Court File and Parties
COURT FILE NO.: 32-2228228 DATE: 20241112
SUPERIOR COURT OF JUSTICE – ONTARIO (IN BANKRUPTCY AND INSOLVENCY)
RE: In the Matter of the Bankruptcy of Ametra Dave
BEFORE: Associate Justice Rappos
COUNSEL: Brandon Jaffe, for A. Farber & Partners Inc., Trustee in Bankruptcy Frederick Hawa, for Linda Zaplotinsky, Creditor
HEARD: January 24, 2024 (via videoconference)
Reasons for Decision
Overview
1Ametra Dave filed an assignment in bankruptcy and A. Farber & Partners Inc. was appointed as trustee in bankruptcy.
2The Trustee has completed its administration of the bankruptcy estate. As required by the Bankruptcy and Insolvency Act, the Trustee prepared a final statement of receipts and disbursements, provided it for review to the Office of the Superintendent in Bankruptcy (who had no comment), and had it taxed by Associate Justice Ilchenko.
3Linda Zaplotinsky, a creditor of Ms. Dave, objected to the statement. As a result, a hearing was held to determine whether the statement should be approved without amendment, or whether the fees and disbursements of the Trustee and its legal counsel should be reduced due to the concerns raised by Ms. Zaplotinsky.
4Ms. Zaplotinsky argues that the fees and disbursements of the Trustee and its legal counsel, Jaffe & Peritz LLP (“Counsel”), should be reduced from $195,826.36 to $17,850 because, among other things: (a) the Trustee did not administer the assets in the bankruptcy estate in a reasonable and competent manner; (b) legal proceedings brought by the Trustee were ill timed and unnecessary; (c) the Trustee did not act in the best interests of the unsecured creditors; and (d) the Trustee and Counsel incurred unnecessary legal and administrative costs that depleted the assets in the bankruptcy estate.
5The Trustee argues that Ms. Zaplotinsky’s objections are without merit. It believes that it always acted in a commercially reasonable manner, and that all time spent by the Trustee and Counsel was legitimate and necessary for the administration of the bankruptcy estate. It believes that the bankruptcy was a complicated matter, as it involved an opposed discharge from bankruptcy, two occupied residential properties to be realized upon, numerous court attendances, and dealings with the active engagement of multiple creditors.
6For the reasons set out below, I exercise my discretion to reduce the fees of the Trustee by $10,000 and the fees of Counsel by $9,123.
Evidence Before the Court
7For this motion, John Delo, a representative of the Trustee, and Brandon Jaffe have sworn affidavits in support of the approval of the final statement of receipts and disbursements. Each of the affidavits contain detailed breakdowns of the time spent by the Trustee and Counsel. Neither of them was cross-examined on their affidavit. [1]
8The Trustee also relies on its motion record dated February 11, 2021 and its reply motion record dated April 22, 2021 with respect to a proposed sale of the Winterton Property (as defined below), as well as the motion record of Ms. Dave dated June 25, 2021 in connection with a motion to set aside default judgment, and the Trustee’s case conference brief of documents dated November 16, 2023.
9Ms. Zaplotinsky swore affidavits on February 26, March 19, and July 17, 2023 with respect to this motion. The Trustee argues that the July 17, 2023 affidavit should not be relied on, as it was served outside of the timetable established by Associate Justice Ilchenko. Ms. Zaplotinsky was cross-examined on August 30, 2023.
10Ms. Zaplotinsky also relies on her Notice of Objection dated September 13, 2022, along with her affidavit sworn March 2, 2021 in response to the Trustee’s sale approval motion for the Winterton Property.
11All in all, the parties have uploaded more than 2,100 pages of evidence to Case Centre for this motion. Neither party filed a compendium.
Factual Background
12On March 14, 2017, Ms. Dave filed an assignment in bankruptcy and Farbers was appointed as Trustee.
13The Trustee’s final statement of receipts and disbursements dated April 9, 2022 (the “R&D Statement”) lists $238,024.81 in receipts and $195,826.36 in disbursements.
14The amount available for distribution to unsecured creditors, after application of the statutory levy, [2] is $40,088.53. There was proven unsecured claims totaling $1,174,977.92 in the bankruptcy estate, which would result in a dividend of approximately 3.4 cents on the dollar for unsecured creditors.
15The largest receipt is $220,125 from the sale of a single detached home municipally known as 576 Winterton Way, Mississauga (the “Winterton Property”). Ms. Dave jointly owned the Winterton Property with her spouse, Deeneshwar Bissessar. They occupied the property with their 7-year-old child as at the time of bankruptcy.
16The disbursements are primarily made up of the Trustee’s fees of $65,255.81 (inclusive of HST), and the Trustee’s legal fees of $105,269.40 (inclusive of HST). The legal fees consist of a bill of costs of Counsel in the amount of $101,048.01 (all inclusive), and three bills of costs from Rubenstein, Siegel totaling $4,221.39 (all inclusive), all of which have been taxed by Associate Justice Ilchenko. [3]
17Ms. Zaplotinsky’s proven unsecured claim is $605,556.61. It is with respect to the default judgment granted by Justice Lemon on June 15, 2015. Ms. Zaplotinsky’s claim represents 51.54% of all proven unsecured claims.
Legal Principles
18The principles set out below are derived from cases dealing with the approval of the fees and disbursements of Court-appointed receivers and monitors under the Companies’ Creditors Arrangement Act. In my view, such principles are equally applicable to a trustee in bankruptcy. [4]
19The onus is on a trustee to prove that the compensation for which it seeks approval of, including the compensation claimed on behalf of its counsel, is fair and reasonable. [5] However, it would be inappropriate to reduce the fees of court officers based on the suggestion that they are “too high” without some specific principled objection. [6]
20A trustee and its counsel must provide accounts that disclose in detail the name of each person who rendered services, the dates on which the services were rendered, the time expended each day, the rate charged and the total charges for each category of services rendered. [7]
21The accounts should be in a form that can be easily understood by those affected by the bankruptcy (or by the judicial officer required to assess the accounts) so that such person can determine the amount of time spent by the trustee’s employees (and others that the trustee may have hired) in respect to the various discrete aspects of the bankruptcy proceeding. [8]
22The trustee’s accounts and its counsel’s accounts must be verified by an affidavit. This ensures the truthfulness of the time spent by the trustee and its counsel in carrying out their duties, as well as the disbursements they incurred. It also provides an opportunity to cross-examine the affiant if any interested party objects to the amount claimed by the trustee or its counsel for fees and disbursements. [9]
23It is not necessary for each person that docketed time to swear that they recorded their dockets accurately. The accounts of a trustee are electronic business records made in the ordinary course of business and are admissible as prima facie evidence of the facts stated in them. [10]
24A registrar in bankruptcy has “a wide discretion to set the appropriate amount of a trustee’s fees. There is no dispute that this includes the authority to reduce a trustee’s fees for specific acts of misconduct that have cost the estate quantifiable amounts …it is also within the jurisdiction of the registrar to reduce a trustee’s fees further in appropriate cases.” [11]
25A registrar may also reduce fees where the trustee has not fulfilled its statutory duties, or if the integrity of the bankruptcy system is undermined (even where the maladministration of the bankruptcy estate does not result in identifiable prejudice to the estate). [12]
26Any reduction in fees is not intended to be a fine or penalty and should be proportionate to the gravity and nature of the dilatory conduct of the trustee in administering the estate. [13]
27Fairness and reasonableness of the fees of a trustee and its counsel are the lynchpins of the analysis to be undertaken by the Court. [14] The focus of the fair and reasonable assessment should be on what was accomplished, not on how much time it took. [15]
[28] The following are the general principles to be considered by the Court when determining a trustee’s fees: (a) to allow the trustee a fair compensation for his or her services; (b) to prevent unjustifiable payments for fees to the detriment of the estate and the creditors; and (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 and Insolvency Act. [16]
[29] Additionally, the following factors are applicable to a review of a trustee’s compensation, and are to serve as a useful guideline but are not to be considered as exhaustive: (a) the nature, extent and value of the assets; (b) the complications and difficulties encountered; (c) degree of assistance provided by the debtor/bankrupt; (d) the time spent; (e) the trustee’s knowledge, experience and skill; (f) the diligence and thoroughness displayed; (g) the responsibilities assumed; (h) the results of the trustee’s efforts; and (i) the cost of comparable services when performed in a prudent and economical manner. [17]
Analysis
30I have organized my analysis to correspond to the specific objections Ms. Zaplotinsky has raised concerning the activities of the Trustee and Counsel.
A. The Trustee did not administer the assets in the bankruptcy estate in a reasonable and competent manner
31Ms. Zaplotinsky argues that the optimal time for the Trustee to sell the Winterton Property was in 2017, when the property was allegedly worth $1,400,000. She claims that by failing to sell the Winterton Property until November 2021, the Trustee acted to the detriment of the unsecured creditors.
32She says that her counsel, Frederick Hawa, made several requests for the Trustee to sell the Winterton Property in a timely manner. She believes that there would have been at least $500,000 in equity in the property if it had been sold earlier, which would have resulted in $250,000 coming into the bankruptcy estate. Ms. Zaplotinsky also alleges that the 4.5-year delay in selling the Winterton Property resulted in between $250,000 to $300,000 of interest accumulating to the mortgagees.
33I do not accept these submissions, as the evidence before the Court does not support them.
34With respect to the value of the Winterton Property, the Trustee obtained an opinion of value from Royal LePage dated July 3, 2017, that listed the Winterton Property as having an estimated value between $880,000 to $920,000. Ms. Zaplotinsky has not put forth any evidence in support of her claim that the market value of the Winterton Property in 2017 was $1,400,000, outside of some mostly unreadable printouts from an unnamed Mississauga website. She confirmed during cross-examination that she did not obtain any appraisals in 2017, 2018 or 2019.
35With respect to the claims against the Winterton Property, as of the date of bankruptcy, it was subject to a total of $926,367.90 in secured claims based on the proofs of claim filed by: (a) Bank of Montreal as first mortgagee in the amount of $509,069.10; (b) The Canada Trust Company as second mortgagee in the amount of $259,115.75; [18] (c) Our Exito Inc. as third mortgagee in the amount of $107,557.67; [19] and (d) Canada Revenue Agency with respect to two liens registered in the collective amount of $97,565.05 for director’s liability under the Income Tax Act, principal, and interest.
36As detailed below, the value of the Winterton Property was determined to be $1,410,000 for the sale transaction that closed in November 2021. The total amount of the encumbrances against the Winterton Property had increased by $56,511.91. [20] The amount owed to the three mortgagees had increased by $154,076.96, [21] but the amount owed to CRA had been repaid from the sale of another property owned by Ms. Dave.
37Additionally, Ms. Dave, Mr. Bissessar, and their son were living at the Winterton Property. There may have been other family members living at the property as well, and potentially basement tenants. The Trustee would have been required to bring a partition and sale application, and obtain orders for possession and a writ of possession. That would have required the Trustee to expend significant time and resources.
38Based on the value of the Winterton Property, the encumbrances on title and the cost to enforce, it was not unreasonable for the Trustee to take no steps to realize on the property in 2017, since it appeared to have no equity available for the bankruptcy estate. Additionally, the amount owed to the mortgagees did not increase between $250,000 to $300,000 by the time the property was sold, as claimed by Ms. Zaplotinsky, and the value of the property increased by close to $500,000 by 2021.
39As a result, I find that there is no issue with respect to the Trustee’s conduct to warrant any reduction in its fees.
B. Legal proceedings brought by the Trustee were ill timed and unnecessary
Sale of Ms. Dave’s Interest in the Winterton Property for $50,000
40Ms. Zaplotinsky argues that the Trustee brought or was involved in legal proceedings that were ill-timed and unnecessary, and resulted in a depletion of the assets in the estate.
41The Trustee retained Counsel in April 2019 to provide legal advice with respect to realizing upon the Winterton Property and the other property owned by Ms. Dave.
42The Trustee served a motion record in February 2021 seeking court approval of a sale of Ms. Dave’s 50% interest in the Winterton Property for $50,000. The Trustee had offered the property for sale to Ms. Dave, Mr. Bissessar, and Ms. Zaplotinsky. The only offer received was from Ms. Dave, who assigned the offer to Mr. Bissessar.
43Ms. Zaplotinsky opposed the motion, arguing that the Winterton Property was worth more than what the Trustee had valued it at. She also argued that a sale of the property on the open market was preferred.
44Pursuant to the Endorsement of Justice Koehnen dated May 4, 2021, the Court dismissed the motion on the basis that Trustee’s efforts to sell the Winterton Property did not comply with the Soundair principles. Justice Koehnen held that the Winterton Property should have been marketed to the public and the Trustee should have considered a partition and sale application.
45Justice Koehnen’s decision was not appealed by any party.
46Pursuant to an Endorsement dated May 12, 2021, Justice Koehnen fixed costs of $10,343.96 payable by the Trustee to Ms. Zaplotinsky and $12,422.94 payable to another creditor that opposed the motion.
47The Trustee’s costs outline for the motion claimed $16,917 plus HST on a partial indemnity basis. The actual costs amount was $26,040 plus HST, with 70.9 hours of time.
48Counsel has reduced its bill of costs by $16,917. He was not ordered to do so by Justice Koehnen. There was no direction from the Court that the Trustee could not seek reimbursement of its legal fees from the bankruptcy estate even though it was unsuccessful on the motion.
49Ms. Zaplotinsky argues that this reduction does not go far enough, as Counsel spent more time on the motion that is not accounted for.
50I accept the submissions of Ms. Zaplotinsky on this point. I note that the $16,917 amount was the partial indemnity amount that the Trustee would have sought if it was successful on the motion. The actual amount in the costs outline was $26,040, an increase of $9,123.
51In my view, given that Justice Koehnen held that the Trustee had failed to satisfy him that it conducted a sales process in accordance with the Soundair principles, and given that payment of over $22,000 in legal fees for counsel to creditors has already come out of the estate, it would be unfair for estate to bear the burden of the Trustee’s and Counsel’s fees for the motion.
52As a result, Counsel’s account should be further reduced by $9,123.
53Ms. Zaplotinsky argues that Counsel spent far more than $26,040 in connection with bringing the motion. She says that the actual fees charged for the time that was said to be removed was over $36,500.
54I have reviewed Counsel’s dockets. There is time devoted to considering issues with respect to the tender process that were not covered by the reduction. As well, when comparing the Costs Outline of the Trustee and Counsel’s invoice, it appears that the time and docket entries do not match each other.
55However, in my view, there was time charged that was necessary for the Trustee to consider realizing upon the Winterton Property for the benefit of the estate. I do not think that Justice Koenhen’s dismissal of the Trustee’s motion requires there to be a total elimination of any time spent with respect to the tender process.
56I find that the existing reduction of $16,917, and additional reduction of Counsel’s fees by $9,123, is fair and reasonable in the circumstances.
57Ms. Zaplotinsky also argues that the Trustee should have reduced its fees by $12,930 on account of time spent with respect to the failed tender process. I have reviewed the dockets of the Trustee and, for the same reasons set out in paragraph 51 above, find that it is necessary to reduce the fees charged by the Trustee with respect to bringing the unsuccessful motion.
58Having reviewed the time spent by the Trustee, I believe that it is fair and reasonable to reduce the Trustee’s fees by $10,000, as the estate should not have to further bear the costs of the failed sale transaction.
Application for Partition and Sale
59Ms. Zaplotinsky argues that the Trustee took the unnecessary step to prepare an application for partition and sale, which resulted in an additional $8,032 of docketed time.
60Pursuant to an Endorsement dated June 4, 2021, Justice Koehnen noted that the parties had agreed on a value of $1,410,000 for the Winterton Property for the purposes of Mr. Bissessar’s purchase of Ms. Dave’s interest in the property. Justice Koehnen held that Mr. Bissessar had until July 5, 2021 to re-finance the property to purchase the interest. If the purchase did not close by July 5, 2021, the Trustee “will commence an application for partition and sale of the property”.
61Mr. Bissessar was unable to close by July 5, 2021. The Trustee agreed to an extension of the deadline. Notwithstanding the agreed upon extension, the Trustee prepared an application for partition and sale. The application also dealt with a request for an order compelling CRA to discharge its liens against the Winterton Property.
62On September 22, 2021, Justice Penny granted an order approving the sale of Ms. Dave’s interest in the Winterton Property to Mr. Bissessar for $206,000 plus costs of $10,000 plus HST for a total purchase price of $217,300. The sale was to be completed by October 5, 2021, otherwise the order would have no force or effect.
63The sale did not close by October 5, 2021. As a result, it was necessary for the parties to obtain a new sale approval order from Justice Koehnen on November 9, 2021, which increased the purchase price to $220,125. It required the sale to close by November 12, 2021. The sale closed on that date.
64The Trustee argues that it was required to bring the application pursuant to Justice Koehnen’s June 4, 2024 endorsement. The order was obtained on consent to serve as a backstop in the event the sale didn’t close, as noted by Justice Penny in his September 22, 2021 endorsement.
65Given the language of Justice Koehnen’s endorsement, the constant inability of Mr. Bissessar to meet the deadlines, and the relief that the Trustee was seeking with respect to CRA, I find that it was fair and reasonable for the Trustee and Counsel to incur the fees they did to bring the application.
C. Work done was unproductive, unnecessary, and inefficient
66Ms. Zaplotinsky argues that the Trustee and its counsel spent an inordinate amount of time on matters that should have been dealt with by administrative staff to reduce fees. She points to 11 hours of lawyer time to deal with a discharge of the CRA liens on the Winterton Property, time spent by counsel to obtain discharge statements from the mortgagees (which included spending over $3,800 in fees to obtain a discharge from Malta Star), and the fact that the Trustee stopped communicating with Mr. Hawa in 2019 and left all communications to be made by Counsel. Ms. Zaplotinsky also takes issue with the amount of time spent communicating with Ms. Dave’s lawyer.
67Ms. Zaplotinsky also claims that after November 2021, the Trustee and Counsel claim an additional $18,111 in fees, even though after the sale closed all that was required was for the Trustee to take steps to get the R&D statement approved and obtain its discharge.
68The Trustee argues that the issues regarding CRA and Malta Star were more complicated than Ms. Zaplotinsky believes them to be. The CRA was taking the position that the indebtedness owed to it was not retired through payment from the sale of Ms. Dave’s other property. Malta Star is domiciled in a different jurisdiction. The Trustee believes that the time spent was necessary in the circumstances.
69Again, I have reviewed the accounts of the Trustee and Counsel. Based on the review, I do not see any inefficiencies in the work performed by them. I understand the concern raised by Ms. Zaplotinsky. However, matters do not occur in a vacuum. The fact that obtaining discharges from mortgagees and CRA on other matters does not mean that obtaining such discharges were not difficult in this situation. As well, it was not unreasonable and inefficient for Counsel to be corresponding with counsel to Ms. Dave, given the motion that was to be brought to challenge the claim of the largest creditor in the estate (Ms. Zaplotinsky) and the involvement in sale matters.
70As a result, I find that the conduct of the Trustee and Counsel was appropriate and reasonable in the circumstances, and no reduction in their fees is warranted.
Assistance Provided by Ms. Zaplotinsky to the Trustee and Additional Factors
71Ms. Zaplotinsky argues that the following steps she took benefitted the bankruptcy estate and should be kept in mind when considering the Trustee’s and Counsel’s fees and disbursements: (a) she informed the Trustee of the existence of the Winterton Property; (b) she informed the Trustee that the CRA’s lien had been repaid from the sale of the other property owned by Ms. Dave; (c) she informed the Trustee and the Ontario Securities Commission (“OSC”) that the OSC did not have a proper claim as against Ms. Dave, which resulted in the OSC withdrawing its claim (even after the Trustee had accepted it as a proven claim); and (d) she provided information obtained from other proceedings that resulted in Mr. Bissessar’s argument that the entire Winterton Property was held in trust for him could be refuted.
72I have kept these matters in mind when assessing the fairness and reasonableness of the accounts of the Trustee and Counsel.
73Ms. Zaplotinsky noted that by the end of November 2020, the Trustee and its counsel had incurred fees of approximately $93,000 (inclusive of HST). At that time, the Trustee decided to bring its motion to sell the interest in the Winterton Property for $50,000. Based on proceeding down that route, the Trustee was prepared to take a significant loss on its fees, more than $42,000.
74I do not believe this fact assists Ms. Zaplotinsky in her arguments. If the Trustee was of the view in the spring of 2021 that a sale of the interest in the Winterton Property at $50,000 was in the best interest of the estate, it had a duty to take steps to complete it, even if it would have suffered a significant loss if the sale had been approved and closed.
Disposition and Costs
75For the reasons set out below, I have exercised my discretion to reduce the Trustee’s fees by $10,000 and Counsel’s fees by $9,123.
76With respect to costs, the parties shall prepare written costs submissions no longer than 5 pages in length, together with costs outlines, and serve them by November 26, 2024 (Trustee), and by December 9, 2024 (Ms. Zaplotinsky). The submissions shall be emailed to the Bankruptcy Court Office to my attention.
Associate Justice Rappos DATE: November 12, 2024
[1] Mr. Hawa, as counsel to Ms. Zaplotinsky, consented to Mr. Jaffe arguing this motion even though he swore an affidavit in support of the Trustee’s motion. [2] Section 147, Bankruptcy and Insolvency Act. [3] A second invoice in the amount of $4,621.71 from Counsel has not been taxed to date and is not included in the R&D Statement. [4] Master Short came to the same conclusion in Re Khan, 2015 ONSC 4799, para. 60. [5] Bank of Nova Scotia v. Diemer, 2014 ONCA 851 [“Diemer”], para. 32. [6] Tiger Brand Knitting Co., Re, para. 15. [7] Confectionately Yours Inc. (Re), para. 37. [8] Ibid. [9] Ibid., paras. 38-40. [10] Buccilli et al v. Pillitteri et al, 2017 ONSC 4119, paras. 16 and 26. [11] Murphy v. Sally Creek Environs Corporation, 2010 ONCA 312 [“Sally Creek”], para. 111. [12] Nelson, Re, para. 22 and para. 29, citing Re Wright, 2005 BCSC 1707, para. 52. [13] Ibid., para. 31. [14] Diemer, para. 35. [15] Ibid., para. 45. [16] Sally Creek, para. 110. [17] Diemer, para. 33. [18] This mortgage was subsequently transferred to Malta Star Acquisitions Mergers Limited (“Malta Star”). [19] This mortgage was subsequently transferred to Rohan Bissessar et al. [20] From $926,367.90 to $982,879.81. [21] From $828,802.85 to $982,879.81.