MacFarlane (Re), 2019 NSSC 201

SUPREME COURT OF Nova Scotia IN BANKRUPTCY AND INSOLVENCY Citation: MacFarlane (Re) , 2019 NSSC 201 Date: 20190624 Docket: No. 41128 Registry: Halifax Estate Number : 51-2152294 In the Matter of: The bankruptcy of Mark Daniel MacFarlane Judge: Raffi A. Balmanoukian, Registrar Heard: May 3, 2019, in Halifax, Nova Scotia Counsel: Jason Breeze, for the Trustee, BDO Canada Limited Mark Daniel MacFarlane, by teleconference, personally Balmanoukian, Registrar: [ 1 ] “Mr.

Breeze outlined in a call with a lawyer that I had been looking to retain, the registrar is fairly new and may look to throw the book at me.” So pleads Mr. MacFarlane in his “response,” filed in the form of a defence, to the Trustee’s application to annul Mr. MacFarlane’s discharge. [ 2 ] If by that, he means that the Court expects a bankrupt to comply with his duties and not to abscond with an asset he’s agreed to repurchase from the estate, he’s right. [ 3 ] The facts in this case are not complex.

They do, however, illustrate the dangers inherent in an absolute discharge, either automatic or otherwise, when there are outstanding duties or obligations on the part of the bankrupt. Background [ 4 ] Mr. MacFarlane made an assignment in bankruptcy on August 4, 2016. BDO Canada Limited was appointed trustee. [ 5 ] One of Mr. MacFarlane’s assets was a 2014 Ford Flex. The Trustee determined that the purported security on it, in favour of TD Auto Finance Inc., was invalid and disallowed that security.

The disallowance was not appealed. [ 6 ] As such, the Flex was an estate asset with a value distributable among the estate’s creditors. [ 7 ] The Trustee obtained a “forced sale” valuation of the Flex at $17,500. It will be noted that this is not the same as fair market value. [ 8 ] Mr.

MacFarlane agreed to repurchase the Flex for $15,702.50 (I am not completely clear how this was calculated but I note in passing it is appears to be a “discount on a discount;” the trustee’s affidavit exhibit “E” suggests it deducted a notional $2,012.50 commission – apparently 10% plus HST - suggesting both a valuation based on a forced sale AND a commercial disposition). [ 9 ] This was documented by a duly signed Conditional Sales Agreement, and perfected under the Nova Scotia Personal Property Security Act , SNS 1995-6, c. 13, as amended (the “PPSA”). Mr.

MacFarlane made various payments totalling $7,040.00, both before and after his discharge, leaving a balance of $8,662.50. [ 10 ] Mr. MacFarlane also, during his bankruptcy, had surplus income within the meaning of

Section 68 of the Bankruptcy and Insolvency Act , RSC 1985, c. B-3 , as amended (the “ BIA ”). As of the date of his discharge hearing, the calculated balance was $2,879.05, out of a total of $3,823.05. In other words, he paid $944, or less than 25% of what he should have under s. 68 . [ 11 ] On June 1, 2018, the Trustee applied for Mr. MacFarlane’s discharge. For whatever reason, it purported to “waive” the s. 68 surplus income balance, and asked the Court (this was before my “fairly new” appointment) for an absolute discharge. That was issued. [ 12 ] Mr. MacFarlane ceased payments in August 2018. He now takes the position that, as a discharged bankrupt, his duties are at an

end; that he is entitled to the $6,500 exemption in the PPSA (s. 59(3)(b)); that the Conditional Sales Agreement, by providing that it is the entire agreement between the parties removes it from the BIA process (and this Court’s role in it); and that having sold the vehicle (which was removed from the Province after being auctioned in or around August 2018, just around when payments ceased), he is entitled to keep the proceeds. [ 13 ] The Trustee seeks to annul the discharge; for the Court to order payment of the balance outstanding; for a suspension of the bankrupt’s discharge; and for costs and disbursements. [ 14 ] Mr.

MacFarlane appeared by teleconference on April 5, 2019 and requested an adjournment to retain counsel. His request for a month in which to do so was granted. He appreciated that the return date of May 3, 2019 was a line “drawn in the sand.” [ 15 ] Ultimately, he filed a self-represented “defence” on April 30, 2019. I will deal with aspects of it throughout this decision; I will not deal with some of its minutiae, particularly where it speaks of such matters as Mr.

MacFarlane’s post-bankruptcy personal difficulties rather than the application of the relevant law to the facts; however, I have read them in detail. [ 16 ] Although the Trustee took issue with various elements of it as argument and evidence rather than pleading, I accepted them for the purposes of this application with considerable latitude both as to form and substance. [ 17 ] Mr. MacFarlane’s style of cause, in the form of a defence filed in Form 4.05A, referred to “Jason Breeze, CIRP, LIT, Vice- President of BDO Canada Limited, Plaintiff.” Mr.

MacFarlane confirmed that he appreciated the real parties at bar are himself and BDO Canada Limited in its capacity as his trustee, and that Mr. Breeze personally is not a party and no claim is made by or against him personally. To the extent necessary, I amend the style of cause to reflect this. [ 18 ] Although “lay submissions,” Mr. MacFarlane is clearly articulate and intelligent and quite capable of formulating and expressing his position. He obviously (through his Court submissions and email correspondence with the Trustee) expended considerable thought and effort into his position.

He appreciated that the matter would proceed on the merits with these documents and oral argument. And so they did. The application to annul the discharge [ 19 ] Mr. MacFarlane submits that this is a contract dispute, not a bankruptcy dispute, and should be dealt with on that basis; and that as a result of his absolute discharge, this Court should not deal with that, either. [ 20 ] With respect, this is a circular argument – that the discharge takes the matter out of the Court’s hands to deal with annuling that self-same discharge, or in making changes thereto. [ 21 ] Subsection 180(1) of the BIA reads: 180

(1) Where a bankrupt after his discharge fails to perform the duties imposed on him by this Act, the court may, on application, annul his discharge. [ 22 ] I have, as Registrar, the corresponding jurisdiction to act under this provision: Re Lannigan , 2008 NSSC 348 (cited with approval on this point in Carlson v. Carlson , 2012 ABCA 173 ). [ 23 ] In my view not only has Mr.

MacFarlane failed “to perform the duties imposed on him by this Act,” he has acted in such a way as to deprive himself of the benefit of any latitude or discretion the Court may have extended in his favour with respect to those duties. [ 24 ] Duties are not suggestions, or actions to be undertaken when convenient or if life doesn’t get in the way. It was unquestionably not his place unilaterally to decide that he was now the outright owner of the subject vehicle, sell it, pocket the money, and tell the Trustee (and his creditors) that they could pound sand. [ 25 ] Mr.

MacFarlane seems to suggest that his obligations, if any, are not under the BIA , but a matter of contract. Again, that is a fallacy. His obligations are to the Trustee pursuant to a repurchase arrangement he made in the course of his bankruptcy – his alternatives were to surrender the subject asset for the benefit of creditors, or to repurchase it (again, apparently at a discount) on terms acceptable to the Trustee. It is in evidence that the Trustee communicated this during the currency of the bankruptcy. [ 26 ] It was an error by the Trustee to seek an absolute discharge when there were duties outstanding.

I will deal with that in due course. However, duties there were, and the Court can address them. Indeed, it would be unjust not to do so. [ 27 ] I therefore annul the discharge. The question is now what obligations remain for Mr. MacFarlane to perform. Mr. MacFarlane’s remaining obligations [ 28 ] Mr. MacFarlane asserts he is entitled to the $6,500 vehicle exemption in Section 59(3)(

b) of the PPSA. [ 29 ] This is incorrect, and was stated by the Trustee to Mr. MacFarlane to be incorrect, based on VW Credit Canada v. Roberts , 2001 NSCA 42 . [ 30 ] The facts in this case are similar. Leaving aside for the moment whether the motor vehicle in question was necessary for employment purposes in an area without reasonable public transport (which is a prerequisite to trigger the exemption under 59(3)(

b) PPSA), the exemption does not apply where, as here, there is a properly perfected purchase money security interest (59(7) PPSA). [ 31 ] Even if Mr. MacFarlane was correct in his assertion, he would still owe the Trustee money. The agreed purchase price was $15,702.50. He paid $7,040, leaving a balance of $8,662.50. That would, after applying the notional $6,500 “exemption,” had there been one, leave a balance of $2,162.50. He admitted at the hearing that “I don’t have any excuse” for this differential and that he had

“intended to maintain payments.” [32] He cited various difficulties with his affairs and his family. Had Mr. MacFarlane acted in good faith and equitably, these mayhave given rise to empathy or accommodation to the extent (if any) that the Court has jurisdiction to modify payment or repayment terms. [33] He emphatically did not. Not only was the Trustee’s position made manifest to him but was backed up with caselaw. As Ihave stated, Mr. MacFarlane is highly intelligent and quite capable of understanding this, and if he disagreed it was not his unilateralprerogative to take his own

interpretation of the law into his own hands. He could have sought direction from the Court. Instead, hemade like Sir Robin and ran away, even from the balance that on his own admission and own unilateral calculation remained owing. [34] Nor is Mr. MacFarlane, for similar reasons, eligible for the $3,000 vehicle exemption in Section 45(1)(

f) of the Judicature Act,RSNS 1989, c. 240. This exemption, even if it were otherwise to apply, does not affect a duly filed charge: Section 45(2). [35] I therefore find that Mr. MacFarlane owes the estate the sum of $8,662.50 on account of this vehicle. This must be paid beforehis discharge and an order will issue accordingly. [36] The Trustee also seeks a suspension as a sanction for Mr. MacFarlane’s conduct. I have opined on several occasions that stand-alone suspensions have little to no practical consequence.

I generally agree with the sentiment of Hallett, J. (as he then was) that they are“always meaningless”: Re Crowley (1984), (NS SC), 66 NSR (2d) 390 (SC,TD) at para. 69. [37] It will be, in part, up to Mr. MacFarlane as to what happens from here. He must pay the $8,662.50 and the additional $500 Inote below before being eligible for a discharge. I am refusing to issue an order that would become absolute on compliance with thiscondition alone. [38] I will be most interested in how, and when, this payment takes place. Mr.

MacFarlane shall have leave to apply for a dischargewhen, and only when, this $9,162.50 is paid. [39] I was not asked to revisit the $2,879.05 in s. 68 surplus income that was calculated as outstanding, but “waived” in the course ofthe original discharge. I do not do so. Costs [40] I now turn to costs. [41] The Trustee seeks $500 in disbursements incurred in “tracking down” the vehicle and its disposition. I believe that isreasonable. [42] I have a different opinion, however, in exercising my discretion as to costs of this application.

The trustee seeks $5,000 “or suchother amount as determined by the Court, as censure for the Bankrupt’s failure to perform the duties imposed on him by the BIA, and inlight of the offences under the BIA that it appears the bankrupt has committed under the BIA.” [43] The Trustee cites Sections 158(k), 158(o), 158(p), 198(1)(a), 198(1)(f), 198(1)(g), and 198(2). He also cites, as reasons not togrant a discharge, Sections 173(

l) and 173(o). [44] It is not necessary to review each of these in minute detail. It is adequate to say that Mr. MacFarlane’s convenientunderstandings, contempt for his obligations, and manipulation of the process have been reprehensible. This is particularly so when heappears to have had the benefit of every break in the book, from not having to pay approximately 75% of what he should have under s.68, to repurchasing a vehicle worth at least $17,500 (and probably more) for $15,702.50 without tax or interest. [45] Had Mr.

MacFarlane’s absconsion been stand-alone actions without error or omission by the Trustee, I would indeed beinclined to “throw the book.” That is not, however, the whole story here. [46] In my view, the Trustee should never have sought an absolute order in these circumstances. The remaining matters at handwere not minor. The creditors’ interests and systemic integrity were not given fair priority.

It still remains unclear to me why theTrustee did not seek the balance of income that would have normally been payable under s. 68, or why the Trustee calculated the netrealizable value of the vehicle as it did. [47] The Trustee should have sought a conditional order. [48] In my view, this matter was exacerbated and perhaps in some ways even triggered by the failure of the Trustee to do so. While Iclearly disapprove of Mr.

MacFarlane’s acts and omissions, in disposing of this matter of costs I must also be fair and equitable; I mustexercise my discretion judicially and not capriciously. [49] In doing so, I reiterate that the Trustee’s additional work, while necessary, was somewhat brought about by its own acts. [50] Finally, in my view any additional costs (except for the $500 in direct disbursements already discussed) would be partially ofbenefit to the creditors and not to the Trustee, whose fees are governed by Rule 128 regardless of this additional activity: Re Thompson, (NSSC); Re Crawford, (NSSC). [51] The net effect of Rule 128 in this case is that any award of costs would accrue half to the Trustee and half to the creditors.

While it is sorely tempting to extend this benefit to creditors whose interests have not been adequately addressed throughout this process,they have also taken no steps to immerse themselves in these proceedings. I believe that, on balance, to award costs on these particularfacts would send a wrong message that the Trustee can “just get the Court to fix it,” and be compensated at least in part for thatadditional work.

[ 52 ] It is also sorely tempting to use the tool of costs to discourage actions and attitudes such as those of the Bankrupt. However, in my discretion and in this case I believe the proper time to deal with further consequences (if any) of this conduct is at the time of Mr. MacFarlane’s discharge application. As I have said, when and how that comes about will now in part depend on him. Conclusion [ 53 ] The discharge is annulled, and Mr.

MacFarlane is now and remains an undischarged bankrupt. [ 54 ] The Bankrupt shall pay $9,162.50 to the Trustee, after and only after which he may make an application for discharge. [ 55 ] The Trustee shall prepare the relevant order for my review. Balmanoukian, R.