2015 NSSC 262, 2015 NSSC 262

SUPREME COURT OF Nova Scotia In Bankruptcy and Insolvency Citation: Macdonald (Re), 2015 NSSC 262 Date: September 19, 2015 District: Nova Scotia Division No. 01-Halifax Court No. 29971 Estate No: 51-124282 In the matter of the Bankruptcy of Thomas Michael Macdonald DECISION Registrar: Richard W. Cregan, Q.C. Heard: June 18, 2015 Written Decision: September 19, 2015 Present: Thomas M.

Macdonald Deanna Frappier, Representing the Canada Revenue Agency Derek Cramm, Representing PricewaterhouseCoopers Inc., Trustee By the Court: [ 1 ] Thomas Michael Macdonald in this application seeks his discharge from bankruptcy. [ 2 ] He filed an intention to make a proposal in 2007. His approach was to frame a proposal which would pay 100 cents on the dollar. The Canada Revenue Agency (CRA) did not find it attractive. The proposal was redrafted at least twice. Each time the amount offered was reduced. There were three orders extending time for filing. However, when the vote came, CRA voted against it.

The proposal was rejected. Mr. Macdonald was deemed to have made an assignment on May 18, 2008. Initially Goodman Rosen Inc. was the Trustee, but on the initiative of the CRA, PricewaterhouseCooper Inc. became the Trustee. Derek Cramm has been in charge of the file. [ 3 ] Mr. Macdonald is a partner in a Halifax law firm. He is 64 years of age and has a number of health problems. [ 4 ] He declared unsecured debts totalling $208,400, of which $160,000 was owed to CRA, $47,000 to the Royal Bank of Canada, and $1,400 to Irving Oil.

The Trustee’s updated Report of June 12, 2015 shows that they have grown to $396,109.29. However, particulars of the additional amount have not been provided to the court. [ 5 ] The Report shows that his assets consisted of household furniture valued at $2,000 which is exempt, cash on hand in three banks, a leased 2006 BMW–X3 automobile and his partnership interest.

He gave the nominal value of $1.00 for each of these items. [ 6 ] Also it shows that all that has been realized is $18,165.30 pursuant to a court order, $7,277.29 surplus income and interest allocation of $120.77, for a total of $25,559.36. [ 7 ] Little information has been provided to the court regarding the personal and financial situation which led Mr. Macdonald to make the assignment. The cause of his bankruptcy as stated in the Report is :

Other: Loss in real estate deals, Bedford. Carried 2 houses. CRA issues . A letter from Goodman Rosen Inc. dated May 4, 2007 respecting an intended proposal speaks of monthly child support payments of $1,008, child access expenses of $500, and net monthly income of $4,800. [ 8 ] The court order mentioned above was issued on October 8, 2010. Mr. Cramm with the urging of CRA had been making efforts to have Mr. Macdonald pay something into his estate. An agreement was reached whereby Mr. Macdonald consented to the order. The following is the operative paragraph: 1.

It is ordered that the bankrupt make voluntary monthly payments to the trustee towards his surplus income obligation in the amount of $1,000.00 commencing in the month of October 2010 until this Court issues a further order with respect to this matter or with respect to his discharge from bankruptcy; and further that the bankrupt shall provide monthly income and expense statements to the trustee for the months from March 2008 to September 2010 by October 31, 2010; and further that the bankrupt shall provide monthly income and expense statements to the trustee for each month commencing October 2010 within 30 days of the end of each month until he is discharged; [ 9 ] A supplementary order under S. 68 of the Bankruptcy and Insolvency Act, R.S.C. 1985, c.

B-3 (BIA) was also issued directing his firm or anyone owing him money to pay $1,000 per month to the Trustee. [ 10 ] After Mr. Macdonald complied with the order over 21 months he reviewed the situation with Mr. Cramm. Mr. Cramm considered the amount to be the appropriate total surplus income to be paid. Mr. Cramm did not seek further payments. Mr. Macdonald has made no further payment to his estate. [ 11 ] Counsel for CRA notes that the order is very specific. The $1,000 a month is to be paid until the court issued a further order. No such order has been sought.

Monthly income and expense statements also have not been provided. [ 12 ] CRA has filed affidavit evidence that Mr. Macdonald has continued to substantially be in arrears for income tax and Canada Pension contributions dating back to 2007, the year of his assignment. The balance owing to CRA as of May 8, 2015 is $243,710.32. Other than what is mentioned above, Mr. Macdonald has been silent about the circumstances leading to his financial difficulties and about why he continues to be substantially in arrears on post-bankruptcy income tax. He has not provided normal income and expense reports. [ 13 ] However, Mr.

Macdonald notes a number of factors which he submits should be considered: • He has been in bankruptcy for eight years. • He is 64 years of age. • He has significant medical problems. • There are limitations on his future earning capacity. • He considers that CRA have acted unreasonably from the beginning particularly with a failure to consider a proposal that he claims could have resulted in 100 cents on the dollar. • He sees CRA as having a strategy of first pushing him into bankruptcy, rather than working with a proposal, and then encouraging his trustee to seek a discharge so that it could then resume using its special remedies. [ 14 ] To the extent that the first four factors relate to delay, it can fairly be said that he is primarily responsible in this regard.

As to the observations regarding CRA’s actions and strategies, it can be said that CRA, like any creditor, is free to respond to proposals as it sees fit within the provisions of the BIA . [ 15 ] Counsel for CRA submits that the conditions of his discharge should be that he pay the total amount of his pre-assignment tax arrears, that is, $157,436.15. [ 16 ] CRA’s notice of objection alleges that fact (

a) and fact (

e) of Section 173(1) of the BIA have been proved. Thus Section 172(2) governs the conditions of discharge. I quote these two facts: (

a) the assets of the bankrupt are not of a value equal to fifty cents on the dollar on the amount of the bankrupt’s unsecured liabilities, unless the bankrupt satisfies the Court that the fact that the assets are not of value equal to fifty cents on the dollar on the amount of the bankrupt’s unsecured liabilities has arisen from circumstances for which the bankrupt cannot justly be held responsible. (

e) the bankrupt has brought on, or contributed to, the bankruptcy by rash and hazardous speculation, by unjustifiable extravagance in living, by gambling or by culpable neglect of the bankrupt’s business affairs. [ 17 ] There is no evidence before the court to prove fact (

e) except for a rented BMW which costs $1,600 per month. That by itself is not enough to make a finding of this fact. However, fact (

a) requires careful consideration. Mr. Macdonald’s statement of affairs clearly proves that his assets are not of a value equal to fifty cents on the dollar of his unsecured liabilities. [ 18 ] The burden has thus shifted to Mr. Macdonald to prove that he should not be justly held responsible. We know few details of what has happened. He should have given a comprehensive review of his financial affairs, both before and after his assignment. All he

did was state a few generalities. Counsel for CRA did not cross examine him. [ 19 ] He clearly has not provided any meaningful evidence on which a finding that he “cannot justly be held responsible” can be made, What evidence there is clearly dictate otherwise. Fact (

a) has been established. [ 20 ] An employee of CRA was appointed as the Inspector. However, this employee’s responsibilities changed and she was soon not significantly involved in this role. CRA took no steps to have another employee appointed. [ 21 ] However, CRA did take initiative in having the 2010 order issued, but seems not to have followed up, particularly after Mr. Macdonald ceased making payments. [ 22 ] Mr. Macdonald has not provided the court with details of his current income, the value of his partnership interest, and his current expenses. He is substantially behind in paying his income tax.

He has been appealing his assessments to the Tax Court. He has provided no information regarding the merits of these appeals. Are there real issues or are the appeals simply stalling tactics? [ 23 ] Mr. Cramm made a judgement call about the 2010 order. I have no doubt but that he was acting in good faith. It resulted in 21 months of surplus income being paid. However, there is considerable merit in Counsel for CRA’s comments that the actual wording should be taken seriously. Waving a clear requirement of the order is beyond the competency of a trustee. Normally a court order is needed. Mr.

Macdonald should have been more attentive to the wording of the order and should have appreciated that it means what it says and can only be amended by a further application to the court on notice to creditors. This was not done. This failure must be reflected in the disposition of this application. [ 24 ] As fact (

a) has been proved, the conditions of Mr. Macdonald’s discharge are governed by Subsection 172 (2) of the BIA . The options are: (

a) refuse the discharge of a bankrupt; (

b) suspend the discharge for such period as the court thinks proper; or (

c) require the bankrupt, as a condition of his discharge, to perform such acts, pay such moneys, consent to such judgements or comply with such other terms as the court may direct . [ 25 ] I may refuse his discharge. However I do not think any useful purpose would be served by doing so. It is in everyone’s interest to have the conditions of discharge determined so that Ms. Macdonald will know what he has to do to obtain his discharge and deal with his post-bankruptcy financial problems. [ 26 ] I may suspend his discharge. He has been in bankruptcy for eight years. There is little sense in suspending his discharge for any significant further time. [ 27 ] Of the choices in Paragraph (

c) requiring him to pay money is the most appropriate. [ 28 ] The affidavit filed by CRA gives evidence of Mr. Macdonald’s post bankruptcy earnings, that is, for the years 2007 to 2014. The average annual income is approximately $125,000.00. No explanation has been given why he has not been paying the income tax assessed against this income, no details have been provided as to the other demands upon this income. [ 29 ] I think that Mr. Macdonald must pay a significant sum into his estate as the condition of his discharge.

He has had what most people would consider a good income both before and after his bankruptcy. He has given no meaningful account of how he has disposed of that income nor why he has allowed substantial arrears of income tax to build up, both before and after his assignment. [ 30 ] If he has good reasons for his falling into this situation, he should have given evidence to substantiate them. This he has not done and counsel for CRA did not elect to cross examine him in that regard. It is easy to draw the inference that he does not have good reasons. He has failed to give a good explanation for his situation.

He has not given good reasons why he should not be expected to make a substantial contribution to his estate. [ 31 ] If he had been in compliance with the order, he would have by this time paid an additional $38,000, to his estate. [ 32 ] To obtain his discharge, he must pay this sum, but it is not enough. Having given no meaningful explanation of his substantial failure to perform the responsibilities expected of all citizens with good incomes, in addition to the $38,000, he must also pay to his estate $100,000 before being entitled to his discharge. R