Court File and Parties

Court File No.: 32-152647 Released: 2023-12-18

ONTARIO SUPERIOR COURT OF JUSTICE IN BANKRUPTCY AND INSOLVENCY

IN THE MATTER OF THE BANKRUPTCY OF ROGER ROBERT PASICHNYK of Norfolk County in the Province of Ontario (ORDINARY ADMINISTRATION)

BEFORE: Associate Justice Ilchenko, Registrar in Bankruptcy

COUNSEL: D. MacRae LIT for Trustee J. Baker for OSB

HEARD: Contested Taxation heard November 15, 2023 and further taxation materials subsequently provided

ENDORSEMENT

[1] Further to my prior endorsement on this taxation, I have been provided with the Islam (35-2140032) and JMS Plumbing (35-2226381) taxation materials cited by the Trustee as examples where Deputy Registrar Stevens did not accede to the OSB’s requests for further fee reductions.

[2] With respect to JMS Plumbing, as a corporate bankruptcy, discharge is irrelevant. As far as I can determine from the Negative Comments Letter, the request for the reduction was as a result of the late filing of a SRD, 4 months past the s.34(2) deadline given by Deputy Registrar Stevens, the commingling of ordinary administration funds from this estate in the CTA, a period of dormancy in the estate for 5 years and failures to file require documents under s.39 with creditors. The OSB requested a further $500 reduction of fees from the $4,034.21 in fees claimed after the Trustee claims to have reduced the fees from $7561.67 docketed. Realizations in the estate were $5,163, so it is suspected that this “reduction” of fees is from the lack of proceeds.

[3] Deputy Registrar Stevens did not grant the OSB’s request.

[4] In the Islam estate it appears that the Bankrupt was automatically discharged, so that the key issue regarding the Pasichnyk estate is not present. The receipts were $56,485.19 chiefly from realization of home equity. The disbursements were $30,599 of which the fees docketed were $17,874.58 reduced to a claim of $15,000. Fees for the estate solicitor for $11,000 accounted for the bulk of the remaining disbursements.

[5] In Islam the estate was opened in 2016, and the Bankrupt was automatically discharged in 2017. The OSB requested a further reduction of $1,900 on the basis of:

The failure to notify the OSB of possession of sufficient proceeds to convert to Ordinary Administration, for 4 years;

Failure to transfer funds from the CTA to a separate trust account for 5 months;

Failure to comply with Deputy Registrar Stevens’ s.34(2) order;

Paying of impermissible expenses while a summary estate.

[6] Deputy Registrar Stevens did not accede to the OSB request.

[7] Having read these two Taxation applications, I do not understand why the Trustee thought that they would be helpful in the situation relating to the Pasichnyk Estate, which is on a wholly different order of magnitude of misconduct by the Trustee.

Orders under s.34(2) in regards to the Trustee

[8] To set the context for this taxation, commencing with an initial Case Conference on July 21, 2022, I issued s.34(2) Orders with respect to directing the completion of 13 estates in OR 31 and 32 Divisions on December 9, 2022.

[9] Similar s.34(2) Orders were issued to the Trustee by Deputy Registrar Stevens in OR 35 Division. The OSB advises that the number of estates under the supervision of Deputy Registrar Stevens is larger given the Trustee’s physical location in Waterloo.

[10] In issuing these s.34(2) Orders to the Trustee I emphasized to the Trustee, with the least amount of subtlety that I could muster, that the status quo was not an option, and the Trustee’s choices were to implement the plan requested by the OSB or to suffer the ignominy and financial ruin of the imposition of Conservatory Measures, likely at the expense of the Taxpayer.

[11] To assist in that exercise, and to reflect the administrative challenges that the Trustee has, I gave long lead times to do seemingly simple tasks like submitting SRDs for taxation, getting court approval for two Division 1 Proposals where the Trustee had not sought Court approval after creditor approval was obtained on June 27, 2003 (20 years), and the discharge of Mr. Pasichnyk who had made an assignment into Bankruptcy on October 7, 2005 (18 years ago) and where the Trustee had opposed the Bankrupt’s discharge on June 7, 2006. (17 years ago).

[12] Notwithstanding these long lead times, the Trustee failed consistently to meet my time deadlines for completing tasks, leading to my issuing additional s.34(2) Orders on July 18, 2023, July 21, 2023, and September 7, 2023, imposing additional deadlines.

[13] As of the date of this endorsement the majority of these matters in OSB Divisions 31-32 have been completed by the Trustee.

[14] The Pasichnyk discharge and taxation are amongst the last of these matters.

The Pasichnyk Discharge

[15] At the September 2023 Case Conference it dawned on me that, unlike many of the 13 estates within my purview under s.34(2), where the issues were delayed taxations and closure of estates, in this case there was a Bankrupt involuntarily trapped within fiscal gaol for the better part of two decades that needed to be discharged prior to the approval of any SRD. I ordered that the discharge proceed before me on an expedited basis on October 25, 2023.

[16] The saga of the discharge of Mr. Pasichnyk on assignment on October 7, 2005. From the meagre discharge materials produced by the Trustee on Discharge before me, in 2023, it appears that the Bankrupt was undergoing a divorce at the time and his ex-wife had been awarded a large judgment, presumably for equalization. His largest creditor appeared to be his ex-wife with a $32,273 and total unsecured claims were $81,289 mostly otherwise consisting of credit card and other consumer debt.

[17] It does not appear that the major creditors, or any other creditors, opposed the Bankrupt’s discharge.

[18] From the SRD it appears that the Trustee realized $3083 in collecting a debt owing from the Bankrupt’s son, and the sale of some securities, another $13,912.32 in collected surplus income and $8,096 from the Pre-Bankruptcy tax refund and some interest. Total realizations were $25,369.03.

[19] The Trustee claimed disbursements in the total amount of $23,758.99 with HST on fees, of which a claim for $20,000 in fees was made, “reduced” from $23,119.58 with the remainder being solicitors fees of $560 and HST, and a variety of court and OSB fees and counselling fees.

[20] Many of the RRSP and other assets were found by the Trustee to be the property of the Ex-wife of the Bankrupt under Family law orders. No home equity was realized from the Bankrupt’s interest in the family home, net of the Mortgagee claims.

[21] The dividends payable to creditors and levy, after 18 years of administration, were $1,893.68 or 2.28%.

[22] The Court was hampered on hearing the Discharge by the Trustee not bothering to provide a Supplementary Affidavit in 2023, instead repackaging prior s.170 reports and Supplementary Reports from 2006 and 2016, without any updated information, contrary to his obligations under the BIA and the Toronto Bankruptcy Court Notice to Profession.

[23] In 2006 it appears that a discharge hearing was held. The only information available to the Court is that in the OSB Negative Comment Letter in the Pasichnyk Estate dated July 28, 2023 (the “OSB Negative Comment Letter”) the following was stated:

“On November 15, 2006, the discharge hearing of the debtor was held. The court issued an endorsement that the hearing was “Adjourned Sine Die pending receipt of bankrupt’s Affidavit attesting to the current monthly earnings and expenses of the bankrupt’s household unit”.”

[24] There was no mention I could find in any of the Supplementary Reports of the outcome of this initial discharge hearing.

[25] There was also no proper evidence as to why the Bankrupt remained undischarged for 17 years after this initial adjournment, and why no further hearing date was obtained.

[26] What was provided was a number of letters and courier and registered mail receipts indicating that the Trustee mailed and couriered to the Toronto Bankruptcy Court office in 2016 and 2017 a pair of discharge orders on apparent consent of the Bankrupt to pay $10,000 as a condition of discharge. It appears from scrawling on one of the letters that the Court Office had no record of the 2016 mailing, so a 2017 courier package was sent, with results unknown.

[27] In any event, there is no evidence that the Trustee ever followed up, for 6 years, on these quixotic mailings, or what happened in the period from 2006 when the discharge was adjourned, to 2016 when the quixotic mailings were first sent to the Toronto Bankruptcy Court Office.

[28] The best explanation of what may have happened is in the OSB’s Negative Comment Letter which states:

“On September 18, 2017, the debtor filed a complaint with the OSB seeking assistance

regarding the LIT. The debtor explained they filed for bankruptcy after a financially devastating court judgment during a divorce. The debtor claimed after the appointment of the LIT there had been numerous issues and delays in their bankruptcy discharge process. The debtor claimed to have paid the surplus income owed to the estate in 2013, however progress remained stagnant, and the debtor faced difficulties communicating with the LIT. The debtor went on to say that over the years, they experienced delays, false representations, and a lack of integrity from the LIT. The debtor was seeking help to resolve the situation.

On September 29, 2017, the LIT’s responded to the complaint. The LIT stated they “sent by Express Post on August 8, 2016 to the Bankruptcy Court the Supplementary Report, consent and draft order” and that the debtor was provided with a copy of the supplementary report when the debtor signed the consent. The LIT advised they had not heard back from the Court as they were hoping the Court would deal with the matter in chambers. The LIT also suggested the debtor make an application to the Court to deal with their discharge. The LIT believed the debtor was not prepared to clear the issues in order for the LIT to report to the Court to consider granting the debtor their discharge without attendance.

On October 17, 2017, the OSB advised the debtor that the LIT was to follow up with the

court regarding the debtor’s application for discharge. The LIT reported back to the OSB

that the court did not have the materials sent in August 2016. The LIT further advised

that they resent the documentation to the court and expected a response from the court in

early November 2017. The LIT stated they did not know if the court would proceed with

the application for discharge without a court appearance. In the event that the mailed-in

application was not accepted, the LIT advised that the debtor could make an application

to court on their own to obtain their discharge. The OSB’s public records do not indicate

whether the LIT followed up with the court after filing the resent documentation from August of 2016.”

[29] Nowhere in any Supplementary Report allegedly filed with the Court was there EVER an explanation from the Trustee of the above turmoil, or the OSB complaint by the Bankrupt, or the delays in the estate.

[30] I say “quixotic” because there was NO chance, whatsoever, that Registrars Mills and Jean, on duty at the time, would have EVER granted a conditional order in those circumstances, in writing, for the payment of a considerable sum as a condition of discharge.

[31] The Trustee literally “mailing it in” with respect to the Bankrupt’s discharge was contrary to the procedures of the Court and would never had succeeded. At the discharge hearing the Trustee tried on with me the same argument that he tried with the Bankrupt and the OSB that “…the debtor could make an application to court on their own to obtain their discharge.” I advised the Trustee that blaming the Bankrupt for not doing fulfilling the Trustee’s duties on Discharge was a silly submission.

[32] Also, with respect to this estate, like many of the Trustee’s untaxed Toronto Estates subject to my s.34(2) Orders, the Trustee initially made excuses that taxation paperwork had been submitted to the Toronto Bankruptcy Court Office and lost by them.

[33] After considerable effort on the part of the Toronto Bankruptcy Court Office staff, it was determined that these excuses by the Trustee in multiple estates were not supportable, and that the Toronto Bankruptcy Court had not, in fact, “eaten the Trustee’s homework” in 2016-2017 or otherwise.

[34] The Trustee had opposed the Bankrupt’s discharge, in 2006 on the following grounds:

“Section 173(1)(a): the assets of the bankrupt are not of a value equal to fifty cents on

the dollar on the amount of the bankrupt's unsecured liabilities, unless the bankrupt

satisfies the court that the fact that the assets are not of a value equal to fifty cents

on the dollar on the amount of the bankrupt's unsecured liabilities has arisen from

circumstances for which the bankrupt cannot justly be held responsible;

Section 173(1)(e): the bankrupt has brought on, or contributed to, the bankruptcy by

rash and hazardous speculations, by unjustifiable extravagance in living, by gambling

or by culpable neglect of the bankrupt's business affairs; specifically the bankrupt

has, within the period beginning on the day that is three months before the date of

the initial bankruptcy event incurred credit card debt of $26,389.83, and debt on the

bankrupt’s line of credit of $2,400.00;

Section 173(1)(h): the bankrupt has, within the period beginning on the day that is

three months before the date of the initial bankruptcy event and ending on the date

of the bankruptcy, both dates included, when unable to pay debts as they became

due, given an undue preference to any of the bankrupt's creditors; the bankrupt paid

$11,194.94 to Mandryk, Stewart & Morgan LLP (the solicitor for the bankrupt) on

September 23, 2005;

Section 173(1)(m): the bankrupt has failed to comply with a requirement to pay

imposed under section 68;

Section 173(1)(o): the bankrupt has failed to perform the duties imposed on the

bankrupt under this Act or to comply with any order of the court.”

[35] By the date of the most current Supplementary Report, from 2016, placed before me at the 2023 Discharge hearing, the Trustee reported:

1. THAT since that date, the bankrupt has provided the trustee with monthly statements for the period May 1, 2006 to October 31, 2006 of all earnings and expenses of the bankrupt's household family unit, net of taxes, for consideration by the trustee in establishing the existence, if any, of surplus income divisible amongst the proven creditors of the estate.

2. THAT since that date, the bankrupt has provided the licensed insolvency trustee with account statements of the bankrupt’s credit cards (AMEX, Best Buy, two (2) MBNA cards, Options Master Card, and two (2) TD Canada Trust VISA cards), for the five (5) months directly proceeding his assignment in bankruptcy up to and including October, 2005. The statements revealed spending from ten (10) credits cards (3) three months prior to his assignment in bankruptcy totaling $28,789.44. Major expenses were payments for bankrupt share of son's wedding costs, new roof for home and legal fees for a matrimonial dispute.

3. THAT since that date, the bankrupt has paid to the trustee three thousand dollars ($3,000.00) with respect to a receivable owed to the bankrupt by his son.

4. THAT since that date, the bankrupt has paid to the trustee the sum of twelve thousand four hundred twenty five dollars four cents ($12,520.85) towards settlement of the value of the unremitted surplus income due and payable by the bankrupt for the period October 1, 2005 to June 30, 2007 (21 mths). The outstanding amount is five hundred fourteen dollars ninety three cents ($514.93).

5. THAT since that date, the bankrupt has paid to the trustee the sum of sixty dollars ($60.00) in settlement of charges resulting from bankrupt payment on July 19, 2005 and July 5, 2007 returned NSF.

6. THAT since that date, the bankrupt has paid to the trustee the sum of fifty dollars ($50.00) in respect of the application by trustee for discharge of bankrupt.

7. THAT since that date, the bankrupt has failed to pay to the trustee the sum of five hundred dollars ($500.00) in respect of the costs of the trustee in respect of its opposition to the discharge of the bankrupt.

8. The bankrupt has consented to an Order setting terms for discharge in the amount of ten thousand dollars ($10,0000.00) payable at a minimum monthly payment of five hundred dollars ($500.00) commencing one month after an Order has been issued should the honourable court deem it to be is sufficient for the bankrupt to obtain his discharge from bankruptcy.”

[36] There was nothing before the Court supporting the “consent” order for the payment of the $10,000 as a condition of discharge that was attempted to be obtained twice, in writing, unsuccessfully, 6 years prior.

[37] The surplus income condition had been largely fulfilled, so it could not be for outstanding surplus income, but no basis for this or any other conditional payment was ever articulated by the Trustee.

[38] From the sparse materials before me it appears that, in 2006, the Bankrupt was perhaps not the ideal bankrupt, but in the ensuing 10 years to the date of the most current 2016 Supplementary Report, it appears that he had largely complied with the Trustee’s demands. When that occurred is unclear, and how much of it was as a result of the Bankrupt’s conduct, and how much the Trustee’s fault, is also unclear.

[39] But it was clear to me that the ensuing 7 years of inertia from 2016 to my hearing the discharge on October 25, 2023 were ENTIRELY the Trustee’s fault, UTTERLY inexplicable, and leads the Court to question whether any discharge hearing would EVER have occurred but for the intervention by the OSB and the Court under s.34(2).

[40] As a result, exercising my Registrar’s discretion, I rejected the Trustee’s recommendation, and discharged the Bankrupt with a one day further suspended discharge, added to the 17 YEAR involuntary suspended discharge he had already served, largely attributable to the Trustee’s conduct.

[41] I was not subtle in making these findings at the Discharge hearing, and I would have thought that the Trustee would have heard and understood this message when it came to taxing this estate so he could get discharged, after 18 years of administration.

[42] Apparently not.

The Opposed Taxation

[43] In the classic decision of Re Hess, 1977 CarswellOnt 68, [1977] 1 A.C.W.S. 226, [1977] O.J. No. 1642, 23 C.B.R. (N.S.) 215 (“Hess”) Henry, J set out the principles of taxation of a Trustee SRD that are as applicable today as they were in 1977. As stated by Henry, J, (that summarization will only tarnish):

“In approaching this matter generally, it must be borne in mind that the trustee is a licensed and appointed official who derives his appointment and status from the Bankruptcy Act. His powers and duties are prescribed by the statute, and he must exercise and fulfil them as the statute requires. His general duty is to get in and administer the estate for the benefit of the creditors. Many of the duties he performs under statutory authority alone. In matters of judgment, where the interests of the estate and creditors may be adversely affected, he is required to obtain the permission of the inspectors, as for example in the matters set out in s. 14 of the Act, which is not exhaustive.

The fundamental concept is that the creditors are the final supervising authority in the administration of the estate, the inspectors represent their interest, the trustee's conduct is supervised by both; the overall administration of the estate is subject to the supervision of the superintendent by s. 5; in cases of dispute or doubt the court is resorted to for adjudication or direction for the purpose of the proper application of the law.

There will obviously be cases where the trustee in administering the estate under the statute is required to weigh the cost of pursuing assets, attacking fraudulent conveyances and preferences and other dealings contrary to the interests of the creditors, against the benefits to be obtained. The trustee must of course consult the inspectors and obtain their direction. But it is clearly in the interests of the integrity of the overall administration of the Act that property wrongfully in the hands of other persons, or claims by the trustee wrongly resisted, should be recovered, even if the return to the estate turns out to be minimal. Whether such remedies should be pursued is obviously a matter of judgment.

The remuneration of the trustee is governed by s. 21. It is primarily to be determined by the creditors. Otherwise, the formula in s. 21(2) is applied. Under s. 21(5) it is provided:

(5) On application by the trustee, a creditor or the debtor and upon notice to such parties as the court may direct, the court may make an order increasing or reducing the remuneration.

The court is in these circumstances therefore required to determine the trustee's fee. Application is in the first instance made by the trustee to the registrar. It may be an adversary proceeding, but in most cases it is not, as the creditors or inspectors will have approved the fee claimed, and the sanction of the court is sought on that basis. As laid down in Re Hoskinson , supra, the ordinary principles of taxation apply.

Here there is no tariff and there are no statutory rules to govern the court in the exercise of this function. The matter is therefore largely one for the discretion of the court which must be exercised on proper principles. By what principles should the court be guided in the matter?

With some temerity I set out the following principles, with the caution that they are neither exhaustive nor of universal application. They appear to me however to be governing or at least important principles subject to the circumstances of any particular case.

(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 fulfil the role of communicating to the 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, as I see it, 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 to 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. In this respect, it should be borne in mind that the labourer is worthy of his hire. The creditors and the public are entitled to the best services from professional trustees and must expect to pay for them.

(3) With this in mind, the court should take into account the views of the creditors or the inspectors if they are expressed. Considerable weight should be given to their approval or disapproval. It must be borne in mind that the inspectors are the persons representing the creditors who are in a strong position to judge, from their day-to-day supervision, whether the work done and the results achieved merit the compensation claimed; moreover, the inspectors are frequently creditors whose interests are directly affected by the fee charged by the trustee; in any event, it is not to be assumed that their approval is given lightly.

(4) Clearly, these items should prima facie be disallowed if they comprise any of the following:

(a) Services not authorized by law;

(b) Irresponsible decisions producing no positive results;

(c) Conduct contrary to the instructions of the creditors or inspectors, or the court;

(d) Patent 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.

For obvious reasons, this list is not exhaustive.

(5) In more positive terms, as I see it, in relation to the overall objectives of the Act, the trustee should, in the absence of compelling reasons to the contrary, be permitted to charge as fees:

(a) For the time he has spent in the administration of the estate, at the going or a reasonable rate of remuneration; this first and foremost should be the basis of his claim;

(b) For obtaining a positive result, in getting in or saving assets for distribution to creditors; this might be termed successful performance.

It goes without saying that the court must be alert to detect instances where a trustee has abandoned his professional ethics and has sought to victimize the creditors by improper charges to the estate. Entirely apart from this, a trustee, who is licensed under the statute, is expected to exercise judgment and common sense in making claims for fees. Patently he cannot expect the court to accept overly generous charges that exhaust the estate and leave little for creditors. He must exercise restraint. The court must therefore exercise some judgment as to the overall costs and gains to the estate of the trustee's administration and may decide that, as a matter of judgment, a fee otherwise justifiable should be reduced in the interests of the creditors and the integrity of the Act; but this discretion must be exercised with care, especially if the fee is approved by the creditors or the inspectors, and it must be exercised judicially.

In exercising its discretion on the basis of costs and benefits the court must have regard to sometimes conflicting principles which must be weighed. On the one hand, the direct objective of the trustee's statutory function is to maximize the cash assets of the bankrupt for rateable distribution among the creditors; expense of administration should therefore be minimized. A bankruptcy is generally a losing proposition to start with, so far as the creditors are concerned, and the integrity of the statutory scheme requires that the administration of bankrupt estates should be seen to be for the benefit of the creditors and not, as it sometimes appears to the public, for the benefit of trustees and solicitors.

On the other hand, the due administration of the Bankruptcy Act also requires that the assets of the debtor be gathered in and realized by the trustee, even at the expense of investigation and litigation. Not only is this the entitlement of the creditors, but the public interest in the integrity of the legislative scheme requires that abuses be penalized and made unprofitable. There is therefore a wider obligation on the trustee to seek out and recover assets that have been concealed or put beyond the reach of the creditors by improper preferences, conveyances or settlements or by invalid security, not only for the benefit of the general creditors but, equally important, as a deterrent to abuse and frustration of the legislative scheme. Pursuit of this objective may be costly and at times productive of little tangible gain. In this context the importance of the trustee's obtaining instructions from the creditors or the inspectors is obvious.”

[44] With respect to the necessity of docketing time and the necessity of providing those docket details to the Court, in applying his decision in Re Hess to the context of a Registrar approving a solicitors bill of costs in Bankruptcy in Town Cycle & Sports Ltd., Re 1977 CanLII 1377 (ON SC), 1977 CarswellOnt 605, [1977] 2 A.C.W.S. 717, [1977] 2 A.C.W.S. 783, 18 O.R. (2d) 41 (“Town Cycle”) Henry, J. stated the following, which is in my view equally applicable to Trustee Taxations:

“15 By way of postscript, I point out that, in applying the foregoing principles, the Court is placed in considerable difficulty in taxing a solicitor's bill of costs if the total amount of time spent by him and charged to the trustee is not disclosed, as well as the hourly rate charged for his own services and any services properly performed by someone else in his firm (which instance should be identified).

16 The time spent on routine matters, such as sending or receiving letters, telephone calls, and minor attendances which are normally itemized and charged at a conventional amount should, for the information of the court, be totalled if not already itemized. All non-routine charges should be itemized both as to time and amount charged. If the Registrar is not satisfied with an amount charged, including routine matters, the solicitor should be prepared to support the charge by proper evidence.”

[45] As stated by AJ Jean in Re Vonic 32-1983170, (“Vonic”) in the context of a taxation of fixed trustee fee approved in a Division 1 Proposal calculated on a percentage of recovery in the Proposal:

“In my view, it is appropriate to start from the proposition that the statutory rate of 7.5% should be applied, absent any request by the trustee for an increased amount. Inferentially, the trustee is seeking more than a 7.5% statutory rate, given the terms of paragraph 11 of the proposal.

If the trustee is seeking fees above the statutory rate, the onus is on the trustee to establish entitlement and that the amount is fair and reasonable. Typically, a trustee in such a case claims fees on a time and hourly rate basis. Dockets would be vital in this situation.

Here, the trustee submits that the formula or manner of calculating the fee in paragraph 11 of the proposal is fair and reasonable. There is nothing filed to support the submission, aside from a description of the tasks that the trustee fulfilled in the administration of the estate.

Without the benefit of dockets which would provide a basis for an increased fee above the statutory rate, the court may be seen as pulling a number out of thin air. In my view, that approach is not principled, although in some ways justifiable if the trustee is unable to discharge its onus.

I also wish to be clear that I do not accept that administrative efficiencies associated with a fixed fee properly oust the court’s jurisdiction to approve the trustee’s fees. If the trustee decides to eliminate time docketing for the sake of expediency, then it does so at its peril. The onus is and always remains upon the trustee to justify that the fees claimed are fair and reasonable. As held in Re Boyle and Re Diltze, the failure to file time dockets will not be fatal but there must be some evidence or other admissible material to establish the fees claimed.”

[46] The OSB Negative Comment Letter goes into great detail about the attempts by the OSB to coax the Trustee to complete this and other estates, ultimately requiring my intervention under s.34(2). I have prepared this executive summary of those efforts from the OSB Negative Comments Letter:

October 2010 -First OSB practice review issued in indicating an inactive bank account and trust account reconciliations for the estate, 13 years ago.

January 2016 - Second review of aged estates for the Trustee in and estate closing plan issued.

January 2017- After no corrective measures taken by Trustee OSB requires another closing plan that the Trustee failed to respond to.

September 2017- OSB Complaint by Bankrupt with response by Trustee that month.

October 2017-OSB demands explanations for the failure to schedule a discharge hearing – Trustee responds with the “mail it in” manoeuvre.

October 2019- OSB conducts a Licenced Trustee Office Visit (a “LITOV”) to deal with all of the identified aged estates, including this one.

March 2020- OSB issues LITOV report for Trustee- for this estate indicates that THIS ESTATE HAD NO TRUST ACCOUNT BALANCE- requires completion of this estate by November 30, 2020 and if no completion that the OSB would obtain directions by March, 2021.

November 2020- OSB conducts another review of Trustee’s aged estates including this estate where no corrective measures had been taken by November 2020- OSB issues a Closing Action Plan (a “CAP”) for Trustee to fulfill, including for this estate. CAP plan for estate identified that there had been no activity in the estate according to the OSB e-filing system since November of 2006 (14 years). CAP required Trustee to update the Estate in the OSB’s estate within 7 weeks. Trustee fails to do so.

February 2022- OSB conducts another LITOV- and LITOV report issued in March 2022. Requires estate to be closed for 60 days. No corrective action taken.

May 26, 2022- Since no corrective actions taken, OSB issues s.34(2) letter July 21, 2022,

December 9, 2022- Since no corrective actions taken I issued s.34(2) Orders with respect to directing the completion of 13 estates, including this one, with further Orders on July 18, 2023, July 21, 2023, and September 7, 2023 imposing additional deadlines.

[47] The OSB’s succinct position on a requested reduction of fees in this estate is stated as follows in the OSB Negative Comments Letter:

“Bankruptcy and Insolvency General Rules - Code of Ethics for Trustees

The LIT’s conduct in administering this estate has raised significant issues of non-

compliance with the Code of Ethics for Trustees as per The Bankruptcy and Insolvency General Rules. These ethical standards are essential for maintaining public trust and confidence in the administration of the Act. However, it appears the LIT has fallen short on meeting these requirements in their professional engagements.

As per Section 36 of the Code of Ethics for Trustees, it stipulates the LIT shall perform their duties in a timely manner and carry out their functions with competence, honesty, integrity, and due care. The LIT’s failure to comply with regulatory instructions and repeated delays in providing the required documentation indicates a lack of cooperation and compliance with representatives of the OSB, raising concerns about the integrity of the bankruptcy process. The LIT’s repeated delays and deficiencies in the administration of estate, as evidenced in the nonresponse to the OSB’s compliance activities, indicates a failure to meet the expected standards of competence and timeliness. Based on the direct correlation between the LIT’s conduct and the Code of Ethics for Trustees, it is evident that the LIT has raised serious concerns about their compliance with the ethical standards mandated by The Bankruptcy and Insolvency General Rules.

Conclusion

The LIT did not properly administer the estate in a timely manner. This was determined to be unacceptable by the OSB’s standards. The lack of timely administration by the LIT compromises the integrity of the information held in the public record. The OSB is asking the LIT’s remuneration be reduced by $3,000.00, which is the equivalent to approximately 6 hours of charge time between the LIT and their administrator. The reduction reflects the time required to complete the administration of the estate and apply for the LIT’s discharge where the estate could have been closed 6 years ago. This postponement also caused a lengthy delay in the distribution of dividends to creditors and their ability to have their rights revived. This amount is viewed as a monetary deterrent where there has been non-compliance in the administration of the estate and provides for a greater distribution to creditors. The OSB considers this amount of relief as appropriate under the circumstances and based on several factors such as the seriousness of the misconduct, the impact on the debtor and the creditors, and the message of prevention this may send. The OSB believes this reduction is commensurate with the administrative oversights that occurred during the course of this estate.”

[48] The Trustee’s response in a letter was:

“When the LIT prepared and submitted the final SRD, considering the lack of timely administration and non-compliance with the Act, the LIT reduced his fees by $3,119.58. The OSB is requesting a further $3,000.00 reduction as per the NLOC, not considering the LIT's voluntary reduction of fees of $3,119.58 due to non-compliance and unrecoverable time spent. The LIT does not disagree with the OSB request for a fee reduction, however, the LIT’s position is that the voluntary fee reduction already factored in non-compliance to a greater extent than the OSB reflected in the NLOC.

The LIT submits to the Honourable Court that the LIT voluntary reduction is more than the OSB standard reductions for non-compliance and that LIT’s SRD stands as presented.”

[49] The Trustee’s response on this taxation, after a Discharge Hearing where I, in no uncertain terms, rejected arguments by the Trustee that the estate was properly administered, and where the Bankrupt wept actual tears of joy from being released for almost 20 years of purgatory, speaks to an exasperating tendency by this Trustee, that I have observed in the hours of Case Conferences that I have conducted with him and Ms. Baker from the OSB, to not accept any accountability for the real-life consequences his actions or inactions have incurred.

[50] Over the past year of supervision, the Trustee has proceeded to blame the OSB in general, and Ms. Baker in particular, for being unfair to him. From the record before me I see no unfairness.

[51] In fact, given my prior experience as counsel to Guardian Trustees implementing Conservatory Measures, given the issues that I saw in the 13 estates I have issued s.34(2) Orders in, and including this estate in particular, I advised the Trustee that I was surprised that the OSB had given him this much rope.

[52] The Trustee has also unfairly blamed the Bankruptcy Court Office for losing his discharge and taxation materials, when it had not, to the extent that could even be determined, given that some of the decades-old estates pre-date the FRANK electronic record of the Court.

[53] The Trustee attempted to shift the onus of obtaining a discharge onto the Bankrupt, which was completely misguided.

[54] The most serious issue raised by the OSB, namely that the Estate Ordinary Administration Trust account had “no balance”, leading to the conclusion that fees had long ago been paid from the funds in this estate, from a review of the Trial Balance provided in the Trustee’s taxation materials, it is impossible to tell, given that there is no entries anywhere in that document for “Trustee’s Fees” or HST thereon.

[55] But there are very many unusual features relating to the accounting of these estate funds:

This Ordinary Administration estate appears to have been run out of the Summary Administration CTA until 2006

The payments made of surplus income of the Bankrupt for this Ordinary Estate appear to have been deposited in the Summary CTA, but the funds appear to have been transferred to the ordinary trust account only in 2009.

The Ordinary Trust account went dormant and appears to have been reactivated in 2016.

Interest payable by CIBC on the monies in the Trust account ceased to be paid in 2008, presumably because of account dormancy, and only restarted in September of 2022, with the creditors possibly losing out on 9-14 YEARS of interest on approximately $25,000 present since 2013.

Other than the Bankrupt making periodic payments from 2005 to 2013 deposited somewhere, and lump sum payments of $3000 as a collected receivable and $6,150 in March of 2013 that was reallocated to surplus income, all other asset realizations appear to have been completed in 2006.

[56] With respect to determining value to the creditors, the entirety of the “dockets” provided by the Trustee to support a claim for $20,000 in fees were 3 pages of non-chronological time estimates, and 3 pages of notes (that I attach at schedule “A”) stating in minutes how the 38.83 hours claimed by the LIT at $400/hr and 43.5 hours claimed by the administrator at $175/hr were claimed.

[57] There is no explanation whether the hourly rates were consistent over the 20 year life of this Estate or whether the fees were improperly claimed at the 2023 rates rather than the 2005 rates when the Estate began.

[58] Ten hours were claimed to have been spent reconciling the estate bank account, almost 1/8 of the total time spent over an almost 20 year period, where it appears for a portion of the time the funds in this estate were being held in the Summary CTA and where it appears that the Ordinary Trust account was dormant and not earning interest income for 14 of those years. What, precisely, was there to “reconcile”?

[59] Contrary to Vonic and Town Cycle, based on these “dockets” provided I do not find that the Trustee has discharged its onus to prove that the $20,000 in fees claimed are fair and reasonable.

[60] In terms of the Hess principles, given what is and is not before me, I conclude that the conduct of the Trustee in the administration of this Estate, as detailed above, resulted in:

Irresponsible decisions producing no positive results, namely the Trustee’s attempt to make further $10,000 recovery at discharge, undermined by 17 years of delay and failure to file proper discharge materials to support that recommendation;

Conduct contrary to the instructions of this court with respect to the instructions to expedite the closure of this estate;

There were patent attempts to take advantage of the estate by performing unproductive or unnecessary services not authorized by the inspectors, such as the inexplicable discharge activity and reconciling a non-existent or dormant trust account;

Over-charging for routine services as I cannot see where the Trustee could possibly have incurred $20,000 in fees for, effectively, waiving a claim to home equity and to RRSPs and collecting some surplus income;

Charging for services not clearly performed, such as the quixotic attempt to mail-in a discharge and not actually obtain a hearing date until Ordered to do so by this Court and possibly for the reconciliation of the dormant Trust account;

Charging at an excessive rate for professional services given the lack of explanation as to whether the rates charged were the 2023 rates or the 2005 rates or a blend of both;

Errors of judgment, as I have detailed repeatedly in these reasons, and which include multiple failures to properly report to the Court and to implement its orders, and the possible loss to the creditors of up to a decade and a half’s worth of interest by allowing the estate trust account to become dormant.

[61] I am guided by the following statement by Henry, J. in Hess regarding the determination that I am required to make:

“Entirely apart from this, a trustee, who is licensed under the statute, is expected to exercise judgment and common sense in making claims for fees. Patently he cannot expect the court to accept overly generous charges that exhaust the estate and leave little for creditors. He must exercise restraint. The court must therefore exercise some judgment as to the overall costs and gains to the estate of the trustee's administration and may decide that, as a matter of judgment, a fee otherwise justifiable should be reduced in the interests of the creditors and the integrity of the Act; but this discretion must be exercised with care, especially if the fee is approved by the creditors or the inspectors, and it must be exercised judicially.”

[62] Given the conduct of the Trustee in this case, over the two decades in mis-administering this estate, comprehensively, I will accept the submissions of the OSB and make a further reduction of $3,000.00 of the Trustees fees.

[63] To be completely clear, given all of the issues raised by the OSB, and by the Bankrupt, and the real life effects on the Bankrupt and his ability to be rehabilitated, and on the creditors that have obtained a meagre 2.28% dividend despite $25,000 in recoveries over 20 years, largely as a result of the Trustee’s conduct, had the OSB ask for a larger reduction in fees, I would have granted it.

[64] But since I must act judicially in exercising my discretion, and the requested $3000 write down by the OSB is the case the Trustee had to meet at Taxation, I will grant that reduction and not more.

Summary of Taxation Order Granted

[65] Trustee to submit an amended SRD with fees further reduced by $3,000 to $17,000 for approval.

Associate Justice Ilchenko Registrar in Bankruptcy

Date: December 18, 2023