ONTARIO
SUPERIOR COURT OF JUSTICE
IN BANKRUPTCY and INSOLVENCY
COURT FILE NO.: BK-09-1302418
DATE: 20120814
IN THE MATTER OF THE BANKRUPTCY OF
DIETER HARDTKE
OF THE TOWN OF MANOTICK
IN THE PROVINCE OF ONTARIO
BEFORE: Mr. Justice Stanley J. Kershman
HEARD IN OTTAWA: April 25 and June 21, 2012
APPEARANCE:
Ryan Flewelling, counsel for Dieter Hardtke, the Bankrupt
Stéphanie Lauriault, counsel for Canada Revenue Agency
Roch Dupont, Office of the Superintendent of Bankruptcy
reasons for decision
Introduction
[ 1 ] Mr. Dieter Hardtke the Bankrupt applies for a discharge from his bankruptcy. The discharge is opposed by three parties:
- the Attorney General of Canada acting on behalf of the Canada Revenue Agency (“CRA”), Doyle Salewski Inc.,
- the Trustee in Bankruptcy (“Trustee”), and
- the Office of the Superintendent of Bankruptcy (“OSB”).
[ 2 ] The reasons for the opposition are set out later on in the decision.
Factual Background
[ 3 ] The Bankrupt is 59 years of age. He has been a practicing chiropractor since 1978. At present, he practices in the Manotick and Winchester areas. He filed for bankruptcy on December 18, 2009, and Doyle Salewski Inc. was appointed as the Trustee.
[ 4 ] In the Statement of Affairs the Bankrupt says that the cause of his bankruptcy was “tax assessments.”
[ 5 ] The Bankrupt argues that his difficulties arose because he had hired Léo Sabourin (“Mr. Sabourin”) as a tax advisor. Mr. Sabourin was charged, and in 2007, was found guilty of tax evasion and fraud. He was sentenced to four years in jail for fraud and fined $258,005.00. He was also given a one year and two 90‑day jail sentences to be served concurrently for tax evasion.
[ 6 ] Mr. Sabourin was found guilty of fraud relating to the tax returns he prepared, or directed to be prepared, for 115 chiropractic clients from across Ontario for the tax years 1994 to 1999. According to an information bulletin released by the CRA, Mr. Sabourin used a financial plan, on behalf of his clients, to reduce the taxes payable by his chiropractic clients to an extent that no other accountant was able to match. His plan, if allowed, would have permitted his clients to draw significant amounts of income out of their practices tax-free over the course of five to eight years. In addition, it would have allowed the corporations to deduct expenses in the same amounts. For the 115 clients, Mr. Sabourin failed to report over $15 million of income on the clients’ tax returns, resulting in $4.2 million of federal tax evaded by these clients. Under his plan, Mr. Sabourin set up a technical services corporation for each of his clients. He deducted large amounts from the corporation that he did not report on the shareholder’s personal income tax returns. When questioned by the government about the deductions, Mr. Sabourin submitted altered or fabricated documents to substantiate the claims.
[ 7 ] In March 2003, CRA reassessed Mr. Hardtke for taxes found due and owing for the years 1994-2000 and 2002, as follows:
Date of Assessment
Taxation Year
Tax
Penalty and Interest
Total
March 19, 2003
1994
$65,310.64
$114,804.12
$180,114.76
March 19, 2003
1995
$120,115.28
$177,282.78
$297,398.06
March 19, 2003
1996
$56,991.04
$66,489.90
$123,480.94
March 19, 2003
1997
$24,053.43
$25,604.55
$49,657.98
March 19, 2003
1998
$66,583.56
$59,859.67
$126,443.23
March 19, 2003
1999
$29,730.04
$26,235.18
$55,965.22
March 19, 2003
2000
$9,993.53
$8,632.27
$18,625.80
July 10, 2003
2002
$20,747.30
$14,675.50
$35,422.80
May 14, 2010 Order for Costs
$31,837.96
TOTAL
$425,362.78
$493,583.97
$918,946.75
[ 8 ] Mr. Hardtke appealed the assessments to the Tax Court of Canada. After six years of preliminary proceedings, he withdrew his appeals, prior to them being dealt with by the court. On the May 14, 2010, the Court awarded costs of $31,837.96 against Mr. Hardtke, which were included in the bankruptcy.
[ 9 ] In the fall of 2011, the bankrupt was disciplined by the Discipline Committee of the College of Chiropractors of Ontario and received a three-part punishment, which was as follows:
- A fine of $5,000 which the bankrupt said was paid by his wife;
- A form of suspension, which has been completed.
- The requirement to take a gender sensitivity training course, which has been completed.
Oppositions to Discharge
[ 10 ] Three oppositions to discharge were filed.
Opposition to Discharge by the CRA
[ 11 ] The Canada Revenue Agency opposes the discharge of Mr. Hardtke from his bankruptcy pursuant to s. 172.1 of the Bankruptcy and Insolvency Act (“ BIA ”), part of which reads as follows:
Exception – personal income tax debtors
172.1 (1) In the case of a bankrupt who has $200,000 or more of personal income tax debt and whose personal income tax debt represents 75% or more of the bankrupt’s total unsecured proven claims, the hearing of an application for a discharge may not be held before the expiry of
( a ) if the bankrupt has never before been bankrupt under the laws of Canada or of any prescribed jurisdiction,
(i) 9 months after the date of bankruptcy if the bankrupt has not been required to make payments under section 68 to the estate of the bankrupt at any time during those 9 months, or
(ii) 21 months after the date of bankruptcy, in any other case;
( b ) if the bankrupt has been a bankrupt one time before under the laws of Canada or of any prescribed jurisdiction,
(i) 24 months after the date of bankruptcy if the bankrupt has not been required to make payments under section 68 to the estate of the bankrupt at any time during those 24 months, or
(ii) 36 months after the date of bankruptcy, in any other case; and
( c ) in the case of any other bankrupt, 36 months after the date of the bankruptcy.
Appointment to be obtained by trustee
(2) Before proceeding to the trustee’s discharge and before the first day that the hearing could be held in respect of a bankrupt referred to in subsection (1), the trustee must, on five days notice to the bankrupt, apply to the court for an appointment for a hearing of the application for the bankrupt’s discharge.
Powers of court to refuse or suspend discharge or grant conditional discharge
(3) On the hearing of an application for a discharge referred to in subsection (1), the court shall, subject to subsection (4),
( a ) refuse the discharge;
( b ) suspend the discharge for any period that the court thinks proper; or
( c ) require the bankrupt, as a condition of his or her discharge, to perform any acts, pay any moneys, consent to any judgments or comply with any other terms that the court may direct.
Factors to be considered
(4) In making a decision in respect of the application, the court must take into account
( a ) the circumstances of the bankrupt at the time the personal income tax debt was incurred;
( b ) the efforts, if any, made by the bankrupt to pay the personal income tax debt;
( c ) whether the bankrupt made payments in respect of other debts while failing to make reasonable efforts to pay the personal income tax debt; and
( d ) the bankrupt’s financial prospects for the future.
[ 12 ] The Attorney General opposes the discharge on the following additional grounds:
The Bankrupt brought on, or contributed to, his bankruptcy by culpable neglect of the Bankrupt’s business affairs, e.g. by failing to report his income and pay taxes for the taxation years 1994 to 2000, and by liquidating his assets prior to filing for bankruptcy.
The Bankrupt’s assets were not of a value equal of 50 cents on the dollar on the amount of the Bankrupt’s unsecured liabilities for reasons which the Bankrupt can justly be held responsible.
[ 13 ] As a condition of his discharge, the CRA seeks to have the capital of the tax debt paid which is approximately $425,000.00, together with the taxed costs of $31,837.96, for a total of approximately $456,837.96.
(Decision continues exactly as provided in the source text…)
Mr. Justice Stanley J. Kershman
Date: August 14, 2012
COURT FILE NO.: BK-09-1302418
DATE: 20120814
ONTARIO SUPERIOR COURT OF JUSTICE IN BANKRUPTCY and INSOLVENCY IN THE MATTER OF THE BANKRUPTCY OF DIETER HARDTKE OF THE TOWN OF MANOTICK IN THE PROVINCE OF ONTARIO BEFORE: Mr. Justice Stanley J. Kershman HEARD IN OTTAWA: April 25 and June 21, 2012 APPEARANCE: Dieter Hardtke, Debtor REASONS FOR DECISION Kershman J.
Released: August 14, 2012