SUPERIOR COURT OF JUSTICE

IN BANKRUPTCY AND INSOLVENCY

ESTATE NO.: 32-1493892
HEARD: 20120404
RELEASED: 20130422

In the Matter of the Bankruptcy of Muhammad Moshin Siddiqui of the
City of Brampton, in the Regional Municipality of Peel, in the
Province of Ontario

APPEARANCES:
Ralph Culp Fax: 905-566-0117
-Trustee

James Satin Fax: 416-449-7071
-for Royal Bank of Canada,
(opposing creditor)

The Bankrupt in person

BEFORE: MASTER D. E. SHORT,
Registrar in Bankruptcy

HEARD: April 4, 2012

REASONS FOR DECISIOn

"Ah, but man's reach should exceed his grasp or what are the heavens for?"

-Robert Browning

I. Background

[1] Muhammad Moshin Siddiqui (the “Bankrupt”) made an application for his discharge from bankruptcy pursuant to the provisions of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (“BIA”) having filed for bankruptcy on May 4, 2011. At the time of his bankruptcy his employment was described as pizza maker (part-time).

[2] Mr. Siddiqui was born in August 1986. In 2005, following his completion of high school in Ontario, he worked his way up to an assistant manager position at a MacDonald’s restaurant; but he had much higher hopes for his future.

[3] When he was still 18 years old, he enrolled for the spring semester at a Caribbean school known as All Saints University School of Medicine.

[4] While that institution had an office located in Ontario, the main teaching facility was ultimately located on the Caribbean island of Dominica.

[5] At his discharge hearing Mr. Siddiqui made it clear that he had wanted to become a medical doctor from an early age. When he graduated high school in Ontario his grades made it difficult for him to gain admission to a number of universities in Canada, which he had hoped to attend.

[6] An option that he discovered was that he could go to the Caribbean and take the “basic sciences” as part of a pre-med program offered by All Saints.

[7] At the time of his enrolment he apparently was advised of the possible availability of financing from the Royal Bank of Canada for his education at All Saints.

[8] While this matter was under reserve, I dealt with the application for discharge of another borrower from the Royal Bank who also had attended All Saints. Based on information provided during that hearing it would seem the bank had developed a separate program (unconnected to Government insured student loan programs) to assist students taking programmes leading to professional degrees in professional fields such as law and medicine.

[9] This would seem to be what was offered by the bank to Mr Siddiqui. The Bank’s printed “Royal Credit Line Agreement For Students” form of loan agreement provided to him by his branch, set out an “initial credit limit”. The extent of the funding commitment agreed to by the Bank gives rise to concern. Particularly as the Bank is now the only creditor opposing the discharge of Mr Siddiqui

[10] The agreement signed by him, 18 days after his 19th birthday reads in part :

“Date: 23 Aug 2005

In this agreement, you and your mean each customer who signs this Agreement. We, our and us mean Royal Bank of Canada, the lender.

1. Your credit limit

Your initial credit limit is $150,000.00. [sic] This is the maximum amount you can borrow under this line of credit. You agree that we may change your credit limit whenever we choose.

Every time you use your Royal Credit Line for Students, the amount of money available to you decreases. We calculate how much is available by deducting the amount you owe from your credit limit. Each month, on your statement, we’ll show your credit limit and let you know how much money is available on the date of your statement.

We can refuse to let you borrow any amounts on your Royal Credit Line for Students that would cause you to exceed your credit limit. However, if we let you borrow more than your credit limit, you are responsible for and must pay on demand the amount that exceeds your credit limit.

3. Charging you interest

We charge you interest on all amounts you borrow on your line of credit, and on all overdue interest. So long as you are a student in attendance at an accredited post-secondary educational institution, we charge you interest at a rate of our Prime Rate plus 1%.

Our Prime Rate is the annual rate of interest announced from time to time by us as a reference rate then in effect for determining interest rates on Canadian dollar commercial loans in Canada.

You agree that, once you are no longer a student at an accredited post-secondary educational institution, we may change the interest rate that we charge you on all unpaid amounts but in no event will the new interest rate exceed our Prime Rate plus five percent (5%) per year.

[11] Later in the document, under the heading “Making payments”, the following points are included:

“You must pay any amount owing that is more than your credit limit as soon as you are advised or are aware that you have exceeded your limit.

At any time, if we ask you, you must pay us the total amount you owe on your Royal Credit Line for Students.”

[12] There would appear to be no restriction in the document on what uses were made by the borrower of the funds. In this case Mr. Siddiqui acknowledges that he used the funds for tuition, travel, textbooks, room and board, examination preparation organization fees, examination fees and other costs related to his both attending school. As well funds were used to meet his living expenses during his preparation for the examinations that he had to be successfully complete in order for him to practice in either the United States or Canada following graduation from a “foreign” medical school.

[13] He also acknowledged that he used some of the funds to establish a carpet cleaning business with which he hoped to generate funds to cover the cost of his education over and above the $150,000 owed on his existing line of credit.

[14] He acknowledges having used other credit cards, as well, in an endeavour to fund his business and promotion.

[15] On his cross examination by the Bank’s counsel he described what he was doing in the following terms:

“...trying to get machineries and trying to make it more professional. Trying to you know, so I can get more customers because there were was times in the past when I was doing it, I was renting machines. When I was first started I was renting machines and… Some customers didn’t like it, they were like, all we can do it on our own, these kind of things so why don’t you do something professional so I was looking into that and then purchase some machineries. And a lot of what you call it the detergents and the liquids, the formulas to clean the carpet and stuff like that.”

[16] The creditor enquired as to the reason the bankrupt was in Brampton at the time he was reaching the limit on his line of credit. He replied:

“That’s when I was trying to study really hard for the exam, and what of my buddy came from California as well. So we were sharing an apartment building in Brampton. And that’s where a lot of money I would think went. Because rent the car, groceries. I wasn’t living with my parents at the time.”

[17] He also indicates that the balance of the line was being used to service the interest that was accruing on it monthly. That of course fluctuated with the Royal Bank prime rate but he indicates that it sometimes he was paying up to $400 on account of monthly interest particularly as the balance continued to grow.

[18] He also acknowledged that (not unlike many young men) he was gambling on occasion. However, on his examination he told counsel for the Bank that as of December 2010 he had stopped gambling as a result of a New Year’s resolution to get that element of his life under control. I do not find gambling as a factor contributing to this bankruptcy.

[19] The carpet cleaning business he established then suffered a reversal when the bankrupt was involved in a car accident. He described an occasion when there was black ice on the road and the driver in front of him slammed on the brakes at a yellow light. As he could not afford collision insurance he had no insurance for the damage to his vehicle and as a consequence was obliged to write off his car.

[20] More importantly for these purposes, he injured his back such that he could no longer move the carpet cleaning equipment on his own.

II. More History

[21] The opposing creditor, the Royal Bank of Canada conducted an examination pursuant to section 163 (1) of the BIA to obtain information about his finances in matters relating to his bankruptcy. On that examination counsel for the bank asked that since he had started at All Saints in the summer of in the spring of 2005:

“And does that mean … according to the standard schedule you would have graduated in 2009?”

[22] The answers given on the bankrupt’s 2011 examination clearly demonstrate the lack of a meeting of the minds between the bank and its borrower. The exchange with Mr. Siddiqui that follows from the above question reads as follows:

A. No because it had the pre-med program in as well, which was four semester, pre-med. Then basic sciences and then clinical rotations were another four-year so all that includes to be six, approximately 6 years I would say from the time started. So my graduation would have been the end of this year middle of this year [ i.e. 2011]

Q. And obviously you left prior to December 2008 when you started your own business?

A. That’s correct.

Q. When did you leave the program?

A. Well I didn’t leave the program. It was more like I started studying for this board exam for United States, medical licensing exam which is called USMLE step one. I was preparing for it and like it’s worth writing that first and then starting your next part of the program, which is clinical rotation. So basically I wanted to get that over with first, that exam. So I spent a lot of time in that study while doing my job or whatever, right, part-time. And then I did write it once I didn’t succeed it in that exam

Q. Do you remember when that was?

A. I think of fact I have the date which I booked exam- actually maybe…it was in 2009 March. That’s when I made the payment so most likely I think it was August of 2009 or something.

[23] The specific ground noted in the Notice of Intended Opposition, filed by the Bank, asserts three grounds:

a) the assets of the bankrupt not have a value of $.50 on the dollar of his liabilities and there is no reason why the bankrupt should not be held liable for the same;

b) the bankrupt borrowed money from Royal Bank of Canada to finance his education to become a doctor. The expectation was that he would pursue his medical degree with the funds, graduate with significant debt and then repay the same. The bankrupt did not use the said funds to finance his medical education, but rather used a portion of the funds to fund his carpet cleaning business.

c) the bankrupt has brought on or contributed to his bankruptcy by gambling. [my emphasis]

[24] A portion of the examination by the bank which reviewed the history of the carpet business reads as follows:

Q. So while you were operating the carpet cleaning company, you were also studying for the Board exam?

A. Yes. Yes, correct.

Q. So I’m sorry I interrupted you. You said you were going to write the Board exam, and then you didn’t pass it?

A. Yea I did write it and I didn’t pass it. It was such a disappointment because it was a $1,000.00 exam. Before that actually what happened was I booked the date, I paid the $1,000.00, and then when I was studying for it, I realised that, you know, it was going to take me longer but I already paid it. And the time frame you have to write it in is six months. So I couldn’t study for it in time and basically my $1,000.00 got in the drain, down the drain.

MR. SATIN: Right.

So then I had to pay again and go through the process again, this was my second time paying it. And then I didn’t pass this time. So it was such a disappointment, I was like, I need a lot more time I think. So since then I’ve been basically part time working, part time studying and like you know, still trying to do something, but financially not stable. That’s why I’m here. So—

Q. So –sorry- so you’re still trying to write the exam?

A. Yeah, and I’m still studying for it on the side. I’m still studying for it was I get time. And you know, criterias have been changing, they even increased the passing marks. The passing score has been increased from the time I wrote it last, so now I have to even study harder and stuff.

Q. So what stage did you get to in terms of the medical school?

A. I finished the pre-med and the basic sciences.

MR. SATIN: Okay.

And I’ve done one semester of clinical rotations.

[25] Regrettably, there is no evidence that there is any realistic prospect that Mr. Siddiqui will ever complete medical school. His hard work and studying have not resulted in his being able to come close to the standards established for being entitled to practice medicine in either the United States or Canada.

[26] He may ultimately be able to put his learning to some working in some health related discipline, but it is hard to see how he would ever earn an income from those endeavours that would approximate that upon which finance his education to become a doctor. The expectation was that he would pursue his medical degree with the funds, graduate with significant debt and then repay the same was, in my view, based on a faulty premise that he had already met the qualifications necessary to be admitted to and complete the regular medical program school rather than the pre-med program.

III. Another Case

[27] Counsel for the Royal Bank relies upon a decision of Registrar Nettie in 2006 which also involved a $150,000 lien if credit from that bank to a medical student, Re Ament, found at 2006 30583 (ON SC), 24 C.B.R. (5th) 284; 151 A.C.W.S. (3d) 358; 2006 CarswellOnt 5376.

[28] While the fact situation in that case bore some similarities to Mr. Siddiqui case, there are important differences. I have emphasized some of those matters that I find noteworthy in the case extracts that follow:

3 The Bankrupt is a 25-year-old medical student. He is single, and has no dependents. He is unemployed, and poised to enter his fourth, and final, year of medical studies at Columbus University, in the United States of America. He has every reason to expect to graduate next year with the degree of Doctor of Medicine.

[29] The Registrar’s analysis points out:

9 In determining the appropriate disposition, I must bear in mind what have become the three touchstones of any discharge Court - the need of an honest but unfortunate debtor for a fresh start, freed from the crushing burdens of her debt; the prima facie right of the creditors to be repaid; and the need for the public to have confidence in the insolvency system and to view the disposition in a way consistent with the integrity of that system.

10 It is clear that the Bankrupt has no present income or ability to make payments, under the Superintendent's guidelines or otherwise, to his creditors. However, it is equally clear that the Bankrupt may reasonably expect to have significant earning potential in the years to come, utilizing his medical education. In fact, not only is it reasonable for him to expect this, but both RBC and the US lender have lent on this basis. Nothing in the evidence detracts from the obvious conclusion that RBC, in particular, lent its funds to the Bankrupt not on the basis of his present ability to pay, but on the basis of his expected future ability to pay, and I so find.

11 It is equally clear that nothing has changed in the expectation of the parties. There have been no unfortunate circumstances or changes of plans such that the Bankrupt no longer could expect to repay his debt upon graduation from medical school and entry into his profession of choice. The closest that one could come to viewing anything herein as constituting a change in circumstances would be the lavish spending and the gambling. However, as the Bankrupt is a well-educated and intelligent individual, I am hard pressed to excuse him from the consequences of those choices, or to conclude other than that he must have expected to repay those amounts, particularly the lavish spending amounts, from his future medical income. Even if I were to find that the gambling was done without any hope of repaying, I would be hard pressed on the authorities to not require a significant amount of it to be repaid as a condition of discharge.

[30] The Registrar considered other similar education line of credit cases, Re Coffey, 2004 NLSCTD 22, [2004] N.J. No. 43 (Nfld. and Lab. S.C.-T.D.) and Re Korenic, 2005 CarswellOnt 3523 (S.C.O.). He found them both applicable to the facts at bar before him. His discussion of those cases again highlights what I regard as distinguishing circumstances:

14 Here, as in Coffey, one finds a medical student who seeks out private financing for his medical education, and then seeks to avoid repayment of same through bankruptcy. I find, in the case at bar, that, as in Coffey, nothing has changed for the Bankrupt. He admitted on the stand that he expected to graduate from medical school heavily burdened by debt, and to repay it from future earnings. Nothing has changed, other than his now desire to shed that debt. Admittedly it will be more than he initially bargained for, but entirely for reasons of his own doing, and not as a result of any unexpected event or change of fortunes. To quote from Registrar Funduk in Re Saunders, 2001 ABQB 538, [2001] A.J. No. 852, at para. 16: "It is not the purpose of the B.I.A. to let people get something for nothing. There is no misfortune here."

15 The case at bar also presents the issue, discussed in both Coffey and Korenic, of the bankrupt who has obtained a long term enduring asset, which by law vests in the trustee, but which cannot easily be realized upon except by the bankrupt - an education. How best can such an asset be realized upon for the benefit of the creditors, especially in cases where the bulk of the creditors are the very parties who financed its acquisition? After all, the fact that such an asset would be acquired and would have future value is precisely what enticed both RBC and the US lender to lend in the first place. It would be offensive to commercial morality and, in my view, call the integrity of the insolvency system into question if this asset were not realized upon for the benefit of the creditors.

16 The only way to effect such a realization is to impose as a condition of discharge the repayment of an amount which reflects this value. In the case at bar, that would seem to be the amount owed to the opposing creditor, RBC, on its student credit line. While I have considered a reduction from this amount equal to some portion of the amounts gambled and spent lavishly, I am not convinced that to do so would not impugn the integrity of the insolvency system. Gambling in a hopeless attempt to restore one's financial footing and spending in a lavish manner on personal wants with creditors' money are not activities to be rewarded or condoned by a discharge Court. Accordingly, I do not find it appropriate to find other than that all amounts owing to RBC ought to be the subject of a conditional discharge order herein. I have considered the submission of the trustee that the payment condition be set at 50 cents on the dollar of proved claims. While, if the US lender proves a claim, the amounts may be roughly equal in any event, I find that the principle to be enunciated here is that the Bankrupt ought to pay what he bargained to pay, which is the amount owed to the opposing creditor, RBC. It may come to pass that no other creditors prove a claim, given the references in the evidence to a guarantee by the parents of the US lender's debt.

[31] Based on the foregoing reasoning the Registrar made this order:

17 Accordingly, the Bankrupt's discharge is granted on condition that he pay to the Trustee the sum of $150,000.00. As the evidence indicated that the Bankrupt expects to be working come the end of this next school year, albeit at only US $35,000.00 - US $40,000.00 per year, I find it appropriate that repayment start as soon as possible after graduation.

IV. A Grasp Exceeded

[32] Based on the foregoing narrative the juxtaposition of two currently little used words came to mind. The first was “gumption”. The online definition includes

1. initiative; aggressiveness; resourcefulness
2. courage; spunk; guts:

[33] This term from the 1700’s aptly describes the bankrupt. He had a goal and tried valiantly to reach it. He has not given up but I am not optimistic that he will ever have an income as a result of his medical education to date, that would allow him to make any meaningful payment towards the bank debt

[34] Even rarer, is “gobsmacked” which is not a term that is likely to show up in many decisions:

“Gobsmacked combines the northern English and Scottish slang term gob, mouth, with the verb smack. It suggests the speaker is utterly astonished or astounded. It’s much stronger than just being surprised; it’s used for something that leaves you speechless, or otherwise stops you dead in your tracks.”

http://www.worldwidewords.org/qa/qa-gob1.htm

[35] Nevertheless I confess to having been gobsmacked to learn that Canada’s largest bank was prepared to grant to enter into an agreement, on one of their standard forms, with this teenaged, high school graduate, agreeing to loan him up to $150,000 Canadian dollars on a totally unsecured basis. Particularly where it is now clear that at the time the loan was granted he had yet to gain admission to the medical school program but rather he was at the pre-med stage. The document had to restrictions on the use of the funds.

[36] That the bankrupt sought to use some of the funds to find a way to finance the balance of his education, in my view, does not merit the disapproval urged by counsel to the lender.

[37] In contrast to Registrar Funduk’s comment in Re Saunders, I find there was both misfortune and misunderstanding here.

[38] A more careful loan underwriting review might have avoided these problems for both parties.

V. Disposition

[39] The trustee did not oppose the granting of a discharge to the bankrupt discharge. The Bank sought a significant recovery either by way of a consent to judgment or otherwise.

[40] The bankrupt basically failed in two different commercial ventures. The first the bank clearly agreed to undertake in the mistaken belief that their teenaged borrower, having qualified for “medical school”, was likely to successfully complete it. As a co-adventurer, can the Bank now properly seek full recovery when the venture fails? I think not.

[41] The carpet cleaning business failed due to circumstances largely beyond the bankrupt’s control.

[42] This was not a typical student loan. When bankrupts seek to avoid traditional student loan liability before be, I consider what value the former students have obtained for their future employment.

[43] Here I think eventually Mr Siddiqui will be able to put his education to some profitable use. That education will clearly have a much lesser value than originally anticipated, but I feel the bankrupt should pay something on account of it.

[44] In all the circumstances I feel 5% of the original line of credit is an appropriate condition for his discharge in this case.

VII. Disposition

[45] Accordingly, the bankrupt is granted a discharge from bankruptcy, conditional upon the sum of $7500, being paid to the trustee. I am not imposing any timetable for that payment.

[46] In the circumstances, I make no order as to costs.

Master D. E. Short
Registrar in Bankruptcy

B. 2

April 22, 2013