Donaldson (Re), 2019 NSSC 33

SUPREME COURT OF Nova Scotia IN BANKRUPTCY AND INSOLVENCY Citation: Donaldson (Re) , 2019 NSSC 33 Date: 20190125 Dockets: No. 41093 41095 Registry: Halifax Estate Numbers : 51-2245506 51-2245510 In the Matter of: The bankruptcies of Gloria May Donaldson and Wayne Albert Ray Donaldson Judge: Raffi A. Balmanoukian, Registrar Heard: January 19, 2019, in Halifax, Nova Scotia Counsel: Edward A.

MacDonald, for the Trustee, Grant Thornton Limited Gloria May Donaldson and Wayne Albert Ray Donaldson, appearing personally Balmanoukian, Registrar: [ 1 ] Gloria May Donaldson and Wayne Albert Ray Donaldson are fourth-time bankrupts. This is their fifth encounter with the insolvency process. Although they effected separate filings, a topic to which I will return, this decision is common to both of them. [ 2 ] They are currently 65 and 73, respectively. [ 3 ] They filed assignments in bankruptcy in 1979, 1993, and 2008. The present filing was in April 2017.

In addition, they filed (and to their credit fully performed) a consumer proposal between 1998 and 2000. [ 4 ] To their added credit, they appeared at this hearing, gave forthright and cogent presentations, and I have no adverse impressions of their sincerity or credibility. [ 5 ] Yet, this is a fourth bankruptcy and a fifth use of the Bankruptcy and Insolvency Act , RSC 1985, c. B-3 , as amended (the “ BIA ”). [ 6 ] Against that backdrop, I turn to the Donaldsons and their factual matrix.

The Donaldsons – Five decades of turbulence [ 7 ] To put it in the vernacular, there is no question the Donaldsons have had a long row to hoe. I need only summarize from their Official Receiver’s Examination. [ 8 ] In 1979, Mr. Donaldson lost his job; they moved from Toronto to Nova Scotia, to work for a company which in turn shortly thereafter ceased operations. That led to bankruptcy #1. [ 9 ] Mr.

Donaldson then worked for a company in Kentville; when rumours surfaced that this company, too, would cease operations, the Donaldsons purchased a convenience store, which at first thrived and then succumbed to regional economic pressures and, perhaps, overexpansion. Bankruptcy #2. [ 10 ] The 1998 consumer proposal is more ephemeral. Mr. Donaldson apparently was in the process of upgrading his education while Mrs. Donaldson worked as a licensed practical nurse.

The terms of the proposal are not before me; whatever they were, it was accepted (or deemed to be accepted) and fully performed over around two years, to extinguish liabilities of $26,254. [ 11 ] The Donaldsons then took another crack at operating their own business, this time a private nursing home. Although the

Official Receiver’s examination identified “changes in public funding policy” as leading to Bankruptcy #3, I am more inclined to acceptthe statement of Mrs. Donaldson at the hearing before me that “we realized we weren’t businesspeople.” [12] Not everyone is.

As much as I admire and respect entrepreneurship, and believe it to be one of the main catalysts of oureconomy, I quite agree with this couple’s epiphany that by their fourth BIA experience (by which time they were approaching theirsenior years), perhaps being their own boss was not for them. [13] And so we come to the 2017 filings, which are the ones before me.

Not to put too fine a point on it, the Donaldsonssuccumbed to the siren’s call of the VLT, financed by credit cards and payday loans (which credit they also identified as being used tofinance living expenses and home renovations). [14] They identified the cause of this bankruptcy as “overextension of credit. Significant home renovations.” [15] They did not list gambling. There is no question on the evidence before me that this was a major contributor to, if not theprecipitating factor in, this fifth insolvency.

While it is perhaps human nature not to want to “own up” to this very real problem, it is ofconcern to the Court that in the context of a multiple bankruptcy they did not have the insight to accept this issue for what it is. I alsofound it telling that the Official Receiver’s examination, and Mr. Donaldson’s oral submissions, reflected that he did not find gamblingcounselling to be helpful. The exact nature of this counselling is not clear to me, but he did not seek alternate or tailored assistance.

Iwill return to this in my disposition. [16] Meanwhile, two other matters aggravated an already dismal situation: the Donaldsons took jobs as property managers orsuperintendents of an apartment complex in Ontario, a move which may be best termed “ill advised.” I need only recount the incident ofMr. Donaldson being physically assaulted and having a knife held to his throat to indicate that they were justified in leaving thatvocation, with the associated moving and other friction expenses. [17] In April 2018, Mr. Donaldson had what he termed a “major heart attack.” Mrs.

Donaldson also faces medical difficulties of anindeterminate nature, which she characterized as “the doctor putting me off work.” Analysis [18] Last month, I released my decision in Re Ongo, 2018 NSSC 326, a case involving a 54 year old fifth time bankrupt. Most ofmy analysis in that case, given the rarity of fifth-time bankruptcies, involved reported fourth time filings. [19] The Donaldsons are much closer to the cases I discuss in Ongo, than was Mr. Ongo himself. In particular, their filings wereover a period of almost 40 years. They are seniors.

Their prospects are limited, by age and health. [20] I said in Ongo, supra: [9] In Re Boivin, 2008 BCSC 221, Registrar Blok, while recognizing as do I that “each case....turns on its own facts,” summarized thecaselaw as follows: A fourth bankruptcy is a very serious matter. Indeed, even for applications involving third-time bankrupts the courts have expressedreluctance in ordering a bankrupt’s discharge, at least not without a lengthy suspension or similarly onerous terms.

The reasons for this are aptly captured in Re Willier (2005), 14 C.B.R. (5th) 130, 2005 BCSC 1138 , at paras. 12 and 13: By the time an individual has entered a third bankruptcy, the purpose and intent of the Act shifts from its remedial purpose of assistingwell-intentioned but unfortunate debtors to one of protecting society, and in particular unsuspecting potential creditors. The bestintentions and hopes of such bankrupts become subordinated to the need to protect others from the bankrupt’s demonstrated financialincompetence, negligence, and carelessness.

If there can be a concept of debtors’ recidivism, it is demonstrated in stark relief by a third-time bankrupt. To even consider a discharge for a third time bankrupt the court must be satisfied that the bankrupt has gained sufficient insight andmade sufficient changes in his or her life that it is not reasonably possible that further bankruptcy will occur. To similar effect is the following, found in Re Hardy (1979), 30 C.B.R. (N.S.) 95 (Ont. S.C.) at para. 3: In my view, a third bankruptcy is one too many.

The well-recognized principle underlying bankruptcy law is that a debtor may, inproper circumstances, be relieved of his obligations and enabled to re-establish himself financially. I do not consider that he should beenabled to do so on a recurring basis. The process of the Act and of the court should not be considered to bestow a licence to incur debtsand be purged of them at periodic intervals. I am aware of only two other recent cases in this province involving fourth-time bankrupts, both decided by Master Young.

In Re Kusch (2007), 33 C.B.R. (5th) 208, 2007 BCSC 618 , the bankrupt was refused a discharge and was denied leave to reapply for adischarge for a period of two years. The learned master commented that on a reapplication she expected that there would still not be anunconditional discharge granted.

In Re Mulligan, 2007 BCSC 1784 , the bankrupt’s discharge was suspended for 15 years, themaster emphasizing that society needed to be protected from the bankrupt’s incompetent use of credit. [emphasis added] [10] In bankruptcy freemasonry, this is usually called the “clearing house for debt.” [11] Rephrased for modernity, in Re Legault, (BCCA) at para. 31 Madam Justice Southin referred to this as theneed to avoid using the insolvency process as a “fiscal carwash”. While she was in dissent, the majority agreed with this sentiment atpara. 51.

[12] So what of Mr. Ongo ? There is no indication, despite the meaningful tax and public debts of his prior bankruptcies, to suggest he is a rogue or dishonest, characteristics which appear in many of the bankruptcy cases in which discharges are refused or subject to stringent conditions. I do note in passing, however, that his 2005 assignment was only discharged in 2011, presumably to pave the way for his fourth assignment the same year. [13] I interpret the Trustee’s assertion that “the other bankruptcies were commercial and this one is not” in a somewhat different fashion than does the Trustee.

I interpret it to mean that not only is Mr. Ongo unable to operate within his business’ means, but is also unable to operate within his own. The current bankruptcy, as I have said, consists entirely of consumer credit – credit cards, a payday lender, and a (secured) car loan. [14] In this regard, I have considered the decision of Master Young in Re Mulligan , 2007 BCSC 1784 , a decision which in turn applied Willier . The Court was dealing with Ms. Mulligan’s fourth bankruptcy, all of which were for comparatively modest amounts.

She had health issues and at least some of her financial woes came from providing assistance to family members. Despite this lack of moral default, the Court, after quoting the same passage in Willier I have repeated above, stated: Society does need to be protected from Mrs. Mulligan's incompetent use of credit. I believe her bankruptcies have been for small amounts because it was all that was available to her. I know she does use the credit for family reasons and because of illnesses. I know that she has not lived an exotic lifestyle at all.

She said in court before me that she had not had a vacation in recent memory. She has not been cavalier about her credit but still, in all likelihood, her expenses will exceed her meagre income. She has repeatedly shown that she cannot budget within her means, and so I am accepting the recommendation of the Superintendent, and I am suspending the discharge for 15 years.

This bankruptcy is unavailable to her now, and she will be forced to live within her financial means. [15] I accept this reasoning as authority for the proposition that moral taint may be an aggravating factor in determining the circumstances of one’s discharge, but the lack of such taint does not preclude the Court from its role in balancing creditor interests with those of the debtor. [16] Re Hiebert 2008 SKQB 153 involved four bankruptcies over 31 years with a 67 year old “kind, generous, and well-intentioned man.” Registrar Schwann said: As noted above, the test to be applied on a third or fourth bankruptcy shifts from rehabilitating a well-intentioned but unfortunate debtor to one of protecting society generally and unsuspecting creditors in particular.

Can society be protected from this bankrupt? Has he gained any insight or committed to change sufficient to forestall a subsequent bankruptcy? Unfortunately, although a seemingly kind, generous and well intentioned man, Hiebert’s attitude displayed no remorse, and more to the point, shed no light or insight gained concerning appropriate use of credit and financial management. Quite the contrary, I sense a measure of justification borne of necessity and desperation, that is, credit cards could and should be used to augment income regardless of ability to re-pay.

Having regard to the facts, I am not satisfied that Hiebert has gained sufficient insight into proper financial management, budgeting and use of credit, nor am I persuaded that he has made appropriate changes in his life to prevent another bankruptcy from occurring. Regrettably, I conclude that the protection of society and unsuspecting creditors can only be achieved by refusing his discharge application. [ 21 ] I reiterate the conclusion that a fourth bankruptcy, in and of itself , is one to which the Court must pay careful attention in formulating an appropriate and bespoke remedy.

This is not a Court of rote any more than it is Justice Southin’s “fiscal carwash.” The fact that the bankrupts are not rogues is, in itself, an insufficient reason upon which to grant a discharge. A fourth bankruptcy – and fifth insolvency – is a clarion call to systemic integrity and to the Court’s role in it. [ 22 ] There are several reasons of general application by which I may not grant a discharge in this case.

When a “fact” under Section 173(1) is proven, I must effect one of the remedies in 172(2), namely to refuse the discharge, suspend it, and/or attach conditions to the discharge. [ 23 ] Section 173(1)(a), the so-called “fifty cents on the dollar” provision, is of obvious application. Also applicable is 173(1)(

j) which deals with prior bankruptcies or proposals. [ 24 ] As well, and of specific application to the Donaldsons, Section 173(1)(

e) provides that I may not effect an absolute discharge, but instead must effect a 172(2) remedy when: the bankrupt has brought on, or contributed to, the bankruptcy by rash and hazardous speculations, by unjustifiable extravagance in living, by gambling or by culpable neglect of the bankrupt’s business affairs ; [ 25 ] Against that, I must formulate a disposition that makes sense to these debtors in these circumstances.

The Donaldsons – disposition of the application for discharge [ 26 ] The evidence is clear that the Donaldsons do not have, nor have a reasonable prospect of having, resources with which to pay any noticeable amount on their significant debt. The vicissitudes of time and health have precluded this except in the most fortuitous of events – of which, I hasten to add, games of chance are not among them.

[27] However, that does not mean that I intend to impose a token wag of the finger and an admonition of “don’t do it again.” Iagree with the comments of Hallett, J (as he then was) in Re Crowley (1984), (NS SC), 66 NSR (2d) 390 (SC,TD) atpara. 69 that an order suspending a discharge, at least as a standalone sanction, “is always meaningless.” [28] I believe that the Donaldsons need to get themselves reconciled to living within their current, apparently now mostly fixed,income.

I do not have the precise mix of gambling and living debt that made up their insolvency, but both need to be addressed in afashion which precludes them recycling the financial history of the last nearly 40 years. [29] In saying this, I recognize the distinction among recreational gambling, problem gambling, and gambling addiction; I haveneither the evidence nor the expertise to determine which is at issue here. I also recognize that 173(1)(

e) was added to the BIA whengambling was seen to be a moral failure or another type of nefarious conduct that modern sensibilities and science categorizes fardifferently. It remains, however, the law of the land. It is also right and proper for the Court to address the underlying problems that ledto the insolvency, and not just the fallout. See, e.g., Diamond, “What to do with a Drunken Sailor and Other Bankrupts with Addictions,or What Are Appropriate Conditions to Impose on the Discharges for Bankrupts Suffering form Addiction and Mental Illness?”, Houlden& Morawetz On-Line Newsletter, Insol.

L.Nws 2007-35. [30] I have also reviewed, with interest, the scope of dispositions across Canada described by Professor Anna Lund in “Gambling inPersonal Insolvency Proceedings: The Approach of Insolvency Trustees and Judicial Officers,” 2016 Annual Review of Insolvency Law13. [31] I subscribe to the view that the provisions of s. 172(2)(

c) BIA that I may “require the bankrupt to….perform such acts….orcomply with such other terms as the court may direct,” and my jurisdiction under. S. 192(1)(

c) BIA give me the authority – indeed, theresponsibility – to dispose of this application in the manner I do. [32] I am ordering the following: - The Bankrupts shall attend such counselling as recommended by the Trustee, at the Bankrupts’ expense (if any), for gamblingabuse and/or addiction for such period as is necessary to obtain an opinion from a qualified counsellor or medical professional that bothof the Donaldsons are able to conduct themselves without recourse to gambling in any form; - The bankrupts refrain absolutely from gambling in any form, and further that they enrol and remain enrolled in the voluntaryexclusion program with Casino Nova Scotia; - They refrain absolutely from obtaining credit from any lender in any form, except as approved in advance and in writing by theTrustee; - They disclose and, subject to the exceptions in

Section 67 of the BIA, turn over to the Trustee any property of either or both ofthem that comprises “property of the bankrupt” within the meaning of the BIA between the date of the Donaldsons’ bankruptcies andtheir discharge; - Upon compliance with the foregoing for a period of at least five years from the date of this decision, the Donaldsons may make afurther application for discharge. Costs [33] As I noted above, the Donaldsons effected separate filings. Their consumer proposal and third bankruptcies were joint filings.

I believe that would have been appropriate here as well. [34] It is clear that, for all intents and purposes, their affairs are intertwined. In popular parlance, they are “all in,” each with theother. Although some of their debts are held in one name alone, the vast bulk of creditors, in name and in quantum, are the same. Ms.Donaldson listed comparatively small loans with Home Depot, MBNA, and Royal Bank of Canada, lenders who are not listed on Mr.Donaldson’s Form 79. There is also a loan from The Toronto-Dominion Bank which is not on his Form 79, although TD Auto Financeis listed on both of their statements.

All of the lenders – although again, not necessarily the specific loans – on Mr. Donaldson’s affairsare listed on Mrs. Donaldson’s. [35] In my opinion, it is not necessary for the assets and liabilities of a couple to be identical to effect a joint filing. It is adequate, inthe words of Superintendent’s Directive 2R that assignments may be dealt with as one estate where the debts of the individuals making the joint assignment are substantially the same and the trusteeis of the opinion that it is in the best interest of the debtors and creditors.” (emphasis added). [36] That directive derives from 155(

f) of the BIA, which provides that, in

summary administrations (such as these): in such circumstances as are specified in directives of the Superintendent, the estates of individuals who, because of their relationship,could reasonably be dealt with as one estate may be dealt with as one estate (emphasis added) [37] I cannot speak for the trustee’s opinion in this instance, but in reviewing the Forms 79 I cannot but think that the debts are“substantially the same” and that the Donaldsons have a community of interest and community of experience (that is, both have the sameinsolvency histories); their creditors also have communities of interest in the Donaldsons’ affairs.

[ 38 ] I cannot preclude dual assignments, as s. 155(

f) is permissive and not mandatory; but I do have authority over costs. In my view, the interests of these estates and of any potential dividend to creditors would have been better realized by a single joint filing with a single set of costs. I therefore exercise my discretion and direct the Trustee to deduct $500 (plus any applicable tax) from the amount to which it would otherwise be entitled under Rule 128 for each estate when passing its accounts. [ 39 ] The Trustee shall prepare the applicable orders for my review. Balmanoukian, R.