Jean (Re), 2011 ABQB 63

Court of Queen ’ s Bench of Alberta Citation: Jean (Re), 2011 ABQB 63 Date: 20110207 Docket: BE01 303722 Registry: Calgary In the Matter of the Bankruptcy of Andre Joseph Ernest Jean _______________________________________________________ Memorandum of Decision of J.B. Hanebury, Master in Chambers _______________________________________________________ [ 1 ] Mr. Jean applies for his discharge from bankruptcy. His former wife, Ms.

Varga, opposes his discharge arguing that his bankruptcy is yet one more tactic he has undertaken to avoid paying her maintenance and her costs resulting from their divorce and matrimonial property action. He responds that he has no money and her behaviour has left him virtually unemployable. FACTS [ 2 ] The parties are no strangers to the courts. In 2006, Greckol J. ordered a division of matrimonial property and maintenance for the children and Ms. Varga. The order granted was filed in 2009 and provided that Mr.

Jean’s income was set at $214,966.00 for the periods that child support was payable and then imputed at $60,000.00 per annum until he advised of his re-employment. [ 3 ] The order provided that as at April 1, 2009, there were spousal support arrears owed to Ms. Varga in the sum of $74,787.68. Support was to continue at $2000.00 per month. The order could be reviewed in a year or upon new employment being obtained. It has not been reviewed. [ 4 ] After the entry of the judgment roll in May, 2009, Ms. Varga obtained information from third party proceedings involving a company in which Mr.

Jean and/or his common law wife had an interest. This information led her to conclude that certain evidence given

at their trial by Mr. Jean and his partner, Ms. Chichenko, was untrue. The alleged untruths concerned the duration of Mr. Jean’s employment, the nature of his employment and the income received by him. [ 5 ] She then filed a notice of motion before Greckol J., seeking advice and directions. A determination was made not to reopen the proceedings as the income imputed to Mr. Jean was about the same as the income he was apparently concealing. Instead, the court decided to address the question of his false testimony at a costs hearing. [ 6 ] The court was clear that Mr.

Jean had lied: The allegations by Ms. [Varga] are that Mr. Jean and Ms. Chichenko lied about Mr. Jean’s employment with an income from Clean Earth Environmental at this divorce trial. In my view, the evidence demonstrates that they did so. Mr. Jean was employed by Clean Earth Environmental from April or May 2005 until at least February 2007, approximately 22 months. That income was paid into the bank account of Ms. Chichenko, and Mr. Jean had access to the money by use of a bank card. Both Ms. Chichenko and Mr. Jean lied in advising the Court that Mr.

Jean’s employment with Clean earth Environmental ended in May of 2005. In fact it ended in February of 2007. They lied about his not receiving income in that period. They lied about his attending at the site only to socialize. He was involved in building the plant and then fulfilled extensive management and other duties. Ms. Chichenko lied in saying that she did not share a bank account with Mr. Jean. [ 7 ] At the conclusion of this hearing, on May 22, 2009, Greckol J., in a lengthy oral decision, ordered costs, including post-trial costs on a solicitor and his own client basis.

This latter award was made as a result of Mr. Jean lying under oath. Ms. Varga was granted a judgment for costs in the sum of $ 75,851.46. [ 8 ] The list of creditors found in Mr. Jean’s statement of affairs indicates that this judgment and the outstanding maintenance were the debts that led to Mr. Varga’s bankruptcy. Canada Revenue Agency subsequently filed a claim for over $400,000.00 which Mr. Varga claimed should not be allowed on the basis that he was exempt from paying taxes as an aboriginal. [ 9 ] At the discharge hearing the trustee advised that he had determined that Mr.

Jean, as a Metis, was not exempt from paying income tax. Revenue Canada had re-examined its claim and reduced the amount to approximately $250,000.00. [ 10 ] The Director of Maintenance Enforcement filed a proof of claim in the amount of $87,031.01 as of the date of bankruptcy and there is another $28,000.00 owing since that time. They have claimed a priority for $58,759.51, which claim the trustee has not assessed as there no funds in the estate for distribution. [ 11 ] Both Mr. Jean and Ms. Varga attended his application for discharge. Ms. Varga filed an affidavit and Mr. Jean declined to question her on it.

Mr Jean took the stand, and was questioned by Ms Varga. [ 12 ] Mr. Jean advised that he had recently started working again in the oil industry. He declined to name his employer as he claimed that Ms. Varga had harassed prior employers causing him to lose his employment. He acknowledged that a company had hired a company that involved Ms. Chichenko and her company had in turn hired him. He was making between $4000.00 and $5000.00 per month before taxes. His taxes were being deducted before he was paid by Ms. Chichenko’s company.

He said he did not know how long his employment would continue. [ 13 ] He said that he had made arrangements with the Director of Maintenance Enforcement to pay $2050.00 per month with $2000.00 going toward his ongoing obligation to Ms. Varga and $50.00 toward the outstanding arrears. [ 14 ] As Ms. Varga succinctly put it: Mr Jean was once again running his employment income through Ms. Chichenko’s company.

ISSUE [15] The issue in this application is whether Mr. Jean should be granted a conditional discharge or should remain in bankruptcy. ANALYSIS [16] A long history of cases has held that where a bankruptcy is used to avoid the payment of a judgment arising out of wrongful ortortious conduct by the bankrupt, the court will carefully scrutinize the situation to determine whether, or on what conditions, a dischargewill be granted. [17] The leading case on this issue is Kozack v. Richter (SCC), [1974] S.C.R. 832.

In that case the bankrupt hadassigned himself into bankruptcy to avoid the payment of a judgment resulting from an automobile accident.

The court found that thebankrupt had been grossly negligent in causing the accident and directed that he pay 50% of the debt owing. [18] This case has been followed when considering the discharge of a bankrupt who assigned himself into bankruptcy after ajudgment obtained as a result of a breakdown in a matrimonial relationship. [19] In Reimer (Re) 2007 BCSC 932 the court considered a situation where a bankrupt had entered into a second bankruptcy forthe sole purpose of frustrating the entitlement of his ex-wife to her judgment in their divorce proceedings. [20] The court noted that the court process cannot condone a situation where spouses force each other through the financially andemotionally onerous burden of matrimonial litigation without taking responsibility for the financial consequences of losing.

The courtheld that the bankrupt was not an “honest and unfortunate debtor” and should not be permitted to use the bankruptcy process to evade hissole creditor. The court ordered him to pay $19,500.00 at the rate of $350 per month. See as well: Re Crew (1987) (ON SC), 63 C.B.R. (N.S.) 244 (Ont. S.C).; Re Matthews (1993) (ON SC), 17 C.B.R. (3d) 103 (Ont. Gen. Div.); ReNg (1996) (BC SC), 39 C.B.R. (3d) 59, Re Cunningham 2010 ABQB 290.. [21] Registrar Waller, in Letcher (Re) 1998 ABQB 430, outlined the two approaches to discharges taken by the courts when thebankruptcy occurred as a result of a judgment.

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

Richter.Register Waller noted it is of “utmost importance” that the court scrutinize the conduct of the bankrupt with a view to determining thedegree of reprehensibility that should be reflected in the order ultimately granted at the application for discharge. [22] Registrar Waller agreed with the comments found in Houlden and Morawetz’ handbook on the Bankruptcy and Insolvency Act[Carswell: Toronto] that if the conduct of the bankrupt giving rise to the judgment has been especially reprehensible, the dischargeshould be refused or a conditional order should be made regardless of the means of the bankrupt [emphasis added].

If the conduct hasnot been particularly reprehensible, a conditional order should not be made if the bankrupt cannot now or in the future make thepayments to the trustee. [23] Registrar Waller found that the bankrupt’s conduct in that case had been particularly reprehensible. He had flouted the legalprocess and should not be entitled to the benefit of the bankruptcy process. He refused to grant the bankrupt a discharge. [24] A different approach was taken by Registrar Bouck in Kiamanesh (Re) 2008 BCSC 398, a case with facts similar to those inthis case.

[ 25 ] At his divorce trial it was revealed that Mr. Kiamanesh had invested $1.3 million dollars in a corporation and the company had received $1.2 million in an expropriation process. He was involved in numerous inter-related companies, the value of which could not be ascertained, and had failed to disclose all of his assets. [ 26 ] The court imputed income of $63,000.00 to him. Ultimately his former wife was awarded $185,000.00 in special costs. Four months later he went bankrupt. [ 27 ] Mr. Kiamanesh was an electrical engineer by education and training and a businessman by profession.

In his bankruptcy he claimed to be earning a minimal amount as a handyman. He said he could not obtain better employment as a result of the actions of his former wife. He continued to deny the legitimacy of the court orders made against him. [ 28 ] The court examined the two primary principles behind the Bankruptcy and Insolvency Act: the rehabilitation of the bankrupt and the integrity of the bankruptcy system. It noted that one of the objects of the Act was to enable an honest debtor, who had been unfortunate in business, to secure a discharge so he might make a new start.

At the same time, the bankruptcy courts should not be used as a clearing house for the liquidation of debts regardless of how they have been created. [ 29 ] The court agreed that it should not countenance any attempt to thwart collection of a judgment in a family law action. Ultimately, the court found that refusing the discharge was not appropriate in the facts of that case. The bankrupt had shown no remorse. It would be counterproductive. The court simply did not believe that the bankrupt was financially destitute.

It carried forward the imputed income of the bankrupt from the matrimonial trial and ordered the payment of $150,000.00 as a condition of the bankrupt’s discharge. [ 30 ] In conclusion the court noted that the bankrupt’s former wife could pursue a further investigation under s. 38 of the Act [1] and could bring the results of those investigations to the court’s attention should she believe a different order was warranted. DECISION [ 31 ] In this case the conduct of the bankrupt has been reprehensible to the extreme.

He has flouted the court process, lied under oath, and then when caught and ordered to pay solicitor and client costs because of his behaviour, assigned himself into bankruptcy. [ 32 ] Furthermore, he has ignored his obligations to Revenue Canada. [ 33 ] His original statement of affairs indicates that the debts that led to his bankruptcy are those to his former wife. His timing was opportune. I find that his bankruptcy was undertaken in an attempt to rid himself of his debt to Ms. Varga. It was only on the eve of this hearing that Mr.

Jean showed any indication that he was dealing with his obligations. [ 34 ] While a conditional order could be granted, there is little evidence that a conditional order will assist Mr. Jean’s rehabilitation, nor will it protect the integrity of the bankruptcy system. Mr. Jean’s prior conduct gives this court no comfort that any attempt will ever be made to pay an amount ordered or honour any conditions and Mr. Jean will merely be back before this court asking to be relieved of those conditions. [ 35 ] The better approach in this case, is to deny Mr.

Jean’s discharge and give him time to prove that his rehabilitation is possible. Mr. Jean indicates that he is now dealing with his obligations. He needs to demonstrate that he is in fact doing so. [ 36 ] Therefore, he may reapply for his discharge in one year if he:

(

a) files in sworn format, with the trustee his monthly income and expense statements; (

b) provides to the trustee, in sworn format, the information necessary for the trustee to determine to his satisfaction whether funds are being hidden by his employer, Ms. Chichenko’s company, or he is being appropriately compensated; © if unemployed, files with the trustee, monthly, in sworn format, a statement of the efforts he has made to find employment, including copies of all relevant correspondence and emails; (

d) files and pays his 2010 income tax on time; (

e) provides a letter from the Office of the Director of Maintenance Enforcement that it is satisfied with his co-operation during the one- year period; and (

f) makes arrangements to pay his trustee’s fees. [ 37 ] These directions are to be included in the order refusing his discharge. Should these directions be met, the court will reconsider his discharge. I wish to make it clear to the parties that the satisfaction of these conditions does not mean an absolute discharge will be granted, only that the court will reconsider the matter. [ 38 ] Should Mr.

Jean fail to comply with these conditions for a period of two months, the trustee has leave to apply for his discharge. [ 39 ] Finally, I am directing the trustee to send a copy of this decision to the Director of Maintenance Enforcement and to the Office of the Superintendent in Bankruptcy in case either of them wish to undertake further investigations. Heard on the 02 nd day of February, 2011. Dated at the City of Calgary, Alberta this 7 th day of February, 2011. J.B. Hanebury M.C.C.Q.B.A. Appearances:

Mr. Sandy Lyons Bromwich & Smith - Trustee Peggy Lynn Varga self Represented Andre Joseph Ernest Jean self Represented [1] It provides a process by which a creditor can ask a trustee to take a proceeding and, should the trustee refuse to do so, the creditor can apply to the court to take the proceeding.