Lebeau (Re)

2012 BCSC 638 Lebeau (Re) IN THE SUPREME COURT OF BRITISH COLUMBIA IN BANKRUPTCY AND INSOLVENCY Citation: Lebeau (Re), 2012 BCSC 638 Date: 20120322 Docket: B110454 Registry: Vancouver IN THE MATTER OF THE BANKRUPTCY OF ANDREW WILLIAM LEBEAU Before: Registrar Sainty Oral Reasons for Decision Appearing on his own behalf: A.W. Lebeau Counsel for Her Majesty the Queen in Right of Canada as represented by the Minister of National Revenue: C.N. Matthews Appearing on behalf of the Trustee, E. Sands & Associates: S. Smelt Counsel for the Canadian Imperial Bank of Commerce: G. Richards Place and Date of Hearing: New Westminster, B.C. March 22, 2012 Place and Date of Decision: New Westminster, B.C. March 22, 2012 [1] THE COURT: Andrew William Lebeau, a bankrupt, appeared before me today to make his application for discharge from bankruptcy. [2] Mr. Lebeau's discharge is opposed. First, technically it is opposed by his trustee in bankruptcy. Ms. Smelt, the trustee, confirmed in her submissions that, as this is a "high personal tax bankruptcy" pursuant to s. 172.1 of the Bankruptcy and Insolvency Act (the "Act"), Mr. Lebeau is not entitled to an absolute discharge from bankruptcy, and that Mr. Lebeau's discharge must be subject to some conditions and a period of suspension must be placed on his discharge. [3] The discharge is also opposed by the Canada Revenue Agency (the "CRA"). Ms. Matthews is here on their behalf. [4] The discharge is also opposed by CIBC [Canadian Imperial Bank of Commerce], who are here represented by Mr. Richards. [5] I will begin by setting out the basic facts which led to this matter coming before me today. [6] Mr. Lebeau filed an assignment in bankruptcy on November 4, 2010. This is his first bankruptcy. [7] The creditors in the bankruptcy are set out in the bankrupt's statement of affairs and include CIBC Visa, for an unknown amount and the CRA, also for an unknown amount. The proof of claim lists the creditors as the CRA (times two) and CIBC. "Andrew Lebeau" is also listed as a creditor of the estate. [8] Mr. Lebeau is and has been in the past what one might commonly call a tax protestor. For a period of several years, he refused to pay his income taxes as he believed that he had no requirement to pay any income taxes. During this hearing, he made some submissions about his beliefs. Basically he appears to be saying that, as Canadians we have the right to self contract, and that as he did not contract with CRA he has no obligation to pay them any taxes. It seems that, despite his having gone through this process, he still holds the belief that the income tax provisions of Canadian law do not apply to him. There is no doubt in looking at the documentation that he filed in respect of this matter that Mr. Lebeau continues in one form or another to be a tax protestor. [9] I am going to make some brief comments here before providing my decision on this matter. Firstly, I will start out by saying I am giving my reasons for decision orally today as I believe everyone involved here wants to know, sooner rather than later, what decision I have made. Therefore, if anyone were to order a copy of these reasons, I reserve the right to edit them for grammar and syntax, to add case names, to expand perhaps on the cases that were presented to me or the facts as I have found them, but I will not, of course, change the result. [10] Mr. Lebeau's initial application for discharge came before me in Chilliwack on February 2, 2011. It was clear to me on that date that an insufficient time had been set aside for dealing with the matter and I made a direction that the matter be heard in New Westminster as opposed to in Chilliwack and a half day was set aside for this hearing. The matter was then reset before me today. As I noted earlier, several people are in attendance at this hearing: Ms. Smelt, as the trustee of the estate; Mr. Lebeau on his own behalf; Ms. Matthews representing the CRA; and Mr. Richards representing CIBC. [11] At the start of the hearing today, I was given a Chambers binder, prepared by Mr. Richards which includes the notice of bankruptcy, CIBC's proof of claim, and some other documents, including an affidavit of Ms. D'Alessio, an affidavit of Ms. Breckles, some documentation provided by Mr. Lebeau, a second affidavit of Ms. Breckles, and an affidavit of a Mr. Brauer, who I understand is a collection officer with the CRA. [12] Before getting too far into these reasons, I think it is important to note that I agree with both Ms. Matthews and Mr. Richards that a payment order should be made with respect to Mr. Lebeau. It is clear from the evidence that, during the period when his debts to the CRA and to CIBC arose, Mr. Lebeau had a reasonable income: some $40,000 or so a year. [13] There is also no doubt that Mr. Lebeau chose, by participating in this tax protest scheme, not to pay his income taxes despite having an ability to pay them. In addition, although he comes before the Court today saying "I really don't have any ability to make any payments if you make a conditional order", I do not think it is appropriate that Mr. Lebeau be allowed to get away with his scheme in the sense that it seems to me -- and I am trying to recall what it was that one of the counsel said -- that I ought to remember in making my decision, that despite his refusal to fulfill his obligations as a taxpayer in Canada, Mr. Lebeau is using the Act to attempt to extinguish this obligation. Also, Mr. Lebeau receives Canada Pension Plan payments, yet he continues to flaunt the provisions of the Income Tax Act of Canada. In other words, he appears happy to use the laws of Canada and to take advantage of various Canadian schemes when it suits him, but he claims he need not participate in other systems (such as the Canadian income tax system) when participation does not suit his purposes. In my view, if he truly believes what he stood up here and said (i.e., that he had the right to privately contract and ought not to be subject to Canadian income tax law), he ought not then to take advantage of what rights his Canadian citizenship might afford him. Perhaps he should not have been allowed to go bankrupt or should not be allowed to collect his Canada Pension Plan, but that is not up to me. [14] What I need to do here is to look at where Mr. Lebeau is in this matter. In making my decision it is important to note that deterrence is very important. I am not sure whether it was said anecdotally or -- well I think it was -- Mr. Richards or Ms. Matthews noted that Ms. Smelt has commented that one is seeing more and more of these tax protestors declaring bankruptcy. Whether Mr. Lebeau was encouraged to declare bankruptcy by Mr. Brauer (as may have been the case or not), the fact is that he has declared bankruptcy. If there are others like him out there as it seems there may be, it is important to set discharge provisions that might be a deterrent for those who may wish to use the provisions of the Act to make a similar filing to extinguish debt that ought to have been paid and in respect of which the person filing for bankruptcy could have been said to have had sufficient income to pay at the time it was incurred. [15] I should also note that during the period when Mr. Lebeau was not paying income tax, he was the recipient of some $100,000 from his mother's estate. He told me that he lost that money through some investment scheme he participated in that went sour. Even so, if he was a victim of some scheme where he lost that money, making a poor investment decision cannot and does not release him from his obligations to pay his taxes or to contribute something to his creditors through this bankruptcy. He had $100,000 available to him; he could have used that (or some portion of it) to pay his income taxes. He was advised by the CRA as early as 2005 that what he was doing was inappropriate and that by being a tax protestor he stood to lose and might encounter difficulties with the CRA on a go forward basis. I have no doubt that when he received those funds he knew of his obligations and chose to ignore them (or to protest his requirement to pay them), and that those funds gave him an ability to make a substantial payment towards his debt to the CRA. [16] I am now going to quote some of the comments made by Master Funduk (sitting as a registrar in bankruptcy) in deciding on a discharge of a high income tax debtor in Trueman (Re), 2001 ABQB 377. His Honour says, at paras. 15-17 -- and these are things I am relying on in making this decision: [15] A bankrupt who does not pay his taxes is not an honest and unfortunate debtor. He is one who takes advantage of the fact that his taxes are not collected by "source" deductions. This is misconduct. [16] Rehabilitation is not the driving fact here. Deterrence is, not just for the bankrupt, but more important for others who might be tempted to evade income tax liability by conveniently using bankruptcy as a financial planning tool. [17] The administration of the discharge provisions of the B.I.A. [Bankruptcy and Insolvency Act] contribute to the success or failure of the bankruptcy system. [17] Having said that, Master Funduk then gave the bankrupt a conditional order of discharge, the condition being that the bankrupt consent to judgment in favour of each creditor for an amount equal to 75 cents on the dollar. [18] There are other cases besides Trueman which are relevant here. There is the recent case of Registrar Cameron [Paine (Re), 2011 BCSC 309] wherein Registrar Cameron held that a 53-year-old debtor in a tax-driven bankruptcy (where his debt to CRA represented more than 75% of his debt) should pay, as a condition of his discharge, the sum of $55,000 into his bankruptcy estate. That amount represented, as I understand it, about half of the income tax debt that was owed and was, in fact, more than was suggested by counsel for the CRA or the trustee. Registrar Cameron also imposed conditions regarding the bankrupt's requirements for filing and payment of income tax returns. [19] A number of other cases were cited to me. I agree with the general proposition espoused in those cases which is that I must ensure in making my decision here that there is a deterrent effect in like circumstances and impose a monetary conditional discharge. [20] Before coming to a final conclusion, I wish to make some other comments that are relevant to my decision. So far, I have commented mostly on the income tax debt alone. I must, however, make some observations about the debt owed to CIBC. At the start of this hearing, Mr. Richards gave me a chronology of Mr. Lebeau's dealings. In it he notes that there exists in the State of Washington a filing (under their equivalent to our PPSA, I think) claiming that CIBC, counsel for CIBC, and employees and officers of CIBC are indebted to a number of persons (mostly these so-called tax protestors, including Mr. Lebeau) in a significant amount -- something like $3.4 billion in total. In that filing, Mr. Lebeau himself claims indebtedness to him by these parties of some $320,000,000. That filing was made in or around 2006 -- it might have been 2007. Madam Justice Garson, in deciding Dempsey v. Envision Credit Union, 2006 BCSC 750, against Mr. Dempsey, the gentleman who conceived of this tax protest scheme and the "natural person issue", held that this form of debt protest discloses no reasonable cause of action. Madam Justice Garson held, in fact, that such actions were frivolous, vexatious and bound to fail, and on that basis Her Ladyship dismissed the action. [21] That does not seem to have deterred Mr. Lebeau or the others who have made these filings in Washington. In fact, it appears that they continue to be made or at least remain on the books as they have not been discharged or voided as they ought to have been. [22] On that basis, Mr. Richards argues that I should find that Mr. Lebeau remains somehow culpable for the debt he owes to CIBC and that he should remain liable to pay the entirety of that amount. Mr. Richards has therefore suggested a conditional order of discharge in (at least) the amount of $18,179.39 -- the amount that is owed or was due on the Visa card. Ms. Matthews, for the CRA, suggests a conditional order for $10,000, which is about 10 % of the debt Mr. Lebeau owes to CRA, not including interest and penalties. [23] So the two counsel between them suggest a conditional order of some $28,179.39. I do not think that is enough. Here, I am going to follow Registrar Cameron's lead in deciding what these so-called "high income tax debtors", and particularly these tax protestors, ought to pay before being discharged from bankruptcy. In Re Paine I think His Honour suggested that half ought to be paid. I am not going to suggest half in these circumstances, but what I am going to do is make an order that the bankrupt pay to his trustee for the benefit of creditors the sum of $35,000, which is a number that I think is actually quite low in all of the circumstances when looking at the amount of debt that will be extinguished in this bankruptcy proceeding. $35,000 is probably around 30 % or so of the bankrupt's debt. I am also going to make an order that Mr. Lebeau pay that sum at the amount of $450 per month, but those payments will commence on May 1, 2012, to give Mr. Lebeau an opportunity to arrange his financial affairs in such a manner that he can make those payments. [24] Mr. Lebeau is receiving his Canada Pension Plan. I do not know how much that is, but he could certainly make these payments out of those funds. Essentially, he will be repaying to the government the money that he ought to have paid in the first place, or, rather, he will pay those monies into his estate and they will then be distributed to his creditors in accordance with the provisions of the Act. Those payments will continue on the first day of each and every month after May 1, 2012, until the amount has been paid in full. [25] I am also going to make an order that so long as Mr. Lebeau remains an undischarged bankrupt, he must file his income tax returns, and GST and HST returns if there are any to be made, as required by the Income Tax Act and the Excise Tax Act. It will be a further condition of his discharge that he pay any post-bankruptcy taxes owing for the taxation years 2011, 2012, 2013, 2014 and 2015 or until the payment condition is satisfied, whichever occurs later. So if Mr. Lebeau has not paid the $35,000 by the time his 2015 income tax return is due, if it is paid in 2016 he is going to have to pay that and show that he has filed and paid any amounts due and owing to the CRA as a result for the year 2016 before he may be discharged. [26] I am also going to suspend Mr. Lebeau's discharge for a period of five years from today's date so that even if he were able to somehow pay the $35,000 before 2015, he would still remain in bankruptcy into 2017. [27] I am also going to make an order as set out in para. 1 of the draft order that Mr. Richards prepared and handed to me earlier. That is that "the bankrupt shall within 60 days of the date of this order cause to be terminated, discharged and withdrawn the UCC registration in his name in the amount of $1,000,412,710 which he has registered in Washington State against CIBC, the lawyers for CIBC and others as debtors". [28] I am going to make a further order that the bankrupt shall within 60 days of the date of this order give an undertaking to his trustee not to ever apply for credit and that upon receipt of the undertaking, the trustee will file the undertaking with the credit reporting agencies of Canada. [29] There is another question with respect to costs and I just want to check -- Mr. Richards, are you asking for costs on top of the amount of the conditional order or are you just saying it should be a first charge on the amount? [30] MR. RICHARDS: On top of the amount. [31] THE COURT: On top of the amount. All right. And what about you Ms. Matthews? Costs of this application? [32] MS. MATTHEWS: I have no instructions concerning costs. I would submit that if the Court were inclined to grant costs for the Crown that the amount be fixed in the sum of $1,000. [33] THE COURT: All right. I will make an order that in addition to the $35,000 conditional order amount, Mr. Lebeau will pay CIBC's costs in respect of its preparation and attendance in regards to these applications in an amount fixed at the sum of $3,500. I will make the same order with respect to the Crown and I will fix the amount of the Crown's costs at $1,000. Those costs will be a first charge against the estate, so they will be paid in priority to any other creditors and they will be paid in addition to the amount of the conditional order. [34] Finally, I will dispense with Mr. Lebeau's approval as to the form of this order. I note Mr. Richards that you did not include a line for Ms. Smelt to sign the order and she will need to do so. "Registrar Sainty" _________________________ Registrar Sainty