Mayor sought judge’s help to eliminate $150,000 debt
Less than a year before he was elected mayor, Andrew Jakubeit sought a judge’s help to get out from under $150,000 in credit card debt, according to court records. Although a legal opinion obtained by The Herald indicates Jakubeit as an elected official was not required by law to disclose the arrangement, a B.C. political watchdog suggests he was morally obligated to do so.
Jakubeit says it was a humbling, private matter brought on by an economic downturn, which an insolvency expert claims is all too common in Canada. BANKRUPTCY COURT Documents obtained from the Vernon court registry — the closest courthouse to Penticton that deals with bankruptcy proceedings — show a judge on Jan. 7, 2014, approved Andrew and his wife’s consumer proposal to creditors.
Brokered by licensed insolvency trustees, such proposals are administered by the federal Office of the Superintendent of Bankruptcy. Proposals can involve no more than $250,000 in unsecured debt with a maximum payback period of five years.
As an alternative to declaring bankruptcy, proposals allow debtors to negotiate repayment plans to keep them afloat by getting creditors to accept just a fraction of what they’re owed.
In the Jakubeits’ case, they agreed to give a trustee $1,100 per month for five years for a total payout of $66,000. After the trustee’s cut, it left $50,133.75 to distribute to the creditors.
Had they simply declared bankruptcy, though, just $21,897.56 would have been available to creditors, according to the trustee’s analysis.
When that document was prepared in July 2013, the Jakubeits had unsecured debt totalling $302,260.
Slightly more than half, $151,010, was owed on five different credit cards held jointly or separately, and which were the focus of the proposal.
Another $150,000 was owed on two separate lines of credit underwritten by a family member and dealt with outside the proposal.
At the time, the Jakubeits had net monthly income of $5,400 — $3,600 of which was Andrew’s — and assets worth $325,967, including a home in Penticton and a record store, The Grooveyard, which was valued at just $1.
The Grooveyard was cited as the source of the Jakubeits’ financial troubles.
“The debtors’ business had a decreased cash flow due to decline in business from the downturn on the economy. As a result, the debtors cannot pay their debt as it comes due,” explains the proposal to creditors. WHAT THE LAW SAYS Under terms of the B.C. Financial Disclosure Act, municipal politicians are required annually to report the assets and liabilities of any companies in which they have at least a 30 per cent voting share, plus any sources of personal income.
Jakubeit, who served two terms as a city councillor before being elected mayor in November 2014, did not report any material changes on his financial disclosure statements for the years 2013 through 2015, despite the fact his personal financial situation had changed dramatically. Nor was it mentioned in the financial disclosure he filed with his nomination papers in October 2013.
Instead, the statements list a variety of credit card companies and banks, which are the subject of the proposal, as creditors of The Grooveyard and related businesses, along with some vendors.
According to a B.C. government fact sheet, “The intent of the Financial Disclosure Act is to identify what areas of influence and possible financial benefit an elected official, nominee or designated employee might have by virtue of their office, and to ensure the public has reasonable access to the information.” LEGAL OPINION A lawyer hired by The Herald to assess whether Jakubeit followed the letter of the law confirmed the mayor did.
“Mr. Jakubeit complied with the Financial Disclosure Act by disclosing his creditors,” Sean Dillman of the Victoria-based firm Dinning Hunter Jackson, which specializes in municipal law, said in his written opinion.
“The Financial Disclosure Act did not require him to disclose that he was bound by a court-approved consumer proposal. The Financial Disclosure Act requires only the disclosure of assets, liabilities (and related creditors), income, real property, and corporate assets (and related creditors).
“It seems that Mr. Jakubeit provided the required level of disclosure.” PUBLIC OPINION But one of B.C.’s most sharp-eyed political watchdogs believes Jakubeit had a duty to the electorate to go further.
“Too many candidates and elected officials view B.C.’s lax disclosure requirements as the absolute maximum of what is required of them, rather than as the bare minimum of what should be expected of them,” said Dermod Travis, executive director of IntegrityBC, a non-profit created to help restore trust between the public and politicians.
“The mayor is now in the awkward position of having to answer questions as to why he didn’t proactively address this in the campaign, rather than wait for it to be uncovered. The wait speaks to how citizens will now view the matter.”
Travis noted there are many legitimate reasons for which people and businesses go bankrupt or make consumer proposals to creditors, and Jakubeit missed out on a key chance during the campaign to shed light on the issue and put it to rest then.
“By not doing so,” said Travis, “some voters will wonder whether he tried to hoodwink them and that’s a far tougher perception to overcome.” BETTER MAYOR FOR IT Jakubeit told The Herald he did exactly what was required of him by law, and doesn’t believe voters were entitled to anything more.
“I disclosed all that was asked of me,” he said in a statement.
“An elected official’s financial health, physical health, and mental health are important factors; however should be private because they often involve other family members that don’t sign up to be under public scrutiny. It is up to the elected official to determine their ability and capacity to fulfil their duties before they let their name stand.”
Jakubeit said the proposal was paid in full ahead of time and the credit cards were also listed in his annual disclosure reports, “so I don’t understand how this is newsworthy.
“Sometimes the fascination with public office overshadows a person’s privacy which is disappointing as this matter also affects my wife, family and our business that have been in Penticton for over 26 years. We are just ordinary people struggling to get by and make a better life for ourselves just like everyone else these days.”
In fact, the mayor added, the ordeal has made him a better politician, “because often politics are for and by the elite with little comprehension of the struggles of the average citizen.”
He went on to explain that “changes in the music industry and market after the 2008 slowdown forced us to consolidate our debt. The experience has been humbling and helped me have a greater appreciation for the financial struggles local businesses and residents have.”
Jakubeit said his family was forced by the proposal to live within its means by cutting expenses, forgoing holidays and driving an older car.
“I still owned a business, had a mortgage, and provided for my family. All we did was consolidate our credit card debt and enter into a payment plan to relieve the debt at a reduced amount,” he added.
“One of the things this experience has taught me is avoiding a problem, expense or issue will not make it go away… you need to tackle it head on, create a plan and execute. It took us three years to get back on our feet and I’m proud of what we accomplished.” MISERY LOVES COMPANY The Jakubeits’ proposal was one of 46 filed in Penticton in 2013, according to statistics from the Office of the Superintendent of Bankruptcy. In total, there were 4,672 recorded in B.C. and 49,454 in Canada that year. Those numbers have risen steadily since. Last year, there were 61 proposals filed in Penticton, 6,087 in B.C. and 62,506 in Canada. NO SHAME IN ASKING FOR HELP A spokesman for the Canadian Association of Insolvency and Restructuring Professionals said that, like Jakubeit, most of his clients simply want to put the matter behind them as quickly as possible.
“I’ve been doing it for a long time, and I don’t believe I’ve ever had anyone in here who wanted to be talking to me. Nobody really wants to do it,” said Ian Schofield, a licensed insolvency trustee who’s based in Regina and spoke generally about the matter because he had no knowledge of the Jakubeits’ case.
He said marital breakups are the most common trigger for financial trouble, while business failures and job losses are not far behind.
Schofield works for MNP — the same firm that handled the Jakubeits’ proposal — which earlier this month released survey results showing 52 per cent of Canadians are within $200 a month of being unable to pay their bills.
He encouraged anyone facing such stress to visit a credit counsellor or licensed insolvency trustee as soon as possible.
“Get help if you think you really need it,” said Schofield, “because the most common thing people say to me is, “Gee, I wish I had done this a year ago.’”