Licensed Insolvency Trustee’s Fees
In Canada the Bankruptcy and Insolvency Act (BIA) regulates payments of a Licensed Insolvency Trustee’s fees and costs. A Licensed Insolvency Trustee is normally paid for by the bankrupt through the bankruptcy estate. A Licensed Insolvency Trustee is a person licensed by the Office of the Superintendent of Bankruptcy (OSB) to manage and supervise bankruptcies and consumer proposals. In addition, the OSB reviews the statement of receipts and disbursements, including the Licensed Insolvency Trustee’s fees.
In the Matter of the Bankruptcy of Vernon Lloyd Scott (Debtor) the court had to consider approval of the Licensed Insolvency Trustee’s fees. The Debtor made a consumer proposal in 2002. At the time, he owed CAD 70,000 to unsecured creditors of which CAD 20,000 was a personal loan from a friend, Mr A. In 2003, it became clear the consumer proposal would be annulled and the Debtor thus deemed bankrupt. Mr A was appointed as an inspector at the meeting of the creditors.
Approximately one month prior to the assignment into bankruptcy the Debtor transferred title to his house in Quebec to his brother. Mr A brought this fact to the attention of the Licensed Insolvency Trustee and with the approval of the inspector legal counsel was retained by the Licensed Insolvency Trustee. The finding of the legal counsel was that the transfer was fraudulent under the BIA. The Licensed Insolvency Trustee duly commenced legal action against the brother in the hope of recouping CAD 90,000. The suit carried on through to 2006 with negotiations resulting in an agreement in principle that that the brother should pay CAD 15,000 to the bankruptcy estate.
In the meantime, the Debtor had received an absolute discharge from bankruptcy in 2004. Because of high costs for the legal proceedings mentioned above and from the consumer proposal and later bankruptcy going on for a long time, it was clear that if the Licensed Insolvency Trustees fees were accepted there would not be any monies over for dividends to creditors. When Mr A realized this he made an application to the courts to have the Licensed Insolvency Trustee’s remuneration reduced.
The court started with making the general comment that Licensed Insolvency Trustee’s fees can be reduced when, for example, proper records are not kept, communications from the inspector or the OSB are ignored, or there is an unexplained delay in the administration of the estate.
However, it the present case the court found that the time spent by the Licensed Insolvency Trustee did not appear excessive. Particularly when considering the fact that the administration carried on for over three years and that litigation was involved. The court, furthermore, stated that it would not be correct to reduce the Licensed Insolvency Trustee’s remuneration in order to maximize the return for one creditor.
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