2017 ONSC 5148, 2017 ONSC 5148

CITATION : Re O’Dea , 2017 ONSC 5148 COURT FILE NO.: 33-1380228 DATE: 2017/08/30 ONTARIO SUPERIOR COURT OF JUSTICE IN BANKRUPTCY and INSOLVENCY IN THE MATTER OF THE BANKRUPTCY OF FRANCIS DONALD O’DEA OF THE CITY OF OTTAWA IN THE PROVINCE OF ONTARIO BEFORE: Justice Stanley Kershman HEARD AT OTTAWA: June 23, 2017 COUNSEL: Stephanie Lauriault, appearing on behalf of the Attorney General of Canada Brian Doyle and Paul Salewski, appearing on behalf of Doyle Salewski, Trustee in Bankruptcy Patrick Wolfe, appearing on behalf of the Office of the Superintendent of Bankruptcy Alden Christian, appearing on behalf of the bankrupt, Mr.

O’Dea REASONS FOR DECISION Introduction [ 1 ] Mr. Francis O’Dea, the Bankrupt, applies for discharge from his bankruptcy. The discharge is opposed by:

(1) The Attorney General of Canada acting on behalf of Canada Revenue Agency (“CRA”); and

(2) Doyle Salewski, the Trustee in Bankruptcy (“Trustee”). [ 2 ] The Office of the Superintendent of Bankruptcy (“OSB”) filed a report but did not serve an opposition to the Bankrupt’s discharge. Factual Background [ 3 ] The Bankrupt is 72 years of age. He is a self-employed businessman who had two successful business ventures in the 1990s and 2000s. [ 4 ] Mr. O’Dea filed a Proposal on September 20, 2010 offering to pay $800,000.00 for the benefit of his creditors which was accepted.

Subsequently, a Notice of Default was issued in the performance of the Proposal on March 5, 2012. [ 5 ] A Second Amended Proposal was filed on October 31, 2012, which was accepted. [ 6 ] A Third Amended Proposal was filed on November 3, 2014. The Third Amended Proposal was defeated by the creditors which resulted in Mr. O’Dea’s bankruptcy on December 2, 2014. [ 7 ] In his Statement of Affairs dated December 2, 2014, the Bankrupt indicated that the cause of his bankruptcy was “income tax arrears/reassessments”. [ 8 ] The following is a chart that sets out Mr.

O’Dea’s reassessment for taxes found due and owing for the years 1992 to 1996, 2003, 2007 to 2009, and 2014: Assessment Year Tax Interest Total

10/15/1996 1992 $29,502.78 $83,555.97 $113,058.75 10/15/1996 1993 $74,934.70 $254,741.89 $329,676.59 07/19/2000 1994 $38,235.21 $123,561.30 $161,796.51 07/19/2000 1995 $54,512.14 $166,215.80 $220,727.94 07/19/2000 1996 $188,652.51 $551,257.07 $739,909.58 12/20/2010 2003 $87,610.13 $81,915.16 $169,525.29 12/20/2010 2007 $20,664.13 $8,278.97 $28,943.10 07/07/2009 2008 $5,630.82 $2,132.57 $7,763.39 07/06/2010 2009 $11,185.01 $2,921.97 $14,106.98 04/09/2015 2014 $44,062.67 — $44,062.67 Total $554,990.10 $1,274,580.70 $1,829,570.80 [ 9 ] Mr. O’Dea appealed some of his assessments to the Tax Court of Canada.

After a number of proceedings, the Tax Court confirmed the tax appeals on June 1, 2009. O’Dea Family Enterprises [ 10 ] O’Dea Family Enterprises (“O’Dea Enterprises”) was incorporated on June 28, 2011, approximately one year after Mr. O’Dea filed his Notice of Intention to Make a Proposal. [ 11 ] The Bankrupt was a director and president of O’Dea Enterprises and his wife was the secretary and treasurer.

A trust called the O’Dea Family Trust (the “Trust”) owns 100% of the O’Dea Enterprises common shares and Nancy O’Dea, the Bankrupt’s wife owns 100% of the preferred shares. [ 12 ] For the year ending June 30, 2015, O’Dea Enterprises paid $103,929.00 in salaries and wages, $56,764.00 in commissions, and declared $89,000.00 in dividends. [ 13 ] The CRA’s evidence is that no T4 or T4A slips for the salaries, wages, and commissions are on file for O’Dea Enterprises in 2015.

The CRA further asserts that O’Dea Enterprises did not have a payroll account registered with CRA in order to issue the T4 or T4A slips. [ 14 ] O’Dea Enterprises does have an information return account and did issue a 2015 T5 to the Trust in the amount of $89,000.00 in actual dividends (or $105,020.00 in taxable dividends). [ 15 ] These dividends were then entirely distributed by the Trust to the Bankrupt’s wife and daughters. [ 16 ] For the year ending June 30, 2016, O’Dea Enterprises paid $101,853.00 in salaries and wages, $70,230.00 in commissions, and declared $246,000.00 in actual dividends.

O’Dea Family Trust [ 17 ] The Trust was set up on March 31, 2008. The trustee was Mr. O’Dea. The beneficiaries of the Trust are Mr. and Mrs. O’Dea, as well as their two daughters. [ 18 ] The Trust contained a provision that if any trustee becomes bankrupt or otherwise insolvent, their powers under the Trust are automatically suspended. Therefore as of the date of his bankruptcy, Mr. O’Dea was no longer a director. Mr. O’Dea appointed his wife as director of the Trust. The Court finds that the only director of Trust after the date of Mr.

O’Dea’s bankruptcy was his wife. [ 19 ] The uncontradicted evidence of Brenda Daviau, the representative of CRA, was that O’Dea Enterprises had a Bank of Montreal account (BMO 731). Deposits were made into the Trust’s BMO bank account. Those funds were then transferred out shortly after to the accounts of either the Bankrupt, his wife, or the Bankrupt’s daughters. [ 20 ] In addition, the BMO 731 account provided for preauthorized payments directly to BMO MasterCard and Capital One credit cards. Both the Bankrupt and his wife have Capital One credit cards.

The Bankrupt’s daughters each have a BMO MasterCard. [ 21 ] For the period October 1, 2014 to February 3, 2017, a total of $54,609.04 was transferred from the Trust account to the BMO account. In addition, a further $8,874.00 was transferred to other accounts. There was also a list of monies that were transferred into various accounts belonging to the Bankrupt, his wife, and the two children, along with other accounts. In total, the Bankrupt received $16,099.99, his wife received $8,797.00, and one child received $7,568.00. The second child received $17,036.04.

The sum of $8,624.00 was transferred to other accounts. A further $5,852.00 was paid to the Bank of Montreal MasterCard and $3,450.00 was paid to the Capital One credit cards. [ 22 ] The evidence is that, in 2015, the Trust issued T3 slips as follows: 1. To the Bankrupt’s wife, $10,620.00; 2. To the first daughter, $47,200.00; and

3. To the second daughter, $47,200.00. [ 23 ] In 2016, statements for the Trust showed that $61,828.43 was withdrawn from the account and $61,135.00 was added to the account. The vast majority of the deposits came from the BMO 731 account. [ 24 ] While no T3 slips had been received by the CRA for the Trust for 2016, each of the Bankrupt’s two daughters claimed $46,800 in taxable dividends from unknown sources for 2016. [ 25 ] A judgment was obtained by the CRA in Docket-2004-1225 (IT)(

G) in which Mr. O’Dea was an appellant. These were appeals from assessments made under the Income Tax Act for the years 1992, 1993, 1994, 1995, and 1996. The appeals were heard on June 17, 18, and 19, 2008; shortly after the creation of the Trust. [ 26 ] The Court finds that Mr. O’Dea knew that there was an upcoming tax decision being rendered at the time that the Trust was created with him as a director. [ 27 ] On July 7, 2009, Mr. O’Dea was reassessed: 1. for the year 2008; on July 7, 2010; 2. for the year 2009; and, 3. on December 20, 2010, for the years 2003 and 2007.

O’Dea Enterprises’ BMO 731 Account [ 28 ] The CRA’s evidence is that it reviewed the statements of account for the O’Dea Enterprises BMO 731 account.

The CRA’s evidence is that monies from Nancy O’Dea’s BMO account ending in 688, the O’Dea Enterprises BMO account ending in 923, and the O’Dea Enterprises BMO Speaker’s Account were transferred into the O’Dea Enterprises BMO 731 account. [ 29 ] The BMO 731 account transfers money to the Trust account, the Bankrupt, Nancy O’Dea, and O’Dea Enterprises’ BMO Real Estate Division, as well as both of his daughters’ personal BMO accounts. [ 30 ] In addition, the Bankrupt and his family’s various household living expenses were also withdrawn from the BMO 731 account.

Residences [ 31 ] The Bankrupt resides at 1203–40 Boteler Street with his wife, Nancy O’Dea. Mrs. O’Dea has been listed as the tenant since October 8, 2009. The current monthly rent is $6,080.57 and is paid by cheque from the O’Dea Enterprises BMO 731 account. [ 32 ] In addition to the aforesaid property, Mr. O’Dea testified that he and Mrs. O’Dea rent a cottage in Gracefield, Ontario at an annual cost of about $7,800.00. [ 33 ] Prior to moving into the Boteler Street address, the Bankrupt and his family lived at 421 Landsdowne Road North, Rockcliffe Park, Ontario.

The property was purchased by the Bankrupt’s wife on May 21, 2004 for $845,000.00 and was sold on November 30, 2009 for $2,525,000.00. Nancy O’Dea Bankruptcy [ 34 ] On January 24, 2012, approximately six months after the incorporation of O’Dea Enterprises, Nancy O’Dea declared bankruptcy. In her Statement of Affairs she claimed unsecured debts of $601,662.00, secured debts of $60,550.00 and estimated net realizable assets of $5,000.00. [ 35 ] When Mrs.

O’Dea filed for bankruptcy on January 24, 2012, in her monthly income and expense statement of the bankrupt family unit which was she swore that, “all household expenses are paid by spouse”. When Mr. O’Dea filed his Notice of Intention to Make a Proposal on July 8, 2010 in his monthly income and expense statement of the debtor and family unit he swore that, “the debtor has advised that his spouse pays the majority of the family living expenses from her income”. [ 36 ] In her sworn Statement of Affairs, Mrs. O’Dea indicated in her monthly income and expense that “all household expenses are paid by spouse”.

The Court understands this to mean that all of her household expenses were paid by Mr. O’Dea. The total monthly discretionary expenses of the family unit was $21,591.00. [ 37 ] When Mr. O’Dea went bankrupt on December 2, 2014, his Statement of Affairs sworn under oath indicates that his wife is paying all of the family expenses. [ 38 ] In her Statement of Affairs, Mrs. O’Dea claimed that the cause of her bankruptcy was “tax assessment”. She stated that her employer was a national real estate brokerage, and that her business type was a sole proprietorship which she operated as a real estate agent.

[ 39 ] The Court notes that there is no reference in Nancy O’Dea’s Statement of Affairs of her being the owner of 100% of the preferred shares of O’Dea Enterprises which was incorporated in June, 2011. There is only the mention of her shares in 2013192 Ontario Ltd. with an estimated value of $1.00. The Court does not know 1) whether O’Dea Enterprises is the same as 2013192 Ontario Ltd.; 2) whether the preferred shares of O’Dea Enterprises has any value for the estate; and 3) whether there is any value in 2013192 Ontario Ltd. as no evidence was given on these points.

These are questions that the Trustee would have to determine. [ 40 ] Mrs. O’Dea received a discharge on October 28, 2012. The CRA was owed $112,696.00 for income tax and $19,813 for HST. Issue: Does the Bankrupt have Surplus Income and, if so, How Much Surplus Income Should be Paid to the Trustee? Trustee’s Position [ 41 ] The Trustee originally filed an Opposition to Discharge based on various grounds under the Bankruptcy and Insolvency Act , R.S.C. 1985, c. B-3 (the “ BIA ”), including paragraphs 173(1) (a), (e), (j), and (o). The Court was advised that several of the grounds of opposition had been resolved.

The outstanding grounds are pursuant to paragraphs 173(1)(a), (j), and (o). [ 42 ] The Trustee filed a Supplementary Report (“Report”) dated June 14, 2017, in which the Trustee analyzed the Bankrupt’s surplus income obligation and came up with four scenarios. First Scenario [ 43 ] In the first scenario, the Bankrupt advised that his only source of income came from of Old Age Security and Canada Pension Plan payments. He advised that his speaking engagements were organized through his booking agents Cairncroft Management Limited, which is a corporation owned by Mr. O’Dea’s brother, Sean O’Dea.

The speaking engagements were then contracted as between the customer and O’Dea Enterprises with Cairncroft receiving commissions and travel reimbursement from O’Dea Enterprises. Mr. O’Dea received no compensation from the speaking engagement from O’Dea Enterprises. [ 44 ] Mr. O’Dea reported receiving $846.29 from CPP and $553.74 from OAS on a monthly basis. In his bankruptcy, his wife did not disclose her income. Mr. O’Dea claimed a family of four, including his wife and two children.

Under those circumstances, the Trustee determined that at that time there was no surplus income and the bankruptcy period was set for 24 months. [ 45 ] During the 21 months period ending September 2, 2016, Mr. O’Dea reported average monthly income of $1,499.74 — based on a family of four including his wife, his two children, and himself — which was below the standards set by the Office of the Superintendent of Bankruptcy. [ 46 ] The evidence is that his two daughters received dividends from the Trust sufficient to show that they were not being supported by Mr. O’Dea as they were not living with the O’Dea’s.

The Trustee believed that his surplus standards as set by the Office of the Superintendent of Bankruptcy should be for two rather than for four. This resulted in Mr. O’Dea having a small amount of surplus income and his bankruptcy timeline increasing from 24 to 36 months. [ 47 ] Based on this fact, the Trustee revised its surplus calculation and determined that there are no monies owing for surplus income, in that scenario.

Second Scenario [ 48 ] The Trustee then prepared a second scenario dealing with the speaking engagement income. [ 49 ] The Trustee prepared an appendix to its Report calculating the speaking engagement income from December 2, 2014 to March 31, 2017 earned by O’Dea Enterprises from speeches given by Mr. O’Dea. The speeches generated $232,048.00 in gross fees. After commission, expenses, overhead expenses, and taxes, the net income generated was $77,255.00. The net income was distributed to Mr. O’Dea’s wife, and not to Mr.

O’Dea, by way dividends from O’Dea Enterprises and, after tax paid by her, netted $56,116.00. [ 50 ] Prior to his bankruptcy, Mr. O’Dea received management and other fees from O’Dea Enterprises. The Trustee surmises that this was partially to compensate for the speech revenue that it earned from his services. The Trustee found that the management fee revenue fell into the definition of total income that would be subject to surplus income guidelines. [ 51 ] In accordance to Directive 11R-2, the Trustee calculated Mr.

O’Dea’s income for surplus for 36 months because he was a second time bankrupt having filed for bankruptcy approximately 44 years ago. Based on that information, the trustee found that Mr. O’Dea would have surplus income obligations of $38,243.00. Third Scenario [ 52 ] The third scenario prepared by the Trustee involved Mr. O’Dea receiving transfers of funds into his personal bank account

from the O’Dea Enterprises general bank account, O’Dea Enterprises speakers bank account, and the Trust. In addition, he used a credit card, the payments for which went from the O’Dea Enterprises general bank account to the credit card company. [ 53 ] The Trustee enquired into the nature of certain transfers and was advised of the following:

(1) All transfers of funds received by Mr. O’Dea were recorded in a loan account in the books of O’Dea Enterprises;

(2) Each year at end of O’Dea Enterprises' financial year, the net amount of the loan amount and other profits were allocated to Trust by way of dividend. This same amount was then distributed to Mr. O’Dea’s spouse and two children by way of dividend from the Trust. No monies are allocated to Mr. O’Dea. As such, he reports no income for tax purposes from these transfers. [ 54 ] In addition to these bank accounts, Mr. O’Dea also holds an account with the Toronto Dominion Bank. The Trustee reviewed the account, and the only deposits made to that account were for CPP and OAS and, as such, were already considered in calculating surplus income. [ 55 ] The Trustee prepared a

schedule of funds transferred into Mr. O’Dea’s account from December 2, 2014 to September 30, 2016 (a period of 22 months) and related backup. For 2014 to 2015, these transfers amounted to $64,953.00 and, for 2015 to 2016, they amounted to $54,130.00. [ 56 ] In addition, the Trustee analyzed the general ledger for the loan account with O’Dea Enterprises for the periods:

(1) July 1, 2014 to June 30, 2015;

(2) July 1, 2015 to June 30, 2016; and

(3) July 1, 2016 to September 30, 2016. [ 57 ] The Trustee then matched the information included in the analysis to the

schedule of monies received. [ 58 ] The Trustee was not sure whether the transfers constituted total income pursuant the BIA definition for purposes of determining if there were any surplus income obligations for Mr. O’Dea. The trustee had been previously advised that O’Dea Enterprises had only two sources of income: Mr. O’Dea’s speaking engagements and his spouse’s commission income. [ 59 ] The Trustee calculated the surplus income obligations for these funds and determined that the transfers would constitute total income, given that Mr. O’Dea would had been bankrupt for 36 months if any surplus existed.

The Trustee calculated the surplus income requirement for the 36-month period based on the assumption that the transfers constituted total income under the BIA and, taking into consideration voluntarily payments, the fact that Mr. O’Dea would have additional surplus in income obligation of $85,536.00. The surplus income obligation is based on an average annualized income of $76,039.00 for the first 22 months of the bankruptcy. During the two year period prior to the bankruptcy, Mr. O’Dea reported average yearly income of $67,500.00.

Fourth Scenario [ 60 ] The Trustee took into account a fourth scenario, being that surplus income should be payable on both the funds received as well as the speaking engagement income, which would then bring the surplus to $124,779.00. [ 61 ] The Trustee indicated that it should be up to the Court to determine how much surplus income should be payable and what conditional order of discharge should apply.

Office of the Superintendent of Bankruptcy’s Position: [ 62 ] The OSB did not file a Notice of Opposition to the Discharge, however it did issue a report under s. 170(3) of the BIA . [ 63 ] The OSB argues that there should be a surplus income payment in accordance with the surplus income guidelines under the BIA . It argues that the aim of the reforms for surplus income were to require the Bankrupt to contribute to the Estate to maximize a return to the creditors and that monies are available through the Trust in order to do so. The OSB sets out the reforms to the issue of surplus income, a

summary of which appear at F-111 on pages 455 - 456 of the 2016 Annotated Bankruptcy and Insolvency Act by Houlden, Morawetz and Sarra. [ 64 ] The OSB has calculated a surplus income of $885.00 per month for a family of four. Bankrupt’s Position: [ 65 ] The Bankrupt argues that he has no surplus income notwithstanding the position taken by the Trustee and the OSB. He argues that there is no evidence that he has surplus income. [ 66 ] At the same time, the Bankrupt did support the Trustee’s position that he pay $72,000 to the Estate in order to obtain his discharge. Analysis

[67] One of the Trustee’s major concerns was the issue of surplus income. [68] When Mr. O’Dea was deemed bankrupt on December 2, 2014 once his Third Amended Proposal had failed, in his monthlyincome and expense statement dated December 4, 2014 he swore that, “the debtor has advised his spouse pays the majority of the familyliving expenses from her income”. [69] He only shows discretionary expenses of $1,070.00 for himself alone. [70] The Court does not accept the evidence that while Mrs. O’Dea is in financial difficulty, Mr.

O’Dea, who is no longer infinancial difficulty, pays the majority of the household expenses and that when Mr. O’Dea is in financial difficulty Mrs. O’Dea pays allor most of the household expenses. [71] Furthermore, the Court does not accept that the Bankrupt’s monthly discretionary expenses for himself are $1,070.00. Basedon the lifestyle and spending patterns of this family, the Court finds that the monthly discretionary expenses are much higher and arebeing paid from somewhere.

As an example, when Nancy O’Dea filed for her bankruptcy on January 24, 2012 she reported no income,did not report income of any other members of the family unit and yet had monthly discretionary expenses of $21,591.00.

The Courtcannot reconcile this with a statement made in her income and expense statement that “all household expenses are paid by spouse”. [72] The Court acknowledges that the Trustee has gone to great lengths to prepare the four scenarios related to surplus income. [73] The Court further acknowledges that the OSB has made recommendations in relation to surplus income. [74] Notwithstanding the analysis prepared by the Trustee and the figures provided by the OSB, on the facts of this case, the Courtis not able to properly determine how much surplus income Mr. O’Dea has.

Therefore, there will be no order with respect to surplusincome. 2) Should Mr. O’Dea Receive a Discharge and, if so, What Conditions Should Apply? Opposing Creditor’s Position [75] The CRA opposed the discharge of Mr. O’Dea from his bankruptcy on the basis that:

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 liabilitiesfor which the Bankrupt cannot justly be held responsible: s. 173(1)(a);

b) The Bankrupt has brought on, or contributed to, the bankruptcy by rash and hazardous speculations, by unjustifiable extravagancein living, by gambling or by culpable neglect of the Bankrupt’s business affairs: s. 173(1)(e); and,

c) The Bankrupt has on any previous occasion been bankrupt or made a Proposal to creditors: s. 173(1)(j). [76] The Opposing Creditor argued that if a fact is proven under s. 173 of the BIA, the Court must refuse or suspend the dischargedor impose conditions (s. 172 (2)). [77] At the discharge hearing, the Opposing Creditor acknowledged that this is not a tax driven bankruptcy as the tax debt is notgreater than 75% of the unsecured liabilities. [78] The CRA seeks a conditional order of discharge with Mr.

O’Dea paying $554,990, being 30% of the principal of the tax debtin order to maintain the integrity of the bankruptcy process and the public’s perception of the process. [79] The CRA argues that the Bankrupt should not be able to relieve himself of this tax burden by going bankrupt. It argues thatMr.

O’Dea is not an honest or unfortunate debtor as he is taking advantage of the fact that taxes are not collected at source (Re Trueman,2001 ABQB 377, at para. 15; Re Haibeck, 2016 BCSC 2166, at para. 43, citing Re Zinkiew, 2004 BCSC 1831, at paras. 58–60, Re Toal140 A.R. 305 (Q.B.), at para. 14, and Re Emmerton, (AB KB), 163 A.R. 393 (Q.B.)). [80] The CRA argues that the Bankrupt is attempting to obtain a free ride, and should not be absolved from such a tax debt (ReVan Eeuwen, 2013 BCSC 26, at para. 18, citing Re Williams, 2005 BCSC 289). Trustees’ Position: [81] The Trustee argues that Mr.

O’Dea is shrewd and clever and that he has tried legally to create a situation where he does nothave any ownership in any of the corporations or the trusts involved in this matter. The Trustee argues that Mrs. O’Dea is a high incomeearner and is the source of the family income. [82] The Trustee argues that there was no rash or hazardous behaviour on Mr.

O’Dea’s part, that he was a promotor, and that hispromotions did not succeed. [83] The Trustee asserts that both rehabilitation and contribution to the Estate are important. [84] It argues that, looking at the conduct of the Bankrupt during his bankruptcy, his age, and his future income potential, it wouldbe problematic to order the amount as claimed by the CRA of over $500,000 at the rate of $5,000.00 per month. [85] The Trustee supports a conditional discharge based on a consent by the Bankrupt to pay the sum of $72,000.00 to the Trusteefor the benefit of the creditors and conditional upon him consenting to a Bankruptcy Order which would place him back into bankruptcyfor $2,650,000.00, less any amounts paid in the event there are any defaults in the payments of the consent to judgment.

OSB’s Position: [86] The OSB previously argued that the Bankrupt had surplus income which should be taken into account when considering aconditional discharge. Bankrupt’s Position: [87] The Bankrupt argues that, due to his age and the fact that he is in the process of getting his real estate license, he should payback $72,000 based on a consent to judgment. The consent to judgment is required to allow Mr. O’Dea to obtain his real estate license,which he cannot obtain as an undischarged Bankrupt. According to the evidence, Mr.

O’Dea has three more exams to complete and thiswill take a number of months. [88] The Bankrupt’s counsel argues that a further condition should be placed on him such that, if there is a default of the paymentof the consent to judgment, Mr. O’Dea will be assigned back into bankruptcy based on the original amounts claimed in the December 2,2014 bankruptcy rather than the amount for the balance of the consent to judgment. Analysis [89] The relevant provisions of s. 173(1) of the BIA are: 173

(1) The facts referred to in

section 172 are: (

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 thebankrupt’s unsecured liabilities has arisen from circumstances for which the bankrupt cannot justly be held responsible; … (

e) the bankrupt has brought on, or contributed to, the bankruptcy by rash and hazardous speculations, by unjustifiable extravagance inliving, by gambling or by culpable neglect of the bankrupt’s business affairs; … (

j) the bankrupt has on any previous occasion been bankrupt or made a proposal to creditors; [90] Both the Trustee and the Bankrupt agree that the Bankrupt should have to pay to the Trustee the sum of $72,000.00 at a rateof $1,000.00 per month. [91] The CRA argues that Mr. O’Dea is not an honest but unfortunate bankrupt. It argues that Mr. O’Dea should have to pay back$554,990.00 payable a rate of $5,000.00 per month. [92] The Bankrupt argues that he is 72 years of age and had been successful in at least two business ventures.

He acknowledgesthat he has spent a lot of money in the past and that he may have done some things that were improper in the past. He says that the Courtshould order an amount payable that he can afford to pay rather than ordering an amount he could never afford to pay considering his ageand the fact that he is seeking to enter into a new career as a real estate agent. [93] In a usual case, a bankrupt may not have an opportunity to earn a large income in the future based on his age. However, Mr.O’Dea will likely join his wife in her real estate business. The Court anticipates that Mr.

O’Dea will become successful much faster byjoining his wife in her business than would a real estate agent just starting out. The Court finds that Mr.

O’Dea should be able to earn areasonable income and that he should be able to pay a larger amount of monies for the benefit of his creditors than was originallyproposed. [94] The Court finds that the creation of the Trust and of O’Dea Enterprises was done specifically for the purpose of reducing histax burden and creating an artificially low income for him, notwithstanding the fact that based on the evidence at the discharge hearingthat his former family yearly expenses were $60,000.00 per month (or $720,000.00 per year) and that his current family expenses are$12,000.00 per month (or $144,000.00 per year) after taxes. [95] The Court does appreciate that Mr.

O’Dea and his family have reduced their expenses from $60,000.00 per month (or$720,000.00 per year) to $12,000.00 per month (or $144,000.00 per year), but according to the evidence of the Bankrupt, the expenseshave only reduced to the $12,000.00 figure in the six months preceding the discharge hearing. Findings Under s. 173(1)(

a) of the BIA [96] In relation to s. 173(1)(a), the Courts have stated that the onus of providing some reasonable explanation for why theBankrupt should be excused from this situation lies with the Bankrupt Re Montalban, 2013, BCSC 683 at para 39. [97] In the case of Re Toal, (1993, (AB KB), 22 C.B.R. (3d) 209, ABQB) at para 10, the Court states: An income tax liability is tied directly to the taxpayers’ income as he earns it and should be paid from that income as it is earned. It is

not a liability expected to be serviced at a future income. A taxpayer cannot say that later events caused his tax problems. The liability is an income-driven liability. [ 98 ] In his Statement of Affairs, Mr. O’Dea stated that the reason for his financial difficulties was income tax arrears/reassessments. [ 99 ] The Court follows the reasoning in both Re Montalban and Re Toal in relation to s. 173(1)(a). [ 100 ] The Court finds that the Bankrupt has provided no evidence that satisfies the Court that Mr. O’Dea’s situation has arisen from circumstances which he cannot justly be held responsible for. [ 101 ] Therefore there will be a finding under s. 173(1)(a). Findings Under s. 173(1)(

e) of the BIA [ 102 ] In relation to s. 173(1)(e), according to the Bankrupt’s testimony, the Court finds that the Bankrupt purchased an aircraft which was eventually returned to the bank when he went into bankruptcy, for which the Bankrupt stated that there was a short fall of over $500,000. [ 103 ] In addition, the Bankrupt’s own evidence is that: 1. he purchased a 2006 MasterCraft boat which was sold during his proposal and which brought in proceeds of $30,000; 2. he also sold a parcel of land during his proposal but prior to his bankruptcy, which brought him a further $10,000; 3. the Bankrupt acknowledged that until six months prior to his discharge, the Bankrupt and his family’s expenses totalled $720,000 per year.

This was in 2017. The Court was reminded that Mrs. O’Dea filed for Bankruptcy on January 24, 2012 and was discharged approximately nine months later. [ 104 ] The Court finds that the aforesaid instances of spending when looked at together constitute unjustifiable extravagance in living. [ 105 ] There are other instances of unjustifiable extravagance in living that were set out at the discharge hearing. The Court will not particularize them here. [ 106 ] There will be a finding under s. 173(1) (

e) of the BIA . Findings Under s. 173(1)(

j) of the BIA [ 107 ] In relation to s. 173(1)(j), in his Statement of Affairs the Bankrupt admitted that he was personally Bankrupt on March 8, 1973. Therefore the Court finds that Mr. O’Dea had been bankrupt previously, although some 44 years ago. He has also filed what amounts to a proposal amended several times. Based on this evidence there will be a finding in relation to s. 173(1)(j). Other Matters 1) Trips to Brazil [ 108 ] The CRA was able to prove that Mr. O’Dea used his credit card and transferred $10,000 to Brazil by money transfer. Mr.

O’Dea testified that these monies were used to support a commercial project in Brazil that had been in financial difficulty and was partially the cause of his bankruptcy. [ 109 ] Mr. O’Dea took two trips to Brazil, one in September 2015 and another one in September 2016. [ 110 ] The CRA attempted to characterize these trips as vacations. Mr O’Dea’s evidence is that he went to Brazil for business in an attempt to safeguard those investments. The Brazilian enterprise is not in Mr. O’Dea’s name. [ 111 ] The Trustee argues that the flights to Brazil are on account of business and that Mr.

O’Dea was being reimbursed for his business expenses and there is nothing wrong with a bankrupt assisting in business ventures. [ 112 ] The Trustee argues that the monies for reimbursement came either from O’Dea Enterprises or the Trust. [ 113 ] The Court finds that Mr. O’Dea did go to Brazil on those two occasions, not for vacation, but rather for business purposes. The Court does not find anything wrong with his having gone to Brazil for business purposes. 2) Directorships

[ 114 ] Prior to bankruptcy, Mr. O’Dea was the director of the Trust and O’Dea Enterprises. Mr. O’Dea’s evidence is that he resigned those directorships by virtue of his insolvency and that he sent a letter to each of the entities to advise them of his bankruptcy. [ 115 ] The CRA cross-examined Mr. O’Dea and was able to elicit that he had not filed documentation with Corporations Canada to indicate that he was no longer a director of those corporations. [ 116 ] The Court finds that while the appropriate forms to end his directorship in these entities may not have filed by Mr.

O’Dea with Corporations Canada, the Court is satisfied that he gave the appropriate notice to those entities. [ 117 ] Notwithstanding that Corporations Canada was not notified, the Court notes that s. 105(1)(

d) of the

Canada Business Corporation Act , R.S.C. 1985, c. C-44 , states that once a person files for bankruptcy they no longer have the capacity to be a director of a corporation. The Court is satisfied that Mr. O’Dea had fulfilled his obligation terminating his directorships in the various business entities. Notwithstanding that fact, even if Corporations Canada was not notified, the Court is satisfied that Mr. O’Dea did nothing untoward in relation to his resignation as director in those entities. Disposition [ 118 ] This Court orders that: a. There shall be no order as to surplus income; b.

The Bankrupt’s discharge is suspended for three months from the date of this Order; c. The Bankrupt shall consent to a conditional order of discharge (“consent to judgment”) to pay the sum of $100,000.00 to the Trustee for the benefit of his proven creditors, amount which is payable in the following manner: i. A first payment of $5,000.00 by September 20, 2017; ii. A second payment of $5,000.00 by November 20, 2017; iii.

The balance of $90,000.00 in 60 monthly payments of $1,500.00 commencing December 20, 2017, and payable on the 20 th of each month thereafter until paid in full, for a total of $90,000.00, with the ability of accelerating the payments at his discretion. d. Notwithstanding the Bankrupt’s obligation to pay the total conditional amount of $100,000.00, once the first two $5,000.00 payments have been received by the Trustee and the three month suspension period has expired, the Bankrupt, upon the signature of the consent to judgment, will be entitled to an absolute order of discharge; e.

Prior to obtaining his discharge, the Bankrupt shall consent to an order annulling the Bankrupt’s discharge, thereby reinstating his current bankruptcy, which the Trustee shall file with the Court in the event that the Bankrupt defaults on any four consecutive or non- consecutive payments which are not remedied within five days of the default, and the Trustee may seek his discharge thereafter; and f. There will be no interest on the conditional amount of $100,000.00 unless the Bankrupt defaults on any two consecutive or non- consecutive payments to the Trustee.

If engaged, interest shall be calculated at the rate prescribed by the Courts of Justice Act . [ 119 ] The Court orders that the Trustee obtain answers to the matters raised in paragraph 39 above and report back to the Court within 90 days, notwithstanding that the Trustee may already be discharged. These assets should have been disclosed and realized upon. By virtue of the BIA , the assets have vested in the Trustee who must deal with them as assets of the Nancy O’Dea Estate.

Costs [ 120 ] The Attorney General of Canada seeks payment of its costs as a priority out of the bankruptcy proceeds and seeks the sum of $11,076.00 on a partial indemnity basis or $17,971.00 on a full indemnity basis. [ 121 ] The Court finds that the Attorney General of Canada was successful in

part in pursuing the opposition to discharge and shall be entitled to its costs in this matter. The Court fixes those costs at $8,500.00 in full, inclusive of disbursements and HST. This amount of money shall to be paid out of the Estate to the Attorney General of Canada pursuant to s. 197(6.1) of the BIA in priority to all other creditors after the trustees fees and disbursements have been paid. [ 122 ] Order accordingly. Mr. Justice Stanley Kershman Date: August 30, 2017

CITATION : Re O’Dea , 2017 ONSC 5148 COURT FILE NO.: 33-1380228 DATE: 2017/08/30 ONTARIO SUPERIOR COURT OF JUSTICE IN BANKRUPTCY and INSOLVENCY IN THE MATTER OF THE BANKRUPTCY OF FRANCIS DONALD O’DEA OF THE CITY OF OTTAWA IN THE PROVINCE OF ONTARIO BEFORE: Justice Stanley Kershman HEARD AT OTTAWA: June 23, 2017 COUNSEL: Stephanie Lauriault, appearing on behalf of the Attorney General of Canada Brian Doyle and Paul Salewski, appearing on behalf of Doyle Salewski, Trustee in Bankruptcy Patrick Wolfe, appearing on behalf of the Office of the Superintendent of Bankruptcy Alden Christian, appearing on behalf of the bankrupt, Mr. O’Dea REASONS FOR DECISION Kershman J. Released : August 30, 2017