ONTARIO
SUPERIOR COURT OF JUSTICE
IN BANKRUPTCY and INSOLVENCY
COURT FILE NO.: BK-33-1275542
DATE: 2014/10/02
ONTARIO
SUPERIOR COURT OF JUSTICE
IN BANKRUPTCY and INSOLVENCY
IN THE MATTER OF THE BANKRUPTCY OF
KELLY ANN EZARD
CITY OF OTTAWA
IN THE PROVINCE OF ONTARIO
BEFORE: Mr. Justice Stanley J. Kershman
HEARD IN OTTAWA: June 24, 2014 and August 25, 2014
DECISION: Given orally on August 28, 2014
APPEARANCE:
Martin Black, Ginsberg Gingras & Associates Inc, Trustee and bankruptcy in the Estate of Kelly Ann Ezard
Robert Leslie Zgraggen, Self-represented
Kelley Ley (Ezard), Self-represented
Stephen Ley, Self-represented
Rod Vanier, represented by Mr. P. Pooran
reasons for decision
[1] Oral reasons were given on August 28, 2014. The following are the written reasons in which the oral decision is incorporated.
Overview
[2] This matter involves two motions. The first motion is brought by Mr. Zgraggen for various relief contained in his Notice of Motion.
[3] The second motion is brought by the Trustee in the Estate of Kelley Ezard (also known as Kelley Ley) to sell the Trustee’s interest in a single family home at 153 Mojave Crescent, Stittsville, Ontario, to Stephen Ley, for the sum of $25,000.00, failing which the property would be partitioned and sold.
Factual Background
[4] Mr. Zgraggen and Ms. Ley were married to each other and subsequently separated. Ms. Ley filed for bankruptcy with Ginsberg Gingras & Associates Inc. on October 19, 2009. A family law proceeding was commenced. A trial was held on November 30, 2010, which was subsequent to the bankruptcy.
[5] The bankruptcy proceeded through the normal channels. The duration of Ms. Ley’s bankruptcy was increased from nine months to 21 months because of her surplus income requirements. She was granted a conditional discharge on November 16, 2011 by Deputy Registrar Dempster upon the payment of the sum of $2,500.00 to the Trustee. To date, this amount is still outstanding.
[6] Kelley Ley and Stephen Ley executed a cohabitation agreement dated October 3, 2008. The agreement was registered against 153 Mojave on September 29, 2009, three weeks prior to Ms. Ley’s bankruptcy on October 19, 2009, which made Mr. Ley a secured creditor. During the bankruptcy proceedings, the Trustee brought a motion for partition and sale of the Bankrupt’s one‑half interest in 41 Smoketree Crescent. Mr. Zgraggen opposed the motion. The property was eventually ordered to be sold.
[7] Justice Annis heard the Partition Application and other matters over a period of time and issued a Decision with Orders and Directions dated July 21, 2011. The orders of July 21, 2011 are set out on page 21 of that Decision. These orders are as follows:
Orders
The unsecured claim of Mr. Ley is struck from the claims register.
The trustee is directed to inquire and determine the appropriate amount of Mr. Ley’s secured interest in 153 Mojave under the cohabitation agreement effective its date of execution. This determination will not rely on the documentation provided to date in these proceedings, except as relevant to new materials brought forward.
The trustee is further directed to inquire into the relative contributions to the housing expenses of 153 Mojave of the Bankrupt and Mr. Ley after October 3, 2008. In accordance with paragraph 9.2 of the cohabitation agreement, the Bankrupt’s equity shall be credited with any disproportionate contributions she may have made in excess of 50 per cent to the housing expenses up to the date of the assignment in bankruptcy.
Any continuing over-contribution to housing expenses after the assignment should be determined by the trustee and a proposal for treatment of the same provided to the Court.
The Bankrupt and Mr. Ley are to provide the trustee with complete banking records and trust and ledger statements from Mr. Vanier consisting of original computer printouts for 2008 and 2009. If there is confidential information contained in them, they should be provided to me for redaction, after which I will forward them to the trustee.
The trustee is directed to obtain a drive-by valuation effective October 16, 2009 of 153 Mojave similar to that provided by Mr. Blais (Exhibits 5, 10 and 11) for 41 Smoketree.
This evaluation shall be conducted by a realtor from Royal LePage who shall ascertain any changes in the property or other factors that will affect its valuation.
This evaluation shall form the basis for the fair market value of the property, unless challenged by the Bankrupt and Mr. Ley, in which case the matter may be referred to the Court for resolution.
Mr. Vanier’s claim is reduced to $20,000.00, inclusive of disbursements and HST.
The trustee’s interest in the matrimonial home is valued as of the date of the Bankrupt’s assignment in bankruptcy at $362,500.00.
[8] Subsequent thereto, the property at 41 Smoketree Crescent was sold and the Trustee retained one‑half of the net proceeds while the net balance was paid to Mr. Zgraggen less an amount paid on his behalf to RBC on account of a Notice of Garnishment of approximately $43,000.00. In addition, the Trustee was awarded costs of approximately $15,000.00, on a partial indemnity basis, which were payable to the Trustee’s counsel out of Mr. Zgraggen’s share of these net proceeds of 41 Smoketree.
Trustee’s Motion for Sale of the Trustee’s Interest in the Property
[9] The Court will deal with the Trustee’s Motion to sell first.
Trustee’s Position
[10] The Trustee is seeking to have its interest in the property at 153 Mojave Crescent, Stittsville, Ontario, sold to Stephen Ley, for the sum of $25,000.00, closing within 10 business days following the Court’s approval of the sale. In the event that the transaction is to proceed, the following terms and conditions would apply:
That Mr. Ley would not file any amended proof of claim in the bankruptcy and would permanently withdraw all claims, either as a secured and/or an unsecured creditor in the bankruptcy; and
That Mr. Ley would deliver a full and final release on closing, agreeing not to assert any claim against the Trustee, its employees or agents with respect to any matter with respect to the bankruptcy, the property at 153 Mojave Crescent or 41 Smoketree Crescent, Stittsville, Ontario.
[11] The Trustee argues that the sale of its interest to Mr. Ley should be approved for the following reasons:
- There is no way to determine with mathematical precision the value of the Bankrupt’s interest in 153 Mojave, given that:
a) The three opinions regarding value of the home as to the date of bankruptcy range from $288,000.00 to $350,000.00 – a $62,000.00 variance;
b) The amounts contributed by Stephen Ley and Kelley Ley over the relevant period of time cannot be determined due to missing bank records, despite the Trustee’s best efforts, and despite Mr. Ley and the Bankrupt’s efforts to locate them;
c) The nature of liability for various living expenses made by Stephen Ley and Kelley Ley are open to debate; and
d) The cost and timing of selling a one‑half interest in an occupied property to a third party are completely unknown but could result in a significant lower net sale proceeds available to the Bankrupt’s Estate.
Mr. Zgraggen’s Position
[12] Mr. Zgraggen argues that the Trustee’s equity in the property is $40,500.00. He argues that the offer made by Mr. Ley of $25,000.00 is too low.
[13] He made various arguments as to how he got to this figure.
Analysis
[14] The difference between $40,500.00 and $25,000.00 is approximately $15,500.00. Mr. Zgraggen has an admitted unsecured claim of $74,792.00. The total admitted unsecured claims to date are $129,611.00. Mr. Zgraggen’s proportionate share of the admitted unsecured claims is approximately 58 percent.
[15] Fifty-eight percent of the difference between $40,500.00 and $25,000.00 is approximately $8,990.00.
[16] Mr. Black, on behalf of the Trustee, advises that there was no back‑up offer from Mr. Ley so that if the transaction did not go through at $25,000.00, the property would have to be partitioned and sold. The Trustee will only be selling a one‑half interest in a single family property and there will have to be an accounting for the monies spent on the property from the date of the bankruptcy to the date of sale. In the Court’s view, the challenges of finding a buyer for a one‑half interest in a single family dwelling are less than favourable because only one‑half of the interest in the property is available. Furthermore, there is no evidence as to what the ongoing costs of this property have been in the past four and a half years.
[17] What makes Mr. Ley’s offer attractive are the conditions to accepting the offer as previously noted. These conditions are valuable because without them, Mr. Ley could re‑file his previous unsecured claim and/or could amend his secured claim, which could result in litigation as to whether those claims would be allowed or not, thereby taking more time and costing more money.
[18] Furthermore, the Court has no evidence as to the condition of the property. There is no current appraisal of the property for comparables; there are only three drive‑by estimate values by real estate agents, as of October 2009, the date of the bankruptcy, as ordered by Justice Annis in his decision of July 21, 2011.
[19] One of the drive‑by appraisals was done by Mr. John Spagnola on October 4, 2011 who valued the property in October 2009 at between $350,000.00 and $360,000.00 depending on the overall condition of the home. The Court emphasizes the words “depending on the overall condition of the home”.
[20] Therefore, based on the evidence, the Court finds that while the $25,000.00 offer is not optimal, the Court is not prepared to assume that more money will be obtained for the Trustee’s one‑half interest in the property other than what is being offered. The Court has and must take a practical and business‑like view of this matter when analyzing the situation.
[21] The Court is mindful that trying to sell the Trustee’s one‑half interest could possibly yield more money in absolute dollars but the costs involved would also increase making the net return potentially less than $25,000.00. The Court wants to ensure an adequate return to all of the unsecured creditors, including Mr. Zgraggen and the balance of the unsecured creditors. The Court is not prepared to jeopardize the $25,000.00 offer in expectation that a greater return to the Estate may or may not occur.
[22] For those reasons, the Court orders the sale of the Trustee’s interest in the property to Stephen Ley on the following basis:
Mr. Ley is to pay to the Trustee the sum of $25,000.00 within 10 business days of today without any adjustments;
Mr. Ley undertakes in writing not to file any amended proof of claim in the bankruptcy, and will permanently withdraw all claims, secured and unsecured, in the bankruptcy; and
Mr. Ley will deliver a full and final release on closing of the said sale transaction agreeing not to assert any claim against the Trustee, its employees or agents in respect of any matter related to the within bankruptcy, the property 153 Mojave Crescent or the property at 41 Smoketree Crescent, Stittsville, Ontario.
[23] In the event that the aforesaid transaction is not completed, Mr. Ley will not be allowed to file any amended or revised unsecured proof of claim and the Trustee is directed to review Mr. Ley’s secured claim. That is only to occur in the event that the transaction does not close.
Mr. Zgraggen’s Motion
[24] Mr. Zgraggen seeks the following relief in his motion claiming that:
Kelley Ley, Stephen Ley and Rod Vanier committed fraud and criminal activity;
Proceedings should be initiated to prosecute Kelley Ley, Stephen Ley and Rod Vanier for criminal and/or other offences that they committed;
Stephen Ley and Kelley Ley should be ordered to comply with various parts of the Reasons for Decision of Justice Annis dated July 21, 2011;
The Trustee should be required to comply with various matters set out in Annis J.’s decision of July 21, 2011;
The Trustee should recalculate its equity in 153 Mojave based on Mr. Zgraggen’s calculations;
Mr. Zgraggen should be entitled to financial compensation for losses incurred by the fraud of Stephen Ley, Kelley Ley and Rod Vanier;
The assignment of Kelley Ley into bankruptcy should be annulled and that her assets vest from the Trustee to himself;
The equity in 153 Mojave should be paid by Kelley Ley within 30 days or that the property be sold;
The costs of the motion to be paid by either the Trustee and/or Stephen Ley and/or Kelley Ley.
The Trustee be fined for failure to perform its duties;
There should be an extension of time under s. 187(11) of the Bankruptcy and Insolvency Act (“BIA”) to allow for a formal investigation as to whether any criminal act and/or violation of the bankruptcy laws has occurred.
[25] The Court notes that Mr. and Mrs. Ley have filed materials and made submissions on the various matters which have been taken into account in coming to this decision. Having dealt with the value of the property at 153 Mojave in the previous analysis, the Court will not deal with the issues in paras. 10 and 14 of Mr. Zgraggen’s Notice of Motion as they are no longer relevant to the issues on this motion.
[26] The balance of the relief claimed in Mr. Zgraggen’s Notice of Motion breaks down into various categories and which are dealt with in no particular order.
Conduct of the Trustee
Mr. Zgraggen’s Position
[27] Mr. Zgraggen seeks to have the Trustee fined for failure to perform its duties or have his costs paid by the Trustee. He argues that the Trustee has allowed this matter to drag on far too long with no resolution since the last order was made by Justice Annis dated February 10, 2012.
[28] Mr. Zgraggen also argues that the creditors are owed monies from the bankruptcy and they are being denied their rights to fair justice and fair payment within a reasonable period of time.
Trustee’s Position
[29] The Trustee argues that it is not aware of any authority for a Trustee in bankruptcy to be fined (short of a criminal prosecution for which proof beyond a reasonable doubt is required), and that the Applicant has not sought leave of the Court to make a claim against the Trustee as required pursuant to s. 215 of the BIA.
[30] The Trustee argues that its actions should be measured by the reasonableness of the business approach taken and not necessarily whether the actions attained satisfactory results.
[31] The Trustee argues that it is entitled to the protection of the Court against improper, frivolous and vexatious suits or proceedings arising out of its administration of the Bankrupt’s Estate and s. 37 of the BIA enables the Court to furnish this protection to the Trustee.
[32] The Trustee argues that it has fully cooperated with Mr. Zgraggen throughout these proceedings but that Mr. Zgraggen is never satisfied with the efforts. The Trustee argues that Mr. Zgraggen was free to pursue its claims against Mr. Ley, Ms. Ley and/or Rod Vanier without involving the Trustee, or by bringing an Application under s. 38 of the BIA but has refused to do so thereby necessitating the Trustee’s continued and costly involvement.
Analysis
[33] The 2012-2013 Houlden and Morawetz annotated version Bankruptcy and Insolvency Act under the heading C 16 states that:
The BIA offers trustees, receivers and similar insolvency professionals’ protection from liability for their activities in connection with a proceeding under the Act. The statutory framework requires the assistance of these professionals, who would likely be unwilling to serve absent protection for their good faith and duly diligent activities….
[34] Furthermore, the Trustee is an officer of the court who must impartially represent the interests of creditors (Re Roy (1963), 4 C.B.R. (NS) 275 (Que S.C.)).
[35] In considering the conduct of the Trustee, a Trustee’s actions should be measured by the reasonableness of the business approach taken at the time of the action and not necessarily whether the actions obtain satisfactory results (Re Brown (2003), 2003 CarswellOnt 1637 (Alta QB)).
[36] As set out in the case of Re Constantineau (1998), 1998 11734 (QC CS), 23 C.B.R. (4th) 122 (Que S.C.), the Court says that a Trustee must obey orders of the court, and if it fails to do so, the Trustee may be guilty of contempt of court. In bankruptcy situations, contempt of court is governed by provincial law. Since contempt of court is criminal in nature, it must be proven beyond a reasonable doubt that the Trustee intended not to obey the order or acted without regard to the consequences.
[37] In this case, the bankruptcy occurred on October 19, 2009. A conditional discharge was granted by Deputy Registrar Dempster on November 16, 2011 wherein the Bankrupt was required to pay $2,500.00 to the Trustee. The following findings were made of the facts in s. 173(1) of the BIA, namely:
(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, …
(m) the Bankrupt had failed to comply with a requirement to pay imposed under section 68.
[38] A review of the Trustee’s report indicates that the Bankrupt was required to pay surplus income and that the Bankrupt failed to do so. At the time of the Trustee’s report, the outstanding balance was $5,370.36.
[39] Motions were heard on October 22, 2010, November 23, 2010, January 21, 2011, January 29, 2011, March 2, 2011 and December 16, 2011. Justice Annis gave his Reasons for Decision in one of the matters on July 21, 2011. He also signed several orders, the last of which was dated February 10, 2012. This matter was before the Court in June and August 2014.
[40] The Court is aware that there were two properties involved in this matter, namely, 41 Smoketree Crescent and 153 Mojave.
[41] Mr. Zgraggen receives one‑half of the value of the net equity in 41 Smoketree of which he was a one‑half owner, subject to the payment of an outstanding garnishment in favour of RBC, as well as costs of the Trustee’s counsel, on a partial indemnity basis. This means that the Court found in favour of the Trustee and against Mr. Zgraggen’s arguments in relation to the sale of 41 Smoketree.
[42] Taking into account the litigation involved and the various issues dealt with by the Trustee, the Court does not find that the Trustee has been stalling or dragging its feet in the completion of this file or delaying providing a dividend to the parties.
[43] There are still outstanding issues, which have not yet been determined, as of today.
[44] In addition, this motion has stopped this file from proceeding to a conclusion. The Trustee was wise not to consider issuing an interim dividend in this case based on the various outstanding issues.
[45] The Trustee has taken a reasonable business‑like approach to the file to ensure that all of the parties are protected. The Court notes that the only creditor having issues with the Trustee’s actions is Mr. Zgraggen. Therefore, the Court finds that based on the decision of Re: Constantineau that the Trustee has obeyed the orders of the Court and therefore there are no grounds for contempt.
[46] Therefore, the Court finds that the conduct of the Trustee in relation to this file has been appropriate and proper.
[47] Furthermore, there is no authority in the Bankruptcy and Insolvency Act to fine a Trustee.
[48] Therefore, Mr. Zgraggen’s claim for improper conduct of the Trustee and that the Trustee should be fined or pay costs because of the amount of time this file has been going on for, is dismissed.
Annulment of Ms. Ley’s bankruptcy
Mr. Zgraggen’s Position
[49] Mr. Zgraggen argues that Ms. Ley’s bankruptcy should be annulled for the following reasons:
That the bankruptcy was motivated by fraud and as a desire to destroy Mr. Zgraggen;
That the bankruptcy was to avoid a large equalization payment to Mr. Zgraggen of about $66,000 in relation to net family property;
That the assignment in bankruptcy was made several weeks before the Family Court proceedings which dealt with the equalization of net family property and other matters.
[50] Mr. Zgraggen quotes paragraph 128 of the Annis J. decision. It reads as follows:
The Bankrupt’s interests would appear to align with this purpose as is apparent from the further e‑mail sent to the respondent on October 16, 2009:
The good news for you is that I filed for bankruptcy today...
The bad news is that you will be lucky you walk away with a third of the $58,000 that I owe you. You will have to sell Smoketree and the Honda to pay my debt.
Revenge is sweet but reality is an eye-opener...
[51] Mr. Zgraggen uses that paragraph as evidence that Ms. Ley was trying to destroy him.
Trustee’s Position
[52] The Trustee took no real position on this point. It indicated at the hearing that it would follow whatever decision was made by the Court.
Ms. Ley’s Position
[53] Ms. Ley argued that she was in financial difficulty and had met with several trustees and on their recommendation, she filed for bankruptcy.
Analysis
[54] The court has reviewed the Statement of Affairs. The Bankrupt identified unsecured creditors totaling approximately $81,683.00. The total amount of unsecured claims admitted was higher at $129,611.00, of which approximately $75,000.00 was that of Mr. Zgraggen’s.
[55] In her own sworn statement of affairs, the Bankrupt said, that the cause of her bankruptcy was “divorce/separation”.
[56] Mr. Zgraggen relies on the case of Re Wale 1996 8275 (ON SC), 1996, 45 C.B.R. (3d) 15 to justify the annulment of Ms. Ley’s bankruptcy. The Court has reviewed that case and notes the following at paragraph 13:
13 Ms. Wale argues the purpose of the bankruptcy filing was obvious. Mr. Wale intended to stop the family law trial from proceeding in any meaningful way by removing the couples' assets from the reach of the court and Ms. Wale's claim for an unequal division of them. She points out that even he now admits his assumption he could no longer carry on the business may have been incorrect. He was determined to move anything movable out of her reach and devalue or destroy anything immovable.
17 An annulment will be granted only where it is shown either the debtor was not an insolvent person when he made the assignment or where it is shown that the debtor abused the process of the court or committed a fraud on his creditors.
26 ….the Court has a wide discretion when considering an annulment application. An exhaustive review of the circumstances surrounding the assignment should be made by the Court. There is no single test or principle to be applied. The test is flexible and fact specific.
[57] In this case, a review of the evidence showed that Ms. Ley’s debts were approximately $81,000 based on her own evidence and they were in fact higher based on the proofs of claim admitted. Her surplus income payments contained in the Trustee’s report were only $157 per month. Based on this evidence alone, it does not appear that Ms. Ley had sufficient income to allow her to file a viable proposal thus requiring her to file for bankruptcy.
[58] The evidence to the Court was that she had been to several Trustees and the recommendation was for a bankruptcy.
[59] The Court notes that this case has a sordid history. Mr. Zgraggen was charged with criminal harassment of Ms. Ley. The matter went to trial and he was jailed for approximately five months. He was on probation and I understand that he is currently on probation.
[60] The issue of annulment of a bankruptcy is dealt with in s. 181 of the BIA which reads in part as follows:
- (1) If, in the opinion of the court, a bankruptcy order ought not to have been made or an assignment ought not to have been filed, the court may by order annul the bankruptcy.
[61] The Court has reviewed the case of Re Pirner (2012), 2012 ONSC 3435, 98 C.B.R. (5th) 73 (ON S.C.J.). In that case the court dismissed the application of a creditor, the ex-wife of a Bankrupt, to annul her ex-husband’s bankruptcy. The Court held that an application to annul must be brought with diligence after knowledge of the grounds for the annulment. In that case it had been at least 12 years since the gravamen of the allegations or facts had been known; and no satisfactory explanation had been advanced for the delay. The court held that the application was not brought on a timely basis and would have little practical effect for the applicant.
[62] In this case, the bankruptcy occurred in 2009 and the application for annulment was not brought until 2013 or 2014. The court notes that the Bankrupt had already received a conditional discharge in November 2011. The court also notes that, according to the file, Mr. Zgraggen did not oppose the Bankrupt’s discharge, which he could have done.
[63] The court applies the Re Pirner case and finds that the delay between the date of the bankruptcy and bringing of the application to annul the discharge is too long and was not brought with due diligence or on a timely basis. No explanation was provided for the delay.
[64] Therefore, the court finds that this is not a proper case for an annulment of the bankruptcy and that relief is dismissed.
Compliance by Various Parties with the Reasons for Decision of Annis J. dated July 21, 2011
Mr. Zgraggen’s Position:
[65] Mr. Zgraggen argues that the Bankrupt and/or Mr. Ley and/or the Trustee have not complied with various aspects of Annis J.’s Reasons for Decisions that are more fully set out below.
[66] Mr. Zgraggen argues that Mr. and Mrs. Ley were to comply with sub‑paragraph 4 on page 21 of the Reasons for Decisions to provide the Trustee with complete banking records, trust ledger statements from Mr. Vanier consisting of original print-outs for 2008 and 2009. He argues that this was not done.
Trustee’s Position
[67] The Trustee argues that they received all of the bank statements for Mr. Ley for the period October 2008 to October 2009 and that they received some bank statements from Ms. Ley for the period of October 2008 to October 2009. There were nine or more statements missing.
[68] The Trustee indicated that it had written directly to the bank for the bank statements and that it was advised by the bank that certain statements could not be provided.
[69] Mr. and Ms. Ley argued that they had provided most of the statements required by the Trustee.
Analysis
[70] The Court notes that the statements requested were for 2008 and 2009 and that when the request was made, by the Trustee, it was only from the month of October 2008.
[71] The purpose of obtaining the bank statements was to deal with the issue of the calculation of contributions to 153 Mojave by Mr. and Mrs. Ley respectively for living expenses, housing expenses and other related matters.
[72] The issue of the equity in the property has been resolved by the court earlier in this decision.
[73] While the statements provided may have not been for the period as requested by Justice Annis, the court is satisfied based on the evidence of the Trustee that it attempted to obtain certain bank statements but was unable to do so for the approximate period because the bank advised that statements were no longer available due to the length of time that had passed and due to Ms. Ley’s bankruptcy.
[74] Therefore, the Court finds that while not all of the statements were produced in full, the Court is satisfied with what was provided and therefore, that claim is dismissed.
[75] Mr. Zgraggen also argues that the Trustee should have complied with order number two on page 21 of the Annis J. decision, that the Trustee determine the appropriate amount of Mr. Ley’s secured interest in 153 Mojave. He argues that the Trustee has not done so. The evidence before the court is that Mr. Ley will be withdrawing his secured claim against the property once he is allowed to purchase the Trustee’s interest. The court has already ordered the sale of the Trustee’s interest to Mr. Ley on various conditions including the condition that Mr. Ley withdraw his secured interest claim. Mr. Ley has agreed to do so. Therefore, the Court dismisses the relief requested in relation to this issue.
[76] Mr. Zgraggen also argues that the Trustee should have complied with para. 86 of Annis J.’s decision which reads as follows: “If these payments had continued after the assignment and bankruptcy, the Trustee might consider whether they constitute a preference to Mr. Ley”. The wording of para. 86 is permissive. It does not obligate the Trustee to consider whether there is a preference to Mr. Ley. The court also notes that no relief in relation to the preference appears under the heading of “orders” on page 21.
[77] On that basis, the Court finds that the Trustee did not have to comply with the wording of para. 86 and the claim for that relief are dismissed.
[78] Mr. Zgraggen argues that the Court should take Justice Annis’ comment from para. 117 of the Reasons and turn it into the following court order: “This court declares that Mr. Vanier increased his fees in contemplation of his client’s pending bankruptcy.”
[79] Paragraph 117 reads as follows: “I conclude that Mr. Vanier increased his fees in contemplation of his client’s pending bankruptcy. I am further concerned that Mr. Vanier attempted to mislead the Court to believe otherwise.”
[80] Annis J. provided an extensive list of items which were to be turned into a court order on page 21 of his reasons. This did not include para. 117.
[81] Furthermore, the court does not have the jurisdiction to take a paragraph from another judge’s order and include it in either a new or existing order.
[82] Therefore, for the reasons set out above the court finds that relief with respect to Paragraph 117 cannot be granted and therefore this claim for that relief is dismissed.
Fraud
Mr. Zgraggen’s Position
[83] Mr. Zgraggen takes the position that either all of or some of Kelley Ley, Stephen Ley and/or Rod Vanier have committed fraud or other criminal acts for which criminal proceedings should be initiated. In most cases, when Mr. Zgraggen uses the word “fraud”, it is in capital letters throughout his pleadings and his factum.
[84] He also requests that the timelines be extended to allow for the prosecution of the fraud or criminal activities.
[85] He relies on various sections of the BIA including sections 205(3), 125, 135(5), 201(1), 187(5) and several other sections.
Trustee’s Position
[86] The Trustee argues that it has kept the Office of the Superintendent of bankruptcy continuously informed of what has gone on in this file so that it, the Office of the Superintendent of Bankruptcy, could make the decision whether to press criminal charges.
[87] The Trustee also argues that Mr. Zgraggen has contacted the police department requesting action be taken and this was not done. An e‑mail was sent by Mr. Black, solicitor for the Trustee, to Mr. Zgraggen dated January 2, 2014 advising him to do so.
Analysis
[88] Mr. Zgraggen spent a great deal of time suggesting that fraud or other criminal activities were committed by any or all of Mr. Ley, Ms. Ley and/or Mr. Vanier. The evidence that he has provided is unconvincing. This is set against a backdrop of him being found guilty of criminal harassment of Ms. Ley and having spent five months in jail and now being on probation.
[89] This was an acrimonious, high conflict matrimonial case. The property issues were dealt with after Ms. Ley had filed for bankruptcy. The evidence is that Mr. Zgraggen was not pleased with Mr. Vanier’s conduct. He filed a complaint with the Law Society of Upper Canada (“Law Society”) on or about November 10, 2011 after Annis J. released his decision. He sought compensation from the Law Society. The Law Society responded that their investigation which would focus on whether there was any clear evidence of any breach of the Rules of Professional Conduct and, if so, the appropriate regulatory action would be taken. Mr. Vanier responded to the complaint. No evidence was provided that the Law Society took any disciplinary action against Mr. Vanier. As such, the court finds that the Law Society did not find any breach of any regulation by Mr. Vanier.
[90] Mr. Zgraggen advised that he had complained to the Ottawa Police about the alleged fraud and criminal activities of Mr. Ley, Ms. Ley and/or Mr. Vanier. He acknowledged that the police did not take any action. He said that the reason that the police took no action was because of his conviction for criminal harassment against Ms. Ley.
[91] The Trustee argues that it has been continuously providing evidence to the Office of the Superintendent of Bankruptcy (“OSB”) and that, to the best of its knowledge, the Office of the Superintendent has not initiated any proceedings in relation to fraud, criminal activities or anything else they relate to Mr. Ley, Ms. Ley and/or Mr. Vanier.
[92] Mr. Zgraggen is now coming to the court and asking it to authorize the Trustee to initiate proceedings for the prosecution of an offence under section 205(3) of the BIA.
[93] Section 205 (3) reads that:
Court may authorize criminal proceedings
- (3) Whenever the court is satisfied, on the representation of the Superintendent or any one on his behalf, of the official receiver or trustee or of any creditor, inspector or other interested person, that there is ground to believe that any person is guilty of an offence under this Act or under any other statute, whether of Canada or a province, in connection with the bankrupt, his property or transactions, the court may authorize the trustee to initiate proceedings for the prosecution of that person for that offence.
[94] Pursuant to the wording of that sub-section, the court must be satisfied that there is a ground to believe that a person is guilty of an offence in connection with the Bankrupt, her property or the transactions. In addition, the section is permissive, not mandatory, i.e. the court “may” authorize the Trustee as opposed to the court “shall” authorize the Trustee.
[95] In the case of Re White (2010), 63 C.B.R. (5th) 135 Deputy Registrar Nettie states the following from paragraph 12:
…Except in rare instances, and the forgery and uttering offences alleged in Cowan, Re would be an example, the Bankruptcy Court should defer to the usual criminal investigation and prosecution process in a given province or territory with respect to all other offences. That deference, however, remains one to be accorded, or not, by the Court on a case by case basis.
[96] That case involved a Ponzi Scheme of approximately 17 million dollars. He goes on to state at paragraph 13 and 14:
That said, I need not address in detail the concerns advanced by Ms. Green and counsel for the Trustee regarding the fact that the Greens, the largest creditor group, and victims to the extent of $17M in this matter, do not wish the remaining funds in the Estate to be used up on an expensive fraud prosecution under the Criminal Code. Efforts were made at the outset of the Estate to have the Royal Canadian Mounted Police investigate and initiate prosecution of the Bankrupt for this apparent $20M fraud. Inexplicably, given the massive size, by Canadian standards, and in real terms, of the fraud, they declined. This was despite the apparent urging of both the Trustee and the Office of the Superintendent of Bankruptcy.
I am satisfied on the evidence before me, on the balance of probabilities, that the Bankrupt fraudulently led the creditors to believe that he had a sure fire investment scheme based upon some sort of interest payments made on the notes to investors. I am satisfied that he has, in effect, after fraudulently inciting the investments, simply stolen the funds, and that this constitutes the commission of fraud and/or theft over $5,000.00 contrary to the provisions of the Criminal Code. Despite this, I am not inclined to exercised my discretion under s. 205(3) BIA and authorize initiation of a prosecution for fraud and/or theft under the Criminal Code.
[97] The Court notes that in the Re White case, the Deputy Registrar did not exercise his discretion. In this case, Mr. Zgraggen has raised some concerns, some of which occurred prior to bankruptcy, some of which occurred post-bankruptcy.
[98] Therefore the Court notes that in that case, he did not exercise his discretion. In this case Mr. Zgraggen has raised some concerns, some of which occurred prior to bankruptcy, some of which occurred post-bankruptcy.
[99] This Court is not satisfied, based on the evidence, that there are grounds to believe that any of the three people, Mr. Ley, Ms. Ley, or Mr. Vanier, are guilty of any offence in connection with the Bankrupt’s property or transactions.
[100] Mr. Zgraggen provides little cogent evidence that anyone is guilty of any offence in connection with the Bankrupt’s property or transactions.
[101] Furthermore, the Court is not prepared to exercise its discretion under section 205(3) and order a prosecution under the Criminal Code for fraud or criminal activities.
[102] There are pieces of evidence of various matters related to the bankruptcy; however, they do not go far enough to satisfy the Court that a prosecution should be initiated in accordance with Section 205(3).
[103] The Court makes a finding that it is not satisfied that there should be a prosecution in relation to Section 205(3).
[104] As to the issue of the penalty of filing a false claim under Sections 125 and 135 of the BIA. Section 125 reads:
Penalty for filing false claim
- Where a creditor or other person in any proceedings under this Act files with the trustee a proof of claim containing any wilfully false statement or wilful misrepresentation, the court may, in addition to any other penalty provided in this Act, disallow the claim in whole or in part as the court in its discretion may see fit.
[105] Section 135(5) reads:
Expunge or reduce a proof
(5) The court may expunge or reduce a proof of claim or a proof of security on the application of a creditor or of the debtor if the trustee declines to interfere in the matter.
[106] In this particular case, Justice Annis specifically reduced Mr. Vanier’s unsecured claim from over $50,000 to $20,000. The evidence is that Mr. Zgraggen did not appeal the July 21, 2011 order. Therefore, that issue was resolved by Annis J. and will not further be reviewed by this Court.
[107] The Court is aware that Ms. Ley completed her Net Family Property statements showing only her one‑half interest in the 153 Mojave, while showing the full amount of the mortgage and other loans.
[108] To do that was not correct, but does not amount to fraud. The NFP matters were dealt with by Annis J. in early 2011, which predate the November 2011 and the 2013 NFP statements that were filed. Therefore, the Court is not prepared to take any action with respect to that.
Costs Sought by Mr. Zgraggen
Mr. Zgraggen’s Position
[109] Mr. Zgraggen seeks to have Mr. Ley and/or Ms. Ley and/or Mr. Vanier pay one-third of all costs involved in this matter and that the unsecured creditors should not have to pay any costs with respect to this matter. The Trustee made few submissions on this matter, save and except that it did not believe that it should be liable for costs.
[110] Mr. Zgraggen’s claims on motion have all been dismissed by the court. Therefore, on that basis, Mr. Zgraggen was not successful and his claim that Mr. Ley and/or Mrs. Ley and/or Mr. Vanier should pay his costs is dismissed.
Additional Matters
[111] Based on this history of this file, this Court orders that none of Mr. Ley or Ms. Ley can bring any motion in this bankruptcy file without leave of this Court, through Kershman J.
[112] As of August 25, 2014, the Bankrupt was undischarged pursuant to a conditional order issued by Deputy Registrar Dempster dated November 16, 2011.
[113] Section 187(5) of the BIA reads as follows: “Every court may review, rescind or vary any order made by it under its jurisdiction.”
[114] Pursuant to s. 187(5), this Court orders that the Trustee shall prepare a report to the Court as to the surplus income of the Bankrupt from November 2011 to date, together with copies of income tax returns and Notices of Assessment for 2011, 2012 and 2013, together with her three most recent pay stubs.
[115] The report shall also include information about after‑acquired assets.
[116] The Court makes this order as of today and the order shall stand, even if the Bankrupt satisfies the conditional order.
Costs
[117] The matter of costs of this motion is reserved.
[118] Order accordingly.
Mr. Justice Stanley J. Kershman
Date: October 2, 2014
COURT FILE NO.: BK-33-1275542
DATE: 2014/10/02
ONTARIO
SUPERIOR COURT OF JUSTICE
IN BANKRUPTCY and INSOLVENCY
IN THE MATTER OF THE BANKRUPTCY OF
KELLY ANN EZARD
CITY OF OTTAWA
IN THE PROVINCE OF ONTARIO
BEFORE: Mr. Justice Stanley J. Kershman
HEARD IN OTTAWA: June 24, 2014 and August 25, 2014
APPEARANCE:
Martin Black, Ginsberg Gingras & Associates Inc, Trustee and bankruptcy in the Estate of Kelly Ann Ezard
Robert Leslie Zgraggen, Self‑represented
Kelley Ley (Ezard), Self‑represented
Stephen Ley, Self‑represented
Rod Vanier, represented by Mr. P. Pooran
REASONS FOR DECISION
Kershman J.
Released: October 2, 2014