Court File and Parties

Court File No.: BK-09-01174093-0031
Date: 20120113

SUPERIOR COURT OF JUSTICE - ONTARIO

Re: IN THE MATTER OF THE BANKRUPTCY OF ROBERT FREDERICK BYERS, OF THE TOWN OF GEORGINA, IN THE REGIONAL MUNICIPALITY OF YORK, IN THE PROVINCE OF ONTARIO, Applicant

AND COURT FILE NO: 08-CV-351344PD1:

KING INSURANCE FINANCE (WINES) INC., Plaintiff

AND:

1557359 ONTARIO INC. O/A WILLOWDALE AUTOBODY INC., ROBERT FREDERICK BYERS AND ALDA BYERS, Defendants

BEFORE: CUMMING J.

COUNSEL:
A. Kulidjian, for the Applicant, Robert F. Byers

Rod Byrnes, for the Opposing Creditor, King Insurance Finance (Wines) Inc.

Craig Stewart, for the Opposing Creditor, Landmark Leasing

Hans Rizarr for the Trustee Soberman Inc. for the Trustee,

HEARD: May 26, October 3 and 4, 2011, January 9, 10 and 13, 2012

INTERIM ENDORSEMENT

The Motions

[ 1 ] The Bankrupt, Robert Frederick Byers (“Byers” or the “Bankrupt”) made an assignment in bankruptcy on March 2, 2009.

[ 2 ] He seeks a discharge under s. 169 of the Bankruptcy and Insolvency Act (“ BIA ”). The application for discharge was first heard on May 26, 2011, with the hearing continuing October 3 and 4, 2011.

[ 3 ] Given the confusing history relating to this continuing bankruptcy, the Court considers it purposeful to provide this Interim Endorsement. The Court does not make any findings of fact or suggest any conclusions at this point in respect of the application for a discharge from bankruptcy. Rather, because the record and history of factual events is skeletal and piecemeal with ‘bits and pieces’ coming to light only gradually, it is useful to attempt to set forth what may be known to this point.

[ 4 ] Mr. Byers has been bankrupt twice before, with an absolute discharge on June 22, 1984 and a suspended discharge on June 11, 1992.

[ 5 ] The hearing as to the application for a discharge from hearing that had been adjourned on October 4, 2011 reconvened January 9, 2012.

[ 6 ] The history of this proceeding to date indicates the possibility of problematic dealing by the Bankrupt in respect of real properties and monies both within the five year period preceding the bankruptcy, March 2, 2009, and since that date.

[ 7 ] On January 9, 2012, the Court was advised that the creditor, King Insurance Finance (Wines) Inc. (“King”), had requested the Trustee to commence a proceeding that was seen as being for the benefit of the estate of the bankrupt by determining if there were improper preferences or transfers such that the bankrupt’s assets were depleted and recovery could be achieved.

[ 8 ] The Trustee refuses on the basis it has no funds. Discussions took place such that King has determined to seek a Court order pursuant to s. 38 of the BIA authorizing King to take the proceeding in its own name and at its own expense and risk, on notice being given to the other creditors of the contemplated proceeding.

Background

[ 9 ] The Trustee advised at the outset of the discharge hearing on May 26, 2011 that it did not oppose the application for discharge. Two creditors, King and Landmark Vehicle Leasing (“Landmark”) oppose.

[ 10 ] King issued a statement of claim for some $289,714.19 against Mr. Byers and his company, 1557359 Ontario Inc. o/a Willowdale Autobody Inc. in Court File #31-1174093. Newbould J., by an Order dated January 20, 2009, lifted the stay as a result of Mr. Byers’ bankruptcy to the extent of the plaintiff’s claim of $204,055.55 made for alleged fraudulent breach of trust, misuse of money and conversion.

[ 11 ] This resulted in a seven-day trial before Madam Justice L. B. Roberts, who dismissed the plaintiff’s action with Reasons for Decision dated April 26, 2010, with costs against King of $92,994.05. (The claim of King for $85,658.64 for personal loans made to Mr. Byers was not dealt with in that court proceeding and, indeed, remained stayed by Mr. Byers’ bankruptcy.)

[ 12 ] King filed an amended supplementary proof of claim on July 16, 2010, claiming to set off the costs award of $92,994.05 against the $415,706.35 owing under the amended supplementary proof of claim, leaving a balance claimed of $322,712.30.

[ 13 ] The issue as to whether the costs award of $92,994.05 can properly be set off is a discrete issue. Counsel are to schedule a one-half day hearing before me to deal with this issue.

[ 14 ] The total claims filed by creditors in respect of Mr. Byers is about $1,029,000 (see Trustee’s Report dated March 10, 2009). However, the Trustee advised today that the admitted claims are some $853,992, of which King’s claim is $439,148 (Exhibit #11).

[ 15 ] Landmark leased a vehicle to Willowdale Autobody Inc., which operated an auto mechanic shop business carried on by 1557359 Ontario Inc., a corporation controlled by Mr. Byers. Mr. Byers, guarantor of the lessee, claims the vehicle was sold by a manager of the business without Mr. Byers’ consent. The business reportedly closed in January 2008.

[ 16 ] Mr. Byers’ spouse suffered a major stroke in 2006, was paralyzed, hospitalized and in 2007 transferred to a long-term health facility. She was put on short-term disability benefits covered by her former employer’s insurance after her stroke in July 2006 and qualified for long-term disability benefits after her transfer to long-term healthcare. However, as her healthcare costs are not fully covered by her long-term disability benefits, Mr. Byers applied for and received a compassionate loan against her Manulife life insurance policy 851,0532, with a face value of $1,142,500, receiving payments of $100,000 in 2008 and 2009, some $50,000 in 2010 and apparently some $250,000 in 2011.

[ 17 ] The information as to this policy is uncertain as the information in respect thereof has only come forward in a very piecemeal manner. However, it seems that Mr. Byers was the named beneficiary but that at some point the Byers’ children have become the named beneficiaries. It is unclear whether there is an annual premium or the policy is fully paid up and it is uncertain when the policy was first issued (reportedly, February 2006) and who paid the premium.

[ 18 ] The issue as to whether this policy is properly an asset of the bankrupt’s estate is one issue sought to be dealt with through the proposed s. 38 proceeding.

[ 19 ] The Trustee has given notice today that it wishes to investigate the matter of the policy further to determine whether the Trustee might wish to institute a proceeding by the Trustee under s. 30 of the BIA for the benefit of all the creditors. Therefore, the matter of a possible claim by King via s. 38 in respect of the policy shall not be included within the scope of the King s. 38 claim at this time. King shall have the right to add this possible claim to its s. 38 proceeding if the Trustee does not institute a proceeding for the benefit of the creditors generally. The Trustee shall expeditiously determine its position on this matter.

[ 20 ] Mr. Byers has asserted that his bankruptcy stems from the fact he has had extraordinary medical expenses because of his wife’s health problems and because he neglected his business in having to care for his wife with the consequence that it closed.

[ 21 ] In September 2009 (Exhibit #3, B), Mr. Byers chartered a plane at a cost of $23,000 to transport his spouse to Mexico for stem cell transplants in an attempt to help her with her medical condition. Her treatment in Mexico was at a cost of some $57,913.59. The Trustee’s Supplementary report states that this trip, in total, cost some $150,000 with $35,000 being covered by charity events and the balance of $115,000 being realized through the sale of 253 Hedge Road, a property of Ms. Byers but which was transferred to Ms. Byers by Mr. Byers on September 25, 2005.

[ 22 ] In addition, there are caregiver and visa expenses which Mr. Byers states that he has incurred. Ms. Byers’ expenses at West Park Healthcare Centre in Toronto for 2010 were $47,186 (Exhibit #3 Tab 2). It is noted she claims such expenses for the purposes of her income tax return. Mr. Byers also claims (Exhibit #3 Tab 6), for example, that he paid some $26,000 in cash payments for three personal nurses for his wife.

[ 23 ] As the property of the Bankrupt vested with the Trustee upon his assignment in bankruptcy on March 2, 2009 ( ss. 67(1) , 71 BIA ), monies that may have come from Mr. Byers to the benefit of Ms. Byers may in effect have depleted the assets of the Bankrupt’s estate.

[ 24 ] Ms. Byers had declared income for 2010 of $41,799.61 while Mr. Byers claimed $7,232 income in his tax return.

[ 25 ] Mr. Byers says he is impecunious. He says he personally spent a great deal of time with his wife after her stroke such that his car repair business, left with the management of a surrogate on his behalf, declined and was eventually closed. He claims his bankruptcy resulted from the cumulative impact of his wife’s medical expenses coupled with his failed business. He claims that he does not have other than nominal assets.

[ 26 ] The Motion Records and Reports of the Trustee indicate that Mr. Byers had a number of real estate properties. The evidence in respect of these properties lacks organization and clarity and is somewhat scrambled; however, my reading of the evidence suggests the following.

253 Hedge Road

[ 27 ] Mr. Byers and his wife purchased 253 Hedge Road (Exhibit #3 Tab F) on March 11, 2005 for $580,000. The statement of adjustments for the purchase indicates they contributed $128,914 of the purchase price.

[ 28 ] Mr. Byers and his wife jointly held this property but he transferred his interest in this property to his wife on September 25, 2005. This transfer raises the possible issue of a settlement within five years of the bankruptcy which might be challengeable by the Trustee under s. 91(2) of the BIA . In 2007, Mr. Byers, utilizing a power of attorney he held from his wife, took out a secured line of credit for $220,000 which he says went towards his business.

[ 29 ] Mr. Byers then sold the property on August 18, 2009 via the power of attorney he held from his wife for some $780,000 with $180,500 paid out to the vendor upon closing. The Bankrupt reportedly says that he used these funds toward his wife’s medical expenses and expenses in respect of his 24 year old son.

95 Hedge Road

[ 30 ] Ms. Byers reportedly sold 95 Hedge Road on March 11, 2005 with the balance due on closing of $86,433.39 reportedly being transferred toward the purchase of 253 Hedge Road.

14 Melton Grove Street, North York

[ 31 ] The land register for this property indicates it was purchased by Mr. and Mrs. Byers jointly in 2003 and Mr. Byers then transferred his interest to his wife on January 10, 2005. It was sold on April 30, 2007, apparently via a power of attorney in favour of Mr. Byers, for $875,000. On closing, Mr. Byers’ real estate lawyer forwarded $167,925.10 to Soskin, Soskin & Potasky, in trust, being solicitors for the Bank of Montreal, a judgment creditor of Mr. Byers.

1105 Leslie Street

[ 32 ] Mr. Byers sold this property on July 24, 2008 for $480,000 with some $61,943.65 paid to Mr. Byers on closing which, Mr. Byers states, was used for living expenses and his wife’s medical expenses.

38 Devondale Avenue

[ 33 ] This property was purchased by Mr. Byers on October 4, 2006 for a sale price of $390.000. Mr. Byers apparently forwarded $106,900 of his own funds toward the purchase price. A trust declaration dated September 29, 2006 states that he held the property in trust for his two children.

[ 34 ] Mr. Byers sold the property on July 8, 2009 to Glenn Armstrong. It seems that there were not any net proceeds from the sale. However, reportedly a mortgage had been placed on the property some 10 days after the bankruptcy in favour of an RRSP of Mr. Byers. Another mortgage for some $43,200 was held by B2B Trust.

79 Hedge Road

[ 35 ] On November 9, 2007 (Exhibit #3 Tab E), Mr. Byers purchased 79 Hedge Road for $515,000 with an apparent contribution of $64,196.81 from his own funds.

[ 36 ] This property was sold on July 24, 2009 under power of sale by the first mortgagee, with $90,884.86 being made payable by Mr. Byers’ real estate lawyers to Kulidjian & Associates, the law firm acting for him in his bankruptcy proceeding.

Conclusion

[ 37 ] An order was granted on January 10, 2012 on the initiative of King, on consent by all affected parties, whereby without further order of the Court, no further advances shall be taken from the Manulife policy.

[ 38 ] In my view, the requested s. 38 proceeding by King is purposeful. It apparently offers the only hope for any recovery by the Bankrupt’s creditors.

[ 39 ] It is a term and condition of giving authorization for the proceeding that the Trustee and King by notice provide all relevant particulars to the creditors of the Bankrupt as to the history of this matter (including whether there have been any discussions with Ms. Byers and/or Mr. Byers as to any possible settlement of the contemplated s. 38 proceeding).

[ 40 ] As well, the Trustee shall call a meeting of creditors at least 30 days before the expiry of the notice period for creditors to make a decision as to whether they participate in the s. 38 proceeding together with King, for the purpose of discussing the prospects related to the s. 38 proceeding so that each creditor receiving notice of the contemplated proceeding can make an informed decision as to whether or not the creditor wishes to participate together with King in bringing the proceeding.

[ 41 ] It is a further condition of authorizing the proceeding that any settlement of the s. 38 proceeding must have the approval of the court before it has any force and effect.

[ 42 ] The continuation of the hearing in respect of the application for a discharge is adjourned sine die .

CUMMING J.

Date: January 13, 2012