Strange day in court as bankrupt lawyer

…with the personal bankruptcy of a bankruptcy trustee with a twice-bankrupt lawyer acting for him. "It certainly was a most unusual set of characters in a bankruptcy proceeding,"…

The Toronto Star
October 8, 2003

Strange day in court as bankrupt lawyer acts for bankrupt trustee
Legal sparring amuses judge. 'A most unusual set of characters'.
Tony Van Alphen

Mr. Justice James Farley leaned back in his judge's chair, briefly stared at the courtroom ceiling and then looked forward.

"Bankruptcy is a rehabilitative process," he mused. "Sometimes it works. Sometimes it doesn't."

And sometimes, it also comes with very strange twists — like the case that unfolded before Farley this week, in a courtroom that was fairly awash with personal bankruptcy experience.

The cast before him:

  • Two-time bankrupt lawyer Miles Dewar O'Reilly, 67. O'Reilly has 40 years of practising law and is a specialist in bankruptcy and insolvency. He owed creditors almost $1 million, including about $300,000 in personal income taxes in his first bankruptcy. A court discharged him in 1995 without any debt payment but Canada Customs and Revenue Agency petitioned him into bankruptcy again last January with debts of $460,000, including $300,000 more in income taxes.
  • Stephen Watkins, a 57-year-old former bankruptcy trustee who operated one of Toronto's leading personal bankruptcy firms, Watkins, Wilson & Associates Inc. It went bankrupt in 2000.

Watkins, who is unemployed and lives in his wife's Yorkville home, ended up in bankruptcy last year with liabilities of more than $4 million.

  • Roger Jaipargas, a lawyer for the Bank of Nova Scotia, which petitioned the bankruptcy trustee into bankruptcy. He opposed the discharge of Watkins from his debts.
  • Chee-Kong Leong, a chartered accountant and bankruptcy trustee. Leong was the court's appointed trustee in the Watkins and O'Reilly personal bankruptcies. He believes federal bankruptcy laws are too lenient toward high-income earners.

It was one of the odder scenes in the annals of Canadian bankruptcy in Courtroom Number 803 at 393 University Ave. as Farley dealt with the personal bankruptcy of a bankruptcy trustee with a twice-bankrupt lawyer acting for him.

"It certainly was a most unusual set of characters in a bankruptcy proceeding," Leong said yesterday after the case's resolution.

After a day of arguments, Farley ordered Watkins to pay $30,000 to the Bank of Nova Scotia as a condition of his discharge from debts of more than $4 million.

The money represents about one-third of the remaining value of Watkins' personal Registered Retirement Savings Plan.

The bank petitioned Watkins into bankruptcy last year. He was a guarantor of credit from the bank to help fund the firm's operations.

It followed the move by the Office of the Superintendent of Bankruptcy in 2000 to impose restrictions on new business. The bank quickly petitioned the firm into bankruptcy.

At the hearing, O'Reilly got off to a bad start by arriving more than 45 minutes late.

"Mr. O'Reilly, I must say, I'm rather disappointed," Farley told him after a 10-minute grilling about a lack of communication.

Farley's chagrin turned to the occasional smile as O'Reilly and Jaipargas sparred for about three hours on the merits of whether the court should discharge Watkins.

Watkins told the court the bankruptcy superintendent acted against his firm because it didn't pay a telephone bill. The explanation perplexed Farley, one of the more eloquent, eccentric and entertaining judges in Ontario.

"That doesn't have the ring of reality to it," he said, taking mild delight on his play on words.

Furthermore, he found it "curious" that Watkins did not seek other explanations or fight the supposed draconian decision by the superintendent's office.

Leong concluded the firm overexpanded, borrowed heavily and spent too much on advertising. It had large colour advertisements in the Yellow Pages, featuring Watkins and the line: "Drowning in debt? Call our lifeline."

After his firm's demise, Watkins told the court he worked for another bankruptcy trustee and then opened an immigration consulting business briefly.

But Watkins added he has not worked for the past year and relies on his wife to cover living expenses.

Watkins also said he has suffered from depression and separated from his wife but they are currently working on a reconciliation.

"His professional life is destroyed," O'Reilly concluded on behalf of his client.

The court heard that Watkins took out about $115,000 from his RRSP in a nine-month period in 2001 just before the bank petitioned him into bankruptcy.

But Farley wondered why Watkins, a chartered accountant and experienced trustee, did not submit complete records on his spending and earnings, contrary to bankruptcy law.

Farley also questioned whether Watkins has seriously pursued new employment and noted the former trustee has not sought treatment for depression.

In his arguments for the bank, Jaipargas initially objected to a discharge in view of Watkins' breaches.

However, Farley advised the two sides to negotiate a settlement. After a brief recess, they recommended to the judge the $30,000 payment over a six-month period.

Meanwhile, O'Reilly is ineligible for an automatic discharge after nine months because he is a second-time bankrupt. O'Reilly will have to wait until May, 2004, but he could remain in bankruptcy longer if creditors successfully oppose him.

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