fraud-bankruptcy

Will fraud charges survive bankruptcy?

Hoyle (Estate) v Gibson-Heath, 2017 ONSC 4481 (CanLII)

This is a recent court case involving a debtor who was convicted of fraud and subsequently went bankrupt. The issue: will debt arising from fraud charges survive a bankruptcy?

Melissa Gibson-Heath commenced employment at the Fairfield Manor East retirement home in Kingston on 28 January 2004. In 2008, she was promoted to the position of full-time Administrator of the retirement home. Between 28 May 2008 and 3 March 2010, Ms. Gibson-Heath stole $229,000 from Clifford Hoyle, an elderly resident of the retirement home. She was subsequently charged criminally, pleaded guilty and, upon conviction, was sentenced to 18 months’ imprisonment. The court also made a free-standing restitution order in the amount of $229,000 less any amounts recovered by the Crown.

Mr. Hoyle passed away and his estate and his two daughters, Kathryn Greig and Margaret Hoyle, subsequently commenced a civil action against Ms. Gibson-Heath and other parties who they claim share responsibility with her for the theft of Mr. Hoyle’s money. Ms. Gibson-Heath has been noted in default. She appears to have filed an assignment in bankruptcy on 25 February 2014 and was automatically discharged from bankruptcy on 26 November 2014.

The plaintiffs moved for judgment against Ms. Gibson-Heath.

Section 178(1) of the Bankruptcy and Insolvency Act (the “BIA”) sets out certain debts that are not released upon a bankrupt’s discharge from bankruptcy:

178 (1) An order of discharge does not release the bankrupt from:

(a) any fine, penalty, restitution order or other order similar in nature to a fine, penalty or restitution order, imposed by a court in respect of an offence, or any debt arising out of a recognizance or bail;

(d) any debt or liability arising out of fraud, embezzlement, misappropriation or defalcation while acting in a fiduciary capacity or, in the Province of Quebec, as a trustee or administrator of the property of others;

The Court referred to the case of Dickerson v. 1610396 Ontario Inc. where the Ontario Court of Appeal held that the exceptions contained in section 178(1) of the BIA are based on the overriding social policy that certain claims should be protected against the general discharge obtained by a bankrupt because of the reprehensible nature of the bankrupt’s conduct. Parliament has clearly made a policy decision that a bankrupt should not be allowed to raise the shield of her general discharge against judgment creditors who hold judgments grounded on reprehensible conduct.

Here, Ms. Gibson-Heath was convicted of fraud. The restitution order made by the Ontario Court of Justice as part of Ms. Gibson-Heath’s sentence clearly survives her bankruptcy. The Court noted that there is no reason, in principle or practice, why a civil judgment should not now go against Ms. Gibson-Heath for the amount still outstanding under the restitution order.

The Court held that Ms. Gibson-Heath’s role was to look after Mr. Hoyle and to act in his best interests. As an elderly gentleman, who was already in the early stages of dementia when he started to reside at Fairfield Manor East at the end of 2006, Mr. Hoyle was undoubtedly vulnerable to any abuse of the trust that he placed in those who cared for him. The Court referred to the case of Hodgkinson v. Simms which provided that, “the most significant characteristic of a fiduciary relationship is the vulnerability of the beneficiary arising most often out of the authority with the fiduciary actually has or acquires over the property or opportunities of the former.” The Court applied this case to the current situation and found that the relationship between an elderly resident of a retirement home and a personal support worker can also be a fiduciary one, and that the circumstances deemed to have been acknowledged by Ms. Gibson-Heath evidence the existence and breach of a fiduciary duty.

The plaintiffs were entitled to judgment against Ms. Gibson-Heath for the amount owing of $155,468.46.