SUPERIOR COURT OF JUSTICE - ONTARIO
RE: In the Matter of the Bankruptcy of Giuliana Di Savino
BEFORE: Associate Justice Rappos
COUNSEL: Elliot Birnboim, for Nicola Di Savino Howard Manis, for Russo Corp.
HEARD: April 16, 2024 (via videoconference)
ENDORSEMENT
Overview
1Giuliana (Julia) Di Savino filed an assignment in bankruptcy, and Russo Corp. was named as trustee in bankruptcy.
2Nicola Di Savino is Julia’s former husband, as they are divorced. He has filed a secured proof of claim in the bankruptcy proceeding.
3Nicola brings a motion to remove Russo as Trustee. The Bankruptcy and Insolvency Act provides that the Court may, for cause, remove a trustee and appoint another trustee in its place.
4Nicola argues that removal is warranted given the conduct of Russo at the meeting of creditors, and the improper steps the Trustee took relating to a condominium property owned by Julia’s company.
5Russo argues that there is no cause to remove and replace it as Trustee.
6For the reasons that follow, I find that Russo has not engaged in misconduct that warrants its removal and replacement as Trustee. As a result, Nicola’s motion is dismissed.
Legal Principles for a Removal Motion
7Section 14.04 of the Bankruptcy and Insolvency Act (the “BIA”) provides that the court, on the application of any interested person, may for cause remove a trustee and appoint another licensed trustee in the trustee’s place” [emphasis added].
8The parties did not address in their submissions whether Nicola is an “interested person” under this section. I expect that is because there is no debate that Nicola is such a person, as he has filed a secured proof of claim in this bankruptcy proceeding, and that claim remains under review.
9Whether to remove a trustee is a discretionary decision. This motion turns on whether the conduct of the Trustee constitutes “cause” that requires it to be removed and replaced with another licensed trustee.
10“Cause” means misconduct, fraud, dishonesty, becoming bankrupt or otherwise incapable of acting as a trustee.1 It is not restricted to dishonest conduct, as misconduct short of dishonest is sufficient.2
11Cause will exist when (i) the trustee’s conduct shows that it is no longer fit to continue as trustee; (ii) there is danger to the estate property; (iii) there is a want of reasonable fidelity; (iv) the circumstances prevent the creditors from working harmoniously with the trustee; (v) the trustee cannot act impartially; (vi) there has been an excess of power by the trustee; (vii) there has been a lack of bona fides by the trustee; or (vii) there has been unreasonable conduct by the trustee in relation to the bankrupt estate.3
12The main principle upon which the jurisdiction of the court is exercised in ordering the removal of the trustee is the welfare of the creditors and of the bankrupt estate.4
13The trustee must not undertake a duty and put herself in a position that is in conflict with her duty as trustee, or act in a manner that is inconsistent with that duty. If the trustee has placed herself in a position of conflict, she cannot continue as trustee.5
14Even if a trustee is not dishonest, the court, if it is of the opinion that she has not acted in the best interests of creditors and that she cannot act in concord with the inspectors, may remove her and appoint a new trustee.6
15The removal of a trustee has been described as an “extreme course”.7
Analysis
16Nicola argues that Russo should be removed as Trustee because:
(a) it did not permit himself, Dorina Spizzirri, and Canada Building Materials to vote at the first meetings of creditors concerning the affirmation of Russo as the Trustee;
(b) Russo voted a proxy for its own appointment as Trustee, and potentially solicited that proxy; and
(c) The Trustee grossly exceeded its jurisdiction in dealing with the assets of PCC Concrete Inc. (“PCC”), namely a condominium municipally known as 75 Portland Street, Unit 918, Toronto (the “Condo”).
Meeting of Creditors – Nicola’s Claim
17Julia filed an assignment in bankruptcy on July 20, 2023. The first meeting of creditors was scheduled for August 7, 2023.
18As set out in the minutes from the meeting, Russo presided over the portion of the meeting held on August 7, 2023. Nicola’s proof of claim was submitted just prior to the start of the meeting, and thus had not been reviewed by the Trustee at that time.
19Nicola’s secured proof of claim was dated August 7, 2023 and in the amount of $2,068,506. Nicola did not provide a value for the security in his claim. He stated that his security was in the form of a charge against the Condo and a general charge of assets pursuant to the Order of Justice MacPherson dated October 25, 2022 issued in the matrimonial law proceeding. No supporting documents were attached to the proof of claim.
20One of the purposes of the first meeting of creditors is to affirm the appointment of the trustee or substitute another in its place.8 Nicola objected to Russo proceeding with a vote to affirm itself as Trustee, as the claims had not been fully reviewed. As a result, the vote was adjourned to August 14, 2023.
21When the first meeting was reconvened, it was chaired by an official receiver from the Office of the Superintendent of Bankruptcy. The minutes of the meeting noted the Trustee’s views that Nicola was not permitted to vote as a secured creditor and as a related party to Julia. As well, the Trustee stated that the claim was still under review. Nicola takes issue with the Trustee for not valuing his claim during the period it received the proof of claim (August 7, 2023) and the date the meeting of creditors was reconvened (August 14, 2023).
22The Trustee’s handling of Nicola’s claim at the meeting was in accordance with the BIA.
23Section 112 of the BIA provides that a secured creditor is only entitled to vote the unsecured balance, if any, of his claim. As Nicola did not list an unsecured portion on his proof of claim, he was not entitled to vote at the meeting.
24Again, Nicola’s proof of claim listed him as a secured creditor and did not identify any unsecured portion. I do not see how the Trustee engaged in any misconduct by treating Nicola’s claim as he filed it, which precluded him from voting at the meeting.
25It should also be noted that Nicola had the ability to appeal the decisions of the Trustee and the official receiver made at the meeting of creditors under section 105(1) of the BIA, and he did not do so. As well, Nicola had the ability to bring an application before the Court to reverse or modify any act or decision of the Trustee under section 37 of the BIA, and he did not do so.
26The Trustee had Nicola’s secured proof of claim for one week between the meeting continued on August 14, 2023. I do not accept Nicola’s submission that the Trustee’s inability to review the security within that one-week time constituted misconduct. Reviewing security is not always a cut and dry endeavour, especially in situations like this where Nicola did not attach any supporting documents to the proof of claim. Nicola’s security was granted in connection with contentious matrimonial proceedings, and the Trustee was entitled to time to complete a thorough review before rendering a decision, particularly where the security issue was raised before the arbitrator and Justice Daurio without notice to the Trustee (as discussed further below).
Meeting of Creditors – Dorina’s Claim
27Nicola also takes issue with the fact that Dorina Spizzirri was not entitled to vote at the meeting. Dorina is Julia’s mother. The minutes of the meeting indicate that Dorina had filed a proof of claim in the amount of $469,850 with respect to a lawsuit she had commenced against Julia. No judgment had been obtained by Dorina at the time she filed her proof of claim. The minutes stated that no supporting documents had been filed with the proof of claim.
28A copy of this proof of claim was not included in the materials before the Court. Dorina has not taken any position with respect to Nicola’s removal motion, although Nicola says in his affidavit that “to the best of my knowledge” she supports his removal motion.
29The Trustee’s handling of Dorina’s claim at the meeting was in accordance with the BIA. Subsection 113(3)(a) of the BIA provides that the mother of the bankrupt is not entitled to vote on the appointment of a trustee. As a result, Dorina was not entitled to vote at the meeting.
Meeting of Creditors – Canada Building Materials’ Claim
30Lastly, Nicola takes issue with the fact the Canada Building Materials was not entitled to vote at the meeting. According to the minutes from the meeting, Canada Building Materials filed a proof of claim in the amount of $226,549.84. The Trustee marked it as a contingent claim, as Canada Building Materials had filed a lawsuit but had not obtained judgment against Julia as at the time of the meeting.
31A copy of this proof of claim was not included in the materials before the Court. It is not clear when the claim was filed with the Trustee. Canada Building Materials has not taken any position with respect to Nicola’s removal motion, although Nicola says in his affidavit that “to the best of my knowledge” it supports his removal motion. There is no evidence as to any communications that took place between the Trustee and Canada Building Materials regarding its claim.
32The Trustee’s handling of Canada Building Materials claim was appropriate.
33A person is not entitled to vote as a creditor at a meeting of creditors unless the person has duly proved a claim provable in bankruptcy.9 Based on the record before me, there is no evidence that the Trustee engaged in misconduct with respect to the steps it took concerning the proof of claim filed by Canada Building Materials. Canada Building Materials was identified as a contingent creditor and was not entitled to vote at the meeting.
Meeting of Creditors – Proxy from BMO
34Nicola takes issue with a proxy filed by BMO. He claims that the Trustee improperly solicited BMO to file a proof of claim and proxy so that it could vote for itself as Trustee. Nicola argues that the proxy was defective, as it referred to the “consumer proposal” for Julia, as opposed to her bankruptcy. Nicola also notes that BMO was not listed on Julia’s statement of affairs, it is likely that the debt was incurred after the bankruptcy filing, and BMO was not included in the e-mail sent by the Trustee to invite parties to the meeting of creditors. Lastly, Nicola argues that the Trustee should not have been able to use the proxy to vote for its own appointment.
35The evidence before the Court does not support Nicola’s arguments.
36Firstly, there is no evidence that the Trustee solicited a proxy from BMO. There is only an email from counsel to Julia to BMO’s agent, Teranet, asking them to file a proxy before the meeting. The Trustee was copied on the e-mail.
37Secondly, the Trustee did send the email to BMO’s agent Teranet. The email address for Teranet was included in the email to all parties regarding the meeting of creditors.
38Thirdly, while the proxy did originally refer to a consumer proposal by Julia, it was corrected and a new one was filed with the proper title. There is nothing before me to support that this was anything but a typographical error.
39Fourthly, BMO has filed a proof of claim dated August 9, 2023 in the amount of $2,789. The individual who signed the proof of claim certified that this amount was owed as of July 20, 2023, being the date of bankruptcy. There is no evidence in the record other than Nikola’s unfounded suspicions that contradicts this evidence.
40Lastly, Nicola’s argument that Russo could not use a proxy to vote to affirm its own appointment as Trustee is misplaced.
41If a trustee is a proxyholder for a creditor, the trustee may vote at any meeting of creditors.10 The only restriction is that the vote of a trustee as proxyholder is not to be counted in respect of any resolution “affecting the remuneration or conduct of the trustee” [emphasis added].
42Nicola argues that the vote to affirm its appointment is a vote affecting the remuneration or conduct of the trustee. Nicola was unable to direct me to any case that supports his interpretation of this section.
43In my view, Nicola’s interpretation is contrary to the plain language of the section. It applies to remuneration or conduct. I do not see how this language could be interpreted to apply to an affirmation vote. It was well within the power of Parliament to expressly list an affirmation vote as one that a trustee could not use a proxy to vote on. It did not do so, and, in applying the principles of statutory interpretation (the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament), I am of the view that the language “affecting the remuneration or conduct of the trustee” cannot reasonably be interpreted to include a vote to affirm the trustee.
44As a result, I do not find there to be any misconduct with respect to how the Trustee dealt with the BMO proxy at the meeting of creditors.
PCC and the Condo
45Nicola takes issue with how Russo has acted in connection with the Condo since its appointment as Trustee.
46As background, Julia’s statement of affairs lists her as being the sole owner of all of the shares in PCC. The statement of affairs also states that PCC is the sole owner of the Condo, with a listed property value of $950,000.
47A Corporate Profile Report for PCC dated April 3, 2023 lists Julia as the sole officer and director of the company. A parcel register for the Condo dated August 11, 2023 lists PCC as the owner of the property, which it acquired on May 26, 2017.
48Nicola does not contest that Julia owns the shares in PCC, which owns the Condo. He has registered three court orders on title to the Condo, including orders dated July 28, 2023 and July 31, 2023 granted in the matrimonial law proceeding.
49Nicola’s position is that the Trustee exceeded its jurisdiction when it took steps to retain an agent to list the Condo for sale on July 25, 2023. He raised this at the first meeting of creditors on August 7, 2023.
50The Trustee’s position is that as the Condo was vacant with no tenants residing there, and mortgage payments and condo fees in arrears, it was necessary to take immediate steps to try to preserve the asset. Russo signed the listing agreement as Julia’s trustee.
51Nicola’s argument is that Russo is not the Trustee of PCC. It is only Julia’s Trustee, and only Julia’s interest as shareholder in PCC has vested in the Trustee.
52Nicola relies on the Order of Justice MacPherson dated October 25, 2022 (the “MacPherson Order”) issued in the matrimonial proceeding, which provides at paragraph 5 that Nicola was to receive $100,000 on the earlier of May 1, 2023 or the sale of the Condo. That payment was secured by a charge on the Condo. Prior to that, an interim preservation order had been granted by Justice Charney on February 1, 2021.
53The MacPherson Order also provides that any issues concerning the implementation, security or the endorsement of the terms of the order would proceeding to final and binding arbitration with Daniel Melamed.
54Nicola brought a motion before Arbitrator Melamed on July 21, 2023 for an order for enforcement of the charge on the Condo. As the bankruptcy was filed on July 20, 2023, Julia did not appear at the motion. Russo says it did not have notice of the hearing.
55In a decision dated July 25, 2023, Arbitrator Melamed vested the Condo in Nicola’s name for the sole purpose of the sale of the property. Pursuant to the Order of Justice Daurio dated July 28, 2023 issued in the matrimonial proceeding, title to the Condo was vested in Nicola for the purpose of selling the Condo.
56The Trustee’s position is that it had no notice of the hearing before Justice Daurio, and that the arbitration proceeding was stayed by the bankruptcy.
57Nicola argues that the Trustee’s agent did not remove his listing to allow Nicola to sell the Condo in accordance with the Order of Justice Daurio.
58The parties took part in a mediation on September 18, 2023.
59The parties appeared before me on September 19, 2023. As set out in my Endorsement dated September 20, 2023, I held that matters related to the sale of the Condo had to be dealt with in the arbitration proceeding. I also questioned whether the Trustee had authority to list the Condo for sale.
60The Trustee brought a motion before Arbitrator Melamed to set aside his Award dated July 25, 2023. Nicola brought a motion to suspend the Trustee’s listing of the Condo. Arbitrator Melamed granted Nicola’s motion and dismissed the Trustee’s motion.
61Arbitrator Melamed issued a costs award against the Trustee in the amount of $35,000 in an order dated February 15, 2024.
62Nicola argues that the Trustee has lacked transparency and has not acted in a cooperative manner.
63Upon Julia filing for bankruptcy on July 20, 2023, all of her property vested in the Trustee, including the shares of PCC.11 Julia was the sole officer and director of PCC. Upon becoming bankrupt, Julia was disqualified from being a director of PCC.12
64Russo is not trustee in bankruptcy of PCC. That is an important distinction. Corporations are separate entities from their shareholders, and its assets are its own.13 Any authority Russo had with respect to the Condo flows from the rights Julia had as shareholder of PCC. A shareholder of a corporation does not have a right to claim a proportionate share of the corporation's assets while it is ongoing. That right only arises if and when the corporation is wound up.14
65The Trustee’s position is that the actions were to preserve and protect the Condo. The minutes of the meeting held on August 17, 2023 indicate that the Trustee and Nicola’s counsel would work together on the sale of the Condo. In an email from counsel to the Trustee dated July 22, 2023 to counsel to Nicola, he indicated that the Trustee intended to sell the Condo as soon as possible and to hold the net proceeds pending determination of any legitimate claims that Nicola may have.
66While the Trustee may have overstepped its jurisdiction to a degree, I do not believe it was to such a degree to constitute misconduct. The decisions made by the Trustee with respect to the Condo were directed toward the best interests of the bankruptcy estate and, given the circumstances, were not unreasonable. The Trustee’s efforts were to ensure that the Condo was sold in a timely manner. Julia was the sole officer, director and shareholder of PCC. PCC, being the owner of the Condo, was left without any individual to take steps to preserve and protect the Condo. The bankruptcy estate has an interest in the sale of the Condo, as any equity in the Condo following the payment of all of PCC’s creditors would be paid to the Trustee once PCC was wound down. It was not unreasonable for the Trustee to take steps to preserve the asset, especially in the face of the Arbitrator’s Award dated July 25, 2023 being dealt with after the stay of proceeding commenced, and given that no notice was provided to the Trustee of Nicola bringing a motion before Justice Daurio on July 28, 2023 to approve the Arbitrator’s Award.
Disposition and Costs
67For the reasons set out above, I find that Russo did not engage in misconduct that warrants its removal for cause as Trustee in this bankruptcy proceeding. As a result, Nikola’s removal motion is hereby dismissed.
68I strongly urge the parties to come to an agreement on costs. If they are unable to do so, they may contact the Bankruptcy Court Office to receive my direction on the exchange of written costs submissions.
Associate Justice Rappos
DATE: October 16, 2024
Footnotes
- Confederation Treasury Services Ltd., Re, 1995 7386 (ON SC), para. 14.
- Ibid.
- Ibid.
- Ibid.
- Ibid.
- Ibid.
- Ibid.; Sangha (Re), 2022 BCSC 286, para. 41.
- Section 102(5), BIA.
- Section 109(1), BIA.
- Section 113(1), BIA.
- Section 71, BIA.
- Section 118(1), Business Corporations Act (Ontario).
- Yaiguaje v. Chevron Corporation, 2018 ONCA 472, paras. 57-58.
- Ibid.