Insolvency Case Law Digest 2004 — Part 3

Directors' Liability

In the matter of the bankruptcy of Castor Holdings Ltd.

Quebec Superior Court
Journet J.C.S.

Citation: [2004] Q.J. No. 12145

Facts:  On March 21, 1991, the board of directors of Castor Holdings Ltd. (the "debtor") adopted a resolution declaring dividends in the amount of over $15.5M. A Receiving Order was issued against the debtor in July 1992. On December 4, 1992, a Petition for Reimbursement of Dividends was filed against the directors of the debtor, jointly and severally, pursuant to the Bankruptcy and Insolvency Act (BIA). It was alleged that the directors had not opposed the payment of the declared dividends and that the latter were paid to the shareholders during the twelve month period preceding the date of the bankruptcy, at a time when the debtor was insolvent. In response, one of the directors presented a Motion for Declinatory Exceptions, alleging that the Superior Court of Quebec, before which the Petition was commenced, had no jurisdiction against him since his real domicile was not in Quebec, nor did he reside nor possess property in Quebec. The basis for his argument was that the Court did not have jurisdiction pursuant to the private international law of Quebec.

Note: For the purpose of this summary, only arguments and reasons pertaining to the jurisdiction pursuant to the Bankruptcy and Insolvency Act are presented.

Issue:  Did the Superior Court of Quebec have jurisdiction over the director, pursuant to the BIA?

Decision:  The Superior Court of Quebec had jurisdiction in the bankruptcy. Therefore, the whole bankruptcy case should be heard by the same court. The Petition for Reimbursement of Dividends, as part of the bankruptcy case, was rightfully instituted in the Quebec Superior Court sitting in bankruptcy.

Discussion:  The fact that the debtor had carried on business in Quebec during the year preceding its bankruptcy was enough to establish that the locality of the debtor was in Quebec and that the Superior Court of Quebec had jurisdiction, pursuant to paragraph 2(1)a) of the BIA. Relying on the interpretation given by case law to subsection 81(5) of the BIA, the Court determined that the whole bankruptcy case should therefore be heard by the same court.

In the matter of Moriyama v. Canada

Tax Court of Canada
Bonner, T.C.J.

Citation: 2004 TCC 311

Facts:  Amid some changes in the legal framework governing the distribution of satellite services and disagreements with its financial advisors, Jetcom Communications Inc. ("Jetcom") found itself in financial peril. From January to December 1997, almost all of Jetcom's GST returns were filed late and no payments were remitted. When Mr. Moriyama, the sole director of Jetcom, learned of the remittance problems, a series of cheques were issued in October 1997 to pay arrears. Jetcom then failed to remit payments from October 1997 to February 1998. In the following months, Mr. Moriyama made commitments and arrangements with Canada Customs and Revenue Agency ("CCRA") officials to remain current and retire arrears. Nevertheless, a subsequent return was filed late and on December 4 1998, Jetcom became bankrupt. The amount due, including net tax, interest and penalties totalled $276,277. Due to the fact that GST returns periods ending October and November 1998 had not yet been filed, CCRA filed a first proof of claim related to reporting periods between August 1997 and August 1998. In January 2000, CCRA submitted an amended proof of claim to include Jetcom's liability for October 31 to November 30, 1998. The Excise Tax Act (the "ETA") imposes liabilities upon a director in respect of corporate failure to remit an amount of net tax. However, under subsection 323(3) of the ETA, a director is not liable if he or she has exercised a degree of care and diligence to prevent the failure. Furthermore, pursuant to paragraph 323(2)c), a director is not liable unless "a claim for the amount of the corporation's liability […] has been proved within six months after the assignment or receiving order."

This case deals with three issues: 

1. Application on behalf of Mr. Moriyama to vacate the assessment on the ground that the individual who issued it was not authorized to do so; rejected.

2. Due diligence defence under subsection 323(3) of the Act; rejected.

3. Validity of CCRA's proof of claim given the amendments and the late filing.

This case summary presents a discussion of the third issue surrounding the proof of claim only. Please refer to the complete decision for the analysis of the other issues.

Issue: Did the late filing of CCRA's amended proof of claim exclude Mr. Moriyama's liability under the Act?

Decision:  Paragraph 323(2(c) of the ETA is a directory provision. Therefore, the late filing of the amended proof of claim was not fatal.

Discussion:  CCRA argued that the amended proof of claim satisfied the paragraph 323(2(c) requirement of the ETA, which is directory in nature only. Counsel argued that the assessment under appeal was saved by subsection 299(5), which states that an appeal shall not be allowed by reason only of an irregularity in respect of any directory provision. In determining whether paragraph 323(2(c) is mandatory or directory, the Court relied on a balancing test, as set out in Ginsberg v. The Queen, 96 D.T.C.6372 (F.C.A.). The Court found that paragraph 323(2(c) was directory. The late filing of the amended proof of claim was therefore not fatal.

Appealed

In the matter of Peoples Department Stores Inc. (trustee of) v. Wise

Supreme Court of Canada
Iacobucci, Major, Bastarache, Binnie, LeBel, Deschamps and Fish JJ.

Citation:  2004 SCC 68

Facts:  Following a purchase agreement entered into with Marks and Spencer Canada Inc ("M & S"), Peoples Department Stores Inc ("Peoples") became a wholly-owned subsidiary of Wise Stores Inc. ("Wise"). The majority shareholders were three brothers, who also acted as directors of Wise and Peoples. In an attempt to consolidate the overlapping corporate functions of these two corporations, the directors implemented a joint inventory procurement policy. Under this new arrangement, Wise would handle purchase orders from overseas suppliers while Peoples would deal with North American suppliers. Peoples would receive a fee for all purchases it made on behalf of Wise. However, the policy did not lead to the desired outcome. By June 1994, Wise owed approximately $18 million to Peoples. Following the announcement of disappointing financial results, M & S petitioned Wise and Peoples into bankruptcy. The assets of these two bankruptcy estates were hardly sufficient to satisfy trade creditors. Following the bankruptcy, Peoples' trustee filed a petition against the three directors, alleging that they breached their fiduciary duty and their duty of care towards Peoples' creditors under s. 122 of the Canada Business Corporations Act (the "CBCA"). The trustee also claimed that, contrary to s. 100 of the Bankruptcy and Insolvency Act (BIA), the directors had been privy to transactions allowing for the transfer of inventory for conspicuously less than fair market value. These transactions were conducted in the year prior to the bankruptcy. The trial judge's decision to hold the directors liable was overruled by the Court of Appeal.

Issues: 

1. Was the inventory transferred for conspicuously less than fair market value? In the affirmative, were the directors privy to these reviewable transactions under s.100 of the BIA?

2. Did directors of the insolvent corporation owe a fiduciary duty or a duty of care to the creditors?

Decision: 

1. The inventory transactions respected the requirements of s.100 of the BIA.

2. The obligations of directors under s.122 of the CBCA extended to a duty of care only.

Discussion:  The Supreme Court of Canada determined that the difference between the consideration the bankrupt received, and the set market price of the inventory was slightly over six percent. The Court did not consider that this disparity constituted a conspicuous difference within the meaning of s.100 of the BIA. The Court held that the main objective pursued by s.100 was to avoid transactions capable of hindering the value of the bankrupt's estate to the detriment of creditors. The term "privy" was largely interpreted to include the directors of the bankrupt corporation because they were the controlling minds behind the disputed transactions. In addition, the transaction must have been made with those individuals' knowledge and for a consideration conspicuously greater or less than fair market value. Finally, they must have directly or indirectly benefited from it. Those conditions were not present in the case at bar. The good faith of the parties and the consideration received from the transfer of property are among the various factors that guided the Court in the exercise of its discretion.

Furthermore, the new procurement policy was adopted in the best interests of the corporation as it presented a potential solution to the corporation's inventory problems. In implementing this policy, the directors acted in accordance with their fiduciary duty as prescribed in s. 122 of the CBCA. This fiduciary duty did not extend to creditors because the latter had access to other remedies to protect their interests. However, the Court held that directors did have a duty of care towards creditors. The directors did not breach this duty because their decision to put the policy into effect was reasonable in light of all the circumstances.

Levy

In the matter of 501666 B.C. Ltd. (c.o.b. Electric Zoo Graphics) (Re)

Supreme Court of British Columbia
Registrar Blok

Citation:  2004 BCSC 1703

Facts:  This matter involved the taxation of a trustee's statement of receipts and disbursements. All proceeds of the estate were paid to Dr. Bridger, a dentist and secured creditor. Dr. Bridger filed no proof of claim in the bankruptcy nor did he appoint the trustee as an agent or receiver. The bankrupt, too, failed to disclose Dr. Bridger's security interest in its statement of affairs.

Issue:  Did the Superintendent's levy apply as against the proceeds?

Decision:  The Registrar ruled that the levy is not payable.

Discussion:  Counsel for the Office of the Superintendent of Bankruptcy ("OSB"), referring to subsection 147(l) of the Bankruptcy and Insolvency Act (BIA), emphasized the first use of the word "otherwise" in that subsection and urged the Registrar to conclude that the levy ought to be paid. Counsel also referred the Registrar to two cases that supported his argument: Re Alger Press Limited and Re Zutphen Bros. Construction Ltd. Counsel for Dr. Bridger, in return, referred to Re Brittain Steel Ltd where Justice Saunders ruled that for a levy to be payable, the creditor must file a proof of claim.

In his decision, the Registrar relied on Re Brittain Steel. In his view, he is bound by Justice Saunders' decision: "In my view, a levy is not payable in the case of a secured creditor who has not filed a proof of claim."

Appealed

In the matter of Coffey (Re)

Supreme Court of Newfoundland and Labrador
Orsborn J.

Citation: 2004 NLSCTD 22

Facts:  In March 2000, James Coffey obtained a $60,000 line of credit from CIBC. In January 2002, he obtained a second line of credit for $80,000 from the Bank of Montreal in order to repay CIBC and also obtained an extra line of credit. Julie Coffey is a co-borrower on the latest line of credit. The bank approved the new line of credit because Mr. Coffey would obtain a diploma in medicine in May 2003 and, from that moment on, he would receive a salary of approximately $32,000. In June 2002, Mr. Coffey in addition to his line of credit also received a student loan of $6,000 to $7,000 but he still needed more funds to complete his final year of studies. Mr. Coffey discussed his financial situation with a trustee in bankruptcy who, after considering Mr. Coffey's relatively low income compared to his debts, recommended that Mr. Coffey file an assignment in bankruptcy. Mr. and Ms. Coffey filed an assignment in bankruptcy in September 2003 despite the fact that their creditors were not pressuring them to repay their debts.

Issue:  Should the bankrupts be absolutely discharged, conditionally discharged, or should the bankrupts' discharge be refused?

Decision:  James Coffey was discharged on the condition that he consent to an order for $80,000 in favour of the trustee. The order would not be executed as long as Mr. Coffey complies with the payment schedule established by the judge. As for Julie Coffey, she was discharged unconditionally.

Discussion:  The court was not prepared to grant an absolute discharge because the value of Mr. Coffey's assets was not equal to fifty cents on the dollar on the amount of his unsecured liabilities as prescribed under paragraph 173(1)(a) of the Bankruptcy and Insolvency Act (BIA). Furthermore, he did not establish that he "cannot justly be held responsible" for the amount of his unsecured liabilities.

The bank loan advanced to Mr. Coffey was not granted in consideration of his current ability to pay, but in consideration of his future ability to pay. Mr. Coffey's anticipated ability to pay the loan after his studies was not questioned and nothing in Mr. Coffey's situation changed since the date the Bank of Montreal accepted to grant the line of credit. Mr. Coffey is not under pressure from creditors, and a release of his debts would not offer him a fresh start, but it would allow for the continuation of a steady path so that he may achieve his degree in medecine. To permit a discharge in the circumstances would hinder the integrity of the bankruptcy process. The Court was of the view that a conditional discharge must be granted. It must reflect James Coffey's present and anticipated ability to pay his liabilities.

The court also held that, in the circumstances, the trustee's recommendation to grant an absolute discharge was not in accordance with his duty to maximize the estate for the benefit of the creditors.

In the matter of the bankruptcy of Cyrenus Joseph Dugas

New Brunswick Court of Queen's Bench
Registrar Bray

Citation: 2004 NBQB 200

Facts:  Peter Gaudet, Adam Gaudet, and 508571 N.B. Ltd.(the "Creditors") opposed Mr. Dugas' (the "bankrupt") discharge claiming that he had not paid a debt of $2,050,000. This debt was the result of a judgment arising from an action for breach of contract involving the sale and purchase of a snow crab licence, the quota and benefits attached, and a fishing vessel. The Creditors argued that the fishing licence, if surrendered, could have generated surplus income in order to substantially reduce, if not completely eliminate, the liabilities of the estate. The Creditors also argued that the bankruptcy was nothing but a tactic to avoid having to pay the judgment debt. Furthermore, the trustee stated that the bankrupt could have made a viable proposal. It is to be noted that the trustee also opposed the discharge on the basis of subsection 173 (1) of the Bankruptcy and Insolvency Act (BIA). For his part, the bankrupt argued that the judgment debt was not the cause of his bankruptcy, but rather was the result of aggressive recovery attempts made by the Creditors. Furthermore, he indicated that his creditors aggressive attempts to collect made it impossible for him to make any proposals. In addition, he stated that his waiver of revenues for the 2003 fishing season gave him immunity from a evaluation by the trustee pursuant to s. 68 of the BIA.

Issue:  Given the circumstances, was it appropriate to grant the bankrupt's discharge? If so, what were the appropriate conditions, if any, to be imposed?

Decision:  The Court granted a suspended discharge. In addition, the following conditions were imposed:

1. The bankrupt must complete and submit a financial statement for each month of the bankruptcy;

2. He must cooperate fully with the trustee and remit all surplus income until the end of the suspension of the discharge;

3. In the event that the bankrupt transfers his rights in the fishing license in a non-arm's length transaction, 30% of the consideration will be used to calculate his income for the purposes of s. 68 of the BIA.

4. If such a transfer is in an arm's length transaction, the calculation of income shall include 70% of the consideration.

Discussion:  In the case at bar, the bankrupt's inability to pay the judgment debt was the main cause for bankruptcy. Although the bankrupt maintained that this inability was the result of the Creditors' aggressive collection action, the Registrar found no fault with the Creditors' actions.

In regards to the possibility of filing a proposal, the Registrar explained that there was no reason why a proposal would not have succeeded under normal business circumstances. He added that although a snow crab license was not in itself an asset which could be seized and sold for the benefit of the Creditors, it would have been erroneous to suggest that the bankrupt had no right to the benefits emanating from the license. The earning potential of the bankrupt arising from the license was to be scrutinized in order to establish the conditions of discharge. To withhold income arising from the license would not only have hindered the creditors, but would also have gone against the principles of the bankruptcy legislation representing the public interest. Finally, it appeared that the value of the bankrupt's assets was not equal to fifty percent of the debts and that the bankrupt failed to maintain proper books and records.

Appealed

In the matter of the bankruptcy of Pierre Gadoury

Quebec Superior Court
Registrar Pellerin

Docket: 500-11-022518-043

Facts:  On June 16, 2003, Pierre Gadoury (the "debtor") made an assignment in bankruptcy. In the bankruptcy documents, the debtor maintained that he had never before declared bankruptcy in Canada. As it turned out, not only had the debtor declared bankruptcy in 1989, but he had not yet been discharged at the time of the second filling. Therefore, the trustee motioned to have the second bankruptcy annulled.

Issue:  Could the debtor make an assignment in bankruptcy while still undischarged from a prior bankruptcy?

Decision:  The Court annulled the second assignment in bankruptcy.

Discussion:  The Court concluded that the legislature clearly intended that prerogatives under the Bankruptcy and Insolvency Act (BIA) be reserved to debtors who are not undischarged bankrupts. First, s. 49 presents the requirements to be eligible to file an assignment in bankruptcy. A person must be insolvent, and the s. 2 defines such a person as being "a person who is not bankrupt". Secondly, the Court concluded that since subsection 71(2) of the BIA vests property in the trustee, "it seems obvious that the legislature could not have conceived the possibility for a debtor to simultaneously submit creditors to two different bankruptcy cases".

The debtor contested the trustee's motion relying on two similar cases. However, in one of the cases, the judge recognized that the courts had established the principle according to which, because of the forementioned provisions, the filing of a second bankruptcy by an undischarged bankrupt was null ab initio — from the start. In the case presented by the debtor's lawyer, the judge had concluded otherwise. In the case at bar, the Court set aside the latter's reasoning and applied the rule establishing that an undischarged bankrupt cannot file for a second bankruptcy.

In the matter of Robert Ross Garfat (Re)

Supreme Court of British Columbia
Registrar Bouck

Facts: Mr. Garfat ("bankrupt") is 51 years old and resides with his wife, Ms. Johnson. The couple lives in a modest home inherited from Ms. Johnson's mother. No rent nor mortgage debts are claimed in the statement of receipts and disbursements. Mr. Garfat had obtained a student loan form Human Resources Development Canada ("HRDC") in order to finance his post-secondary education for which he completed his last year of study in 1989.

After his studies, Mr. Garfat worked free lance before becoming director of a theatre company in Vancouver. He made minimal payments on his student loan since 1989. Six years ago, when the couple moved to Vancouver Island, Ms. Johnson became the owner of a bookstore of which Mr. Garfat considered himself an employee, even though he received monthly earnings equivalent to half the store's profits. To this day, the store has generated very little revenue. Mr. Garfat chose not to seek employment elsewhere because he believed that stores like "Chapters" offer short-term jobs that pay only minimum wages, but he acknowledged that the minimum wages are higher than his current earnings. He contended that he would not integrate well with a group and that he liked the challenges related to his current employment.

Mr. Garfat declared numerous discretionary expenditures, including monthly expenses ranging from $700 to $800 for groceries and the purchase of a $300 motor for a hot tub he considered essential due to Ms. Johnson's arthritis. He made reference to the importance of healthy eating to explain why he spent so much on groceries. Mr. Garfat and Ms. Johnson each own a vehicle that needs repairs and maintenance. Mr. Garfat admitted that, by filing for bankruptcy, his main objective is to discharge his student loan.

Issue:  Despite HRDC's opposition, does Mr. Garfat have the right to an absolute discharge?

Decision:  The Court was of the opinion that an application for absolute discharge must be rejected in light of Mr. Garfat's refusal to take responsibility for his student loan. For four months starting January 2004, the bankrupt had to submit to the trustee his account statements along with surplus income payments according to the Superintendent's guidelines. The Court did not fix minimal monthly payments but expected that Mr. Garfat's expenses would diminish.

Discussion:  HRDC alleged that the bankrupt was voluntarily under-employed, that he admitted that his willingness to discharge his loan motivated him to declare bankruptcy and that for these reasons the bankrupt should not be granted an absolute discharge. HRDC also contended that by eliminating discretionary expenditures relating to vehicle repairs and by reducing food expenses, the bankrupt would be able to transfer his surplus income to HRDC.

The Court considered that an absolute discharge of the bankrupt would prejudice HRDC, the only significant creditor. To erase the loan would be to abuse the system, given that the bankrupt benefited from an education funded by Canadian taxpayers and made minimal efforts to repay the loan. Despite Mr. Garfat's statements, the court believed that the bankrupt did not seriously consider paying back the loan. The bankruptcy did not result from misfortune, but rather from the bankrupt's epiphany: having reached the age of fifty, wanted a fresh start. Nevertheless, even if Mr. Garfat obtained a better paying job, it was unlikely that significant payments would be made to the creditor. In addition, even if Mr. Garfat lowered his expenses, most of the money would go to the trustee, and payments made to the creditor would not be sizeable. Considering the bankrupt's personality, it was doubtful that he would be able to maintain employment in a large organization such as "Chapters" and nothing suggests that his field of study would open the door to higher paying job opportunities.

In the matter of Jefferson (Re)

British Colombia Supreme Court
Registrar Baker

Citation: 2004 BCSC 144

Facts:  Mr. Jefferson ("bankrupt") applied for his discharge pursuant to section 172 of the Bankruptcy and Insolvency Act (BIA). His former wife, Ms. Larsen, opposed the discharge by invoking grounds referred to in section 173(1) of the BIA. She is an unsecured creditor by virtue of a decision rendered during the divorce proceedings. Her counsel also raised questions as to Mr. Jefferson's credibility and degree of disclosure of documents.

Issue:  Did the conduct and the actions of Mr. Jefferson, during his bankruptcy, lead the court to believe that section 172 and 173(1) of the BIA should be applied, hence, suspending or imposing a condition on the bankrupt's discharge?

Decision:  The bankrupt failed to fulfill his duties under section 158 of the BIA. He was granted a conditional discharge and had to pay his trustee the sum of $50,000. His discharge is also suspended for six months, starting on the date of the payment.

Discussion:  The bankrupt's evidence relating to his assets, their value and his financial affairs was inaccurate and unreliable. The Registrar stated that Mr. Jefferson misrepresented his situation in an attempt to facilitate his discharge by omitting to provide accurate information about his financial situation. The bankrupt's declarations regarding his reasons for bankruptcy were inconsistent. The Registrar rejected Mr. Jefferson's allegations that his assignment in bankruptcy was triggered by financial difficulties, and concluded that the bankruptcy was a result of the judgment rendered in favour of Ms. Larsen.

With respect to Mr. Jefferson's income during the bankruptcy, the Registrar concluded that it was very difficult to accurately or reliably calculate it given that he did not provide any significant evidence to justify recent or current income. The Registrar stated that the amount of $57,828 established as Mr. Jefferson's income by Judge Pratte during the divorce, 10 months prior to the bankruptcy, set an appropriate benchmark for determining his current income.

The sale of the residential property to Ms. Middleton, his new partner, was done under suspicious circumstances and accentuates doubts in regards to his demeanour throughout the proceedings. In this regard, the Registrar indicated that Mr. Jefferson's lack of knowledge regarding the appraisal amount of the residence led the court to believe that either the bankrupt was not honest in his evidence or rather that he was extremely casual in regards to his attitude towards his own assets and bankruptcy. This approach was also evident in respect of his financial obligations. In terms of the value of the bankrupt's company and the purchase of its assets, the Registrar asserted that the bankrupt has continued his business activities under a new name. On different occasions, the bankrupt offered contradicting answers in response to questions relating to his use of Ms. Middleton's credit cards as well as undeclared funds. The Registrar concluded that the bankrupt's carelessness to properly list and value his shareholding interest in his company and in his statement of affairs, in addition to his lack of any effort to deliver the books and records, led to the application of section 172 and 173(1) of the BIA.

In the matter of David Michael Morgan (Re)

Supreme Court of British Columbia
Registrar Bouck

Citation: 2004 BCSC 1602

Facts:  On February 25, 2004, Mr. Morgan ("bankrupt") made an assignment in bankruptcy. His debts consisted mainly of a student loan in the amount of $13,756, which he borrowed in the mid 1980s. The bankrupt, having had a low income for the past 14 or 15 years, made no effort to pay his student loan until June 22, 1994, when Human Resources Development Canada ("HRDC") obtained a judgment against the bankrupt in the amount of $12,711. However, during the bankruptcy, Mr. Morgan suffered a workplace injury, at which time his income was reduced to $1,588 per month, an amount below the Superintendent's guidelines regarding surplus income. In addition, the bankrupt was required to pay spousal and child support, leaving him with an income of between $80 and $150 during his bankruptcy.

The bankrupt did not pay his student loan in full because he could not afford to do so. HRDC opposed Mr. Morgan's request for an absolute discharge primarily because he did not try to repay the rest of his loan and he would probably never have tried do it but for the judgment. HRDC submitted that the bankrupt had the ability to pay more than $150 per month to his creditors.

Issue: Should the Court grant an absolute or conditional discharge to Mr. Morgan?

Decision:  An absolute discharge was not appropriate in the circumstances. The court ordered a conditional discharge but without an order to pay a specific sum.

Discussion:  First, the bankrupt performed all of his duties. The Court shared HRDC's opinion that if it were not for the judgment, Mr. Morgan would not have paid his loan and would have ignored completely its repayment. The Registrar ruled that to grant an absolute discharge would condone such a conduct.

Secondly, the Court mentioned that Mr. Morgan did not only have his student loan to repay but he also had two children and an ex-wife to pay, and that his future earning capacity was uncertain. The Court ordered the bankrupt to provide the trustee with statements of income and expenses for the next nine months. The Bankrupt also had to give the trustee, every month, any surplus income that he might have had the previous month.

In the matter of Wasylyshen v. Canada (Minister of National Revenue)

Saskatchewan Court of Queen's Bench
Kyle J.

Citation: 2004 SKQB 362.

Facts:  Mr. Wasylyshen, a third time bankrupt, had lost his right to practice law due to the misappropriation of certain funds. He applied to the court for an order for a discharge from bankruptcy. His assets included hunting and fishing equipment valued at $250. He sold $1,300 worth of furniture and transferred an automobile to his daughter. Prior to July 23, 2003, he had not made any income tax payments. On June 6, 2003, the date of his assignment in bankruptcy, his liability towards the Canada Customs and Revenue Agency ("CCRA") totalled approximately $270,000. The Canadian government wrote off over $360,000 worth of unrecoverable claims, namely unpaid income taxes, unremitted payroll, etc. In light of the fact that the bankrupt's behavioural pattern had remained unaltered, CCRA requested that his discharge be suspended for a period of no less than three years.

Issues: 

1. Did the circumstances surrounding this case warrant a suspension of the bankrupt's discharge?

2. Did the bankrupt's assets, namely the hunting and fishing gear, the furniture sale proceeds and the automobile, vest with the trustee?

Decision:  The Court ordered that the bankrupt's discharge be suspended for two years. During this period, the bankrupt would be required to file his tax returns in a timely manner and pay a $2,050 fee to the trustee. The bankrupt's assets, with the exception of the hunting and fishing gear, vested with the trustee.

Discussion:  The facts of this case left very little hope that the bankrupt will improve his financial position or reduce his indebtedness in any significant manner. In the matter at hand, the Court sought to discourage self-employed individuals from violating Canada's taxation laws. It recognized that the bankrupt, as a taxpayer in a democratic society, had basic obligations witch should not be overlooked. The Court also concluded that the realization value of the furniture was not exempt and that these proceeds should have been paid to the trustee. In addition, it was improper for the bankrupt to give an automobile to his daughter less than one year before the date of his bankruptcy.