COURT FILE NO.: 31-2199340
DATE: 2022 02 03
SUPERIOR COURT OF JUSTICE – ONTARIO
IN BANKRUPTCY
IN THE MATTER OF THE BANKRUPTCY OF
ROLLAH ZAHIR
COB AS 401 AUTOGLASS, FCOB AS SAFE-IT AUTO GLASS POWER BY RAINBOW, FCOB AS ARYANA HAJJ & UMRAH,
OF THE CITY OF AJAX IN THE PROVINCE OF ONTARIO, AUTO GLASS INSTALLER (SUMMARY ADMINISTRATION)
BEFORE: Associate Justice Ilchenko, Registrar in Bankruptcy
COUNSEL:
P. Bloomfield, LIT, for Trustee, Rusinek & Associates Inc. (the “Trustee”)
Bankrupt appearing in person
S. Sollano, Senior Bankruptcy Analyst, for Superintendent of Bankruptcy (“OSB”)
HEARD: February 2, 2022
E N D O R S E M E N T
[1] The Bankrupt Rollah Zahir (the “Bankrupt”) appears on his discharge hearing (the “Discharge”).
[2] The Bankrupt assigned himself into Bankruptcy on December 14, 2016. The Bankrupt had previously made an assignment into bankruptcy on May 29, 2006 and was absolutely discharged in March 1, 2007, automatically.
[3] This discharge was previously adjourned on March 14, 2019 to allow for further investigation by the OSB in respect of undisclosed property that was discovered as a result of a s.161 examination of the Bankrupt held on June 29, 2017 (the “s.161 Exam”). The Bankrupt initially failed to attend a prior s.161 examination scheduled by the OSB on June 7, 2017.
[4] The OSB filed a very extensive s.170(3) Report prepared by Ms. Sollano dated August 25, 2020 (the “OSB Report”), who also appeared before me today, to indicate the facts in the Report on the Bankrupt’s discharge under the provisions of s.173(1)(a),(d),(e),(f),(j),(l) and (o) of the Bankruptcy and Insolvency Act (the “BIA”).
[5] The Trustee has opposed the discharge of the Bankrupt under the provisions of s.173(1)(a),(e),(j) and (o) of the BIA.
[6] I have also read the Trustee's Report on the Bankrupt's Application for Discharge (Subsection 170(1)), dated October 24, 2018 (the “Original s.170 Report”), and the Trustee's Supplementary Report dated December 29, 2021 (the “Supplementary Report”)(collectively the “s.170 Report”).
[7] The Total Proven claims in the estate are $245,386, mostly credit accounts obtained by the Bankrupt at various financial institutions. The total recoveries in the estate are $4,058.89, of which $1525.00 is on account of a GST refund.
[8] The OSB Report details the serious concerns that the OSB has with respect to the conduct of the Bankrupt, both prior to bankruptcy and after bankruptcy, and the failure of the bankrupt to explain to the satisfaction of the OSB the disposition of certain property.
[9] In particular, the following evidence was provided in the OSB Report regarding his testimony at the s.161 Examination, the documentation produced by the Bankrupt after his 161 Examination, and documentation and information independently obtained by the OSB, the relevant portions being:
“8. On June 29, 2017, the Official Receiver issued an Official Receiver's Report (the "Report"), pursuant to Subsection 161(2) of the Act, citing paragraphs 173(1)(j) and (e) of the Act as possible reasons for which the discharge of the Bankrupt could be refused, suspended, or granted conditionally. Of particular concerns to the Official Receiver are the following:
a. The Bankrupt stated that all of his debt was due to his business dealings with a travel agency, ESNA Travel. The Bankrupt appears to have worked as a commissioned sales representative for this company. The Official Receiver submits that the accounting provided by the Bankrupt does not satisfactorily explain the disposition of funds from accounts operated by the Bankrupt. Should the Official Receiver become convinced that the Bankrupt has satisfactorily explained, with corroborating records, the disposition of her property, the Official Receiver will prepare an addendum to this report.
b. In 2014, the ESNA Travel agency closed and a number of individuals took legal action against the bankrupt personally.
c. The Bankrupt admitted that he repaid more than $150,000.00 to clients of ESNA Travel from his credit and savings and reported that prior to the closing of ESNA, he had no debt. The Bankrupt further admitted that he still owed $3,000.00 to individuals he failed to list on his Statement of Affairs.
d. The Bankrupt reported that in order to repay his customers, he enlisted the assistance of the friend of a friend to fill out credit applications. He advised that he neither completed nor signed these applications and paid this individual $12,000 from the credit granted. e. The Bankrupt also reported that the above friend of a friend stole approximately $14,000.00 from various credit sources, which he reported to the police.
- According to our review, on June 15, 2015, the Bankrupt was charged by TICO with one (1) count of operating as a travel agent without registration contrary to section 4(1)(a) of the Ontario Travel Industry Act, 2002. On the same day, Ghulam Wahabi, an individual who worked with the Bankrupt, was also charged by TICO with one (1) count of operating as a travel agent without registration;
Below is a summary of the convictions and sentences imposed on the Bankrupt:
- Pled guilty and was convicted of one (1) count of operating as a travel agent without registration, contrary to section 4(1)(a) of the Travel Industry Act, 2002.
-The Bankrupt was sentenced to: 1) Fine in the amount of $15,000 plus VFS, for a total of $18,750, 2) Probation Order for two (2) years starting November 3, 2016 with conditions, 3) Pay restitution to the Fund in the amount of $50,000, pursuant to the Free Standing Restitution Order issued by the Court.
During the examination, the Bankrupt stated that all of his debts were due to his business dealings with a travel agency, Esna Travel. In 2014, the travel agency closed and a number of individuals took legal action against the Bankrupt personally. The Bankrupt admitted that the totality of his new debt was incurred repaying clients of ESNA Travel agency, and that he continued to repay these debts up to and including 2016. The Bankrupt admitted that he repaid more than $150,000 to clients of Esna Travel agency from his credit and savings; [Exhibit D: Q#3-5, #31-32]
The Bankrupt reported that in order to repay his customers, he enlisted the assistance of the friend of a friend to fill out credit applications. He advised that he neither completed nor signed these applications and paid this individual $12,000 from the credit granted; [Exhibit D: Q#34]
As per Claims Register dated February 5, 2019, total proven unsecured claims is $222,081.49. The unsecured proven claims were mostly consisted of credit accounts obtained by the Bankrupt from various financial institutions. Attached hereto as Exhibit "H", is a copy of the Claims Register;
The analysis of the credit report reveals that during the period of September to December 2015, the Bankrupt obtained and opened eight (8) credit accounts; and during the period of January to June 2016, the Bankrupt obtained and opened two (2) credit accounts. The total ten (10) credit accounts had an estimated total credit limit of $167,721 and have total proven unsecured claims of $182,959.34. Additionally, as of January 2016, majority of these accounts were delinquent in payments and have been exhausted of their available credit in such short period of time. The 10 credit accounts represent 82% of the Bankrupt's total unsecured proven claims. Attached hereto as Exhibit "K", is a summary of the Bankrupt's credit accounts for the period of September 2015 to June 2016;
The Office of the Superintendent of Bankruptcy ("OSB") also notes that the Bankrupt obtained and opened three (3) credit accounts between the years of 2011 and 2014. The 3 credit accounts had an estimated total credit limit of $10,600 and have total proven unsecured claims of $18,115.02. As revealed by the credit report, majority of these accounts were also delinquent in payments by January of 2016. The 3 credit accounts represent 8% of the Bankrupt's total unsecured proven claims;
According to the submitted income information, the Bankrupt's average total income from 2015 to 2016 has been $14,732, mainly sourced from self-employment income.
On February 5, 2019, the OSB requested from the Trustee to obtain from the Bankrupt proof of payments issued to ESNA Travel agency clients. On February 22, 2019, the Trustee provided to the OSB copies of the letters provided by the Bankrupt, as proof of repayments to clients of ESNA Travel agency. The letters appears to have been written by various individuals (dated from year 2014 to 2016), claiming to have received repayments from the Bankrupt in regards to their travel. The amount received by the individuals ranged from $2,000 to $44,000. The OSB notes that the letters provided were not supported by any receipts and/or proof of banking transactions. Attached hereto as Exhibit "M", are copies of the letters received from the Bankrupt.
In Summary, the Agreed Statement of Facts, signed and dated by the Bankrupt on November 3, 2016, reports the following: [Exhibit N] . The Bankrupt was a sole proprietor of Aryana Hajj & Umra Travel, a business that have never been registered as retail or wholesale travel agents. The Bankrupt was not under contract as an Outside Sales Representative but he passed the Supervisor/Manager TICO Education Standards Exam. For the past several years, the Bankrupt has been selling Hajj & Umrah tours without registration.
The Bankrupt distributed flyers under the name of Aryana Hajj & Umrah that advertised Hajj 2014, including airfare, accommodations, meals and land transportation. The advertising indicated Hajj Visas and Seminar will be arranged. Starting November 3, 2014, TICO began receiving complaints from 33 consumers who paid $39,800 to Esna Travel, $66,000 to the Bankrupt and $190,900 to Ghulam Wahabi for 2014 Hajj tour packages, totalling $297,300. The consumers failed to receive their travel services or refund. An equal number of consumers have not submitted complaints to TICO.
Esna Travel entered into an agreement with the Bankrupt to provide 100 Emirates airline tickets. Esna Travel brooked and paid for 73 Emirates airline tickets, total cost of $166,832. The tickets purchased were for travel departing date of September 10, 2014 and returning October 13, 2014.
On September 2, 2014, the Bankrupt cancelled the tour because he was unable to secure visas from the Saudi Arabia Ministry of Hajj. Because of late cancellations, suppliers refused to provide refunds that could have been returned to customers.
A search warrant on the Aryana Hajj & Umrah bank account revealed that the account was opened on February 13, 2014 and has recorded activities relating to Ticket and Travel Agency" transactions. The transactions recorded deposits from Esna Travel, payments to various suppliers and on September 10, 2014 when the Hajj tour was cancelled, there remained $90,633 in the account.
- In Summary, the Joint Submissions for Sentencing, signed and dated by the Bankrupt on November 3, 2016, reports the following information: [Exhibit 0].
The parties, have submitted to the court, for consideration and approval, the Defendant (the Bankrupt) is to:
Enter a guilty plea on November 3, 2016.
Pay a fine in the amount of $15,000, payable over the period of 36 months from the date of sentencing. o Pay restitution totaling $50,000.
Be placed on Probation with conditions.
The OSB notes that the Agreed Statement of Facts and the Joint Submissions for Sentencing did not report information relating to the Bankrupt compensating the clients of Esna Travel agency;
On TICO's email response to the OSB, TICO also confirmed that from their review of the documents, there is no record of payment that they can see of the Bankrupt compensating any complainants after he entered a guilty plea and sentencing was complete. Furthermore, TICO explained that if the Bankrupt did compensate any complainants, this information would have been taken into consideration on sentencing and would have been part of the Agreed Statement of Facts;
TICO provided to the OSB a list of the Bankrupt's customers. [Exhibit Q As noted in paragraph 31, the Agreed Statement of Facts reports that the Bankrupt's customers issued total payments of $66,000 to the Bankrupt and complained to TICO of not receiving their refunds when travel services were not fulfilled. The list contains the names of five (5) individuals and further details of their complaints can be found on the document provided by TICO entitled "Appendix C" under paragraphs 16 to 33 of the document; [Exhibit R)
As outlined in paragraph 14, TICO's press release reported that consumers who complained and made a claim to the Ontario Travel Industry Compensation Fund (the "Fund"), were reimbursed in full. A total of $290,100 was reimbursed to consumers through, the Fund, Esna Travel and Mr. Wahabi. The Fund paid $142,300, of which $50,000 will be recovered through the restitution paid by the Bankrupt. TICO provided to the OSB an overview of payments reimbursed by the Fund with complete listing of the names of the complainants compensated by the Fund; (Exhibit S)
TICO explained to OSB that complainants who are compensated by the Fund goes through a rigorous process and the Fund will not pay out complainants if there are reasonable grounds to believe that the complainants have received compensation from another sources. Furthermore, TICO noted to the OSB that the reason for the Restitution Order is for the Bankrupt to reimburse the Fund since it is the Fund who compensated the complainants (which included payments to the Bankrupt's clients who submitted a claim to TICO) for unfulfilled travel services and not the Bankrupt. It is important to note that that the other defendants, Ghulam Wahabi and Esna Travel, were also sentenced to pay restitution ($54,000 and $93,800 respectively) to consumers who paid for travel services that have not been provided. [Exhibit G]
TICO provided to the OSB copies of statements received from consumers regarding payments. [Exhibit TI During OSB's review of the statements, it was noticed that some of the statements were exact duplicates of the letters provided by the Bankrupt to OSB as his proof of payments issued to the clients of Esna Travel agency. (Exhibit M] The OSB notes that out of the fifteen (15) letters provided by the Bankrupt, nine (9) letters were exact duplicates of the statements from consumers received by TICO. Attached hereto as Exhibit "U", is a list prepared by the OSB detailing the contact and content of the letters submitted by the Bankrupt to the OSB. The list also indicates which letters were exact duplicate of the statements received by TICO from consumers;
The review of the 15 letters received from the Bankrupt revealed that an estimated total amount of $104,200 were refunded by the Bankrupt to various individuals. [Exhibit U] The OSB notes that $32,200 of the refunds issued by the Bankrupt relate to the 9 exact duplicate letters/statements that were received by TICO which may have been already subjected to thorough review and investigation by TICO as a result of their prosecution of the Bankrupt;
According to TICO, at the time of the investigation and prosecution, TICO believed that there were consumers affected by the cancellation of the travel by the Bankrupt, who did not come forward and did not complain or make a claim. TICO also reported of not knowing the reasons why these consumers did not come forward. However, if these consumers did not come forward because they were compensated by the Bankrupt, TICO and the OSB both raises the issue on why the Bankrupt did not ask to include such an important mitigating fact in the Agreed Statement of Facts or Joint Submissions on Sentence, Attached hereto as Exhibit "V", is a copy of the email communication between the OSB and TICO dated March 4, 2019 and March 7, 2019;
The OSB inquired from TICO whether the Bankrupt has made any payments to TICO relating to his fine and restitution order;
According to TICO, as of March 5, 2019, total amount of $18,750 fine remains outstanding. The due date to pay the full amount is November 3, 2019;
In regard to the restitution order, according to TICO, the Bankrupt has paid a total of $2,300 between November 30, 2016 and April 30, 2018. As part of the Restitution Order under Section 32(1) of the Travel Industry Act, 2002, the Bankrupt is required to pay $50,000 by November 2031 in minimum installments of $250 monthly beginning November 2016. Accordingly, the Bankrupt is not in compliance with the Restitution Order;
The Bankrupt during the examination reported that the friend of a friend who provided assistance in obtaining new credit accounts stole approximately $14,000 from various credit resources of the Bankrupt. This incident was reported to the Police and according to the Bankrupt all of his debts were used to repay his customers except for: [Exhibit D: QU32]
$2,500 from CIBC
$5,000 from RBC MasterCard
$2,100 from Scotia Visa
$3,100 from Scotia Amex
Funds from his CIBC bank account including overdrafts
On February 5, 2019, the OSB requested from the Trustee to obtain from the Bankrupt copy of the police incident report;
As of the date of this report, the requested copy of the police incident report from the Bankrupt remains outstanding;
According to the Parcel Register and Purview Broker Report obtained by the OSB for a real property located at 8 Solway Crescent, Ajax, Ontario (the "Solway Property"), the Bankrupt had 100% ownership interest on this property which was sold for $752,000 on June 12, 2015, approximately one year and a half prior to his filing of his bankruptcy; Attached hereto as Exhibit "X", is a copy of the Parcel Register dated March 6, 2019 and copy of the Purview Broker Report dated March 1, 2019 for the Solway Property;
The Bankrupt failed to disclose in his Statement of Affairs, under section 10A, details of the disposition of the Solway Property; [Exhibit A: Q#10A]
The OSB conducted a property search on Humira Alakozai. According to the property search, Humira Alakozai owns a property located at 109 Braebrook Drive, Whitby, Ontario (the "Braebrook Property"). Attached hereto as Exhibit "Z", is a copy of the result of the property search dated March 6, 2019;
The OSB obtained a Purview Broker Report on the Braebrook Property and according to this document: The Braebrook Property was purchased on March 2, 2016 for $683,619. The Purview Broker Report appears to indicate that there's currently no mortgage attached on the property. Attached hereto as Exhibit "AA", is a copy of the Purview Broker Report dated March 8, 2019;
It is unclear to the OSB how Humira Alakozai was able to afford the purchase of the Braebrook Property since approximately two (2) years prior to the purchase of the property, she filed for bankruptcy with very minimal income;
Based on the above information, it is unclear to the OSB what the Bankrupt's real residential address is and whether he has any ownership interest on the Braebrook Property;
On June 24, 2020, the Trustee reported to the OSB via email, the result of their investigation on the Solway and Braebrook Properties. According to the Trustee:
On or about May 2015, nineteen (19) months prior to filing bankruptcy, the Bankrupt sold the Solway Property and used the approximate proceeds of $488,500 to purchase the Braebrook Property, title of which was engrossed solely under Humira Alakozai, the Bankrupt's ex-spouse.
The conveyance of the proceeds of sale of the Solway Property to the Bankrupt's ex-spouse may constitute a fraudulent preference or transaction under value, or fraudulent conveyance.
There are insufficient funds in the estate to attack the impugned transaction and on March 19, 2020, the Trustee has advised all known creditors on their right to pursue under section 38 of the Act.
The OSB notes that the Bankrupt finalized the sale of the Solway property just days prior to being charged by TICO on June 15, 2015;
The OSB notes that the proceeds ($448,499.37) of the sale of the Solway Property, realized on June 12, 2015, if not transferred by the Bankrupt to the purchase of the Braebrook Property, could have been funds available to the Bankrupt to compensate the clients of Esna Travel agency, who personally went after him since the Bankrupt allegedly claim that the agency closed its business in 2014. Instead, the Bankrupt opened and obtained new credit accounts between September 2015 and June 2016 (as outlined in paragraphs 19 to 20), incurred new liabilities (as noted in paragraphs 15 to 17) and filed an assignment in bankruptcy on December 14, 2016. As per Claims Register dated July 2, 2020, the total unsecured proven claims of the Bankrupt's creditors is $245,386.56. Attached hereto as Exhibit "NN", is a copy of the Claims Register dated July 2, 2020;
The OSB notes that the proceeds of the sale of the Solway Property, if not transferred by the Bankrupt to the purchase of the Braebrook Property, could have been funds available to the Bankrupt, to compensate the consumers who complained to TICO for not receiving their refunds for unfulfilled services and the Bankrupt could have avoided being charged and convicted by TICO. Instead, as outlined in various paragraphs on this report, the Bankrupt pled guilty and was convicted of one (I) count of operating as a travel agent without registration and was sentenced to pay a fine in the amount of $18,750 and to pay restitution to the Fund in the amount of $50,000;
The OSB notes that the proceeds of the sale of the Solway Property, if not transferred by the Bankrupt to the purchase of the Braebrook Property, could have been funds available to the Bankrupt, to pay his fine and Restitution Order. Instead, the Bankrupt declared the outstanding fines and restitution order as one of his liabilities in his sworn Statement of Affairs and also declared the outstanding fines and restitution order as one of his reasons for his financial difficulty. As noted in paragraphs 43 and 44, as of March 5, 2019, the outstanding fine and Restitution Order, remain unpaid by the Bankrupt; and
The OSB notes that while Humira Alakozai was being investigated by the Trustee regarding her purchase of the Braebrook Property, on November 5, 2019, Humira Alakozai disposes the Braebrook Property. The estimated net proceeds received by Humira Alakozai from the sale of the Braebrook Property is $600,000.”
[10] In the Supplementary Report, on the issues of these undisclosed real property transfers the Trustee states:
“7. THAT the trustee has learned that on or about May 2015 - 19 months prior to filing bankruptcy - the bankrupt sold real property located at 8 Solway Crescent, Ajax, Ontario ("Solway"). The trustee also learned that the proceeds of sale of Solway, in the approximate amount of $488,500, were used to purchase a property at 109 Braebrook Drive, Whitby, Ontario, title of which was engrossed solely in his ex-spouse's name.
The conveyance of the proceeds of sale of Solway to his ex-spouse may constitute a fraudulent preference, or transaction under value, or fraudulent conveyance.
The trustee has consulted legal counsel, who declined act on a contingency fee basis.
As there are insufficient funds in the estate to attack the impugned transaction, on March 19, 2020, the trustee has advised all known creditors of their right to pursue the above under section 38 of the BIA.
To date, no creditor has expressed interest in pursuing this matter.
[11] In the Original s.170 Report the Trustee also reported:
“Please also be advised that the bankrupt reported at the time of an examination by the Official Receiver that he was repaying clients of ESNA travel, and that he continued to repay these debts up to and including 2016.
It appears that payments made to individual creditors may constitute a preferential payment under Section 95 of the Bankruptcy and Insolvency Act.
It is the trustee's opinion that the cost benefit ratio in relation to attacking the aforementioned matter (possible preferences) is too high, as the anticipated costs will likely exceed any potential realization for the general benefit of the creditors. The trustee may not take any further action unless indemnified by a creditor or by creditors.
The creditors were advised about the above and reminded of their rights under section 38 of the BIA in a separate letter dated July 28, 2017. In the absence of action by the creditors, the trustee may proceed to its discharge in the normal course without further consideration of the matter noted herein.
To date, no creditor has expressed interest in pursuing this matter.”
[12] It should be noted that these preferential payments to former ESNA clients may never have occurred, based on the findings of the OSB in the OSB Report. Accordingly, the Bankrupt may have mislead both the OSB and the Trustee on this issue.
[13] The jurisprudence requires that I provide deference to the findings of the Trustee in a s.170 Report and I do so.
[14] From this research and investigation by the Trustee and the OSB, and the 400 pages of text and exhibits to the OSB Report, and in the 77 pages of the s.170 Report, the following issues are raised:
The Bankrupt may have provided misleading documentation to the OSB regarding whether the monies obtained from credit sources was used to repay the travel agency customers, or whether it was used for other purposes, breaching his duties under the BIA and constituting a proven s.173(1)(o) fact.
His testimony on his s.161 examination may contradict the Agreed Statement of Facts filed for his guilty plea with TICO breaching his duties under the BIA and constituting a proven s.173(1)(o) fact;
He may have mislead OSB and the Trustee as to his marital status, which may be incorrect on his statement of affairs and other documentation, breaching his duties under the BIA and constituting a proven s.173(1)(o) fact;
The unpaid fine and restitution Order both constitute debts under s.178(1)(a) and a proven fact under s.173(1)(l);
The Bankrupt failed to disclose a significant disposition of his only valuable asset on his sworn statement of affairs, to the Trustee, and to the OSB at the s.161 examination, a breach of the Bankrupt’s duties under the BIA and a proven s.173(1)(o) fact.
The transactions related to the property and the dispositions of the proceeds may constitute transactions reviewable under s.95-101 of the BIA and proven facts under s.173(1)(d) and evidence that a s.173(1)(a) fact is provable.
The Bankrupt had previously made an assignment into bankruptcy, which is a proven s.173(1)(j) fact.
[15] The Bankrupt, when questioned by me under oath about the issues relating to the disposition of the proceeds of the real estate transfers was evasive and combative, insisting that he received no funds from these transactions, in which he portrayed himself as the puppet of a third party Zabibhullah Galamuddin (apparently related to his alleged ex-wife Humira Alkozai) and a “crooked lawyer caused all this – you know how they are” despite the documentation provided by the OSB in the OSB Report, which showed the opposite.
[16] In particular, a series of emails on June 10, 2015 at Exhibit “II” to the OSB Report between the Bankrupt and the real estate transaction lawyer make it clear that the Bankrupt was directing where he wanted the $488,500 in proceeds of the sale transaction of 8 Solway (“Solway”) to go, namely his desire that they be paid directly to the developer Medallion selling the 109 Braebrook Drive property (“Braebrook”) to the Bankrupt’s alleged ex-wife Humira Alkozai, and the lawyer providing the Bankrupt with the proceeds directly for fear that deposits held by developers were statutorily only protected to $40,000.
[17] Therefore, it appears that despite protestations to the contrary, the Bankrupt did in fact receive these $488,500 in the proceeds of sale of Solway that closed on June 12, 2015 and may have provided them to his ex-wife to purchase the Braebrook property, despite attempting to do this directly by instructing counsel to pay them directly to Medallion, the vendor of Braebrook.
[18] Curiously, the Bankrupt’s alleged ex-wife Humira Alkozai was herself only discharged from bankruptcy on April 18, 2015, a mere 1 month and 39 days from this transaction where she purchased Braebrook for $683,619 apparently with the assistance of the $488,500 of proceeds paid to the Bankrupt in the sale of Solway. The Braebrook property was sold on March on November 5, 2019 for $750,000, with net proceeds of $600,000 and it is not clear as to the disposition of the proceeds by Humira Alkozai.
[19] As noted in the OSB Report, the context of this transaction, and the possible explanation for this dance by the Bankrupt is that on June 15, 2015, just 5 days after these emails with the real estate lawyer, and 3 days from the transfer of the Solway property, the Bankrupt was charged by TICO with one (1) count of operating as a travel agent without registration contrary to section 4(1)(a) of the [Ontario ]Travel Industry Act, 2002 as a result of which, the Bankrupt pled guilty and was convicted of one (I) count of operating as a travel agent without registration and was sentenced to pay a fine in the amount of $18,750 and to pay restitution to the Fund in the amount of $50,000.
[20] When confronted by Ms. Sollano with Exhibit II the Bankrupt in his sworn testimony waved away the contradiction by again blaming the “crooked lawyer”, and that despite the emails from him, and the appended Statement of Adjustments, instead testified that there were different oral instructions provided to the “crooked lawyer” by the third party master puppeteer Galamuddin as a result of which the Bankrupt did not receive the proceeds.
[21] No evidence or documentation was provided by the Bankrupt to resolve this contradiction involving $488,500 in the Bankrupt’s assets, transferred to a non-arm’s length party within 18 months of the date of the date of the Bankruptcy of December 14, 2016.
[22] As noted in the OSB Report, as per the Claims Register dated July 2, 2020, the total unsecured proven claims of the Bankrupt's creditors were at that date $245,386.56 and the Bankrupt was fined $18,750 and ordered to pay restitution to the Fund in the amount of $50,000.
[23] Had these proceeds been retained by the Bankrupt, instead of being directed to his alleged ex-wife, a recently discharged bankrupt herself, there would have been no need for this bankruptcy, as there would have been sufficient assets to pay the creditors and the fines and restitution order in full. I find that this constitutes proven facts under the provisions of s.173(1)(a) and (d) of the BIA.
[24] Similarly, in his sworn testimony before me, the Bankrupt was also unable to resolve the contradictions between his s.161 Examination, and the Agreed Statement of Facts in his TICO prosecution on whether he actually used credit to obtain funds to pay his ESNA customers, which the Agreed Statement of Facts does not support, or whether these funds were used for other purposes, with the Bankrupt referring to “cash payments” he alleged he made to this ESNA customers as an explanation for the contradictory sworn testimony.
[25] In his testimony the Bankrupt also decided to advise the Court, under oath, that he “had no problem with discharge” because he was “leading a normal life” as a bankrupt, that his life “was not terrible” living on various forms of social assistance, and that whether he was discharged or not did not appear to be of much effect on his lifestyle, and he could “go on” as an undischarged bankrupt.
[26] As noted by the Court of Appeal in Bank of Montreal v. Giannotti 2000 CanLII 16928 (ON CA), 2000 CarswellOnt 4110, [2000] O.J. No. 4272, 104 A.C.W.S. (3d) 26, 138 O.A.C. 316, 197 D.L.R. (4th) 266, 21 C.B.R. (4th) 199, 51 O.R. (3d) 544:
“11 There is no question that a principal purpose of the Bankruptcy and Insolvency Act (”BIA”) is the rehabilitation of unfortunate debtors. As expressed by Houlden and Morawetz in their treatise, Bankruptcy Law of Canada (3rd ed., rev., Vol. 1, 1998) at p. 1-5:
The Act permits an honest debtor, who has been unfortunate in business, to secure a discharge so that he or she can make a fresh start and resume his or her place in the business community.
12 However, the rehabilitation of the debtor must be balanced with the interests of creditors who have lost money because of the bankrupt’s conduct. This requirement of a balanced approach in discharge hearings was well articulated by Adams J. in Re Goodman (January 19, 1995), Doc. 31-267911 (Ont. Bktcy.), at para. 1:
The rehabilitative purpose of bankruptcy legislation is well understood. See Re Willey (1981), 38 C.B.R. (N.S.) 24 (Ont. S.C.). Individuals and society generally benefit from a process by which the crushing burden of financial debt can be lifted, thereby permitting a bankrupt to resume the life of a useful and productive citizen. See Re Shakell . . . (1988), 70 C.B.R. (N.S.) 270 (Ont. S.C.) Equally important, however, is the integrity of the bankruptcy process itself. While the central purpose of the statute is to enable the honest but unfortunate debtor to make a fresh start, parity of treatment between debtors and fairness to creditors need to be kept in mind.
13 Both Adams J. and Houlden and Morawetz use two adjectives to describe a debtor who should be entitled to the relief of a discharge - “unfortunate” and “honest”. I have no doubt that Mr. Giannotti has been unfortunate. The downturn in the real estate market in the late 1980s and early 1990s ruined many developers. Mr. Giannotti, with millions of dollars in personal guarantees behind his companies, was one of them.
14 However, I do not think that the adjective “honest” applies to the manner in which Mr. Giannotti conducted himself in this proceeding. My review of his testimony at the discharge hearing leads to the inevitable and overwhelming conclusion that Mr. Giannotti has not told the truth to his creditors, his trustee in bankruptcy, or the court at the discharge hearing. In Re Gestetner (November 25, 1996), Sharpe J. (Ont. Gen. Div.) said, at para. 7:
An honest but unfortunate debtor is entitled by the law to have a fresh financial start. The applicants may have been unfortunate, but I find that they have not been honest. In my view, they are not entitled to have the fresh start the law allows them unless they are prepared to be honest with their creditors and with the court. The court has an obligation to ensure that the integrity of the bankruptcy law is maintained. The applicants have refused to provide the court with the information required to make an appropriate judgment. In light of the evidence the applicants have offered and the level of disclosure they have made as to the true state of their financial affairs, I find that they are not entitled to discharges on any terms.
15 I agree entirely with the philosophy manifest in this passage - a dishonest debtor, and a debtor unwilling to make full disclosure of his financial affairs, is entitled to no relief under the BIA. For several reasons, I find that every word of the above passage applies to Mr. Giannotti and, therefore, like the bankrupts in Re Gestetner, he was entitled to no relief at his discharge hearing.
16 First, Mr. Giannotti did not co-operate with his trustee in bankruptcy as the trustee sought to administer his estate. Pursuant to s.170 of the BIA, the trustee filed a report on February 19, 1999 in which he criticized Mr. Giannotti in a number of aspects, including his refusal to provide information about a family trust, his inability to explain why he disclosed different years of birth on his statement of affairs and during his examination by the official receiver, and his failure to co-operate in appearing for an examination pursuant to s.163 of the BIA.
17 In a supplementary report dated June 1, 1999, filed three weeks before the discharge hearing, the trustee expanded on his criticism of Mr. Giannotti. According to the trustee, Mr. Giannotti was continuing in his refusal to provide information about a family trust, he had put the trustee to unnecessary expense by frivolous and vexatious actions regarding his s.163 examination, he had refused to comply with undertakings after the s.163 examination, and he refused or was unable to answer questions about how rent and office expenses were being paid for a business in which Mr. Giannotti appeared to be involved after he became bankrupt.
18 In my view, the integrity of the bankruptcy system requires a bankrupt to co-operate with the trustee. See Mancini (Trustees of) v. Mancini (1987), 63 C.B.R. (N.S.) 254 (Ont. S.C.), Re Adelman (1945), 26 C.B.R. 152 (Ont. S.C.), and Re Rahall (1997), 1997 CanLII 14970 (AB KB), 49 C.B.R. (3d) 268 (Alta. Q.B.). The trustee is appointed by order of the court. After a receiving order is made by the court, the trustee administers the bankrupt’s estate on behalf of the court. Accordingly, a bankrupt who seeks relief, by way of discharge, from the court must co-operate fully with the trustee before seeking that relief. Mr. Giannotti did not comply with this obligation.”
25 The factors and conduct that I have summarized clearly placed Mr. Giannotti within s. 173 of the BIA. The bankruptcy judge could not have granted him an absolute discharge; his options were to grant either a suspended discharge or a conditional discharge, or to refuse to order any kind of discharge. The bankruptcy judge chose a combination of a suspended discharge and a conditional discharge.
26 The case law establishes that a complete refusal of any type of discharge is an unusual order given the BIA’s emphasis on rehabilitation of the debtor. In Re Adelman, Urquhart J. said that a refusal of discharge “is a harsh step . . . which should be resorted to only in extraordinary cases” (supra, at p. 153). However, in this case, given Mr. Giannotti’s conduct and testimony, a refusal of any kind of discharge was, in my view, required. Mr. Giannotti was simply too unco-operative, evasive and untruthful with both the trustee and the bankruptcy judge.
27 The BIA seeks to provide relief to honest and unfortunate debtors. The word ‘honest’ introduces a strong element of integrity into the administration of the Act. In my view, a reasonable member of the public would seriously question the integrity of the BIA if Mr. Giannotti was given any form of relief at this juncture. He has not been honest with the trustee or the bankruptcy court. He is free to re-apply for a discharge, but he must co-operate with the trustee and make full disclosure of the relevant facts.”
[27] In the context of this discharge, as a result of the admissions made by the Bankrupt before me, under oath, and at his s.161 Examination, and from the documentation produced to date by the bankrupt, and obtained by the OSB and set out in the OSB Report, and by the Trustee in the S.170 Report, I find that facts under s.173(1)(a),(d),(e),(f),(j),(l) and (o) of the Bankruptcy and Insolvency Act have been proven.
[28] Accordingly, as noted in Giannotti, I cannot grant the Bankrupt an absolute discharge, and only grant either a suspended discharge or a conditional discharge, or to refuse to order any kind of discharge.
[29] Like the bankrupt in Giannotti, I find that this Bankrupt, on the review of the totality of the evidence before me, and in particular his extraordinarily cavalier sworn testimony before me, is a “…dishonest debtor, and a debtor unwilling to make full disclosure of his financial affairs, [that] is entitled to no relief under the BIA.… and, therefore, like the bankrupts in Re Gestetner, he was entitled to no relief at his discharge hearing.”
[30] Like the Bankrupt in Giannotti, my review of the testimony of the Bankrupt before me:
“…leads to the inevitable and overwhelming conclusion that [this Bankrupt] has not told the truth to his creditors, his trustee in bankruptcy, or the court at the discharge hearing.”
[31] On my review of the testimony of the Bankrupt before me, and totality of the evidence provided by the Trustee and the OSB, like the Bankrupts in Re Gestetner cited in Giannotti, I find that:
“… they have not been honest. In my view, they are not entitled to have the fresh start the law allows them unless they are prepared to be honest with their creditors and with the court. The court has an obligation to ensure that the integrity of the bankruptcy law is maintained. The applicants have refused to provide the court with the information required to make an appropriate judgment. In light of the evidence the applicants have offered and the level of disclosure they have made as to the true state of their financial affairs, I find that they are not entitled to discharges on any terms.”
[32] I also find that this Bankrupt, like the Bankrupt in Giannotti:, given the Bankrupt’s conduct and testimony, a refusal of any kind of discharge is, in my view, required as:
“…[the Bankrupt] was simply too unco-operative, evasive and untruthful with both the trustee and the bankruptcy judge.”
[33] As stated in Giannotti:
“…the BIA seeks to provide relief to honest and unfortunate debtors. The word ‘honest’ introduces a strong element of integrity into the administration of the Act. In my view, a reasonable member of the public would seriously question the integrity of the BIA if this Bankrupt was given any form of relief at this juncture. He has not been honest with the trustee or the bankruptcy court. He is free to re-apply for a discharge, but he must co-operate with the trustee and make full disclosure of the relevant facts.”
[34] Given that the Bankrupt has testified, under oath, that he is “leading a normal life” as a bankrupt, that his life “was not terrible” living on various forms of social assistance, and that whether he was discharged or not did not appear to be of much effect on his lifestyle, and he could “go on” as an undischarged bankrupt, in addition to the other issues raised by the Trustee and the OSB as to the honestly and level of cooperation of the Bankrupt, I find that this Bankrupt is not an “honest and unfortunate debtor deserving of a fresh financial start”. These statements by the Bankrupt are evidence that the Bankrupt has not, in any way, been rehabilitated by this bankruptcy and/or his prior bankruptcy.
[35] Accordingly, employing my discretion as a Registrar in Bankruptcy under the provisions of the BIA, I refuse the Bankrupts discharge.
[36] In addition, employing my discretion as a Registrar in Bankruptcy under the provisions of the BIA, I grant the relief sought in the form of the Draft Order provided by the Trustee and agreed to by the OSB, that adds terms of the Discharge Order that I am granting, that:
The bankrupt may reapply for discharge when:
(1) the bankrupt has paid $16,000 to the Travel Industry Council of Ontario, towards the Restitution Order (Court File No: 4863 999 15 102460 00);
(2) the bankrupt has paid $12,500 to the trustee at a rate not less than $1,200 semi-annually, starting February 2022.
Associate Justice Ilchenko
Registrar in Bankruptcy
Superior Court of Justice
Released: February 3, 2022