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Carde (Re), 2022 ABQB 154

Which bankruptcy tasks are claimable disbursements, and which ones are non-claimable overhead charges?

A trustee’s fees are afforded priority over other claims by s. 136 of the Bankruptcy and Insolvency Act. However, priority of payment does not mean that a trustee is free to treat the recovery in an estate as the trustee’s own property. A bankruptcy trustee is a true trustee, at least to the extent that, while the property may vest in the trustee’s name by virtue of the operation of the BIA, the property in the estate is held for the benefit of the creditors with proven claims.

The Trustee applied for the taxation of its accounts in relation to the administration of 15 estates. The 15 estates were before the Court in a special application rather than as a desk application (as they would normally be presented) because the Office of the Superintendent of Bankruptcy provided a letter of comment that was critical of the Trustee’s fees and charges, and both sides wanted an opportunity to be heard.

The main issues included the following:

  1. Across most of the files, the Trustee charged $60 plus GST for fax, email, and internet charges. Were these charges properly classified as disbursements, or were they non-chargeable overhead fees?
  2. Section 157.1(1) of the BIA, Rule 131(2) and paragraph 23 of Directive 1R5 deal with counselling. These provisions allow $85 for each counselling session if provided on an individual basis, or $25 if counselling is provided on a group basis (r 131). In most cases, the Trustee billed the tariff amount on the Final Statement of Receipts and Disbursements, but claimed time for preparing for the counselling sessions in the fee portion of the detailed fee accounts. Was the Trustee permitted to claim any time over and above the tariff amount?
  3. Could the Trustee claim for time conducting certain secretarial or routine clerical tasks, such as paying a court filing fee and transferring funds from a summary administration account to an individual trust account, or were these tasks non-chargeable overhead fees?

With respect to the first issue, the Court noted that even if fax, internet, and email charges were listed in Directive 14, Superintendent’s Directives are interpretations of law. Section 5(6) of the BIA affirms that Directives are not statutory instruments and not binding on the Court. By contrast, r. 58(3) is a Regulation under the BIA and binding on the Court.

To be a permissible disbursement, an expense must be a direct cost payable on a file-by-file basis to a third party for a mandatory service in the administration of an estate. The correct test for a disbursement, therefore, is to ask whether the expense is payable on a file-by-file basis to a third party for a mandatory service in the administration of an estate. If so, we should then ask whether it is an expense listed in Directive 14 and, therefore, in the opinion of the OSB a non-allowable expense. However, as noted, the examples listed in Directive 14 are only guidelines. The overriding consideration if an expense complies with the test set out above is whether it is caught by r. 58(3).

In a previous case, the Court found that fax charges by a law firm were ‘internal charges made by a firm to its client as part of its fee structure’ and not a proper disbursement in a party-party taxation. The Court adopted that logic here. The overriding issue with respect to the claimed fax, internet, and email expenses was that they did not pretend to be charged for a specific service performed on an individual file. Instead, there was a flat, lump-sum fee per file, which indicated that this was an estimated overhead expense, divided among individual files.

With respect to the fees claimed for counselling, s. 156(1) of the BIA gives the Court the power to reduce the prescribed amounts but not the power to increase them. Accordingly, only the tariff amounts were permitted and the time recorded for preparation for counselling, or preparing the related documents, was not a proper fee.

Finally, on the last issue, the Court found that secretarial or routine clerical tasks, unless provided for in the Act or the Rules, are typically overhead. They cannot be billed as fees, especially in the absence of evidence of standard insolvency billing practices. The Court concluded that such claimed disbursements were not allowed.

Judge: W.S. Schlosser, Registrar in Bankruptcy

CounselGeorge Bódy of the Department of Justice for the Superintendent of Bankruptcy; Michael McCabe, Q.C. of Reynolds Mirth, Richards & Farmer LLP for Moses Advisory Group Inc.

Fullcase: https://mcusercontent.com/a3e2039936cbf8a31bda45ab3/files/b1c0d8bc-915d-e666-8bd1-855c9a683263/Carde_Re_2022_ABQB_154.pdf

By Matilda Lici