ONTARIO
SUPERIOR COURT OF JUSTICE
RE: IN THE MATTER OF THE BANKRUPTCY of Erick Michael Bennett
BEFORE: Regional Senior Justice H.M. Pierce
APPEARANCES: Ms. B. Hooley
HEARD: January 30, 2013 in Thunder Bay, Ontario
Reasons Regarding the Bankruptcy Trustee’s Remuneration
Introduction
1The bankrupt made an assignment in bankruptcy on September 20, 2006. On June 5, 2012, the trustee in bankruptcy presented her statement of receipts and disbursements to the court for approval and sought increased remuneration. There is no issue with respect to fees paid to the official receiver or inspector, on account of federal or provincial taxes or for counseling.
2The bankruptcy is not yet finalized.
3The trustee claims fees in the amount of $31,648. The receipts realized for the estate are $87,844.92, which includes proceeds from a lawsuit in the amount of $2,625.54. The bankrupt’s preferred creditors realized $24,393.45. His unsecured creditors received $27,111.25 from proven claims of $237,246.96, for a final dividend of 11.43%.
4The trustee advises that because this estate began as a summary administration estate, there was no inspector initially when the trustee did much of the administration. She submits that because of the bankrupt’s lack of cooperation and deception, the case became an ordinary administration, with some complexity. She states that additional assets, revenue, and reviewable transactions were discovered as the administration proceeded. These were largely identified by Canada Revenue Agency, a major creditor.
5An inspector who is associated with the Canada Revenue Agency was subsequently appointed. The trustee reports that upon being provided with the her billing and her statements of receipts and disbursements, the inspector approved the accounts. The inspector was paid his fees in accordance with the tariff in Rule 135 of the Bankruptcy and Insolvency Act, R.S.C., 1985, c. B-3.
6The trustee submits that the file has been worked on continuously for six years, with attendances at seven court hearings, as well as two taxation hearings for which no time was charged. She also submits that handling the trust account monthly took time.
7When this matter came before the court, a hearing was ordered to permit the trustee to justify her fees. In particular, the court sought submissions on the following:
- claims by support staff for bank deposits, posting, account reconciliation and affidavits of mailing;
- claims by all levels of staff for commissioning documents;
- meetings with the debtor exceeding one hour;
- preparation for and appearances at court;
- preparation, review and signing trustee’s reports;
- posting and reconciling accounts;
- monthly bank account reconciliations;
- file reviews;
- to courier documents;
- mailing notices of creditors’ meetings;
- posting dividend cheques; and
- communication with RCMP.
8The trustee was also asked to comment on inspectors’ reviews of fees, if any, and any professional tariff for fees. The trustee filed detailed dockets in support of her fee. Subsequently, she filed detailed written submissions, and made further submissions orally upon the hearing of this matter.
Principles for the Assessment of Trustees’ Accounts
9Much of the case law involving assessment of bankruptcy trustee’s accounts originates with the bankruptcy registrars.
10Section 39 of the Bankruptcy and Insolvency Act deals with remuneration of the Trustee. It provides:
(1) The remuneration of the trustee shall be such as is voted to the trustee by ordinary resolution at any meeting of creditors.
(2) Where the remuneration of the trustee has not been fixed under subsection (1), the trustee may insert his final statement and retain as his remuneration, subject to increase or reduction as hereinafter provided, a sum not exceeding seven and one-half per cent of the amount remaining out of the realization of the property of the debtor after the claims of the secured creditors have been paid or satisfied.
(3) Where the business of the debtor has been carried on by the trustee or under his supervision, he may be allowed such special remuneration for such services as the creditors or the inspectors may by resolution authorize, and, in the case of a proposal, such special remuneration as may be agreed to by the debtor, or in the absence of an agreement with the debtor such amount as may be approved by the court.
(4) …
(5) On application by the trustee, a creditor or the debtor and on notice to such parties as the court may direct, the court may make an order increasing or reducing the remuneration.
11The decision of the Ontario High Court in Re Hess, [1977] O.J. No. 1642 is the starting point in jurisprudence relating to remuneration of trustees. The case was heard as an appeal by the trustee from the decision of the Registrar reducing the trustee’s final remuneration. It was held that It is the trustee’s obligation to gather in and maximize the assets of a bankrupt’s estate, including assets that may be hidden, and to administer the estate in furtherance of the objectives the bankruptcy legislation for the benefit of the creditors: paras. 17 – 18. At paras. 10 – 16, Mr. Justice Henry set out the following five principles for assessment of trustee’s accounts:
(1)whether there is opposition or not, the trustee is entitled to be heard before a decision is made adverse to his claim. Whether or not he is heard orally, he is entitled to know what case he has to meet and be given an opportunity to explain any matters that the court does not accept. Where there is no adversary, the court must communicate to trustee the points that are causing concern.
(2)The court should direct its mind to the object of the taxation. In a bankruptcy matter, these objects… are:
a) to allow the trustee a fair compensation for his services;
b) to prevent unjustifiable payments for fees to the detriment of the estate and the creditors;
c) to encourage, rather than discourage, efficient, conscientious administration of the bankrupt estate for the benefit of the creditors and, so far as the public is concerned, in the interests of the proper carrying-out of the principles and objectives of the Bankruptcy Act. Creditors and the public are entitled to the best services from professional trustees and must expect to pay for them;
(3)…the views of the creditors or the inspectors should be given considerable weight as they are in a strong position to judge whether the work done and the results achieved merit the compensation claimed. As well, where the inspectors are creditors, their interests are most directly affected by the trustee’s fees claimed and so it can be expected that they will not approve the trustee’s accounts lightly;
(4)The following items should, prima facie, be disallowed:
a) services not authorized by law;
b) irresponsible decisions producing no positive result;
c) conduct contrary to the instructions of the creditors or inspectors, or the court;
d) attempts to take advantage of the estate by performing unproductive or unnecessary services not authorized by the inspectors;
e) over-charging for routine services;
f) charging for services not clearly performed;
g) charging at an excessive rate for professional services;
h) errors of judgment, not based on the consent of the inspectors;
i) any matter not required by law to be done that adversely affects the interests of the creditors and not approved by the creditors or the inspectors.
These principles are not exhaustive.
12Mr. Justice Henry concluded that the trustee should, absent compelling reasons to the contrary, be able charge for time spent administering the estate at the “going or reasonable rate of remuneration,” and for getting a positive result: para. 15.
13The basic rule for calculating the amount payable to the trustee is that he should receive 7.5% of the amount remaining in the estate after the claims of the secured creditors have been paid. The superintendent’s approval of a trustee’s final statement of receipts and disbursements is not binding on the court’s review of the trustee’s remuneration: Re: Roy, (1963) 4 C.B.R. (N.S.) 275 (Que. S.C.)
14However, the court may order that the statutory compensation be increased or reduced. Generally, the Ontario courts have approved remuneration well over the 7.5% threshold unless the estate is simple and easily administered: Re Fabre (1989), 73 C.B.R. (N.S.) 300 (Ont. S.C.). There is general recognition that the statutory rate for remuneration of trustees, 7.5% of assets distributable to creditors after secured creditors have been paid, is inadequate given the increased complexity in administration of estates and the statutory and quasi-statutory responsibilities placed on trustees. This rate was legislated in 1950: Re Unified Technologies Inc., [1995] O.J. No. 4550(Gen. Div.) at para. 12.
15In Re: McAfee, [1998] B.C.J. No. 6 (B.C.S.C.), the District Registrar in Bankruptcy considered whether the trustee should be entitled to increased compensation above the statutory rate in the face of opposition by one inspector. The Registrar held that the burden was on the trustee to prove that the expenses incurred resulted from sound judgment and were reasonably necessary for to satisfy the trustee’s duties: paras. 27 – 28. At para. 29, the Registrar set out the parameters for fixing the trustee’s remuneration:
In fixing the trustee’s remuneration, the Court should have regard to such matters as the work done by the trustee; the responsibility imposed on the trustee; the time spent in doing the work; the reasonableness of the time expended; the necessity of doing the work, and the results obtained.
16In Confederation Financial Services (Canada) Ltd. v. Confederation Treasury Services Ltd., [2003] O.J. No. 1259 (Ont. S.C., Commercial List), Mr. Justice Farley considered the amount of compensation that should be paid to a trustee in bankruptcy in a successful case. In that case, he awarded a premium, based on an excellent result. In doing, so, he drew an analogy to factors to be considered for solicitors’ rates: legal complexity, responsibility assumed; monetary value at issue; importance of the matter; the degree of skill and competence needed; and the results achieved: paras. 24 – 26.
17However, in considering professional billing practices, he adopted a value-based approach for fixing compensation based on the worth of the services provided. He decried the “mindless multiplication of an hourly rate times docketed hours”: para. 26.
18At para. 27, he observed:
A system which involves a rigid or almost rigid adherence to the docketed hours and hourly rates will in my view tend towards inefficiency and unfortunately an inflation in accounts. To my mind, the end test should be: What is this case (or element in the proceeding) worth?
19This value based approach was also adopted by the court in Re Kresz 2007 MBQB 67, 213 Man. R. (2d) 186, where the court reduced the fee, finding that it was too high in relation to the results obtained and could not be justified by the benefit to the estate and the creditors. The trustee’s fees in that case were reduced by 50%.
20The authorities confirm that the work done by a trustee’s secretaries and clerical staff is part of her overhead and cannot be claimed as additional remuneration: Re: 256864 Sales Ltd., (1975) 20 C.B.R. (N.S.) 267 (Ont. S.C.); Re Murkl, (1976), 23 C.B.R. (N.S.) 71, (Ont. S.C.).
Discussion
21Ms. Hooley, the trustee, filed a summary of hours claimed for the persons working on the file. She identified the persons involved, described their work, and their hourly rates as follows:
(1) Leigh C. Taylor, trustee in bankruptcy, was licenced as a trustee in 1979. He is responsible for the overall administration of the estate, supervision of staff, initial interviews with the bankrupt, determining the direction of the administration of the estate, and final reviews. Hourly rate: $350.
(2) Bonnie Hooley, trustee in bankruptcy, was licenced as a trustee in 1999. She has overall responsibility for estates under her control, statutory duties, and supervision of the tasks that are delegated. Hourly rate: $300.
(3) Jillian Taylor-Mancusi, trustee in bankruptcy, licenced as a trustee in 2007. She has overall responsibility for the estates under her control, statutory duties, and supervision of the tasks that are delegated. Hourly rate: $250.
(4) Karen Mearon has been involved in bankruptcy administration since 1993. She is responsible for the general administration of bankruptcy files, counselling, various phases of initial assessments, creditors’ meetings, and administration of bankruptcy estates and proposals. Hourly rate: $200.
(5) Sel Mancusi prepares income tax returns. Hourly rate: $100.
(6) Support staff and bankruptcy technicians are charged at various rates depending upon their level of experience and training.
22The minimal chargeable unit of time is .1 hour. The breakdown of time charged to the file is as follows:
Bankruptcy technicians $ 7.50
Tax $ 150.00
Banking $ 1,404.00
Support staff $ 498.00
Bonnie Hooley $20,340.00
Leigh Taylor $ 1,750.00
Jillian Taylor-Mancusi $ 125.00
Estate Managers 1 $ 740.00
Estate Managers 2 $ 6,633.50
Total time charged $31,648.00
23I accept the trustee’s submission that the failure of the bankrupt to disclose assets prolonged the matter and increased the costs. Fortunately, a major creditor was able to alert the trustee to assets that were not disclosed. I also accept that time spent reviewing this matter with the RCMP was an unfortunate but necessary cost. Nevertheless, there are items charged to the estate that warrant comment.
Preparation for Court
24The trustees have billed a total of $8,350 for preparation for and attendance at court.
25Ms. Hooley’s submission to the court about this item says, in part:
Preparation for court hearing includes statutory requirements as well as practical requirements. Largest amount of time charged to this section. Time charged in this section includes:
- Correspondence with bankrupt before and after hearings
- Correspondence with creditors and OSB before and after hearings
- Gathering information required for hearings
- Investigating information required for hearings
- Bankruptcy Act requirements for hearings
- Court requirements for hearings
26All of Ms. Hooley’s 5 dockets marked “court preparation” are one hour in length. She docketed additional time for memos to the file, meetings with the bankrupt, telephone calls and correspondence to bankrupt related to the court proceedings (both before and after court), correspondence to and from the Canada Revenue Agency or other solicitors, review and execution of a s. 82 report, preparation of affidavits for court, review and approval of court orders and related attendances. These are all separately docketed and are in addition to the court preparation time billed. Thus, they are not encompassed in the catch-all of “court preparation.”
27The uniformity of the time docketed for court preparation suggests that a flat rate was charged regardless of the time spent. As items referred to in support of her claim for court preparation appear to be separately docketed, I conclude that the claim for court preparation is a duplication of service. The time allocated to court preparation, 4 hours x $300 per hour =$1,200, is therefore disallowed.
Attendance at Court and Travel
28The bankruptcy trustee, L.C. Taylor & Co. Ltd., is based in Winnipeg. There are no resident trustees in the L.C. Taylor satellite office in Kenora, Ontario, just support staff. Ms. Hooley advised that where appointments for other bankruptcy clients could be arranged in Kenora to coincide with the court dates, the trustee claimed one hour to attend court rather than 5 hours otherwise claimed, which includes travel.
29Of the accounts tendered, Ms. Hooley charged four attendances at court with travel ($1,500 per trip) and two other attendances at court at $300 per hour. In addition, Mr. Taylor charged for one court attendance, which includes 5 hours for court preparation, travel and attendance at court. At an hourly rate of $350, his total claim is $1,750.
30Ms. Hooley also uniformly docketed 5 hours for attendance at court where she travelled from her office in Winnipeg to the court in Kenora, attended court, and returned. The travel time is charged at the same rate as the court appearance: $300 per hour. The uniformity of the docketing suggests that a flat rate has also been applied to the time for attendance at court, regardless of the actual time spent. There is no indication whether the trustee appeared at court on other matters on the days for which time is billed to this estate, as would often be the case. I take judicial notice of the fact that bankruptcy court at Kenora seldom lasts longer than one hour for all matters, generally with 5 – 6 cases and more than one trustee.
31I conclude that one-half hour should be allowed for the court attendance itself as the Kenora Bankruptcy Court docket usually involves several cases with more than one trustee.
32In Mark Orkin, The Law of Costs,2nd ed. (Toronto: Canada Law Book), the author states that in solicitor and client assessments, solicitors who travel on behalf of a client are not entitled to charge their full hourly rate unless they can demonstrate that they worked on the client’s file while travelling. The full hourly rate is warranted when a solicitor’s professional skill and ability is engaged, which is not the case with travel. Solicitors’ rates for travel were typically reduced on assessment to between one-third and two-thirds their full hourly rate: para.311.1 (5).
33The same reasoning applies to the trustee’s travel, which, absent some proof that the trustee was engaged in work on the bankrupt’s file during travel, should not be charged at the full hourly rate. In this case, I allow travel at $100 per hour.
34I conclude that 2 hours each way should be allowed for travel from Winnipeg to Kenora when the trustee was not able to combine court attendances with other work: i.e. 4 hours per trip x $100 = $400. The trustee should make every effort to combine court appearances with other client work at the Kenora office in order to minimize costs to the estate.
35Therefore, Ms. Hooley is allowed $550 for travel to and attendance at court x 4 trips or $2,200. Where travel to attend court was not charged, Ms. Hooley is allowed $150 to attend court x 2 = $300.
36Mr. Taylor is allowed travel of 4 hours at $100 per hour plus one-half hour in court at $175 for a total of $575. The total claim allowed for travel and court attendances by both trustees is $3,075.
Meeting with Debtor Exceeding One Hour
37On September 20, 2006, the trustee docketed 4.5 hours for meeting with the debtor and signing documents. The rate charged was $300 per hour for a total claim of $1,350. In her written submission, Ms. Hooley explained that the time allocated to this item included travelling from Winnipeg to Kenora and return to meet with the client.
38There is no indication that this meeting was scheduled on a day when the trustee was available to other clients so that travel could be apportioned among several files. There is no evidence that this first appointment with the bankrupt was in any way urgent. It would be reasonable for the trustee to book a batch of appointments at the satellite office on the same day in order to maximize efficiency and minimize costs to the estate.
39In my view, considering that a return trip between Winnipeg and Kenora will take 4 hours, a half-hour’s meeting with the client is more reasonable, billed at the trustee’s full rate. I therefore allow $150 for the trustee’s initial meeting with the bankrupt. The claim for travel is disallowed.
Charges Attributable to Overhead
40As the authorities indicate, charges for secretarial and clerical services are part of the trustee’s overhead and not chargeable separately. The case law is to the same effect with solicitor’s billings. The solicitor’s hourly rate is understood to pay for the wages of secretarial and clerical staff, whose time cannot be separately billed. At para.311.12 in The Law of Costs, some services which constitute a solicitor’s overhead are listed:
- clerical work done by a law student or law clerk;
- word processing;
- filing court documents;
- the administrative portion of a solicitor’s time recorded for billing;
- the cost of secretarial work;
- opening and operating a trust account and making deposits after hours on a client’ behalf.
41There are instances in this account where the trustee has charged clerical work that should be part of overhead. For example, there is one entry of 0.5 hours to courier documents at a rate of $150 per hour. The trustee’s explanation of this entry states:
After a couple of adjourned hearings the bankrupt hired a solicitor to represent him at his discharge hearing. The solicitor contacted us and requested copies of a great deal of information in the file. The .5 charged to “courier documents” was the time for an estate manager to pull a number of documents from the file, photocopy, prepare a cover letter and courier the package to his solicitor.
42In my view, this is a classic example of secretarial work being charged to the estate when it should have been treated as part of the trustee’s overhead. That is not to say that the trustee is not entitled to overhead. Overhead is a component of the trustee’s fee. It cannot be paid by charging for services that everyone in the office might perform. The item charged as $75 to courier documents is disallowed.
43Another example arises from the preparation and signing affidavits of mailing, which are charged to the estate at $40 - $175 per hour for a total claim of $192.50. While the amount charged is not large, the function of preparing a standard affidavit of service and swearing it is not a skilled function that requires professional skill or training; rather, it is secretarial in nature and is part of the trustee’s overhead. The various entries for preparation and signing of affidavits of mailing totalling $192.50 are disallowed.
44The trustee was asked to comment on charges for commissioning documents. She stated:
As per Rule 6 (3) of the Bankruptcy and Insolvency Act (BIA), every notice or other document that the trustee gives or sends shall result in the trustee preparing an affidavit which includes statutory declaration and solemn affirmation that the document was sent. Our office ensured that the commission of the affidavits was delegated to staff with the lowest billing rates. The total affidavits needed [sic] to be commissioned was 17. The total time charged commissioning 17 affidavits was $246.50.
45This claim is an adjunct to the previous claim for preparation and signing affidavits of mailing. Despite the trustee’s submission that the commissioning of documents was delegated to staff with the lowest hourly rates, a review of the dockets shows that hourly rates for commissioning documents varied widely from $40 to a high of $300, for total fees of $246.50.
46It is true that the cumulative claim for commissioning documents is not very great. However, when viewed together with the simple secretarial function of swearing that a document was mailed, the collective cost begins to look like a profit centre for the trustee at the expense of the estate. In my view, these functions, generally, should be considered part of overhead. Accordingly, this claim is also disallowed.
Conclusion
47The trustee’s account is reduced by the following amounts:
- preparation for court $1,200.00
- attend court (including travel) $5,275.00
- meet with client $1,200.00
- courier documents $ 75.00
- affidavits of mailing $ 192.50
- commissioning documents $ 246.50
Total reduction $8,189.00
48The trustee’s remuneration is allowed at $31,648.00 - $8,189.00 = $23,459 plus GST. The remaining disbursements are allowed as claimed.
Regional Senior Justice H.M. Pierce
Released: March 07, 2013
COURT FILE NO.: BK-07-79
DATE: March 07, 2013
ONTARIO
SUPERIOR COURT OF JUSTICE
RE: IN THE MATTER OF THE BANKRUPTCY of Erick Michael Bennett
REASONS REGARDING THE BANKRUPTCY TRUSTEE’S REMUNERATION
Pierce, RSJ
Released: March 07, 2013
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