Although designed with honest but unfortunate debtors in mind, Canada's bankruptcy regime is sometimes misused by those with less-than-honourable intent. While misconduct in bankruptcy rarely results in criminal charges, the activity of the Integrated Bankruptcy Enforcement Unit could mean that we may see an increased number of bankruptcy fraud cases detected and prosecuted in the coming years.
The unit is a collaboration between Canada's Royal Canadian Mounted Police and the Office of the Superintendent of Bankruptcy. Since January 2014, it has laid a total of 260 charges in respect of 29 individuals and four corporations for offences under both the Criminal Code and the Bankruptcy and Insolvency Act (BIA).
Tens of thousands diverted before bankruptcy
Essam Habo Kakos, aged 50, is one of the unit's latest accused. Although he reported $5,582 in assets and over $43,000 in liabilities at the time of bankruptcy, subsequent creditor claims revealed his true liabilities as totalling almost $261,000.
He is facing a number of charges in Brampton, Ontario, surrounding his pre-bankrupt activities including:
- Fraudulently obtaining credit cards;
- Diverting over $150,000 in cheques and bank drafts to family members; and,
- Charging over $41,000 on his credit cards to purchase automobiles which were subsequently registered in the name of a family member.
Falsified information and intent to defraud
After almost ten months of investigations, the Unit also laid charges against Kameran Farhand Mehmed, 39, of Toronto. While his current whereabouts is unknown, a warrant has been issued for his arrest in respect of a number of charges. He is alleged to have used falsified income information to obtain credit while intending to defraud creditors by depleting those accounts.
Both men are also facing charges related to their refusal to cooperate with official examinations under the BIA.
Appeal from sentence dismissed
In March, 2015, Victor Camille Lebouthillier pleaded guilty in Provincial Court to two offences contrary to the BIA. At sentencing the court, on the first offence of cosigning a loan agreement for $25,000 without disclosing he was an undischarged bankrupt, imposed a four month conditional sentence followed by probation and work service. On a second offence of not disclosing assets to the trustee, the count imposed a concurrent two month conditional sentence. Mr. Lebouthillier appealed the sentencing on the basis that it was unfit and a conditional discharge was more appropriate.
On the recently decided appeal, the court affirmed the decision of the Provincial Court judge noting that: "the trial judge found that while a discharge would be in the defendant's best interests, such a disposition would be contrary to the public interest and would not provide proper deterrence and "uphold the spirit and intent[ion] of the Bankruptcy Act."
These examples provide object lessons, giving pause to those who may be tempted to use bankruptcy as an expense-free ride, or who believe they can hide information with impunity, or who expect that if caught, there will be no tangible consequences.