by BETTER FARMING STAFF
He can remain in the Cochrane, Ontario home he valued at $600,000. He can continue to drive his 2007 Nissan Murano. He borrowed $300,000 from his company and paid himself a salary and draws of $400,000 per year in the final years his business operated. Now however, his bankruptcy trustee says it would be too onerous to compel him to face his creditors as the law provides.
Arlan Galbraith was forced into personal bankruptcy in December. The first meeting of creditors was held Jan.27 in Kitchener without him. The self-anointed Pigeon King says he’s short of money, so he was spared the inconvenience and expense of a day’s drive each way and a hotel room, in the city where, not long ago, he lived and operated his pigeon breeding scheme.
Galbraith’s no-show came as a disappointment to the 14 creditors who attended last week’s creditors’ meeting. They felt he should have made an appearance, said Susan Taves, a spokesperson and vice president of BDO Dunwody Limited, the company that’s handling both Galbraith’s and Pigeon King International’s bankruptcy.
It also surprised about 10 members of the media excluded from the proceedings after participants voted to keep the meeting private.
“He’s not working apparently and has very limited income so he, he really questioned if it was the right thing to come down here,” Taves told reporters after the meeting.
In a telephone interview earlier this week, she explained that BDO and creditor-appointed inspectors for PKI, had made the decision to excuse Galbraith. At last week’s meeting, three of these same inspectors – George Lomas, Regan Millian and Jim Wiersma — were among five chosen by creditors’ to be inspectors in Galbraith’s personal bankruptcy. Taves could not recall the names of the other inspectors. They will be identified in meeting minutes. “We’re getting the minutes done and they’ll be posted on our website.” Taves explained.
While Galbraith’s no-show is one puzzle for creditors, not receiving notice about the personal bankruptcy creditor meeting is another.
“We had no idea it was happening,” said Jolene Humbert after learning about the meeting from a reporter on Monday. Humbert and her husband, Aaron, are among 50 former U.S. breeders trying to recoup their losses after Waterloo-based PKI folded in June 2008. No U.S. breeders attended the Jan. 27 meeting.
The group had asked former PKI employee Bill Top to represent their interests in Canada but he had not attended the meeting either. Top says he wasn’t notified.
“It didn’t seem necessary to notify them (PKI creditors) again,” Taves said, explaining the notice only went to creditors Galbraith listed on his personal statement of affairs. It was posted on BDO’s website, she added.
It has also emerged that BDO did not monitor Galbraith’s personal bank accounts during the year it was assigned interim receiver of his personal estate.
Taves says the company did review Galbraith’s personal accounts when appointed his interim receiver by a London, Ontario court in November 2008 to determine if they contained any assets, but didn’t find any. It did not monitor them after that although court documents indicate access was permitted, if necessary.
“He wasn’t bankrupt,” Taves said, explaining that the interim receivership was intended to preserve Galbraith’s personal assets. “We were dealing with specific assets we knew existed.” These included Galbraith’s Cochrane, Ontario property, two vehicles, property maintenance equipment and less than $15,000 in accounts for two PKI-related businesses that Galbraith owned separately: Sacred Dove and Benn Contracting. BDO froze the two accounts’ funds when PKI was declared bankrupt. BDO is also negotiating with the federal government to see if it would release some funds that were seized from the 2008 sale of Galbraith’s former Waterloo residence to cover outstanding GST payments. She estimated the property’s sale value to be $300,000.
Taves said she has not heard concerns from creditors about monitoring Galbraith’s personal accounts.
Galbraith’s statement of affairs lists a Canada pension, which nets just $497 a month, as his sole source of income. Federal guidelines governing personal bankruptcy allow an individual to keep $1,870 in take-home pay before money is clawed back to cover debts.
Taves said BDO has monitored monthly income and expenses since being appointed Galbraith’s trustee. Income and tax returns will be scrutinized, “trying to ask those questions to get clarity.” One such question is whether Galbraith has had a tenant occupying a second house, on the Cochrane property identified in BDO’s preliminary report to creditors, as his primary asset.
The property’s value is uncertain. The preliminary report indicates it’s worth $600,000. Galbraith’s statement of affairs shows an estimated value of $600,000 but an estimated net realizable value of $300,000. The document lists Galbraith’s total net realizable assets to be $376,150. The Trustee’s preliminary report does not contain an estimate of total assets.
Taves attributed the large difference between the two property values to the amount Galbraith invested in the property, associated costs of upkeep, such as insurance if it has to be insured for a period of time, and sales costs. As for the property’s actual value, “until we get it listed and figure that out, we’re not going to know,” she said.
BDO and PKI’s inspectors have allowed Galbraith to remain on the Cochrane property. They say his presence there will provide security and maintenance until it’s sold, Taves said. The preliminary report notes the property is too far away from fire services to qualify for fire insurance.
BDO and PKI’s inspectors permitted Galbraith access to his 2007 Nissan Murano, for which his statement of affairs lists a net realizable value of $15,000, because of where he is living and his assistance with the property. Personal bankruptcy laws allow Galbraith to claim a vehicle exemption of up to $5,650 and he has claimed the Murano. (He has listed a net realizable value of $500 for his other vehicle, a 2000 Ford F150). But he’ll have to make up the difference between the market value and the amount of his exemption if he wants to buy it, Taves said.
It will take “at least a year” before creditors will see any funds released to them, she said.
Taves said few assets remain in PKI and no payments to creditors have been issued. A criminal investigation into Galbraith and PKI by the Waterloo Police Service and the RCMP is underway (see related stories on this website) but no charges have been laid and no allegations of wrongdoing have been proven in a court of law against anyone connected with PKI.
If charges are ever laid and someone is found guilty, creditors might see more funds made available provided the courts order restitution to be paid to victims. Courts can order the restitution to be paid directly to victims. “But we’re thinking there’s also likelihood it would just be paid to the trustee and then the trustee distributes it,” she said.
There are about 550 former pigeon breeders and holding barn operators that could file claims against Galbraith and another 450 with claims against PKI. BDO is exploring the possibility of combining the two groups of creditors.
So far, nearly $100,000 has been spent to administer the bankruptcies. “It’s a costly process,” Taves says, “but at least you have some accountability.” She did not know if more trustee and legal fees would result if the case ended up in criminal court. She did not know if remaining fees to administer the bankruptcies would consume most of the remaining assets. It would depend on how much the property in Cochrane sold for, she said.
The preliminary report indicated that 35 Canadian and six U.S. breeders filed personal claims against Galbraith for more than $15 million. Creditors can still file claims. Taves said the bankruptcy file remains open until BDO gets some sense of the outcome of the criminal investigation.
The amount of the claims is significantly higher than the estimate of $700,000 that appeared in Galbraith’s records. Taves said the original estimates were based on amounts breeders originally paid to Galbraith for birds. Creditors’ claims included amounts they estimated Galbraith owed on unfulfilled contracts.
Some people have made money over and above their original investment. Any decisions on whether to try to recoup those funds and redistribute them among creditors will have to wait, Taves said. The tactic has been successfully used in the United States to recover funds in Ponzi schemes. The strategy hasn’t been raised in discussions with the bankruptcies’ inspectors, she says, but added that applying it won’t be ruled out until the outcome of the investigation is known.
The PKI breeding scheme offered pigeon breeding pairs for as much as $500 and bought back offspring for up to $50 each. Its June 2008 collapse left hundreds of pigeon breeders on both sides of the border with thousands of worthless birds and debts of nearly $40 million. BF