Segal & Partners Inc. and Todd Y. Sheriff—September 3, 2002

Professional Conduct Decision

What is a professional conduct decision?

An investigation into a Licensed Insolvency Trustees (LIT)'s professional conduct is initiated when there is information to suggest that the LIT has not properly performed the duties of a trustee or there has been improper administration of an estate or lack of compliance with the Bankruptcy and Insolvency Act (BIA).

In some cases, the findings are sufficiently serious to support a recommendation for sanctions against the LIT's licence (cancel or suspend a LIT's licence (subsection 13.2(5) of the BIA) or impose conditions or limitations (subsection 14.01(1) of the BIA)).

The professional conduct decision is deemed to be a decision of a federal board, commission or tribunal and may be judicially reviewed by the federal court.

Canada
Province of Ontario

In the matter of the professional conduct of Todd Y. Sheriff, holder of a trustee license and Segal & Partners Inc., holder of a corporate trustee licence.

Counsel for the trustees:
Mr. Craig R. Colraine

Counsel for the Senior Disciplinary Analyst:
Mr. Marcel Gauvreau

The Proceedings:

The proceedings in this matter arose from the issuance of two reports pursuant to Section 14.02 of the Bankruptcy and Insolvency Act (BIA) (hereinafter referred to as the "reports"), the first dated , and the second dated . Both reports were issued by Ms. Ann Speers, Senior Disciplinary Analyst for the Office of the Superintendent of Bankruptcy. After various exchanges of correspondence with the counsels and a pre-hearing conference call which took place on , I was advised that as a result of a recently completed audit the Senior Disciplinary Analyst was contemplating producing a second report. A target date of , was set for the production of the second report if it was to be considered in this proceeding. It was also indicated to the parties that the undersigned would be presiding over the hearing of the report(s) pursuant to Sections 14.02 and 14.01 of the Bankruptcy and Insolvency Act (BIA). It should be noted that no objections were raised by either party to the proposed approach for the hearing. During the pre-hearing conference call, both counsels were asked to submit a list of preliminary issues and disputed facts as well as a list of witnesses they planned to examine. These lists were to be produced by Friday . It was also determined that the hearing would take place during the weeks of February 18th and .

On , counsel for the trustee requested a postponement of the hearing. As counsel for the Senior Disciplinary Analyst agreed, new hearing dates were set for the week of May 27th and . Again, at no time before , was the undersigned made aware of any preliminary issues that either party wanted to raise regarding these proceedings.

Preliminary Issue:

At the start of the hearing on , counsel for the trustees submitted a motion for the dismissal of the proceedings or, alternatively, for the referral to an adjudicator other than the Superintendent of Bankruptcy.

The motion argued that the Senior Disciplinary Analyst's reports were in breach of the procedural guidelines entitled "Process for Decisions Affecting a Trustee's Licence Under Sections 14.01 and 14.02 of the Act" (hereinafter referred to as the "Process"). The alleged breach relates to the fact that the reports of June 29th and , contained specific recommendations for licencing measures that were communicated to the Superintendent in contravention of Clause 5(c) of the Process.

Counsel for the trustees argued further that the communication of the sanction recommendations to the adjudicator was contrary to the rules of natural justice and reflected institutional bias. In support of his position, counsel referred to several cases which for the most part deal with the issue of standard proof.

In response, counsel for the Senior Disciplinary Analyst argues that the Process cannot be read as altering the text of sections 14.01 and 14.02 of the BIA.

After careful review of the arguments and examination of the cases referred to by counsel, I have concluded that the motion should be granted only in part. Sections 14.01 and 14.02 of the BIA are key sections that govern the process to investigate and to determine circumstances that could lead to a decision affecting a trustee licence. The scheme of those sections is that where the Superintendent of Bankruptcy intends to exercise any power referred to in Subsection 14.01(1) of the BIA regarding a licence, the Superintendent:

shall send the trustee written notice of the power that the Superintendent intends to exercise and the reasons therefore and afford the trustee a reasonable opportunity for a hearing.

The text of the BIA specifically provides that the trustee be advised by the Superintendent of Bankruptcy of the seriousness of the investigation report and be made aware not only of the reasons but also of the sanctions that the Superintendent is contemplating, and this, at the outset of providing the trustee a reasonable opportunity for a hearing. The scheme designed by the BIA is substantially different from the various schemes considered to in the case law referred to by counsel for the trustees.

In order to clarify the procedure for the conduct of a hearing under Sections 14.01 and 14.02 of the BIA, the Superintendent of Bankruptcy issues, from time to time, explanatory documents setting out a description of the procedure followed in the conduct of investigations and hearings under these provisions of the BIA. These documents are meant to inform the public as to the process, without limiting or restricting the application of Sections 14.01 and 14.02 of the BIA. These documents should be considered as an expression of the approach to the application and interpretation of the Sections 14.01 and 14.02 of the BIA taken by the Superintendent of Bankruptcy, his delegates, agents and representatives. They are procedural in nature and do not purport to add, vary or restrict the relevant sections of the BIA but rather simply explain, in lay terms, the provisions of the Act. They are certainly not a substitute for an actual reading of the BIA.

Being explanatory and procedural in nature do not mean that such documents should be ignored by the Superintendent of Bankruptcy or his delegates at their convenience. In fact, it is quite the opposite, subject to reasonable interpretation of their spirit and wording these information documents should be closely adhered to given the text of the law on one hand and the legitimate expectation of the public on the other.

In the case at hand, the Process relied upon by counsel of the trustee, was published on , and came into force on ; both dates are subsequent to the first report but prior to the second report. The Senior Disciplinary Analyst's first report was drafted in compliance with Section 14.02 of the BIA and with the delegation instrument given to her as well as the information document touching on the process that existed at the time. In my mind, there is nothing in the Process that came into force on , that can be construed to invalidate reports that were produced and filed before . In this case, the first report was finalized and sent to the undersigned on , more than 2 months prior to the Process coming into force.

However, the same cannot be said for the second report which was issued in October 2001. Even though the second report was presented as a supplementary report, it is based on an audit report which itself is independent and unrelated to the facts, circumstances and allegations referred to in the first report. Counsel for the Senior Disciplinary Analyst agrees that the second report stands on its own and that there is no direct link to the first report except that it involves the same trustees.

In view of the above, I find that the first report has been referred to in accordance to Section 14.02 of the BIA and the process in place at the time and that there is no valid reason why I could not carry on with the hearing of the first report given the presence of all parties, the dates that had been set aside for such a hearing and the fact that the arrangements with the witnesses had been made for their testimony and that counsel had numerous opportunities to raise this preliminary issue well ahead of the dates set for the hearing of the reports. In my mind, this approach is in accordance with paragraph 14.02(2)c) of the BIA.

The above goes for the first report, however, as indicated at the hearing on the motion, I believe a distinction could be made for the second report which is a stand alone report. With respect to the second report which is distinct and independent of the first report, I reckon that consideration should be given to the Process that had been in place since September 1st, 2001, at the time the second report was issued which was October 25th, 2001. As indicated earlier, I believe that it is essential for the Superintendent of Bankruptcy, his delegates, agents and representatives to comply with the various policies, guidelines and information documents that are issued form time to time. As there was no explanation as to why the second report, issued October 25th, 2001, did not comply with the Process that came into force on September 1st, 2001, and more specifically to clause 5(c) of the Process, I hereby order the Senior Discipline Analyst to resubmit forthwith an amended version of the second report with the purpose of removing any specific recommendations regarding the trustees' licences. Upon reception of the amended report, I will proceed with the appointment of a hearing delegate.

Finally, it should be noted that, at no time, were there representations, arguments or submissions made to the undersigned as to the specific recommendations contained in the two reports. These are merely the recommendations arrived at by the Senior Disciplinary Analyst in accordance with her delegation instrument (Annex 1 of the report) and the provisions under Sections 14.01 and 14.02 of the BIA which specifically require that the trustee be notified of the possible sanction that he or she is exposed to prior to the actual hearing.

The Section 14.02 Report:

Turning my attention to the first and only report which was the object of the hearing, it should be noted that it dealt with 2 consumer proposal files (Re Grayson and Re Sargant) that turned into bankruptcies shortly after the initial filing of the proposal documents. The investigation that lead to the report was triggered, in the case Re Grayson, by a complaint received from a Canada Customs and Revenue Agency (CCRA) representative, Mr. Ahlborn and in the case Re Sargant from Mr. Frank Quance, an Official Receiver with the OSB in Toronto.

It is not clear from the documentation produced how or when a formal investigation was authorized and launched as the material before me only refers to a recommendation that "the matter be considered for a disciplinary investigation" (Annex 2 of the report). In any case, it is clear that Ms. Ann Speers, a Senior Disciplinary Analyst, was tasked with the conduct of the investigation which lead to the report under consideration.

The report alleged several irregularities and deficiencies in the administration of the estates of Grayson and Sargant which constitute, in the view of the Senior Disciplinary Analyst, a serious breach of the BIA, its Rules and Directives. In all, the report identifies some 20 deficiencies for which Mr. Todd Sheriff, the individual trustee and Segal & Partners Inc., the appointed trustee for which Mr. Sheriff was acting at all relevant times, should be held responsible.

It appears from the report that the trustee advised the Senior Disciplinary Analyst that he had prepared a detailed response to the report, but has elected not to produce his response either with the Senior Disciplinary Analyst or at the hearing.

The report groups the alleged deficiencies under the following 7 headings:

  1. Deficiencies with respect to the investigation of the debtor's property and financial affairs and preparation of the Statement of Affairs in Division II Proposals;
  2. Failure to assess the debtors pursuant to the Act and Directive 6R — Assessment of Individual Debtors;
  3. Failure to execute statutory documents in accordance with the Act and Directive 4 — Delegation of Tasks;
  4. Failure to comply with requirements to pay issued by CCRA;
  5. Solicitation of general proxies, contrary to subsection 202 (g) of the Act, in the estate of Bruce Michael Grayson;
  6. Improprieties with respect to fees in consumer proposals; and
  7. Counselling.

The Facts:

For the purpose of this decision, I will follow the same order as the report and examine the allegations, the evidence and the arguments submitted by each party in the same alphabetical order as the report itself.

It should be pointed out at the outset that counsel for the trustees raised a general objection as to the burden of proof and the standard proof applicable in the present matter. Counsel argued that the burden of proof rested entirely with the Senior Disciplinary Analyst who was bound and restricted by the specific wording of the alleged deficiencies and could not in the course of the hearing, change or amend the nature of the deficiencies. Counsel further argued that while the standard of proof was not that of the "beyond reasonable doubt" applicable to criminal matters, it should be of the highest possible degree for civil cases given the seriousness of possible consequences on the trustees' licences. Counsel for the trustees referred to R. v PerrierFootnote 1 and the matter of Henry StzernFootnote 2, where, in the first case, the Federal Court ruled that the burden lies with the trustee to disprove the content of the report put against him. The Perrier case was rendered under the pre-1992 legislation and the ruling was consistent with the wording of Sections 7 and 14 of the Bankruptcy Act as they existed and were applicable at the time. Since then however, the statute has been revised in 1992 and 1997, and a new regime was established to deal with the wrongful conduct of licensed trustees. The new provisions do not deal specifically with the issues of burden of proof or the degree of proof. However, the Honourable Benjamin J. Greenberg, acting as a hearing delegate in the matter of Henry Stzern and Henry Stzern and Associates Inc., ruled that while the Perrier case remains applicable to some extent, it is proper reading of the new provisions of the BIA to find the burden of proof lies with the Senior Disciplinary Analyst. As indicated by the Honourable Greenberg at page 9 of his decision:

27… Consequently… the Senior Analyst will first present her evidence by tabling the report and providing the requisite testimony and documentary evidence, by herself and/or others, in order to establish the credible and trustworthy character of the report.

The "credible and trustworthy"test was first set out in the Perrier case. It was endorsed formally by the Honourable Greenberg in the Stzern case and has generally been the guiding principle used in proceedings under Sections 14.01 and 14.02 of the BIA.

It appears consistent with Subsections 14.02 (b) and (c) which provide:

At a hearing referred to in subsection (1), the Superintendent…
(b) is not bound by any legal or technical rules of evidence in conducting the hearing;
(c) shall deal with matters set out in the notice of the hearing as informally and expeditiously as the circumstances and a consideration of fairness permits;

The above are the text and guidance that should be used in assessing first the weight and second the persuasiveness of any evidence produced at these hearings.

A) Deficiencies with respect to the investigation of the debtor's property and financial affairs and preparation of the Statement of Affairs in Division II Proposals.

These allegations here essentially point to the failure of the trustees to properly investigate and verify the affairs of the debtor prior to initiating formal proceedings under the BIA.

In the case of the estate of Bruce Michael Grayson, the trustees are alleged to have failed to report a real estate property valued at $210,000.00 and mortgaged to Mr. Grayson's father for $213,000.00. Further, in that estate the trustees reported a net income of $4,176.00 without providing any provision for tax remittance, while knowing that at the time of the statement

Mr. Grayson was "self-employed" having only one customer "Medurex" and seeking to switch his status to that of an employee of the same "Medurex". The Statement of Income and Expenses produced by the trustees in support of the proposal showed revenue of $4,166.00, expenses of $200/month for property taxes, no amount for mortgage payments and left a surplus of $1,073.50 after provision of a payment of $448.50 to the trustees for distribution to creditors under the proposal.

Neither the proposal, nor the supporting Statement of Affairs nor the Income and Expenses Statement nor the trustees' report to creditors provided any information to the creditors as to the "consultant/employee" status of the debtor and the financial impact of this status on the proposal.

The evidence shows not surprisingly that the proposal documents raised concerns in the mind of CCRA, the largest creditor, especially in light of the large $1,073.50 monthly surplus. The CCRA representative testified that having been unable to get a satisfactory response from the trustees, he requested that a meeting of creditors be called. He further testified that having lost confidence in the trustees, he attended the meeting with another trustee willing to act as a substitute trustee. At the meeting, the trustees' representative in attendance, filed a report (Annex 25–1 of the report) that did not address any of the issues raised by CCRA. In fact, it stated:

… 2. That I have investigated or have had investigated the consumer debtor's property and financial affairs so as to be able to assess with reasonable accuracy the consumer debtor's financial situation and the cause of the consumer debtor's insolvency.

The minutes of the proposal meeting (Annex 25-2 of the report) related that there was a number of points of discussion and that following an adjournment to allow for a discussion between the debtor and the estate administrator, the debtor withdrew the proposal. The testimony of the CCRA representative suggests the trustee that had agreed to act as a substitute may also have participated in the discussion with the debtor. None of the parties privy to those discussions testified at the hearing so there is no credible evidence as to why the debtor actually withdrew his proposal. Some suggestions were made that the debtor refused to amend his proposal to deal with any possible windfall that could accrue during the life of the proposal. But again, there is no testimony nor statement produced from any party privy to the discussion. The proposal was withdrawn on , and the debtor filed an assignment in bankruptcy with Segal & Partners Inc. on .

Position of the Trustees:

In their Memorandum of Argument and their oral presentation, the trustees admitted to paragraphs 16 and 17 of the report. They argued that the deficiencies were technical errors of no practical consequences and that the errors were corrected in the , bankruptcy documentation.

Position of the Senior Disciplinary Analyst:

The Senior Disciplinary Analyst argues that with a proper careful review of the circumstances, there would never have been a proposal in the first place and that the incomplete and misleading information provided in the proposal documentation caused the largest creditor to spend time and effort to clarify the situation.

Findings:

I find that the Senior Disciplinary Analyst is right on this point. I find that the trustees did not demonstrate the due care, competence and diligence required of trustees in assessing the affairs of the debtor Bruce Michael Grayson nor in determining that a proposal was viable under the circumstances known to them. I point out that the bankruptcy Statement of Affairs produced on March 17th, 2000, is essentially the same as the proposal one produced on , with adjustments to reflect ongoing income tax obligations and the existence of the real estate property and the mortgage encumbrance thereon. In fact, one is struck by the similarity of the Statement of Income and Expenses produced for both the proposal and the bankruptcy. The one for the bankruptcy proceeding simply shows the net income after deduction of Income Tax and after mandatory contributions and shows a monthly deficit of $137.00 with no allocation of payment to the estate while the proposal Statement of Income and Expenses with essentially the same gross revenue but without allowing for income tax payment and contribution, showed a surplus of $1,073.50 after monthly payments of $448.00 to the trustees. Throughout his testimony, the trustee Sheriff offered no credible explanation as to why no provisions were made for Income Tax and as to how he could have come to the conclusion that Mr. Grayson could make a viable proposal. He suggested that Mr. Grayson's father was willing to help, but again I find that there is absolutely nothing in the proposal documents, nor in the trustees' report on the proposal to suggest that there was a third party guarantee and neither Mr. Grayson nor his father provided statements or testified to that effect.

I find that the incompetence of the trustees in reviewing and verifying the financial affairs caused the debtor to engage in costly proceedings which were doomed to fail.

In the estate of John Gordon Sargant, the debtor filed a consumer proposal on . The Statement of Affairs in support of the proposal showed that Mr. Sargant had no realizable assets and disclosed total liabilities of $4,880.00, all unsecured.

The Statement of Income and Expenses shows a net monthly income of $2,000.00 and monthly expenditures on $1,514.00 allowing the payment of $213.70 a month to the trustees for the proposal thereby leaving a surplus $272.30 a month. The proposal itself offered to pay the creditors in full at the rate of $213.70 each month during 36 months. A brief calculation shows that at the end of the 36 months, the debtor would have paid $4,880.00 to his only 2 listed creditors, namely Canadian Tire acceptance for $480.00 and TD Visa for $4,000.00 leaving the trustees with $2,813.00 to cover their fees and disbursements.

It appears from the evidence produced by the Senior Disciplinary Analyst, the written statement of Mr. Sargant and the testimony of trustee Sheriff and the trustees' own application form that Mr. Sargant was referred by Prudent Financial Services, a loan company who was willing to lend Mr. Sargant $4,081.00 repayable at the rate of $350.00 a month over the period of 12 months (Exhibit T-2). I note in passing that the amount is remarkably close and would have been sufficient to repay almost 100% of Mr. Sargant's indebtedness as per the Statement of Affairs.

While the trustees' application form (Annex 17 of the report) reflects that Prudent Financial Services was a secured creditor for $350.77 per month, there is no mention at all of such a loan in the proposal, the Statement of Affairs, the Statement of Income and Expenses or even the report to creditors (Annex 25–17 of the report).

Position of the Senior Disciplinary Analyst:

The Senior Disciplinary Analyst concludes from the above that the trustees failed to perform their duties with competence and due care in assisting the debtor in the preparation of his Statement of Affairs, specifically by not ensuring proper disclosure of the loan to Prudent Financial Services.

Position of the Trustees:

The trustees take the view that the loan from Prudent Financial Services was contracted after the proposal documents were filed and were not provable in the proposal proceedings and therefore did not have to be listed on the Statement of Affairs.

A careful review of the documentation shows that the Prudent Financial Services loan agreement (Exhibit T-2) and the trustees' Application Form (Annex 17 of the report), the proposal document, the Income and Expenses Statement and the Statement of Affairs were all prepared on the same day: . The proposal documents were filed with the London Division Office of the OSB on , as evidenced by the Estate Information Sheet found in Annex 16 of the report. This renders moot the trustees' position on the provable character of the Prudent loan.

Counsel for the trustees argues that the written statement from Mr. Sargant produced by the Senior Disciplinary Analyst should be disregarded as the statements were not made under oath, Mr. Sargant was not called to testify at this hearing and finally that in his view, Mr. Sargant had no credibility in light of the failure by Mr. Sargant to disclose certain other debts, mainly dental bills. I think I should be extremely careful in considering statements, especially unsworn ones, and unless there are exceptional circumstances, such statements should carry little, if any, evidentiary weight against the trustees especially if the trustees have had no opportunity to dispute the statement and the statement content is not otherwise corroborated.

Findings:

I find however, that there is sufficient evidence in trustee Todd Sheriff's testimony when he testified to the following:

Q. Who is Prudent exactly? Can you describe it for us?
A. They are a financial services company. They make loans to consumers.

Q. And are you doing business with them, or receiving some referrals?
A.A Some. A little bit.

Q. How many referrals did you receive from them since your dealing with…
A.A So far to date, maybe this year as a good example, 10 personal bankruptcy files altogether for the year come from Prudent directly or indirectly.

Q. And are they — like we saw that in this instance they made a loan to the debtor Sargant.
A.A That's correct.

And later in response to questions from the undersigned, Mr. Sheriff stated the following:

The Superintendent: Why does Prudent refer Mr. Sargant to you?
The Witness: I had met Mr. Stern, who is from Prudent, maybe a month or two earlier, some time in late '99, through a mutual friend, and he said sometimes he has work for trustees in bankruptcy, and I said "If there's anything we can help you with, consider using our office." He says, "I use other trustees." And this particular gentleman was referred to us.

The Superintendent: At the same time, this person, this individual, is being referred to a trustee they are extending credit to that person?
The Witness: Yes.

The Superintendent: Again, I don't mean to express comment on that situation, that they would be referring someone to you, but at exactly the same period of time they would be extending a loan, and that the loan was extended after the individual has been referred to you?
The Witness: That's what happened, yes.

The Superintendent: And you never got any word of when the money was extended and what happened to the money?
The Witness: I think Mr. Sargant used it to take care of some dental bills.

The Superintendent: Some what?
The Witness: Dental bills. He had to do some dental work.

The Superintendent: Did you verify that?
The Witness: I think it's written somewhere. I'm not sure where. I remember reading it on one of the documents.

The Superintendent: I don't understand. Sorry again, but I don't understand how this creditor could extend credit to someone they have already referred to a trustee, knowing that the financial circumstances were quite difficult, and they are extending here a loan which basically is the full amount of indebtedness of that individual, and they are extending that credit for five months at the rate of interest that I read as being five percent. What kind of business is that? So that individual is getting premium rate. Why is he being referred to a trustee?
The Witness: Yes, I think what they do is they say, "We would like to help you, but maybe first you need to review your financial circumstances," and then they call us and we meet with them just from the insolvency point of view.

The Superintendent: So they extended the loan knowing —
The Witness: In this case that's what happened. We have files that come from Prudent or people there where they don't do business with them. They just simply do —

The Superintendent: Do you consider the claim of Prudent in the bankruptcy file — is that a provable claim?
The Witness: It's not filed with me. It's filed with the bankruptcy trustee.

The Superintendent: That's an interesting way of doing business, extending the loan the day before the bankruptcy, knowing fully that the debtor is insolvent; and not only that, having referred the debtor to the bankruptcy. It's like throwing $4,000.00 through the window. Okay, anyway, let's move on, even though the circumstances of that file are somewhat puzzling.

I cited this portion of Mr. Sheriff's testimony to show that in my mind, there was a business relationship between Prudent and the trustees, that Mr. Sheriff was fully aware of it and that he knew or should have known that the purpose of Prudent in referring debtors to the trustee was to clean up their debts before a fresh loan could be extended. However, in this case the scheme did not work as the loan was extended on the 18th of January and the documents were filed on the 19th of January, therefore I find that the trustees should have reported the loan to Prudent identified in their application form or, at a minimum, should have further investigated the matter before filing the proposal documents to ensure their accuracy or truthfulness on a point that was material to the viability of the proposal. The application form and the trustees' file suggest that there was no urgency whatsoever for filing the proposal documents (Annex 17 of the report). The last page of the said application in the last section provides the following:

…2 what collection actions creditors taking: 
None

As a result, I find the trustees did not display the competence and diligence expected of a trustee in overseeing the preparation of the consumer proposal documentation and more specifically in adequately verifying the loan from Prudent Financial Services that had been disclosed by the debtor as revealed by the initial application form taken down by the trustees on .

I wish to point out that the business practice discussed by trustee Sheriff in his testimony and the handling of the Sargant file has caused me great concern about the professional ethics associated with such a business. I was struck by the fact that the debtor engaged in formal proceedings to repay 2 creditors in full for an amount of $4,800.00 when the application points out to no attempt to find a more practical and simpler way to deal with the situation. I am also struck by the fact that the debtor would have had to pay some $2,800.00 in fees for the settlement of his debts. Finally, I am struck by the failure to disclose the loan from Prudent to the other creditors which would almost be enough to pay those 2 creditors. While no doubt the lending creditor's and the debtor's conduct should be looked at closely in terms of whether either conduct constituted an abuse of the process, I believe that the trustees, who is aware of such a practice, cannot simply turn a blind eye or rely on technicalities and must be careful that by their silence, they do not become a party to a scheme that from the point of view of an officer of the Court, could easily be seen, at a minimum, as amoral and unethical.

The concerns that I raise regarding this aspect of the Sargant file were not addressed by the Senior Disciplinary Analyst in her report and therefore I will not rule on any of these aspects. However, I believe that the Senior Disciplinary Analyst should consider investigating in due course the business practice of the trustees and the relationship the trustees has with Prudent Financial Services. In my view, these practices contribute to the poor perception of our insolvency system that the public has from time to time and there should be a determination of whether, and in what circumstances if any, these types of practices are appropriate so as to instill confidence of stakeholders in the workings of the insolvency system.

B) Failure to assess the debtors pursuant to the Act and Directive 6R– Assessment of Individual Debtors.

This is further described in paragraphs 45 to 55 of the report. The deficiencies can be summarized as the alleged failure to conduct proper assessments of both Bruce Michael Grayson and John Gordon Sargant and having the relevant Assessment Certificates signed by Lezette Armshaw, an estate administrator employed by the trustees at the time. In her evidence, the Senior Disciplinary Analyst casts doubt as to whether trustee Sheriff ever met the debtors, specifically Mr. Sargant, as required by Directive 6R.

Position of the Trustees:

The trustees argue that their assessments were proper and effective. They explain that the Assessment Certificate in the Grayson bankruptcy and in the Sargant proposal were signed by the estate administrator as trustee Sheriff thought she was duly authorized to. Yet the trustees agree that Ms. Armshaw was neither a trustee or an Administrator as defined by Section 66.11 of the BIA. Trustee Sheriff stated that he was lead to believe that Ms. Armshaw had been designated by the Superintendent of Bankruptcy to administer consumer proposals. He relied on the word of Ms. Armshaw and did not conduct any independent verification of her qualifications.

Findings:

The trustees' explanation falls short of being satisfactory since, in the Grayson estate, it is the bankruptcy assessment certificate (Annex 24 of the report) that was signed by Ms. Armshaw and there is no doubt in my mind that Mr. Sheriff knew she was not a trustee and therefore had no authority whatsoever to sign the certificate.

As for Mr. Sargant's proposals assessment certificate the explanation offered by Mr. Sheriff shows he is not in tune with developments in his profession. I doubt that there is any trustee in Canada who is involved in the administration of consumer filings that does not know that only licensed trustees can act as administrators of consumer proposals under the BIA with the exception of a few individuals employed by the Government of Nova Scotia. I will reluctantly accept Mr. Sheriff's explanation even though I find that he could have been more diligent and thorough in asserting the qualifications of Ms. Armshaw, especially when the delegation of certain tasks were intended to reflect a significant restructuring of his office.

That being said, I find however that the assessments conducted by Ms. Armshaw and Mr. Sheriff fell short of a professional and thorough review of the affairs of Mr. Grayson and Mr. Sargant and that the trustees did not demonstrate the competence expected of them in carrying out their duties. In both cases, trustee Sheriff advised and assisted the debtors in preparing proposals which prima facie, and with a very cursory review of the information available to them, were not viable at the outset. This is further evidenced by the fact that one of the proposals was withdrawn at the first meeting of creditors while the other was terminated by the bankruptcy of the debtor only a few months after the proposal was filed and that in neither case, did the financial circumstances of the debtors known to the trustees changed in any material way.

Mr. Sheriff claims to have carefully reviewed the documents prepared by his estate administrator Ms. Armshaw and then proceeded to review the same with Mr. Grayson and Mr. Sargant and yet he did not pick up the crying flaws of both proposals (Annexes 25–1 and 25–17 of the report) thereby misleading creditors into believing that there had been a thorough review of the debtors' affairs when a simple review of the documents on file pointed out to the non viability of the proposals.

C) Failure to execute statutory documents in accordance with the Act and Directive 4 — Delegation of Tasks.

Position of the Senior Disciplinary Analyst:

The report points out that "the report of the Administrator on consumer proposals" required by subsection 66.14(e) of the BIA, should have been signed by the trustee as stipulated by Directive 4, yet in both proposals, the reports were signed by Ms. Armshaw.

Position of the Trustees:

The trustees agree the report should have been signed by the Administrator of the proposal and explain that they were lead to believe by Ms. Armshaw that she had been designated as an Administrator of consumer proposals by the Superintendent of Bankruptcy pursuant to Section 66.11 of the BIA.

Finding:

Without repeating all that I said under the previous heading, I take note again of the poor knowledge demonstrated by Mr. Sheriff about the evolution of his profession but accept his uncontradicted evidence that he was mislead about Ms. Armshaw's qualifications.

D) Failure to comply with requirements to pay issued by CCRA.

Position of the Senior Disciplinary Analyst:

The facts are described in paragraphs 62 to 73 of the report. They relate to the estate of Bruce Michael Grayson. It appeared that the same day that Mr. Grayson withdrew his proposal on March 15th, 2000, CCRA issued to the trustees a request for payment of over $43,000.00 on account of various tax liabilities owed by Mr. Grayson.

The report is not altogether clear as to what exactly was the failure on the trustees's part. The testimony of the Senior Disciplinary Analyst and the arguments of her counsel rely on a letter dated , sent by the trustees to CCRA in response to their requirement to pay and suggest that the failure was twofold. Firstly, the trustees would have failed to remit funds immediately to CCRA and secondly the trustee would have mislead CCRA into believing that the debtor benefited from the protection of the BIA for five days after the withdrawal of the proposal.

Position of the Trustees:

On the failure to remit funds, the trustees argue that such a payment would have constituted a fraudulent preference, that they were well within reasonable time before Grayson filed for bankruptcy (ie bankruptcy was filed on March 17th). In any event, the trustees point out that the requirement to pay was abandoned by CCRA and the matter was no where near a matter of professional misconduct.

On their misinterpretation of the BIA and the misleading information regarding the continued application of the BIA after the withdrawal of the proposal, the trustees argue that it is a matter of interpretation and that in any case, trustee Sheriff was simply suggesting such interpretation as possible, leaving it to CCRA to dispute it if they disagreed with his suggested interpretation.

Finding:

With all due respect to the Senior Disciplinary Analyst and her counsel, I can't find any evidence in the material or in the testimony to support the position that the trustees failed to remit. It is unreasonable to expect that the trustees would remit the funds within the 24 hour window that was open between the withdrawal of the proposal and the filing of the bankruptcy. The trustees knew that the debtor was insolvent, so did CCRA. I find it was prudent for the trustees to hold on to the funds for some short period to allow for the cooling off of the situation. CCRA seemed to agree with that position since they have abandoned the requirement to pay as indicated by the CCRA representative who testified at the hearing. I believe that this allegation should never have found it's way in the report.

As for the second failure of having mislead CCRA as to the interpretation of the BIA and its application after the consumer proposal was withdrawn, I believe there is more merit. In my mind, paragraph 69.2(1)a) of the BIA is clear and does not leave room for interpretation as to when the stay of proceedings cease to apply. Furthermore, in his letter to CCRA explaining his position, trustee Sheriff refers to section 66.27 of the BIA which has no bearing whatsoever on the stay of proceedings but simply deals with the trustee's duty to notify various parties of the withdrawal of the proposal.

Trustees, by virtue of their licence, are officers of the Court. Their qualifications program and continuous education seminars emphasizes the highest degree of knowledge of the BIA, its rules, its Directives and the related case law. In my mind, the March 16th letter by trustee Sheriff to CCRA demonstrates a level of knowledge and competence short of the standards expected in the profession and is contrary to Rule 36 of the Code of Ethics.

E) Solicitation of general proxies, contrary to subsection 202(g) of the Act, in the estate of Bruce Michael Grayson.

Position of the Senior Disciplinary Analyst:

This is covered in paragraphs 74 to 95 of the report. The allegations that relate to the estate of Bruce Michael Grayson are to the effect that the trustees solicited proxies out of an apparent concern about a possible motion by CCRA for substituting the trustees. In support of these allegations, the Senior Disciplinary Analyst relied on a number of evidentiary sources, namely:

  • Information provided to her by Mr. Bill Webster, the Official Receiver responsible for the Grayson file.
  • Statement from a CCRA representative Mr. Andrew Ahlborn.
  • Statement from Lezette Armshaw, a former employee of the trustee.
  • Statement from Ms. Jane Sweeting of Chrysler Credit Canada, a fully secured creditor.
  • Statement from Leslie Cameron of the TD Bank.
  • Statement of Marcella Grail.
  • Various notations and entries in the trustee's Work in Progress (WIP).
  • Notes from Ms. Theresa Won, an employee of the trustee.
  • Notes from Lezette Armshaw.

Of the individuals who provided written statements, two, namely Marcella Grail and Lezette Armshaw did not testify at the hearing. While counsel for both parties agreed to the production of Ms. Grail's statement, there was no such agreement for Ms. Armshaw's. In fact, counsel for the trustees objected to the statement in the absence of having the opportunity to examine Ms. Armshaw. In addition, trustee Sheriff went at some length throughout his examination and cross examination to discredit Ms. Armshaw.

Counsel for the trustees also objected to the testimony of Mr. Webster who, during his examination in chief, was reading his responses to questions from a statement that had been prepared by the Senior Disciplinary Analyst out of information provided by Mr. Webster. At the hearing, I struck out all evidence provided by Mr. Webster through the reading of the prepared statement and allowed counsel for the Senior Disciplinary Analyst to continue his examination of Mr. Webster.

The evidence provided by the Senior Disciplinary Analyst is that prior to the first meeting of creditors, trustee Sheriff was concerned about a possible substitution and through his staff, actively sought Proofs of Claim and proxies from all creditors listed on the Statement of Affairs, including a fully secured creditor, Chrysler Credit Corporation who in any case, would not have a vote at the meeting. The only creditor who was not contacted by the trustees for the purpose of producing their Proof of Claim or filing a proxy was CCRA who was the largest creditor representing around 90% of all claims against the estate and whose representative happened to be based in London in the area where the meeting was scheduled to be held.

It is clear from the evidence both from the trustees' representative, documents on file and from hearing to the various creditors that they were pressed to file their Proosf of Claim and to send in proxies. In fact, the efforts to secure the filing of Proofs of Claim are well documented in notes scrupulously taken by Ms. Theresa Won who was tasked by the trustees to contact the creditors and by various entries in the trustees' WIP. The trustees' WIP even shows the following entries:

3/19/00
TS (e.g. Todd Sheriff): "research special resolution re: bankruptcy first meeting, Lezette or determining proxies and values of Grayson senior claim." (Page 3 of Annex 41 of the report).

and

3/24/00
TS-LA (e.g. Lyzette Armshaw) message re: RCT soliciting proxies on Grayson. (Page 4 of Annex 41 of the report.)

Except for Ms. Grail, all witnesses testified to the effect that they were asked by the trustees (namely Theresa Won on their behalf) to send in their completed Proof of Claim and their proxies and I find that there is no substantive variance between their written statements and their oral testimonies at the hearing.

Position of the Trustees:

Counsel for the trustees made several points regarding the allegation of proxy solicitation. He further pointed out that it is not enough that there be solicitation of proxies, it has to be for an illegitimate purpose. He points out that trustee Sheriff had no personal contact with any of the creditors except CCRA.

In his testimony, trustee Sheriff explained the various considerations that were at play in his mind in anticipation of the first meeting of creditors. He stated that he was a Toronto based trustee and that he was concerned for his cost of having to travel to London for the first meeting creditors. He was concerned that if a quorum was not achieved, he would have to reschedule the meeting again. These initial concerns were exacerbated further by the fact that the bankruptcy was filed on March 17th and the meeting was set for April 3rd which gave little time for notifying creditors and allowing them to complete their Proofs of Claim and decide whether they would attend the meeting or file proxies.

He testified that while CCRA appeared determined to substitute the trustees on the proposal at the March 15th proposal meeting, he had a discussion on March 20th with Mr. Ahlborn, the CCRA representative, to reassure the latter of his commitment to improve his level of service. In the course of that discussion, Mr. Ahlborn indicated that he was willing to work with the trustee and to serve as an inspector in the file. Both Mr. Sheriff's and Mr. Ahlborn's testimonies confirm that CCRA would not seek the substitution of the trustees at the first meeting of creditors. Mr. Sheriff further testified that from then (March 20th) on, he had no concern about any motion for substitution. This would appear to take care of the WIP entry of March 19th regarding the research of a resolution and determination of proxies.

Mr. Sheriff further testifies that after the discussion of March 20th with Mr. Ahlborn, his only preoccupation in having creditors contacted was to prompt their participation at the meeting of creditors. His counsel argues that such prompting is recognized as entirely legitimate by Section 13 of Directive 14R.

Counsel for the trustees further points out that there is no consistent evidence that the trustees or their representatives sought proxies. Even if there is some evidence to that effect, there is no evidence that the proxies were solicited for the purpose of voting.

Findings:

With due respect for counsel, I find that if solicitation occurred it would be implicit from the whole context of the Grayson file that it was for the purpose of voting at the first meeting of creditors. Why else would one seek proxies or grant a proxy in the context of a meeting of creditors? Whether special or general, proxies are instruments to allow the holder to vote on behalf of the creditor.

I must say that I have great difficulty with the explanation offered by the trustee Sheriff for the flurry of activity in pressing creditors for completed Proofs of Claim and proxies and sending them to the trustees. If, as he suggested, his main concern was to ensure that there be a quorum at the meeting, it seems that the first thing to do would have been to approach the largest creditor, in this case CCRA, and inquire about its plan for the first meeting of creditors. Mr. Sheriff did that in talking to Mr. Ahlborn on March 20th. He did confirm that Mr. Ahlborn was willing to act as inspector and that he was comfortable with the trustees continuing the administration of the file. Mr. Sheriff claims that the conversation dissipated any concerns he might have about a substitution motion by CCRA. He further contradicted the testimony of Bill Webster to the effect that in a conversation with Mr. Sheriff on the same day of March 20th, the latter expressed confidence that he would carry enough proxies to carry a confirmation of appointment vote at the upcoming meeting of creditors. Yet, the only creditor who was not contacted by Ms. Won (who was tasked with contacting creditors) was CCRA despite the fact that it expressed an interest in the file, that it had expressed support for the trustees and that it had provided and sought information and was willing to serve as an inspector. But when comes time to ensure that there is a quorum at the meeting, no one from the trustees' office bothers to contact the largest and most responsive creditor on the file. I find the quorum explanation non-credible in such a context. The only other reasonable explanation from the evidence available was that trustee Sheriff, despite the assurances by Mr. Ahlborn, continued to be concerned with the position of CCRA on his appointment and wanted to have an alternative should Mr. Ahlborn change his mind. This would explain why, even after the March 20th conversation with Mr. Ahlborn, the trustees did not contact CCRA about their intended presence at the meeting, while their staff persistently continued to contact creditors from March 24th to . The evidence from the testimony of Ms. Won and the various representatives from the City of London, TD Bank, Ms. Grail, Chrysler Credit Corporation showed that they were all contacted, some of them several times, by Ms. Won except that she never contacted or attempted to contact CCRA. In fact, the evidence was that the instructions to her were that if any questions were asked by any creditor, to simply say that CCRA had pushed for bankruptcy (Exhibit T-4). Ms. Grail is the only creditor to testify that she did not feel solicited and that she gave her proxy to the trustee out of her own volition. The others, except CCRA of course, all felt that they were pressed into submitting a Proof of Claim and filing a proxy. The TD Bank representative testified that they were pressed by the trustees and had basically filed a proxy in favour of the trustees but changed their mind after being contacted by CCRA.

Finally, the trustees argue that in any case, CCRA had the required majority to substitute the trustees but no motion to that effect was submitted. While this is true, I don't see how this addressed the issue of whether or not there was solicitation. In my mind, the wrongdoing resides in the fact of whether the trustees solicited proxies to vote. Whether they were actually successful in doing so does not negate the fact of solicitation. In my view, the point goes to sanction that should be attached to the wrongdoing.

Therefore, after careful review of the evidence provided by the Senior Disciplinary Analyst and the counter evidence provided by the trustees and after discarding statements by Ms. Lezette Armshaw who did not testify at the hearing and discarding the testimony of Mr. Bill Webster, given the cloud under which it was given, I find that on a balance of probability, there is credible, trustworthy and persuasive evidence that the trustees solicited proxies in contravention of the prohibition stated in paragraph 202(1)g) of the BIA and in breach of Rules 34, 36, 38 and 52 of the Code of Ethics.

F) Improprieties with respect to fees in consumer proposals.

These improprieties are described in paragraphs 98 to 132 and relate to the estates of both Bruce Michael Grayson and John Gordon Sargant.

Position of the Senior Disciplinary Analyst:

In the Grayson estate, the report alleges that in their final Statement of Receipts and Disbursements on the proposal, the trustees wrongly sought disbursements of 168.00 in excess of the tariff.

The report also alleges that the trustees manipulated their WIP to support a request for an interim withdrawal of fees made to the inspector.

The report further alleges that the trustees attempted to claim an additional fee of $2,748.00 for the administration of the consumer proposal in the bankruptcy file.

Position of the Trustees:

The trustees agree that they have inappropriately drawn disbursements totaling $168.00. Given the admission, the trustees are hereby ordered to reimburse the estate forthwith for the said amount.

With respect to the WIP manipulation, the trustees submit that the WIP is a private record and was never submitted to the inspectors. I agree with the trustees on this point as there has been no evidence whatsoever that the WIP records were submitted to the inspector or any one else.

As for the allegation that the trustees attempted to pass on fee claims generated in the consumer proposal to the bankruptcy estate, the trustees deny any such attempt.

The evidence shows that the trustees prepared an interim Statement of Receipts and Disbursements in the bankruptcy estate of Bruce Michael Grayson to support a request to the inspector for an interim withdrawal of $7,298.00 + GST (Annexes 40 and 43 of the report). In the covering letter attached to the Statement of Receipts and Disbursements trustee Sheriff stated that the failed proposal would have generated $8,000.00 in fees if it had been fully carried out and that the combined value of the time spent on the proposal and bankruptcy estate totaled at the time of the interim Statement of Receipts and Disbursements, approximately $10,000.00 and that a further $1,500.00 to $2,000.00 would be required to complete the file. The interim Statement of Receipts & Disbursements was supported by a statement of account.

The evidence shows that the inspector refused to approve the interim Statement of Receipts & Disbursements as submitted and only eventually agreed to approve an interim withdrawal of $4,544.12 + GST for fees and disbursements (Annex 9–18 of the report). In his testimony, the inspector indicated that his approach to the fee quantum was based on a rate of 7.5% provided by Subsection 39(2) of the BIA and any additional amounts justified by work out of the ordinary.

The whole issue of quantum and appropriateness of fees is a matter for taxation and does not belong to this hearing. It is noted that neither the final proposed Statement of Receipts and Disbursements dated , nor the interim Statement of Receipts & Disbursement for the bankruptcy dated , have been submitted to the OSB for comment or the Court for approval or taxation. There is no doubt in my mind that the Official Receiver will want to comment on the Statement of Receipts & Disbursements when submitted and possibly make representation before the Court at the time of taxation.

The only matter of concern for the this hearing is whether the trustees actually tried to charge to the bankruptcy estate for work done in the proposal. The position of the trustees is not consistent. On one hand, trustee Sheriff testified that no such passing on was attempted on the other hand, he claims that once the consumer proposal failed, he is no longer bound by the tariff applicable to consumer proposal and can claim whatever amount he can support with his WIP subject to approval by the Court. He even claimed that such a fee claim for the proposal is subject to a priority under the bankruptcy under Subsection 136(1) of the BIA subject to a Court order. This is reiterated in his correspondence of , to the inspector in which Mr. Sheriff wrote:

… we reserve the right to request additional fees. We will not however, be looking to Revenue Canada for any deficiency; in this respect we are not at this time asserting our status as a preferred claimant in our capacity as proposal trustee. (Annex 43 of the report.)

and in the further correspondence of , where Mr. Sheriff wrote:

What may not have been clear from the presentation of our account in that we have included the time spent on the proposal administration and issued one combined account. We did this in order to simplify matters, as the trustees would appear to have priority for both the proposal and bankruptcy fees. The time charges on the proposal are properly charged to the bankruptcy estate as it allows for the trustee to include, as part of its fee, the work done prior to the date of the bankruptcy. The trustee can, if necessary, obtain an order that its fees and disbursements in connection with the proposal which was not accepted by the creditors be paid out of the bankruptcy estate, or treated as a preferred claim against the bankruptcy estate under Subsection 136(1) of the Act. As per the Statement of Affairs, our estimate of the time value in the proposal is $2,748.00 thereby leaving the amount $4,500.00 as fees in bankruptcy. Hopefully this assist you in making our billing rendered more understandable.

— — — We can defer for the time being on the proposed time charge of $2,748.00 in our capacity as preferred creditor pending the direction for the Court or you further decision. (Annex 44 of the report.)

Yet at the hearing, trustee Sheriff testified that he never tried to pass on to the bankruptcy estate work done in the proposal. My reading of the above letters leaves no doubt that is exactly what he was trying to do until the inspector started to question his account.

In his correspondence, he represents to the inspector that he has a preferred claim of $2,748.00 in the bankruptcy estate for work done in the proposal. Trustee Sheriff offered no explanation as to how he could arrive to such an amount in view of the fact that he prepared a final Statement of Receipts & Disbursements on the said proposal for $750.00 + GST exclusive of counselling. Such an approach is unbecoming of a qualified licensed trustee who is also an officer of the Court.

There was no effort on the part of the trustees to explain how they could possibly justify even $750.00 given the poor quality of the work done in preparing the proposal, but I leave this issue for consideration of the Court upon taxation of the trustees' accounts.

Findings:

I only find, for the purpose of this hearing, that the trustees deliberately and knowingly attempted to obtain from the bankruptcy, payment of fees for proposal work without disclosing to the inspector the true nature of the fee claim until questioned by the inspector.

I agree with the Senior Disciplinary Analyst that the position taken by the trustees was contrary to Rule 129 of the BIA and I further find that the manner in which the trustees sought to secure approval of their fees from the inspector violated Rules 34, 36, 39 and 45 of the Code of Ethics.

In the course of the argumentation counsel for the trustees argued alternatively that the $2,748.00 was not part of the WIP but was more an estimate amount for legitimate charges for the period of December to February in relation to the preparation of the bankruptcy Statement of Affairs. Again, the charges were not explained by the trustees, let alone their legitimacy. It should not be forgotten that the trustees received a fee for the preparation of the proposal that included a debtor's Statement of Affairs as of .

A comparative review of the Statement of Affairs and the Statement of Income and Expenses in the proposal of , and of the bankruptcy equivalent statements of , reveal no material change over the period aside from provisions for the true net income which could and should have been done in December and his listing of a real estate property that should have been listed in the first statement anyway. As discussed earlier in this decision, there was no effective qualitative assessment of the debtor in this file at either the time of the proposal or at the time of bankruptcy, therefore I find that there is no evidence to support the alleged "legitimate charges".

In closing on this point, the trustees argued that the matter is somewhat academic as the trustees did not obtain approval from the inspector for the fees sought. That may be so, but it was not because of a failure to try but only as a result of the diligence and persistence of the inspector. Anyhow, this argument goes to the sanction and I will leave it up to the trustees to raise it again on the representation on an appropriate sanction in due course.

With respect to the Sargant bankruptcy estate, the trustee filed a Proof of Claim of $1,602.50 constituted of $1,500.00 for trustee fees, $50.00 for the filing fee and GST of $52.50 (Annex 48 of the report). It appears that the trustees failed to deduct $427.40 that he had already received on account fees and GST.

Position of the Trustees:

The trustees do not dispute the above facts with regards to the Proof of Claim but argue that they inadvertently did not account for the $399.44 (sic!) which had already been taken on account fees. The trustees point out that the claim was rejected as preferred and was subsequently withdrawn.

In view of the evidence produced and the admissions made, I find that the trustees filed a false Proof of Claim and I accept that this was done by inadvertence. Consequently by, I find that the trustees failed to demonstrate the required diligence and due care in contravention with Rule 36 of the Code of Ethics.

G) Counselling.

Position of the Senior Disciplinary Analyst:

This section of the report relates only to the bankruptcy estate of Bruce Michael Grayson. It is alleged that the trustees conducted 2 counselling sessions in the same day. It further appears that the trustees had erroneously charged fees for a third counselling session, fees which were reversed some 7 months after the fact.

Position of the Trustees:

The trustees admitted the error regarding the third counselling session and reimbursed the estate. As for the timing of the second bankruptcy counselling session, the trustees argue that Subsection 6(b) of Directive 1R(2) is open to interpretation and that the timing was proper if one considers that the time started to run form the first counselling session that took place in the proposal. The trustees argue that the first counselling session in a proposal and in a bankruptcy are essentially the same.

Findings:

I find that the interpretation suggested by the trustees is not unreasonable in the exceptional circumstances of the Grayson file. I hold as valid the certificate attesting to the second counselling session dated June 14th, 2000. I also accept the position of the trustees that there was so little change between the first counselling session and the actual bankruptcy of Mr. Grayson that the first bankruptcy counselling session served no purpose and that consequently, they should reimburse the estate for any fees collected as a result of that counselling session.

Trustees' Responsibility:

I have indicated throughout this decision, my findings with each of the 7 groupings found in the report.

It is clear in my mind that trustee Sheriff was directly responsible for each of the breach found against the BIA, its Rules and Directives. There is no doubt in my mind that staff were carrying out instructions to the best of their ability. In fact, I was struck by the extreme diligence with which Ms. Theresa Won carried out what she considered as the instructions from her employer. I find that it was up to the trustees to demonstrate diligence and due care in ensuring that instructions were properly understood by the staff and carried out in a manner consistent with the responsibilities, duties and limitations set out in the BIA, its Rules and Directives. Again, I find that there was no such diligence and due care demonstrated by the trustees throughout the administration of the Grayson and Sargant files.

As indicated at the adjournment of the hearing, I will ask the Clerk to set up a conference call at the earliest convenience of the parties to hear their representations on the materiality of the various breaches found against the trustees and will receive their arguments as to sanctions that should be imposed on the trustees' licences.

original signed by


The Superintendent of Bankruptcy — Marc Mayrand

Signed on the 3rd day of September, 2002 in Ottawa, Ontario, Canada.

This document has been reproduced as submitted by the Superintendent of Bankruptcy.
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