Mar 18, 2014

Summary of Schreiner, Re (Bankrupt)

Schreiner, Re (Bankrupt), 1998 CanLII 13960 (SK QB)
The trustee recommended a discharge without conditions. Total claims of unsecured creditors were $500,176.58, of which the bank had a proved claim for $444,516.21. The bankrupt and his brother each carried on a cattle/farming operation individually and in partnership with each other. The bank had provided substantial financing for these operations secured by assets pursuant to s427 of the Bank Act. The bank objected to the automatic discharge of the bankrupt on three grounds: the assets were not equal to fifty cents on the dollar; the bankrupt had failed to account satisfactorily for loss or deficiency of assets which were reduced by over $500,000 in value; certain lands were transferred in 1996 in contravention of the Fraudulent Preferences Act and Fraudulent Conveyances Act. From the customer's declaration of current assets and liabilities provided in October 1995 to the financial statements provided in January 1996 the total cattle inventory was reduced from 1171 to144 cattle. The bankrupt's ownership interest was reduced from 730 to 64 cattle. The trustee was unable to resolve the substantial reduction in assets. The bank, alleging fraudulent conveyances, had obtained orders from the Court of Queen's Bench to continue the actions against the bankrupt and his brother who filed an assignent in March 1998.HELD: A suspended order for one year was ordered. The value of the unsecured claims was over one half million dollars and the bankrupt failed to account satisfactorily for the cattle inventory losses. The objecting creditor was awarded to costs fixed at $400 payable by the bankrupt. 1)The leading case, Re Kemper stands for the proposition that in order for the court to find that there has been a violation of s173(1)(k) there must be, prior to the hearing of the application for discharge, a conviction for fraud in a criminal or civil court. The summary application for discharge should not be used to determine the issue of fraud. Other decisions have held that the bankruptcy courts should decide if the bankrupt has been guilty of fraud or fraudulent breach of trust on an application for discharge. 2)A violation could not be found as allegations do not constitute proof of the fact as set out in s173(1)(k). 3)A violation of s173(1)(a) was not proven. There was no evidence presented which would satisfy the court the bankrupt could be held responsible through culpable, blameworthy or financially reckless conduct on his part. The objecting creditor's allegations of breaches of other facts in s173(1) as proof of a violation of s173(1)(a) was not sufficient to rebut the statements in the trustee's s170 report listing the causes of the bankruptcy as poor economic conditions, high input costs and low commodity prices. 4)The bankrupt failed to account satisfactorily for the loss or deficiency of assets within the meaning of s173(1)(d). The bankrupt's assertion that over 165 head were buried or eaten by predators was not accepted. His statement that others kept all the records did not absolve him of his responsibility to explain the losses. Had a violation of s173(1)(a) been proven discretion would have been exercised to refuse an absolute discharge. 5)S192(1)(k) appeared to confer jurisdiction on the Registrar in Bankruptcy to amend the two orders allowing the fraudulent conveyance action to continue against the bankrupt and his brother. The amendment was for clarification and there was no prejudice to the bankrupt as it is well known that if a claim falls within s178(1)(e), a discharge in bankruptcy is no defence to proceedings taken after the discharge of the bankrupt and the trustee for enforcement of a claim.