ONTARIO
SUPERIOR COURT OF JUSTICE
IN BANKRUPTCY AND INSOLVENCY
Estate No. 31-1440148
Court No. 31-1440148
IN THE MATTER OF the bankruptcy of
BRAD ALLEN WAGNER, of the
City of Barrie, in the County of Simcoe,
in the Province of Ontario
Wilton-siegel J.
[1] Brad Allen Wagner (“Wagner”) seeks an absolute discharge from bankruptcy. The Trustee in bankruptcy, MNP Ltd (the “Trustee”) and the Canada Revenue Agency (“CRA”) oppose an absolute discharge and have proposed terms of a conditional discharge.
[2] Wagner made an assignment in bankruptcy on December 8, 2010. His Statement of Affairs showed a secured debt of $40,000 and unsecured debts totaling $1,761,048.19. His proven liabilities totaled $2,214,641.84. He declared assets having a value of $312,867.02.
[3] It is not disputed that Wagner made a proposal to his creditors in 1997. This was not disclosed in his Statement of Affairs. It is also not disputed that the value of his assets at the date of bankruptcy are less than 50% of the amount of his unsecured liabilities. His bankruptcy was the result principally of the failure of his corporation Ken Kat Corporation (“Ken Kat”), which he says was a consequence of the economic downturn in the automobile industry to which Ken Kat was a supplier. Wagner has not, however, established that the size of his assets relative to his liabilities arose from circumstances for which he cannot justly be held responsible. His argument that the bankruptcy would have been unnecessary if the Bank of Montreal had accepted his proposed settlement does not constitute such circumstances.
[4] Based on the foregoing, the circumstances contemplated by paragraphs 173(1)(a) and (j) of the Bankruptcy and Insolvency Act, R.S.C., 1985, c. B-3 (the “Act”) have been established. Therefore, the provisions of section 172(2) of the Act, and the case law, exclude the possibility of an absolute discharge.
[5] On the other hand, neither the Trustee nor the CRA oppose a conditional discharge. The issue for the Court is therefore the terms of any such discharge. In reaching the determination herein, I have had regard to the following circumstances and considerations.
[6] First, Wagner transferred his home to his wife several months prior to the date of bankruptcy for no consideration. In his Statement of Affairs, he states there was no equity in the property. This was incorrect. The Trustee had to take legal proceedings to recover the property for the estate.
[7] Second, in 2011, Wagner withdrew approximately $125,000 from his RRSPs without advising his former trustee of this action. The Trustee calculates that surplus income totaling $28,033 is owing as a result. Wagner does not dispute the calculation but says that he was advised by his former trustee that no surplus income was owed. It is, however, clear that he did not advise his former trustee of his withdrawals so that any conclusion of the former trustee did not address any surplus income arising on the withdrawals.
[8] Thirdly, Wagner received a loan from his father of $19,000 which was placed in an account of a numbered company of which his daughter was stated to be the sole shareholder. Wagner had complete control over these monies as the sole director of the corporation. All of the monies were paid to him for living expenses. He did not tell the Trustee of this account. The Trustee learned of this account from third parties.
[9] Fourth, in November 2011, Wagner arrived at his former home, in which his ex-wife resided at the time, with certain other persons and removed equipment from the garage which was then placed in storage with a third party transportation company. Wagner did not disclose this equipment in his Statement of Affairs, claiming that he believed it to be exempt as tools of his trade as an industrial machinist. While Wagner has such a qualification, there is no evidence that Wagner has pursued such a trade in the period before or after the bankruptcy. While he refers to the equipment’s use in connection with a proposed project in 2008, there is no evidence of its use since then, or of any intention to use the equipment for such purposes after he took possession of it. It appears the value of these tools has been lost to the estate as the storage company has seized them in payment of outstanding storage charges. It is not an answer to argue that the Trustee should have accepted his offer of $3,000 for the tools when their value substantially exceeded that amount.
[10] In addition, one of the items of equipment was a forklift. While Wagner alleges that he acquired the forklift from Ken Kat before it went into receivership, there is no evidence of the sale. There is, therefore, a reasonable probability, given Wagner’s behavior throughout his bankruptcy, that the forklift remained an asset of Ken Kat at the date of the receivership and was concealed from the receiver.
[11] Fifth, Wagner has substantial unpaid taxes owing to the CRA in respect of the years 1998 to 2000, 2009 and 2010. The principal amount of these taxes is $371,105. Including interest and penalties, the total amount is $921,501.21. His argument is that those taxes are statute barred, which is not the case.
[12] Sixth, Wagner has incurred a post-bankruptcy liability of $23,746 to the CRA, representing unpaid taxes on the withdrawal of the monies from his RRSPs. He blames the Toronto-Dominion Bank for this situation on the basis that he believed they had deducted the full amount of tax that was owed on the withdrawals. There is, however, no evidence that he inquired regarding his tax liability in respect of these withdrawals.
[13] Seventh, on two occasions, Wagner changed his residence without informing the Trustee. He claims he did not know that he was required to do so. The probability is that he did so intentionally for reasons related to his former wife.
[14] Eighth, while Wagner says that he has no means of earning a living, there is no evidence that he has sought employment since the date of his bankruptcy. He has, instead, lived off his RRSPs and loans from family and friends. Apart from the loan from his father, however, he has not provided any details of such loans to the Trustee or the Court.
[15] Based on the foregoing, I conclude that Wagner did not make complete disclosure to his former trustee and to the Trustee in respect of a number of matters. But for disclosure from third parties, a number of matters, including but not limited to the matters described above, would never have come to light. Further, given the absence of evidence of a serious attempt to find employment, the Court cannot accept his position that he has no means of earning an income. Similarly, given his ability to obtain funds from third parties that he alleges are loans, but for which he is unable to account to the Court, the Court cannot accept his statement that he doesn’t know where he can get the funds to pay the amounts sought by the Trustee and the CRA as a term of his discharge. I note that the provisions of section 172(3) of the Act are available to Wagner depending upon his financial circumstances in the future.
[16] Based on the foregoing considerations, Wagner shall be entitled to a conditional discharge on the following terms:
Wagner shall be obligated to pay the amount of $150,000;
Wagner shall be entitled to a discharge from bankruptcy after the payment of $100,000, provided he has filed all tax returns and paid all income taxes assessed thereon at the date of discharge; and
After obtaining his discharge from bankruptcy, Wagner shall be obligated to pay the remaining $50,000 due under the terms of this conditional discharge order by annual payments in each year equal to the amount of 50% of his after-tax income above $25,000 in the preceding calendar year. These payments shall be due by June 30 in each year until such amount is fully satisfied.
Wilton-Siegel J.
Released: August 30, 2013
Estate No. 31-1440148
Court No. 31-1440148
ONTARIO
SUPERIOR COURT OF JUSTICE
IN BANKRUPTCY AND INSOLVENCY
IN THE MATTER OF the bankruptcy of
BRAD ALLEN WAGNER, of the
City of Barrie, in the County of Simcoe,
in the Province of Ontario
REASONS FOR JUDGMENT
WILTON-SIEGEL J.
Released: August 30, 2013