McFadden (Re), 2016 ABQB 430

Court of Queen’s Bench of Alberta Citation: McFadden (Re), 2016 ABQB 430 Date: 20160805 Docket: B201 022826 Registry: Calgary In the Matter of the Bankruptcy of Michael Patrick Luke McFadden _______________________________________________________ Memorandum of Decision of J. Farrington , Registrar in Bankruptcy _______________________________________________________ The Application [ 1 ] This is an application for the discharge of the bankrupt Michael Patrick Luke McFadden (the “Bankrupt”) from bankruptcy. There are two objecting creditors. The first is his estranged spouse Natalie McFadden (“Ms. McFadden”).

The second is her father George Reti (“Mr. Reti”). Both of them made submissions on the application. The bankrupt’s trustee Barry Nykyforuk & Associates Inc. (the “Trustee”) made submissions as well. [ 2 ] The discharge application is complicated by the fact that there are parallel and contentious family law proceedings which have not gone well from the perspective of either the Bankrupt or Ms. McFadden.

The situation is unfortunate and there is no doubt that the various proceedings have taken a significant toll on all concerned. [ 3 ] The Trustee’s supplementary report filed July 22, 2016 describes cooperation by the Bankrupt. The Bankrupt has paid voluntary payments totaling $2500 into the estate, and he appears to have done what he was asked to do by the Trustee in all respects. The Trustee has no objection to the Bankrupt’s discharge and defers to the Court’s discretion in considering the objections. [ 4 ] Mr. Reti’s claim is for $48,000. It represents a loan that he made to the Bankrupt and Ms. McFadden.

The claims register indicates that that the claim was admitted. There is no evidence to indicate that he has taken any action against his daughter Ms. McFadden for the loan. He seeks recovery only from the Bankrupt. [ 5 ] Ms. McFadden’s claim appears to be somewhat of a work in progress at this stage. She has a significant support arrears claim in the amount of $23,964.35 through the Alberta Justice Maintenance Enforcement Program. Other types of potential claims were referred to during the course of the submissions, but to date none have been proven. [ 6 ] The Bankrupt, Mr. Reti, and Ms.

McFadden all spoke respectfully and eloquently during the discharge hearing. At the outset, Mr. Reti raised concerns that he had just received the Bankrupt’s affidavit sworn June 1, 2016 shortly before the hearing which took place on July 26, 2016. It ought to have been provided much earlier. As such, Mr. Reti’s response affidavit could only be prepared on very short notice and he tendered his response affidavit at the hearing.

I canvassed with all of the parties whether they wanted to proceed on July 26 or have further time in which to prepare response materials, in the case of the Trustee and the Bankrupt, or fuller

submission materials in the case of the objecting creditors, and all parties indicated that they preferred to go ahead with the hearing as scheduled. [ 7 ] Mr. Reti’s submissions understandably focused mostly on his daughter Ms. McFadden’s position. The biggest concern that he argued was the fact that the Bankrupt now says that he makes $40,000 per year in salary and during the course of the matrimonial proceedings income was imputed to him on an interim interim basis at $150,000 per year. His income was later found to be $84,000 per year for the purpose of a support order.

He also took issue with the fact that a new home was recently acquired in which the Bankrupt and his new partner reside. [ 8 ] The Bankrupt provided substantial material to the Trustee so that it could be verified that the home was indeed owned by his new partner’s parents. That fact was confirmed, at least with respect to the paper documenting the transaction. [ 9 ] The Trustee also indicated that all pay stubs have been checked, and the house particulars analysed, and that at this stage, without significant forensic expenditures, that is as far as the Trustee can take the matter.

There has been no examination on the Bankrupt’s affidavit. [ 10 ] Mr. Reti and the Bankrupt’s new partner’s parents all appear to have been very gracious in assisting their daughters, and I am sure that their assistance has been appreciated in both cases. [ 11 ] Ms.

McFadden related her difficulties after the bankruptcy of her estranged spouse including things that she has done to save the matrimonial home from foreclosure with the help of her parents and she described the support arrears that have accrued and the generally difficult time that she has had post-separation. [ 12 ] The Bankrupt referred to his affidavit and similarly related difficult times including leaving the matrimonial home with two suitcases of clothes and nothing else. [ 13 ] Mr.

Reti asked that I impose a condition upon the Bankrupt’s discharge that he be directed to transfer his interest in the matrimonial home to his daughter Ms. McFadden. That is not entirely within the control of the Bankrupt although he indicated during his submissions that he has no intention of making a claim in the matrimonial proceedings as against the matrimonial home. The Trustee has filed a caveat against the home believing that there is some surplus equity in the home. [ 14 ] As a matter of a discharge condition I find that I cannot impose the requested condition.

Doing so would prefer one creditor, namely Ms. McFadden, over others. In addition, the Trustee claims an interest in the home and a discharge cannot defeat that interest. Furthermore, the Bankrupt’s interest in the home would only be with respect to any exempt equity that he might claim. Having said that, the Bankrupt is certainly free to do whatever he wishes with what is found to be his exempt equity in the home, if any, that would not otherwise vest in the Trustee. I will deal with that issue in more detail later.

Factors to Consider [ 15 ] I make a number of observations in no particular order. [ 16 ] First, I cannot do more on this application than deal with the bankruptcy discharge application. While the submissions understandably sought to effect results in the matrimonial proceedings, I of course can only deal with the bankruptcy aspects of this matter. Nevertheless, the actions of the parties cannot be viewed in a vacuum, and there is inevitable overlap in their approaches on the various matters and their positions and conduct in one matter can affect the other matter. [ 17 ] Second, Ms.

McFadden’s support claim has a preferred position in the bankruptcy and survives the bankruptcy in any event pursuant to sections 136(1) (d.1), 178(1) (

b) and 178(1)(

c) of the Bankruptcy and Insolvency Act , RSC 1985, c. B-3. As difficult as the situation has been for Ms. McFadden, the direct effects upon her of a bankruptcy discharge for Mr. McFadden are largely neutral. [ 18 ] Third, while Mr. Reti’s submissions were certainly well intended, understandably they were directed toward his daughter’s position. In order for there to be any meaningful recovery or dividend for Mr. Reti and other creditors I would need to order a significant discharge condition well in excess of the preferred maintenance and support claim of Ms.

McFadden. [ 19 ] Fourth, at least in the context of the bankruptcy there have been no conduct issues regarding the Bankrupt. By all accounts, his conduct has been what has been asked for by the Trustee and what is expected of a Bankrupt. [ 20 ] Fifth, I observe that the total admitted claims to date in the bankruptcy are $133,350.68. Mr. Reti’s claim occupies approximately one third of that amount, so his submissions are certainly entitled to some weight. [ 21 ] Sixth, the Bankrupt’s status as an undischarged bankrupt is an impediment to the parties’ collective future in several ways.

It has clouded negotiations on the matrimonial side because of the uncertainty of what will happen in the bankruptcy process. I understand that a mediation session is taking place shortly in an effort to resolve matters, and as such I am endeavoring to give the parties an early decision on this matter so that they know the status of the bankruptcy proceedings. In addition, the resolution of the discharge application will likely enhance the Bankrupt’s personal financial prospects. There was evidence to that effect, and that is a reasonable inference to draw in any event.

Indirectly, that also enhances the prospects of Ms. McFadden and the children, as a more successful Mr. McFadden may well result in him being a more effective father and provider. Conclusions [ 22 ] In my view, this is a case where the fresh start principle clearly applies and the Bankrupt is entitled to his discharge. It is in the interests of the Bankrupt and his family that a discharge be granted. [ 23 ] The question is whether there should be any conditions. Having regard to all of the foregoing factors, I decline to order that

there be any conditions to the Bankrupt’s discharge. I have specifically considered whether there is any need for conditions to address specific issues, or to generally uphold the integrity of the bankruptcy system, and I find that there is no such need in this case. The Bankrupt has complied with his duties. [ 24 ] In all of the circumstances, I grant the Bankrupt his absolute discharge. I direct that there be a

preamble in the order with the following words “And upon the Bankrupt advising the Court that he intends to make no personal claim with respect to the parties’ former matrimonial home”. The Bankrupt made those submissions during argument, and Ms. McFadden is entitled to rely upon them in her matrimonial discussions and in her surplus equity discussions with the Trustee. Any claim that Mr. McFadden could make would have been restricted to exempt equity in the home in any event. [ 25 ] Ms. McFadden will still need to deal with the Trustee with respect to resolving any issues pertaining to non-exempt equity that Mr.

McFadden may have had in the matrimonial home. Nothing in these reasons is intended to affect those discussions in any way, and the Trustee and Ms. McFadden are free to make whatever arguments and arrangements that they wish to make in that context. [ 26 ] Thank you very much to the parties for their submissions in what has obviously been a difficult matter for all of them. Each party shall bear their own costs, provided that the Trustee shall of course be entitled to tax its costs out of the estate in the ordinary course. Heard on the 26 th day of July, 2016 .

Dated at the City of Calgary, Alberta this 5 th day of August, 2016 . J. Farrington Registrar in Bankruptcy Appearances: Barry Nykyforuk for Barry Nykyforuk & Associates Inc.