2012 QCCA 2207, 2012 QCCA 2207

Canada (Attorney General) v. Koch 2012 QCCA 2207 COURT OF APPEAL CANADA PROVINCE OF QUEBEC REGISTRY OF MONTREAL No: 500-09-022802-128 (760-11-005085-119) DATE: DECEMBER 11, 2012 CORAM: THE HONOURABLE YVES-MARIE MORISSETTE, J.A. NICHOLAS KASIRER, J.A. DENIS JACQUES, J.A. (AD HOC) THE ATTORNEY GENERAL OF CANADA APPELANT – opposing party v. MANFRED KOCH RESPONDENT – bankrupt and DE BILLY TREMBLAY & ASSOCIATES INC.

RESPONDENT – trustee and THE OFFICE OF THE SUPERINTENDENT OF THE BANKRUPCY IMPLEADED PARTY – impleaded party JUDGMENT [ 1 ] On June 15, 2012, the Superior Court in the District of Beauharnois, (the Honourable Madam Justice Claude Dallaire presiding), dismissed an opposition brought by the Attorney General of Canada to an application for discharge of Manfred Koch, a bankrupt. The Superior Court granted Mr. Koch an absolute discharge. The Attorney General inscribed the judgment in appeal. [ 2 ] The case turns on the proper application of

section 172.1 of the Bankruptcy and Insolvency Act [1] concerning tax debtors. Enacted in 2005, the new regime precludes the absolute discharge of a bankrupt who has $200,000 or more of "personal income tax debt" representing 75% or more of his or her total unsecured proven claims.

Section 172.1 applies to persons who were declared bankrupt after September 18, 2009, the date the enactment came into force. [2] [ 3 ] The appellant contends that by ordering an absolute discharge of Mr. Koch, who was declared bankrupt in 2010, the judge erred in law in failing to apply s. 172.1 of the Act. It asks the Court to set aside the judgment ordering the absolute discharge and to replace it with an appropriate order, with conditions if necessary, that takes into consideration the bankrupt’s personal income tax debt and the factors identified by Parliament in subsection 172.1(4) of the Act. *** [ 4 ] Mr.

Koch works in the construction industry as an independent contractor. In his federal income tax returns filed between 1987 and 1994, he claimed certain deductions that were refused by the Canada Revenue Agency, in part because Mr. Koch failed to keep proper books and accounts of his business expenses. He did not object to the assessments issued by the CRA but he did not pay the amounts due. [ 5 ] Revenu Québec also issued assessments in respect of income tax returns filed by Mr. Koch in taxation years 1996 to 2000. Mr.

Koch borrowed money from a relative to pay a portion of these unpaid taxes but failed to pay the full amount due. [ 6 ] When he filed for bankruptcy in 2010 – this would be his first bankruptcy – Mr. Koch declared in his sworn statement of assets and liabilities required under the Act that he had only a few assets, which were all either exempt from seizure or of insignificant value. He declared a monthly net income from his construction business of $2,165.

The statement of assets and liabilities recorded debts of $121,417 to the CRA and $198,658.82 to Revenu Québec; his other unsecured claims were modest in amount. [ 7 ] On January 18, 2011, the CRA sent a proof of claim for $219,819.68 that was admitted by the trustee in bankruptcy and recorded as such on its list of claims. The Ministère du Revenu du Québec sent a proof of claim for $205,463.52 that was also admitted by the trustee.

The total amount of the various proven unsecured claims recorded by the trustee was $438,198.01. [ 8 ] At about the same time, the Attorney General of Canada, representing the CRA, filed an Opposition to the Discharge of the Bankrupt in the Commercial Division of the Superior Court, citing subsection 170(7), 172.1 and 173 of the Act. In the conclusions

sought, the Attorney General asked that the discharge of Mr. Koch be refused. Alternatively, it asked the Superior Court to suspend the discharge of the bankrupt on terms and conditions determined by the Court. As a final alternative, it asked that the Superior Court grant Mr. Koch a conditional discharge upon payment of a sum and according to conditions to be determined. [ 9 ] The grounds for the Opposition to Discharge were two-fold: first, that Mr. Koch owed a personal income tax debt in an amount greater than that designated in

section 172.1 of the Act; and second, that his conduct gave reasons for which discharge should be refused pursuant to

section 173 of the Act. *** [ 10 ] The Superior Court dismissed the opposition to discharge filed by the Attorney General of Canada on behalf of the CRA. The Court decided to grant Mr. Koch an absolute rather than a conditional discharge from bankruptcy. [ 11 ] The Court observed that the CRA’s claim for unpaid taxes related to deductions from income sought by Mr. Koch for sums paid to subcontractors not properly recorded in his accounts. The judge dismissed Mr. Koch's argument that the CRA had failed to prove its claim, concluding that the Attorney General had standing to present an opposition.

The proof of claim by the CRA, as filed in the office of the trustee, was in her view sufficient to give the tax authority status as creditor in the bankruptcy (paras. [47] to [53]). [ 12 ] The judge then considered whether the Attorney General had established one of the grounds set forth in sections 172 and 173(1)(a), 173(1)(e), 173(1)(

h) and 173(1)(

o) of the Act in order to justify its opposition to the discharge. She decided that the grounds in

section 173 for which a discharge may be refused, suspended or granted conditionally were not made out: while the value of Mr.

Koch’s assets was less than one half of his debts, she was of the view that this resulted from circumstances beyond his control; his bankruptcy did not result from unjustifiable extravagance or culpable negligence; he had not given undue preference to any of his creditors; and, finally, he had not failed to perform his duties under the Act (paras. [70] to [94]). [ 13 ] There being no grounds to oppose the discharge in her view, the judge wrote that it should be granted forthwith and without conditions. *** [ 14 ] The appellant's grounds for appeal can be conveniently divided into two: (

i) whether the judge erred in law by granting an absolute discharge contrary to the rules set forth in s. 172.1 of the Act; and (ii) whether the judge erred in law in by limiting the application of paragraph 173(1)(

a) of the Act to instances of "gross misconduct". *** [ 15 ] It is useful to reproduce the relevant sections of the Act, with emphasis added: Libération d’office 168.1

(1) Sous réserve des paragraphes (2) et 157.1(3), les dispositions qui suivent s’appliquent au failli qui est une personne physique — autre que le failli visé au paragraphe 172.1(1) :

a) s’il fait faillite pour la première fois sous le régime du droit canadien ou de tout pays prescrit, il est libéré d’office : (

i) à l’expiration des neuf mois suivant la date de la faillite sauf si, pendant ces neuf mois, il a été tenu de faire des versements à l’actif de la faillite au

titre de l’article 68 ou si un avis d’opposition à sa libération a été donné, (ii) à l’expiration des vingt et un mois suivant la date de la faillite sauf si un tel avis a été donné; […]

b) s’il a déjà fait faillite une fois sous le régime du droit canadien ou de tout pays prescrit, il est libéré d’office : Automatic discharge 168.1

(1) Subject to subsections (2) and 157.1(3), the following provisions apply in respect of an individual bankrupt other than a bankrupt referred to in subsection 172.1(1) : (

a) in the case of a bankrupt who has never before been bankrupt under the laws of Canada or of any prescribed jurisdiction, the bankrupt is automatically discharged (

i) on the expiry of 9 months after the date of bankruptcy unless, in that 9- month period, an opposition to the discharge has been filed or the bankrupt has been required to make payments under

section 68 to the estate of the bankrupt, or (ii) on the expiry of 21 months after the date of bankruptcy unless an opposition to the discharge has been filed before the automatic discharge takes effect; and […] (

b) in the case of a bankrupt who has been a bankrupt one time before under the laws of Canada or of any prescribed jurisdiction, the bankrupt is automatically discharged (

i) on the expiry of 24 months

(

i) à l’expiration des vingt-quatre mois suivant la date de la faillite sauf si, pendant ces vingt-quatre mois, il a été tenu de faire des versements à l’actif de la faillite au

titre de l’article 68 ou un avis d’opposition à sa libération a été donné, (ii) à l’expiration des trente-six mois suivant la date de la faillite sauf si un tel avis a été donné. […] Effet de la libération

(5) La libération d’office équivaut à une ordonnance de libération absolue. […] Le tribunal peut accorder ou refuser la libération 172.

(1) À l’audition de la demande de libération d’un failli autre que celui visé à l’article 172.1 , le tribunal peut, selon le cas :

a) accorder ou refuser une ordonnance de libération absolue;

b) suspendre l’exécution de l’ordonnance pour une période déterminée;

c) accorder une ordonnance de libération subordonnée à des conditions relativement à des recettes ou à un revenu pouvant par la suite échoir au failli ou relativement aux biens qu’il a subséquemment acquis. Le tribunal peut refuser ou suspendre la libération ou l’accorder conditionnellement

(2) Sur preuve de l’un des faits mentionnés à l’article 173, laquelle peut être faite oralement sous serment, par affidavit ou autrement, le tribunal, selon le cas :

a) refuse la libération;

b) suspend la libération pour la période qu’il juge convenable;

c) exige du failli, comme condition de sa libération, qu’il accomplisse les actes, paie les montants d’argent, consente aux jugements ou se conforme aux autres conditions que le tribunal peut ordonner. […] Exception — failli ayant une dette fiscale 172.1

(1) Dans le cas d’un failli qui a une dette fiscale impayée d’un montant de deux cent mille dollars ou plus représentant soixante-quinze pour cent ou plus de la after the date of bankruptcy unless, in that 24-month period, an opposition to the discharge has been filed or the bankrupt has been required to make payments under

section 68 to the estate of the bankrupt, or (ii) on the expiry of 36 months after the date of bankruptcy unless an opposition to the discharge has been filed before the automatic discharge takes effect. […] Effect of automatic discharge

(5) An automatic discharge is deemed, for all purposes, to be an absolute and immediate order of discharge. […] Court may grant or refuse discharge 172.

(1) On the hearing of an application of a bankrupt for a discharge, other than a bankrupt referred to in

section 172.1 , the court may (

a) grant or refuse an absolute order of discharge; (

b) suspend the operation of an absolute order of discharge for a specified time; or (

c) grant an order of discharge subject to any terms or conditions with respect to any earnings or income that may afterwards become due to the bankrupt or with respect to the bankrupt’s after- acquired property. Powers of court to refuse or suspend discharge or grant conditional discharge

(2) The court shall, on proof of any of the facts referred to in

section 173, which proof may be given orally under oath, by affidavit or otherwise, (

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 judgments or comply with such other terms as the court may direct. […] Exception — personal income tax debtors 172.1 (1 ) In the case of a bankrupt who has $200,000 or more of personal income tax debt and whose personal income tax debt represents 75% or more of the bankrupt’s total unsecured proven claims , the hearing of an application for a discharge may not

totalité des réclamations non garanties prouvées, l’audition de la demande de libération ne peut se tenir avant l’expiration :

a) s’il fait faillite pour la première fois sous le régime du droit canadien ou de tout pays prescrit : (

i) des neuf mois suivant la date de la faillite si, pendant ces neuf mois, il n’a pas été tenu de faire des versements à l’actif de la faillite au

titre de l’article 68, (ii) des vingt et un mois suivant la date de la faillite, dans les autres cas;

b) s’il a déjà fait faillite une fois sous le régime du droit canadien ou de tout pays prescrit : (

i) des vingt-quatre mois suivant la date de la faillite si, pendant ces vingt- quatre mois, il n’a pas été tenu de faire des versements à l’actif de la faillite au

titre de l’article 68, (ii) des trente-six mois suivant la date de la faillite, dans les autres cas;

c) dans les autres cas, des trente- six mois suivant la date de la faillite. […]

(3) Lors de l’audition de la demande de libération, le tribunal, sous réserve du paragraphe (4), selon le cas :

a) refuse la libération;

b) suspend la libération pour la période qu’il juge convenable;

c) exige du failli, comme condition de sa libération, qu’il accomplisse les actes, paie les sommes, consente aux jugements ou se conforme aux autres conditions qu’il peut ordonner. Éléments à prendre en considération

(4) Lorsqu’il rend sa décision sur la demande, le tribunal prend en considération :

a) la situation du failli au moment où il a contracté la dette fiscale;

b) les efforts qu’il a déployés pour la rembourser;

c) les versements qu’il a effectués, le cas échéant, à l’égard d’autres dettes tout en omettant de déployer les efforts voulus pour rembourser sa dette fiscale;

d) sa situation financière à venir. be held before the expiry of (

a) if the bankrupt has never before been bankrupt under the laws of Canada or of any prescribed jurisdiction, (i) 9 months after the date of bankruptcy if the bankrupt has not been required to make payments under

section 68 to the estate of the bankrupt at any time during those 9 months, or (ii) 21 months after the date of bankruptcy, in any other case; (

b) if the bankrupt has been a bankrupt one time before under the laws of Canada or of any prescribed jurisdiction, (i) 24 months after the date of bankruptcy if the bankrupt has not been required to make payments under

section 68 to the estate of the bankrupt at any time during those 24 months, or (ii) 36 months after the date of bankruptcy, in any other case; and (

c) in the case of any other bankrupt, 36 months after the date of the bankruptcy. […] ( 3) On the hearing of an application for a discharge referred to in subsection (1), the court shall, subject to subsection (4), (

a) refuse the discharge; (

b) suspend the discharge for any period that the court thinks proper; or (

c) require the bankrupt, as a condition of his or her discharge, to perform any acts, pay any moneys, consent to any judgments or comply with any other terms that the court may direct. Factors to be considered

(4) In making a decision in respect of the application, the court must take into account (

a) the circumstances of the bankrupt at the time the personal income tax debt was incurred; (

b) the efforts, if any, made by the bankrupt to pay the personal income tax debt; (

c) whether the bankrupt made payments in respect of other debts while failing to make reasonable efforts to pay the personal income tax debt; and (

d) the bankrupt’s financial prospects for the future. […] Meaning of “personal income tax debt”

[…] Définition de « dette fiscale » ( 8) Au présent article, « dette fiscale » s’entend du montant payable, au sens du paragraphe 223(1) de la Loi de l’impôt sur le revenu , compte non tenu des alinéas

b) à c ), par un particulier et de la somme à payer par un particulier au

titre d’une loi provinciale qui prévoit un impôt semblable, de par sa nature, à l’impôt sur le revenu auquel les particuliers sont assujettis en vertu de la Loi de l’impôt sur le revenu , y compris le montant des intérêts, sanctions et amendes imposés sous le régime de cette loi et de la loi provinciale. N’est cependant pas visée la somme relative aux obligations d’une personne morale dont un particulier peut être responsable en qualité d’administrateur ou d’ancien administrateur de celle-ci.

(8) For the purpose of this section, “personal income tax debt” means the amount payable, within the meaning of subsection 223(1) of the Income Tax Act without reference to paragraphs (

b) to ( c ), by an individual and the amount payable by an individual under any provincial legislation that imposes a tax similar in nature to the income tax imposed on individuals under the Income Tax Act , including, for greater certainty, the amount of any interest, penalties or fines imposed under the Income Tax Act or the provincial legislation.

It does not include an amount payable by the individual if the individual is or was a director of a corporation and the amount relates to an obligation of the corporation for which the director is liable in their capacity as director. *** [ 16 ] Did the judge err in ordering an absolute discharge? [ 17 ] The appellant submits that the judge should have refused to grant an absolute discharge because the amount of Mr. Koch's "personal income tax debt" and the relative importance of that debt as against his available assets exceeded the levels identified in subsection 172.1(1) of the Act.

Moreover, the judge erred in failing to consider the factors set forth in subsection 172.1(4) that are relevant to the application for a discharge made by a personal income tax debtor. [ 18 ] Mr. Koch says the judge made no such mistake. Citing the definition of "personal income tax debt" in subsection 172.1(8) of the Act, he argues that the CRA failed to prove the amount of the tax debt and that, as a result, the exceptional regime for discharge in

section 172.1 does not apply in the circumstances. Specifically, he says, the filing of the list of claims by the trustee in bankruptcy which records the amounts owed to the taxation authorities is insufficient proof of a "personal income tax debt" to trigger the application of the regime in

section 172.1 of the Act. [ 19 ] In the respectful view of the Court, the trial judge erred in granting an absolute discharge to Mr. Koch. In the circumstances, subsection 172(1) and

section 172.1 precluded her from doing so. Any discharge that she might have made should have been conditional, and should have taken into account the factors enumerated in subsection 172.1(4) of the Act. [ 20 ] In fairness to the judge, the Attorney General may have insufficiently emphasized in argument the full impact of

section 172.1 of the Act on the case. Counsel recognized that its record on appeal, in particular the transcripts of the hearing, is incomplete such that it is difficult to discern the precise character of the pleadings. [ 21 ] Parliament enacted the restrictive regime in

section 172.1 for discharge from bankruptcy for persons with high levels of personal income tax debt as a means of recognizing the socially important character of that kind of debt. Prior to that time, in the exercise of their discretion to grant discharges, courts had long frowned upon debtors who treated the money they owed to the taxation authorities as a sort of second-class debt, to be paid only after the debtor made good liabilities for matters he or she felt more pressing.

In Joli-Coeur , [3] Gendreau, J.A. of this Court observed that liabilities for unpaid taxes should enjoy what he elegantly called a "social priority" given that the well-being of society as a whole depended on the timely payment of income taxes. He explained why income tax debt should be treated differently than other unsecured debts as follows: [17 ] À ce stade, je me permets d'ajouter une remarque avant d'examiner la décision du registraire et le jugement de la Cour supérieure. La lecture du témoignage du failli permet de penser qu'il semble traiter le paiement de ses impôts comme une dette de second ordre.

Or, si l'on devait donner un ordre de priorité sociale aux créances, celle de l'État devrait dominer. En effet, elle vise à mettre à contribution l'ensemble des citoyens pour le maintien des services dispensés à toute la population indistinctement. Refuser de payer ses impôts ne prive pas le débiteur du bénéfice des services de l'État mais réduit la marge de manœuvre de l'autorité publique et ultimement accroît l'effort fiscal requis de tous les autres contribuables.

En somme, quelqu'endetté qu'il soit envers le fisc, le débiteur ne sera jamais pénalisé par la réduction ou la suspension des droits et avantages financés par les impôts qu'il n'a pas payés. [ 22 ] The restrictive legislative regime for discharging of bankrupts in

section 172.1, including the prohibition against granting absolute discharges, reflects this same sentiment. [4] This is plain when one considers the rationale for the proposed new rules in a text prepared for the public by Industry Canada in 2005, which text remains a useful account of legislative policy notwithstanding certain later amendments brought to

section 172.1: Rationale This new

section introduces a new procedure for discharging bankrupts with high personal income tax debt. It is aimed at those individuals who have an outstanding personal income tax debt (federal and/or provincial) in excess of $200,000 (including principal, interest and penalties) where the amount owing represents 75% or more of the bankrupt's total unsecured proven claims. This new

section is designed to ensure that bankrupts with significant personal income tax debt do not abuse the insolvency system by paying their other creditors to the exclusion of the government. These bankrupts will not be eligible for an automatic discharge and an application for discharge will be required. The onus will be on the debtor to justify any relief to be granted by the court. […] Subsection (3) specifies the types of orders that the court may to make on the hearing of a bankrupt's application for discharge .

The options available to the court include: refusing the discharge; suspending the discharge; requiring the bankrupt to perform any acts, pay any moneys, consent to any judgements or comply with any other terms that the court may direct. Subsection (4) sets out the factors the court shall take into account when making a decision with respect to the bankrupt's discharge. The onus is on the bankrupt to justify the relief requested of the court.

The factors for consideration are: the bankrupt's circumstances at the time the personal income tax debt was incurred; the efforts made by the bankrupt to pay the personal income tax; whether the bankrupt paid other debts while failing to make reasonable efforts to pay the personal income tax debt; and the bankrupt's financial prospects for the future. […] Subsection (8) defines "personal income tax" in the context of the Income Tax Act . It also specifically includes any amount payable by an individual under any provincial legislation that imposes a tax similar in nature to that under the Income Tax Act .

The amount also includes any interest, penalties or fines. [5] [Emphasis added.] [ 23 ] This rationale of treating personal income tax debtors more restrictively than other bankrupts is reflected in the provisions of the Act relevant to the appeal. Importantly, subsection 168.1 excludes these tax debtors from the ordinary regime for automatic discharge and subsections 172(1) and 172.1(1) and 172.1(4) exclude them from the ordinary rules allowing a court to grant an absolute order of discharge upon application. [ 24 ] The date of Mr. Koch's assignment occurred after the coming into force of the new regime.

The new rules apply to him as long as he had a "personal income tax debt", as defined in subsection 172.1(8), at the level prescribed in subsection 172.1(1) at the relevant time. [ 25 ] Mr. Koch argues that the CRA failed to make proper proof of the amount of his personal income debt at trial so that

section 172.1 cannot apply. He notes that the judge sustained his objection to the filing in evidence by the Attorney General of its proof of claim of the income tax debt in the amount of $219,819.68 because the representative of the CRA who prepared the document was not present in court. According to Mr.

Koch, subsection 172.1(8) of the Act requires the taxation authorities to file in evidence a "certificate of the minister" attesting the existence of the debt under the Income Tax Act [6] and, in the absence of such proof, the "personal income tax debt" is not a proven claim in the bankruptcy setting. [ 26 ] There being no proper proof of the personal income tax debt, Mr. Koch argues that the Attorney General had no basis for opposing his application for an absolute discharge. [ 27 ] Mr. Koch is mistaken on this point.

Proof of the claim of the tax debt was made. [ 28 ] Notwithstanding her ruling on the admissibility of the proof of claim presented by the appellant at trial, the judge recognized that the proof of the personal income tax debt owed to the CRA had been made in an amount that met the requirements of s. 172.1 (paras [49] and [50] of her reasons). She allowed the trustee in bankruptcy to file the letter from the CRA to establish that he had received the proof of claim.

Moreover, the trustee filed a list of claims, as required by law, which recorded that the income tax debts owed to both the CRA and Revenu Québec, in the amounts of $219,819.68 and $205,463.52 respectively, had been admitted for the purposes of establishing the dividend. Under the rules for the admission and disallowance of proof of claims in

section 135 of the Act, it is the responsibility of the trustee to examine such proof. No appeal was made of the trustee's determinations here. [ 29 ] Furthermore, in the "Report of the Trustee on the Bankrupt's Application for Discharge (subsection 170(1) of the Act)", filed at trial and added by motion to the record on appeal, the trustee in bankruptcy records that "[t]he debtor has income tax debts pursuant to

section 172.1 of the Act: $219,819.68 for the Canada Revenue Agency and $205, 463.52 for the Ministry of Revenue of Quebec". In the trustee's estimation, this gave rise to "reasonable grounds to believe that a creditor or the Superintendent will oppose the bankrupt's discharge for a reason other than those set out in section 173(1)(

m) or (

n) of the Act". [ 30 ] It should be observed that Mr. Koch recognized himself, in his sworn statement of assets and liabilities filed at the time of his assignment of property on September 30, 2010, the existence of unsecured claims of $121,417 and $198,658.82 to the CRA and Revenu Québec respectively, as against total assets of $18,403. The only other unsecured claims recorded in the sworn statement amounted to less than $28,000 in total. [ 31 ] Lastly, Mr. Koch's argument that the amount of the tax debt be "certified" in accordance with the Income Tax Act is not convincing.

This requirement is not provided for in the definition of "personal income tax debt" in subsection 172.1(8). [ 32 ] In sum, proof of claims of personal income tax debt in an amount over $200,000 representing 75% or more of Mr. Koch's unsecured proven claims was made before the Superior Court. On that basis,

section 172.1 of the Act should have been applied by the judge. [ 33 ] While the judge did cite

section 172.1 in paragraph [44] of the judgment of the Superior Court, she did not apply the regime for personal income tax debt to Mr. Koch. Her reasons reflect an analysis of sections 172 and 173, but – respectfully stated – she mistakenly granted an absolute discharge when she did not have the authority to do so.

Section 172, which does allow for an absolute discharge,

provides that it only applies "à l'audition de la demande de libération d'un failli autre que celui visé à l'article 172.1 / on the hearing of an application of a bankrupt for discharge, other than a bankrupt referred to in

section 172.1 ". Indeed one of the principal differences between sections 172 and 172.1 is that, pursuant to subsection 172.1(3) quoted above, the court has the power to refuse a discharge, or grant a conditional discharge, but it cannot grant an absolute discharge to a bankrupt with a personal income tax debt in the designated amounts. [7] The appellant is thus correct in its assertion that the judge erred in granting Mr. Koch an absolute discharge. [ 34 ] Moreover, the judge was required to take into account, in deciding on the application to discharge Mr. Koch, the factors set forth in paragraphs 172.1(4)(

a) to (

d) of the Act which she did not do. These factors should have included Mr. Koch's circumstances at the time the personal income tax debt was incurred; the efforts he made to pay the debt; payments he made in respect of other debts in lieu of his tax debt; and his financial prospects for the future. [ 35 ] Because the judge did not take these factors into account, her decision to discharge Mr. Koch must be set aside. [ 36 ] The appellant invites this Court to decide on the application for discharge of Mr.

Koch as the Superior Court should have done, in light of the factors set forth in subsection 172.1 of the Act. [ 37 ] While the record at trial and the findings of the judge include some information in respect of these factors, it is by no means complete. The Court invited the parties to consult the trustee and propose conditions that would meet the requirements of the Act. The Attorney General proposed conditions to which Mr. Koch said he would consent should he lose the appeal.

The Attorney General consulted the trustee and conveyed the latter's consent to the proposal at the hearing. [ 38 ] The proposal advanced by the Attorney General for conditions is appropriate in the circumstances. Discharge should be granted conditionally, after a period of 18 months, during which time Mr. Koch should pay an amount of $200 per month to the trustee for the benefit of the mass of creditors. Mr. Koch should be afforded the right to pay the balance of any outstanding amount owing before the end of the 18-month period.

Prior to discharge upon fulfilment of these conditions, he must file all statements and returns required by law in accordance with subsection 172.1(5). [ 39 ] In light of our conclusion concerning the application of

section 172.1 of the Act to this case, it is not necessary to consider the appellant's second argument concerning whether the judge erred by limiting the application of paragraph 173(1)(

a) of the Act to instances of "gross misconduct".

FOR THESE REASONS , the Court: [ 40 ] ALLOWS the appeal; [ 41 ] SETS ASIDE the judgment of the Superior Court; [ 42 ] GRANTS to the respondent a conditional discharge from bankruptcy, effective on June 15, 2014, according to the terms and conditions hereinafter stipulated; [ 43 ] ORDERS the respondent, as a condition of his discharge on June 15, 2014, to pay an amount of $3,600 to de Billy Tremblay & Associates Inc., trustees in bankruptcy, for the benefit of the mass of creditors, in instalments of $200 on the 15 th day of each month, commencing December 15, 2012, and ending on June 15, 2014,; [ 44 ] AUTHORIZES the respondent to pay the balance of the amount owed to satisfy the unpaid monthly payments at any time prior to June 15, 2014, and thereby obtain discharge, as of the date of acknowledgment of receipt of final payment by the trustee; [ 45 ] ORDERS the respondent to file all statements and returns with the trustee each month until discharge in accordance with subsection 172.5 of the Bankruptcy and Insolvency Act ; [ 46 ] DECLARES the respondent not to be discharged until the aforementioned conditions have been satisfied; [ 47 ] WITH costs, limited to an amount of $1,000, against the mass of creditors.

YVES-MARIE MORISSETTE, J.A. NICHOLAS KASIRER, J.A. DENIS JACQUES, J.A. (AD HOC) Mtre Pierre Lamothe Mtre Amin Njonkou Kouandou Joyal LeBlanc For the appellant Mtre Steven Mark Kmec For the respondent Manfred Koch

Mtre François de Billy (absent) De Billy-Tremblay & associates inc. For respondent De Billy Tremblay & associates inc. Date of hearing: December 6, 2012