IN THE SUPREME COURT OF BRITISH COLUMBIA

Citation:	In the Matter of the Bankruptcy of Michael Ernst Ruge,
	2008 BCSC 563

Date: 20080208
Docket: 06-2746
Registry: Victoria

IN BANKRUPTCY AND INSOLVENCY

In the Matter of the Bankruptcy of
Michael Ernst Ruge

Before: The Honourable Mr. Justice Johnston

Oral Reasons for Judgment

In Chambers
February 8, 2008

Counsel for the Trustee in Bankruptcy:	W. Roberts
Counsel for Michael Ernst Ruge:	H. Wellman, Agent
Appearing via teleconference:	P. Wood, Trustee In Bankruptcy
Appearing on behalf of the BC Securities Commission:	D. Say, Representative
Place of Trial/Hearing:	Victoria, B.C.

[1]                THE COURT:  I have an application to vary the order of Registrar Bouck.  That order granted the discharge to the bankrupt but suspended the discharge to March 1, 2008, granting leave to the trustee or others who are qualified by the order to apply to vary.  I have already given reasons why I feel that I have not only the jurisdiction but I should exercise the jurisdiction to consider the application.

[2]                With respect to the merits of the application, that is, whether there should be a variation, I continue to hold the view that in order to exercise any jurisdiction to vary, I should first be satisfied that there has been a material change in circumstance since the order was granted.

[3]                The background, as I understand it, is that the bankruptcy arose out of a series of questioned and questionable transactions which have brought the bankrupt Mr. Ruge into conflict with the Securities people, and that in turn resulted in a consent order between Mr. Ruge and a company, Chivas Hedge Fund Limited, and the British Columbia Securities Commission that was entered into on or about May 5, 2005.  There has been argument as to whether or not the admissions made by Mr. Ruge in that settlement agreement or consent order amounted to admission of fraud.  I have read it quickly.  It would appear that the admissions made in paragraphs 11 through 17, and perhaps subsequently, at minimum raise risk of conviction for fraud were these facts proven in a criminal court, and I refer to R. v. Markwart [phonetic], a decision of the Court of Appeal many years ago, in that regard.

[4]                I do not, however, have to conclude that fraud has been proven in order to consider whether there has been a material change in circumstance since Registrar Bouck made her order.

[5]                The order, I am told, was entered by consent, and indeed its terms reflect that.  The course leading up to that consent order appears to have been less than ideal in that I understand that Mr. Ruge has declined to answer certain questions at meetings of creditors and at an examination under oath conducted by counsel for the trustee.  I further understand that Mr. Ruge has declined to produce documents, particularly, I am told by the trustee, documents relating to any of his business activities in the United States.  That latter is of some significance because Mr. Ruge has been subject to the Securities Commission investigation.  They have seized documents but only those relating to his British Columbia business activities.

[6]                The examination under oath took place in the spring of 2007, and that was, as I understand it, the last occasion on which Mr. Ruge declined to answer questions put to him.  Notwithstanding that, the trustee appears not to have taken any formal steps by way of application or otherwise to compel Mr. Ruge to answer those questions, at least prior to the application for discharge that was brought before Registrar Bouck.

[7]                I mention that because the flavour I have so far is of a bankrupt who has been far less than cooperative in the investigation of his affairs, to the point of allegedly being in breach of many of his obligations under the Act.  I also have a sense that the efforts to compel compliance with the Act have not been as strenuous as they ought to have been.

[8]                In any event, the order that is now under review, the consent order, I am told was based upon an expectation that given its terms, the trustee would have six months from the grant of the order within which to complete at least the examination of Mr. Ruge under oath and any steps necessary to obtain further documents from him.  I am advised, and I accept, that the trustee, through counsel, acted promptly after the order was entered to seek a new date to examine Mr. Ruge or to resume the examination of Mr. Ruge, but that did not occur for approximately three months, largely because of the unavailability of Mr. Ruge's counsel to attend with him.

[9]                Faced with an application, and an order, as I recall it, for attendance at the examination, that order, as I understand it, in early December, counsel for Mr. Ruge then proposed three or four dates in December prior to the 20th or including the 20th on which counsel said he was available to attend with his client.  Those dates did not meet with favour, apparently because counsel for the trustee was not available on those three or four days tendered.

[10]            To further complicate matters, Mr. Ruge is now out of the country and will be out of the country apparently until after the date set by Registrar Bouck, that is, March 1, 2008, and he will therefore be unavailable to answer the questions counsel wish to put to him.

[11]            The three weeks or thereabouts remaining will, as I am told, permit applications for warrants for the arrest of Mr. Ruge if and when he returns to Canada if the order sought is not granted by me.

[12]            I am satisfied that there has been a material change in circumstance since Registrar Bouck made the order she made in August of 2007.  That change is the unavailability first of counsel for Mr. Ruge, then of Mr. Ruge himself, for five of the six months of the delay in the grant of an absolute discharge, within which five months Mr. Ruge was not prepared or able to make himself available to answer the questions that the trustee had outstanding since the spring of 2007.  That, I am satisfied, was not in contemplation of either counsel or the registrar when the order was made.  So the change is there, and it is sufficient to my mind that I can consider the matter.  That, if I use the analogy which I have been adopting in the absence of a better idea at this stage of an application to vary an order in a matrimonial matter, leaves me free to make any order that I think should be made or would have been made back in August had the circumstances been known fully to the registrar.

[13]            Here I balance some competing interests, I think.  One is that, as has been said, Mr. Ruge is entitled to a discharge at some point.  My view is that his entitlement to a discharge is predicated upon his cooperation in the process leading to a discharge and that one cannot appear to attempt to defeat, delay, hinder, or obstruct the processes under the Act and then avail himself of the rights under the Act, including the right to a discharge.  It is of little consolation to me that many if not all of the claims against the estate of the bankrupt are founded in fraud and may well survive an absolute discharge.  Leaving creditors who are creditors by fraud to their own devices seems to me to approach making a mockery of the bankruptcy process, and I do not consider that to be a satisfactory solution to the current problem.

[14]            I cannot say that I have a complete grasp of the ways in which it is said Mr. Ruge has failed to fulfil his obligations under the Act.  It is, I think, sufficient that he has not cooperated in the production of the information that is necessary that the process under the Act can be considered to be just and transparent, and in my view, any consideration of a discharge should not arise until Mr. Ruge can satisfy a court that he has cooperated, if not fully then sufficiently, that a court can be satisfied that discharge is appropriate on all of the circumstances that should be considered on such an application.

[15]            The question is, What should I do about all of this?  It seems to me that what I understand to have been part of what lay behind the trustee's consideration in August of 2007 continues to be an appropriate consideration, and that is, any order granted should continue to hold the trustee's feet to the fire so that this matter cannot continue to languish as from time to time it appears to me it has.  By the same token, I am very wary of any artificial deadlines that would permit Mr. Ruge to continue his pattern of non-compliance and failure to provide information or answers as required.  That persuades me that fixing another deadline would simply yield the possibility that yet another application similar to today's application would be necessary.

[16]            I am reluctant to start drafting a game plan for this bankruptcy.  I will, however, say this.  In my view, the March 1, 2008, deadline should be and will be extended.  It will be extended, unless I am shown that I do not have the jurisdiction to do so, to a time after Mr. Ruge attends for continued examination under oath for a full day examination under oath and for a period of one month beyond that examination under oath, during which time any questions not answered, or any answers refused, may be the subject of an application to compel answer, in which case that application may be accompanied by an application for further extension.

[17]            Here, I leave it to counsel to draft an order that reflects what I have just said and what I am about to say because what I want to add to this is a further term that the discharge is extended to a day again 30 days from the oral examination if Mr. Ruge has produced the documents sought by the trustee, including the confidentiality agreement which he says prevents him from providing those other documents, or the documents relating to the sale of his business, and if those documents have not been produced by 30 days after the oral examination that I have just referred to, then the trustee should, if the trustee wishes to pursue further documents, add to any application to compel answers an application to compel production of the documents and seek a further extension.

[18]            So it is to a date for the examination under oath, plus 30 days beyond that date within which there will either be an application to compel oral answers to questions refused or not fully answered, or application for production of documents not yet produced, but 30 days after the oral examination, if counsel for the trustee has not made an application to compel either answers or documents or applied for further extension, then the discharge will become absolute.

[19]            Now ‑‑ 

[20]            MR. ROBERTS:  Could I ‑‑ sorry.

[21]            THE COURT:  Yes?

[22]            MR. ROBERTS:  Just to be clear, My Lord.  If, as part of the examination or documents, facts arise which would say to the trustee, the trustee says if there's an absolute discharge it should be conditional or it should be on some other terms, I'm not saying that's going to happen, I just want to say I don't think that should be foreclosed off, that there should be the ‑‑ if the trustee's coming back in any event to compel, then ‑‑ because we don't know what's going to happen.

[23]            THE COURT:  I do not know that my order intended to foreclose that.  What I was aiming at was the 30 days beyond the oral examination.

[24]            MR. ROBERTS:  Yes, I actually get that.  I just, for Ms. Wellman and my benefit, that we can work it that the trustee may apply to compel documents or answers or to seek conditions or ‑‑ 

[25]            THE COURT:  Or vary or ‑‑ 

[26]            MR. ROBERTS:  Or vary, yes.

[27]            THE COURT:  Yes.  And I am expecting, without in any way attempting to fetter the judge hearing that application, that judge or registrar would consider whether or not my approach of requiring a material change in circumstance is the right one.

[28]            MS. WELLMAN:  I've got some questions for you.

[29]            THE COURT:  Yes.

[30]            MS. WELLMAN:  He may not be able to produce those documents.  If they're in the hands of a third party, he can't comply, for example.

[31]            THE COURT:  If that is the case, then your friend is not going to succeed on an application to compel production.

[32]            MS. WELLMAN:  All right.  Still ‑‑ 

[33]            THE COURT:  I mean, if they are not there, they are not produced, and they do not come out with in the 30 days of the oral examination, then presumably Mr. Ruge is going to have to satisfy the judge hearing the extension application, or the application to compel production, or Mr. Roberts is going to fail to satisfy the judge that there should not be an order absolute in the face of your client's evidence that "I cannot get them."

[34]            All right.  Thank you, Counsel.

                "R.T.C. Johnston, J."           

The Honourable Mr. Justice Johnston