Sethi (Re), 2012 NSSC 370

IN THE SUPREME COURT OF NOVA SCOTIA IN BANKRUPTCY AND INSOLVENCY Citation: Sethi (Re), 2012 NSSC 370 Date: October 23, 2012 Docket: B 36340 Registry: Halifax District of Nova Scotia Division No. 01 - Halifax Court No. 36340 Estate No. 51-1522754 In the Matter of the Bankruptcy of Vinod Sethi _________________________________________________________________ LIBRARY HEADING __________________________________________________________________ Registrar: Richard W. Cregan, Q.C. Heard: September 28, 2012 Written Decision: October 23, 2012 Subject: Discharge from bankruptcy.

Summary: The bankrupt had allowed her impecunious son to use her credit cards to finance his business. Neither she nor he had assets to answer to the balances owing. They totalled about $100,000. Issue: What should be the conditions of her discharge? Result: It was found that this constituted a fact under Subsection 173(1) of the Bankruptcy and Insolvency Act , specifically that described in Paragraph (a). Her assets were not of a value equal to fifty cents on the dollar of unsecured debt, and she was unable to discharge the burden of proving that they arose from circumstances for which she could not justly be held responsible. Her discharge was subject to a suspension of eighteen months.

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: Sethi (Re), 2012 NSSC 370 Date: October 23, 2012 Docket: B 36340 Registry: Halifax District of Nova Scotia Division No. 01 - Halifax Court No. 36340 Estate No. 51-1522754 In the Matter of the Bankruptcy of Vinod Sethi __________________________________________________________________ D E C I S I O N __________________________________________________________________ Registrar: Richard W. Cregan, Q.C.

Heard: September 28, 2012 Counsel: Melissa A. Grant, representing the Office of the Superintendent of Bankruptcy Leanne Salyzyn, representing the Trustee, Salyzyn & Associates Vinod Sethi, representing herself

[ 1 ] Vinod Sethi made an assignment in bankruptcy on July 27, 2011. She is now applying for her discharge. Her application is opposed by the Superintendent of Bankruptcy. [ 2 ] Mrs. Sethi is seventy years old. She and her husband live in Dartmouth. They immigrated from India in 1994. Their son, Amardeep Sethi, had already settled in Canada. Since then she had worked, but now is retired. Her son is engaged in various businesses in the Halifax area. In recent time he had two restaurants and two convenience stores. Three of these businesses have closed.

He made an assignment in bankruptcy in 2002 and was discharged the following year. [ 3 ] Having been bankrupt he was unable to obtain credit to operate his businesses. He prevailed upon his mother to let him use her credit cards. As a result she had at the time of her assignment unsecured debts of $101,250, most of which relate to his expenditures and secured debts of $127,000 for a total of $228,250. The secured debts relate to financing of the family home in which she had a quarter interest. This interest has been surrendered to the secured creditors. She and her husband have a total monthly income of $2,036.

She has no surplus income and no assets upon which the trustee can realize for the benefit of her creditors. [ 4 ] She prepaid tuition of $10,595 to a private school, presumably for a grandchild, on April 29, 2011, just less than three months before her assignment. [ 5 ] She also cashed in an RRSP in February or March of 2011. The proceeds were approximately $18,000.

She forwarded this money to her daughter in India to help with repairs to her home necessitated by flood damage. [ 6 ] Both these transactions occurred when she knew or ought to have known she was insolvent. [ 7 ] The submission of the Superintendent is that certain of the facts listed in Subsection 173(1) of the Bankruptcy and Insolvency Act , R.S.C. 1985, c. B-3 have been proven. Therefore in granting Mrs.

Sethi a discharge I am governed by Subsection 172(2) which directs that I must refuse discharge, or suspend discharge, or require as a condition of discharge the performance of acts, payments of money or consent to judgment. [ 8 ] First I must be satisfied that a fact listed in Subsection 173(1) has been proved. The Superintendent submits that the following facts are applicable: (

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 a 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; . . . (

c) the bankrupt has continued to trade after becoming aware of being insolvent; . . . (

e) 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; . . .

(

o) the bankrupt has failed to perform the duties imposed on the bankrupt under this Act or to comply with any order of the court. [ 9 ] As to the first fact, Mrs. Sethi allowed her credit card debts to approach $100,000 and made her assignment without any realizable assets to answer to them. This shifts the burden to her to show that her situation has arisen from circumstances for which she cannot justly be held responsible. [ 10 ] I think it is fair to describe her situation in this way. Her son operated a number of small businesses and had trouble financing them. He had himself already been bankrupt.

He prevailed upon his mother to help him. She accommodated him allowing the use of her credit cards, knowing that he did not have the resources to cover the debts incurred and also, more significantly, knowing that she also did not have such resources. In effect she guaranteed payment of his business borrowings to the financial institutions. She obviously had been under his influence, but this is not an excuse or answer which creditors have to accept. Financial institutions grant lines of credit and take risks, but that does not exempt their customers from acting responsibly and in good faith.

It was within her legal capacity to have stopped her son from making further draws, but she did not do that. I do not see how it can be suggested that she is not justly responsible for the circumstances in which she found herself. [ 11 ] I am assisted in this decision by a review of three cases of Henry J. of the Ontario High Court made by Registrar Herauf of the Saskatchewan Court of Queen ’ s Bench in Forsberg, Re , 2001 SKQB 289 , at paragraphs 12 to 19 . [ 12 ] The first case, Re Gafni (1978), 26 C.

B.R. (N.S.) 22 , concerned a bankrupt who had given a personal guarantee of the debts of a company of which he was sole shareholder. The bankrupt was unable to honour the guarantee. Henry J. found that he was unable to meet the burden required by Subsection 173(1) (a). He said at page 23 thereof: There is no evidence that when he personally guaranteed the debts of the company he was in any position to implement such a guarantee should he be required to do so. [ 13 ] Re Kirk (1980), 36 C.B.R. (N.S.)10 also concerned a personal guarantee of the debts of a business of which the bankrupt was principal.

The evidence was that when the guarantee was given, he had no assets with which to answer it. [ 14 ] Re Buceta (1981), 40 C.B.R. (N.S.) 162 considered similar facts.

I quote from page 164, thereof: He has not satisfied the court, as required by S. 143(1)(a) [now S.173 (1) (a)] of the Bankruptcy Act , that his failure to provide sufficient assets (or to have available sufficient assets of his own to be able honestly to give the guarantee and ultimately to implement it) arises from circumstances for which he cannot justly be held responsible. [ 15 ] The point of these three cases is that bankrupts who have guaranteed debts of their businesses as required by their lenders are presumed to have represented that they have ability to respond to their guarantees.

However, if they become bankrupt without the resources to respond and their assets are less than 50 cents on the dollar of debt, they may thereby fail to meet the burden which Subsection 173(1) (

a) imposes. It may be otherwise, if the lender granted the loan knowing it was unlikely the guarantor would be able to respond to the guarantee, but took the guarantee simply for what it might be worth. [ 16 ] They lacked the resources to answer to their respective companies ’ debts, but gave guarantees just the same. Mrs. Sethi lacked the resources to answer to the debts her son incurred with her credit cards, but let him use them just the same. In effect, Mrs. Sethi by allowing her son to use her credit cards was guaranteeing his debts.

She allowed the credit card balances to far exceed that which she could answer either from her own resources or from what she might recover from him. She could have pulled the cards at anytime, but did not. She, like the bankrupts in these cases who guaranteed their companies ’ debts, has failed to show that she cannot be justly held

responsible. [ 17 ] I am quite satisfied that a fact under Subsection 173(1) is proved. The other facts noted might also be proved, but I need go no further. [ 18 ] It is therefore necessary that Mrs. Sethi ’ s discharge be governed by Subsection 172(2). A period of suspension is appropriate. The Trustee submits that six months is appropriate. Counsel for the Superintendent leaves it to the discretion of the Court. [ 19 ] A son has taken advantage of his mother ’ s credit without either of them having the ability to answer to the debts incurred.

He left his mother without any choice but her own personal bankruptcy. He may well have unduly influenced her, but she is also responsible for what has happened. Creditors, even if they be large financial institutions who take considered risks, are not expected to be indulgent of imprudent family financial arrangements. The purpose of the suspension is to make it clear to all that what has happened is not acceptable. [ 20 ] To express this point more than a token suspension is needed. Mrs. Sethi is entitled to her discharge, but it will be suspended until April 30, 2014. R. Halifax, Nova Scotia October 23, 2012