• Post category:Court Cases

In the Bankruptcy of Brian Wayne Flight

Does a bankrupt have the right to inspect the trustee’s records?

The Bankrupt operated a business as a sole proprietor. He filed for bankruptcy on four occasions since 2004, with the last filing occurring in 2016. The Respondent was the licenced insolvency trustee on each of the bankruptcies.

In January 2018, the Bankrupt discovered that his bookkeeper had failed to make remittances to the Canada Revenue Agency and instead had fraudulently misappropriated substantial moneys from his business since at least 2008. The Bankrupt’s main creditor throughout all bankruptcies was the CRA.

The Respondent learned of the documents relating to the misappropriation in April 2018 and commenced a Statement of Claim against the bookkeeper in September 2020. The Bankrupt then filed a consumer proposal with another trustee in October 2020, which was approved by creditors and had the effect of annulling his bankruptcy. He brought this motion against the Respondent for an order to produce all books and records for all four bankruptcies and examine the Respondent regarding the administration of the bankruptcy estate.

Section 26(1) of the Bankruptcy and Insolvency Act requires a trustee to keep proper books and records in the administration of each estate. Section 26(2) directs a trustee to permit the books, records and documents to be inspected by a bankrupt and others. Rule 68 of the Bankruptcy and Insolvency General Rules requires a trustee to keep the records in relation to the administration of the estate for at least four years after the discharge.

The Respondent argued that the request for an examination was an improper fishing expedition for the collateral purpose of bolstering a lawsuit brought by the Bankrupt against the Respondent in its personal capacity. The Bankrupt had advised the Respondent that the bookkeeper had falsified all the income and expense reports for all past bankruptcies and alleged that the Respondent did not take any action to correct falsified or inaccurate records and calculations nor investigate the bookkeeper’s theft.

As to the production of documents, the Respondent stated that it was not in possession of any books or records from the Bankrupt’s first three bankruptcies, and all books, records and documents relating to the fourth bankruptcy were delivered to the Bankrupt.

The Court found that the Respondent had made efforts to produce the documents sought. The only practical method to address any shortcomings was to undertake a review and reconciliation of what was sent by the Respondent and what was received by the Bankrupt. Accordingly, the Court ordered that the Bankrupt attend at the office of the Respondent to examine the file of the Respondent as produced. The Bankrupt would be permitted to make electronic copies of any of the following documents: payroll records, accounting records, sale and purchase invoices, correspondence and banking records in relation to the fourth bankruptcy, notices to creditors, all signed minutes of meetings and all other matters of proceedings as may be necessary to give a complete account of the trustee’s administration of the estate.

Judge: M.D. McArthur J.

Counsel: Tara Vasdani of Remote Law Canada for the Bankrupt and D. Reason for the Respondent

Fullcase: https://www.linkedin.com/posts/tara-vasdani_bankrupt-permitted-to-inspect-trustee-documents-ugcPost-6874381680140963840-PGqG/