COURT FILE NO.: 33-2404313
DATE: 2019/08/08
ONTARIO
SUPERIOR COURT OF JUSTICE
IN BANKRUPTCY and INSOLVENCY
IN THE MATTER OF THE BANKRUPTCY OF
LAWRENCE PATRICK JR BRENNAN
(AKA LAWRENCE BRENNAN)
OF THE CITY OF OTTAWA
IN THE PROVINCE OF ONTARIO
BEFORE: Mr. Justice Stanley J. Kershman
HEARD IN OTTAWA: May 22, 2019
APPEARANCE: Andre Robert – Moving Party, Self-Represented Creditor
Alden Christian for the Trustee
Lawrence Brennan, Self-Represented Bankrupt
REASONS FOR decision
Introduction
[1] Mr. André Robert (hereinafter referred to as “Mr. Robert”) seeks to lift a stay of proceedings and enforce a judgment against the bankrupt, Mr. Lawrence Brennan (hereinafter referred to as “Mr. Brennan”), on the grounds that Mr. Brennan provided false and misleading information regarding the existence of Registered Retirement Savings Plans (“RRSPs”) during a judgment debtor examination held on July 10, 2018.
[2] Specifically, Mr. Robert is bringing this Motion for:
a. An Order declaring that the stay of proceedings pursuant to sections 69 to 69.31 of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 no longer operates in respect of Mr. André Robert, but is limited to the seizure of Mr. Brennan’s RRSPs with the Lawyers Financial Investment Program;
b. An Order declaring that Mr. Robert shall be entitled to continue his enforcement proceedings for payment of the Judgment obtained, plus interest and the costs of enforcement, in the Small Claims Court, bearing Claim Number: SC-18-00148149-0000 and SC-18-0223, but limited to Mr. Brennan’s RRSPs with the Lawyers Financial Investment Program;
c. Indemnification for the costs of this Motion, on a full indemnity basis, plus HST, against Ahmad Sharif, Lawrence Patrick Jr Brennan, 8840547 Canada Inc. & Axxion Group Inc., jointly and severally.
Factual Background
[3] On June 22, 2017, Mr. Robert was retained by Mr. Brennan, Mr. Ahmad Sharif, 8840547 Canada Inc., and Axxion Group Inc. (hereinafter jointly referred to as the “Clients”) to defend an action bearing Court File No. 17-72139.
[4] Invoices provided to the Clients by Mr. Robert were not paid.
[5] On December 5, 2017, as a result of the Clients’ failure to respond to Mr. Robert, the latter obtained an Order removing himself as the lawyer of record for the Clients in respect of Court File No. 17-72139.
[6] Mr. Robert subsequently began an action in Small Claims Court bearing Claim Numbers SC-18-00148149-0000 (note that Claim Number SC-18-0223 is in reference to the Small Claims Court file opened in the Brockville Courthouse, for enforcement purposes only), against the Clients to recover the unpaid fees. Mr. Robert obtained a judgement on March 21, 2018, which held the Clients jointly and severally liable for the full amount sought, together with pre and post-judgment interest.
[7] A judgment debtor examination was scheduled for June 14, 2018. Mr. Brennan failed to appear, and a Contempt Hearing was scheduled for June 27, 2018. On June 14, 2018, a Writ of Seizure and Sale of Personal Property was issued by the Small Claims Court in Ottawa allowing Mr. Robert to seize Mr. Brennan’s assets as soon as they were disclosed.
[8] On June 14, 2018, Mr. Robert filed and served a Notice of Garnishment on the Bank of Montreal, in Perth, and was able to garnish $64.83 from Mr. Brennan’s bank account.
[9] On June 27, 2018, Mr. Brennan appeared at the Contempt Hearing and purged his contempt. A subsequent judgment debtor examination was scheduled for July 10, 2018. Mr. Brennan attended this judgment debtor examination. During the examination, Mr. Robert enquired about Mr. Brennan’s assets. Mr. Brennan explained that he did not have any seizable assets. Specifically, Mr. Brennan asserted that the car he drives and the house he lives in are solely owned by his wife.
[10] During the judgment debtor examination, Mr. Robert also asked Mr. Brennan if he owned any RRSPs. Mr. Brennan responded, under oath, that he did not. This answer was corroborated by Mr. Brennan’s Financial Information Form, which was completed by Mr. Brennan as part of the judgment debtor examination.
[11] However, on July 27, 2018, Mr. Brennan filed for bankruptcy with D. & A. MacLeod Company Ltd. In his Statement of Affairs, Mr. Brennan confirmed that he had $13,017.00 in RRSPs. As part of this Statement of Affairs, Mr. Brennan swore or solemnly declared that:
This statement is, to the best of my knowledge, a full, true and complete statement of my affairs on the 27th day of July 2018, and fully discloses all property and transactions of every description that is or was in my possession or that devolve on me in accordance with the Bankruptcy and Insolvency Act.
[12] The information provided in the Financial Information Form and the statements made under oath by Mr. Brennan during the judgment debtor examination of July 10, 2018 were to the effect that he had no RRSPs. These are directly contradicted by Mr. Brennan’s assertion on July 27, 2018 (seventeen days later) confirming under oath that he possessed $13,017.00 in RRSPs, as part of his Statement of Affairs. The Court made a finding to this effect.
[13] Mr. Robert argues that, had it not been for the stay of proceedings brought about by Mr. Brennan’s bankruptcy, he would have been able to seize Mr. Brennan’s RRSPs pursuant to the Execution Act, R.S.O. 1990, c. E.24.
Issue
[14] The central question underlying this dispute is whether the stay of proceedings under section 69 of the Bankruptcy and Insolvency Act should be lifted to allow Mr. Robert to seize the RRSPs that were in existence of the time that the judgement was obtained and at the time of the judgement debtor examination, and which are exempt assets within the meaning of the Bankruptcy and Insolvency Act (“BIA”)?
Mr. Robert’s Position
[15] Mr. Robert argues that he is materially prejudiced by the stay of proceedings, which prevents him from seizing Mr. Brennan’s RRSPs.
[16] Furthermore, he argues that it would be inequitable for Mr. Brennan to retain his RRSPs as a result of making false and misleading statements under oath at the judgement debtor examination. Had the questions been answered honestly, Mr. Robert contends that he would have been able to seize the RRSPs notwithstanding the bankruptcy.
[17] In support of his position, Mr. Robert relies, inter alia, on the case of Fiorito v. Wiggins 2017 ONCA 765.
Mr. Brennan’s Position
[18] Mr. Brennan asserts that he met with the Trustee six weeks prior to the July 10, 2018 judgement debtor examination to discuss his financial situation.
[19] Mr. Brennan states that he had two appointments with the Trustee before going bankrupt. He says that he had to first deal with some tax issues in order to file for bankruptcy.
[20] Mr. Brennan says that he told Mr. Robert approximately one month before the judgement debtor examination that he would have to go bankrupt.
[21] Mr. Brennan also states that he did not know about the existence of the RRSPs in his name.
[22] Mr. Brennan asks the Court to have compassion for his situation.
The Trustee’s Position
[23] During the motion, the Trustee stated that it was not sure whether the RRSPs in question were exempt from seizure because they might have a life insurance component to them.
[24] The Court ordered the Trustee to contact the Lawyers Financial Investment Program and determine if the RRSPs were exempt from this seizure because of a life insurance component.
[25] The other concern presented by the Trustee is that, if the stay of proceedings is lifted and the RRSPs are collapsed, there will purportedly be a tax consequence for Mr. Brennan, assuming that all of the monies are paid to the Sheriff of the Judicial District of Ottawa who will subsequently distribute these to the creditors.
[26] The Trustee says that the after-tax consequences can be resolved by a withholding of 30 percent at source by the Lawyers Financial Investment Program and the transferring of this amount to Mr. Brennan’s tax account at the Canada Revenue Agency. In so doing, Mr. Brennan would not be subject to potential tax consequences related to the collapsing of the RRSPs.
Analysis
[27] The purpose of section 69.4 of the BIA is to lift the stay of proceedings in situations where a creditor is likely to be materially prejudiced by the continued operation of the stay, or where doing so is equitable on other grounds.
[28] The present situation is interesting. In the normal course of a bankruptcy, the trustee would be entitled to take possession of all of the non-exempt assets which would fall into the estate.
[29] In this particular case, pursuant to section 67.1(b.3) of the BIA, the RRSPs are exempt assets and do not fall into the bankrupt estate because no contributions were made within the 12 months prior to bankruptcy. The evidence is clear that all contributions were made outside the 12-month period, making the RRSPs exempt from seizure by the Trustee.
[30] These RRSPs are exempt from seizure by the Trustee. However, are they also exempt from seizure by a creditor pursuant to the provisions of the Execution Act R.S.O. 1990, c. E.24?
[31] Subject to certain exemptions under the Execution Act, all assets are seizable by the Sheriff for creditors pursuant to the Execution Act and the Creditors Relief Act, 2010 R.S.O. 1990, c. C.45.
[32] The Court requested that the Trustee contact the Lawyers Financial Investment Program to obtain information as to whether the RRSPs had an insurance component. If they did, this might exempt them from seizure pursuant to the Insurance Act, R.S.O. 1990, c. I.8. The response from the Lawyers Financial Investment Program was that the RRSPs did not have a life insurance component. In addition, Mr. Brennan confirmed to the Trustee that the RRSPs did not have a life insurance component.
[33] On that basis, the Court finds the RRSPs are not exempt assets under the Execution Act and Creditors Relief Act, and are capable of being seized by the Sheriff on behalf of claiming execution creditors.
[34] In the case of Fiorito v. Wiggins, the issue on appeal was whether the judge erred in law by delaying the automatic stay of proceedings under s. 69 BIA to allow the father to enforce the $200,00 debt for costs against otherwise exempt assets of the mother. The Court explained that:
[35] … Under s. 69.4 courts have “a wide discretion” based on the particular facts of the particular case”: see L.W. Houlden, G.B. Morawetz and Janis Sarra, Bankruptcy and Insolvency Law of Canada, 4th ed. (Toronto: Thomson Reuters, 2016) vol. 2 at pp. 3-350, 3-400.1. The motion judge was clearly entitled to take into account the circumstances regarding the background to the debt, particularly in the context where other creditors would not be affected by the order being sought. […]
[36] Further, as in Schreyer, because the respondent would be enforcing the costs award against exempt assets in the bankruptcy, other creditors would not be affected. As LeBel J. held, at para. 32, “[i]n keeping with the wording of s. 69.4(b) [of the] BIA, this is why it would be “equitable on other ground’ to make such an order”.
[35] In the present case, the Court is dealing with RRSPs that are exempt assets in the stay. Since the RRSPs were available for seizure prior to the bankruptcy, and since Mr. Brennan did not disclose them to the execution creditor—even while under oath at a judgement debtor examination—the Court finds that the RRSPs are seizable by the execution creditor through the Sheriff’s office in the normal course.
[36] On that basis, the Court finds that the stay of proceedings pursuant to section 69.4 of the BIA as it applies to the RRSPs in question should be lifted on equitable grounds. Had the bankrupt been truthful during the judgement debtor examination about the existence of the RRSPs, Mr. Robert would have been able to have the Sheriff seize them. The proceeds would not have fallen into the bankrupt estate because they were exempt from seizure by the trustee and would have been distributed in accordance with the Creditors Relief Act. Further, the Court understands that Mr. Robert is the only execution creditor, and no other creditor would be affected by the lifting of the stay.
[37] To mitigate against any tax consequences, the Court orders that 30 percent of the RRSP proceeds be deducted at source by the Lawyers Financial Investment Program and remitted to the Canada Revenue Agency to the credit of Mr. Brennan’s account. The balance of the RRSP is to be remitted to the Sheriff of the Judicial District of Ottawa, who shall distribute it in accordance to the Execution Act and the Creditors Relief Act.
Costs
[38] In the circumstances, the Court exercises its discretion and makes no Order as to costs.
[39] Order accordingly.
Mr. Justice Stanley J. Kershman
Released: August 8, 2019
COURT FILE NO.: 33-2404313
DATE: 2019/08/08
ONTARIO
SUPERIOR COURT OF JUSTICE
IN BANKRUPTCY and INSOLVENCY
IN THE MATTER OF THE BANKRUPTCY OF
LAWRENCE PATRICK JR BRENNAN
(AKA LAWRENCE BRENNAN)
OF THE CITY OF OTTAWA
IN THE PROVINCE OF ONTARIO
BEFORE: Mr. Justice Stanley J. Kershman
HEARD IN OTTAWA: May 22, 2019
APPEARANCE: Andre Robert – Moving Party,
Self-Represented Creditor
Alden Christian for the Trustee
Lawrence Brennan, Self-Represented Bankrupt
REASONS FOR DECISION
Kershman, J.
Released: August 8, 2019