SUPERIOR COURT OF JUSTICE

IN BANKRUPTCY AND INSOLVENCY

ESTATE NO.: 31-1597261
HEARD: 20130920
RELEASED: 20131004

In the Matter of the Bankruptcy of

ANTONIO GIOVANNI SAVOIA

of the Town of Barrie, in the

Province of Ontario

APPEARANCES:
Antonio Savoia - the Bankrupt

Martin Sole - Trustee in Bankruptcy fax 416-391-2285

Rosa Savoia - Opposing Creditor

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

HEARD: September 20, 2013

REASONS FOR DECISION

I. Contested Discharge

[1] This is another case highlighting the difficulties that can be encountered as a result of the interaction of the bankruptcy regime with the family law legal labyrinth.

[2] The Bankrupt’s former wife opposes the bankrupt’s discharge on the basis that the bankrupt failed to disclose his true income during their matrimonial litigation. Now, the bankrupt reports that he is earning substantially less than his income that was being generated from the hair styling business he was operating prior to his bankruptcy.

II. Overview

[3] Following the date of separation of January 25, 2010 the bankrupt commenced divorce proceedings in Barrie against his then wife. Interim orders were made with respect to support and production of financial information etc.

[4] In December of 2011 the Applicant husband was ordered to make interim child support payments monthly on and after January 1, 2012.

[5] By Order dated January 18, 2012, Madam Justice Eberhard fixed the applicant’s 2010 income at $225,000 and his wife’s at $17,362. As a result the applicant was ordered to pay spousal support in the amount of $1900 per month starting January 15, 2012. The couple had three children who resided with the wife. As a consequence, child support in the further amount of $2109 monthly was ordered at that time. The Order was directed to be enforced by the Director of the Family Responsibility Office (“FRO”).

[6] Due to a failure by the husband to produce documentation or otherwise comply with timelines and directions of the court, Mr. Justice McCarthy on February 16, 2012 struck the Application of the applicant and indicated that the respondent could proceed to obtain a default judgment. Ultimately the Court granted a divorce with the wife having sole custody of the children together with ancillary relief.

[7] As well, Justice Eberhard on February 22nd 2012 awarded costs to the bankrupt’s spouse, who is the opposing creditor on the discharge application before me. Her Honour’s costs awards included one element in the amount of $25,000, “all-in, enforceable in like manner as support.”

[8] On February 29th, 2012, a week after the family law order was made, Mr. Savoia filed for personal bankruptcy.

[9] The Proof of Claim filed by FRO dated October 24, 2012 reflected an outstanding balance of $120,618.59, made up of a number of elements including arrears of periodic payments, interest on those arrears, a lump sum support amount and unpaid court costs.

[10] The evidence of the trustee some 11 months later, at the hearing before me, suggested that the current FRO balance outstanding is more in the order of $160,000 at this time.

III. The Issue

[11] The bankrupt’s former spouse retained a forensic auditor during the course of the family law matter to address large amounts of unreported income. The bankrupt is a skilled barber and has been in that business for a lengthy period of time. The evidence contained in the forensic auditor’s report suggests that a large portion of the business was done on cash basis and that some of that cash income had not been disclosed by the bankrupt to his spouse or in his original family court filings.

[12] The failure to rebut that report led to the support awards set out above. Mrs Savoia continues to question whether or not the bankrupt is still failing to properly disclose his full current income and assets.

[13] Conversely the bankrupt asserts that since 50% of any wages he earns are being garnisheed by FRO he is making full and proper disclosure. Moreover, his sworn evidence was that he is now working as an employee rather than running his own business. Thus he asserts that because of the involvement of his new employer in the reporting process this court can rely upon the much lower monthly income amounts now reported.

IV. Statutory Provisions

[14] Under section 172 of the BIA on the hearing of an application of a bankrupt for a discharge the court may :

(a) grant or refuse an absolute order of discharge;

(b) suspend the operation of an absolute order of discharge for a specified time; or

(c) grant an order of discharge subject to any terms or conditions with respect to any earnings or income that may afterwards become due to the bankrupt or with respect to the bankrupt’s after-acquired property.

[15] Section 172 (2) provides that the court shall, on proof of any of the facts referred to in section 173 :

(a) refuse the discharge of a bankrupt;

(b) suspend the discharge for such period as the court thinks proper; or

(c) require the bankrupt, as a condition of his discharge, to perform such acts, pay such moneys, consent to such judgments or comply with such other terms as the court may direct. [my emphasis throughout]

[16] Thus, I am required to examine the applicability of various grounds enumerated in section 173 of the BIA. The types of facts which may be applicable in this situation include:

(a) the assets of the bankrupt are not of a value equal to fifty cents on the dollar on the amount of the bankrupt’s unsecured liabilities, unless the bankrupt satisfies the court that the fact that the assets are not of a value equal to fifty cents on the dollar on the amount of the bankrupt’s unsecured liabilities has arisen from circumstances for which the bankrupt cannot justly be held responsible;

(b) the bankrupt has omitted to keep such books of account as are usual and proper in the business carried on by the bankrupt and as sufficiently disclose the business transactions and financial position of the bankrupt …;

(c) the bankrupt has continued to trade after becoming aware of being insolvent;

(d) the bankrupt has failed to account satisfactorily for any loss of assets or for any deficiency of assets to meet the bankrupt’s liabilities;

(f) the bankrupt has put any of the bankrupt’s creditors to unnecessary expense by a frivolous or vexatious defence to any action properly brought against the bankrupt;

(g) the bankrupt has, within the period beginning on the day that is three months before the date of the initial bankruptcy event and ending on the date of the bankruptcy, both dates included, incurred unjustifiable expense by bringing a frivolous or vexatious action.

[17] Consideration needs to be given to the impact of Section 178 of the Bankruptcy and Insolvency Act which reads in part:

(1) An order of discharge does not release the bankrupt from…

(b) any debt or liability for alimony or alimentary pension;

(c) any debt or liability arising under a judicial decision establishing affiliation or respecting support or maintenance, or under an agreement for maintenance and support of a spouse...;

[18] It is clear that section 178 provides that liability for court-ordered support obligations survives a discharge from bankruptcy. That being the case, what role is a Registrar to play in addressing the discharge of a bankrupt in such circumstances?

[19] In this case the trustee originally did not set out any particular grounds of opposition to the husband’s discharge. The evidence before me suggested that there were reasons to question the manner in which the business operated by the husband, prior to his bankruptcy (through a wholly-owned corporation) was disposed of apparently for no consideration.

[20] The trustee suggested in argument before me that this fact ought to be taken into account in my determination of an appropriate basis for a discharge, if one was to be granted at all. I note in passing that in the materials filed prior to the hearing there was no indication of any surplus income liability ever having been established since the original filing for bankruptcy.

V. Legal Fees of Bankrupt

[21] During his examination before me the bankrupt acknowledge that his own legal costs in the family matters had been in excess of $50,000. Given that the Application ultimately proceeded without his involvement it would seem that these fees were largely wasted and certainly did not benefit his wife and children.

[22] Given that his application in the family division was struck by the Family Court, it would seem that this husband’s litigation strategy gave rise to unjustifiable expenses which in the overall picture could be seen as the bringing of a “vexatious” action by him.

[23] His contesting of the support amounts did result in a substantial cost award against him which has not been paid and has been added to his support obligations.

[24] All litigation is to an extent a gamble. In this case the husband’s gamble was lost.

[25] The bankrupt was able to find over $50,000 to pay lawyers. He now seeks his discharge.

[26] I believe that he is in a position to generate a greater income that is presently the case. Relatives have assisted him in the past and may well be in a position to do so again.

[27] He will able to he will be able to do so on a more productive basis if he no longer has to deal with a trustee in bankruptcy and this order is intended to give him a pathway to achieve that result.

[28] In establishing conditions for Mr Savoia’s discharge, I am in part seeking to reduce the substantial arrears that have been generated by virtual of his failure to make the full required monthly payments on account of support to date.

[29] I’m advised that by virtue of his reduced income and the fact that one year has elapsed since the initial Support Order, a hearing to vary this on-going support is scheduled to be heard later this year.

[30] I suspect that the judicial officer dealing with that application will take into account whether or not Mr. Savoia has made the payment outlined below, towards his indebtedness to his spouse.

VI. Disposition

[31] Mrs Savoia appeared on this application without counsel. She demonstrated a mastery of the materials from the family law dispute and was great assistance in providing me with an outline of the material facts. This has been a highly acrimonious divorce. Both parties want to get on with their lives. Mr. Savoia wants to rebuild a relationship with his children. I hope a prompt payment to the trustee of the monies directed in these reasons to the credit of the FRO indebtedness will ameliorate the situation.

[32] I believe in such circumstances it is reasonable to establish a requirement that he pay a lump sum of $25,000 to the trustee in trust to be credited against his presently existing FRO balance. I am utilizing the powers contained in Section 172(2) (c) to direct the trustee to take such steps as necessary to ensure that the full amount of this payment is transferred to the appropriate FRO account.

[33] To be clear, this payment is to be credited to arrears and not to be treated as a current payment on account of on-going support obligations.

[34] In light of the various section 173 violations indicated by the facts in this case, the bankrupt’s discharge will be suspended for a period of one month, to run consecutively from the date of payment of the $25,000 amount to the trustee on account of the FRO indebtedness.

Master D. E. Short
Registrar in Bankruptcy

October 4, 2013

DS/ B. 22