Hendsbee (Re), 2014 NSSC 148

IN THE SUPREME COURT OF NOVA SCOTIA IN BANKRUPTCY AND INSOLVENCY Citation: Hendsbee (Re), 2014 NSSC 148 Date: April 25, 2014 Docket: 27801 Registry: Halifax District of Nova Scotia Division No. 01- Halifax Court No. 27801 Estate No. 51-739917 In the Matter of the Bankruptcy of Joseph Edward Hendsbee ____________________________________________________________________________ LIBRARY HEADING ____________________________________________________________________________ Registrar: Richard W. Cregan, Q.C.

Heard: April 11, 2014 Written Decision: April 25, 2014 The bankrupt applied under Subsection 172(3) of the Bankruptcy and Insolvency Act to have his conditional discharge order, granted nine years ago, amended. The conditions were that he pay a certain amount, which he did pay, and that he file income tax returns for three years and pay the resulting taxes. He failed to make the returns, not having the necessary records, and may still owe taxes with respect to those years. His circumstances have changed. His income is somewhat less and he has two young children to bring up on his own.

He was granted an absolute discharge. THIS INFORMATION SHEET DOES NOT FORM PART OF THE COURT ’S DECISION . QUOTES MUST BE FROM THE DECISION, NOT THIS LIBRARY SHEET . IN THE SUPREME COURT OF NOVA SCOTIA IN BANKRUPTCY AND INSOLVENCY Citation: Hendsbee (Re), 2014 NSSC 148 Date: April 24, 2014 Docket: 27801 Registry: Halifax District of Nova Scotia Division No. 1 Court No. 27801 Estate No. 51-739917 In the Matter of the Bankruptcy of Joseph Edward Hendsbee _________________________________________________________________ D E C I S I O N __________________________________________________________________ Registrar: Richard W. Cregan, Q.C.

Heard: April 11, 2014, in Halifax, Nova Scotia Counsel: Joseph Edward Hendsbee, self-represented Daniel A. Rozon, Trustee, Grant Thornton Limited Deanna M. Frappier, for the Canada Revenue Agency [ 1 ] Joseph Edward Hendsbee made an assignment in bankruptcy on May 11, 2004. His sole creditor at that time was the Canada Revenue Agency (CRA) which was owed $64,764. He was granted a discharge on October 1, 2005 on condition that he pay into his estate $7,200, file returns for 2004, 2005 and 2006 income and pay the tax for those years. He paid the $7,200, but has not filed these returns. [ 2 ] From 2004 to 2012 Mr.

Hendsbee ’ s main source of income had been from work as an installation subcontractor for Vintage Hardwood Floors (Vintage). He earned approximately $50,000 per year during this period. He filed income tax returns for some years and not for others. In the years he did not, CRA issued arbitrary income tax and HST assessments. CRA had been collecting some of the assessed tax by issuing Requirements To Pay to Vintage. He remains substantially indebted to CRA for taxes during these years. [ 3 ] In September 2012 he became an employee of D. Procure Construction (Procure).

Procure withholds from his pay the appropriate amount for taxes. [ 4 ] He is a single father supporting two children, aged 5 and 4 years. His estranged wife has no contact with him or the children. He receives no support from her. He earns $15.00 per hour. He works on good weeks 40 hours, but on average, particularly in the winter, much less.

After childcare expenses the available monthly income is about $1,000, substantially less than $3,070 as provided in the Superintendent ’ s standards. [ 5 ] It is suggested that the money collected through Requirements To Pay may have covered the taxes owed for 2004, 2005 and 2006. However, Mr. Hendsbee has no records by which he could now prepare returns. Furthermore, he does not have the resources to hire an accountant to assist him in this regard. [ 6 ] In order for him to work he must pay for daycare for his children.

The only practical alternative is for him to look after the children full time and seek Social Assistance. [ 7 ] Initially there was some confusion as to how this application should be framed. After discussion with Ms. Frappier, counsel for the CRA, and Daniel A. Rozon, CA, CIRP, a trustee in bankruptcy, who has been helping Mr. Hendsbee, it was agreed that the application should proceed under Subsection 172(3) of the Bankruptcy and Insolvency Act , R.S.C. 1985, c. B-3 (BIA ), which I quote:

(3) Where at any time after the expiration of one year after the date of any order made under this

section the bankrupt satisfies the court that there is no reasonable probability of his being in a position to comply with the terms of the order, the court may modify the

terms of the order or of any substituted order, in such manner and on such conditions as it may think fit. [8] In effect, the Court is being asked to modify the terms of the conditional order to eliminate the requirement that he file returnsfor 2004, 2005, 2006 and pay any unpaid taxes arising therefrom, and grant him an absolute discharge. [9] On what is before me, there is no doubt that with his limited income, the expenses of daycare for his children, the expensesand difficulties which would be incurred in preparing those returns, and his inability to make payments, I can be satisfied that there is noreasonable probability of his being in a position to comply with the outstanding terms of his conditional order of discharge. [10] However, Ms.

Frappier submitted that the matter is not quite that simple. She has referred me to two cases which I mustaddress. [11] The first is Re McKeage (Bankrupt), 2003 ABQB 213, a decision of Master Funduk. The bankrupt was given a conditionalorder of discharge requiring him to consent to a judgment. He refused to do so and sought relief under Subsection 172(3). I quoteparagraphs [7] and [8] from this decision: [7] I agree with Re Whyte, 35 C.B.R. (N.S.) 194 (Ont.

S.C.), p. 197: On an application under s. 142(3) of the Act the onus is on the bankrupt to satisfy the court that there is no reasonableprobability of his being able to comply with the terms of the conditional order of discharge. This proceeding is not an appeal fromdischarge order. It is to be assumed that the conditional order of discharge is a proper order, and in the present case the order of Steele J.was not appealed.

What is to be determined on the application is not whether the previous order is such as the judge hearing the application wouldor would not have made in the first instance; the issue is whether after one year has passed since the making of the order the bankruptgenuinely has no reasonable probability of being able to comply with its terms.

The problem presented to the court in these circumstances is that if a bankrupt merely sits back and does nothing for a year andthen applies to the court to have the order varied under s. 142(3) without having made any effort to comply, he is in effect asking thecourt to take a second look at the suitability of the original order, and such an exercise in effect constitutes an abuse of the court’sprocess. [8] The bankrupt can readily sign his consent to a judgment. He just does not want to do it. In effect, he asks me to revisit the otherRegistrar’s order as an appeal.

I will not, and cannot, do it. [12] I note that the order in that case was granted on October 3, 2001 and the application was made in February 2003, slightly morethan a year later. This was obviously premature. Also the decision does not note any evidence having been given to prove that there isno reasonable probability on being able to comply with the order. [13] The order in the present application was granted nine years ago. During this time much has happened in Mr. Hendsbee’s life. Ido not think he has been simply sitting back.

That is not to say that he has not been irresponsible about dealing with his obligation to fileincome tax returns and pay taxes. I suppose it may be fairly said that he has. However, Mr. Hendsbee’s circumstances are morecomplicated than those described in this case. Accordingly, it is not helpful. [14] The other case is Re Appleby, (ON SCJ), a decision of Deputy Registrar Sproat. It concerned a bankruptwho with her husband had lived a comfortable lifestyle. They had made an assignment in bankruptcy. He died from cancer, they havingfirst separated. She owed substantial taxes.

She sought relief, but admitted that she had made no effort to pay her taxes or the amount ordered as the condition of her discharge.

[ 15 ] I quote paragraph 7 of this decision: 7. Counsel for the bankrupt relies upon the decision of Faley J. in Re Come (1991), 6 C.B.R. (3d) 227 (Ont. Bktcy.) as setting forth the tests on a motion to vary brought pursuant to s. 172(3) of the BIA .

At paragraph 5 of the Re Cowie, the tests are whether or not: 1) there has been a change in circumstances since the order was made and whether the changes were in the bankrupt’s control; 2) material indicating that the bankrupt cannot comply with the terms of the order (must be more than a statement of income and expenses); 3) the credibility of the bankrupt; and 4) evidence that the bankrupt has made a bona fide effort to comply with the discharge order during the preceding year.

Counsel for the responding parties agree that this is the proper test on a motion such as this. [ 16 ] There is no doubt that these tests are critical and appropriate in most applications under this subsection. However, I do not think they are conclusive. The key words are: “no reasonable probability of his being in a position to comply with the terms of the order” [ 17 ] I note that Ms. Frappier did not ask to examine Mr. Hendsbee. I am left to draw inferences from what was represented to me by Mr. Rozon, both in his affidavit and statements at the hearing. [ 18 ] The starting point is the conditional order.

I do not know why he did not follow up with filing these returns. My speculation is that, although he may be an able floor installer, he was not very good at the administration side of his business and failed to appreciate the consequences of not keeping good records and complying with the requirements of the CRA. The point, nevertheless, is that now his income is significantly less than at the time of the order, and he now has two children to support by himself.

There is nothing to suggest that he has intentionally put himself in his present predicament, nor has he acted with moral turpitude. [ 19 ] He does not have records, probably he never had such, to complete proper tax returns. He cannot produce them now. [ 20 ] His credibility was not put in question before me. As mentioned before, it is acknowledged that he was neglectful of responsibilities that all people in business have.

There is no suggestion this was intentional. [ 21 ] I have already indirectly considered his bona fides. [ 22 ] As I have said, he just does not see that he has any ability to do what is required of him. He has no records. It may be that the tax in issue has been paid, but we do not know. He will not have any surplus income. He should be allowed to be discharged. He may then make a second assignment which will then encompass what, if anything, remains owing from 2004 to 2006 and subsequent years. This will be a convenient forum to deal with such outstanding matters.

I do not see that it would in any meaningful way prejudice CRA. [ 23 ] His primary concern is that he be able to look after his children and I suggest that this should be the primary concern of society.

[ 24 ] He is entitled to have his discharge order modified so that he will be discharge absolutely. R. Halifax, Nova Scotia April 25, 2014