0409725 B.C. Ltd. (Bankruptcy of), 2019 BCSC 451

How does the court determine if a trustee’s fees are fair and reasonable?

On December 16, 2013, 0409725 BC Ltd (“0409”), made an assignment in bankruptcy. 0409 had formerly carried on business as Odenza Homes Ltd (“Odenza”), and was involved primarily in the construction of new single-family homes, and in residential renovations.  At the time of its assignment, it had underway 17 homebuilding projects and a number of renovation projects in and around Vancouver.

Following the completion of the administration of the bankrupt estate, as well as the completion of a simultaneous claims process dealing  with trust and lien claims that arose in respect of Odenza’s projects, the trustee applied for approval of its activities and accounts. There was a proposed $100,000 distribution to trust and lien claimants on claims filed of approximately $3,000,000.

The respondent in this case was unhappy with this proposed distribution. Receipts of $1,722,000 were eaten up by fees and disbursements of $1,622,000. The respondent argued that in assessing the appropriate compensation for the trustee, the overriding consideration is whether the compensation is fair and reasonable. It shared the principles to assess compensation as described in Redcorp Ventures Ltd (Re), 2016 BCSC 188:
  • the value of the assets;
  • complications and difficulties encountered by the Receiver;
  • degree of assistance provided by Nican;
  • time spent by the Receiver;
  • Receiver’s knowledge, experience and skill;
  • diligence and thoroughness;
  • responsibilities assumed;
  • results; and
  • cost of comparable services.
The respondent contended that the court should be very concerned about the value received by the trust and lien claimants in relation to the value of the assets and the very sizable fees charged by the trustee. It requested that the court “eyeball” the accounts in order to determine what is fair and reasonable. It provided several analyses to arrive at what it determined was a fair and reasonable claim.
 
The court acknowledged that the respondent was disappointed in the result of the administration but noted that the approval of a trustee’s accounts must be based on more than a gut reaction. The onus is on the trustee (and lawyers) to establish that their accounts are fair and reasonable. As Mr. Justice Burnyeat discussed in the Redcorp Ventures case at para 22, this requires the filing of materials showing what was done with appropriate detail, verified by affidavit.
 

Here, the trustee filed all the material one could wish in that regard, duly verified by affidavit. The trustee set out in its reports and affidavits a very thorough review and discussion of what it did and why, the problems and difficulties encountered, and the unforeseen challenges that arose in this complicated administration.

The court noted that despite providing suggestions on how to assess the trustee’s fees, the respondent did not identify work that was carried out improperly, or steps that were not taken in good faith.

Further, the court looked to the opinions of the inspectors of the bankrupt estate, noting that their views should be given a great deal of deference. The trustee put in evidence letters from two of the inspectors that confirmed the significant unanticipated challenges that the trustee faced. The letters explained that although the inspectors too were disappointed with the process outcome, they were satisfied with the administration of the estate.

On the basis of the trustee’s evidence, including the comments of the inspectors, the court was satisfied that in the unusual and rancorous circumstances surrounding the bankruptcy, the process followed and steps taken by the applicant were necessary and appropriate, and that an even more dismal result would likely have resulted otherwise. The trustee’s fees were approved. The only reduction was in respect of $11,880 that the respondent calculated as “unclaimable” administrative fees” being fees to cover overhead, administrative costs, and so on, which the court agreed should have been covered by the hourly fees charged.

CounselGeoffrey Dabbs of Gehlen Dabbs for the Claims Administrator, Magnus Verbrugge of BLG for the trustee and Adnan Habib of Baker Newby for the Respondent Standard Building Supplies Ltd. 

 

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