Re Rousseau, 2016 ONSC 962

CITATION: Re Rousseau, 2016 ONSC 962

COURT FILE NO.: 31-1769022

MOTION HEARD: 20160119

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Richard Gregory Rosseau, Consumer Proposal Debtor

BEFORE: Master Mills

COUNSEL: Bruce A. Simpson, Counsel for Richard Killen & Associates Inc. Andrew Hughes, Office of the Superintendent of Bankruptcy

HEARD: 19 January 2016

REASONS FOR DECISION

[1] Richard Gregory Rosseau, the “Debtor”, filed a consumer proposal with Richard Killen & Associates Inc., the “Administrator”, for the benefit of his creditors on July 16, 2013, the “Proposal”. The terms of the Proposal were fully performed on October 4, 2013 and a Certificate of Full Performance was issued by the Administrator.

[2] The Bankruptcy and Insolvency Act, the “Act”, provides in sections 66.11 to 66.4 the scheme for Division II consumer proposals. It is intended to be a streamlined, efficient and cost effective means by which individuals may address a debt burden which does not exceed $250,000, excluding any debts secured by a principal residence.

[3] S. 66.12 of the Act sets out the mandatory terms of a consumer proposal and s. 66.12(6)(b) specifies that all prescribed fees and expenses must be disclosed. Rule 129 of the General Rules under the Act outlines the fees that may be charged in the administration of a consumer proposal. They are as follows:

a. $750, payable on filing a copy of the consumer proposal with the official receiver;

b. $750, payable on the approval or deemed approval of the consumer proposal by the court;

c. 20 per cent of the moneys distributed to creditors under the consumer proposal, payable on the distribution of the moneys;

d. The costs of counselling referred to in subsection 131(1) -- $85 per session;

e. The fee for filing a consumer proposal referred to in paragraph 132(c) -- $100;

f. The fee payable to the registrar under paragraph 3(b) of Part II of the schedule; and

g. The amount applicable federal and provincial taxes for goods and services.

[4] The fees and expenses to be charged for a consumer proposal are limited in scope and are intended to reflect the minimal administration expected for this simplified consumer process.

[5] This motion arises because the Administrator has filed a Final Statement of Receipts and Disbursements with the Office of the Superintendent of Bankruptcy, the “OSB”, which includes expenses not provided for in Rule 129. The OSB issued a negative comment letter pursuant to s. 152(4) of the Act. The Administrator brings this motion to have those fees authorized and approved.

[6] Specifically, the Administrator seeks to be paid for legal expenses incurred in the registration and filing, and subsequent removal, of a restrictive covenant in favour of the Administrator against the Debtor’s real property as security for compliance with the terms of the Proposal. The fees were authorized by the Debtor and fully disclosed in the Proposal under the “additional terms” provisions contained in paragraph 6 of Form 47 which outlines the general form and content of all consumer proposals.

[7] None of the creditors dissented from the Proposal and the Official Receiver did not direct the Administrator to call a meeting of creditors pursuant to s. 66.15(1). The Proposal was therefore deemed to have been accepted by the creditors. Further, the Official Receiver did not request the Administrator to apply to court to have the Proposal reviewed as per s. 66.22(1) and thus the Proposal was deemed to have been approved by the court.

[8] The jurisdiction of the court to approve or refuse to approve a consumer proposal is circumscribed by s. 66.24(3), whereby the court is prohibited from approving a consumer proposal that does not comply with s. 66.12(5) and (6).

[9] It is the submission of the OSB that the term permitting payment of the legal fees in the Proposal is in contravention of s. 66.12(6) and Rule 129. Therefore the deemed approval is void and had the Administrator applied to have the Proposal reviewed, the court would have had no jurisdiction to do anything but refuse to approve the Proposal as it was presented to the creditors.

[10] As there has already been full performance by the Debtor, the OSB submits it is more appropriate in this particular situation to treat the provision for legal fees as void ab initio and to strike it from the terms of the Proposal. This would then bring the Proposal back in line with s. 66.12 and with Rule 129.

[11] Counsel for the Administrator relies on the decision of Master Jean in Re: Sharifi (31-1493535) wherein she held that a creditor could not be paid its legal fees in priority as the payment had not been disclosed in the proposal. The Administrator submits that based on Sharifi, if the fees are disclosed in the proposal, whatever the nature of those fees, they may be recovered from the proposal proceeds.

[12] I do not disagree with Master Jean’s decision in Sharifi however she disposed of the issue before her without having to rule on the propriety of the payment itself. Her decision does not address the issue that is before me and I do not accept that it stands for the principle that provided they are disclosed in the terms of the proposal, any and all fees are recoverable in a consumer proposal.

[13] The fees are prescribed in Rule 129 for consumer proposals and the court has no jurisdiction to deviate from Rule 129. Having specified the permissible fees, it could not have been the intention of Parliament that paragraph 6 of Form 47 then be utilized by administrators to take additional compensation or fees.

[14] Further, to require court approval for any disbursement outside the parameters of Rule 129 defeats the core purpose of a Division II consumer proposal, which is to provide a debtor with an efficient and cost effective means by which to address a debt burden with a minimum of administrative time or expense. Division I proposals are available where the administration calls for a more complex process which would necessitate higher fees or the taking of security to ensure compliance with the proposal terms. If the administration of a proposal necessitates incurring fees or expenses beyond those provided in Rule 129, the debtor must negotiate a Division I proposal with the creditors.

[15] The disbursement of $1,134.44 for legal fees is therefore not allowed and the Trustee is to remove the expense from the Final Statement of Receipts and Disbursements.

[16] As this is a novel and important issue for the insolvency profession, there shall be no order as to costs.

Master Mills

Date: March 17, 2016