Cunningham (Re), 2010 ABQB 290

Court of Queen ’ s Bench of Alberta Citation: Cunningham (Re), 2010 ABQB 290 Date: 20100429 Docket: BK03 221714 Registry: Edmonton, Alberta In the Matter of the Bankruptcy of Dale Bruce Cunningham _______________________________________________________ Memorandum of Decision of J.B. Hanebury, Registrar in Bankruptcy _______________________________________________________ [ 1 ] Mr. Cunningham seeks a discharge from bankruptcy. His former wife objects to his discharge and also asks that her judgment survive his bankruptcy. [ 2 ] Justice Shelley granted a judgment in the matrimonial property action commenced by Ms.

Miller against her former spouse, Mr. Cunningham. She ordered an equalization payment by Mr. Cunningham to Ms. Miller in the sum of $69,019. That judgment was filed on March 17, 2009. Mr. Cunningham did not voluntarily pay Ms. Miller and as a result she took steps to enforce her judgment. Some funds were garnisheed and shortly thereafter, on June 18, 2009, Mr. Cunningham assigned himself into bankruptcy. A number of his assets were exempt and as a result, on December 20th, 2009, Justice Shelley gave Ms. Miller the right to pursue Mr.

Cunningham’s exempt assets in order to collect her judgment. [ 3 ] Justice Shelley made a number of findings in relation to the conduct of Mr. Cunningham. She noted that: he had “failed to disclose his assets after repeated requests and at least one court order”; he actively “hid his assets”; he denied receiving bonuses; he refused to provide information to his wife; he failed to answer a number of undertakings given at examinations for discovery; and he was unable to provide explanations for assets that had been cashed in. Justice Shelley found Mr.

Cunningham’s conduct at trial to be evasive and the court concluded that his behaviour “supports the drawing of a negative inference against him” and supports a finding that he did not fully disclose his assets. [ 4 ] Justice Shelley concluded that:

Mr. Cunningham’s repeated and continuing failure to provide full disclosure, including the absence of updated and current income and asset information at trial, makes it difficult to value his assets. It is not possible for me to know the extent of any undisclosed assets or their value therefore... this is a case in which it is not appropriate to divide the total amount of the matrimonial property on an equal basis. I have concluded that an allocation of 55% in favour of Ms. Miller and 45% in favour of Mr. Cunningham is warranted... [ 5 ] The section 170 (1) report of the trustee indicates that Mr.

Cunningham has very little in the way of income and nonexempt assets. The trustee advised that his surplus income is approximately $150 per month. Mr. Cunningham is now retired and it is unlikely his surplus income will increase. [ 6 ] Mr. Cunningham advised the court that he is not the man depicted by Justice Shelley and he should be granted his discharge. [ 7 ] Mr. Cunningham provided no evidence in support of his statements. The trustee provided only his s. 170(1) report. Ms.

Miller’s notice of objection outlined certain information, but the only evidence was found in her affidavit filed in support of the most recent application in front of Justice Shelley. [ 8 ] Neither Mr. Cunningham, the trustee nor counsel for Ms. Miller provided case law on the principles to be considered by the court in such a situation. ANALYSIS [ 9 ] The oral application made at the hearing to have Ms. Miller’s judgment survive the bankruptcy is denied. Such an application cannot be granted without notice to the bankrupt. Ms.

Miller has leave to reapply upon serving a proper motion supported by evidence upon Mr. Cunningham and the trustee. [ 10 ] That leaves for consideration only the question of Mr. Cunningham’s application for discharge. [ 11 ] A long history of cases has held that where a bankruptcy is used to avoid the payment of a judgment arising out of wrongful or tortious conduct by the bankrupt, the court will carefully scrutinize the situation to determine whether, or on what conditions, a discharge will be granted. [ 12 ] The leading case on this issue is Kozack v. Richter 1973 CanLII 166 (SCC) , [1974] S.C.R. 832 .

In that case the bankrupt had assigned himself into bankruptcy to avoid the payment of a judgment resulting from an automobile accident. The court found that the bankrupt had been grossly negligent in causing the accident and directed that he pay 50% of the debt owing. [ 13 ] This case has been followed when considering the discharge of a bankrupt who assigns himself into bankruptcy after a judgment obtained as a result of a breakdown in a matrimonial relationship: Re Crew (1987) 1987 CanLII 4134 (ON SC) , 63 C.B.R. (N.S.) 244 (Ont. S.C) .; Re Matthews (1993) 1993 CanLII 16070 (ON SC) , 17 C.B.R. (3d) 103 (Ont.

Gen. Div.) ; Re Ng (1996) 1996 CanLII 306 (BC SC) , 39 C.B.R. (3d) 59 . [ 14 ] In Reimer (Re) 2007 BCSC 932 the court considered a situation where a bankrupt had entered into a second bankruptcy for the sole purpose of frustrating the entitlement of his ex-wife to her judgment in their divorce proceedings. [ 15 ] The court noted that the court process cannot condone a situation where spouses force each other through the financially and emotionally onerous burden of matrimonial litigation without taking responsibility for the financial consequences of losing.

The court held that the bankrupt was not an “honest and unfortunate debtor” and should not be permitted to use the bankruptcy process to evade his sole creditor. The court ordered him to pay $19,500.00 at the rate of $350 per month.

[ 16 ] In Letcher (Re) 1998 ABQB 430 Registrar Waller considered the conduct of the bankrupt that resulted in the judgment that triggered the bankruptcy. He found the bankrupt’s conduct to be reprehensible. The court found that the bankrupt had a modest income which was under the Superintendent’s guidelines. The bankrupt had no ability at that time to meet the substantial judgment against him. [ 17 ] Registrar Waller outlined the two approaches taken by the courts to discharges where the bankruptcy occurred as a result of a judgment.

The first approach requires the court to assess the bankrupt’s state of mind at the date on which he made the assignment. Was the assignment made only to rid him of the judgment, or was the assignment caused by a total inability to meet the judgment or pay anything on it? [ 18 ] The second approach requires the court to assess the bankrupt’s conduct giving rise to the judgment, as was done in Kozack v. Richter .

The court noted that it is clear from Kozack that it is of “utmost importance” that the court scrutinize the conduct of the bankrupt with a view to determining the degree of reprehensibility that should be reflected in the order ultimately granted at the application for discharge. [ 19 ] Registrar Waller agreed with the comments found in Houlden and Morawetz’ handbook on the Bankruptcy and Insolvency Act [Carswell: Toronto].

The authors noted that if the conduct of the bankrupt giving rise to the judgment has been especially reprehensible, the discharge should be refused or a conditional order should be made regardless of the means of the bankrupt. If the conduct has not been particularly reprehensible, a conditional order should not be made if the bankrupt has not the means nor reasonable prospects of having the means in the future of making the payments to the trustee. [ 20 ] Registrar Waller found that the bankrupt’s conduct had been particularly reprehensible.

He had flouted the legal process and should not be entitled to the benefit of the bankruptcy process. He refused to grant the bankrupt a discharge. [ 21 ] In this case, it is clear from the findings of the trial judge that Mr. Cunningham’s failure to be forthcoming with his former wife and with the court caused the court to order an unequal distribution in favour of Ms. Miller. Faced with Ms. Miller’s attempts to collect on that judgment, Mr. Cunningham went bankrupt. He was obviously hoping to protect his exempt assets from Ms.

Miller, the very assets which formed part of Justice Shelley’s determination of the division of matrimonial property. CONCLUSION [ 22 ] Justice Shelley found Mr. Cunningham’s conduct to be worthy of condemnation to a degree that resulted in an unequal sharing of the matrimonial property. Mr. Cunningham’s subsequent failure to ensure that the sharing of the matrimonial property occurred, followed by his bankruptcy once his former wife sought to collect her share of their assets, amounts to reprehensible conduct. [ 23 ] It is clear Mr.

Cunningham has little ability from his income to pay a substantial amount to his trustee and the situation is unlikely to change as he is presently 70 years old. If a conditional order were granted, it is unlikely to ever be paid. [ 24 ] At this stage of the proceedings, the better approach is to deny Mr. Cunningham’s application for his discharge. He may reapply before whatever Registrar in sitting, after six months. At that time, if Ms.

Miller wishes to continue to object to his discharge, she is to provide sworn evidence as to the amount still remaining outstanding on her judgment, including a statement of how much has been collected and from what source, and her view as to the degree of co-operation she has received from Mr. Cunningham, since Justice Shelley’s December, 2009 order, in arranging for the payment of her judgment from his exempt assets. Mr. Cunningham may file affidavit evidence in response, should he wish to do so, and the trustee may file an updated report. Heard on the 15 th day of April, 2010.

Dated at Calgary, Alberta this 29 th day of April, 2010.

J.B. Hanebury Registrar in Bankruptcy Appearances: Jarin K.P. Myskiw for Rebecca Ann Cunningham Bruce Dale Cunningham self Represented Gary G. Howitt for the Exelby & Partners Ltd. Trustees in Bankruptcy for Bruce Dale Cunningham