Court File and Parties

Court File No.: BK-06-00161176-0033 Date: 2017/06/09

Ontario Superior Court of Justice in Bankruptcy and Insolvency

In the Matter of the Bankruptcy of: Charles Rotenberg, of the City of Ottawa, in the Province of Ontario

Before: Master Nathalie Champagne, Registrar in Bankruptcy

Heard: March 27, 2017

Appearance: Pascal Gagnon, Trustee for Ginsberg, Gingras & Associés/Associates Inc. Robert De Toni, counsel for the Bankrupt, Charles Rotenberg Stephanie Lauriault, counsel for the opposing creditor, Attorney General of Canada

Endorsement

[1] Charles Rotenberg, the Bankrupt (“Bankrupt”), applies for a discharge from his third bankruptcy. The discharge is opposed by the trustee in bankruptcy namely Ginsberg Gingras & Associes/Associates Inc. (“Ginsberg” or “Trustee”) and the Attorney General of Canada acting on behalf of the Canada Revenue Agency (“CRA”).

[2] The grounds for the opposition are the following:

Creditor:

1. 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 (*Bankruptcy and Insolvency Act*, R.S.C., 1985, c. B-3 s. 173(1)(a)(“BIA”));
2. The Bankrupt has brought on, or contributed to, the bankruptcy by culpable neglect of his affairs (BIA, s. 173(1)(e));
3. The Bankrupt has on any previous occasion been bankrupt or made a proposal to creditors (BIA, s. 173(1)(j));
4. The Bankrupt has failed to comply with a requirement to pay imposed under section 68 (BIA, s. 173(1)(m));

Trustee:

1. The Bankrupt has failed to comply with a requirement to pay surplus income (BIA, s. 173(1)(m));
2. The Bankrupt has failed to perform the duties imposed on the Bankrupt under this Act or to comply with any order of the court (BIA, s. 173(1)(o)).

[3] At the outset of this hearing, the Bankrupt requested an adjournment stating that he had consulted with another trustee within the last week with a view to properly dealing with his bankruptcy. He proposed terms of an adjournment to include monthly meetings with the other trustee for a period of 3 to 6 months; a report to the trustee and CRA monthly, and provision of monthly surplus/expenses statements. CRA is opposed to the adjournment. It points out that this matter commenced as a proposal over 11 years ago, and resulted in the Bankrupt’s third bankruptcy in October 2011. This hearing was set to take place on June 27, 2016 but was adjourned on consent. On January 23, 2017 it was again ready to be heard but the Bankrupt sought an adjournment. At the time, CRA agreed to an adjournment so long as it was peremptory, which it was. The CRA argues that the delay has been prejudicial to it and argues that no further delay should be permitted. I agree. This is the third time this matter has been set for a hearing and I am not satisfied that a further adjournment to allow the Bankrupt to meet monthly with another trustee is appropriate.

Background Facts

[4] The facts of this matter are largely not in dispute. This is the Bankrupt’s third bankruptcy. He made a proposal in 1990. His failure to honour the terms of the proposal resulted in his first bankruptcy on August 30, 1990. His liabilities in that bankruptcy were $543,823.00 and his total assets were $262,000.00. CRA was not a creditor in the first bankruptcy and no evidence was presented as to the amount recovered by creditors. The Bankrupt was discharged from his first bankruptcy on May 21, 1991.

[5] The Bankrupt filed for a second bankruptcy on December 5, 1997. The Bankrupt had $127,012.82 in total unsecured liabilities and no assets in the second bankruptcy. The CRA claimed over $80,000.00 in unpaid income tax, unpaid GST/HST and source deductions. The Trustee realized $1,280.00 from the Bankrupt’s assets and he was discharged on November 25, 1998 upon payment of a further $12,600.00. The Bankrupt explains that these first two bankruptcies were as a result of a longstanding addiction.

[6] The Bankrupt does not dispute CRA’s evidence that following his second discharge he failed to file his tax returns and pay income tax owing on time. By July 15, 2001 the Bankrupt’s income tax arrears were $37,771.01. At that time, he entered into a payment agreement with CRA to pay the tax debt at a rate of $1,800.00 per month. He defaulted after 11 months. In June 2005, the Bankrupt resumed making payments on taxes owed between 1998 and 2003 which had grown to $122,066.07. He made two payments of $3,000.00 and on January 19, 2006, he filed his Notice of Intention to Make a Proposal. This proposal was amended and approved by the court on July 18, 2006. Between 1998 and 2004 the Bankrupt joined Rasmussen Starr Ruddy as a lawyer specializing in tax. He left that firm in September 2004 and his professional corporation moved to Drache, Rotenberg and Buchmayer which subsequently changed its name to Drache LLP. His corporation was a partner in that firm until late 2006.

[7] The Bankrupt does not deny that his taxable income from 1998 until 2006 was as follows:

Taxation Year	Filing Date	Filing Deadline	Taxable income
1998	12-Apr-00	15-Jun-99	$45,799.00
1999	22-Jun-00	15-Jun-00	$68,080.00
2000	21-Jul-01	15-Jun-01	$70,334.00
2001	03-Jun-02	15-Jun-02	$101,486.00
2002	30-Apr-03	15-Jun-03	$15,632.00
2003	15-Jun-04	30-Apr-04	$144,597.00
2004	15-Jun-05	15-Jun-05	$181,400.00
2005	02-Jun-06	15-Jun-06	$201,283.00
2006	12-Jun-07	30-Apr-07	$272.00

[8] Under the terms of the amended 2006 proposal, the Bankrupt was to pay 100 percent of the debt at a rate of $1,000.00 per month plus 30% of his net income calculated semi-annually based on “cash-based” accounting principles. The Bankrupt made fairly consistent payments of $1,000.00 toward the end of 2006 and through most of 2007, 2008 and 2009. His payments ceased in November 2009 when he had surgery. On January 16, 2010 he was readmitted to hospital suffering from septic shock and was critically ill. He did not resume work until May 2010. As a result of his serious illness he was unable to fulfill the terms of his amended proposal and in September 2010, CRA brought a motion to annul the proposal. The parties were able to agree to further amend the proposal in September 2010. The Bankrupt states that he had surgery again in January 2011 and did not return to work until early March 2011. He and his wife left on a previously planned trip to Uganda on March 21, 2011 and he became ill on the plane. He had surgery in Amsterdam for a perforated bowel and spent three months at home recovering from surgery. He did not return to work full time until July 2011. He failed to make any payments on the proposal in 2011 which led to its annulment. He was deemed bankrupt on October 13, 2011.

[9] It is undisputed that the Bankrupt paid approximately $58,000.00 on his 2006 proposal.

[10] The uncontroverted evidence of the Trustee, Pascal Gagnon, is that the unsecured debt in this third bankruptcy was $714,599.81. His evidence was that CRA was the main creditor and was owed over $447,135.00. The second largest creditor was the Law Society of Upper Canada who was owed $150,000.00. The Trustee testified that the Bankrupt was uncooperative and only provided a financial statement for his business when the bankruptcy first occurred. Since then, the Bankrupt failed to provide monthly income and expense statements or even regular yearly financial statements for his business. The Trustee states that he had to use the Bankrupt’s income tax information from his 2015 income tax return to verify the Bankrupt’s income for 2012, 2013 and 2014. The Trustee was provided with very little information on which to base the calculation of surplus income.

[11] The Trustee’s evidence, which I accept, is that on this third bankruptcy, the Bankrupt was determined to have $122,542.92 in surplus income. The sum of $5,099.10 was transferred to the Trustee from the failed 2006 proposal and the Bankrupt did not make any voluntary payments in the bankruptcy except for one which was made on the date of this motion when he provided the Trustee with a cheque for $2,000.00.

[12] The uncontroverted evidence of Brenda Daviau, a Resource Officer/Complex Case Officer with the Collection and Verification Branch of the International and Ottawa Tax Services Office of the Canada Revenue Agency, is that since his third bankruptcy the Bankrupt has made no instalment payments for income taxes owing for 2011, 2012 and 2013 and his income tax returns for those years were filed late. Ms. Daviau’s evidence is that the Bankrupt has incurred over $130,297.07 in income tax debt post-bankruptcy and has paid no income tax since March 31, 2014.

[13] The Bankrupt does not dispute Ms. Daviau’s evidence that Charles M. Rotenberg (the Bankrupt’s company) went into involuntary dissolution on November 14, 2011 and that CRA wrote off $225,230.00 in corporate taxes and a further $88,234.49 in GST/HST in March 2014.

[14] The Bankrupt does not deny that his taxable income since 2007 is as follows:

Taxation Year	Filing Date	Filing Deadline	Taxable income
2007	27-Apr-10	15-Jun-08	$86,611.00
2008	27-Apr-10	15-Jun-09	$137,401.00
2009	08-Oct-10	15-Jun-10	$77,025.00
2010	05-Jul-12	30-Apr-11	$75,903.00
2011	05-Jul-12	15-Jun-12	$31,960.00
2012	15-Jun-13	15-Jun-13	$177,491.00
2013	04-Jun-15	15-Jun-14	$215,970.00
2014	04-Jun-15	30-Apr-15	$47,656.00
2015	03-Apr-16	30-Apr-16	$47,200.00

[15] It is important to note that the Bankrupt’s income in 2014 and 2015 is in the form of a dividend paid to him by his professional corporation Rotenberg (#2) Consulting Inc. which he guesses was incorporated in about 2010. His wife also received dividends of $47,200.00 in each of those years. In his evidence, the Bankrupt indicates that the tax payable on each of those amounts is approximately $800.00 which was admittedly not paid.

[16] In cross-examination, the Bankrupt’s evidence is that he resides in a home purchased for $600,000.00 by his wife in 2012, which has since been transferred to a corporate trust. He says that when the home was first purchased, it was mortgaged for $540,000.00. It was re-mortgaged in August 2015 because the mortgage came due and currently the mortgage remains at $540,000.00, the same sum as in 2012. The Bankrupt describes the house as a single family home with a large single car garage. There is stone in the front and the rest of the house is covered in vinyl. The floors are hardwood, there are five bedrooms and three and a half bathrooms. There are three televisions in the home: 24 inch, 55 inch, and 72 inch. The Bankrupt advises that he drives a 2008 Honda Civic but occasionally drives his wife’s 2015 Cadillac ATS which is leased. He indicates the payments on that vehicle are $500.00 per month.

[17] The Bankrupt testifies that last week he met with Mr. Carson of Surgeson Carson, a trustee in bankruptcy and someone with whom he has a personal relationship. The purpose of the meeting was to discuss how to deal with his current situation. The Bankrupt advises that he intends to meet with Mr. Carson monthly regardless of the outcome of this hearing. His evidence is that “everything is on the table” including selling the house in which he resides at present, although he is loath to do that as it is close to an orthodox synagogue to which he walks as he is not permitted to drive on Saturdays. When asked to explain why the house was purchased by the Bankrupt’s wife in 2012 and transferred to a trust, the Bankrupt explains that it is for estate planning purposes. He states that he and his wife each have children of their own, and the trust provides that on the death of one spouse the other spouse would continue to live in the home until his/her death following which the house would be divided between the five children. The Bankrupt admits this can also be accomplished by way of a will but indicates that using a trust is a common estate planning tool that is advantageous because, among other benefits, it does not require probate and land transfer tax to be paid.

[18] The Bankrupt’s evidence demonstrates a clear lack of insight into his current financial situation. His evidence does not speak of any concrete plan to address his financial situation other than to meet with Mr. Carson monthly in the hope that he will be able to “fix” the situation.

Analysis

[19] This is not a tax driven debt which triggers different treatment under s. 172.1 of the BIA. Nonetheless, in light of the fact that CRA’s claim exceeds 63 percent of the Bankrupt’s liabilities, I will preface my analysis by emphasizing the critical role taxes play in a civilized society. Taxes are the price we pay to access all manner of services from medical care, education and emergency services to roads and transportation, military services and courts, to name but a few. In order for these services from which we all benefit to be provided, we must each pay our fair share of taxes. I adopt the words of Justice Brown in Re: Baran, 2013 ONSC 7501, at para 18, that “…there is, apart from emergency medical expenses, no debt more important than the payment of taxes by persons enjoying a good income. If a taxpayer does not pay his fair share, the burden arising from that failure falls on the other members of the community”. The Bankrupt before me has enjoyed a good income and he has not paid his fair share of taxes which is unfair to the rest of the tax-paying public.

[20] When considering whether or not to discharge a Bankrupt, a registrar or court must consider three factors:

1. The interests of the creditor in obtaining payment of their claims;
2. The interests of the Bankrupt in obtaining relief;
3. The integrity of the bankruptcy process.

Melnitzer (Re) (1993), 18 C.B.R. (3d) 245, at para. 14; Shakell (c.o.b. Ojibway Marina) (Re) (1988), 70 C.B.R. (N.S.) 270.

[21] Where there is a third or fourth time Bankrupt, the court’s focus shifts from rehabilitation to concern for the integrity of the system and protection of creditors (*Pitre (Re)*, 2009 SKQB 280, at para 26).

[22] The CRA argues that a discharge should be refused in this case due to the egregious circumstances of the third bankruptcy, the facts of which need not be repeated here. CRA points to a number of cases in which discharges were refused in less egregious circumstances than the one before me: Addario (Re), 2014 ONSC 4511; *Berenbaum (Re)*, 2011 ONSC 72; *Crischuk (Re)*, 2013 BCSC 1413; *Decker Estate v. Canada*, 2010 ABCA 189; *Lundrigan (Re)*; Miller (Re), [1998] N.S.J. No. 135; Resnick (Re), 80 C.B.R. (N.S.) 223; *Sherazee (Re)*, 23 C.B.R. (5th) 176.

[23] The Bankrupt’s counsel acknowledges that there is a litany of bad facts upon which I can refuse a discharge, but argues that the recent actions of the Bankrupt in consulting with Mr. Carson and making a payment to the Trustee of $2,000.00 offers a “scintilla of hope” that the Bankrupt is gaining insight and can get his financial house in order. He acknowledges the court’s responsibility to protect the integrity of the bankruptcy process and to ensure that bankruptcy is not used as a “clearing-house for tax debt or any other kind of debt”. He suggests that such a message could be sent to the Bankrupt by making an onerous conditional discharge requiring him to pay 15% of the debt and requiring him to obtain the court’s permission to apply for creditor protection in the future. He argues that a precedent for such a conditional discharge exists in the case of *Buote (Re)*, 2013 ONSC 7025 (S.C.J.), in which Kershman J. ordered the Bankrupt to pay approximately 15 percent of her tax debt, abstain from gambling for 5 years, regularly attend Gamblers Anonymous for 5 years, remain current on all CRA obligations including filings and payments until discharge was obtained, and to sign an undertaking to start and complete the LESA program. She was also ordered to return before Justice Kershman each August for 5 years to prove to the court that she wasn’t gambling, that she filed her tax returns, that she paid her taxes when due, and that she was making her surplus income payments on time. There is no doubt the facts in the Buote case were as aggravating as the facts before me. Ms. Buote had multiple insolvencies, high tax debt (over $799,000.00) and had failed to pay post-bankruptcy income tax among other things. The difference between Ms. Buote and the Bankrupt in the case before me is that Ms. Buote had insight as to the reasons for her bankruptcies and had taken, albeit late, steps to address those reasons. Ms. Buote suffered from bipolar disorder and a serious gambling addiction which Justice Kershman felt could be remedied by an onerous conditional discharge. This was evident by his order in relation to her gambling issue. In the present case, the Bankrupt explains that his first two bankruptcies were due to a cocaine addiction. He states he has been clean since April 15, 1994. He offers absolutely no explanation for this third bankruptcy or for his failure to pay post-bankruptcy income tax. He simply says “there is no excuse for it”. He states that his tendency is to avoid situations until they are virtually unavoidable.

[24] The Bankrupt in the present case has shown a serious disregard for his obligation to pay income tax from his second bankruptcy to the present date. His life and lifestyle have been seemingly unhampered by his third bankruptcy. Since his last bankruptcy he has travelled at least twice per year in the US, he has travelled to Israel, and his wife purchased a $600,000.00 5-bedroom, 3.5-bathroom home to which he contributes the bulk of the mortgage payment in the approximate sum of $3,300.00 monthly. The Bankrupt and his wife live alone in that home, they do not support children, and the Bankrupt’s wife drives a 2015 Cadillac despite the fact that she does not work for medical reasons. The Bankrupt made one voluntary payment on his bankruptcy on the day this motion was heard, and he contacted Mr. Carson the week before the motion was heard. He provided the court with little evidence of a plan other than a monthly meeting with Mr. Carson. While he had talked to his wife about selling the house, no steps had been taken to do that. While he discussed becoming an employee of his corporation, no steps had been taken to do that. In my view, his actions are too little too late.

[25] I am guided by the court in *Willier (Re)*, 2005 BCSC 1138, which makes clear that to consider a discharge for a third time Bankrupt, “the court must be satisfied that the bankrupt has gained sufficient insight and made sufficient changes in his or her life that it is not reasonably possible that further bankruptcy will occur”. While refusing a discharge is considered to be one of the most severe dispositions and should be reserved for only the most egregious situations (Pitre, at para 34), where there is little evidence that a Bankrupt has learned any sense of responsibility to his/her creditors through multiple bankruptcies, it is an appropriate disposition (Addario, at para. 25). The evidence before me does not convince me that this Bankrupt has learned any sense of responsibility toward his creditors. His evidence did not reveal any concrete plan other than to meet with Mr. Carson monthly in the hope that he could “fix” his financial situation. His evidence did not inspire confidence that he would abide by a conditional order should one be made. He had an opportunity during the term of his bankruptcy to demonstrate that he could commit to a long term payment plan and he failed to do so. Unlike the Bankrupt in Buote, in my view, there are no terms that I could order to ensure that the Bankrupt’s obligations are met and to discourage him from seeking the protection from creditors again in the future. His pattern of conduct has long been established and he has provided no evidence that he has implemented a permanent change of circumstances to protect against another insolvency event.

[26] I have no confidence that the Bankrupt would abide by a conditional discharge and to grant such an order in my view would be an affront to the integrity of the bankruptcy system.

Decision

[27] The Bankrupt's discharge is refused on the following grounds:

1. Pursuant to Section 173(1)(j) of the *Bankruptcy and Insolvency Act*, the Bankrupt has been previously bankrupt on two occasions;
2. Pursuant to Section 173(1)(o) of the *Bankruptcy and Insolvency Act*, the Bankrupt has failed to perform the duties imposed on the Bankrupt under this Act and has continued to fail to pay income taxes owed post-bankruptcy;
3. Pursuant to Section 173(1)(m) of the *Bankruptcy and Insolvency Act*, the Bankrupt has failed to comply with a requirement to pay surplus income imposed under Section 68, specifically the Bankrupt has failed to pay all but approximately $7,000.00 surplus income determined to be $122,542.92.
4. Pursuant to Section 173(1)(a) of the *Bankruptcy and Insolvency Act*, 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.

[28] The Bankrupt is granted leave to re-apply for discharge in 48 months provided that he is fully tax compliant by filing his tax returns on time and paying all amounts assessed and owing on time during that period.

Master Nathalie Champagne, Registrar in Bankruptcy DATE: June 9, 2017