Pemberton (Re), 2023 ABKB 554

Court of King’s Bench of Alberta Citation: Pemberton (Re), 2023 ABKB 554 Date: 20231003 Docket: B201 184673 Registry: Calgary In the Matter of the Bankruptcy of Guy Pemberton Between: Guy Pemberton Applicant - and - The Office of the Superintendent of Bankruptcy Respondent - and - Intact Insurance Respondent - and - MNP Ltd. Respondent

_______________________________________________________ Reasons for Decision of J.T. Prowse, Registrar in Bankruptcy _______________________________________________________ [ 1 ] Guy Pemberton applies for a discharge from bankruptcy. He assigned himself into bankruptcy almost 7 years ago, and is presently 68 years old. [ 2 ] Mr. Pemberton is statutorily prohibited from obtaining an absolute discharge pursuant to section 172(2) of the Bankruptcy and Insolvency Act (“BIA”), RSC 1985, c B-3 which prohibits the granting of an absolute discharge in certain circumstances listed in

section 173 of the BIA. Numerous of those circumstances exist in this case, including the following: • His assets were not of a value equal to fifty cents on the dollar of his unsecured liabilities [section 173 (1)(a)] • He did not adequately maintain and disclose records concerning his personal and business finances for the three years prior to his assignment in bankruptcy [section 173(1)(b)] • He did not perform a number of duties imposed on him under the BIA, basically the duties of co-operation and assistance set out in

section 158 of the BIA [section 173(1)(o)] • He committed an offense under the BIA, in that he pled guilty to failing to deliver to the trustee all books and records relating to funds held in trust on behalf of his brother, David Pemberton, contrary to section 198(2) of the BIA [section 173(1)(l)] [ 3 ] In these reasons I will refer to the bankrupt’s brother simply as “David” in order to not confuse him with the bankrupt. [ 4 ] Mr.

Pemberton submits that the statutory requirement to refuse, suspend or make a conditional discharge, should be satisfied by imposing a suspension of 10 days. [ 5 ] The Office of the Superintendent of Bankruptcy (“OSB”) submits that, as a minimum, his discharge should be suspended for a six-year period, subsequent to payment of a financial condition of $2.655 million. [ 6 ] The objecting creditor, Intact Insurance, submits that the discharge should be refused or, alternatively, made conditional on payment of $2.655 million. [ 7 ] The trustee, MNP Ltd, submits that the discharge be suspended for 36 months, and does not oppose the financial condition of $2.655 million. [ 8 ] My decision, for the reasons set out below, is that Mr.

Pemberton’s discharge should be conditional on his paying $2.655 million to his trustee in bankruptcy, with a further suspension of three years following such payment. [ 9 ] I will discuss the topics listed below, first by describing them, and then dealing with them in chronological order in order to provide context. [ 10 ] Before listing the topics, I think it is appropriate to explain why the first topic is Mr. Pemberton sending overseas to associates of his brother David $2.655 million, representing the sale proceeds of two businesses and other personal assets owned by Mr. Pemberton.

This was done two days prior to assigning himself into bankruptcy , and after he had been sued for $45 million by Intact Insurance (which had provided construction bonding to his former corporation, Dowland Contracting Ltd.). [ 11 ] I have started with the topic because, while it is unclear as to the extent to which the other topics involve transgressions by Mr. Pemberton, there is no excuse for this transfer of $2.655 million.

Making repayment of this $2.655 million a condition of his discharge is not dependent on the other topics. [ 12 ] The topics to be dealt with in the chronology: • Payment of $2.655 to the bankrupt’s brother overseas • Payment of a further $10 million to the bankrupt’s brother overseas • The granting of a $400,000 mortgage over his principal residence which, if maintained, would have eliminated any ‘equity’ available for creditors • Failure to disclose $32,000 in an investment account to the trustee. Chronology [ 13 ] 1983 – Mr. Pemberton established Dowland Contracting Ltd. in Tuktoyaktuk, NWT.

[ 14 ] June 2, 2002 – Mr. Pemberton signed an indemnity agreement with Intact Insurance in order to obtain construction bonding for Dowland. Dowland became a substantial construction contractor, at its peak having approximately 350 employees. [ 15 ] November 2011 – Mr. Pemberton resigned as a director of Dowland, planning to ease into retirement and gradually sell off his holding company’s remaining interests in Dowland. He overlooked approaching Intact Insurance to request to withdraw the indemnity agreement he had signed with Intact in 2002. [ 16 ] February 14, 2013 – Intact advised Mr.

Pemberton that claims had been made on bonds issued for Dowland, and asserted that he was jointly and severally liable with the other indemnitors for any payments Intact made to the bond claimants. [ 17 ] May 2013 – Dowland was placed in receivership. [ 18 ] early 2014 – Mr. Pemberton received shares of Clipper Ltd., a foreign company, from David and other family members. Mr. Pemberton asserts that the shares of Clipper, and its assets, were being held in trust by him for his brother David. There is no documentation of this alleged trust.

What was recently learned is that taxable capital gains of approximately $400,000 were incurred in 2014 arising from the ownership of these Clipper shares, and that Mr. Pemberton (and not David as the alleged beneficial owner of the shares) had reported this capital gains on his tax returns. [ 19 ] June 2014 – Dowland was placed in bankruptcy. [ 20 ] August 2015 – Mr. Pemberton received $11,317,000 from Clipper. The asserted reason for these funds being held by Mr. Pemberton, and not David, was so that Mr. Pemberton could invest the funds for David. However, the funds by and large simply sat in a GIC account.

There are no emails back and forth between Mr. Pemberton and David wherein David enquired or Mr. Pemberton reported on his efforts to invest the funds. [ 21 ] March 2016 – Mr. Pemberton owned two other corporations, Tundra and Beaufort, which he sold to his friend Trevor Clarke, for a total of $2,280,000. [ 22 ] April 6, 2016 – Intact made a formal demand for payment by Mr. Pemberton of approximately $45 million. [ 23 ] June 2016 – Mr. Pemberton sold his 4-plex in Inuvik and received approximately $200,000. [ 24 ] June 22, 2016 – Intact sued Mr. Pemberton for approximately $45 million.

Intact agreed to two extensions of time for Mr. Pemberton, so that his statement of defence was to be filed by November 3, 2016. [ 25 ] July 2016 – Mr. Pemberton liquidated an investment he had with Cedar Peaks Mortgage and received $175,000. [ 26 ] August 2016 – Mr. Pemberton placed a $400,000 second mortgage against his home in favor of Viewpoint, a corporation owned by his friend Judith Pritchard. There was a first mortgage to CIBC on the house. Subsequent to the bankruptcy the CIBC mortgage was acquired by Mr. Clarke, the purchaser of Tundra and Beaufort.

The OSB’s report of July 2017 noted that, despite the sale of Beaufort to Mr. Clarke, Mr. Pemberton remained a signing authority on the Beaufort bank account. [ 27 ] September 13, 2016 – David sent an email to Mr. Pemberton. David says, inter alia, “I think it’s important you return the funds I sent you in trust”. This is the only document produced indicating the existence of a trust. The opening words in David’s email are “Further to our call earlier, I was very sorry to hear about your problems re Dowland and the bonding”. [ 28 ] September 29, 2016 – Mr.

Pemberton arranged to transfer $10,200,000 overseas to business associates of David. He says these were the Clipper funds he was holding in trust for David. [ 29 ] November 1, 2016 – Mr. Pemberton arranged to transfer $375,000 of his funds overseas to the same business associates of David. These were funds he obtained from the sale of his Inuvik 4 plex and his investment in Cedar Peaks Mortgage, as mentioned above. [ 30 ] November 2, 2016 – Mr. Pemberton arranged to transfer $2,280,000 of his funds overseas to the same business associates of David.

These were the sale proceeds of Tundra and Beaufort, mentioned above. [ 31 ] November 3, 2016 – Mr. Pemberton assigned himself into bankruptcy. When Mr. Pemberton was asked about the transfers of November 1 st and 2 nd , he testified as follows: Q – So the last couple of wire transfers we spoke about, the $375,000 one and then the $2.28 million one that Mr. Clarke made on your behalf, those were done November 1 st and 2 nd of 2016, correct” A- Yes. Q- You were waiting to file for bankruptcy until these amounts had been transferred? A- Yes, of course.

Q- And the transfers were made, as mentioned before, because you wanted the funds to go to your brother as opposed to potentially Intact seizing them as part of a judgment. Is that fair? A – Exactly. Yes. [ 32 ] November 3, 2016 - In his statement of affairs, Mr. Pemberton advised that he was then employed by Tundra, the company he

had sold to Mr. Clarke, and was being paid a salary of $2,000 per month. As a result of this low salary, no ‘surplus income’ was payable under the bankruptcy regime. However, when he was examined under oath recently, Mr. Pemberton was asked about a credit form he has signed in 2020 indicating he was then employed by Tundra at $200,000 per year. Mr. Pemberton says this was a mistake but conceded that he had remained employed for a year (presumably March 2016 to March 2017) at “close to” $200,000 per year. [ 33 ] June 30, 2017 – Mr.

Pemberton was examined under oath before the Official Receiver. [ 34 ] September 26, 2017 – Intact obtained an order lifting the automatic stay of proceedings so they could commence proceedings to recover back the proceeds sent to or on behalf of David. [ 35 ] October 17, 2017 – The OSB and Trustee filed reports indicating that Mr. Pemberton’s conduct had been reported to the Special Investigations Unit and a RCMP investigation had been commenced. [ 36 ] October 24, 2017 – Registrar Mason ordered that Mr.

Pemberton’s discharge application be adjourned until the RCMP had completed their investigation. [ 37 ] September 4, 2018 – Intact questioned Judith Pritchard under

section 163 of the BIA. [ 38 ] October 30, 2018 – Intact questioned Trevor Clarke under

section 163 of the BIA. [ 39 ] May 15 and Sept 16, 2019 – The trustee questioned Mr. Pemberton under

section 163 of the BIA. [ 40 ] October 18, 2021 – Registrar Farrington ordered that Mr. Pemberton’s discharge application be scheduled as a special chambers application and gave procedural directions. [ 41 ] November 2021 – Mr. Pemberton was served with a summons in relation to six charges laid under the BIA, resulting in an amendment to the procedural guideline for Mr. Pemberton’s discharge application. [ 42 ] November 2022 – Mr. Pemberton agreed to a plea deal and pled guilty to one of the six charges in return for probation and community service.

The charge he pled guilty to was failing to deliver to the trustee all books and records relating to funds held in trust on behalf of his brother. [ 43 ] January 2013 – August 2013. Mr. Pemberton provided an affidavit in support of his application for discharge. He was cross examined, provided answers to undertakings, was cross examined on his answers, and produced further answers to undertakings. During that process, for the first time, documents were provided which showed that shares of Clipper had been transferred to Mr. Pemberton in early 2014. Mr. Pemberton had previously denied any ownership of Clipper.

Discussion [ 44 ] A discharge from bankruptcy is said to allow an honest but unfortunate debtor to be rehabilitated by relieving them from crushing debt and providing them a fresh start. [ 45 ] The debt incurred by Mr. Pemberton to Intact Insurance was not a result of any dishonesty, but his transferring his $2.655 million in assets overseas to avoid those funds from being obtained by his creditor was dishonest. The fact that he was not charged with fraud under

section 392 of the Criminal Code does not change the situation. Mr.Pemberton is not an honest but unfortunate debtor. [ 46 ] With respect to providing Mr.Pemberton with a fresh start, his counsel sets out his current situation as follows: Guy has been in bankruptcy for nearly 7 years. It is not realistic to think his financial situation will improve significantly.

As he notes in his affidavit, he simply does not have the energy, access to capital, or connections anymore to start and grow a new business, and his prospects for meaningful employment are limited. [ 47 ] With respect to Mr.Pemberton forwarding overseas to David the approximately $10 million received from Clipper, I am not in a position to make a final determination whether those funds were held in trust for David or belonged to Mr. Pemberton.

Suffice it to say that the circumstances are highly suspicious. [ 48 ] What can be stated with certainty is that, had Mr.Pemberton not transferred this $10 million overseas, David could have still have asserted the trust, but David would have had the burden of providing sufficient evidence to the trustee to satisfy the trustee of the existence of the trust.

By transferring the funds overseas, in the face of and due to Intact’s pending claim (see David’s email, referred to earlier), it then fell on the trustee or Intact to attack the transfer and face the dauting task, even if successful on the merits, of recovering funds sent by Mr. Pemberton to Vietnam via Singapore. It is not surprising to learn that the bonding company settled its claim against David for $7 million. [ 49 ] Almost the entirety of the recovery made by the trustee was the non-exempt equity in Mr. Pemberton’s house. Mr.

Pemberton’s friend, Judith Pritchard, had filed a proof of claim on behalf of her corporation Viewpoint, asserting that Viewpoint held a $400,000 second mortgage which was not listed by Mr. Pemberton on his statement of affairs. In fact the $400,000 in mortgage proceeds apparently had been advanced by David via Viewpoint and repaid to David the same day. Ms. Pritchard acknowledged, when she was questioned under oath, that in her view the mortgage should be treated as fully repaid. Because the Viewpoint mortgage was disallowed, non-exempt equity was available for creditors.

The non-exempt equity was then purchased by Ms. Pritchard, leading to a recovery for creditors. While I cannot conclude definitively that this whole process was a ruse to shelter Mr. Pemberton’s home equity from his creditors, the circumstances are suspicious. [ 50 ] When he assigned himself into bankruptcy, Mr. Pemberton was obliged to disclose and turn over to his trustee a $32,000

investment account with Echelon Wealth Partners. He did neither, and the trustee ultimately recovered those funds via garnishee. Conclusion [51] The facts discussed above indicate that Mr. Pemberton’s conduct was dishonest and that he failed to comply with hisobligations under the BIA. As stated at the outset of these reasons, I can think of no reason to allow Mr. Pemberton to proceed todischarge without requiring him to repay the $2.655 million of his assets that he transferred overseas in the two days prior to hisbankruptcy. [52] Ostensibly, Mr.

Pemberton’s current financial situation is that he lives in a house in which the CIBC mortgage was purchasedby his friend Mr. Clarke and the non-exempt equity was purchased by his friend Ms. Pritchard.

His only known income is CPP and OASbut he acknowledges that he holidays internationally based on the generosity of friends and family. [53] In cases of egregious conduct by a bankrupt, of which this is one, the Court may impose financial conditions of dischargeeven in the absence of evidence of current assets to pay the amount of the condition. [54] This topic was discussed in Re Dykes, 2014 ABQB 323, 2014 CarswellAlta 878, at para 47, where the Court quoted Houldenand Morawetz, (the current edition being L.W.

Houlden et al., Bankruptcy and Insolvency Law of Canada, loose-leaf, (Toronto:Carswell, 2009), as follows: Where the conduct of the bankrupt has been especially reprehensible, there is a split in the decided cases on the kind of order that shouldbe made. One line of authorities takes the position [sic] that even if the bankrupt's conduct has been bad, a conditional order should notbe made if the bankrupt does not have the means to pay it: Freshair Enterprises Ltd. v. Houseman (Trustee of) (1992), (SK KB), 11 C.B.R. (3d) 24; 1992 CarswellSask 20 (Sask. Q.B.); Patterson v.

Royal Bank (1984), (BC CA), 59B.C.L.R. 234, 57 C.B.R. (N.S.) 6 (B.C.C.A.). Another line takes the position that if the bankrupt's conduct has been bad, a conditionalorder should be made as a penalty, even if the bankrupt does not have sufficient income to make payments ... [see footnote 1]" (at pp. 6-152 and 6-153) [55] Mr. Pemberton is a 68 year old bankrupt with no prospect of starting up a business and whose prospects of employment arelimited. He deliberately transferred away over $2 million of his own funds to keep them away from his creditors.

He also engaged inother questionable conduct outlined above. [56] In the circumstances I believe it appropriate to set as a condition of discharge from bankruptcy that he repay the $2.655million in question, and then have his discharge suspended for a further three years. Heard on the 24th day and 31st day of August, 2023. Dated at the City of Calgary, Alberta this 3rd day of October, 2023. J.T. Prowse Registrar in Bankruptcy Appearances: Daniel Jukes Miles Davison LLP for the bankrupt Daniel Vassberg Department of Justice Canada for the OSB

Shaun W. Hohman and Luca Zuliani Rose LLP for Intact Insurance Trevor Batty Field Law for MNP Ltd., in its capacity as Trustee of the Bankrupt