.
- Bankrupt has been guilty of any fraud or fraudulent breach of trust.
- Bankrupt has allegedly committed an offence.
Court decision
The Court refused to discharge the bankrupt.
Opposition to bankrupt’s discharge by the trustee
Court/OSB No.: 33-1497267 (2012)
Background
After losing her job, a woman sold a property to pay back a $50,000 loan from her sister and gambled with the remaining $20,000 she received from the sale. Although she was unemployed, she continued to gamble heavily. She indicated that to pay for her gambling, she obtained money from lines of credit, cash advances from credit cards or the sale of items she bought on credit, as well as from borrowing money from people she knew. Over four years, she accumulated debts of more than $215,000, continuing to gamble even after she knew she was insolvent. When she filed for bankruptcy, she reported $500 in assets. She continued to borrow money to gamble after her assignment into bankruptcy. Her trustee opposed the discharge.
The decision to oppose the bankrupt’s discharge was based on a number of facts, including:
- Bankrupt brought on, or contributed to, the bankruptcy by unjustifiable extravagance in living or by gambling.
- Bankrupt has failed to perform the duties imposed under the Act.
Court decision
The Court ordered the bankrupt to pay $21,000 to the estate and banned her for life from casinos anywhere in the world. She was also ordered to attend gambling-addiction counselling, and must show the Court that she completed the required sessions. After all of these conditions are met, the bankrupt will receive an absolute discharge.
Opposition to bankrupt’s discharge by the trustee and a creditor
Court/OSB No.: 42-1002551 (2012)
Background
An individual who had been previously bankrupt was operating a business with a partner. After resigning as president of the company, the individual stayed on to look after customer relations. He assumed that the other partner was looking after accounting. Tax liabilities accumulated such that when the individual declared bankruptcy, he owed $48,000 to Revenu Québec. While he was bankrupt and not yet discharged, the individual operated another business for which he was collecting, but not remitting, taxes owed. His trustee, as well as Revenu Québec, opposed his discharge.
The decision to oppose the bankrupt’s discharge was based on a number of facts, including:
- Bankrupt brought on, or contributed to, the bankruptcy by culpable neglect of business affairs.
- Bankrupt has on a previous occasion been bankrupt.
Court decision
The Court ruled that the bankrupt demonstrated negligence and carelessness in managing his business affairs, and attributed his insolvency to violation of tax laws and not to any cause beyond his control. The Court reiterated that the Bankruptcy and Insolvency Act should not be used as a quick and easy way for a person to be discharged from his/her debts and absolved of any responsibility. Accordingly, the Court discharged the bankrupt conditional upon payment of $54,500.
Opposition to bankrupt’s discharge by the trustee
Court/OSB No.: 41-0899110 (2012)
Background
A man whose only sources of income were welfare and child tax benefits incurred debts of more than $100,000 on 17 credit cards, mainly within the five-month period leading up to his bankruptcy. To obtain access to credit, this first-time bankrupt, who had been unemployed since 1999, would declare yearly income of $48,000 on credit-card applications. The trustee opposed his discharge.
The decision to oppose the bankrupt’s discharge was based on a number of facts, including:
- Bankrupt brought on, or contributed to, the bankruptcy by unjustifiable extravagance in living.
Court decision
The Court ordered the bankrupt to pay $20,000 to the estate.
Opposition to bankrupts’ discharge by the trustee
Court/OSB Nos.: 31-1263620 and 31-1269022 (2011)
Background
A husband and wife, while supporting their teenaged daughter, were earning about $1,800 a month. The husband was self-employed and had been bankrupt once. After remortgaging their house to consolidate their loans, they went on a two-year spending spree. They used credit cards for cash advances and purchases totalling $147,000 for the husband and $70,000 for the wife. About six months before filing for bankruptcy, the husband had a heart attack and was diagnosed with a chronic illness. The couple averaged over $8,500 a month in expenses; $800 of the monthly bill was for gas even though the husband had no work. When they filed for bankruptcy, they blamed the economy and their health problems for their financial difficulties, reduced household income and unmanageable debt load. The trustee opposed their discharge.
The decision to oppose the bankrupts’ discharge was based on a number of facts, including:
- Bankrupts continued to borrow after becoming aware of being insolvent.
- Bankrupts have failed to account satisfactorily for any loss of assets or for any deficiency of assets to meet liabilities.
Court decision
The Court found the bankrupts’ behaviour a very serious abuse of credit. The husband’s discharge was suspended for a year and he was ordered to pay $20,000 to the estate. As a first-time bankrupt, the wife’s discharge was suspended for six months, during which time she must begin paying $5,000 to the estate. After their discharge, they are both banned from applying for, acquiring or using credit for five years.
Opposition to bankrupt’s discharge by the trustee
Court/OSB No.: 31-1414288 (2011)
Background
Some two years before filing for bankruptcy, a woman realized she could not pay her debts but kept using credit cards to pay for living and other personal expenses. This included $15,000 to divorce her first husband. Using credit, she sent about $50,000 overseas to help pay for her second husband’s medical expenses and to help him immigrate to Canada. She said she was defrauded of $72,000 in a scheme to borrow more money to relieve her debt. She also gambled regularly although she was unsure how much this contributed to her debt. Following her second husband’s arrival in Canada, they separated after a few months—she had assumed that once he was in Canada he would help her to repay her debts. When she declared bankruptcy, she owed about $220,000 but had only $3,000 in assets. The trustee opposed her discharge.
The decision to oppose the bankrupt’s discharge was based on a number of facts, including:
- Bankrupt continued to borrow after becoming aware of being insolvent.
- Bankrupt brought on, or contributed to, the bankruptcy by rash and hazardous speculations, by unjustifiable extravagance in living or by gambling.
Court decision
The Court suspended the bankrupt’s discharge for six months. During that time, she must begin paying $20,000 to the estate, with a minimum monthly instalment of $200. For 10 years after her discharge, she must stay away from casinos and not apply for, acquire or use any credit card.
Opposition to bankrupt’s discharge by the OSB
Court/OSB No.: 41-1363231 (2011)
Background
A first-time bankrupt whose main family income was a welfare cheque of $1,100 per month incurred $96,000 in credit-card debt, half of it within six months prior to her bankruptcy. She reported obtaining $40,000 using credit cards, which she loaned to her son to pay down his debt. She admitted to declaring work income varying from $25,000 to $47,000 on credit-card applications, while her sole income was the welfare cheque. During her examination under oath with the Office of the Superintendent of Bankruptcy (OSB), she said she wasn’t aware of anyone within her family who had ever gone bankrupt. However, OSB records indicate that her husband, daughter, son-in-law and brother have all filed for bankruptcy in the past. The OSB opposed her discharge.
The decision to oppose the bankrupt’s discharge was based on a number of facts, including:
- Bankrupt brought on, or contributed to, the bankruptcy by unjustifiable extravagance in living.
Court decision
The bankrupt’s discharge was refused.
Opposition to bankrupt’s discharge by a creditor
Court No.: 700-11-002892-096 / OSB No.: 41-1231678 (2011)
Background
A woman took out a $50,000 line of credit to finance her university education. Shortly after she graduated and started working, she and her partner purchased a condominium. They had a baby and decided to sell the condominium and to buy a new house, taking on a $314,000 mortgage even though the woman was on maternity leave and was receiving only 55 percent of her salary. Within a year, she filed for bankruptcy with debts of close to $95,000. She stated that she chose bankruptcy instead of a consumer proposal because it meant making nine payments of $650 instead of 60 payments of $650. The bank opposed the discharge, arguing that she could have made a viable proposal as her education—paid for through the line of credit—could provide her with a good salary.
The decision to oppose the bankrupt’s discharge was based on a number of facts, including:
- Bankrupt could have made a viable proposal.
Court decision
The Court found that the principal reason for the bankruptcy was the couple’s decision to buy a new house instead of repaying their creditors first. Taking into account all of the facts, the Court ordered the woman to pay $18,000, in monthly installments of at least $355, before she can be discharged.
Opposition to bankrupt’s discharge by a creditor
Court No.: 700-11-011000-090 / OSB No.: 41-1083184 (2011)
Background
An individual took out a student loan while attending a professional private school. After graduating, he worked for three years but never made a payment against the loan. He then decided to change careers, quitting his job to return to school. He applied for a new student loan and paid the interest that had accumulated on his first student loan. After graduating, he looked for a job for several months and finally started a business without paying back his student loans. After two years, he changed jobs and began earning a salary of $68,000 a year. He lost his job months later and filed for bankruptcy. This first-time bankrupt had debts of $146,000, including $120,000 in student loans.
The decision to oppose the bankrupt’s discharge was based on a number of facts, including:
- Bankrupt is held responsible for having less than half the value of debts covered by the value of assets.
Court decision
The Court found that the bankrupt never intended to pay back his student loans. The Court ordered him to pay $50,000 to the bankruptcy estate before he can be discharged.
Opposition to bankrupt’s discharge by the trustee
Court/OSB No.: 31-1182271 (2011)
Background
An individual, separated from his wife, was paying legal expenses, child support and expenses for two households. He paid $240,000 for a new business, arranging a loan through a broker whom he said he could not name. Within three months, the business premises had been locked up by the landlord and the inventory was gone. The individual did not report the theft to the police because he claimed he could not prove that he owned the business. The bankrupt admitted to spending $10,000 gambling, but could not account for $120,000 of used credit. At the time of his bankruptcy, the individual had debts of $562,000, including $300,000 accumulated in the year prior to the bankruptcy.
The decision to oppose the bankrupt’s discharge was based on a number of facts, including:
- Bankrupt did not keep proper books and records for the business.
Court decision
The Court ordered the bankrupt to pay 25 percent of all proven claims and not to apply for, acquire or obtain any form of credit for five years. The Court ordered a suspended discharge for 24 months after the conditions are met.
Opposition to bankrupt’s discharge by a creditor and the OSB
Court/OSB No.: 33-1409737 (2011)
Background
A Canadian property manager owned rental properties in Florida. He did not pay the taxes owing on the rental income he earned. During his examination under oath with the Office of the Superintendent of Bankruptcy, he admitted that he transferred the properties to a numbered company and later to a business associate to avoid having the Canada Revenue Agency (CRA) foreclose on them. After he had not paid the taxes for more than 10 years, the CRA seized his disability benefits to cover his tax debt. The CRA recovered back taxes in this way for two years until he filed for bankruptcy. He said the reasons for his bankruptcy were his disability and loss of his pension. The bankrupt said he was retired and not earning income. In fact, he was still managing real estate in Florida and living there rent-free much of the year. When he filed for bankruptcy, he still owed $750,000 in taxes.
The decision to oppose the bankrupt’s discharge was based on a number of facts, including:
- Bankrupt brought on, or contributed to, the bankruptcy by culpable neglect of business affairs.
Court decision
The Court ordered the bankrupt to pay $375,000 to the bankruptcy estate before he can be discharged.
Opposition to bankrupt’s discharge by the trustee and a creditor
Court/OSB No.: 11-1321002 (2011)
Background
In the 10 years leading up to his bankruptcy, the self-employed bankrupt failed to file his income tax return or pay the taxes owed for his business, including $20,000 in GST remittances. At one point, he owed $150,000, with $111,000 owed to the Canada Revenue Agency, and he had assets of $4,000. When he filed for bankruptcy, this first-time bankrupt advised that marital separation and overwhelming tax debt led to his bankruptcy. At the time of his application for discharge, his estimated monthly income was $3,000, with the possibility to earn close to $5,000 monthly in a stronger economy.
The decision to oppose the bankrupt’s discharge was based on a number of facts, including:
- Bankrupt brought on, or contributed to, the bankruptcy by culpable neglect of business affairs.
Court decision
The Court found that the bankrupt willfully ignored his tax commitments, taking advantage of the fact that his taxes were not deducted at source. An aggravating factor was that the bankrupt failed to account for the GST he had collected over 10 years. Because of the bankrupt’s age and to encourage his rehabilitation, as a condition of his discharged he is required to pay only 50 percent of his tax debt over seven and a half years, for a total of $55,000. He also must file his income tax, GST and HST returns on time, and make timely payments.
Request by a creditor for the annulment of a bankruptcy by the Court
Court No.: 500-11-039140-104 / OSB No.: 41-1346608 (2011)
Background
An individual, married with two young children, had a medical doctorate and was in his fourth year of residency in neurosurgery. He was earning about $50,000 a year and had accumulated debts of about $248,000, including $190,000 owed on a line of credit. He asserted that he was suffering from psychological distress because of his debts and had fears of not being able to pay rent or to buy food and clothes for his family. He decided to file for bankruptcy even though his creditors had not asked for repayment. One of the creditors (the bank) asked the Court to annul the bankruptcy. The Court agreed that bankruptcy was inappropriate in the circumstances.
The decision to annul the bankruptcy was based on a number of facts, including:
- The BIA provides honest but unfortunate debtors with a way to make payments against obligations that are due or past due.
- This was a pre-emptive bankruptcy, because no creditors had demanded immediate payment or expressed concern about repayment—the stress was due to the future prospect of paying back the debts, not due to harassment by creditors.
- The individual made no effort to work with his creditors to find a solution.
- The individual was in a position to earn a considerable income once he completed his residency.
Court decision
The bankruptcy was annulled. The individual appealed the decision, but the appeal was refused.
Opposition to bankrupt’s discharge by the OSB
Court/OSB No.: 41-1321643 (2011)
Background
An individual had been earning $2,000 a month working at a restaurant. He was laid off when the restaurant was sold, and he then started using credit cards to support himself. He began using credit to gamble and buy goods he could not afford. He exaggerated his income on credit applications in order to receive additional credit cards. He used his credit cards to fund a $23,000 spending spree while he was out of the country, and to buy more than $10,000 of jewellery before leaving on his trip. Eventually, he owed 15 creditors almost $315,000, including a tax debt of about $76,000. He then filed for bankruptcy.
- Bankrupt brought on, or contributed to, the bankruptcy by unjustifiable extravagance in living or by gambling.
Court decision
The Court found that the bankrupt’s behaviour was neither honest nor unfortunate. Therefore, his discharge was refused.
Opposition to bankrupt’s discharge by the trustee and the OSB
Court/OSB No.: 11-1343807 (2011)
Background
An individual continued to use credit for extravagant purchases even after he knew he was insolvent. He sold $7,700 worth of items bought on credit but did not use the money received to pay down his debts. This first-time bankrupt owed almost $420,000 to 23 creditors. He claimed his bankruptcy arose from insufficient self-employment earnings. He also omitted to mention two of his credit cards to the trustee.
The decision to oppose the bankrupt’s discharge was based on a number of facts, including:
- Bankrupt continued to borrow after becoming aware of being insolvent.
Court decision
The Court suspended the bankrupt’s discharge for 24 months, ordered the bankrupt to pay the bankruptcy estate for the full amount of items purchased on credit and sold to a third party, and barred the bankrupt from applying for credit for 60 months.
Opposition to bankrupt’s discharge by the OSB
Court No.: 48-11-000026-089 / OSB No. 42-1114106 (2010)
Background
Two bankrupts filed jointly for their second bankruptcy. The husband had been injured and unable to work for several months; the wife had been laid off. Even after they realized that they were insolvent, they continued to use their credit cards for trips and extravagant items. They followed a pattern of exaggerating their income on their credit applications, spending to the limit of their credit cards and paying the minimum balance. In nine months, they accumulated an additional $100,000 in credit card debt, for a total debt amounting to $145,000. At the time of applying for discharge, the husband was working again and the wife had just finished working for eight months, as well as having completed training to increase her employment prospects.
The decision to oppose the bankrupt’s discharge was based on a number of facts including:
- Bankrupts brought on, or contributed to, the bankruptcy by unjustifiable extravagance in living.
Court decision
The registrar found that the conduct of the bankrupts was reprehensible as they exhibited extravagance, eccentricity and recklessness. The Court suspended the bankrupts’ discharges concurrently for a period of five years or until payment of $21,000 is made to the trustee, whichever occurs first. The Court indicated that the terms of this discharge take into account the public interest, financial morality, the integrity of the insolvency system and rehabilitation of the bankrupts.
Opposition to bankrupt’s discharge by the OSB
Court No.: 500-11-038771-107 / OSB No. 41-1237330 (2010)
Background
The bankrupt, with a reported income of $23,000, had acquired 20 credit cards and incurred upwards of $207,000 dollars of debt. He deliberately wrote cheques with insufficient funds to make payments on the credit cards. The bankrupt later established a shell company that he used to justify travel to different countries, where he supposedly bought telephone equipment destined to be resold in Canada. He used his credit cards as working capital to pay for the trips and goods. He sold the goods and equipment at a fraction of what he paid for them. He also made extravagant purchases, such as a diamond for $9,150. He bought a condominium for $133,000 using one of his credit cards for the down payment and, again using his credit cards, he made mortgage payments for 11 months.
The decision to oppose the bankrupt’s discharge was based on a number of facts including:
- Bankrupt brought on, or contributed to, the bankruptcy by unjustifiable extravagance in living or by culpable neglect of business affairs.
Court decision
The Court found that the bankrupt did, indeed, frustrate his creditors through deceitful financial practices and that such conduct was an aberration. To protect the public from such abusive conduct and to dissuade others who, like the bankrupt, might be tempted to take advantage of the insolvency system, his discharge was refused.
Opposition to bankrupt’s discharge by the trustee, a creditor and the OSB
Court No.: 500-11-037769-094 / OSB No. 41-1228039 (2010)
Background
The bankrupt had 24 credit cards. When he applied for credit cards in May and June of 2005, his declared income varied from $40,000 to $80,000 a year. However, the bankrupt later testified that he earned $30,000 annually from 2004 to 2006. The bankrupt also took expensive trips abroad when he was under financial hardship, using his credit cards to make purchases or to obtain cash advances. He would buy goods on credit and resell them. He would pay off his credit cards by cheque and then use the cards to buy goods or to obtain cash advances before the cheques bounced. When he filed for bankruptcy, he had accumulated over $329,000 of debt owed to 20 creditors.
The decision to oppose the bankrupt’s discharge was based on a number of facts including:
- Bankrupt has been guilty of any fraud or fraudulent breach of trust.
Court decision
The bankrupt’s discharge was refused as the Court determined that he caused his bankruptcy through unpardonable and reprehensible behaviour.
Opposition to bankrupt’s discharge by the trustee and the OSB
Court/OSB No.: 31-1210759 (2010)
Background
The bankrupt admitted to knowing that he was in financial trouble at least two years before declaring bankruptcy. However, in the year or so before declaring bankruptcy, the bankrupt applied for and obtained two more credit cards on which he accrued an additional $52,900 of debt. The bankrupt acknowledged that he provided false financial information to obtain credit. Also, the bankrupt stopped paying his creditors 11 months prior to declaring bankruptcy. One month later, he used his new credit card to travel abroad, spending $3,000 for the flight and $20,000 to purchase gifts. Within three months of returning from his trip, he declared bankruptcy, with $292,000 of debt. In addition, the bankrupt cashed in $23,000 of his Registered Retirement Savings Plans (RRSPs), which he did not disclose in his sworn statement to the trustee.
The debtor claimed that he sent $75,000 to his family abroad during the two-year period before bankruptcy to pay medical expenses, make financial support payments and pay ransom for a kidnapped brother. None of these claims could be supported by evidence of any kind. Also, according to the bankrupt, approximately half of his total debt could be attributed to gambling and accrued interest.
The decision to oppose the bankrupt’s discharge was based on a number of facts including:
- Bankrupt brought on, or contributed to, the bankruptcy by unjustifiable extravagance in living or by gambling.
Court decision
The Court ordered the bankrupt to pay $35,000 to the estate through minimum monthly payments of $150. He was further banned from gambling and from obtaining credit for five years, and was required to send notices to this effect to two credit-reporting agencies and to the Ontario Lottery and Gaming Corporation. In addition, the bankrupt was required to undergo at least six sessions of gambling counselling, which must meet the trustee’s satisfaction. His discharge was suspended for a year, concurrent to the above conditions being met.
Opposition to bankrupt’s discharge by the trustee and the OSB
Court/OSB No.: 31-1203267 (2010)
Background
While he was aware that he was in financial trouble, the debtor continued to use credit. He refinanced his house to buy out his wife’s share of $25,000 when they separated; he applied for and obtained new credit cards; he relied on additional credit to make minimum monthly payments on credit cards; he used more than $40,000 of credit to pay for rent, gambling and other expenses of another individual; he obtained credit for more than $90,000 to fund his own gambling; he used credit to pay for the support and education of his daughter abroad; he used credit amounting to about $30,000 to pay for his daughter’s wedding abroad and $8,000 to buy a car for his son. At the time of his bankruptcy, the debtor, now a bankrupt, had debts of $194,600 and assets of $5,750.
The decision to oppose the bankrupt’s discharge was based on a number of facts including:
- Bankrupt brought on, or contributed to, the bankruptcy by unjustifiable extravagance in living or by gambling.
Court decision
The Court ordered the bankrupt to pay the trustee $30,000 in installments over a 69-month period. The Court further banned the bankrupt from obtaining any form of credit for two years and from gambling for five years. Concurrently, the Court suspended his discharge for six months. The Court required that a copy of the Court Order be provided to credit-reporting agencies (Trans Union and Equifax) and to the Ontario Lottery and Gaming Corporation.
Opposition to bankrupt’s discharge by the trustee and a creditor
Court/OSB No.: 11-250339 (2009)
Background
Information provided by the bankrupt at the time of filing for bankruptcy with regard to a $200,000 second mortgage, registered against his property less than a year before filing for bankruptcy, was not accurate. Also, the bankrupt did not disclose that he had not received any funds in consideration of granting this mortgage. In addition, the trustee indicated that the bankrupt had been uncooperative regarding dealing with his property. The creditor opposing the discharge provided information to the Court showing that the bankrupt put the creditor to unnecessary expense as the creditor was taking steps to obtain payment. The bankrupt did not appear at the discharge hearing.
The decision to oppose the bankrupt’s discharge was based on a number of facts including:
- Bankrupt has put any creditors to unnecessary expense by a frivolous or vexatious defense.
Court decision
The Court found that the bankrupt was not only evasive and uncooperative but also disruptive and caused additional expense for creditors. The Court found that he had not rehabilitated himself and as a result of his conduct the Court refused his discharge.
Opposition to bankrupt’s discharge by the trustee and a creditor
Court/OSB No.: 32-839458 (2009)
Background
A second-time bankrupt closed his autobody shop business and became a tow-truck driver for his brother’s company. His brother had taken over the bankrupt’s autobody shop leases for equipment and the premises. The bankrupt did not disclose to the trustee his half ownership in the family home, nor did he identify as creditors the holders of three mortgages against it. He also did not report the entirety of his income. The bankrupt had served jail time and, with money borrowed from his brother, had paid $50,000 in restitution for fraudulently selling leased equipment worth $400,000. At the time of his application for discharge, the bankrupt had surplus income of $1,000 a month.
The decision to oppose the bankrupt’s discharge was based on a number of facts including:
- Bankrupt did not keep proper books and records for the business.
- Bankrupt has been guilty of any fraud or fraudulent breach of trust.
Court decision
While the bankrupt argued that he had already been punished for his crimes, the Court responded that his bankruptcy was a separate issue. The Court refused to grant a discharge to the bankrupt. In addition, before he could reapply for discharge from bankruptcy, the bankrupt was required to either give his defrauded creditors information for recovering their equipment or pay 100 cents on the dollar for their proven claims. The Court further reminded the bankrupt of his ongoing surplus income obligation (payment of part of the surplus to be made to his bankruptcy file) while he remains undischarged.
Opposition to bankrupt’s discharge by the trustee and the OSB
Court/OSB No.: 31-1142522 (2009)
Background
The bankrupt increased his personal debt by $176,000 within 12 months of filing for bankruptcy, even though he knew he was in financial trouble. The bankrupt claimed that the credit was used to fund a business venture, which he could not prove. During the same period, the bankrupt obtained $32,000 of additional credit. The bankrupt was unable to provide any written documentation to support his claims for how these funds were spent. When he filed for bankruptcy, his business partner had disappeared and his total debt had reached more than $236,000. The bankrupt declared his total assets were less than $9,000, but failed to declare an interest in a property overseas and the disposition of a motor vehicle.
The decision to oppose the bankrupt’s discharge was based on a number of facts including:
- Bankrupt did not keep proper books and records for the business.
- Bankrupt continued to borrow after becoming aware of being insolvent.
- Bankrupt brought on, or contributed to, the bankruptcy by rash and hazardous speculations.
Court decision
The Court found the entire business scheme to be evidence of rash or hazardous speculation. The Court described the venture as “dubious” and “so beyond the reasonable as to verge on unbelievable.” There was no documentary evidence to support claims relating to the business scheme. The bankrupt squandered huge sums of money in goods and cash. The Court determined that the bankrupt was completely irresponsible in his use of credit. The Court issued an order refusing the bankrupt’s discharge and requiring the bankrupt to provide full details of his interest in his properties abroad.
Opposition to bankrupt’s discharge by the trustee, a creditor and the OSB
Court/OSB No. 31-846125 (2007)
Background
The bankrupt, who testified he was addicted to gambling, bought a substantial amount of goods on credit, purportedly for the purpose of reselling the goods to raise cash to fund his gambling. He received payment for some of these goods in the form of cheques. Participating in a kiting scheme, the bankrupt used cheques to pay his credit-card account, withdrawing additional funds in the form of cash advances before the worthless cheques bounced. He contributed to his insolvency by gambling, which accounted for all of the $181,000 of debt he incurred.
The decision to oppose the bankrupt’s discharge was based on a number of facts including:
- Bankrupt continued to borrow after becoming aware of being insolvent.
- Bankrupt brought on, or contributed to, the bankruptcy by gambling.
Court decision
The Court found that the bankrupt was not unfortunate, having brought all of his financial troubles upon himself, with no real excuse. The Court ruled that gambling was the cause of his insolvency. The bankrupt was required to repay the trustee $41,600 within 20 months. He was banned from gambling and from applying for or using credit for five years. His discharge was suspended for three years, concurrent to the above-noted conditions
Supreme Court of Canada, Debtor in Possession Priority
February 4, 2013 6:15 pm Published By Colleen Leave your thoughts
Supreme Court of Canada, DIP Priority
CAIRP Announcement
February 4, 2013
In a land mark decision the Supreme Court of Canada has confirmed the supremacy of DIP super-priorities
The Supreme Court of Canada (“SCC”) released last Friday, February 1st, its much awaited decision in Indalex[1], in which it overturned the Ontario Court of Appeal(“OCA”), and ruled that DIP charges have priority over deemed trust for pension plans deficiencies.
The SCC ruled, with a 5-2 majority, in favor of the appellant Indalex Limited (“Indalex”) as well as CAIRP, who had intervened in the case. Though two members of the SCC dissented as to the ultimate conclusion, the Court did unanimously hold that the Companies’ Creditors Arrangement Act (“CCAA”) debtor-in-possession interim financing charges (“DIP”) have precedence over a deemed trust created by virtue of the Pension Benefits Act (Ontario) (“PBA”).
Although there was disagreement within the Court as to the exact scope of the PBA deemed trusts, the Court unanimously found that such deemed trust did not have priority over DIP charges. Based on the doctrine of paramountcy, the Court concluded that since DIP charges are granted under the powers conferred by a federal statute, they trump provincial deemed trusts.
As regards the executive plan of the company, the Court held that as it had not been wound up at the time of the insolvency, the deemed trust could not include any wind-up deficiency.
In addition, the SCC also recognized that Indalex, as an administrator of the pension plans, owed fiduciary duties to the plans’ beneficiaries, which in this case were possibly breached by Indalex. However, the SCC rejected the idea that the breach of such fiduciary duties might be constitutive of a constructive trust in equity.
The reasoning of the Court in this regard appeared to have been based, amongst others, on the arguments put forward by CAIRP in its intervention. CAIRP pleaded that Parliament had considered giving a particular protection to pension plans in the context of insolvency proceedings, but ultimately had decided not to do so. The Court held that it was not possible to rely on equity to grant remedies that Parliament considered but chose not to adopt in the applicable legislation.
Accordingly, the SCC held that the OCA erred in finding that the payment of the reserved amounts to the pension plan was an appropriate remedy and it ordered that the sums reserved be remitted in repayment of the DIP loan.
Background
Indalex had sought protection from its creditors under the (Companies Creditors Arrangements Act) CCAA in April of 2009. At the time of the filing, Indalex was the sponsor and administrator of two pension plans, one for the salaried employees, which had by then been wound up, and another for the executives, which was then not wound up. Both plans were underfunded.
Early into its restructuring, Indalex had sought and obtained a court order authorizing a DIP loan, which was secured by a super-priority charge over Indalex’s property. Further to the sale of Indalex’s assets, a part of the proceeds were retained, pending a decision on the pension plans beneficiaries’ claim which ultimately led to the SCC decision. The beneficiaries of the plans claimed that the scope of the deemed trust under the PBA included amounts required to pay the wind-up deficiencies under the plans, that the alleged PBA deemed trusts ranked in priority to the DIP charge, and that sale proceeds should therefore be applied against the deficiencies under the plans.
The CCAA court initially rejected the arguments of the pension plan beneficiaries and ordered that the amounts be distributed on account of the DIP, but the OCA reversed the conclusion of the CCAA court.
Contrary to the CCAA court, the OCA held that the PBA deemed trust, which it found to be applicable to the salaried plan deficiency, ranked ahead of the DIP charge. The OCA also determined that there existed a constructive trust in favor of the executive plan funding deficit as a consequence of Indalex’s breach of certain of its fiduciary duties owed to the plans beneficiaries, inasmuch as Indalex was also the administrator of the plans. The constructive trust was also held to rank ahead of the DIP charge.
Conclusion
CAIRP welcomes this decision which is clearly in the direction of CAIRP’s pleadings to the Court. The decision clarifies the status of DIP priorities and hopefully puts an end to the uncertainties cast by the earlier OCA’s decision. As was submitted forcefully by CAIRP before the Court in May 2012, maintaining the OCA’s decision would have created uncertainty on the status of DIP super-priority charges vis-à-vis deemed trusts created under provincial laws. This decision consolidates and properly realigns the Canadian regime.
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[1] Sun Indalex Finance, LLC v. United Steelworkers, 2013 SCC 6
Canadian Association of Insolvency and Restructuring Professionals
277 Wellington Street West, Toronto, ON M5V 3H2
Phone 416.204.3242 | Fax 416.204.3410 | Email info@cairp.ca
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