Court of Appeal for Ontario

DATE: 20220503 DOCKET: C69635

Benotto, Miller and Copeland JJ.A.

In the Matter of the Bankruptcy of Tim Long Chang (a.k.a. Cheng Boon Chang) of the Township of Braeside, in the Province of Ontario

BETWEEN

Tim Long Chang, a Bankrupt Appellant

and

J. Webb & Associates in its Capacity as Trustee in Bankruptcy and Bank of Montreal, a Creditor Respondents

Counsel: Pavle Masic, for the appellant Andrew Ferguson, for the respondent J. Webb & Associates Randy Schliemann, for the respondent Bank of Montreal

Heard: April 25, 2022 by video conference

On appeal from the order of Justice Stanley J. Kershman of the Superior Court of Justice, dated May 25, 2021, with reasons reported at 2021 ONSC 3483.

Reasons for Decision

[1] The appellant seeks to set aside the application judge’s conditional discharge order requiring him to pay $325,000 to the Trustee in specified monthly installments until paid in full.

Facts in brief

[2] The appellant is a professional chartered accountant and chartered management accountant. This is his second bankruptcy.

[3] Prior to his current bankruptcy, he operated several accounting and financial planning businesses which, according to the appellant, have all since closed. At the time of his bankruptcy, the appellant was married and unemployed. His spouse filed for bankruptcy at the same time as the appellant and has since been discharged. According to the Official Receiver Report, his spouse has been able to find employment and is earning $3,000 gross per month. The appellant contended that, although he and his spouse lived under the same roof, they were separated.

[4] The family’s expenses have stayed the same as pre-bankruptcy, at approximately $6,900 per month. The appellant received loans from his mother to cover his living expenses. He continued receiving these loans from the date of bankruptcy (July 2018) until October 2019, when his mother passed away. The appellant is a beneficiary under her will. He testified that his share of the estate is $300,000 but that it is being contested by siblings. In the Report dated September 2019, the Official Receiver noted that the appellant and his wife live above their means and relied on the appellant’s mother to support their lifestyles.

Decision Below

[5] Following a two-day hearing (on October 8, 2020 and March 30, 2021), the application judge made credibility findings. He found the appellant to be untruthful, evasive, and a sophisticated debtor who was not merely “unfortunate”. In particular, the application judge made the following findings:

• After filing for bankruptcy, he continued to operate his businesses.
• He failed to disclose all of his books and records to the Trustee.
• He failed to disclose property in Florida and failed to provide documents relating to the property to the Trustee.
• He failed to disclose that, within a year of the bankruptcy, he sold a Lexus and used some of the proceeds to purchase a new Lexus, putting the rest of the proceeds into his business.
• The application judge rejected the appellant’s evidence that he and his wife were separated.
• There is no evidence to explain how the appellant makes up the shortfall in his spending.
• He failed to disclose that he had been borrowing money from his mother, and that he is a beneficiary in her will.

[6] Based on these findings, the application judge concluded that the disclosure obligations under s. 158 of the Bankruptcy and Insolvency Act, R.S.C. 1985, c B-3 had been breached. The trial judge’s findings under s. 173 resulted in a conditional discharge under s. 172(2)(c) on payment in full of $325,000 to be made in monthly installments.

[7] During the course of the proceedings, the Trustee wrote five letters directly to the application judge without copying the appellant or his counsel. Two of the letters were before the October 8, 2020 hearing date and three were before the March 30, 2021 hearing date.

Analysis

[8] The appellant submits that the application judge erred in granting a conditional discharge with a payment condition because the provisions of s. 68 were not complied with. Section 68 provides that a trustee is to determine if the bankrupt has surplus income and note it in the Report required under s. 170. The appellant submits that the payment condition was an improper order under s. 68 fixing a payment of surplus income. It was an error because the Trustee did not raise surplus income in the Report. It was also unfair since the appellant did not have an opportunity to respond to the assertion that he had surplus income.

[9] We do not agree that s. 68 was engaged. The application judge did not base his finding with respect to payment on surplus income but rather on the findings of fact and the appellant’s conduct in breaching his obligations of disclosure under s. 158.

[10] Nor do we agree that there was unfairness. There was a five-month gap between the first and second hearing day. After the first day, it was clear that the allegation against the appellant was that he was not disclosing income. He filed no further documentation despite having the long adjournment. The appellant had ample opportunity to address the issue of his income.

[11] The appellant further submits that there was no rationale for the amount of the payment ordered by the application judge. He suggests that it arose from the possibility of a $300,000 inheritance, which he argues either: (i) was merely a contingent asset; or (ii) if it was an inheritance, should have been assigned to the Trustee.

[12] We do not agree that the payment was connected to the inheritance. The application judge made no statement to this effect.

[13] Section 172 provides that, if the facts set out in s. 173 are proven, the court shall refuse the discharge, suspend the discharge or require a payment as a condition. The facts in s. 173 were established on the evidence and by the appellant’s breaches of his s. 158 disclosure obligations and by his previous bankruptcy. He could not have been granted a discharge save on terms. There is wide discretion given to the application judge to establish those terms. We see no reason to interfere with the exercise of that discretion.

[14] The letters that were sent by the Trustee to the application judge should have been copied to the appellant or his counsel. There should be no ex parte communication with the court. It was improper for the Trustee to do so. However, here there was no miscarriage of justice or prejudice. The information and documentation contained in the correspondence were already known to the appellant and in his possession.

[15] The appellant sought to submit fresh evidence on consent of the respondent that the Trustee now accepts the validity of the second mortgage on the appellant’s home. We see no relevance to this evidence. Given the findings of the application judge, it could not have affected the result.

[16] The appeal is dismissed with costs to the respondent in the amount of $10,000 inclusive of HST and disbursements. These costs are to be payable as a debt post-bankruptcy.

“M.L. Benotto J.A.”

“B. Miller J.A.”

“J. Copeland J.A.”