Rodgers (re), 2022 NSSC 312

Do special considerations apply to the discharge of a bankrupt lawyer?

Adam Rodgers sought to be discharged from bankruptcy following completion of his statutory duties. Rodgers was one of two partners of a now-defunct law firm. The law firm was placed in receivership in January 2019 by The Bank of Nova Scotia and his law partner has since been disbarred. Rodgers was a guarantor of the law firm’s borrowing from BridgePoint.

BridgePoint opposed Rodgers’ discharge application on the basis that the shortfall in his assets—being less than 50 cents on the dollar of unsecured liabilities—had not arisen “from circumstances for which the bankrupt cannot justly be held responsible.” BridgePoint urged the Court to impose conditions on Rodgers’ discharge, specifically requiring him to pay a sum or percentage of income over a period.

The record showed that, over the course of at least six years, Rodgers had been either inattentive to, or derelict regarding, his trust account obligations. In its investigation of Rodgers, the Barristers’ Society of Nova Scotia concluded that in at least 28 cases, he 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 (i.e., billing before doing the task at hand). The record contained evidence of a large series of transactions in which funds were taken from trust on account of fees, some prematurely, while others were later reimbursed to trust. Rodgers blamed his law partner or the firm bookkeeper for all or substantially all these mishandlings.

The Court noted that this attitude was an aggravating factor to the rehabilitative elements it had to consider. In order to be rehabilitated financially, Rodgers would need to realize that as a business owner in the legal profession, the buck stops with him. The Court was not convinced that he understood this message—his visceral reaction was to deflect when confronted. He could not be characterized as an “honest but unfortunate debtor”, but rather a “less-dishonest-than-the-other-guy and oblivious debtor.”

The Court held that an absolute discharge did not balance the applicable interests. The Court had no confidence that an absolute order would be rehabilitative for Rodgers. He needed to understand that he was neither honest nor completely unfortunate in asserting that he played no part in his business’ collapse. He was too derelict in oversight and too confident of his own financial and business credentials to see it. The Court found that he could not be allowed to surmise that he had the Court’s blessing to go forth with his current mindset. Having found s. 173 of the Bankruptcy and Insolvency Act “facts” as proven, the Court was precluded from issuing an absolute discharge under s. 172(2)(c) of the BIA.

Accordingly, the Court made a conditional order for payment of money, and ancillary terms. A percentage of income approach was not appropriate here. Rodgers was 45 years old and had been in bankruptcy for almost three years. He had very public legal issues and could face more. The small-town marketplace would likely pass judgment on his future in private practice if he continued to pursue his legal career. There was no particular guidance as to his future prospects, in or out of the practice of law.

Given the above, the Court found that a payment should be both fixed and notable, but achievable over a reasonable period of time. The estate balance was approximately $9,874. Payments to bring the estate’s total receipts to $40,000 fairly balanced the interests of the case. That would mean that 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. This quantum was to be payable at a minimum of $1,000.00 per month, beginning December 1, 2022.

The Court ordered that Rodgers’ debts or liabilities to the Nova Scotia Barristers’ Society or the Lawyers’ Fund for Client Compensation, which were incurred by fraud, embezzlement, misappropriation or defalcation while acting in a fiduciary capacity within the meaning of s. 178(1)(d) of the BIA or by obtaining property by false pretenses or fraudulent misrepresentation within the meaning of s. 178(1)(e) of the BIA, survived his discharge.

Judge: Raffi A. Balmanoukian, Registrar in Bankruptcy

Professionals: Tina Powell in succession to Joe Wilkie of MNP as Trustee in Bankruptcy; Tim Hill, KC of BoyneClarke for the objecting creditor, BridgePoint Financial Services Limited Partnership I

Fullcase: https://canlii.ca/t/jsqjg

By Matilda Lici