Legal Blog

Obstructionist

The purpose of the Bankruptcy Act is to allow unfortunate debtors to start their financial lives afresh. Conversely, it is not meant to be a fiscal car wash. The court must keep these two themes in mind when determining whether to grant a discharge after bankruptcy. These themes were readily apparent in the 2005 Ontario Superior Court of Justice decision of Re Zolnierowicz.

Nasty Business 

The bankrupt was not a model unfortunate debtor. When he made his assignment into bankruptcy, he “forgot” to disclose to his trustee in bankruptcy the fact that he had transferred title to his residence to his son one month before the assignment. He “remembered” and told his trustee before the closing of the sale of his residence. Ultimately, the trustee obtained an order setting aside the conveyance as fraudulent.

Then the bankrupt refused to vacate the premises, forcing the trustee to obtain and execute a writ of possession. Finally, when the bankrupt left the residence, he took some of the fixtures with him.

All of these shenanigans cost the estate $20,000 and, when the bankrupt applied for his discharge from bankruptcy, the trustee demanded payment of the $20,000 as a condition of the discharge.

Conversely 

The bankrupt was 77 years of age and survived on $1,000 per month from his CPP and OAS pensions. He clearly had no financial means to pay $20,000.

However, for some period during his bankruptcy, the bankrupt had been paying $150 per month to the trustee.

Balancing  

The Bankruptcy Registrar, who was the hearings officer, held that the bankrupt failed to cooperate with his trustee, failed to disclose his assets, and put the creditors to unnecessary expense with frivolous and vexatious responses to motions to deal with his residence. Accordingly, the Registrar could not, under section 172 of the Act, grant an absolute discharge.

To show his displeasure with the bankrupt’s conduct, the Registrar suspended the discharge for one year. Accordingly, the bankrupt remained an undischarged bankrupt for that additional year. Further, but running concurrently, the Registrar made the discharge conditional on the bankrupt paying his creditors, via the trustee, $150 per month for five years. The Registrar reasoned that if the bankrupt had been able to pay $150 per month during the period of his bankruptcy, then he should be able to make the payments after the conditional discharge. Accordingly, if the bankrupt made all of the payments, the estate would receive $9,000 of the $20,000 that the trustee had requested. In this manner, the Registrar attempted to balance the two underlying themes of the Act.  

Upshot  

Given the impecuniosity and age of the bankrupt, this order may well preclude him from ever being discharged from his bankruptcy. However, in light of his actions that showed a complete disregard for the bankruptcy process and his creditors, we suggest that this is not so bad; indeed, it may even be seen to be good.