Judge won't grant discharge to lawyer in second bankruptcy

…it appears [Mr. O'Reilly] merely continued a policy of paying his income tax on a minimal and infrequent basis. Apparently in his program, the taxman came last,"" Judge Farley said.

The Globe and Mail
August 12, 2004

Judge won't grant discharge to lawyer in second bankruptcy
Insolvency expert owes $350,000 in taxes
Janet McFarland

A judge has refused to release an experienced Toronto insolvency lawyer from his second filing for personal bankruptcy, saying he has not made any effort at rehabilitation since his first bankruptcy was discharged in 1995.

"This is a very troubling and disappointing case," Mr. Justice James Farley of Ontario Superior Court wrote in his recent ruling.

Miles Dewar O'Reilly, who has specialized in insolvency and bankruptcy law for 40 years, was petitioned into bankruptcy last year and owes about $350,000 in unpaid income tax and another $350,000 in spousal support to his former wife.

Mr. O'Reilly, who worked at the law firm O'Reilly & Smith in downtown Toronto and until recently lived in a heritage home in Port Hope, Ont., has paid a total of just $25,000 in income tax in the eight years since his first bankruptcy was concluded, Judge Farley said.

The judge noted that Mr. O'Reilly was warned by another judge who handled his first bankruptcy discharge in 1995, when he owed creditors about $1-million, that he should embark on a financial rehabilitation program.

"Unfortunately, to the contrary, it appears [Mr. O'Reilly] merely continued a policy of paying his income tax on a minimal and infrequent basis. Apparently in his program, the taxman came last," Judge Farley said.

In a rare move, the judge refused to discharge Mr. O'Reilly from bankruptcy as he requested. Among other things, this means he cannot open a trust account for clients while under personal bankruptcy. Nor can he advertise as a specialist in civil litigation or bankruptcy and insolvency; those designations are suspended during bankruptcy.

While Mr. O'Reilly can reapply for a discharge, Judge Farley said he should first demonstrate he is turning his behaviour around. He suggested that Mr. O'Reilly should start making monthly payments of $800 to a trustee, pay all new tax debts, and draft a personal budget.

Mr. O'Reilly could not be reached for comment yesterday.

Chee-Kong Leong, the court-appointed trustee for Mr. O'Reilly in bankruptcy, said the case demonstrates a growing aggressiveness by the Canada Customs and Revenue Agency.

Mr. O'Reilly has few assets because his law firm and home in Port Hope were registered under the name of his second wife, from whom he recently separated.

He now lives in a $3,000-a-month apartment in Toronto.

Although Mr. O'Reilly earned most of the money for his law firm O'Reilly & Smith, he said he was just an employee and the firm was owned by his wife, who is also a lawyer. Judge Farley said in his ruling he believes the ownership arrangement was created to reduce Mr. O'Reilly's income-tax liability by transferring income to his wife.

"Such arrangement would be difficult to justify if scrutinized by the tax authorities," Judge Farley said.

He added that Mr. O'Reilly's reported income was far higher than the average in Canada. He showed little sympathy for the 69-year-old lawyer's uncertain future, saying that it is his fault he will not enjoy a comfortable retirement. "Yes, he will have difficulty with respect to his older age," he said. "However, it was his choice not to put anything aside for his retirement and his choice to spend his income."

Mr. O'Reilly's troubles are not confined to his bankruptcy problems. In May, he was charged with possession of marijuana for the purpose of trafficking. He is pleading not guilty to that charge.

Halton Regional Police laid the charge after an inmate at Maplehurst Correctional Centre in Milton, a client of Mr. O'Reilly's, was found with a large quantity of marijuana after leaving the centre's visiting area.

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