Court File and Parties

Court File No.: 31-2937675 Date: 2025-09-25

Superior Court of Justice - Ontario

Re: In the Matter of the Bankruptcy of Blue Mountain Four Season Limited

Before: Associate Justice Rappos

Counsel:

• Rob Smith, representative of MNP Ltd., Trustee in Bankruptcy
• Sharon and Ron Suter, self-represented creditors

Heard: May 1, 2025 (via videoconference)

Reasons for Decision

Overview

[1] MNP Ltd. is the Trustee of Blue Mountain Four Seasons Limited, a bankrupt corporation. MNP has brought a motion asking that it be discharged as Trustee.

[2] Ron and Sharon Suter are Blue Mountain's largest creditor. The Suters filed a notice of objection to the discharge of MNP as Trustee. The Suters argue that MNP should not be discharged, as it has failed to fulfill its obligations as Trustee under the Bankruptcy and Insolvency Act (the "BIA"). The Suters allege that the Trustee did not properly verify or investigate Blue Mountain's assets. The Suters believe that there are assets that are being used by Marcus Philipp, the owner and operator of Blue Mountain, that are owned by Blue Mountain and should have been recovered by the Trustee for the benefit of creditors.

[3] MNP argues that as Trustee it has fulfilled its responsibilities to investigate the affairs of Blue Mountain and realize on its assets, and that it is entitled to its discharge as it has completed the administration of Blue Mountain's property.

[4] For the reasons that follow, MNP's motion is granted, and it is discharged as Trustee.

Legal Framework

Administration of Bankruptcy Estate

[5] The BIA governs the administration of bankruptcy proceedings in Canada. The purposes of the statute include:

(a) "[providing] a mechanism for the orderly liquidation of a bankrupt's estate and the distribution of the value of the assets in the estate to the bankrupt's creditors";

(b) "[providing] a regime whereby the creditors of the bankrupt will pursue their claims by collective action through the trustee so that the assets of the bankrupt can be realized and distributed on an equitable basis";

(c) "protecting creditors of insolvent persons"; and

(d) "[providing] an expeditious and inexpensive method of compelling an insolvent debtor to turn over his or her property to a trustee for rateable distribution among his or her creditors."

[6] Once a company files for bankruptcy, it ceases to have any capacity to dispose of or otherwise deal with its property, and the property passes to and vests in the trustee in bankruptcy. Subject to certain exceptions, all of the bankrupt's property is available to be recovered by the trustee and distributed to creditors.

[7] The BIA requires a trustee to take a number of steps in connection with the bankrupt's property, including: (i) verifying the statement of affairs prepared by the bankrupt as part of its assignment into bankruptcy; (ii) taking possession of all of the bankrupt's property and books and records and making an inventory of them; and (iii) taking steps to acquire or retain possession of the property of the bankrupt.

[8] To assist the trustee in administering the bankrupt's property, the BIA requires the bankrupt to: (i) deliver all of its property under its possession or control to the trustee, along with its books and records; (ii) make or give all assistance within its power to the trustee in making an inventory of its assets; and (iii) aid to the utmost of its power in the realization of its property and the distribution of the proceeds among its creditors.

[9] The Office of the Superintendent of Bankruptcy ("OSB"), which supervises the administration of all bankruptcies and regulates licensed insolvency trustees, has issued a directive requiring trustees to take possession of the bankrupt's assets and realize upon them for the benefit of the bankruptcy estate unless, among other things, in the opinion of the trustee there would be no financial benefit to the estate as the cost of realization would exceed or equal the realizable value of the asset.

[10] As stated by the learned authors of Bankruptcy and Insolvency Law of Canada, 4th Edition: "[i]t is the duty of a trustee in bankruptcy to make the maximum realization of assets in an attempt to obtain a reasonable dividend for creditors." The authors go on to note that "the trustee has a discretion whether or not to take possession of property of the bankrupt. The trustee may decide that there is no equity in the property or insufficient equity to justify taking possession. If the trustee refuses to take possession, a creditor has the remedies given by s. 38 to take proceedings on its own account to seize the property."

[11] Trustees are required to perform their duties in a timely manner and carry out their functions with competence, honesty, integrity and care.

Discharge of a Trustee

[12] A trustee shall apply to the court for a discharge when it has completed the duties required of it with respect to the administration of the property of a bankrupt.

[13] A bankruptcy estate is deemed to have been fully administered when a trustee's accounts have been approved by the inspectors and taxed by the court and all objections, applications, oppositions, motions and appeals have been settled or disposed of and all dividends have been paid.

[14] Any interested person desiring to object to the discharge of a trustee shall file a notice of objection setting out the reasons for the objection.

[15] A creditor who alleges that a trustee has not faithfully administered the estate must set forth its allegation of objections and prove those allegations.

[16] The court shall consider the objection and may grant or withhold a discharge accordingly or give such directions as it may deem proper in the circumstances.

[17] If the discharge is granted, the trustee is discharged from all liability in respect of any act done or default made by it in the administration of the property of the bankrupt, and from all liability in relation to its conduct as trustee.

[18] The main issue before the Court is whether MNP as the Trustee fulfilled its duties to investigate and take possession of Blue Mountain's property, such that it has completed the administration of Blue Mountain's property and should be granted its discharge.

[19] To determine this, I must review the steps taken by the Trustee throughout the bankruptcy proceeding concerning Blue Mountain's property. The evidence before the Court at the motion was the Suters' notice of opposition dated February 8, 2025, an affidavit sworn by the Suters on March 27, 2025, and a responding report of the Trustee dated April 2, 2025. The affidavit has as exhibits, among other documents, the Trustee's preliminary report to creditors dated May 16, 2023, the Minutes of the First Meeting of Creditors held on May 17, 2023, and an Examination Questionnaire in connection with the examination of Mr. Philipp held on November 8, 2023 and conducted by an official receiver with the OSB.

Statement of Affairs

[20] When Blue Mountain filed its assignment in bankruptcy on April 27, 2023, it completed a sworn statement (known as a statement of affairs) showing its property that is divisible among its creditors, the names and addresses of all its creditors and the amount of their respective claims, as required under subsection 49(2) of the BIA.

[21] The statement of affairs was in the prescribed form, which required Mr. Philipp, on behalf of Blue Mountain, to "carefully and accurately complete this form…showing the state of your affairs on the date of bankruptcy."

[22] Blue Mountain's statement of affairs listed no assets as of the date of bankruptcy. Mr. Philipp swore that the statement was a true and complete statement that fully disclosed all property of every description that was in Blue Mountain's possession.

Trustee's Preliminary Report

[23] In anticipation of the first meeting of creditors, the Trustee prepared a preliminary report dated May 16, 2023, where it noted that it had been advised by Mr. Philipp that Blue Mountain did not own any machinery or equipment as at the date of bankruptcy.

[24] According to the report, Mr. Philipp informed the Trustee that Blue Mountain's operations had been wound down at the end of the 2021 fiscal year, and that all its assets were transferred to a related numbered company. The Trustee investigated and confirmed, following discussions with Mr. Philipp and the company's former external accountant, that, effective April 1, 2021, Blue Mountain had done an election under the Income Tax Act and transferred assets with a net book value of approximately $1.7 million to a related numbered company in exchange for shares of that company valued at $1.7 million. At the same time, Blue Mountain issued a share dividend to Mr. Philipp of $1.7 million. The shares of Blue Mountain and the numbered company were then redeemed in exchange for promissory notes, which were set off against each other. The Trustee reported that no actual cash was involved in the transaction.

[25] The Trustee also reported that it had been advised by Mr. Philipp that there was no clear list of the assets included in the transaction, no clear list of equipment owned by Blue Mountain, the actual equipment was worth significantly less than $1.7 million as assets had been liquidated but the equipment book value did not reflect those dispositions, all assets used by Blue Mountain were jointly owned by Blue Mountain and Mr. Philipp (although he did not have any documents to provide as evidence of this claim), and that all assets except for two tractors had either been disposed of or sold, with these two tractors being listed on Kijiji for $48,000 each and not sold. Mr. Philipp believed that he owned these tractors or owned them jointly with the numbered company.

[26] The Trustee reported to creditors that the transaction may be considered a transfer at undervalue under subsection 96(1)(b) of the BIA and was to be discussed at the meeting.

[27] Lastly, the Trustee reported that Mr. Philipp had provided a $12,000 retainer to MNP to cover its fees and disbursements of the bankruptcy in the event asset realizations were insufficient to cover the Trustee's fees.

First Meeting of Creditors

[28] During the first meeting of creditors, which was attended by Mr. Suter, Mr. Philipp, and the Trustee, Mr. Suter asked for a description of assets owned by Mr. Philipp. He responded that it owned lawnmowers, trucks and trailers. Mr. Philipp indicated that other assets used by Blue Mountain (e.g. front end loader and back loader) were not owned by Blue Mountain and had been sold or transferred to the numbered company.

[29] When asked, Mr. Philipp could not recall if the equipment sale had happened before or after Blue Mountain had ceased to be in business.

[30] With respect to the loss of records, Mr. Philipp claimed he no longer had documentation due to a flood at his home.

Examination by the OSB

[31] The Trustee indicated that it had asked Mr. Philipp to provide documents to confirm his claims that all equipment was owned personally or leased in his name. Mr. Philipp said he was unable to provide documents to confirm the claims as they were stolen by a former employee to cover that employee's alleged fraud.

[32] The Trustee requested that Mr. Philipp be examined by the OSB. Mr. Philipp was examined on November 8, 2023. As an officer of Blue Mountain, Mr. Philipp was required to answer all questions relating to Blue Mountain's business or property, the causes of its bankruptcy, and the disposition of its property, pursuant to section 167 of the BIA.

[33] Mr. Philipp did not provide to the official receiver copies of the list of assets transferred to the numbered company, details of any assets sold since the asset transfer and list of what was remaining, or copies of any leases or financing agreements for any of the transferred assets.

[34] Specifically, Mr. Philipp said that a former employee "packed up everything – manuals, leases, all the information. Every piece of paper I ever had is gone. She won't admit to taking it of course. It was 6-8 bankers' boxes of stuff". Mr. Philipp also indicated that he didn't keep the records personally, and that they "walked out the door with the officer manager, aside from what Peter [the accountant] would have." Lastly, he also said that the former employee had deleted the server that was used by the company.

[35] Mr. Philipp stated that there were no assets for the business, and that any vehicles were personally titled and owned by him. He also said that there were no other assets that had not been disclosed to the Trustee.

Notice of Objection and Affidavit from the Suters

[36] The Suters obtained a judgment against Blue Mountain dated November 25, 2022 in the amount of $36,039.85 (inclusive of costs) from the Owen Sound Small Claims Court in connection with work performed by the company on their home.

[37] On February 14, 2023, Deputy Judge Robertson ordered Blue Mountain to produce certain financial records by March 31, 2023.

[38] Blue Mountain failed to produce the records and filed its assignment in bankruptcy on April 27, 2023.

[39] Upon learning of the bankruptcy, the Suters filed a complaint with the OSB on May 8, 2023, asking that the bankruptcy assignment be appealed as it was a sham. The complaint was eventually closed, but the OSB did recommend that Mr. Philipp be subject to examination.

[40] In response to the OSB examination, the Suters provided to the Trustee and the OSB their comments on the answers provided by Mr. Philipp and their views as to why he had been untruthful during the examination.

[41] The Suters allege that the Trustee failed to demand documentation from Blue Mountain to support any of the activities of the company. They also say that Mr. Philipp, on behalf of Blue Mountain, provided conflicting information to the Trustee and the OSB as compared to the information he provided in the Small Claims Court action.

[42] The Suters also allege that Blue Mountain's property is being used by Mr. Philipp, and that he continues to operate the same business in the same community for the same customers. The Suters have provided details of the assets to the Trustee, some of which were listed for sale by Mr. Philipp, including pictures of certain equipment taken by the Suters between December 2022 and April-May 2024.

[43] The Suters indicate that Mr. Philipp had contacted the Trustee in May 2023 to discuss a potential settlement using assets that the Suters had identified, but then Mr. Philipp subsequently said the assets were leased and could not be sold. Mr. Philipp refused to provide lease documents to the Trustee when he was asked to produce them.

[44] With respect to the issue of documentation, the Suters allege that at no time during their Small Claims Court proceeding did Mr. Philipp say that records were stolen by a former employee.

Trustee's Report

[45] In its report responding to the allegations made by the Suters, the Trustee confirmed that it had disclosed at the first meeting of creditors the issue of the transfer of assets by Blue Mountain to the related numbered company.

[46] The Trustee noted that it had discussions with Mr. Philipp where it asked him to return a tractor to the Trustee. While Mr. Philipp initially agreed, he subsequently changed his mind and said the vehicle was leased to him personally. The Trustee requested a copy of the lease, which Mr. Philipp refused to produce on the basis that it was not a Blue Mountain lease.

[47] It was in the context of the lack of document disclosure from Mr. Philipp that the Trustee asked the OSB to examine Mr. Philipp under oath.

[48] The Trustee also confirmed that it informed the Suters on numerous occasions that there were insufficient funds in the bankruptcy estate to challenge the transfer of assets to the related numbered company or to bring a legal proceeding before the Court to compel Mr. Philipp to produce documentation regarding the equipment that had been photographed by the Suters. The Trustee advised the Suters that it was open to them to ask the Court to authorize them as creditor to take such steps under section 38 of the BIA.

Taxation of Final Statement of Receipts and Disbursements

[49] As required under the BIA, the Trustee sought court approval (known as taxation) of its final statement of receipts and disbursements. The statement shows that the only receipt was the $12,000 retainer from Mr. Philipp and interest that had accrued on that amount. The disbursements were respect to the costs to administer the bankruptcy estate, the largest of which was for the fees of the Trustee.

[50] There were no funds available to be distributed to creditors.

[51] The OSB reviewed the statement and provided a positive comment letter.

[52] Mr. Suter, as the sole inspector in the bankruptcy proceeding, refused to approve the statement.

[53] On September 24, 2024, Associate Justice Ilchenko approved ("taxed") the final statement of receipts and disbursements.

Analysis

[54] The case before me is a prime example of the tension that exists within the BIA regarding the role of the trustee in bankruptcy.

[55] The statute and other binding authorities clearly require a trustee to take steps to investigate and recover the assets of the bankrupt for the benefit of creditors in a competent and thorough manner. However, the statute and authorities also provide that a trustee has discretion as to the steps it believes are reasonable to take in any given circumstance to recover the bankrupt's assets. As the Court of Appeal for Ontario recently held, "[a] trustee is expected to adopt courses of action that are reasonable from the standpoint of maximizing recoveries for creditors."

[56] In determining what is reasonable, it must be kept in mind that where a trustee in bankruptcy brings a proceeding and the bankruptcy estate has no or insufficient assets to pay costs if the trustee is unsuccessful, the trustee in bankruptcy may be ordered to pay costs personally.

[57] Additionally, in interpreting the requirements placed upon the Trustee, the Supreme Court of Canada has noted that, while the BIA is not "business legislation in the strict sense, [it] clearly has its origins in the business world. Interpretation of it must take these origins into account. It concerns relations among businessmen, and to interpret it using an overly narrow, legalistic approach is to misinterpret it."

[58] More recently, the Alberta Court of Appeal in Rassell, Re noted that the BIA:

"puts day-to-day administration into the hands of business people (trustees in bankruptcy and often inspectors). Of course the court has overriding control, and the Superintendent has some oversight, and now a power to issue directives. The point is that the administration is to be practical, not legalistic…the trustee in bankruptcy has a duty to maximize the yield from all assets legally available to the trustee, subject to practicalities and honesty."

[59] The BIA also contains express provisions that are available to creditors if they have concerns about the steps taken by a trustee. Section 37 of the BIA provides that if a creditor is aggrieved by an act or decision of the trustee, he may apply to court and the court may confirm, reverse or modify the act or decision complained of and make such order in the premises as it thinks just.

[60] There is also section 38 of the BIA, which deals with situations where a creditor is of the opinion that there is a proceeding that the trustee should take that would benefit the bankruptcy estate, and the trustee refuses or neglects to take such a proceeding. In that situation, the creditor may obtain an order from the court authorizing him to take the proceeding in his own name and at his own expense and risk.

[61] I have carefully reviewed the conduct of the Trustee in this bankruptcy proceeding, and I am satisfied that MNP has fulfilled its duties and obligations as Trustee and completed the administration of Blue Mountain's property and is entitled to its discharge. In my view the steps taken by the Trustee in the circumstances of this bankruptcy have been reasonable.

[62] There are no assets in the bankruptcy estate other than the financial retainer provided by Mr. Philipp. Blue Mountain had ceased operating its business almost two years before it filed its assignment in bankruptcy. The Trustee had repeated discussions with Mr. Philipp with respect to Blue Mountain's assets. The Trustee reviewed the documentation provided to it by Mr. Philipp and the external accountant. The Trustee arranged for Mr. Philipp to be examined under oath by the OSB, and reviewed Mr. Philipp's answers. Mr. Philipp refused to produce any additional documentation to the Trustee.

[63] The only remaining step available to the Trustee was to bring the matter to court and seek an order to compel Mr. Philipp to turn over documentation and/or property to the Trustee. The Trustee made a decision in those circumstances that it would not be taking additional steps to compel Mr. Philipp to turn over possession of property or documents. That decision, given the lack of funds in the bankruptcy estate and risk faced by the Trustee of being personally liable for costs in the event it took such steps and was unsuccessful, was in my view entirely reasonable.

[64] The Trustee took the appropriate step to advise the Suters of their rights under section 38 of the BIA to ask the Court to authorize it to take steps to challenge the transfer of assets to the related numbered company or to compel Mr. Philipp to turn over property. The existence of section 38 of the BIA makes clear that Parliament envisioned that there could be instances where trustees may refuse to take proceedings that a creditor may wish the trustee to take, and creditors would be allowed to get authority to take such steps at their own risk.

[65] I understand the frustration that the Suters must feel in this situation. I agree that the information that Mr. Philipp has provided regarding the company's assets and books and records has changed over time and may be difficult to accept as truthful. However, when reviewing the Trustee's conduct in the context of the circumstances as they existed at the time, the Suters have failed to satisfy me that the mere possibility that there may be property that could be owned by Blue Mountain and available to be recovered should result in MNP continuing to be Trustee and compelling it to take steps that puts itself at financial risk if they are unsuccessful. In my view, such a result, in the circumstances of this case, would be neither fair nor reasonable. The Suters have options available to them, such as bringing a motion under section 38, if they wish to take on the risk of challenging the transfer to the related numbered company or bringing a motion to compel Mr. Philipp to produce additional documentation.

Disposition

[66] As a result, for the reasons set out above, I find that MNP has completed the duties required of it as Trustee with respect to the administration of the property of Blue Mountain, and its motion to be discharged as Trustee is hereby granted.

Associate Justice Rappos

Date: September 25, 2025