Proposal administrator's fees denied as court rebukes use of for-profit debt advisors

McInnis (Re), 2026 NSSC 10
What happens when a nominal proposal is used to sidestep a prior refusal of discharge?

Summary: In this case, the Nova Scotia Supreme Court taxed a proposal administrator’s fees at nil after concluding that a nominal consumer proposal, brought by a debtor who remained an undischarged bankrupt following a prior refusal of discharge, was neither reasonable nor made in good faith, and should never have been advanced without full disclosure to creditors of the earlier court order requiring payment as a condition of reapplying for discharge. The Court emphasized its supervisory role over insolvency professionals once taxation is engaged, rejected attempts to attribute responsibility to a “rogue” employee, and underscored broader concerns about the integrity risks posed by the unregulated for-profit debt advisory marketplace through which through the proposal administrator’s engagement arose, ultimately ordering that the $1,750 held in the administrator’s trust account be treated as after-acquired property of the bankrupt and turned over to the trustee toward satisfaction of the earlier court-ordered payment.

The Debtor filed his second bankruptcy on July 26, 2018. He fell afoul of his duties, and, in November 2021, the Court issued an order refusing his discharge, with leave to reapply upon payment of $24,563.55. The Debtor did not appeal the refusal order and did not make any payments as ordered therein. Instead, in April 2024, he sought to make a nominal proposal, in the amount of $2,500. The proposal would effectively pay the Proposal Administrator’s (“PA”) fees and nothing more. The PA was aware of the prior order and did not notify creditors of its existence.

On June 28, 2024, the Office of the Superintendent of Bankruptcy (“OSB”) asked for the Proposal to be reviewed by the Court pursuant to s. 66.22 of the Bankruptcy and Insolvency Act. The PA conceded that it was not appropriate to approve the proposal, and that it should have advised creditors that the proposal was not reasonable nor made in good faith. The Court declined to approve the proposal and the Debtor remained an undischarged bankrupt.

The Debtor paid the PA $1,750 of the $2,500 that the proposal (if approved) called for. Following the Court’s decision not to approve the proposal, the OSB requested that the Court tax the PA’s fees pursuant to the Court’s authority under s. 192(1)(i) of the BIA. It submitted a detailed negative letter of comment dated May 6, 2025, pursuant to Rule 99 of the BIA General Rules and ss. 5(3)(g) and 152(4) of the BIA. The presence or absence of a positive letter of comment from the OSB is a factor to be taken into account when taxing accounts. The presence of a negative letter of comment, given the rarity of selection and issuance under current matrices, is something to be taken seriously.

The PA had previously sough to reach an agreement with the OSB to reduce the quantum of the PA’s fees and dispense with the need for taxation. The OSB declined and the matter proceeded to a hearing. At the hearing, the PA submitted that its fees should be reduced, conceding that a taxation at nil is within the range of acceptable outcomes.  The OSB originally advocated a smaller haircut but, at the hearing, took no position as to whether the PA should receive anything at all.

The Court confirmed that once a matter is placed before the Court for taxation (either because it is required under the BIA General Rules, because a party has requested it, or because the Court has directed it), the Court’s supervisory authority is engaged.  The Court’s obligation is not ousted by the parties’ agreement, nor does such agreement displace the Court’s properly-exercised discretion to reach its own conclusions, after hearing and placing proper weight on the parties’ submissions.

The PA argued that this file was the result of a ‘rogue’ employee, no longer with the PA. The Court noted that attributing a file’s miasma to a rogue employee did not mitigate responsibility. The nature of the proposal and the knowledge possessed by the PA, among other things, were of substantial concern to the Court.  So was any attempt to remove a matter of such concern from the Court’s oversight, supervision, and comment, notwithstanding the PA’s characterization of its “agreement” with the OSB’s recommendation. The Court noted several mitigating factors, including the PA’s stated disengagement from the debtor advisory marketplace through which the PA’s engagement by the Debtor arose, the termination of the impugned employee, and its recognition that it has responsibility for the consequences, deserving of sanction.

The Court shared the concerns of the OSB and governments about the proliferation of the for-profit Debt Advisory marketplace, and the PA’s participation in that marketplace. Such “advisors” are unregulated and unlicensed.  They advertise aggressively.  They do not have any legal authority to navigate a debtor through the insolvency system.  The for-profit industry has grown exponentially in recent years, and system integrity and consumer protection are at stake. This potential for marketplace and systemic disruption and distortion further highlights the Court’s supervisory and oversight function.

The PA’s fees and disbursements were taxed at nil.  The $1,750 (plus accrued interest) said to be in the PA’s trust account was after-acquired “property of the bankrupt” within the meaning of s. 67 of the BIA. As such, it was to be turned over to the bankruptcy trustee forthwith in partial payment of the Court’s 2021 order.

Judge: Raffi A. Balmanoukian, Registrar in Bankruptcy

Professionals involved: Nancy Hoang and Brendan Smith for the Office of the Superintendent of Bankruptcy