Monthly Archives: March 2014

Income Tax Discharges…

 
Many people believe that a person can go bankrupt, and all their debts will disappear..this is simply not necessarily the case, especially if you owe significant tax debts, without any regard for the tax system..

In the bankruptcy of Gordon Charles McRudden [McRudden (Re) 2014 BCSC 217] the Bankrupt owed upwards of $900,000 to the Canada Revenue Agency, and more then 1.1 million dollars overall…
The bankrupt was involved in litigation from a patient who claimed he assaulted. He was sued, and rang up hundreds of thousands of dollars in litigation. Further, he then had GST and Income Tax deductions which he didn’t pay. In 2007, he disposed of his assets, and transferred 600 thousand to his sister. In 2008 he went bankrupt.
He lives in a home assessed at 3 million, and paid no tax or rent, his sister pays him $2,000.00 a month no tax. He also had child support arrears of 300,000.
The CRA objected. This was a first time bankruptcy.
The Trustee asked for a conditional discharge of full repay of taxes, or a refusal. The bankrupt asked for a full discharge.
The registrar reviewed everything, reviewed case law. He stated that not paying tax debt not honest or unfortunate, and that deterrence is the overriding consideration.

He ordered that surplus payments from Feb 1 2007 – Dec 31, 2008 to be paid. He had to pay the estate $69,500.00, supply income and expense statements, and to pay any further income tax and excise tax payments that were left.

Pre-Bankruptcy Court Decisions…

 

 

In a recent Ontario Superior Court case, the court confirmed a 1961 superior court decision that a court can not make a declaration as to the survival if a debt, pre-bankruptcy, even if the debt will survive from a person based on a exception under the BIA.

In Bridgemohan v. 2218667 Ontario Ltd 2014 ONSC the court confirm the decision of itself in Kemper Re (1961), 2 C.B.R. (NS) 130 (ONT SC).

The facts are not of particular importance: only that a fraud occurred involving a Contruction Lien Act claim, and the Defendants were found liable.

However, the Plaintiffs sought a declaration from the court that Section 69.3(1) of the BIA didn’t apply, and therefore by extension, the debt would not be discharged by bankruptcy.

The judge denied this request. He stated that this was not a bankruptcy court, and he wouldn’t and shouldn’t make this declaration.

Therefore, if a creditor is trying to pursue this line of action, or a debtor is trying to avoid it, they must go to bankruptcy court.

Please feel free to call me to deal with any problems along these lines.

Link

     

 

Over the last couple of weeks, a number of companies have sought Bankruptcy Protection in the USA. Today, Sbarro Pizza, a chain which is both in Canada and the USA has filed for protection from their creditors – See Newspaper Article. Quiznos – the expensive and tasty submarine sandwich store located in Canada and the USA (among other countries) is also preparing to do the same – See Newspaper Article

Unfortunately, in the last number of years, this type of thing has become common-place. Most companies have warning signs before they have to declare bankruptcy. For instance, Quiznos had a massive debt-for equity deal only a couple of years ago which could never have survived.

And while this seems so outside of a regular persons issue it is not. There are lessons that can be learned from this. If you have debt, deal with it early. Don’t wait. If you need to file a proposal, or make a deal with your creditors, do it. If you need to file for bankruptcy, that’s fine.

This article is from 2011, it explains some of the items that can happen if you go bankrupt. Call me if you want to discuss this – I can help and refer you to the right place if I can’t.

 

Stay of Proceedings in Bankruptcy

 

In the bankruptcy of Scott Marasse, the registrar in Saskatchewan ruled on an order seeking leave for the Bank of Montreal (‘BMO’) to be able to proceed against a bankrupt. BMO contended that the bankrupt contined to borrow money on an unsecured line of credit, and to keep it in good standing, even though they knew that BMO would closwe it when it discharged the interest against the home which the loan had been secured against. BMO stated that this was an unsecured loan, the bankrupt knew or ought to have known, and that it rose to the level of fraud.
The registrar in her determination reviewed the law on the Stay under both Section 69.5 of the BIA, and pre-69.5.
In Re Bookman, (1983) 47 C.B.R. (N.S.) 144, Registrar Ferron explained that the bankruptcy stay’s purpose is to ensure that the trustee is able to administer a bankruptcy estate in an orderly fashion, without having to concern itself with complications arising from lawsuits against the bankrupt.
Following Bookman, the Ontario Supreme Court provided further guidance in Re Advocate Mines Ltd. (1984), where it categorized the types of claim that might support an application to lift the bankruptcy stay
In First Choice Capital Fund Ltd. v. First Canadian Capital Corp., 178 Sask. R. 100 (Sask. Q.B.), Baynton J. endorsed the Advocate Mines Ltd. categories of claim in the context of an analysis under s. 69.4 of the current BIA.
In Re Ma, 2001 CanLII 24076 (ON CA),the Ontario Court of Appeal revised the test for a declaration rendering the bankruptcy stay inoperable and in the course of doing so, explained that the test requires the establishment of something less than a prima facie case. According to the court, it involves an assessment of whether sound reasons, consistent with the scheme of the BIA exist to lift the stay.
The Superior Court, In 2011 in Mawji , confirmed that consideration of the merits of a proposed action may be appropriate if the merits are relevant to assessing whether “sound reasons” for lifting the stay exist in para. 4. But Mawji SC also confirmed that the onus of the applicant is low at the preliminary stage of the leave application
All these factors must be used to assess whether
(a) BMO a person likely to be materially prejudiced by the continued operation of the bankruptcy stay?
(b) If the answer to (a) is yes, then is it apparent that the action has little prospect for success?

The Registrar granted BMO’s application.