Re Chhabra, 2023 ONSC 2077

COURT FILE NO.: 31-2573052 DATE: 2023 03 30

SUPERIOR COURT OF JUSTICE – ONTARIO

IN BANKRUPTCY 31-2573052

IN THE MATTER OF THE BANKRUPTCY OF DHRUV CHHABRA OF THE CITY OF MARKHAM PROVINCE OF ONTARIO

BEFORE: Associate Justice Ilchenko, Registrar in Bankruptcy

COUNSEL: Opposing Creditors Lakshmi Balakrishan and Snehal Patel (collectively “Patel”), Rajeev Kalia (“Kalia”), Gopikiran Morla (“Morla”) appearing in person (collectively the “Opposing Creditors”) Bankrupt Dhruv Chhabra appearing in person (the “Bankrupt”) C. Galea, LIT for Trustee msi Spergel inc. (the “Trustee”) opposing discharge Superintendent of Bankruptcy not opposing although duly served

HEARD: March 30, 2023

ENDORSEMENT

[1] The Bankrupt appears on his discharge hearing (the “Discharge”) seeking an Absolute Discharge.

[2] The Bankrupt filed a voluntary assignment in Bankruptcy on October 21, 2019. (the “Assignment Date”). The Bankrupt had not previously been bankrupt and had not previously filed a Proposal.

[3] The Trustee has opposed the Bankrupt's Discharge. The Opposing Creditors have also opposed the Bankrupt’s discharge

[4] I case managed this Discharge Hearing as a Special Appointment, issuing directions to the parties in endorsements dated September 23, 2021, November 30, 2021, and March 15, 2022 at which hearing I urged the Bankrupt to retain counsel for his hearing, due to the seriousness of the Bankruptcy issues (the “Scheduling Endorsements”).

[5] Ultimately, I determined that given the already existing evidence, that a hearing of over an hour was not necessary and scheduled this matter to be heard on the “Long”, under 1 hour Opposed Discharge hearing list.

[6] All underlined text in these reasons is emphasis added by me for these reasons.

[7] The Court has considered all materials and arguments raised by the parties on this Motion. Any failure by the Court to refer in these reasons to specific arguments and materials raised does not reflect that the Court has not considered those arguments.

Trustee’s Materials: S.170 Report and Supplementary Reports and Opposition

[8] The Trustee has opposed the discharge of the Bankrupt under the provisions of s.173(1)(a)(b)(d)(e)(k)(l) and (o) of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 as am. (the “BIA”). The Opposing Creditors have opposed on the basis of s.173(1) (a)(b)(k)(l) and (o) of the BIA.

[9] The Trustee has filed for this discharge hearing the Original s.170(1) Report of the Trustee dated June 23, 2020 (the “s.170 Report”) and the Trustee's Supplementary Report dated March 14, 2023 (the “Supplementary Report”). At Tab 5 of that Report is correspondence from the OSB dated December 8, 2021 (the “OSB Letter”) that states that the OSB has not formally opposed the discharge, that:

“We have conducted a review of the matter and we wish to advise you, and all parties to the discharge process of the above noted bankrupt, the Superintendent does not wish to file an Intervention by way of Opposition To Discharge, ss. 170(3) Report, nor Notice per p. 5(4)(a) at this time. 'This Notice does not prevent the Superintendent from electing to become involved in the Estate processes at a future date.

Further to the Associate Justice's Endorsement, please be advised the Official Receiver is not in receipt of any of data from the bankrupt relating to the bankrupt's Undertakings of March 9, 2020. As such, the Official Receiver is satisfied to rely on the efforts of the Licensed Insolvency Trustee (the "LIT") to obtain and action the information should it be made available by the bankrupt, and to receive a Report on the LIT's findings relating to the data. In the event the bankrupt fails to provide the data, the Official Receiver encourages the LIT, and the various parties to the discharge process, recognize the bankrupt's failure pursuant to s. 158 and to cite a p. 173(1)(o) Fact within their individual pleadings for either a Refusal or Conditional Discharge Order, or when seeking a Suspension period be applied to the outcome of the bankrupt's discharge Hearing.”

[10] The Bankrupt was examined under oath by the OSB on March 19, 2020 under the provisions of s.161 of the BIA, the Transcript of which was filed on this hearing as evidence (the “s.161 Examination”). The Bankrupt gave numerous undertakings at that examination. The OSB also issued a report summarizing the Bankrupt’s testimony dated May 11, 2020 (the “OSB Report”).

[11] Of key importance to the conduct of this Discharge is the following statement made in the Supplementary Report:

“6. Peel Regional Police (Fraud Bureau)

The bankrupt has been under investigation by Peel Regional Police. We contacted Detective Constable Lesley Middleton on March 13, 2023, for an update and we were advised that the bankrupt was charged with three counts of Fraud over $5,000 and he has a "to be spoken to" Court date in June this year (copy of email from Detective Constable Middleton attached).”

[12] The Bankrupt confirmed that this was the case, and that he had asked his Criminal Counsel to attend at this Discharge Hearing, but they could not. Each of the Opposing Creditors also confirmed to me that they had given statements to the Peel Regional Police.

[13] Accordingly, given the sensitivity of there being an ongoing prosecution of the Bankrupt, I did not compel his testimony at the discharge hearing or that of the Opposing Creditors, who have already given evidence to the Crown in the Criminal Proceedings, to avoid tainting or producing evidentiary issues relating to the fraud allegations made by the Opposing Creditors against the Bankrupt.

[14] Instead I have relied on the Bankrupt’s prior testimony at the s.161 Examination and s.170 Report and the Supplementary Report as the evidentiary basis for my disposition of the Discharge hearing, without the oral testimony under oath of the Bankrupt and the Opposing Creditors.

[15] As per the decision of Osborne, J. in Re Horwitz, 1984 CarswellOnt 149:

“12 An application for discharge was always intended to be a summary hearing. Issues such as settlements or fraudulent preference or fraudulent representations leading to the extension of credit are not to be explored on a discharge application. Those matters are factors to be considered by the court on an application for discharge by the plain wording of s. 143(1)(h), (k). In that the discharge hearing is a summary hearing, it is not the appropriate forum in which to determine whether there has been a settlement or fraudulent preference or an extension of credit because of the bankrupt’s fraud. Those are matters to be weighed and considered on the bankrupt’s application for discharge, after they have already been established. The discharge hearing is not the forum in which s. 143 factors are to be established ab initio, nor do I think the proper approach to be taken is to adjourn the application for discharge by resorting to the vehicle of a direction of a trial on an issue.”

[16] Given that it appears that the Criminal Proceedings will be continuing for a considerable period of time, with an uncertain outcome, there is sufficient evidence before the Court to deal with aspects of the Bankrupt’s conduct and fulfillment of his duties under the BIA unrelated to the underlying fraud allegations being tried in the Criminal Courts. Accordingly, exercising my Registrar’s Discretion, I have chosen to continue the Discharge without having the Criminal Court determine the Fraud issue involving the claims of the Opposing Creditors.

[17] The s.170 Report, attaches the Trustee’s Opposition, and the Statement of Affairs dated October 21, 2019, sworn by the Bankrupt (the “Statement of Affairs”).

[18] The grounds of the Trustee’s opposition in the Supplementary Report state:

“S. 173(a) - the assets of the bankrupt are not of a value equal to fifty cents on the doll on the amount of the bankrupt's unsecured liabilities;

S. 173(b) - the bankrupt has failed to keep proper books of account. The Trustee has asked the bankrupt to provide an account of how he invested the funds provided to him from the various creditor/investors. To date, the bankrupt has failed to adequately account for these funds, totalling approximately $418,000.

S. 173(d) - failure to account satisfactorily for the loss of assets. The Trustee has asked the bankrupt to provide evidence to justify the depletion of the funds invested but to date, the bankrupt has been unable/unwilling to provide this data.

S. 173(e) - the bankrupt has brought on, or contributed to his bankrupt, by rash and hazardous speculation. The bankrupt claims to have invested his creditors' money in an oil project in Texas. He has also operated a primary school in Delhi, India, has explored importing diamonds from abroad and has invested funds in a stock account. It is unclear if the bankrupt, by co-mingling funds, used funds from his investors to fund these alternate projects. None of these investments has been successful.

S. 173(k) - the bankrupt is guilty of fraud or fraudulent breach of trust. Certain individual creditors believe that the bankrupt has committed fraud. It is interesting to note that despite the Trustee's repeated requests, the bankrupt has failed to provide evidence that the funds he received from the individual investors/creditors were in fact invested in the Texas oil project. We also advise that the bankrupt is currently being investigated by the Ontario Securities Commission. In this regard, the Trustee has had various discussions with Ms. Louise Harris of the OSC.

S. 173(1) - the bankrupt has committed an offence under section 198 of the BIA. At the time of filing his bankruptcy, the bankrupt neglected to advise the Trustee of his stock investment abroad, his interest in a daycare business in India and potentially other business ventures such as diamond importation. This information was revealed at the First meeting of Creditors. See section 198(1)(c).

S. 173(o) - Failure to perform duties under s. 158. The bankrupt has failed to provide various documents as requested by both the OSB (from his examination) and the Trustee. The bankrupt failed to fulfill his Undertakings made at the First Meeting of Creditors. He has also repeatedly neglected to provide the Trustee with adequate and sufficient documentation relating to his stock trading account (s. 158(a)).

[19] According to the Claims Register in the Supplementary Report, the total Proven Unsecured Claims in the estate are a total of $553,616.66. Of this amount approximately $115,000 are credit card debts and amounts owing to financial institutions, and the rest are to individual investors in the Bankrupt’s sole proprietorship asset management business.

[20] The largest non-investor unsecured creditor of the Estate is the CIBC with a proven claim in the amount of $63,077.60, RBC with $26,768.80, Scotiabank with $22,828 and Walmart with $4997.54.

[21] Of the “Investor” creditors with proven claims, are the Opposing Creditors Morla with $300,000, Patel with $53,384, Navleen Ghai with $41,890.56, Kalia with $15,000 and Anjuli Prasad with $5,000.

[22] The Bankrupt declared in the Statement of Affairs the following as the reasons for his Assignment into Bankruptcy:

“14. Give reasons for your financial difficulties:

“From January 2017 to March 2018, I operated an asset management business (sole proprietorship). I would borrow funds privately and invest these funds in oil and gas projects in Texas. For a while the investments were viable and my business was able to disburse profits back to the investors however, for some unknown reason, the projects ceased to generate revenue and eventually I had to abandon my investment company. I am unemployed and have significant debt which I cannot afford to repay. am being aggressively pursued by my creditors and have no choice but to file this bankruptcy.”

[23] The total assets declared by the Bankrupt on the sworn Statement of Affairs is as follows from the Statement of Affairs in the Creditor Package at Appendix A to the Second Supplementary Report:

“1. Cash on Hand 0 2. Furniture $1000- claimed exempt 3. Personal Effects $1000- claimed exempt 4. Policies & RRSPs Life Insurance - 0 5. Securities 0 6. Real Property or Immovable -0 7. Motor Vehicles - 0 8. Recreational Vehicles - 0 9. Taxes Pre - 0 TOTAL $2,000”

[24] The total recoveries in the estate to the date of the hearing were $2,431.33 consisting of $2,000 in fee and $224 for a tax refund, an HST refund of $166.14 and interest of $41.19. As of the date of the Discharge the Trustee had $1,153.73 available in the estate.

[25] The Trustee determined that no surplus income was owing by the Bankrupt. The Bankrupt has had no prior insolvency filings.

[26] From the Supplementary Report, the Trustee makes the following recommendation on the Terms of a conditional Order on discharge:

6. Trustee's Recommendation

The bankrupt has shown no contrition or remorse. He has remained evasive and in the Trustee's view, has engaged in subterfuge thereby significantly impacting the lives of various creditors. The bankrupt's discharge be subject to the following terms and conditions:

a) Five (5) year suspension to run concurrent with (c) below;

b) Five (5) year ban on applying for, using or obtaining any form of unsecured credit, bankrupt to provide Undertaking in writing;

c) Repayment of $266,808.33 representing 50% of the proven unsecured claims less the Trustee's realizations to date calculated as follows:

(50% x $533,616.66) less $2,431.33 as per paragraph 6 = $264,377.00.

This payment is to be paid over a 60-month term at the rate of $4,406.28 per month commencing April 2023. If the bankrupt goes into default as a result of any one missed payment, the Trustee shall move for its discharge as Trustee of the Estate thereby allowing creditors to proceed against the undischarged bankrupt.

d) To remain current with all post bankruptcy income tax filings and remittances if any, while undischarged;

The Bankrupt’s Evidence at s.161 Exam:

[27] The Bankrupt did not retain Bankruptcy Counsel despite my urging, and has filed no evidence or other materials in response to the s.170 Report, the Supplementary Report, the s.161 Examination and the OSB Report filed by the Trustee for this hearing.

[28] In the OSB Report the OSB summarizes the Bankrupt’s sworn testimony as follows

[29] The Bankrupt stated the following with respect to his experience in the investment and asset management business:

14. Did you have any previous experience in conducting a business of this nature? What are your credentials?

Answer: No, not of this nature. I had worked in the Downing Street group, but that was as an employee and not a business manager. I have a degree in political science from the University of Waterloo and I have a Masters of Business Administration from Lancaster University in the UK.

15. Was the business licensed or registered with any oversight or regulatory body?

Answer: No.

[30] The Bankrupt stated the following relating to the Texas Oil Lease investments in Chhabra Asset Management (which was not incorporated, but rather a sole proprietorship- being the Bankrupt himself, with letterhead):

“11. What was the nature of the business? How did the business make money?

Answer: It was opened specifically to invest in the oil and drilling projects in Texas. What was told to me by the brokerage house, when lots of investors pool their funds the brokers invest in these oil companies. The upfront investment supports the costs of exploration. It's a very expensive project, paying the employees, for the licenses, the equipment, the engineers. Then based on how much oil they are able to extract, then it is sold on the open market and then the profits come back to the investors.”

22. What is the relationship of Chhabra Asset Management with Bit Co.?

Answer: Bit Co is the insurance company.

The brokers that I was dealing with were from Questra Holdings. Questra told me about insurance through Bit Co.

23 Please provide the names and contact information of the brokers at Bit Co. that you dealt with.

Answer: I dealt mostly with Andrew Clark. I don't have his contact information with me but I have it saved.

40% of the investment funds, about $160,000, was sent to Ouestra Holdings. $60,000 was sent in Bitcoin and the remaining $100,000 was sent in cash. A representative came to Toronto and picked up the physical cash in person. They said that they do it this way for tax purposes.

Did paying in Bitcoin and cash seem unusual to you? Did you have any concerns?

I did ask them, why Bitcoin and why cash? The first few months were always Bitcoin and then after September 2017 it was cash. They said cash was more liquid and easier for tax purposes. It did raise a red flag but not too much concern.

You have to remember that $400,000 did not actually come into my account. On paper it was more but Mr. Gopi held back the advance interest and so the actual amount that came into my account was only around $330,000. Mr. Gopi was also the only investor that wanted to be paid in cash and now he's going after the most. I'm still trying very hard to recover their funds through some way or another. That's why I am still looking into other investments and I am not running away. I am still answering my phone and talking to my investors and meeting them in person face to face. Mr. Gopi is jumping because he borrowed money from other people so now he's got those people asking for their money back.

25. Would it be correct to refer to the drilling project that your company was involved in as the "Diemer Lease?"

Answer; That was the name given to the specific oil project In a particular area. Yes, you can refer to it that way.

26. What is the name of the company in Texas that was responsible for the Diemer Lease?

Answer: I wouldn't know their real name because the money was going through Questra but I don't know the companies in Texas.

Do you know if the money was going to more then one company?

It could have been because I was told there were other natural gas and oil projects. Also I found out late that Questra invested in other companies such as airlines and Bitcoin trading and other financial technologies.

Does Ouestra Holdings continue to operate?

No, I don't think so. They don't pick up when I call. I've found other complaints online about them.

When they initially contacted you did you do any research?

Yes, they used to have a website and I asked for references. They gave me some references that were in Canada, US, and Europe. I spoke with them and texted with the references and they gave me very good feedback. Why would so many people around the world say something that wasn't true so it looked legit to me.

27. Did you ever speak directly with anyone from one of the oil or gas companies?

Answer: No, not directly. I was given the impression that the brokers were working with them directly,

28. What research did you do to ensure the Diemer Lease was a legitimate and profitable investment opportunity?

Answer: They had given me some marketing materials that had a detailed explanation of the project, about 70 pages of information.

29. Is this the information package that you would provide to potential investors of the Diemer Lease? If yes, who designed the brochure and where did the Information originate from?

Answer: Yes, I designed the brochure. The information came from the information provided to me from the brokerage Company. l selected out of 60 to 70 pages the most important information that my investors needed to know.

30. What were the terms of investment for the Diemer Lease? Was there a minimum Investment amount and what were the expected or estimated rates of return?

Answer: No, there was no minimum. The returns expected were 7 to 10% per month. I told them 10% because I was told about 13%.

31. Explain how the investment process worked. How did you receive the money from clients and what happened to those funds once you received them? Did your investors sign a contract?

Answer: Bank wire transfer into my CIBC personal account except for Mr. Gopi who gave me cash at one point. From there, I would buy Bitcoin or take out the cash which went to Questra Holdings. Yes, a contract was signed with each of the investors.

[31] The Bankrupt described the following practice in his paying of “profits” to investors:

18. In what capacity did you work for the company? How much income did you derive from the company in drawings and salary?

Answer: I was responsible for speaking with investors to co-ordinate with the brokerage company. I pretty much did everything; as a sole proprietor you oversee everything. Basically, out of any investment, 20% would be management fees and 45% would be advance interest which is kept to pay to the investors. So about 35% of the original investment goes to the company that is being invested in. This way, you can pay the investors a return even if you end up having to wait a period of time to receive profits from the investment company.

Was this explained to your investors?

No, it was not. I didn't think it was necessary.

When your investors received returns in the first couple of months, was any of it from profits from the investment company or were they part of the advance interest funds?

It was coming from the advance interest.

So they were reinvesting without knowing that the project wasn't seeing any profits yet?

Yes. If four months or so go by and the company doesn't pay any profits then you are supposed to go after them legally. I contacted a couple of lawyers but then told me this has nothing to do with Canada, you have to consult with a business lawyer ln the US.

[32] So, to summarize the Bankrupts sworn testimony regarding the “Oil Lease” investments and the extraordinary admissions made:

1. He commenced an asset management business with no practical prior experience in the field;

2. Was never licensed in any way to operate this investment business, by any investment regulatory body;

3. Invested his clients’ money with Questra Holdings with poor or no due diligence regarding the probity of Questra;

4. Invested monies by transferring Bitcoin or handing physical cash to a courier who flew to Toronto to Questra Holdings, which “did raise a red flag but not too much concern”;

5. Knew that Questra wanted these transactions to be in effectively untraceable funds for “tax purposes”;

6. Never knew the name of the ultimate “Oil Company” that the funds he was investing on behalf of his clients were actually destined for, giving rise to the question of how the risk of the investment was to be evaluated and how he could recommend such an investment to his clients without this information;

7. Seemed to accept, without question, that the expected return was to be were 7 to 10% PER MONTH, but that he told his investors “I told them 10% because I was told about 13%”;

8. Seemed to admit that he was pooling 45% of each investors funds advanced to pay “advanced interest” as “profit” back to the investors while they invested more money, and did not advise that the investors’ “profits” were being paid to them from their own money;

9. That he paid himself a 20% administration fee to “invest” his clients’ money, but had only invested $4-$5000 of his own money.

[33] In Giles v. Westminster Savings Credit Union, 2010 BCCA 282 a “Ponzi scheme” was defined as:

“(at para. 44) A "Ponzi scheme" is an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors. It takes its name from Charles Ponzi, who used this method to dupe a large number of people in the 1920s.”

[34] In other admissions made in the s.161 Examination:

46. Are you under investigation by the Ontario Securities Commission (OSC)? If yes, what are you being Investigated for? What caused the OSC to open an Investigation?

Answer: They said they were doing some investigation. They sent me a letter by mail in April 2019 wanting some information. I said I don't really have much information and by then my company was closed down. I didn't provide much information to them. They probably started their own Investigation and I got a letter for them around September 2019 because I don't think I had all of the licenses I should have had. The mail went to our place in Brampton but now we've moved to Markham so I don't know if they even have that address. I don't know if maybe It was an investor that went to them. The OSC told me that they found my website randomly and they are doing some follow up research.

57. Is it correct that you're also involved with traders in Asia who invest In foreign exchange, bitcoin, and commodities?

Answer: Yes, the reason I had spoken with them is part of my plan to try and get back some of the money for my investors. These are online traders that trade foreign currency, Bitcoin, other stock. They are not a company, there are independent individuals. I invested about $500 and it was up to about $1000 but now with Coronavirus they are down a bit but these investments will take time. I want to allow a couple of years for them to grow so I can withdraw some money to try and pay back my investors. This started last year in 2019.

[35] In addition, the Bankrupt admitted in the s.161 Examination that:

1. He paid for his MBA education with a $63,600 line of credit from CIBC, without any apparent plan to repay the amounts owing.

2. He tried to organize a failed 2014 music festival using a $20,000 line of credit from RBC, and a Scotiabank line of credit for $22,828 when it does appear he had any means of paying that credit obtained;

3. Admitted not providing the following information to his Trustee that was promised at the First Meeting of Creditors to be provided by January 15, 2020:

• documents relating to the investment accounts in Asia;
• documents relating to the Insurance policy;
• documents supporting the Texas oil investment;
• documents relating to the Ontario Securities Commission (OSC) investigation.

4. He invested in “foreign currency, Bitcoin, other stock” with apparently non-accredited individuals, in another field he had no prior expertise, either immediately before or possibly during his Bankruptcy, none of which investments were reported to the Trustee on his Statement of Affairs.

5. Bought a pre-school in New Delhi, while resident in Canada, in another field in which he has no prior experience, with monies whose sourcing is unclear (possibly from “some funds saved from my Asset Management business”), but not from “investors”, with no plan as to how that school should be run, losing the entire investment and never advising the Trustee of this “investment”:

47. Is it correct that you were also involved In starting a pre-school in India?

Answer: Yes.

48. Was this a business project managed by Chhabra Asset Management or was it a personal investment?

Answer: A personal investment.

49. When was this and where in India was the school located? What was the name of the school? What kind of school was it? What were the ages of the children attending?

Answer: This was in Delhi and it was from January to July 2018. It was a project where I rented a big school and I had to pay for teachers' salaries and supplies and it was not generating enough revenue so the landlord closed the doors in July, 2018. It was a pre-school for children up to age 1O and a day care for infants.

50. How did you get involved in this project? Did you visit the school in person?

Answer: I Just was researching because my mother was a teacher so I wanted to open a school in her name. I went to India and met with a private broker in India who helped with the transaction. I saw the school in person.

Was the school already operating?

Yes, there was someone previously running the school so I was just taking over. From day one, there was about 20 students but obviously I hoped by bringing in new teachers to recruit more students because more students mean more revenues.

51. So the children pay tuition to go to the school?

Answer: Yes. Tuition would be about a couple of hundred per month Canadian.

52. How much of your money did you Invest? Where did you get these funds?

Answer: I had to pay three months of advance rent so it was about $15,000 plus about $2500 to the broker for commission. I had some funds saved from my Asset Management business. The rent was about $5000 per month. The school was huge and It was in a busy area so it was expensive.

So you never owned the school?

No, it was leased and then I pay all of the operating costs such as salaries.

53. Did anyone else invest in the project with you?

Answer: No.

54. What Is the current status of the school and your Investment? Have you made any money from the Investment?

Answer: I have nothing to do with the school now. I wasn't able to make the payments so as far as I know, someone else is now running the school. I hired the teachers to teach and to do some marketing and attract more students, but this never happened. They said they would be able to bring in 100+ students so I was doing my calculations based on that. In India people won’t work unless you’re standing right there over them so with me thousands of miles away they took their salaries and didn't do anything. I lost money, the initial deposit of $15,000 and the monthly rent was a drain. After July of 2018 the school was no longer in my name. In August and September I tried to pay the salary of some of the teachers out of my own pocket.

Where did you find the teachers that you hired?

When I got to the school, some teachers were already there and then new teachers were recruited through local ads.

Do you have any paperwork related to the school?

I had paperwork... I have electronic copies.

6. May have tried his hand at trading in Diamonds WHILE BANKRUPT, another field where the Bankrupt utterly lacks any prior expertise, but was frustrated by a lack of investment capital, possibly as a result of his BEING BANKRUPT, again without in any way informing the Trustee, as was his duty under the BIA, stating in the s.161 Examination:

“62. Are you currently involved in buying and selling diamonds?

Answer: Basically the diamonds, there are merchants in Europe and especially in Belgium. I have been speaking with them for about five or six months. I want to arrange an agreement where I buy a certain amount of loose diamonds and then sell them here in Canada. I haven't been able to agree with them on a price because they want an amount that I can't afford.

How much are the merchants asking for?

Well, they don't sell just one or two pieces so the amount they will sell is thousands of dollars. The transportation costs are another issue so I'm thinking about trying to arrange to sell them without having to ship them here to Canada. I'm doing this to be able to pay back money to my investors. I'm still working on how I will purchase the diamonds but I'm a very optimistic person, I'm not giving up. Once I get a job here, things will be better.

Are you concerned that a project like this may be risky?

Yes, again I am sitting far away and I understand the risks involved but I feel like I need to find some way to recover my investor's funds.

7. Signed a certificate on March 9, 2020 undertaking to provide the following documents and information to the OSB at the s.161 Examination, in March of 2020, which undertaking remains unfulfilled according to the Supplementary Report, three years later:

“DOCUMENTS AND/OR INFORMATION TO BE PROVIDED: _

(1) Documentation supporting transactions with Asian traders (such as Remitly report and text confirmation)

(2) Documents showing the transfer of funds to Questra Holdings for investment in the Texas oil and natural gas projects

(3) Any email exchanges with Questra Holding discussing the status of the Texas oil investment.

(3) Insurance policy contract and proof of premiums paid

(4) Any documentation from the school investment in India

(5) The contact information that you had for Andrew Clark at Questra Holdings”

General Law related to determination of discharge of the Bankrupt

[36] Section 172 of the BIA provides the Court with its authority to discharge a Bankrupt. It states:

Court may grant or refuse discharge

172 (1) On the hearing of an application of a bankrupt for a discharge, other than a bankrupt referred to in section 172.1, the court may

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

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

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

Powers of court to refuse or suspend discharge or grant conditional discharge

(2) The court shall, on proof of any of the facts referred to in section 173, which proof may be given orally under oath, by affidavit or otherwise,

(a) refuse the discharge of a bankrupt;

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

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

Court may modify after year

(3) Where at any time after the expiration of one year after the date of any order made under this section the bankrupt satisfies the court that there is no reasonable probability of his being in a position to comply with the terms of the order, the court may modify the terms of the order or of any substituted order, in such manner and on such conditions as it may think fit.

Power to suspend

(4) The powers of suspending and of attaching conditions to the discharge of a bankrupt may be exercised concurrently.

[37] The general principals that a Court is to consider related to the discharge of the Bankrupt were catalogued by Hallett, J. in Re Crowley, 1984 CarswellNS 25:

“[40] What are the principles that the court should apply in considering an application for discharge by a bankrupt? There are very few Supreme Court of Canada decisions on the subject and the sections of the Bankruptcy Act, R.S.C. 1970, c. B-3, provide little guidance as to how the judge who hears an application for a discharge is to exercise his discretion. The only clear guideline is that if one of the facts mentioned in s. 143 is proven, then the court cannot grant an absolute discharge. Where the difficulty comes in is under what circumstances should a bankrupt who does not qualify for an absolute discharge be ordered to pay money to the trustee or consent to a judgment as a condition of his discharge or merely have the inconvenience of having his discharge suspended for a period of months. There seem to be two basic and conflicting themes that run through the decisions of the courts on this subject. On the one hand, the courts emphasize the purpose of the Bankruptcy Act is not only to provide for an orderly scheme of distribution of the assets of a bankrupt amongst his creditors but to allow a bankrupt to get on with his life unfettered by the burden of debt which he had incurred. Typical of such statements is that contained in Industrial Acceptance Corp. v. Lalonde, [1952] 2 S.C.R. 109, 32 C.B.R. 191, [1952] 3 D.L.R. 348, where Estey J., in a unanimous decision of the court, stated at pp. 356-57:

The purpose and object of the Bankruptcy Act is to equitably distribute the assets of the debtor and to permit of his rehabilitation as a citizen, unfettered by past debts. The discharge, however, is not a matter of right and the provisions of ss. 142 and 143 plainly indicate that in certain cases the debtor should suffer a period of probation. The penalty involved in the absolute refusal of discharge ought to be imposed only in cases where the conduct of the debtor has been particularly reprehensible, or in what have been described as extreme cases. The conduct of the debtor in this case, while not sufficient, with great respect, to justify the absolute refusal, does justify his discharge only subject to the imposition of terms.

[41] It is to be noted that in the Lalonde case the Supreme Court of Canada allowed an appeal and imposed a condition on the bankrupt that he consent to judgment in the amount of $5,000 as the cost of obtaining his discharge.

[44] The dilemma facing a judge in considering an application for discharge is reflected in the following two quotations from Bankruptcy Law of Canada (1984), vol. 1, by Houlden and Morawetz, at pp. H-18 and H-19, para. H10:

It is incumbent upon the court to guard against laxity in granting discharges so as not to offend against commercial morality. It is nevertheless the duty of the court to administer the Bankruptcy Act in such a way as to assist honest debtors who have been unfortunate: Re Beerman and Sands (1925), 5 C.B.R. 781 (Ont. S.C.)...

The purpose of the Bankruptcy Act is to enable someone who has had financial misfortune or a series of misfortunes to be purged or relieved of the consequences and to obtain a new start financially. It is not to be considered as a process which can be resorted to on a regular basis with a view to washing out one's debts: Re Lebel (1979), 31 C.B.R. (N.S.) 320 (Ont. S.C.).

[45] Despite the inherent difficulty created by these two conflicting themes, the case law does provide some firm footing to assist a judge in the exercise of his discretion when determining how to apply the provisions of s. 142 of the Bankruptcy Act in any particular case. The following are some principles, procedures and evidentiary considerations that a judge might follow on a discharge application in determining whether or not to impose conditions of payment as a cost of the discharge. I take the view that a mere suspension in any case is pointless although authorized. Therefore, in most cases the court will be choosing between granting an absolute discharge or imposing a condition that requires some payment by the bankrupt.

[46] First, each case must be decided on its own facts. That statement has been made in countless cases. Re Gigault (1981), 37 C.B.R. (N.S.) 119 (Ont. C.A.), is but one. That is a simplistic statement but nevertheless very true, as is evident from a reading of the cases. This is so because s. 142 of the Bankruptcy Act provides no guidance for the exercise of the judge's discretion except that he must refuse an absolute discharge if a s. 143 fact is proven against the bankrupt. The court must look carefully at the causes of the bankruptcy.

[47] Second, in considering the application for discharge, the court must have regard to not only the interests of the bankrupt and his creditors but also to the interest of the public: Re Sceptre Hardware Co., 3 C.B.R. 734, [1923] 1 W.W.R. 966, [1923] 1 D.L.R. 1201 (Sask.). This concept was well stated by Wetmore L.J.S.C., in Re Abbott; Abbott v. Royal Bank of Can. (1983), 50 C.B.R. (N.S.) 182, 48 B.C.L.R. 387 (S.C.), where he said [p. 184], "The court must always balance the public interest in commercial morality with its interest in the re-establishment of the debtor".

[48] Third, if, as is usually the case, the assets of the bankrupt are not of a value equal to 50 cents in the dollar of the bankrupt's unsecured liabilities, the onus of proving that this fact arose from circumstances for which the bankrupt cannot justly be held responsible is on the bankrupt: Re Lougheed, 54 B.C.R. 428, 21 C.B.R. 180, [1940] 1 W.W.R. 31.

[49] Fourth, the court is not bound by the trustee's report but it is prima facie evidence with respect to the facts contained therein: Re Hoerner, Williamson & Co. (1925), 5 C.B.R. 613 (C.S. Que.). The trustee's report should be carefully considered by the court. The trustee should be in attendance at the discharge hearing so that he can be called by either the bankrupt or a party opposed to the application to explain the basis for his conclusions, be they favourable or unfavourable to the bankrupt. Pursuant to s. 140(5) of the Act the statements in his report to the court are prima facie evidence but often no reasons are given for the opinions expressed. For example, in the case before me the trustee's report simply says the causes of the bankruptcy were "misfortune" and that the conduct of the debtor was not subject to censure. While the trustee was present in court, he was not called. It might have been helpful had he been cross-examined as to the "misfortune" he perceived so that the court could assess the reliability of his opinion.

[50] Unless contradicted by the evidence, the court must accept the statements in the trustee's report: Re Barrick (1980), 36 C.B.R. (N.S.) 286 (B.C.C.A.). The onus is on the party opposing the application for discharge to adduce sufficient evidence to justify the court disregarding a trustee's report that is favourable to the bankrupt. By producing a favourable report the bankrupt has met the initial burden of proving that the fact that the assets are not equal to 50 cents in the dollar of his unsecured liabilities arose from circumstances for which he cannot justly be held responsible. It is then up to the creditor opposing to bring before the court evidence upon which the court could come to a contrary conclusion: Dawson Auto Parts Ltd. v. Dorais.

[51] Fifth, if the application for discharge is opposed, the bankrupt should be available for cross-examination: Re Hood (1975), 21 C.B.R. (N.S.) 128 (Ont.).

[52] Sixth, an order for discharge should only be outrightly refused if the debtor's conduct has been "particularly reprehensible, or in ... extreme cases". What is meant by this statement in Indust. Accept. Corp. v. Lalonde [at p. 200] is that only rarely will there be an outright refusal of a discharge but rather the court will consider one of the other alternatives of suspension or attaching conditions to the discharge where an absolute discharge cannot be granted because a s. 143 fact has been proven unless the debtor's conduct has been particularly reprehensible or in extreme cases.

[53] Seventh, in considering if an order should be made that involves the payment of money by the bankrupt as a condition of his discharge, the court must bear in mind that he is entitled to have available for the maintenance of himself and his family a reasonable amount out of his after-acquired income: Clarkson v. Tod, [1934] S.C.R. 230, 15 C.B.R. 253, [1934] 2 D.L.R. 316; Re Bayliss and Doerksen (1982), 40 C.B.R. (N.S.) 16 (Ont. H.C.). Accordingly, it is generally necessary for the court to have before it evidence of the bankrupt's income and living expenses so the court's discretion can be rationally exercised.

[54] Eighth, the court does not view with favour assignments made to avoid paying a large claim of a single judgment creditor where judgment was obtained as a result of the discreditable conduct of the debtor. Under such circumstances, the courts have generally imposed a condition that the bankrupt consent to judgment in a partial amount of the claim: Kozack v. Richter, supra. This approach has most recently been followed by the Ontario Court of Appeal in Re Gigault, supra, and Re Balson (1982), 46 C.B.R. (N.S.) 319. In the Gigault case, the judge who heard the application in the first instance had required as a condition of discharge that the bankrupt consent to judgment in a very nominal amount and in the Balson case an absolute discharge had been granted. The Ontario Court of Appeal in both cases imposed meaningful payments as a condition of discharge.

[55] Ninth, where a bankrupt takes a reasonable risk in embarking on a new adventure which fails because of economic factors over which he has no control, the bankrupt has satisfied the onus under s. 143(1)(a) of proving that the fact that his assets were not of a value equal to 50 cents in the dollar arose from circumstances for which he cannot justly be held responsible: Re Bayliss and Doerksen, supra.

[56] Tenth, the Act provides no guidelines for the exercise by the judge of his discretion whether to suspend or impose conditions where a factor mentioned in s. 143 is proven. The discretion of the judge is very broad and should not be interfered with on appeal unless the judge, in arriving at his decision, has omitted the consideration of or misconstrued some facts or violated some principle of law: Indust. Accept. Corp. v. Lalonde, supra.

[57] In recent years there has been a trend by this court to impose conditions of payment on the bankrupt as the price for his discharge. This reflects the feeling of the public as stated through the decisions of this court that abuses of the bankruptcy process are perceived. While the vast majority of the public are wrestling with their finances to make ends meet, there is a small percentage, albeit a large number of persons, who are availing themselves of the provisions of the Bankruptcy Act and, in particular, the discharge provisions, to walk away from the debts which they have accumulated. Imposing a condition that a bankrupt consent to judgment in a reasonable percentage of his unsecured liabilities under certain circumstances is not to frustrate the object of the Bankruptcy Act. In fact, not to do so in many cases may offend the integrity of the discharge procedure. Where a debtor owes a substantial number of creditors, it is reasonable that he be freed from their harassment and get on with earning a living under peaceful conditions but subject to a reasonable judgment in favour of the trustee who, based on his knowledge of the debtor's circumstances, can exercise a sensible discretion in collection procedures; it being understood that under no circumstances should a judgment be entered against a bankrupt which he would be unable to pay over a reasonable period of time. Each case must be judged on its own facts as to the causes of the bankruptcy and a decision made as to whether it is appropriate under the circumstances to impose conditions of payment on the bankrupt as a price for his discharge.”

[38] The Court of Appeal expanded on the general principals to be considered on Discharge in the leading case on the issue of refusal of discharge Bank of Montreal v. Giannotti (“Giannotti”):

“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), 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.”

[39] By citing the Court of Appeal in Giannotti, I do not find that the conduct of this Bankrupt is similar to the conduct of the bankrupt in Giannotti, but the principle in Giannotti that the integrity of the bankruptcy system requires a bankrupt to co-operate with the trustee, is certainly applicable in this case.

[40] The Trustee is recommending a conditional Order of Discharge not a refusal. On the evidence before me on this discharge, limited by my inability to observe the Bankrupt’s credibility on cross-examination under oath in Order not to compel testimony that may effect his criminal proceedings, I will not employ my Registrar’s Discretion to Order a refusal of discharge.

DETERMINATION OF S.173 FACTS

s.173(1)(a)- the assets of the bankrupt are not of a value equal to fifty cents on the dollar on the amount of the bankrupt’s unsecured liabilities, unless the bankrupt satisfies the court that the fact that the assets are not of a value equal to fifty cents on the dollar on the amount of the bankrupt’s unsecured liabilities has arisen from circumstances for which the bankrupt cannot justly be held responsible;

(e) the bankrupt has brought on, or contributed to, his bankruptcy by rash and hazardous speculations, by unjustifiable extravagance in living, by gambling or by culpable neglect of his business affairs;

[41] According to the Claims Register in the Supplementary Report, the total Proven Unsecured Claims in the estate are a total of $553,616.66. Of this amount approximately $115,000 are credit card debts and amounts owing to financial institutions, and the rest are to individual investors in the Bankrupt’s sole proprietorship asset management business The non-exempt assets declared in the estate in the Statement of Affairs were $0, accordingly the first portion of this s.173(a) fact is proven.

[42] In Bankruptcy and Insolvency Law of Canada, 4th Edition The Honourable Mr. Justice Lloyd W. Houlden, Mr. Justice Geoffrey B. Morawetz, Dr. Janis P. Sarra the authors summarized the following principles of interpretation of s.173(1)(a) at

Ҥ 7:153:

If there are circumstances for which the bankrupt can justly be held responsible, then the bankrupt has not met the onus imposed on him or her by s. 173(1)(a), and the court will find that a fact has been committed under s. 173.

The following are circumstances for which the bankrupt has been held responsible:

• incompetence and carelessness: Re Stacey (1983), 50 C.B.R. (N.S.) 189 (B.C. S.C.);
• extravagance with creditors’ money: Re Monson (1992), 12 C.B.R. (3d) 188, 1992 CarswellOnt 166 (Ont. Gen. Div.);
• borrowing large sums of money in a short period of time for speculative ventures: Stroud v. Harris & Partners Inc. (1995), 32 C.B.R. (3d) 55, 1995 CarswellOnt 364 (Ont. Bkty.);”

[43] In Re Stacey (1983), 50 C.B.R. (N.S.) 189 (B.C. S.C.) Robinson, L.J.S.C. states:

“6 My difficulty in this application in acceding to the applicants' request for an absolute discharge, supported as they are by a number of cases where an absolute discharge has been given, where the trustee has indicated that the situation has arisen from circumstances for which the applicants cannot justly be held responsible, is that coincidentally with that statement there is the further statement that "the causes of the bankruptcy were inexperience, incompetence, and carelessness". Ignoring the criticism of "inexperience", to which everyone must at some time be party, the classifications of incompetence and carelessness indicate to me a blameworthy condition and to some extent should be considered along with the opposing statement that the circumstances were such that the applicants should not justly be held responsible.”

[44] In Re Monson, 1992 CarswellOnt 166, 12 C.B.R. (3d) 188 (“Monson”), a bankrupt stopped working and built a house on a lot, hoping to sell it for a profit, but the market fell and he was not able to sell the house. He lived off his credit cards for one year. The bankrupt's proven unsecured debts exceeded $260,000. He was indebted to the bank for a $110,000 loan, which he allegedly used to pay suppliers, credit-card debts and living expenses. His assets, which were recovered by the trustee, realized $100.09. His income for the year was $26,882. Registrar Ferron stated:

“8 What comes through on this hearing is that the bankrupt was extravagant with other persons' money in a risky venture, and reckless in his financial dealings. He now comes to the court for protection from the financial wreckage which resulted and which he should have known would result. The exculpatory provision in s.173(1)(a) [Bankruptcy Act, R.S.C. 1985, c. B-3] does not apply and one cannot say that there was no misconduct on his part contributing to the bankruptcy.”

[45] In Stroud v. Harris & Partners Inc. (1995), 32 C.B.R. (3d) 55, 1995 CarswellOnt 364 (Ont. Bkty.), (“Stroud”) MacPherson J. states the following prior to refusing the Bankrupt’s discharge:

“6 In the six weeks following the death of his father, Murray Stroud borrowed an additional $1.7-$1.8 million from CIBC. The circumstances giving rise to the loans totalling this amount are a matter of dispute, and even litigation, between the parties. I will say more about this later.

7 However, what is not in dispute is how Mr. Stroud spent the money. He invested about $1,000,000 in thoroughbred race horses (including one named, ironically as it turned out, “Open the Vault”) and the rest in Persian carpets, antiques and real estate. He regarded all of these as investments; his goal was to resell all of the items for a profit. Then, in the spring of 1991, Mr. Stroud invested a further $1,000,000, this time in the purchase of sports cards from a business in Las Vegas called Smokey’s.

8 All of these investments collapsed. Mr. Stroud went deeply into debt to many creditors, especially CIBC. On October 22, 1993 he filed a notice of intention to make a proposal. On November 23rd the court granted an additional stay of proceedings until January 7, 1994 [unreported]. When this stay expired and no proposal was filed, Mr. Stroud was deemed to be bankrupt as of October 22, 1993.

9 Mr. Stroud declared liabilities at the time of his bankruptcy of about $1,150,000, including $185,000 owed to unsecured creditors. The trustee of his estate, Harris & Partners, Inc., has accepted claims of unsecured creditors alone totalling approximately $1,200,000. The largest unsecured creditor is CIBC which is owed about $900,000. The trustee has realized about $256,000 (minus about $44,000 in administration costs) from the estate for the benefit of creditors.

15 Mr. Stroud concedes that his current assets are not sufficient to reimburse his creditors fifty cents on the dollar. However, he contends that he is not responsible for this state of affairs. He says that he was an experienced professional and business person who, like many others in the early 1990s, had the misfortune to make a series of investments, all of which went sour at approximately the same time.

16 The CIBC and trustee say that Mr. Stroud was and is responsible for the shortfall in his assets. Moreover, they say, the principal reason for the shortfall is the extremely rash and hazardous series of speculative investments Mr. Stroud made in the autumn of 1990 and the spring of 1991. I agree with this submission for several reasons.

17 First, Mr. Stroud borrowed a staggering amount of money in a very short period of time. In six weeks in the autumn of 1990 he borrowed about $1.7-$1.8 million. And then in the spring of 1991 he borrowed another $1,000,000. Although Mr. Stroud was a wealthy man, borrowing these amounts of money in such a compressed time frame strikes me as rash in the extreme.

18 Second, Mr. Stroud did not use his borrowed money for a single carefully conceived and executed investment opportunity or for a package of reasonable investments. Race horses — $1,000,000, sports cards from a dealer in Las Vegas — $1,000,000, Persian carpets, antiques, real estate — Mr. Stroud seemed to throw astonishing amount of money into several arenas that would strike the reasonable person as risky. And he was in all these arenas at the same time. Moreover, Mr. Stroud was making these investments while running a full-time law practice to which, on his own evidence and that of his associate Ronald Kaufman, he devoted a great deal of time and attention.

19 Third, I am deeply troubled by the timing of Mr. Stroud’s loans and investments. His father died on August 25, 1990. Within six weeks Mr. Stroud had borrowed and spent $1.7-$1.8 million, most of it on race horses. There is a dispute among the estate of Ernest Stroud, CIBC and Murray Stroud about how Murray Stroud obtained this money. The dispute has given rise to a lawsuit in which CIBC asserts that Mr. Stroud committed fraud. I make no comment on this litigation. However, I do say that a decision by a son who has just received a large inheritance from a father to borrow $1.7-$1.8 million and spend it on race horses, carpets, antiques and real estate — all together and all in six weeks — is a surprising and troubling decision.

20 For these reasons I find that, pursuant to ss. 173(1)(a) and (e) of the Bankruptcy and Insolvency Act, Mr. Stroud is responsible for the shortfall in his assets and that this responsibility arises from the rash and hazardous speculations he made in the fall of 1990 and the spring of 1991.”

[46] In Re Mensah (“Mensah”) the Registrar dealt with the following factual situation:

[3]. The Bankrupt testified at his discharge hearing. As well, he was cross-examined by counsel for Amex, Mr. Braovac on behalf of the OSB, and by Mr. Thatcher on behalf of the Trustee. It is clear and admitted that the Bankrupt assigned himself into bankruptcy June 9, 2005, declaring nearly $250,000.00 in debt. All of that debt was incurred on credit cards and consumer credit facilities. The Bankrupt had no assets beyond very small exempt items at the time of the assignment, despite having been gainfully employed for nearly 20 years.

[4]The Bankrupt claims that of the $250,000.00 in debt, $200,000.00 of it was borrowed by him in cash in the fall of 2004, and $50,000.00 was incurred at the same time, buying goods on credit with those facilities on which cash advances were not available i.e. retail merchant credit card facilities. According to the Bankrupt’s testimony, in or around December, 2004, the Bankrupt gave the $200,000.00 in cash to a “friend” of his by the name of Abdulai Musah, and shipped overseas to his native Ghana the $50,000.00 in goods purchased on credit. The Bill of Lading for this shipment was also given to Musah.

[5] Why was this done? According to the Bankrupt, in September, 2004, the Bankrupt was made aware, through other “friends” that he could invest with Musah, and make an incredible rate of return. Apparently, if the Bankrupt gave $300,000.00 to Musah, Musah would purchase diamonds in Ghana, outside of regular government authorized channels, and re-sell them overseas at a profit such that the $300,000.00 “investment” would yield a return of $400,000.00 for a total profit of $100,000.00. This would seem almost too good to be true, and, it turns out, seems in fact to have been too good to be true. While the funds were, allegedly, given over to Musah, needless to say, the Bankrupt has apparently not seen a cent back since then.

[6] The Bankrupt testified that he was able to raise $200,000.00 of the required funds, on his credit cards, and did so. However, he could not raise the missing $100,000.00, so, apparently, Musah offered to “lend” it to him, if the Bankrupt posted security of $50,000.00. This was to be by way of $50,000.00 of durable consumer goods being purchased on credit by the Bankrupt and shipped overseas to Ghana, to be held there as “security” by Musah. Presumably, when Musah completed the diamond transaction, he would return the Bankrupt’s $200,000.00 cash investment, repay the “borrowed” $100,000.00, and pay over the remaining $100,000.00 profit to the Bankrupt. What took place, according to the Bankrupt, is that not only did his $200,000.00 in cash disappear, so did the e consumer goods shipped to Ghana.

[8] When the Bankrupt received no funds, he apparently went to Ghana to locate Musah, but without success. This despite his testimony that he thought this was a safe investment because when he was previously in Ghana, all of the Bankrupt’s friends pointed out to the Bankrupt what great substance Musah had, and what great profits it could be seen were being made by Musah and his investors. One is left to wonder how it is that a man of such apparent substance as to convince the Bankrupt of the security of investing with him can disappear, wraith like, when this deal went bad.

[47] The Registrar found the following prior to imposing a conditional Order of payment of 30% of proven unsecured claims in the amount of $80,000:

“[10] I must observe that this is an incredible tale. When I am called upon, as I am, to judge the credibility of the Bankrupt, and weigh his rehabilitation against the rights of his creditors to be paid, and to bear in mind public perception of this process, I am very hard pressed to find the Bankrupt to be an honest or unfortunate debtor. I am, in fact, hard pressed to believe even one iota of his tale. At a minimum, this Bankrupt was so blinded by greed and dreams of getting rich quick, that he can hardly be termed as honest but unfortunate. When one throws all reason and common sense to the winds and embarks upon a scheme such as this, with its elements of turning over cash in $50.00 and $100.00 banknotes; obtaining no receipt; buying goods for shipment to foreign lands; trading in Bills of Lading; keeping large sums of money in cash at one’s apartment where one lives with an estranged spouse (as the Bankrupt testified he did), and then conveniently not being able to find the supposedly substantial rogue, one cannot, in my view, then come to this Court and ask that the slate be wiped clean.

[11] At worst, it is conceivable that none of the tale is true, and the Bankrupt has simply embarked on a scheme to borrow $200,000.00 and secrete it for his own use, and has shipped $50,000.00 in consumer goods home to his remaining family in Ghana, where he testified he still has a family home, for their own use, all to the detriment of his creditors here. Such conduct would not only be anathema to the credit granting process, but also criminal in nature.

[12] On the evidence before me, I cannot satisfactorily conclude that the entire tale is a falsehood. It would have been open to the creditors or the OSB to lead such a case, but they did not. However, on the Bankrupt’s testimony, I do not find any element of honesty and misfortune, for the reasons described above. The conduct admitted to by the Bankrupt constitutes a number of facts under s. 173 BIA – s. 173(1)(a), s. 173(1)(b), and s. 173(1)(e).

[13] The s. 173(1)(a) fact I find as a result of having nearly no assets. I do not find the Bankrupt to be excused from this, as he embarked upon this wild scheme (which I note he did with no prior business experience to support any risk analysis of this international trading adventure) using entirely other people’s money. He has managed to accumulate no assets of any value despite nearly 20 years of employment, and had virtually no assets at the time of this transaction.

[14] The s. 173(1)(b) fact I find as a result of the Bankrupt having generated or kept absolutely no paper records of this supposed transaction. He obtained no receipt for an amount of cash that is equal to at least six years of take home pay to him; and he kept no copy of the Bill of Lading for the goods shipped abroad. At a minimum, I find that these would be the books and records one would expect a person to keep in a transaction such as this.

[15] I find s. 173(1)(e) as a fact for what I clearly find as the embarking upon a rash and hazardous speculation in this transaction. There was no evidence of any meaningful risk analysis by the Bankrupt, and the Bankrupt might have, frankly, just as well wagered the amount on a horse race or other game of chance, for all of the care that he took with creditors’ money in this matter.”

[48] As I have summarized above, in this case with respect to the “Oil Lease” investor claims, which form about ¾ of the proven claims, the Bankrupt, in his sworn testimony at the s.161 Examination that:

1. He commenced an asset management business with no practical prior experience in the field;

2. Was never licensed in any way to operate this investment business, by any investment regulatory body;

3. Invested his clients’ money with Questra Holdings with poor or no due diligence regarding the probity of Questra;

4. Invested monies by transferring Bitcoin or handing physical cash to a courier who flew to Toronto to Questra Holdings, which “did raise a red flag but not too much concern”;

5. Knew that Questra wanted these transactions to be in effectively untraceable funds for “tax purposes”;

6. Never knew the name of the ultimate Oil Company that the funds he was investing on behalf of his clients were actually destined for, giving rise to the question of how the risk of the investment was to be evaluated and how he could recommend such an investment to his clients without this information;

7. Seemed to accept, without question, that the expected return was to be were 7 to 10% PER MONTH, but that he told his investors “I told them 10% because I was told about 13%”;

8. Seemed to admit that he was pooling 45% of each investors funds advanced to pay “advanced interest” as “profit” back to the investors while they invested more money, and did not advise that the investors “profits” were being paid to them from their own money;

9. That he paid himself a 20% administration fee to “invest” his clients’ money, but had only invested $4-$5000 of his own money.

[49] In addition the Bankrupt admitted, outside of the claims of the Opposing Creditors and other investors that he also attempted to purchase and run a Pre-School in New Delhi, having no experience and from Canada, and then took a stab at speculating in Bitcoin, foreign currency, and diamonds, all with unaccredited parties, with unclear sources of funding and outcomes, possibly before, and more worryingly AFTER, Bankruptcy.

[50] From this rather extraordinary raft of admissions, under oath, I find that facts under both s.173(1)(a) and s.173(1)(e) have been proven as:

1. the Bankrupts inexperience, and incompetence in the areas he was investing some of his, but mostly others, money in was among "...the causes of the bankruptcy were inexperience, incompetence, and carelessness". Ignoring the criticism of "inexperience", to which everyone must at some time be party, the classifications of incompetence and carelessness as per the classifications of incompetence and carelessness indicate to me a blameworthy condition…” per Stacey;

2. that similar to Monson “…the bankrupt was extravagant with other persons' money in a risky venture, and reckless in his financial dealings. He now comes to the court for protection from the financial wreckage which resulted and which he should have known would result.”

3. that similar to Stroud for this Bankrupt the principal reason for the 50% shortfall is “…the extremely rash and hazardous series of speculative investments” he made with borrowed money with Questra Holdings, having “…borrowed a staggering amount of money in a very short period of time.” from the investors, that “borrowing these amounts of money in such a compressed time frame strikes me as rash in the extreme.” and that on the poor due diligence, if any done by the Bankrupt with respect to Questra Holdings that this Bankrupt, and not informing his creditors that he was initially paying them “profits” with their own “advanced interest” money “…did not use his borrowed money for a carefully conceived and executed investment opportunity or for a package of reasonable investments…” and that this Bankrupt “…seemed to throw astonishing amount of money into…arenas that would strike the reasonable person as risky.”

4. Similar to Mensah I find “…At a minimum, this Bankrupt was so blinded by greed and dreams of getting rich quick, that he can hardly be termed as honest but unfortunate. When one throws all reason and common sense to the winds and embarks upon a scheme such as this,… one cannot, in my view, then come to this Court and ask that the slate be wiped clean”

[51] Accordingly, for all of these reasons, on the evidence before me, I find that:

1. the Bankrupt is not an “honest but unfortunate debtor”

2. that the Bankrupt’s assets are not of a value equal to fifty cents on the dollar on the amount of the bankrupt’s unsecured liabilities from circumstances that have arisen for which the bankrupt CAN justly be held responsible; and

3. the Bankrupt has brought on, or contributed to, his bankruptcy by rash and hazardous speculations,

[52] Therefore I find that facts under s.173(1)(a) and (e) have been proven.

s.173(1)(d) the bankrupt has failed to account satisfactorily for any loss of assets or for any deficiency of assets to meet the bankrupt’s liabilities;

[53] The Bankrupt has failed to provide the documentation undertaken to be provided to both the Trustee and the OSB, and therefore I find that the Bankrupt cannot have accounted satisfactorily for any loss of assets or deficiency of Assets to meet liabilities.

[54] Accordingly, for all of these reasons, on the evidence before me, I find that a fact under s.173(1)(d) has been proven.

173(1)(k) the bankrupt has been guilty of any fraud or fraudulent breach of trust;

[55] For the reasons set out above, the Discharge is an inappropriate forum to determine whether such fraud or fraudulent breach of trust has occurred, which will be left to the Criminal Courts.

s.173(1)(l) the bankrupt has committed any offence under this Act or any other statute in connection with the bankrupt’s property, the bankruptcy or the proceedings thereunder;

[56] Again, for the reasons set out above, the Discharge is an inappropriate forum to determine whether an Offence under the BIA has occurred.

s.173(1)(o) the bankrupt has failed to perform the duties imposed on the bankrupt under this Act or to comply with any order of the court.

[57] The Bankrupt has failed to provide the documentation undertaken to be provided to both the Trustee and the OSB. The Bankrupt also failed to provide the Trustee with information relating to the disposition of the New Delhi School investment, the foreign traders in Currency, Bitcoin and Diamonds, both before and after Bankruptcy, and therefore has not fulfilled his duties under s.158 (a),(b),(d),(e),(f),(k),(n.1), and (o) of the BIA.

[58] Accordingly, for all of these reasons, on the evidence before me, I find that a fact under s.173(1)(o) has been proven.

DISPOSITION

[59] In the context of this Discharge, on all of the evidence before me, and in particular the testimony of the Bankrupt in the s.161 Examination, and from the documentation produced to date by the Bankrupt and set out by the Trustee in the S.170 Report, and the Supplementary Report in exercising my discretion as Registrar, I have found that facts under s.173(1)(a),(d),(e) and (o) have been proven.

[60] Accordingly, under the provisions of s.172(2) of the BIA, 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.

[61] For the reasons stated above, I will not Refuse the Bankrupt’s discharge.

[62] The Trustee has recommended the following conditions of discharge:

a) Five (5) year suspension to run concurrent with (c) below;

b) Five (5) year ban on applying for, using or obtaining any form of unsecured credit, bankrupt to provide Undertaking in writing;

c) Repayment of $266,808.33 representing 50% of the proven unsecured claims less the Trustee's realizations to date calculated as follows: (50% x $533,616.66) less $2,431.33 as per paragraph 6 = $264,377.00.

This payment is to be paid over a 60-month term at the rate of $4,406.28 per month commencing April 2023. If the bankrupt goes into default as a result of any one missed payment, the Trustee shall move for its discharge as Trustee of the Estate thereby allowing creditors to proceed against the undischarged bankrupt.

d) To remain current with all post bankruptcy income tax filings and remittances if any, while undischarged;

[63] In applying all of the factors that I have considered and enumerated above, and in employing by broad discretion as Registrar under the BIA, I will be less harsh in this award against this Bankrupt than requested by the Trustee.

[64] As noted in Mensah:

“[17] Given my suspicions that this may be a scheme to simply defeat creditors, I am loathe to impose a condition which is merely a license fee. However, as I am prepared to accept the Bankrupt’s evidence, for the purposes of this application, it is clear that my disposition must reflect a balancing of the rights of the creditors and the integrity of the system, with the Bankrupt’s right and desire to be freed from this debt, and returned to commercial society. In my view, this must also be tempered by a sanction for embarking upon a get rich quick scheme with other people’s money. The Bankrupt has a support obligation of $650.00 for his two minor children. This reduces his net to $2,350.00 per month. That indicates a surplus income, against Standards, of approximately $300.00 per month. The parties opposed to the discharge application urged on me a conditional payment in the approximate amount of 30% of proven claims. This would be the amount of approximately $80,000.00. This is quite an onerous amount. However, it is, in my view, entirely inappropriate to embark upon such a scheme, and then expect one’s creditors and this Court to accept the evidence presented, such as it is, as sufficient to excuse the repayment of the obligations. The Bankrupt does have recourse to s. 172(3) BIA if he can demonstrate that such an amount is simply not possible for him to service.”

[65] As noted in Re Crowley:

“6 First, each case must be decided on its own facts. That statement has been made in countless cases. Re Gigault (1981), 37 C.B.R. (N.S.) 119 (Ont. C.A.), is but one. That is a simplistic statement but nevertheless very true, as is evident from a reading of the cases. This is so because s. 142 of the Bankruptcy Act provides no guidance for the exercise of the judge's discretion except that he must refuse an absolute discharge if a s. 143 fact is proven against the bankrupt. The court must look carefully at the causes of the bankruptcy.

7 Second, in considering the application for discharge, the court must have regard to not only the interests of the bankrupt and his creditors but also to the interest of the public: Re Sceptre Hardware Co., 3 C.B.R. 734, [1923] 1 W.W.R. 966, [1923] 1 D.L.R. 1201 (Sask.). This concept was well stated by Wetmore L.J.S.C., in Re Abbott; Abbott v. Royal Bank of Can. (1983), 50 C.B.R. (N.S.) 182, 48 B.C.L.R. 387 (S.C.), where he said [p. 184], "The court must always balance the public interest in commercial morality with its interest in the re-establishment of the debtor".

13 Seventh, in considering if an order should be made that involves the payment of money by the bankrupt as a condition of his discharge, the court must bear in mind that he is entitled to have available for the maintenance of himself and his family a reasonable amount out of his after-acquired income: Clarkson v. Tod, [1934] S.C.R. 230, 15 C.B.R. 253, [1934] 2 D.L.R. 316; Re Bayliss and Doerksen (1982), 40 C.B.R. (N.S.) 16 (Ont. H.C.). Accordingly, it is generally necessary for the court to have before it evidence of the bankrupt's income and living expenses so the court's discretion can be rationally exercised.

17 In recent years there has been a trend by this court to impose conditions of payment on the bankrupt as the price for his discharge. This reflects the feeling of the public as stated through the decisions of this court that abuses of the bankruptcy process are perceived. While the vast majority of the public are wrestling with their finances to make ends meet, there is a small percentage, albeit a large number of persons, who are availing themselves of the provisions of the Bankruptcy Act and, in particular, the discharge provisions, to walk away from the debts which they have accumulated. Imposing a condition that a bankrupt consent to judgment in a reasonable percentage of his unsecured liabilities under certain circumstances is not to frustrate the object of the Bankruptcy Act. In fact, not to do so in many cases may offend the integrity of the discharge procedure. Where a debtor owes a substantial number of creditors, it is reasonable that he be freed from their harassment and get on with earning a living under peaceful conditions but subject to a reasonable judgment in favour of the trustee who, based on his knowledge of the debtor's circumstances, can exercise a sensible discretion in collection procedures; it being understood that under no circumstances should a judgment be entered against a bankrupt which he would be unable to pay over a reasonable period of time. Each case must be judged on its own facts as to the causes of the bankruptcy and a decision made as to whether it is appropriate under the circumstances to impose conditions of payment on the bankrupt as a price for his discharge.”

[66] It is clear from the Bankrupt’s admissions, that I have summarized, that as per Mensah, it is clear to me that my disposition “…must also be tempered by a sanction for embarking upon a get rich quick scheme with other people’s money.”, which is what the Bankrupt did in this case.

[67] However, I must also consider that the Bankrupt “…is entitled to have available for the maintenance of himself and his family a reasonable amount out of his after-acquired income”.

[68] Balancing these two factors, I will Order that this Bankrupt be discharged upon paying to the Trustee, for distribution to the creditors of the Bankruptcy Estate the amount of $160,084.00 being 30% of the Proven Claims, the factor used by the Registrar in the similar case of Mensah.

[69] However to be fair to the Bankrupt, this payment amount is to be reduced, dollar for dollar, with any amount actually recovered by the Opposing Creditors, or other creditors, from any proceedings taken to determine and collect any amounts found to be undischargeable under s.178 of the BIA, including any restitution payments ordered in the Criminal Court, in order to avoid double payment.

[70] I agree fully with the other recommendations of the Trustee and will implement them, with the additional proviso that the ban on credit shall also include a ban on soliciting investments of any kind for 5 years.

[71] From my interactions with the Bankrupt at the Scheduling Conferences, it was my impression that:

1. the Bankrupt still lacks the insight that he is not a victim here, but rather he is the instigator of “…the financial wreckage which resulted and which he should have known would result…” to the investors (per Registrar Ferron in Monson), and

2. appears to continue to instigate one “get rich quick” scheme after another,

3. in risky areas of investment,

4. possibly both before and after Bankruptcy,

5. that he has no experience or formal training in, and

6. the public needs protection from his behavior, to the extent that the BIA can be used as a blunt instrument to do so.

[72] Accordingly, for all of the reasons stated, and employing my discretion as a Registrar in Bankruptcy under the provisions of the BIA, I order that the Bankrupt be discharged upon completion and performance of the following conditions:

1. The Bankrupt to pay $160,084.00 to the Trustee, but that this payment amount is to be reduced, dollar for dollar, with any amount actually recovered by the Opposing Creditors from any proceedings taken, if any, to determine and collect any amounts found to be undischargeable under s.178, including any restitution payments ordered in the Criminal Court, in order to avoid double payment.

2. The Bankrupt provide proof to the Trustee that he has filed all pre and post-bankruptcy personal income tax and HST return, if applicable, and has paid any amounts owing as and when they become due, during the period in which he remains undischarged;

3. That the Bankrupt shall produce, to the sole satisfaction of the Trustee, all documentation, in his possession or control, relating to the undertakings given by the Bankrupt to the Trustee and the OSB;

4. That the Bankrupt provide to the Trustee monthly income and expense statements for the entire period of his Bankruptcy, and that he continue to do so while he remains undischarged;

5. A Five (5) year ban on the Bankrupt applying for, using or obtaining any form of unsecured credit, with the Bankrupt to provide an Undertaking in writing;

6. A Ten (10) year ban on the Bankrupt soliciting or marketing debt or equity based investments, of any kind, to any persons, individuals or corporations, or non-institutional lenders, of any kind, with the Bankrupt to provide an Undertaking in writing.

7. A Five (5) year suspension of discharge to run concurrently with the above conditions;

Associate Justice Ilchenko Registrar in Bankruptcy Superior Court of Justice Released: March 31, 2023