Besner (Re), 2013 BCSC 347

IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: Besner (Re), 2013 BCSC 347 Date: 20130305 Docket: 12 1066 Registry: Victoria In the Matter of the Bankruptcy of Mark Reginald Richard Besner Before: Master McCallum (Registrar in Bankruptcy) Reasons for Decision Appearing in person: Trustee in Bankruptcy: M.R.R. Besner K. Glover Counsel for Canada Revenue Agency: D.A. Gagnon Place and Date of Hearing: Victoria, B.C. January 22, 2013 Place and Date of Judgment: Victoria, B.C. March 5, 2013 INTRODUCTION [ 1 ] Mark Besner (“Besner”) made an assignment in bankruptcy in February 2012.

He now applies to be discharged absolutely in the face of opposition from Canada Revenue Agency (“CRA”), his largest creditor. [ 2 ] CRA says he ought to be discharged on condition of payment of a significant sum because the debt to CRA is treated differently than other debts. There was no opposition to the discharge from either the trustee in bankruptcy or the other creditors. [ 3 ] For the reasons that follow, I have concluded that the discharge should be suspended until the later of February 1, 2014 and payment of $40,000 by Besner into his estate on the terms set out in these reasons.

BACKGROUND [ 4 ] Besner did not adduce any evidence at the hearing. He relied upon the trustee’s report and recommendation that he be discharged. At the conclusion of the hearing he made submissions about his circumstances at the time of the bankruptcy but produced no evidence in support of those submissions. For the purposes of these reasons, I have referred only to the evidence adduced by CRA through the affidavit of Michelle Swetlikoe filed January 22, 2013, and the material filed by the trustee. [ 5 ] Besner made his assignment in bankruptcy in February 2012.

At the date of his bankruptcy he declared assets of $146,720.01 as against liabilities of $527,500.00. The trustee’s report on discharge shows realized assets of $2,454.88 as against proven liabilities of $552,583.14. That is so because the bankrupt’s largest asset was an exempt RRSP. [ 6 ] The trustee’s report indicates that Besner satisfactorily performed all of his duties as an undischarged bankrupt and recommends that he be discharged absolutely. The trustee reports that Besner has a current income of approximately $1,300 monthly and shares expenses with his partner.

Her income was not disclosed. [ 7 ] The trustee reports that Besner has proven liabilities of $552,583.14, including his debt to CRA of $362,543.78. His other debts are primarily to chartered banks and credit card companies. He owes his partner $61,000. [ 8 ] Besner’s tax liability arose from unpaid personal income tax, interest and penalties for taxation years 2000 and 2001.

Notices of Reassessment were issued by CRA on January 6, 2005, increasing his income and imposing taxes of $102,563.50 plus interest and penalties of $259,950.28 for those taxation years. [ 9 ] In February 2005, Besner was charged with evading income tax and causing certain companies to evade income tax and remittance of GST. Those charges were disposed of in February 2006 when Besner plead guilty to certain of them. He was fined $112,262.67 and apparently sentenced to one year of house arrest. Besner paid the fine on April 10, 2007.

[10] Besner appealed from the Notices of Reassessment to the Tax Court of Canada. The appeals were only made in respect ofcertain penalties that were imposed. The reasons for judgment make it clear that Besner did not dispute the amount of tax imposed. Theappeal was dismissed on July 3, 2008. [11] Besner appealed the decision of the Tax Court to the Federal Court of Appeal. That appeal was dismissed on October 26, 2009. [12] Besner, on the evidence of CRA, was primarily self-employed at the time the income tax debt arose and for the years followinguntil his assignment in bankruptcy.

His income for tax purposes ranged from a high of $232,000 in 2001 to a low of $3,170 in 2011. Hisincome for 2009, 2010 and 2011 was approximately $3,000 annually. [13] At the time of his bankruptcy, Besner was the sole shareholder, officer and director of a company operating retail stores inVictoria, Richmond and Vancouver. Financial statements for the business attached to the CRA material show the company with aretained earnings deficit and a loss on operations as at February 2012. It appears from the evidence that Besner’s common law partner isnow a director and may be operating the business.

The report of the trustee in bankruptcy indicates that Besner’s shares in the businesswere worthless. [14] Besner is 61 years of age and employed by the business he formerly owned. His income has remained constant for the past threeyears and it is apparent that he relies upon his partner for support. DISCUSSION [15] Besner says he should be discharged absolutely given the report and recommendation of the trustee. CRA says the dischargeshould be granted on condition of payment terms.

CRA says bankrupts whose debts include significant amounts of income taxes shouldbe held to a higher standard than others without significant tax liabilities: Steward v. Canada (Attorney General), (B.C.C.A.). CRA concedes that the bankrupt’s present circumstances militate against payment terms given his low income. [16] In circumstances where personal income tax debt of a bankrupt exceeds $200,000 and amounts to 75% or more of the totalunsecured claims, s. 172.1 of the Bankruptcy and Insolvency Act, R.S.C. 1985, c B-3 (“BIA”) sets out special provisions with respect todischarge applications.

Besner does not fall within those provisions. Absent the objection of CRA, he would have received an automaticabsolute discharge. [17] That said, there is no doubt that the authorities prior to the amendments to the BIA that resulted in s 172.1 are to the effectargued by CRA. Bankrupts whose debts were largely made up of income tax obligations were subject to different considerations: ReDarcis, [1997] O.J. No. 4379. Those bankrupts were not seen as “unfortunate but honest debtors” whose rehabilitation was an importantfactor in the discharge application.

In the authorities submitted to me by CRA, bankrupts whose debts included significant amounts ofpersonal income tax were discharged on payment of a large percentage of the income tax owing. [18] I have considered all of the authorities submitted to me by CRA and ably argued by Mr. Gagnon, counsel for CRA. Of thoseauthorities, the decision of Master Bouck in Luoma (Re), 2012 BCSC 922, appears to be particularly apt. The bankrupt in Luoma, as withBesner, had been convicted of income tax evasion and fined. She then made an assignment in bankruptcy declaring a tax debt of over$400,000.

At the date of the discharge application she was 63 years of age and had very modest earning capacity. Master Bouck foundthat the bankrupt had been “the author of her own misfortune” and discharged her on condition that she pay $20,000 on terms. [19] Besner’s circumstances make it unlikely he can pay a significant amount of his proven liabilities including the debt for incometaxes. He has a modest income and equally modest expenses. The RRSP account in his name is an exempt asset.

The integrity of thebankruptcy system requires some contribution on his part towards his obligations given the history of evading payment of income taxes.I am mindful that he has “paid his debt to society” as a result of that offence, but he has not made any effort to pay his income taxesresulting from that conduct. CONCLUSION [20] Besner will be discharged upon the following conditions:

a) pay to the trustee the sum of $40,000 with minimum monthly payments of $100 commencing March 1, 2013, and continuing on thefirst day of each month thereafter until paid in full, with liberty to prepay all or part of the amount owing;

b) submit monthly income and expense statements to the trustee for so long as he remains undischarged; and

c) file all income tax returns as required by law for so long as he remains an undischarged bankrupt; and

d) the discharge is suspended until the later of payment as required or February 28, 2015. [21] The trustee may seek its discharge if, for three consecutive months, the bankrupt fails to pay the minimum monthly payments orsubmit income and expense reports. “W. McCallum” Master W. McCallum