J. Bankruptcy No. 2564 Estate Nos. 023027 J.C.R. IN THE QUEEN'S BENCH PROVINCE OF SASKATCHEWAN IN BANKRUPTCY IN THE MATTER OF THE BANKRUPTCY OF NICK J. MORIN Nick J. Morin, bankrupt Ronald J. Dumonceaux, for the bankrupt Graham Pearson, Deloitte Touche Inc., Trustee Gordon Berscheid, for her Majesty the Queen in right of Canada, as represented by the Minister of National Revenue, objecting creditor Jim Kroczynski, for James and Mary Michaluk, objecting creditor JUDGMENT MAURICE J. HERAUF, April 17, 1998 Registrar in Bankruptcy Two creditors objected to the automatic discharge of the bankrupt, Revenue Canada and James and Mary Michaluk. The claim of Revenue Canada falls into two parts; $166,359.72 represents net goods and services tax assessed for the period January 1, 1991 to July 31, 1992 and $14,223.30 for unpaid personal income tax for the 1991 taxation year. The claim of the Michaluks is for $58,720.34. This sum represents amounts outstanding on failed agreement and lease of the Michaluk's property in Manitoba to the bankrupt. The claims of these two creditors represent the vast majority of claims of unsecured creditors in this bankruptcy. The bankrupt's position is that the bulk of the debt was incurred as result of the failure of his former business, Red Bull Enterprises Ltd. He contends that the failure was caused by protracted dispute with the Department of Highways over the right of Red Bull to occupy land owned by Highways. The main asset of Red Bull was gas bar/restaurant which was situated on Department of Highways property. The bankrupt claims that the business failure combined with pressure from creditors such as the Michaluk's caused him to look at bankruptcy as the only alternative. The date of the assignment was December 19, 1995. The causes of bankruptcy as set out in the Section 170(1) report are "Failure of business. Unable to meet financial obligations. Directors obligations. Pressure of creditors." Counsel for the bankrupt raised two preliminary issues which will deal with in turn. The first relates to the use of tax informationconcerning both the bankrupt\'s common law spouse, Patti AnnMcCool and the company that she is sole director andshareholder of, Clearsky Enterprises Ltd. Counsel for thebankrupt contends that Section 241 of the Income Tax Actprohibits disclosure of this information. Section 241 reads as follows: 241.(1) Except as authorized by this section, no official shall (a) knowingly provide, or knowingly allow to be provided, to any person any taxpayer information; (b) knowingly allow any person to have access to any taxpayer information; or (c) knowingly use any taxpayer information otherwise than in the course of the administration or enforcement of this Act, the Canada Pension Plan or the Unemployment Insurance Act or for which it was provided under this section. (2) Notwithstanding any other Act of Parliament or other law, no official shall be required, in connection with any legal proceedings, to give or produce evidence relating to any taxpayer information. (3) Subsections (1) and (2) do not apply in respect of (a) criminal proceedings, either by indictment or on summary conviction, that have been commenced by the laying of an information or the preferring of an indictment, under an Act of Parliament; or (b) any legal proceedings relating to the administration or enforcement of this Act, the Canada Pension Plan or the Unemployment Insurance Act or any other Act of Parliament or law of province that provides for the imposition or collection of tax or (3.1) The Minister may provide to appropriate persons any taxpayer information relating to imminent danger of death or physical injury to any individual. (4) An official may (a) provide to any person taxpayer information that can reasonably be regarded as necessary for the purpose of the administration or enforcement of the Act, the Canada Pension Plan or the Unemployment Insurance Act, solely for that purpose; The objecting creditor submits that the Supreme Court of Canada in Slattery (Trustee of) v. Slattery (1993) 21 C.B.R. (3d) 161 characterized disclosure of tax information in bankruptcy proceedings as being made in proceeding relating to the enforcement of the Income Tax Act and is authorized by S. 241(4)(a). agree. The bankrupt's attempt to distinguish Slattery from the facts in this situation is not convincing. Since the bankrupt admits that he is being supported by his common law spouse and has no independent source of income, the income of the common law spouse is factor to be considered in determining if the bankrupt can make payments to the trustee: (Re Kierdorf (1990), 80 C.B.R. (N.S.) 612 Ont. S.C.). Ms. McCool draws her income from Clearsky Enterprises Ltd. Therefore, disclosure of corporate tax information is also authorized by S. 241(4)(a). The issue concerning the disclosure of information relating to the history of payments of goods and services tax by Clearsky Enterprises Ltd. is not quite as clear cut. Paragraph 19 of the affidavit of James Douglas Cook details the payment history of GST by Clearsky Enterprises Ltd. from July, 1995 to the present. Counsel for the objecting creditor relies upon Section 295(5)(a) of the Excise Tax Act as authorization for disclosure of this information. The section reads: 295(5) An official may (a) provide such confidential information to any person as may reasonably be regarded as necessary for the purpose of the administration or enforcement of this Act, solely for that person. This is basically parallel section to S. 241(4)(a) of the Income Tax Act. Counsel for Revenue Canada contends that disclosure is in accordance with the principle in Slattery as this information is necessary to show the conduct and attitude toward creditors before and after bankruptcy. agree that disclosure of the corporate tax returns of Clearsky Enterprises Ltd. is necessary for income purposes in line with enforcement provisions as set out in Section 241(4)(a) of the Income Tax Act. I cannot acceptthat the principle and exemption contained in Section295(5)(a) of the Excise Tax Act would allow disclosure ofgoods and services tax remittances of Clearsky in theseproceedings. This is the discharge hearing relating to Nick J. Morin. The relevance of the tardiness in remitting goods and services tax of his common law spouse's company is questionable. cannot reason that Parliament intended the disclosure provisions to stretch beyond what would be reasonable for enforcement of the Income Tax Act and the Excise Tax Act. The information disclosed in paragraph 19 of theaffidavit of James Douglas Cook is confidential anddisclosure of this information is improper for theseproceedings. will not consider this information in my determination of the proper discharge order. In order to protect this information direct that the affidavit of James Douglas Cook be sealed with the proviso that it is not to be opened other than for purposes of appeals of this decision or order of the court. The second preliminary objection raised by thebankrupt relates to certain paragraphs of the affidavit ofJames Douglas Cook being based upon information and beliefas opposed to personal knowledge. The bankrupt submitsthat this is a final matter and Rule 319 of the Queen\'sBench Rules requires that affidavit evidence must be basedupon personal knowledge. The determination as to what may be final and what may be interlocutory is often difficult. In Re Fenrich (1985), 1985 CanLII 2814 (SK QB), 42 Sask. R. 117 (Q.B.) the court determined that final matter is one where the decision of the Court will finally dispose of the matter in dispute. If the decision is one that if determined one way will dispose of the matter, but determined another way will allow the action to continue, the matter is interlocutory. In this case, the bankrupt made an application for discharge which is being opposed by certain creditors. review of the possible orders that may be granted by the court under Section 172 of the Act indicate that the decision need not necessarily be of final nature. In any event, this objection was raised at the last minute. Counsel for the bankrupt could not remember the rule number other than he knew there was rule. am not convinced that these proceedings are final in nature and dismiss this objection. In dealing with the objections to the discharge theMichaluks allege that the facts under ss. 173(1)(a),173(1)(b), 173(1)(d), 173(1)(f) and 173(1)(m) exist. do not intend to deal with the allegations on an individual basis. Based upon the evidence and submissions I have notbeen satisfied that any of these facts have been proved. The main thrust of the Michaluk\'s submission relate tothe bankrupt putting them through unnecessary expenses by afrivolous and vexations defence to an action. The bankrupt denies this. He claims that his defence had merit and was based upon reasonable belief that the amounts claimed by the Michaluk's were high. The bankrupt also submits that he was advised by his lawyer not to defend the action which had been commenced in Manitoba by the Michaluks. He also stated that he would have liked to defend but had missed the time period in which to file defence. Based upon this evidence I cannot find that the factoutlined in Section 173(1)(f) has been proven. Having concluded that the Michaluks have not satisfied me that any of the facts they allege have been proven, feel obliged to state that the bankrupt is not someone that you would want to do business with. It was clear by his evidence that he holds himself blameless for his financial difficulties. He has convinced himself that it is everyone else's fault that he is in this situation. As for the Michaluks the bankrupt's evidence was that it was their own fault he stopped making payments because they didn't do what he wanted them to do. The "my way or the door way" attitude is nothing more than bullying tactic used by the bankrupt to justify his failure to honour an agreement. The objection by Revenue Canada relates to Section 173(1)(a) of the Act. The claim is for substantial amounts for G.S.T. which was collected but never remitted for the period January 1, 1991 to July 31, 1992. Red Bull Enterprises Ltd. closed the restaurant/gas bar in August, 1992. As director of Red Bull Enterprises Ltd., the bankrupt was made personally liable for the unpaid remittances of G.S.T. In addition portion of the claim is for income tax assessed in the 1991 taxation year. The bankrupt freely admits that all his resources were utilized to fund his business and more significantly, his on-going legal battle with the Department of Highways over the property the restaurant/gas bar was situated on. He also suggested that he left the bill paying to his accountant and since G.S.T. was new initiative at that time perhaps it was not handled well. Revenue Canada argues that the bankrupt's conduct with respect to his tax obligations brings the tax system and the bankruptcy process in disrepute. The bankrupt's deliberate choice to use funds impressed with trust for his own purposes should not be encouraged. On the other hand, counsel for the bankrupt submits his client's motivation was genuine. He was simply trying to keep his business afloat. This may be legitimate reason for payment of suppliers but as indicated previously, substantial portion of the funds were used to fund his various legal battles. have also stated previously that my impression of the bankrupt is the type of person who would walk away from his problems when things do not go his way. His justification being that if only everyone would have done what he felt was proper everything would have worked out. have concluded that this is not the type of attitude that is to be rewarded by an absolute order of discharge. The determination of the proper order is difficult. The objecting creditor recommends substantial conditional order over three year period. The trustee recommends conditional order for $1,750.00 which represents the value of non-exempt asset. The bankrupt, for the most part concurs with this recommendation. The bankrupt is in his early fifties and in good health. He is supported by his common law wife. He has not worked since 1992 and has voluntarily chosen, so he says, to have nothing to do with the business his common law wife now operates. While this may sound bit suspect, was not presented with any evidence to dispute this statement. The restaurant/gas bar appears to be going concern. It does provide reasonable source of income for family of four; the bankrupt, his common law spouse and their two young children. However, concur with the comments of the trustee that margin for profit in this type of business is generally thin. After carefully considering the circumstances relating to this bankruptcy have concluded that the recommendation of the trustee is reasonable and appropriate. The assignment occurred in December, 1995 and the bankrupt has been in bankruptcy for 28 months. In addition, there wasan investigation conducted by the R.C.M.P. as a result ofthe superintendent\'s investigation order. The conclusionwas that the evidence would not support a successfulprosecution. In conclusion there will be a conditional order ofdischarge requiring the bankrupt to pay $1,750.00 from anysource to the trustee. The bankrupt may pay this amount bymonthly instalments of $100.00 per month commencing May 1,1998 and continuing on the 1st of each succeeding monthuntil paid in full. Judgment interest will accrue on anypayment in arrears. The right of prepayment exists. Once paid an absolute order of discharge will issue. There will be no order as to costs. Registrar in Bankruptcy
Revenue Canada, which was owed $166,359.72 for goods and services tax for 1991-92 and $14,223.30 for 1991 unpaid personal income tax, and the Michaluks, who were owed $58,720.34 for a failed agreement and lease on their property in Manitoba, objected to the automatic discharge of the bankrupt. The bankrupt contended that s241 of the Income Tax Act prohibits disclosure of tax information concerning both the bankrupt's common law spouse and the company of which she was sole director and shareholder. The second preliminary issue raised was that portions of an affidavit were based upon information and belief as opposed to personal knowledge as required by Queen's Bench Rule 319 for a final matter. HELD: A conditional order of discharge issued requiring the bankrupt to pay $1,750 from any source to the trustee by monthly installments of $100 per month. Judgment interest would accrue on any arrears.  1)This discharge hearing related to Nick Morin. The relevance of the tardiness in remitting goods and services tax of his common law spouse's company was questionable. The information was confidential and disclosure would be improper for these proceedings. The principle and exemption contained in s295(5)(a) of the Excise tax Act would not allow disclosure of goods and services tax remittances in these proceedings. 2)None of the alleged facts raised pursuant to ss173(1)(a),(b),(d),(f) and (m) were proved. It was not proven as outlined in s173(1)(f) that the bankrupt put them through unnecessary expenses by a frivolous and vexatious defence to the action. The conclusion of the investigation conducted by the RCMP as a result of the superintendent's investigation order was that the evidence would not support a successful prosecution.