Bankruptcy of Steven Sindaco

2003BCSC1396 IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: Bankruptcy of Steven Sindaco, 2003 BCSC 1396 Date: 20030911 Docket: 166913 VI/96 Registry: Victoria In the Matter of the Bankruptcy of Steven Sindaco Before: The Honourable Master A.N. Patterson Reasons for Judgment Counsel for Steven Sindaco: S. Bartlett Appearing for the Trustee: T. Rogers Date and Place of Hearing: August 7, 2003 Nanaimo, B.C. [1] This is an application brought by a bankrupt for his absolute discharge. The unusual factor in this case is that the bankrupt won $500,000 in the lottery before his discharge. [2] Mr. Sindaco filed an assignment on August 16, 1996, and Smythe McMahon Inc. was appointed trustee. At the date of his assignment the bankrupt disclosed debts in the approximate amount of $22,465 and assets in an approximate value of $2,000. Mr. Sindaco was a first-time bankrupt. [3] Initially the administration of this estate was uneventful. The trustee gave notice that it would oppose the bankrupt's automatic discharge and an application came on before Registrar Power on July 8, 1997. The trustee gave as its reasons for opposition the fact that the bankrupt had not paid $128.75 in surplus income to the trustee and that he had failed to attend counselling as required by s.157.1 of the Bankruptcy and Insolvency Act BIA. [4] At the hearing before the registrar the trustees report pursuant to s.170(1)BIA disclosed proven unsecured claims of $7,537.50 and proven secured claims of $9,283.83. The registrar made an order that the bankrupt be discharged in the following terms: IT IS ORDERED THAT, UPON THE Registrar being satisfied that the bankrupt has * paid the amount of $2,500.00 to the trustee within six months, said six month period ending January 8, 1998, an Absolute Order of Discharge shall issue. [5] The bankrupt did not make the payment required by the registrar's order by the date set. [6] On January 13, 1998, the trustee sent a letter to the bankrupt informing the bankrupt that the trustee would be seeking its discharge and consequently he would have to make his own discharge application. Apparently, the bankrupt contacted the trustee and discussed the matter after receiving that letter. It appears that the bankrupt was still attempting to raise the necessary funds. [7] Nothing further took place so the trustee proceeded to obtain its discharge. A certificate of compliance dated August 6, 1998, was delivered to the Superintendent of Bankruptcy outlining the fact that all steps in the bankruptcy had been taken. The trustee maintains that it was discharged as of that date. [8] It appears that in September, 1998, one of the creditors of the bankruptcy commenced action against the bankrupt in the Provincial Court, Small Claims Division and successfully collected the full amount claimed by way of a garnishing order. [9] The bankrupt swears that he had managed to raise the $2,500 required to pay the conditional order of Registrar Power but those funds were garnisheed by the creditor in October, 1998. The bankrupt sought the assistance of the trustee in securing those funds for the bankruptcy but the trustee stated that it had been discharged and refused to assist in any way. The bankrupt swears he was told, "He was on his own." [10] The trustee's statement of receipts and disbursements shows proven creditors with claims in amount of $17,112.86. With a dividend paid of $135.53 and the fact that one creditor was paid in full as a result of the garnishing order in the amount of $3,391.48, the balance owing to the estate appears to be $13,585.85. [11] Four years later in November, 2002, the bankrupt won $500,000 in the lottery. He did not inform the trustee of this as he swears he did not realize he was under any obligation to do so. In December, 2002, the bankrupt inquired of the trustee whether he could pay the $2,500 and obtain his discharge. [12] In January, 2003, the trustee learned of the lottery win and attempted to freeze the bankrupt's bank accounts. The attempted seizure was only partly successful, apparently $2,500 remains on deposit in a frozen account. The trustee demanded payment from the bankrupt of $35,000 to cover all claims and trustee's fees notwithstanding the amount owing appeared to be only $13,585.85. The bankrupt refused, stating he was only required to pay $2,500. [13] In a letter to the bankrupt's solicitor, the trustee has recalculated the amount due including the trustee's extra fees at $22,000. Once again, the bankrupt refused to remit that amount and hence this application. Discussion [14] The bankrupt's argument is that the amount garnisheed by the creditor in October, 1998, exceeded the amount due under the conditional order of Registrar Power and that consequently, he should be discharged. The trustee's position is that the full amount of $22,000 should be paid to it and distributed after deducting additional fees and disbursements. The trustee has recalculated the fees that it would recover at $5,054 rather than the $1,620. [15] The trustee argues that s.41(10)BIA applies and that the trustee, therefore, has the power to seize funds and opposed the bankrupt's absolute discharge, notwithstanding the fact that the trustee has been discharged. [16] Section 41(10) is as follows: (10) Notwithstanding his discharge, the trustee remains the trustee of the estate for the performance of such duties as may be incidental to the full administration of the estate. [17] In considering the effect of s.41(10), the court must consider what is meant by the words "such duties as may be incidental" to the administration of the estate. The Shorter Oxford Dictionary defines incidental as "occurring or liable to occur in fortuitous or subordinate conjunction with something else." [18] It is my view that the legislation contemplates the trustee being able to complete minor matters and tie up loose ends pursuant to s.41(10) but that does not extend to taking possession of after-acquired assets. The correct procedure is for an application to be made to re-appoint the trustee or to appoint a new trustee to take possession of the after-acquired assets pursuant to s.41(11)BIA which is as follows: (11) The court on being satisfied that there are assets that have not been realized or distributed, may, on the application of any interested person, appoint a trustee to complete the administration of the estate of the bankrupt, and the trustee shall be governed by the provisions of the Act, in so far as they are applicable. [19] The decision of Re Watson 8 CBR 459 confirms this procedure. [20] The trustee argued that it had no obligations with respect to the funds garnisheed by the creditor which were also after-acquired property, but now does have an obligation to acquire the lottery winnings. In the absence of any application under s.41(11) that position is just not logical. [21] Neither the trustee nor any creditor has made an application pursuant to s.41(11). There is consequently no one with the right pursuant to the terms of the Act at this time to acquire the lottery winnings. [22] There is no question, however, that lottery winnings are after-acquired property as defined by s.67(1)(c)BIA: Section 67 Property of bankrupt (1) The property of a bankrupt divisible among his creditors shall not comprise . . . but it shall comprise (c) all property wherever situated of the bankrupt at the date of his bankruptcy or that may be acquired by or devolved on him before his discharge, [23] It follows that a portion of the lottery winnings properly belongs to and is divisible among the creditors. A complete list of those creditors and the amounts owing are attached to the trustee's statement of receipts and disbursements (Exhibit D to the affidavit of Judy Simpson #1). The bankrupt is obliged to pay those creditors the amount shown less the dividend credited to them. The one exception is Wendy Furlan-Morgan, who was paid in full by way of the garnishing order. [24] The payments can be made direct by the solicitor for the bankrupt, there is no requirement that the payments be processed through the trustee's office. Upon payment of those amounts, the bankrupt is entitled to an absolute discharge. The discharge application may be made to the registrar with proof of payment of the various amounts. [25] Since the trustee failed to act when it should have to acquire for estate purposes the funds garnished and then proceeded to freeze the bankrupt's bank account without authorization from the court, the trustee is entitled to no fees other than those it has already received. [26] The unreasonable and unhelpful attitude of the trustee similarly disentitles it to any costs of this application. In the circumstances, both parties should bear their own costs. [27] The trustee is to inform the bank immediately that the bankrupt's accounts are no longer frozen and that the funds can be released. "Master A.N. Patterson"