Supreme Court

SUPREME COURT OF Nova Scotia

IN BANKRUPTCY AND INSOLVENCY

 

Citation: Rodgers (re), 2022 NSSC 312

Date: 20221101

Docket: No.  44343

Registry: Truro-Pictou

Estate Number: 51-2585273 

 

 

In the Matter of:	The Bankruptcy of Adam Daniel Rodgers
Registrar:		Raffi A. Balmanoukian, Registrar in Bankruptcy
Heard:		August 3, 2022, in Halifax, Nova Scotia
Final Written Submissions:		July 25, 2022
Counsel:		Tina Powell in succession to Joe Wilkie, for the Trustee, MNP Ltd. Tim Hill, KC, for the objecting creditor, BridgePoint Financial Services Limited Partnership I Adam Rodgers, appearing personally

 

 

Balmanoukian, Registrar:

[1]             The hardest part about this decision is remembering to stay in my own lane.

[2]             Adam Rodgers returns to this Court seeking his bankruptcy discharge.  He maintains his blame for all that is amiss in his world on his disbarred and disgraced former law partner, Jason Boudrot[1].  He says that he has been caught in the undertow and none of this would have happened but for Boudrot’s nefarious misdeeds.  He espouses a Coasters’ refrain of “why is everybody always picking on me.”  He persists in saying his role in the demise of his law firm is minor to non-existent, that his 12 month suspension by the Nova Scotia Barristers’ Society (now complete) is in fact something of a vindication compared to Boudrot’s disbarment[2], and that any financial discrepancies other than those effected by Mr. Boudrot are not of his doing.  He continued up to and including this hearing blaming everyone from his banks to his bookkeeper for this immolation, without contrition.  He says he has a right to move on with his career and to exit the bankruptcy process.

[3]             He seeks his discharge after producing the materials I required in Re Rodgers 2020 NSSC 255 (“Rodgers 2020”) in fits and starts.  I was first provided (through the Trustee) with the Bar Society’s complaint and decision[3].  I said that did not comply with my order that full documentary production be placed in evidence before me.  I was then provided with a link, and Mr. Rodgers further asked the Court to print anything else itself because doing so would be onerous to him, despite having a professional office.  That is not the Court’s function.  I declined to set a hearing date until my order (which was not appealed) was completed.  Finally, in December 2021 I was provided with the properly redacted[4] exhibits and transcript – which I estimate in all to be about 800 pages - and the matter was set down for hearing.

[4]             The objecting creditor (“BridgePoint”) did not file further evidence or argument; Mr. Rodgers inexplicably attempted to characterize this as meaning BridgePoint “perhaps….abandoned” its objection and asked that this Court “dismiss the application given this non-compliance.”[5]  He went on in his brief to speculate that BridgePoint may have “examined the legal principles underpinning s. 173(1)(a) of the BIA and determined that their case is not worth pursuing.”  Neither was the case, although it is equally inexplicable that BridgePoint did not seek to amend its objection despite having grounds brought to its attention, an omission which Mr. Rodgers calls “arbitrary and careless, or passively vindictive.”

[5]             BridgePoint’s brief urges me to require Mr. Rodgers to pay a sum or percentage of income over a period, citing “bankrupt professional” cases in support.

[6]             The Trustee effectively took on a role as a watching brief, as Mr. Rodgers had completed his statutory duties.  Total receipts are stated to be $9874.37 against declared direct and contingent unsecured liabilities of $1,686,133 (of which several are nominal or nil notice amounts).  He declared $6500 a month in net income at filing, two-thirds of which is stated to be redirected for spousal or child support, leaving him with no s. 68 “surplus income” obligations to the Trustee.  There is no evidence of how the spousal and child support figures were derived so as to denude Mr. Rodgers of that much of his income, and the estate of all s. 68 payments.  He paid $600 of a $1600 voluntary fee agreement at the time of the Trustee’s s. 170 report. 

[7]             It is against this backdrop that I must decide what, if any, conditions I should place on Mr. Rodgers before he can obtain his absolute discharge.  In doing so, I must bear in mind what this Court and this proceeding are not, as much as what they are.

[8]             This is not a disciplinary hearing.

[9]             This is not a criminal proceeding, although the Court understands there may be ongoing investigative work against Messers. Boudrot and/or Rodgers, and/or the defunct firm.

[10]         This is not a place to tell Mr. Rodgers how to run his business, except to the extent relevant to s. 173 of the Bankruptcy and Insolvency Act, RSC 1985, c. B-3 (the “BIA”) and the disposition that should flow from that.[6] 

[11]         This is not a place to tell Mr. Rodgers that he needs to give his head a shake, except to the extent that it interplays with the rehabilitative objectives of the BIA. That interplay does indeed exist, and I will discuss it.

[12]         This is not a confessional in which I tell the penitent – or perhaps more accurately here, the unrepentant – the price of absolution.

[13]         This is a discharge hearing, in which I must weigh the competing interests of debtor rehabilitation, creditor protection, and system integrity.  Or, as I put it in Rodgers 2020, whether the facts before me constitute “stupidity or treason” are relevant to s. 173; however, what (if anything) happens in other Courts or regulatory authorities are for their respective lanes.

[14]         It is thus with the greatest of reluctance that I find myself compelled to the conclusion that, for bankruptcy purposes, the rehabilitative objectives are primary to the disposition before me.  I have been deliberately abrupt in these opening comments, and will make others, lest Mr. Rodgers take my disposition in this case as a vindication.  Let me be clear.  It is not.  It is an exercise in holding my nose and instructing myself in the proper exercise of my discretion, and jurisdiction.  As Justice Platana put it in Touhey v. Barnabe, [1995] OJ 2337, cited by BridgePoint:

43      The law is clear that a discharge is not a matter of right and that each case must be determined upon its own particular facts. In exercising my discretion I must look carefully at the causes of the bankruptcy and the attitudes and actions of the bankrupt both before and after bankruptcy in determining whether a discharge should be granted. Further, the law should not be converted into a clearing house for the liquidation of debts without regard to the conduct of the debtor. In Re Stroud [1995] O.J. No. 1199, MacPherson J. stated at paragraph 31 of his decision:

It is important to consider the interests of both the debtor and his creditors in deciding whether a discharge should be granted. As expressed by Adams J. in Re Goodman, [1995] O.J. No. 72, at paragraph 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.

44      In Re Cohen [1994] O.J. No. 3147, Adams J. noted at paragraph 11:

The purpose of the Bankruptcy and Insolvency Act is to permit an honest but unfortunate debtor to obtain a discharge from his debts subject to reasonable conditions and to permit the debtor to rehabilitate himself free from the overwhelming burden of debts. The attitude and actions of the bankrupt, both before and after the bankruptcy, are relevant considerations. Every application for discharge of a bankrupt must be determined upon its own facts and by due exercise of a judicial discretion in relation thereto.

[15]         In order to contextualize these reasons, it is important to set out, as briefly as that contextualization allows, the events that led to these proceedings. Like Hemingway’s Mike Campbell[7], Mr. Rodgers went bankrupt two ways:  gradually, then suddenly.

[16]         There is no doubt that the fallout from Mr. Boudrot’s defalcation was the “sudden” precipitant.  However, Mr. Rodgers is certainly incorrect in attempting to have this Court believe that this is all there is to it.  He does acknowledge that the firm was heavily indebted – but says that it could have pulled itself together and they were “negotiating” with financial institutions – including BridgePoint, an admitted high-risk, high-cost lender[8]

[17]         The firm balance sheet in the disclosure showed some $6.1 million in liabilities against an alleged $8.6 million in assets as of December 31, 2017 (the firm collapsed in December 2018).  I say “alleged” as some $4.6 million was in accounts receivable and work in progress, which as these reasons will summarize is a figure of some dubiousness.  In addition, the firm ‘factored’ over $200,000 in receivables for periods of under a year at just under 75 cents on the dollar[9].  Other loans had interest rates ranging from prime plus 1% to fixed rates over 8%.  And yet, Mr. Rodgers denies his firm would have been in trouble but for Mr. Boudrot.

[18]         These are facts I must take into account in weighing the rehabilitative objectives of the BIA.  For this Court even to imply that Mr. Rodgers could look at this financial scenario and say everything would be fine is not in keeping with that objective, as he seeks to continue in business (and indeed told this Court that he was doing “business consulting” during his disciplinary suspension).

[19]         The Disclosure[10] shows that, as early as 2013, Mr. Rodgers was either inattentive to, or derelict regarding, his trust account obligations.  The Bar Society’s letter to him of June 6, 2016 recites these and contain references to what is something of a continuing theme in these reasons – a minimalization by Mr. Rodgers of the issues, and deflection of blame/responsibility to others.  Since we are now more than a lustrum down the road, that continuing theme is also of concern to the Court in assessing the rehabilitative elements in the BIA.

[20]         In early 2019 – after the immolation of the Boudrot Rodgers firm and the appointment of its receiver – Mr. Rodgers admitted his “categorical denial” that he ever signed trust cheques in blank was false, and that he was “ashamed” for telling the Barristers’ Society the contrary.  He admitted he had “not been forthright.”[11]

[21]         By June 2020, he complained to media that the practice restrictions on him from “bookkeeping entries” were “unwarranted and unnecessary” and that he “never overcharged anyone.”[12]

[22]         Conversely, by July 6, 2020, the Barristers’ Society concluded that in at least 28 cases, Mr. Rodgers either deposited retainers into the firm general account before the work was done, or transferred funds from trust to general before the work was done – in other words, billing before doing the task at hand, a flagrant violation of the trust regulations and Code of Professional Conduct.  These extended back to 2016 and 2017.[13]  Mr. Rodgers’ response was, in effect, he did the work eventually and that “I do not feel it is just that I have been subjected to this lengthy and now public investigation.”[14]  He stated in his brief to this Court that although the Bar Society found that he was “aware of, was wilfully blind to, and was reckless about the fact that his partner, Jason Boudrot, was withdrawing funds from clients’ trust accounts without fees having been earned or prior to fees having been earned,” his culpability was limited “in other words, of relatively small amounts of trust funds.”

[23]         When it comes to improper allocation of trust funds, there is no such thing as a “relatively small amount.”

[24]         The Disclosure sets out a large series of transactions in which funds were taken from trust on account of fees; some were premature; others were later reimbursed to trust; Mr. Rodgers blamed Mr. Boudrot, or the firm bookkeeper, for all or substantially all of these.  He continued to this hearing to characterize them as “minor” or instances of “not me.”

[25]         In fairness to Mr. Rodgers, this is sometimes the case.  For example, a claim against the Lawyers’ Fund for Client Compensation from one of Mr. Rodgers’ clients states “[w]hile your claim was filed against Mr. Adam Rodgers….the Committee determined that the missing funds were actually misappropriated by….Jason Boudrot, and not Mr. Rodgers.”[15]  It is important to remember that this is not nearly so universal as Mr. Rodgers would maintain, and this position is aggravating to the rehabilitative elements I must consider.  It is more accurate to repeat the language in a notice from Mark Scott, KC (chair of the Bar Society’s Complaints Investigation Committee) of May 25, 2020 that Mr. Rodgers “may not have been fully candid and truthful with Ms. Rees and Mr. Brooker during your interview about your knowledge of Mr. Boudrot’s pre-taking of client funds before work was completed on your files.”

[26]         Mr. Scott, KC concluded in a letter to the Society on June 5, 2020 that “Mr. Rodgers has been cooperative with counsel for the Society,” that the “history of complaints and notes that the allegations related to trust funds, while very serious, are somewhat dated.  The more recent allegation related to his candour with the Society are serious.”[16] 

[27]         There is also at least the implication that picture presented to lenders was perhaps rosier than the actual case.  The in-and-out of the trust transactions could be used to demonstrate cash flow or revenue that could then be “worked off” or replaced as circumstances dictated.  The fact that the balance sheet, although highly leveraged, went from retained earnings of $2.4 million to less than zero in under a year speaks, at a minimum, to the subjectivity if not outright creation of accounts receivable and work in progress[17]; it beggars belief that a firm with that level of turnover would require short-term factoring at 75 cents on the dollar, or for that matter, BridgePoint and its high-yield financing.  I also note that as of December 31, 2017, the firm principals or related corporations are shown as owing the firm over $1 million.[18]  Despite repeatedly professing significant financial acumen and experience, Mr. Rodgers claimed that he was practically ignorant of these financial withdrawals by Mr. Boudrot and his companies, because the actual “draws” by the principals (that is, salary/dividends, as opposed to advances to directors or related companies) was roughly equal.  They are on the balance sheet and statement notes for all to see.

[28]         BridgePoint also points out that a $20,000 receivable which had been assigned to it was collected by Boudrot Rodgers or its short-lived successor, and not turned over.  Mr. Rodgers had no explanation for this.  It is indicative of the lack of oversight, and likely far worse, by Mr. Rodgers and not just Mr. Boudrot or “the bookkeeper.”[19]

[29]         Put another way, when I asked the question in Rodgers 2020 of “what did Mr. Rodgers know and when did he know it,” the answers are “plenty, and much more than he would have us believe.”  In contrast, even at his disciplinary hearing, he opened his submissions and evidence by saying “I still do not quite understand why I am here” and that he was “proud of my conduct.”[20]  At his discharge hearing, he said with some considerable anger and frustration, “why don’t they [BridgePoint] go after him [Boudrot]?”[21]

[30]         Mr. Rodgers accuses the Bar Society, at least obliquely, of using the disciplinary process to recover some of the funds it paid by way of reimbursement.  At p. 345 of the transcript, he said:

What is the money question here?  Well, the compensation fund has paid out money, 1.3 million, and I am sure they wish they did not have to or that they might somehow recover what they have been paid…what they have paid.  How can that happen?  Well, in this case, the firm is gone so no more money can be found there.  Mr. Boudrot has declared bankruptcy and will never practice law again in this province, so there’s no realistic chance of recovering any money from him.[22]  So there’s only one person or entity left and that is me.

Now because of the debt levels of the firm, I have also been forced to declare bankruptcy, as the Bar Society knows because you have an obligation to tell them when you declare bankruptcy and I did so.  But…and this is a clever plan, in a way, the Bar Society can have me found…try to have me found guilty of something and be made subject to practice conditions, that I pay a fine, and then they can therefore get their money that way as a way, I think to circumvent the rules on bankruptcies.

I believe this motivation has tainted the Bar Society’s outlook on this entire matter.  They have taken my knowledge of internal bookkeeping practices which are benign in nature and with no causal link to the missing money and attempted to elevate that into some kind of moral equivalency to the deliberate and calculated theft committed by my former partner. [emphasis added]

[31]         He went on at p. 347 to characterize himself as “the most victimized individual victim of Mr. Boudrot’s theft.  Clients have been compensated, but not me.”  And, despite having a finance background, he says that managerial and financial oversight were not his province; repeating, once again, that these were handled by Mr. Rodgers and/or the firm bookkeeper and nothing came to his attention as a ‘red flag’ despite the trust and balance sheet issues I have summarized already.[23]  He concluded by seeking dismissal of the complaint, and, having been found guilty of professional misconduct, sought costs at the sanction hearing.  He was suspended for a year (modified to allow for participation in the Desmond Inquiry) and ordered to pay $12,000 in costs, among other things.

[32]         All of this is relevant to this Court for, if Mr. Rodgers is to be rehabilitated financially, he needs to come to grips with the fact that if he is to be a business owner in this profession, the buck stops with him.  Not only was I unconvinced that he gets this message, but in fact quite the opposite – and that when confronted, his visceral reaction is to deflect or to guild the lily.  For BIA purposes, he has to “get it” in unequivocal terms that those instincts have to stop and that the Code of Professional Conduct’s provisions with respect to Candour are more than statements of motherhood and apple pie.  Only then can he lay some claim, retroactively, to being the “honest but unfortunate debtor.”  Currently, he is the “less-dishonest-than-the-other-guy and oblivious debtor.”

[33]         It appears little to nothing so far has made that sink in.  It is my function to try.

[34]         I summarized BridgePoint’s objection in Rodgers 2020 as follows:

[10]        The objecting creditor, BridgePoint Financial Services Limited Partnership I (“BridgePoint”), disagrees.  It says that Mr. Rodgers has not satisfied the Court that the shortfall in his assets, being less than 50 cents on the dollar of unsecured liabilities, has not arisen “from circumstances for which the bankrupt cannot justly be held responsible.”  It is common ground that the burden, to a civil standard, is on the bankrupt to bring himself within this exception (173(1)(a) of the Bankruptcy and Insolvency Act, RSC 1985, c. B-3 (the “BIA”)).

[11]        The objecting creditor also says that Mr. Rodgers has “failed to account satisfactorily for any assets or for any deficiency of assets to meet the bankrupt’s liabilities” (173(1)(d) BIA).

[12]        The Court raised the further question of whether 173(1)(e) of the BIA has application.  That section provides for proof of whether

The bankrupt has brought on, or contributed to, the bankruptcy by rash and hazardous speculations, by unjustifiable extravagance in living, by gambling, or by culpable neglect of the bankrupt’s business affairs [emphases added]

[13]        If a s. 173 “fact” is proven, s. 172(2) of the BIA provides that I cannot grant an absolute discharge.

[14]        I also note that incompetence, overexpansion, carelessness, unwarranted speculation, gross negligence, and fraud are factors that a Trustee is to include in a report to the Superintendent, if requested under s. 171.  No such report is commissioned here.  I mention it simply to illustrate that these are factors of considerable interest to systemic integrity of the bankruptcy process.

[35]         Inexplicably, BridgePoint did not seek to amend its objection to include s. 173(1)(e ), saying in its brief that it would “only” rely on s. 173(1)(a) and (d).  Perhaps it did not do so knowing that the Court was alive to the issue.  Indeed, it appears that the only one who wasn’t was Mr. Rodgers.

[36]         For clarity, Rodgers was a guarantor of the Boudrot Rodgers Law Inc.’s borrowing from BridgePoint.  The law firm was placed in receivership in January 2019 by The Bank of Nova Scotia (an action Rodgers said in September 2020 that the bank “will, or perhaps may already, regret”).

[37]         In 2020, BridgePoint sought either a refusal with leave to reapply or a conditional order; as authority for the latter, BridgePoint cited Re Perlman, 22 CBR (3d) 248 (BCSC).  That case ordered Dr. Perlman (age 62 with approximately $1.15 million in proven claims) to consent to judgment to pay 20% of his pre-tax income for 18 months, which on the facts approximated $36,000.  In doing so, Justice Tysoe also summarized a number of other “bankrupt professional” cases, as follows at para. 17:

Counsel for Dr. Perlman prepared a summary of comparable cases decided during the last several years in connection with professionals being discharged from bankruptcy.  I think it is useful to repeat the major points of the summary as it has been revised and supplemented by me.  These points are the professions of the bankrupts, their ages, their annual incomes and the amounts ordered to be payable by them to obtain a discharge from bankruptcy:

 Name of Case   Profession     Age   Annual Income   Amount Payable

Re Chodos      Lawyer         44   $80 - 100,000      $100,000

Re Maxwell   Surgeon        50   $90,000            $120,000

Re Wambera   Dentist        51   $280,000            $50,000

Re Matheson  Opthamlogist  [sic]  59   $263,232     approx $40,000

Re Steward    Doctor         50   $108 - 120,000      $15,000

Re Demkiw      Lawyer         59   $70,500               nil

Re Fingold  Lawyer         40   $120 - 150,000     $100,000

Re Ross      Doctor         52   $80,400            $50,000

Re Satish    Doctor         -   $200,000            $60,000

Re Chow      Lawyer         40   $90 - 100,000      $36,000

Re McAfee     Lawyer         -  $100,000            $80,000

[38]         It will be seen that this summary, while extremely variable and fact-dependent, trends towards payment conditions for professionals in early to mid-middle age that run from nothing to slightly over estimated annual income, with a rough average in the low 40% range.  The chart does not indicate what proportion of proven debts these payments would constitute.

[39]         For his part, Mr. Rodgers cites Re George 2008 NSSC 304 and distinguishes his conduct; George involved an uninsured and intoxicated motorist who declared bankruptcy to avoid the ensuing judgment.  He says that his situation, not involving such turpitude, takes him out of ambit of s. 173(1)(a), namely the “fifty cents on the dollar” provision.  If that (or another s. 173 fact) is proven, I am precluded form issuing an absolute discharge.  S. 173(1)(a) reads:

173 (1) The facts referred to in section 172 are:

(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; [emphasis added]

[40]         Equating “lack of turpitude” with discharging the burden on the bankrupt to bring himself within the saving provision noted above is a non-sequitur.  Once the “fifty cents on the dollar” provision is invoked, it is not mere lack of moral blameworthiness or judgment-avoidance that brings the bankrupt within the saving provision; s/he must prove to a civil standard that “the bankrupt cannot justly be held responsible.”  It is not limited to “moral turpitude” situations.

[41]         Mr. Rodgers then cites Re Alton 2003 OJ 3135 for the proposition that since he has not been found to be fraudulent (or at least, not yet), this Court should not do so.  While I have disagreed and continue to disagree that this Court has no fraud-finding jurisdiction[24], I do not need to make (and here do not make) a fraud finding in order to trigger s. 173(1)(a).  Nor is absence of fraud enough in itself to bring a bankrupt within the “cannot justly held responsible” saving language.

[42]         Next, and probably most significantly for Mr. Rodgers, he cites Re Forsberg 2001 SKQB 289[25], a decision of the eminent Registrar Herauf (as he then was).  Mr. Rodgers cites it for the proposition that the Trustee’s inquiries, if not the subject of negative comment, should be taken as prima facie proof that the bankrupt comes within the saving language of s. 173(1)(a).  First, a close examination of the decision reveals that a bald statement by the Trustee is, at best, inconclusive.  One may indeed question the extent to which the Trustee made such inquiry in this case.  However, the second point Mr. Rodgers makes respecting Forsberg is more germane:  that a bankrupt who has issued a personal guarantee knowing they cannot honour it does come within s. 173(1)(a) and not its saving language. At para. 12 et seq., Registrar Herauf stated:

[12]    The second ground of objection is pursuant to section 173(1)(a) of the Act. Simply put, the objecting creditor submits that the bankrupt is responsible for the fact that his assets are not of a value equal to 50 ¢ on the dollar of the amount of the bankrupt's unsecured liabilities because the bankrupt provided a guarantee to the objecting creditor when the bankrupt knew that he did not have sufficient assets to satisfy the guarantee. The objecting creditor relies upon three Ontario decisions of Henry, J. in support of this proposition; Re Gafni (1978), 265 C.B.R. (N.S.) 22 (Ont. H.C.); Re Kirk (1980), 36 C.B.R. (N.S.) 10 (Ont. S.C.); Re Buceta (1981), 40 C.B.R. (N.S.) 162 (Ont. S.C.).

[13]    In Re Gafni, supra, the bankrupt provided a personal guarantee for a corporation of which the bankrupt was a shareholder. The evidence showed that the bankrupt, at the time he provided the guarantee for the debts, was not in a position to implement such a guarantee if required to do so.

[14]    At page 23 of the Gafni decision Henry, J. stated:

"The bankrupt has not satisfied me that this situation has arisen from circumstances for which he cannot justly be held responsible within the meaning of s. 143(a) of the Bankruptcy Act, R.S.C. 1970, c. B-3. The immediate cause of the bankruptcy arises from a personal guarantee by the bankrupt of the debts of a company of which he was the sole shareholder. The bank has made a loan to this company which was called in by the bank, the amount then outstanding being $31,000. This debt was not paid and the bank called upon Mr. Gafni to implement his personal guarantee. In due course the bank obtained judgment against him for this debt. The bankrupt has not satisfied me that he should not be called to account for the default, either by the company which he controlled or by himself. There is no evidence that when he personally guaranteed the debts of the company he was in any position to implement such a guarantee should he be required to do so."

[15]    The same scenario existed in Re Kirk, supra where Henry, J. stated at p. 11:

With respect to the first fact stated above, the bankruptcy occurred because the bankrupt, Mr. Kirk, had given his personal guarantee for the obligations of the business of which he was the principal. The business became overextended, a cash flow problem developed and the creditor, the Royal Bank of Canada, which held a fixed and floating charged debenture on the undertaking and business of the company, appointed a receiver, which managed the business for a time, approximately ten months, and then sold it, leaving a deficiency on the amount of the bank's outstanding claim against the business.

The bank sought to realize on the personal guarantee of the bankrupt, Mr. Kirk, but he was unable to implement the guarantee and made an assignment in bankruptcy. Mr. Kirk went into the witness box and explained at considerable length the ill fortunes of the business enterprise of which he was the principal, and it emerged in evidence that, when he gave his personal guarantee to the bank for credit, he had no assets to stand behind it. In the circumstances, it appears to me that he has not discharged the onus of satisfying the court that the lack of assets, to the extent of 50 ¢ on the dollar, on the unsecured liabilities is not a matter for which he should be held accountable. The situation falls within the principle set out in Re Gafni (19778), 26 C.B.R. (N.S.) 22 (Ont. H.C.). I am therefore obliged by the Bankruptcy Act, R.S.C. 1970, c. B-3, to make an order, as contemplated by s. 142(2).

[16]    And finally in Re Buceta, supra, Henry, J. stated at p. 164:

However, it was incumbent upon the bankrupt to demonstrate to the court that the failure to provide assets to a value equal to 50 cents on the dollar on the amount of his unsecured liabilities occurred without fault on his part; the bankrupt has not done this.    He is in bankruptcy because he gave his personal guarantee to the bank for the loans of the company of which he was a shareholder. He is in bankruptcy because the loan was called and he was required by the bank to implement his guarantee, which he could not do. He has not satisfied the court, as required by s. 143(1)(a) of the Bankruptcy Act, that his failure to provide sufficient assets (or to have available sufficient assets of his own to be able honestly to give the guarantee and ultimately to implement it) arises from circumstances for which he cannot justly be held responsible. The onus is on him to do so and he has not discharged the onus.

[17]    The rationale in these decisions was recently applied in Re Rabbah (1993), 17 C.B.R. (3d) 53 (Ont. Gen. Div.)

[18]    There was also a case from this court that dealt with personal guarantees and s. 173(1)(a) of the Act. In Re Babiy (1991), 1991 CanLII 7782 (SK QB), 3 C.B.R. (3d) 8 (Sask. Q.B.) Noble, J. accepted and endorsed the reasoning in Re Buceta, supra, as it relates to the objecting creditor failing to distinguish between acts alleged to have been committed by the bankrupt as an individual, and acts alleged to have been committed by the shareholder of the bankrupt corporation. In fact, Noble, J. found at page 11:

1.    On the question of whether or not the assets of Babiy and Oliver are not equal to 50 cents on the dollar (s. 173(1)(a)), the Royal Bank contends that the loss of value of their shares in S.S.C.    However, the trustee's statement that the bankrupt's failure arose from circumstances for which they cannot be held responsible is prima facie proof of this fact. It is clear the trustee examined the activities of the bankrupts closely and is satisfied. Royal Bank's counsel seeks to make Babiy and Oliver personally responsible for a list of six debts that were the responsibility of S.S.C. because they were sole shareholders and directors of the company. In my opinion, this argument has no validity. It cannot be determined on this application whether the Royal Bank's contention has any validity. On the face of it, those debts were incurred by the company and are not attributable to either individuals. In this regard, the decision in Re Buceta (1981), 40 C.B.R. (N.S.) 162 (Ont. S.C.) is applicable.

[19]    It is interesting to note that even though Noble, J. followed Re Buceta, supra as it relates to the failure of the objecting creditor to distinguish between the bankrupt's actions as an individual as opposed to those of the corporation, the decision of Noble, J. fails to mention that notwithstanding this distinction, Henry, J. in Re Buceta, supra, still found the bankrupt to be responsible based upon the bankrupt's personal guarantee when the bankrupt knew that he had insufficient assets to cover the guarantee if called upon.

[20]    In this particular case there is no dispute that the bankrupt's assets are not of a value equal to 50 ¢ on the dollar. The trustee's s. 170(1) report indicates he cannot justly be held responsible for this fact although the report does not elaborate upon any reason for this conclusion. The causes of bankruptcy are listed as "Business failure, unable to meet financial obligations as they become due". There is some suggestion that a mere statement by the trustee in his report is not sufficient to prove that the failure of assets to be of the value equal to 50 ¢ on the dollar arose from circumstances for which the bankrupt cannot justly be held responsible. See Re Lockyer (1978), 1978 CanLII 257 (BC SC), 28 C.B.R. (N.S.) 80, 7 B.C.L.R. 361 (S.C.). [emphases added]

[43]         Mr. Rodgers says there is no evidence that he could not discharge his guaranteed obligations to BridgePoint at the time of signing, if called upon.

[44]         Wrong in fact.  Wrong in law.

[45]         First, the burden is on him to establish that he could discharge the guarantee if called upon – that is what could take him, maybe, into the saving language of s. 173(1)(a).

[46]         The guarantee was executed in May 2018.  It is for a half-million dollars.  When Mr. Rodgers filed his assignment in November 2019, he declared $90,000 in assets.  He also declared that in July 2019 he sold his house, and after paying his mortgage “my 50% went to BDC judgment.”  BDC is still listed at another half-million dollars.  One will recall the statement of affairs lists $1.6 million in direct and contingent liabilities, some of which are notice amounts.  Despite Mr. Rodgers’ protestations of financial acumen, he was clearly insolvent should the guarantee be called.

[47]         It is simply irrational not only to flip the burden of proof on its head, but to go further and surmise that Mr. Rodgers did in fact have the required solvency and liquidity in May 2018 – when his law firm was already up to its neck in debt and had recently factored $200,000 in receivables for 75 cents on the dollar for short-term liquidity. 

[48]         The only way Mr. Rodgers’ assertion that he could have answered the guarantee could be true is if he was divested of at least $400,000 in available working capital or liquidable net assets[26] between May 2018 (when the guarantee was signed) and November 2019 (when he filed his assignment).  He declared, under oath, in answer to the BIA questions regarding disposition or seizure of property only the house sale and a CRA third party demand.

[49]         In the incredible event that this is somehow the case and he did go from being able to cash out a half-million dollar demand to having but $90,000 to his name, one then turns to BridgePoint’s second ground of objection – that the “bankrupt has failed to account satisfactorily for any loss of assets or for any deficiency of assets to meet the bankrupt’s liabilities.”  Mr. Rodgers cannot have it both ways.

[50]         In this regard, BridgePoint further points to the unremitted $20,000 receivable that had been assigned to it.  In Rodgers 2020, I said:

[24]        I also note, perhaps as a microcosm of this inattention or failure of Mr. Rodgers to bring himself within the “not responsible” exception of 173(1)(a) and his “failure to account” in 173(1)(d), an example cited by the objecting creditor.  Mr. Rodgers testified that he agreed with the affidavit of Rasna Gulri, in-house counsel for BridgePoint’s General Partner.  That affidavit recites that about $20,000 in fees had been generated by the Boudrot Rodgers firm (or its rump successor) and had not been turned over to BridgePoint, contrary to its security agreement.  Mr. Rodgers could not explain this and couldn’t recall the file.  Twenty grand in fees is not couch change.  In my view, this unexplained discrepancy brings the bankrupt within the ambit of s. 173(1)(d).

[51]         In other words, the “missing $20,000” is both a s. 173(1)(a) factor in the sense of his “responsibility” and a 173(1)(d) factor in that Mr. Rodgers has no explanation to what happened to it. 

[52]         So what is to be done?  I have gone out of my way to point out that Boudrot Rodgers, even if had been squeaky clean, was a house of cards.  Boudrot was no more and no less than the typhoon who was the catalyst to collapse.  I have also taken pains to illustrate that Mr. Rodgers was too derelict in oversight and too confident of his own financial and business credentials to see it. 

[53]         BridgePoint says that I should make Mr. Rodgers pay a sum certain or a percentage of income on the authority of Perlman and its analysis.  Mr. Rodgers says I should let him go on his way, older if not wiser.

[54]         I agree with BridgePoint to the extent that an absolute discharge does not balance the applicable interests.  Nor, in Mr. Rodgers’ specific context, do I have any confidence that an absolute order would be rehabilitative for him.  He needs to understand that he is currently neither honest nor completely unfortunate in asserting that he played no part in this business collapse.  He cannot be allowed to surmise that he has this Court’s blessing to go forth with his current mindset – it is not rehabilitative for him nor does it inspire confidence in the integrity of the insolvency system.

[55]         Against that, I bear in mind Mr. Rodgers has now been in bankruptcy for almost exactly three years.  He has had very public legal issues, and may face more.  The small town marketplace will pass judgment on his future in private practice, if that is what he pursues.  He is 45.

[56]         Having found s. 173 “facts” as proven, I am precluded from issuing an absolute discharge.  My mandate is governed by s. 172(2) of the BIA which reads:

(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. [emphasis added]

[57]         I am making a conditional order for payment of money, and ancillary terms.

[58]         I do not believe that a percentage of income approach is appropriate here.  Quite frankly, the accounting and financial history makes me skeptical of an accurate reconciliation or calculation of an amount payable.  Indeed, at the hearing, Mr. Rodgers could not even calculate how much he had made from the Desmond inquiry.  He estimated $50,000, although he was allowed 200 hours’ preparation time and 200 hours’ hearing time at $220 an hour, for a total of $88,000 (and confirmed these allowances were “maxed out”).  The $50,000 may or may not be an accurate reflection of his corresponding business expenses during the relevant period.  He has managed to pay the $12,000 Bar Society costs award (early, to his credit) and complete the Professional Responsibility course mandated as part of his regulatory sanction.  He could provide the Court with no particular guidance as to his future prospects, in or out of the practice of law.

[59]         I believe a payment should be both fixed and notable, but achievable over a reasonable period of time.  I harbour some hope that this, combined with the strong language of this decision, will finally and cumulatively have some impact on Mr. Rodgers and his need to take his proper share of responsibility and liability.   I emphasize that this is intended as a rehabilitative message.  It also is intended to provide some, if a nominal, dividend to the creditors.

[60]         Bearing in mind the wide range set forth in Perlman, the factors in this decision, and the exercise of my discretion, I believe payments such as to bring the estate’s total receipts to $40,000 fairly balance the interests in this decision.  I understand the estate balance is currently approximately $9874.37.  That would mean that Mr. Rodgers, at his declared filing income of $6500 a month (before family maintenance obligations) would pay approximately four and a half months’ income into his estate.  That falls within a fair and balanced range in this case, albeit resulting in a dividend somewhere in the 2% range.

[61]         This will be payable at a minimum of $1,000.00 per month, beginning December 1, 2022.  I retain jurisdiction to issue an order enforcing payment, should one be necessary, pursuant to s. 172(2)(c ).

[62]         As well, as was the case with Mr. Boudrot, the Order will explicitly provide as follows:

It is ordered that the debts or liabilities of the bankrupt to the Nova Scotia Barristers’ Society  (the “Society”) or the Lawyers’ Fund for Client Compensation (the “Fund”) which are the result of debts or liabilities incurred by fraud, embezzlement, misappropriation or defalcation while acting in a fiduciary capacity within the meaning of Subsection 178(1)(d) of the Bankruptcy and Insolvency Act; and debts or liabilities of the bankrupt to the Society or the Fund which are the result of debts or liabilities incurred from obtaining property by false pretenses or fraudulent misrepresentation within the meaning of Subsection 178(1)(e ) of the Bankruptcy and Insolvency Act are not discharged by this order and survive the bankrupt’s discharge; and the Society and Fund may pursue collection against the bankrupt upon discharge of the Trustee or upon the lifting of the stay of proceedings with respect to these debts, according to law;

[63]         The italicized words are supplemental to the form of order I issued for Mr. Boudrot, as in the latter case the Trustee was ordered forthwith to seek its discharge.  That is not the case here.

[64]         This decision will likely satisfy nobody; BridgePoint, because it probably has not obtained as much of the pound of flesh it seeks; Rodgers, because he has not been handed an absolute discharge or (I hope) any basis upon which he can countenance a claim to vindication or exoneration.  I have taken no pleasure in writing it and expect that it makes the Court no friends.  That is not its mission.  But in the exercise of my discretion and in weighing the factors relevant to this Court, it is what I have decided.  It also maintains the integrity of the subjects over which I have carriage, and excludes those of which I do not.  It keeps this Court in its lane.  And it does what this Court can to set Mr. Rodgers upon the straight and narrow.

[65]         No participant sought costs.  None are ordered.

[66]         I will forward the order prepared by this Court.

Balmanoukian, R.