Ramdhanie (Re), 2013 ABQB 719

Court of Queen ’ s Bench of Alberta Citation: Ramdhanie (Re), 2013 ABQB 719 Date: 20131204 Docket: 25 1454304 Registry: Calgary In the Matter of the Bankruptcy of Devindra Ramdhanie (AKA David Ramdhanie) _ ________________________________________ ______________ Reasons for Judgment of the Honourable Mr. Justice K.D. Yamauchi _________________________________________ ______________ I.

Introduction [ 1 ] Bromwich & Smith Inc. (the “Trustee”), trustee of the estate of Devindra Ramdhanie, also known as David Ramdhanie, a bankrupt, seeks the advice and direction of this Court concerning its rights and responsibilities on a bankrupt’s application for discharge.

In particular, the Trustee seeks this Court’s advice and direction concerning the basis on which a bankruptcy trustee can, or should, oppose the discharge of a second-time bankrupt and the appropriate terms of a conditional order of discharge for a second-time bankrupt with no surplus income and minimal non-exempt assets, but some ability to pay.

This application also asks this Court to consider the import or effect of pre-bankruptcy “voluntary payment agreements” that debtors in Alberta commonly provide to bankruptcy trustees. [ 2 ] The Office of the Superintendent of Bankruptcy (the “Superintendent”) has filed a notice of its intention to intervene in this case. II. Facts [ 3 ] On January 24, 2011, Mr Ramdhanie filed an assignment of all of his assets for the benefit of his creditors pursuant to the Bankruptcy and Insolvency Act , RSC 1985, c B-3 [ BIA ]. This was Mr Ramdhanie’s second bankruptcy.

He was previously bankrupt in 2001, and he was discharged from his first bankruptcy in 2004. As a second-time bankrupt, Mr Ramdhanie was, pursuant to BIA s 168.1(b), entitled to receive an automatic discharge from his bankruptcy 24 months after he filed his assignment, unless someone objects to his automatic discharge pursuant to BIA s 168.2. In such a case, the court will hear the bankrupt’s application for discharge. [ 4 ] At the time he made his second assignment, Mr Ramdhanie had no apparent surplus income and minimal non-exempt assets.

In fact, he advised the Trustee that his insolvency was the result of his unemployment, and his use of credit cards to cover his living expenses. He also incurred costs associated with getting clearance for him to travel to the United States for a family visit. [ 5 ] When he first met with the Trustee to facilitate his bankruptcy, Mr Ramdhanie signed a document entitled “Fridge Checklist,” which included his agreement to pay at least $200 per month for 24 months (the minimum period for a second-time bankruptcy administration).

He understood that any surplus income obligation would be applied to this “voluntary payment agreement.” [ 6 ] Attached to the Fridge Checklist was an agreement between Mr Ramdhanie and the Trustee, which stated that the “minimum” bankruptcy fees that the Trustee was going to charge was $4,800, plus goods and services tax. Those monies would be paid from income tax and goods and services tax refunds, as well as the $200 per month that is contained in the Fridge Checklist. It went on to

say: In the event that my bankruptcy fees and costs are not realized from [those sources], I hereby consent to pay to the Trustee, an amount ofat least $200 each month until the date of my discharge from bankruptcy, which payments are to commence on the 15 day of February,2011.

In the event of my default in any payment under this document, I acknowledge that I may receive an Order of Discharge beingconditional upon payment by me pursuant to this consent agreement or otherwise by the Court. [7] Mr Ramdhanie executed the Fridge Checklist and the agreement attached to it before the Trustee filed the documents withthe Superintendent. In other words, he signed them before he became a bankrupt. [8] Mr Ramdhanie made some of the $200 payments, but not all of them. Accordingly, the Trustee opposed Mr Ramdhanie’sautomatic discharge from bankruptcy.

The Trustee is required to file a report pursuant to BIA s 170 (the “Section 170 Report”). TheSection 170 Report para 6, which falls under the heading “Conduct of the Bankrupt,” states the following: 6(

a) Did the bankrupt fail to perform any of the duties imposed on him/her under the Act? Yes The bankrupt failed to submit Income and Expense reports for the months of October and November 2012. The bankrupt has failed to pay the agreed amount to cover the administrative costs of the bankruptcy. The amount outstanding is$2,519.90. [9] The

Section 170 Report para 9 goes on to state that the Trustee intends on opposing Mr Ramdhanie’s bankruptcy dischargeon the basis of those failures and, in addition, “The Trustee will be requesting an additional $500.00 due to the bankrupt’s lack ofcompliance which resulted in a court hearing.” [10] The Trustee then filed a supplementary report, which stated, among other things, that since the date of filing of the Section170 Report, Mr Ramdhanie had provided the Trustee with the October 2012 and November 2012 income and expense reports. It alsoconfirmed that Mr Ramdhanie is not required to pay surplus income.

Finally, this report stated that the Trustee’s recommendation is thatMr Ramdhanie be discharged conditional on his paying $2,864 at $200 per month. [11] The Trustee filed Mr Ramdhanie’s bankruptcy as an ordinary administration, rather than a

summary administration. TheTrustee explained its reasons as follows: Second-time bankruptcies, even where there are minimal assets and receipts, take much longer to complete than first-time bankruptciesand are often complicated by a bankrupt’s failure to complete duties in a timely manner. The administration costs are therefore oftensubstantially higher than a first-time bankruptcy administration.

Affidavit of David L Smith, sworn on October 4, 2013, para 15. [12] The Trustee then went on to say that the actual costs in this case far exceeded the $2,864 that it was claiming. [13] The application concerning Mr Ramdhanie’s bankruptcy discharge was scheduled for February 20, 2013. Registrar Haneburyadjourned the matter sine die at the Superintendent’s request. III. Discussion [14] This Court is hearing this matter pursuant to BIA s 34(1), which states as follows: 34.

(1) A trustee may apply to the court for directions in relation to any matter affecting the administration of the estate of a bankrupt andthe court shall give in writing such directions, if any, as to it appear proper in the circumstances. [15] Lloyd W Houlden, Geoffrey B Morawetz & Janis P Sarra, The 2012-2013 Annotated Bankruptcy and Insolvency Act(Toronto, Ont: Carswell. 2012) (“Houlden & Morawetz”) at C§74(2) says, “Ordinarily, an application for directions is taken to thesuperior court judge sitting in bankruptcy. If the application is unopposed or on consent, the registrar may hear it: s. 192(1)(

d) and (j).”Of course, registrars have the authority to hear discharge applications: BIA s 192(1)(c). Houlden and Morawetz at I§40 says that “Theregistrar has power to grant a discharge whether or not it is opposed.” See also Re Clark (1993), (BC SC), 26 CBR (3d)44 (BCSC). [16] The parties did not file a transcript of the proceedings before Registrar Hanebury. It was certainly within her jurisdiction torule on Mr Ramdhanie’s discharge application.

She might have felt, however, that she was without jurisdiction to rule on the issue that isbefore this Court, because the Superintendent opposed the Trustee’s manner of proceeding: BIA ss 192(1)(a), (f). Or, she referred thematter, which is ordinarily within her jurisdiction, to this Court for disposition: BIA s 192(6). This Court may at any time exercise thepowers and jurisdiction that a registrar possesses pursuant to the BIA and may direct any matter that is before a registrar to be broughtbefore this Court for hearing and determination: BIA ss 192(2), (7).

In Re Arthur W Flint Co, (ON SC), 1944CarswellOnt 59 at para 11, 25 CBR 156 (Ont SC, Bankr), Urquhart J was considering the equivalent provisions that were contained inthe predecessor legislation and said, “I am satisfied that the Registrar has the power to adjourn to the consideration of the Judgeunopposed matters of difficulty and importance, and I so decide.” [17] This Court cannot comment on the role that registrars played in the 1940s, and whether they routinely sent “difficult andimportant” matters to judges for hearing and determination.

However, today’s registrars routinely deal with very difficult and veryimportant matters. This Court’s observation is that they do not send matters to judges simply because they are difficult and important.Because of the representations that the parties made to this Court, it appears that this matter might be of general importance to theregistrars, who deal with discharge applications routinely, and the bankruptcy trustee community.

[18] In any event, from the foregoing, it is clear that this Court has the power and jurisdiction to deal with this matter, and itproposes so to do. [19] Why are these issues of importance to the bankruptcy trustee community? The Trustee argues that: (

a) bankruptcy trustees in Alberta commonly use voluntary payment agreements to secure their fees; (

b) because the costs associated with the administration of an estate of a second-time bankrupt are frequently high, it is the“usual practice” for Alberta bankruptcy trustees to file these matters as “ordinary administrations,” rather than “summaryadministrations;” (

c) rather than insisting that bankrupts provide bankruptcy trustees with large retainers to cover their fees, Alberta bankruptcytrustees agree to accept monthly payments over time to cover their fees, disbursements and other administration expenses; and (

d) because Alberta has “fairly generous exemptions,” the bankrupt retains a substantial portion of the bankrupt’s property thatwould, in the absence of those exemptions, be used to pay the bankruptcy trustee’s fees, disbursements and other administrationexpenses, and bankruptcy trustees have no way to secure or collect their fees, disbursements and other administration expenses. As a result of all this, the Trustee argues, bankruptcy trustees would not accept such assignments without some assurance that theywould be paid their fees and disbursements. [20] In this case, Mr Ramdhanie is a second-time bankrupt.

This is a “fact” outlined in BIA s 173(1)(j), which would not entitle MrRamdhanie to be automatically discharged after 24 months. On a hearing of his discharge application, pursuant to BIA s 172(2), the courtshall refuse or suspend the bankrupt’s discharge or: (

c) require the bankrupt, as a condition of his discharge, to perform such acts, pay such moneys, consent to such judgments or complywith such other terms as the court may direct. Courts have an overriding discretion on the kind of order that it will impose. See e.g. Re Herd (1989), 77 CBR (NS) 209 (BCCA). Forexample, the court has the jurisdiction to order a bankrupt, as a condition of their discharge, to pay additional amounts into the bankruptestate.

In so doing, the court must exercise its discretion on a case by case basis, considering the bankrupt’s conduct during theirbankruptcy, as well as the bankrupt’s present condition, means and circumstances. [21] Even if any of the grounds set out in BIA s 173 are not before the court, the court still has the discretion to grant, refuse,suspend or grant a conditional discharge order “with respect to any earnings or income that may afterwards become due to the bankruptor with respect to the bankrupt’s after-acquired property”: BIA s 172(1). [22] The Trustee argues that the BIA contemplates the use of pre-bankruptcy payment agreements for first first-time bankrupts.BIA s 156.1 provides as follows: 156.1 An individual bankrupt who has never before been bankrupt under the laws of Canada or of any prescribed jurisdiction and who isnot required to make payments under

section 68 to the estate of the bankrupt may enter into an agreement with the trustee to pay thetrustee’s fees and disbursements if the total amount required to be paid under the agreement is not more than the prescribed amount andthat total amount is to be paid before the expiry of the 12-month period after the bankrupt’s discharge. The agreement may be enforcedafter the bankrupt’s discharge. [23] The Trustee argues that while the BIA does not contain a similar provision when it comes to second-time bankrupts, it doesnot prohibit them.

It goes on to say, “there is no good policy reason why a court should not give some weight to such agreements.” Thereare actually good policy reasons why this Court should not infer something that the BIA does not contain. As Forsyth J said in Re Clark(1998), (AB KB), 68 Alta LR (3d) 100, [1999] 7 WWR 58 (QB) [Clark AB] at paras 6, 13: I have great concerns, notwithstanding the potential benefits to the creditors as a whole of such an agreement, in that as I referred toearlier, the Bankruptcy Act in itself is a Code and does not contemplate such an arrangement. ...

Under the circumstances, I find that agreements of this nature are not contemplated by the Bankruptcy Act and if it is determined thatsuch agreements are of benefit to the creditors as a whole, it is up to parliament and not to this court to make amendments to the Actsufficient to make it clear that arrangements of this nature are in order ... [Emphasis added]. [24] If the BIA is a code, then this Court would be stepping outside its mandate to infer something that is not contained in that“code.” Furthermore, in the end, it is up to the court to determine the conditions, if any, that it would impose on the bankrupt to obtaintheir discharge, even in the face of such an agreement.

The court can increase the amount set forth in the agreement or decrease suchamount, depending on the many factors including the bankrupt’s conduct during their bankruptcy, the bankrupt’s present condition,means and circumstances, and the actual work that the trustee undertook while administering the bankrupt’s estate. This is as it shouldbe, because, as the Trustee stated, the administration of the estate of a second-time bankrupt could take more or less time, depending onthe circumstances.

Courts should not be hamstrung by an agreement, unless Parliament mandates it. [25] Perhaps this is why Parliament did not include such a provision for bankrupts who have used the BIA on more than oneoccasion. A “frequent flyer” should not have the benefit of using the BIA as a clearing house for their debts. And bankruptcy trusteesshould not have to bear the brunt of having to labour over complex bankruptcy matters without being remunerated for their services. Thecourt should have (and does have) discretion to ensure that this does not happen. On the other hand, if such a bankrupt is an honest but

unfortunate debtor, the BIA contains provisions for that bankrupt’s protection and rehabilitation, and the court has the discretion not toallow the bankrupt’s difficulties to be exacerbated by onerous conditions that do not take account of the bankrupt’s conditions, meansand circumstances. [26] For the same reason, it would be incorrect for bankruptcy trustees to base their fees on the ”tariff” amount that they use for afirst-time

summary administration, which is about $200 per month before the bankrupt’s automatic discharge after 9 months (or $1,800).Although, perhaps, this is a reasonable estimate, it fetters the court’s discretion by providing a notional starting point in the case ofmultiple bankruptcy situations. The court must always consider each case based on its unique facts, taking into consideration, amongothers, the factors that this Court discussed earlier. [27] In the end, this Court finds that an agreement that an insolvent person enters into with the bankruptcy trustee to beunenforceable.

They are pre-bankruptcy agreements, the effect of which is dealt with as part of the bankruptcy process. So, what is abankruptcy trustee to do? It seems sensible that the bankruptcy trustee advise the insolvent person that there is a cost associated with theadministration of the insolvent person’s estate. The bankruptcy trustee might be able to secure a lump sum from the insolvent person tocover its fees. Or it might be able to convince the insolvent person to provide it with security against that person’s exempt assets.

Or ifthe insolvent person has neither, it might obtain an acknowledgement from the insolvent person that the bankruptcy trustee will beobjecting to that person’s discharge from bankruptcy, whether automatic or otherwise, and seeking as a condition of that person’sdischarge the payment of at least the bankruptcy trustee’s fees and disbursements.

None of these methods breach the terms of the BIAand the acknowledgement will provide evidence to the court hearing the discharge application that the bankrupt was made aware of thepossibility that the bankruptcy trustee would be seeking its fees and disbursements as part of the discharge application. This is not a pre-bankruptcy “agreement.” It is a mere acknowledgement, which does not fetter the court’s discretion. [28] No one has any difficulty with a bankruptcy trustee seeking its fees and disbursements, and doing so as part of the discharge process, in appropriate circumstances. See e.g.

Clark AB at para 8; Re Kultgen (2000), 2001 ABQB 189 , 23 CBR (4th) 167 atpara 4 (Registrar). What is objectionable is when the bankruptcy trustee seeks to have the court enforce a pre-bankruptcy agreement withrespect to those fees and disbursements, which is not contemplated or permitted by the BIA. [29] The parties have asked this Court to comment on the propriety of matters that would ordinarily fall within the

summaryadministration provisions, being dealt with as ordinary administrations. The relevant provisions of the BIA s 49 provide as follows:

(6) Where the bankrupt is not a corporation and in the opinion of the official receiver the realizable assets of the bankrupt, after theclaims of secured creditors are deducted, will not exceed five thousand dollars or such other amount as is prescribed, the provisions ofthis Act relating to the

summary administration of estates shall apply.

(8) The official receiver may direct that subsection (6) shall cease to apply in respect of the bankrupt where the official receiverdetermines that (

a) the realizable assets of the bankrupt, after the claims of secured creditors are deducted, exceed five thousand dollars or the amountprescribed, as the case may be, or (

b) the costs of realization of the assets of the bankrupt are a significant proportion of the realizable value of the assets, and the official receiver considers that such a direction is appropriate. [30] The Bankruptcy and Insolvency General Rules, CRC 1978 c 368, r 130, state that “For the purposes of subsections 49(6) and(8) of the Act, the amount is $15,000.” [31] As one can see from BIA s 49(8), the official receiver is clothed with discretion as to whether a matter will proceed by way ofsummary or ordinary administration.

For this Court to make a ruling on how the official receiver exercises its discretion would bepremature. If a bankrupt is dissatisfied with how the official receiver proceeds, it may bring an application for judicial review of thatdecision.

This Court agrees with the Trustee when it argues that this issue is moot in this instance, as the official receiver exercised itsdiscretion and accepted Mr Ramdhanie’s assignment as an ordinary administration. [32] The Trustee argues that because Alberta has “very generous personal exemptions,” the bankrupt’s property available to meetthe Trustee’s administration costs and possibly produce a dividend for creditors is much less in Alberta than in other jurisdictions.

ThisCourt will not comment on whether the Alberta’s exemptions are generous, as the propriety and quantum of exemptions is somethingthat falls within the purview of the Alberta legislature. Besides, whether the bankrupt has extensive exemptions or few exemptions doesnot derogate from the reality that they are going to trustees because they have insurmountable debt relative to their assets and income.Again, as to whether a bankrupt has the condition, means and circumstances to meet a financial condition on their discharge are thingsthat a court will consider on the bankrupt’s discharge application.

The fact that these types of cases arise even in jurisdictions that do nothave “very generous personal exemptions” illustrates this fact. [33] The court can consider the issue of exemptions and their quantum when it is deciding whether to discharge the bankrupt frombankruptcy or whether to impose conditions before the bankrupt will receive their discharge.

Among other things, the court must balancea situation where a bankrupt is left with substantial assets, such as in the case of Nelson (Trustee of) v Nelson (1995), (SK KB), 33 CBR (3d) 292 (QB), and situation where the exempt property was “the ‘bare minimum’ that a bankrupt is entitled tomaintain to facilitate their rehabilitation following bankruptcy”: Ramgotra (Trustee of) v Northern American Life Assurance Co(1996), 37 C.B.R. (3d) 148 at 155. [34] The Trustee argues that the Superintendent should not dictate when a trustee should oppose a bankrupt’s dischargeapplication.

In particular, the Superintendent should not be permitted to declare that it is “never” appropriate for a trustee to oppose abankrupt’s discharge on the ground that there are insufficient funds in the estate to see the trustee paid. That is not what theSuperintendent was arguing. The Superintendent argues that “it is inappropriate for a trustee to object for payments of fees pursuant to apre-bankruptcy fee agreement.” No one disputes that bankruptcy trustees may object to a bankrupt’s discharge on whatever bases the

bankruptcy trustee sees as appropriate. Furthermore, it does not seem objectionable that a trustee may want to object on the basis that its fees are extant, and then leave it to the court to decide how the bankrupt might address this issue. It is the effect of a pre-bankruptcy arrangement to which the Superintendent objects. [ 35 ] In sum, this Court finds as follows: (

a) A bankruptcy trustee is not precluded from objecting to a bankrupt’s automatic discharge pursuant to BIA s 168.2 on the ground that it seeks the court’s direction concerning the payment of its fees and disbursements. Of course, the bankruptcy trustee may object to the bankrupt’s automatic discharge on any other ground, as well. (

b) Pre-bankruptcy fee agreements are unenforceable. (

c) The bankruptcy trustee may present to the court on a bankrupt’s discharge application any type of acknowledgement that the bankrupt has signed in which the bankrupt acknowledges that the bankruptcy trustee may object to their discharge on the ground that the bankrupt owes the bankruptcy trustee fees and disbursements for the administration of the bankrupt’s bankruptcy. Such an acknowledgement shall not fetter the court’s discretion in its consideration of the bankrupt’s discharge, or any conditions on which it might grant the bankrupt’s discharge. (

d) In all cases, the court’s discretion contained in BIA s 172 shall be unfettered, but it may consider, among other things, the report that the bankruptcy trustee prepares pursuant to BIA s 170, any information that the bankruptcy trustee might provide to the court concerning the fees and disbursements it incurred in administering the bankrupt’s bankruptcy, and the present conditions, means and circumstances of the bankrupt, including the effect of exemptions and the quantum of those exemptions on the bankrupt. (

e) The Superintendent retains the discretion pursuant to BIA s 49(8), to accept an assignment as an ordinary administration and nothing in this decision shall be taken as fettering that discretion. [ 36 ] Finally, the parties have asked this Court to determine whether it would grant to Mr Ramdhanie an absolute discharge from his bankruptcy or a discharge with conditions. As mentioned earlier in these reasons, the registrars are better equipped to deal with Mr Ramdhanie’s discharge application, armed with the guidance that this Court has provided.

Accordingly, this Court remits this to the registrar so that they can consider those issues. [ 37 ] Neither party has requested costs. Accordingly, this Court awards no costs for this application. Heard on the 25 th day of November, 2013. Dated at the City of Calgary, Alberta this 4 th day of December, 2013. K.D. Yamauchi J.C.Q.B.A. Appearances: Susan L Robinson Burns, QC Miles Davison LLP for the Trustee Brad Bedard Department of Justice Canada for the Office of Superintendent of Bankruptcy