Court rejects OSB's recommendation to reduce fees

Re Legge
How does the Court tax a trustee's fees where there is a shortfall in the estate due to limited estate receipts?

Overview: In this case, the Court refused to reduce a trustee’s fees, rejecting arguments by the OSB that the Trustee duplicated its own work or completed tasks that were outside the scope of its work. The Court found that the Trustee had a statutory obligation to investigate the bankrupt’s affairs as of the date of the bankruptcy assignment, and that it was not sufficient for the Trustee to simply rely on its previous review of the bankrupt’s affairs from a previous consumer proposal, as suggested by the OSB. The Court also found that it was also appropriate for the Trustee to review the bankrupt’s income and expense statements submitted throughout the bankruptcy.

Before her assignment into bankruptcy, the bankrupt made a consumer proposal that was accepted or deemed accepted by the bankrupt’s creditors and approved or deemed approved by the Court. The Trustee was appointed as administrator of the consumer proposal. As part of its duties, it was required to investigate and assess the bankrupt’s financial circumstances at the time of her proposal. The Trustee complied with that duty and charged fees for doing so. At the time of bankruptcy, the Trustee was again required to investigate and assess the bankrupt’s financial circumstances. It again discharged that duty and charged fees for doing so.

The Office of the Superintendent of Bankruptcy expressed concerns regarding the fees claimed by the Trustee in its Final Statement of Receipts and Disbursements, namely (a) the fees charged by the Trustee in connection with its review of the bankrupt’s financial affairs at the date of bankruptcy; and (b) the fees charged by the Trustee in connection with its review of income and expense statements submitted by the bankrupt after the granting of an order adjourning the bankrupts’ discharge application sine die. The OSB suggested that the Trustee’s fees be reduced by the total amount of $5,857.00. The Trustee, who had already reduced its fees by $5,430.50 to reflect the fact that there was a shortfall in terms of receipts in the estate, disagreed.

Accordingly, from a “dollars and cents” perspective, according to the Court, this was a dispute over $426.50, such that even if the Court agreed with all of the OSB’s recommendations, it would not “tax off” more than the sum of $426.50.

In respect of its first concern, the OSB’s argument was essentially that the Trustee’s review work at the time of the bankrupt’s assignment largely duplicated work done by the Trustee at or around the time the consumer proposal was filed. As such, it recommended a fee reduction of $200.

The Court held that the Trustee had a statutory obligation to investigate the bankrupt’s affairs as of the date of the assignment, which, in this case was 21 months after its assessment of the bankrupt’s affairs related to the consumer proposal. While the bankrupt’s financial situation did not change materially during this period, it would have been irresponsible for the Trustee to simply assume that that would be the case. Accordingly, the Court saw no reason to reduce the Trustee’s fees by the amount recommended by the OSB, or at all.

In respect of the second concern, the Court noted that at the time when the bankrupt’s discharge application was adjourned indefinitely, the bankrupt had several outstanding duties, including the provision of income and expense statements for the period of August 2014 to August 2015. Those statements, as well as statements for September – November 2015, were reviewed by the Trustee. The OSB argued that those statements were “outside the parameters of the sine die Order of Discharge”, and recommended a fee reduction of $282.

The Court noted that an order adjourning the bankrupt’s discharge from bankruptcy sine die doesn’t typically direct the bankrupt or the trustee to do anything. It usually simply adjourns the discharge application without a fixed return date and gives the trustee leave to proceed with its discharge. Such orders generally result from a bankrupt’s failure to complete their duties, so it’s common practice for the outstanding duties to be listed in the order. However, the listing is informational, not directive.

It’s not uncommon for a bankrupt to continue to submit income and expense statements throughout the court of their bankruptcy, and a trustee would be expected to review them even if doing so was not necessary for the purpose of determining the bankrupt’s surplus income obligation. The OSB’s concern in this regard was without merit and the Court rejected its recommendation to reduce the fees.

The Court held that it would tax the Final Statement of Receipts and Disbursements as presented.

Judge: M. Park, Registrar in Bankruptcy

Professionals: James Moses and Kathleen Jacob of Moses Advisory Group, the Trustee; Jennifer Kidd for the OSB