The Bankruptcy and Insolvency Act (the “Act”) is intended to assist the honest but unfortunate debtor. It is a rehabilitative regime. But if a debtor is dishonest, the Act provides creditors with an opportunity to bring this to the court’s attention and hold the debtor accountable for same, namely by way of an opposition to discharge. The consequences of attempting to mislead the court and creditors were illustrated in an Ottawa bankruptcy case wherein Randy Schliemann of LZW represented the Bank of Montreal (“BMO”) in an opposed two-day discharge hearing.

The bankrupt, an experienced CPA and CMA for approximately thirty years, sought a discharge from his second bankruptcy. BMO opposed the discharge asserting that the bankrupt committed numerous violations under the Act including, but not limited to, omitting to keep proper books and records, failing to account for a deficiency of assets, and failing to perform the duties imposed on a bankrupt under the Act. The court found, among other things, that the bankrupt had been operating an accounting business while bankrupt without disclosing same to his Trustee, concealed his non-arm’s length relationship to one of his mortgagees, significantly underestimated his unsecured liabilities in both his bankruptcies by an aggregate amount of about $4.7 Million, failed to disclose to his Trustee that he is a beneficiary under his mother’s will, and continued to live well above his means. The court was satisfied that the bankrupt was not an honest or unfortunate debtor and mislead his creditors about various matters. He did not provide complete disclosure about his assets, when and how they were disposed of, and he has not been truthful about his business dealings. The bankrupt was found in violation of ss. 173(a), (b), (d), (j) and (o) of the Act.

In light of the egregious conduct of the bankrupt, the court not only ordered that the bankrupt pay an additional $325,000 to the Trustee as part of a conditional discharge, but further ordered that if the bankrupt failed to comply with the monthly payments to the Trustee, the stay of proceedings would be lifted, the Trustee discharged, and the bankrupt would remain in bankruptcy for the rest of his life.

The bankrupt appealed the conditional discharge order, but the Court of Appeal dismissed his appeal finding that s. 172 of the Act affords the application Judge wide discretion to establish terms for a conditional discharge.

If you are considering bankruptcy or to avail yourself of the protection of the Act, it is critical that you be prepared to make full disclosure to your Trustee of your financial affairs. If you are a creditor in a bankruptcy and are concerned that the bankrupt has been misleading the court and their creditors as to their financial affairs, we recommend you contact an insolvency lawyer.

For more details about the above court decision, see Re Chang, 2021 ONSC 3483, affirmed in Re Chang, 2022 ONCA 346.