Henry Sztern and Henry Sztern & Associés Inc.—December 15, 2008

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 quebec
district montréal

NO: 03–02

before : delegate André Deslongchamps

in re :
henry sztern

-and-

henry sztern & associés inc.

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appearances:

garry wetzel
michel ohayon

Counsel for the Senior Analyst

henry sztern
For himself

émilio monaco
(absent)
Counsel for Henry Sztern & Associés inc.

RE: Professional Conduct Proceedings pursuant to subsection 14.02(1) of the Bankruptcy and Insolvency Act on the conduct of Henry Sztern and Henry Sztern & Associés inc.

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Decision

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The undersigned is acting as delegate of the Superintendent of Bankruptcy pursuant to section 14.01(2) of the Bankruptcy and Insolvency Act (hereinafter "the Act").

This inquiry follows the filing of the report by the senior analyst Sylvie Laperrière, as amended on and served on the respondents (see letter of and attached documents), and thereafter at the hearing.

The report contains 35 allegations of offences against provisions of the Act, the Bankruptcy Rules and the Superintendent's DirectivesFootnote 1, allegedly committed by Henry Sztern, holding a licence as an individual trustee, and Henry Sztern & Associés inc., holding a licence as a corporate trustee. The respondent Henry Sztern appeared for himself, and despite the fact that Émilio Monaco appeared in the record for Henry Sztern & Associés inc. and the fact that several calls were requesting his presence, he never appeared at the hearing.

This report sought the penalties contained in a letter from the senior analyst Sylvie Laperrière, dated , written to and served on Henry Sztern and on Henry Sztern & Associés inc. (hereinafter referred to as "Sztern").

Background

After the service of the aforesaid report and the holding of the pre-trial conferences, Henry Sztern and Henry Sztern & Associés inc. on drafted a "Motion for Particulars".

On the senior analyst Sylvie Laperrière filed her reply, in the form of a volume "Book of Particulars and Responses Submitted".

On Sztern filed a "Motion to Strike Allegations", and this motion was dismissed: see decision of the undersigned dated .

On Sztern by letter requested that the undersigned withdraw from the case.

The decision dismissing this request was made on and the Federal Court, per Luc Martineau J., dismissed Sztern's application for judicial review on .

On Sztern filed an application for the services of an interpreter without charge. This application was dismissed by the undersigned on .

After a hearing which lasted for several days, counsel for the senior analyst Sylvie Laperrière filed his argument on and Sztern did likewise on . On counsel for the senior analyst Sylvie Laperrière sent us an e-mail in which he made certain corrections to his written argument and indicated his comments on the argument submitted by Sztern. At that date, , the hearing was complete.

Before undertaking to analyse each of the allegations of fault, certain preliminary questions were raised regarding the applicable rules of evidence and argued by each of the parties.

Applicable rules of evidence

A. Burden

[1]

The parties agree that this proceeding is disciplinary in nature and may result in a decision regarding use of the trustee licence, in addition to the other penalties specified in section 14.01 of the Act.

[2]

This disciplinary nature of the alleged offences has been treated by the courts as similar to a quasi-penal offence. Moreover, on the motion to dismiss Sztern's allegations the undersigned on concluded that the disciplinary and/or quasi-penal nature of the allegations entailed a duty by the senior analyst Sylvie Laperrière of disclosure or information, and that the duty had been performed.

[3]

This recognition of the quasi-penal nature of the proof and hearing before the undersigned does not, however, have the effect of making the provisions of section 14.02(2) of the Act inoperative.

[4]

There is no doubt that the application of section 14.02(2) must be subject to the fundamental rules of natural justice.

[5]

This application of the rules of natural justice in the case at bar has been reaffirmed in a judgment by Simpson J. of the Federal Court (Trial Division) in Perrier v. Canada (Superintendent of Bankruptcy), 33 C.B.R. (3d) 53.

[6]

The same judgment reminded us that the burden of rebutting the allegations or offences alleged by the report is on the respondents:

20. Maître St-Pierre (delegate) also concluded that the section did not require the superintendent to prove or justify his report. He stated, at p. 2 of his decision, "the Superintendent does not have to first prove that the allegations contained in his Report are well founded.

21. Essentially, the legislative scheme allows the report to be filed and, unless it is successfully challenged in a hearing for that purpose, it stands for the allegations it contains. This does not, however, as the applicant's counsel pointed out, relieve a hearing officer from satisfying him or herself that the report is credible and trustworthy. In my view, Maître St-Pierre did not err in his characterization of the roles to be played by the parties before him. It is also clear from the decision that he fulfilled his role, which was to ensure that the report and the supporting evidence were accurate.

[7]

Accordingly, the undersigned will analyse the evidence submitted on the basis of these rules.

B. Self-incrimination

[8]

A specific objection was also raised by the respondent Henry Sztern. Referring to section 5(2) of the Canada Evidence Act and section 13 of the Canadian Charter or Rights and Freedoms, he objected on the ground of possible self-incrimination to answering a specific question in the case of the Éric Lacroix file (offence K.17), to which counsel for the senior analyst Sylvie Laperrière referred him in his testimony in the Superior Court on the same file (see letter of from Garry Wetzel, counsel for the senior analyst Sylvie Laperrière).

[9]

The undersigned dismissed the objection on the following grounds.

[10]

At pages 60 et seq. of the transcript of testimony before the undersigned on Henry Sztern, testifying in his own defence, said the following :

So, I'm going to go to, I guess, for the record, the estate of Éric Lacroix, 9084, Service Mini-Remorque HCH and Kenneth Roy Sinclair. I'm going to state for the record in fact that my office did not, did not…my office nor I, did not withdraw any unauthorized fees in these files or no one in my office was directed to do so by myself.

[11]

cross-examined by counsel for the senior analyst Sylvie Laperrière on this reply given (transcript of , pages 159 et seq.), counsel referred Henry Sztern to the text of the transcript of his testimony before the Superior Court, and hence the objection by Henry Sztern. The objection was dismissed.

[12]

This reply given by Henry Sztern before the Superior Court contained the admission that in the Éric Lacroix file there was a withdrawal of unauthorized fees, contrary to his testimony before the undersigned.

[13]

In R. v. Henry, [2005] 3 S.C.R. 609, discussing the application of section 13 of the Canadian Charter of Rights and Freedoms, the Court stated that section 13, which was adopted to expand the scope of the protection conferred by section 5 of the Canada Evidence Act, is designed "to protect individuals from being indirectly compelled to incriminate themselves", and the other hand, referring to Mannion,Footnote 2 a distinction is made between "impeachment of credibility" and "incrimination in ways that have become unduly and unnecessarily complex and technical".

[14]

In view of the voluntary nature of the two testimonies, that before the undersigned and that in the Superior Court, I have come to the conclusion that the only purpose of the cross-examination as described above was to impeach the credibility of the respondent Henry Sztern.

C. Admissions

On May 10, 2006, counsel for the senior analyst Sylvie Laperrière sent Sztern translation "a possible list of admissions". On Sztern replied to this request as follows:

Offence
Response
A. 1a)
The undersigned admits to such statement.
C. 4
The undersigned admits that the Trustee's license of Trustee Henry Sztern was suspended during the period to by mutual agreement between the Trustee and the OSB and such Agreement was simply confirmed by Delegate Greenberg.
G. 9a) and b)
The undersigned admits to such statements.
H. 10c)
The undersigned admits to such statement.
I. 11c)
The undersigned admits to such statement.

As regards to all other suggested admissions, the undersigned is unable to confirm same. Further, as regards to suggested admissions numbered J – M, as you are aware, pending a determination of whether the subject matter of these complaints and sanctions shall be addressed by this Tribunal, the undersigned is in no position to respond to same."

[16]

In his reply of Sztern suggested a list of admissions to the senior analyst Sylvie Laperrière.

[17]

The reply by the senior analyst Sylvie Laperrière is contained in the letter of from her counsel, where it states the following:

"The Senior Analyst, Sylvie Laperrière, and I have considered the possible admissions suggested by Mr. Sztern in his letter of (items 1–24 on pages 2–4 of that letter). Ms. Laperrière makes the following admissions:Offence
  • (Relating to item 1) — The Senior Analyst has stated in writing that proposed sanctions relating to offences J.15, K.17, L.18, M.19 and N.20 are removed in accordance with her letter, dated , to Henry Sztern.
  • (Item 21) — In regard to subparagraph 5 (m) of the Motion for Particulars, the Senior Analyst does not have any copies of the front or back of cheques for withdrawals from consumer proposal estate accounts except for the four estates identified in the Senior Analyst's response to subparagraph 5(m) of the Motion.
  • (Item 22) — The Senior Analyst did not, prior to issuing her written Notice dated , consult with or request explanations from Mr. Sztern in regard to any of the allegations contained in the Notice."

Evidence

[18]

As appears from the exhibit filed as attachment 1, the senior analyst Sylvie Laperrière, who signed the report which is the subject of this hearing, was appointed by the delegate of the Superintendent of Bankruptcy, Marc Mayrand, on pursuant to section 14.01(2) of the Act in respect of the files of Henry Sztern and Henry Sztern & Associés inc.

[19]

As mentioned above, Henry Sztern has personally held a trustee licence since 1985 and Henry Sztern & Associés inc. a corporate trustee licence since .

[20]

These two licences were not renewed by their holder in 2004.

Prior suspension and limitation(s) on licences

[21]

Pursuant to an initial report on the respondents' administration on , Hon. Benjamin Greenberg approved the agreement reached between the Superintendent and Henry Sztern and Henry Sztern & Associés inc. and ordered the following (attachment 2, page 3):

"I, Delegate of the Superintendent of Bankruptcy, pursuant to the statutory powers delegated to me under Subsection 14.01(2) of the Act, approve the following agreement and hereby order as follows:
1)
That the licence of Henry Sztern, trustee, be suspended for a period of 7 months commencing , during which time the trustee cannot act or represent himself as a trustee in bankruptcy in any files;
2)
That the licence of Henry Sztern & Associés inc., corporate trustee, be restricted for a period of 2 months commencing , to the administration of estates to which the corporate trustee has been appointed prior to , during which period of time the corporate trustee cannot take new assignments nor act as corporate trustee in any other files;
3)
That Henry Sztern, trustee and Henry Sztern & Associés inc., corporate trustee will be jointly and severally liable for payment to the Office of the superintendent of Bankruptcy of costs related to the investigation of the conduct of the trustee and corporate trustee, in the amount of $15,000 as follows:
 
  • $5,000 within 30 days of the date of this order;
  • $5,000 before the limitation order imposed on the corporation trustee expires on ;
  • $5,000 before the suspension order imposed on the trustee expires on .
4)
Failure of the trustee and/or the corporate trustee to comply with any of the payments ordered above and/or to comply with any of the conditions and/or limitations imposed on their respective licences pursuant to this order, shall place the trustee and the corporate trustee in default pursuant to paragraph 13.2(5)(b) of the Act.
5)
Each duplicate original of this ORDER signed by the undersigned Delegate is equally valid and authentic and may serve as such for all legal purposes. "
[22]

It accordingly follows from that order inter alia that Henry Sztern's personal licence was suspended from to and the corporate licence of Henry Sztern & Associés inc. was subject to limitations for a two-month period beginning on .

[23]

Following these disciplinary actions and as the result of several complaints received by the Office of the Superintendent of Bankruptcy Alain Lafontaine, Superintendent's deputy, on issued conservatory measures pursuant to section 14.03 of the Act with reference inter alia to Sztern's place of business at 50 Place Crémazie ouest, Suite 210, in Montréal (attachment 3) and also TD Canada Trust, located at 433 Chabanel Ouest, Bureau 101, in Montréal, Sztern's banker (attachment 3).

[24]

As a result of new revelations the Superintendent's deputy Alain Lafontaine on issued new conservatory measures (attachment 4), inter alia appointing H.H. Davis & Associates Inc. as agent of the Office of the Superintendent of Bankruptcy, directing the official receiver to take possession and control of the files of Henry Sztern and Henry Sztern & Associés inc. and to transfer them to the guardian trustee and agent H.H. Davis & Associates Inc., and informing TD Trust of the status of each one in Sztern's files. The transcript of this taking of possession was filed as No. A-16 and contained no less than 471 minutes of taking of possession of Sztern's files.

[25]

By the issuing of further conservatory measures dated May 6, 2003 Alain Lafontaine appointed Gilles-Normand Lavallée and/or Bernadette Blain as official receivers to complete the administration of the said files of Henry Sztern and Henry Sztern & Associés inc. (attachment 5).

[26]

The evidence indicated that the implementation or enforcement of these conservatory measures was extremely difficult, chiefly due to the lack of cooperation by Sztern. We need only refer to the exchange of correspondence contained in attachments 6 and 7, and especially to the facts alleged in the record of the motion for a special order (attachment 8) and the order made by Claude Pinard J., of the Federal Court, Trial Division on (attachment 9).

[27]

On , following the order by Claude Pinard J., the representatives of the Superintendent's deputy went to the residence of the respondent Henry Sztern and took possession of and/or obtained the missing electronic data.

[28]

The taking of an inventory on indicated the existence of 1,349 files under Sztern's responsibility in his capacity as trustee. These files were broken down as follows:

840

= summary administrations;

237

= ordinary administrations;

260

= consumer proposals; and

12

= proposals under Division 1 of Part III of the Act.

[29]

The documentary evidence in the instant case, which may be described as imposing, is derived essentially from the documents which the guardian trustee H.H. Davis & Associates Inc. has had in its possession since implementation of the aforesaid conservatory measures.

[30]

Further, the evidence presented as a whole, whether oral or written, refers in large part to these documents which were the subject of the conservatory measures.

[31]

As mentioned earlier, the respondents are charged with no less than 35 breaches of the Act or the Rules and Directives.

Operational Method

[32]

Before dealing with of each of the offences charged, as listed in the amended report of the senior analyst Sylvie Laperrière, we must refer to Sztern's modus operandi, as indicated by the documentary evidence and the testimony heard, and in particular the evidence of the firm's accounting and banking operations.

[33]

Claire Bédard, who was an employee of Sztern from 1992–1993 to 2003, and who, after possession was taken of the files as a result of the conservatory measures, worked with the guardian trustee H.H. Davis & Associates Inc., first referred us to the staff working for the firm in the accounting department (transcript of , pages 102 et seq.).

[34]

There were Micheline Legault, Kathy Stitchman, Roula Gogas and herself. Elizabeth Tansery was also part of the team from 1999 to 2003. These individuals were responsible for making accounting entries in two data processing systems, namely the "Quicken" system and the "Insolvency Manager" system.

[35]

She described the way in which the accounts were handled and also how the firm's banking operations were carried out.

[36]

Only Henry Sztern signed cheques, apart from very exceptional situations and for very short periods (vacation or absence of Henry Sztern). She prepared the cheques to be signed by Henry Sztern.

[37]

Also, certain banking transactions were made by "debit memos" sent to the Toronto-Dominion Bank ("TD Bank").

[38]

These cheques and these "debit memos" were used to make transfers of fees from translation "in trust accounts" opened for each of the debtors. These transfers were made either to the bank account of Henry Sztern & Associés inc. (No. 301637) or to Henry Sztern's personal account (No. 860407 – Henry Sztern Registered).

[39]

She also indicated how amounts of cash received from debtors were processed. Referring inter alia to attachment 14, she described how, both as to their deposit and their entry into the computer systems, Henry Sztern directly or through his instructions given to his employees controlled the amounts received in cash.

[40]

Further, the evidence as a whole established without any doubt that Henry Sztern controlled all the accounting or banking operations.

[41]

Through his testimony and the cross-examination of witnesses called by the senior analyst Sylvie Laperrière, Henry Sztern sought to place responsibility for operations as a whole, as they were described to us, on his employees, including the possibility that his employees had converted certain sums of money to their own use.

[42]

He did not succeed. His many hesitations about admitting even documentary evidence and his flagrant and frequent lapses of memory concerning certain specific operations, as appears from his cross-examination (transcript of , pages 66 et seq.), meant that his credibility was seriously soiled. The testimony of the firm's employees as a whole is consistent and clearly defines or describes the accounting and banking operations of the firm and the control maintained by Henry Sztern.

[43]

We turn now to each of the alleged offences, taking into account Henry Sztern's operating methods as described above.

***

"A. False and misleading accounting system

1.The trustees maintained a second accounting system which did not indicate the unauthorized withdrawals made by the trustees. In doing so, the trustees maintained an accounting system that they knew or ought to have known to be false and misleading, thereby contravening section 13.5 of the Act and sections 36 and 45 of the Rules. (attachment 10)"

[44]

The existence of two systems, "Quicken " and "Insolvency Manager ", was clearly established by Sztern's employees in general and by the testimony of Henry Sztern himself. Indeed, he admitted the existence of these two systems (see reply to suggested admissions of ).

[45]

Were these two systems set up, as Henry Sztern maintained, to prevent or minimize errors, to comply with the Superintendent's requests or to adjust to practices within the profession? — Perhaps, but if we look at the evidence presented as to the use of these two systems by Sztern, this contention is to say the least doubtful.

[46]

To begin with, the testimony of Claire Bédard and Kathy Stitchman established that, for Henry Sztern's convenience and with his approval, the entries in the "Quicken" system were deliberately not found in the "Insolvency Manager". Her answer to the question "Are you quite certain that there were discrepancies between 'Insolvency Manager' and 'Quicken'?", was in the affirmative and without reservation (testimony of , page 232). Claire Bédard later explained how the difference between the two systems was used to withdraw fees from a file before they were due or allowed to be transferred under the tariff and the Act (testimony of , page 231).

[47]

She also explained how, at the conclusion of a case, the fees taken out in advance were reimbursed, by asking Henry Sztern to make out a cheque to repay the amounts owing.

[48]

This testimony by Claire Bédard is also corroborated not only by Kathy Stitchman (testimony of , pages 29, 30, 37 and 47), but also by the documentary evidence submitted by the senior analyst Sylvie Laperrière when she referred to attachment 17 of her report concerning the Chet Ron, Duc Trong Nguen, Jacques Rondeau, Dany Hupé and Sylvain Gagné files.

[49]

Also, this evidence of the differences between the two systems was established by the testimony of the senior analyst Sylvie Laperrière, referring to Exhibit A-19 (testimony of , pages 37 et seq.) which dealt with the bankruptcies of Réjean Lachaîne and proposals of Jean Jacques Vigier and Pierrette Laprade, where we find that fee transfers appearing in the "Quicken" system do not appear in the "Insolvency Manager" system.

[50]

The possibility of mistakes in the entries allegedly made by the employees, suggested by Henry Sztern, cannot be supported. The use made of these two systems shows the contrary.

[51]

Further, Elizabeth Tansery in her testimony explained how the "Insolvency Manager" system was manipulated so she could take from it the data necessary to produce the report mentioned in section 170 of the Act.

[52]

Elizabeth Tansery related how she manually made entries of amounts received in cash from debtors in the "Insolvency Manager" system and took out the data required for the section 170 report, then deleted them from the system, indicating to Claire Bédard that the said sums received would have to be reimbursed (testimony of , pages 17, 22, 32, 34, 36 and 37).

[53]

The 170 report, a copy of which was filed with the Office of the Superintendent, could reflect the actual situation of the file as far as the debtor was concerned, but was inaccurate regarding Sztern's accounting and bank accounts.

[54]

The amounts appearing as received in the debtor's accounts do not appear as such, and a fortiori do not appear as having been deposited with the TDBank, in the "Insolvency Manager" system.

[55]

This way of proceeding is in contravention of the provisions of section 13.5 of the Act and sections 36 and 45 of the Rules, cited above.

[56]

In his argument, Henry Sztern maintained that there was no evidence that he had signed or been associated with any document which he knew or reasonably should have known was false or misleading, and that the senior analyst Sylvie Laperrière had not discharged her burden of proving guilty intent.

[57]

In Attorney General of Canada v. Jacques Roy as trustee (2007 FCA 410) Létourneau J.A., in reasons for judgment concurred in by Richard C.J. and Décary J.A., wrote the following :

"[23] The exchange that took place at the hearing between the members of the panel and the respondent's counsel made it possible to offer particulars on the respondent's argument regarding mens rea under section 45.

[24] The respondent based his arguments on the use of the words "false" or "misleading" found in section 45. Initially, the respondent's counsel argued that these words used by Parliament necessarily involved, implicitly, an intention to deceive. Following an exchange with the Court, he referred to a risk of causing prejudice.

[25] If the required mens rea is not specified in the text of section 45 and if the words were not those of reasonable objectivity "reasonably ought to know", the argument could have merit. But since section 45 establishes objective responsibility, we cannot require that the trustee have an intention to deceive by signing the document since he did not know it was false. The intent to deceive necessarily refers to the trustee's state of mind while objective responsibility "is not concerned with what was actually in the [trustee's] mind, but with what should have been there, had the accused proceeded reasonably ": R. v. Creighton, supra. In other words, the requirement for an intent to deceive is inconsistent with the words "reasonably ought to know" of section 45. It has the effect of making them inoperative.

[26] As for the requirement of a risk of causing prejudice, this is still satisfied, independent of the notions of fault or mens rea, since a false or misleading document, by definition, risks causing prejudice. The risk is born of the false or misleading nature of the document, whether or not the signatory signed it intentionally, aware of its nature, without concern for it or without knowing it."

[58]

By signing inter alia the report made under section 170 of the Act that came from the "Insolvency Manager" system, a report which did not reflect the true position in the debtor's file, or by failing to enter in the "Insolvency Manager" system the amounts of the unauthorized fee transfers, and by manipulating the two systems, Henry Sztern contravened the above-mentioned provisions of the Act.

[59]

This offence A. 1 must accordingly be upheld.

***

"B. Unauthorized withdrawals

2.Between the months of and , the trustees made premature draws totalling $305,217.73 (including taxes) from the trust accounts for 399 summary administration estates and withdrew amounts in excess of the tariff totalling $156,205.48 from the trust accounts for 187 of these summary administration estates, thereby contravening section 156 of the Act and section 128 of the Rules, section 13.5 of the Act and section 48 of the Rules. (attachments 11)."

[60]

For this offence, the senior analyst Sylvie Laperrière referred to attachment 11. She maintained that Henry Sztern made fee withdrawals that were unauthorized for the time when they were made and also made unauthorized fee withdrawals beyond the tariff that should have applied.

[61]

As it appears in the corrected table in attachment 11, the sum of $265,349.04 in pre-tax fees was prematurely withdrawn by Sztern, and this represents an amount of $305,217.73 after taxes.

[62]

These amounts refer to 399 Sztern files, of which H.H. Davis & Associates Inc. took possession.

[63]

Further, in these 399 files the senior analyst Sylvie Laperrière established, after correction, that an amount of $156,205.48 from 187 of these files was withdrawn by Szterz which was in excess of the tariff.

[64]

These calculations were based on the review of Sztern's files by the guardian trustee H.H. Davis & Associates Inc. following the taking of possession of Sztern's summary administration files on .

[65]

The review of Sztern's summary administration files by the guardian trustee is to be found on the blue sheets filed as No. A-24, the content of which reflects the information in each of the files. These blue sheets were filled out and completed by Paula Brook and Elizabeth Tansery, who were employed by H.H. Davis & Associates Inc., guardian trustee, after the taking of possession.

[66]

As explained by the senior analyst Sylvie Laperrière, these blue sheets were re-checked by her and Paula Brook and some corrections were made as to the amounts of fees withdrawn, taking into account amounts received in cash from debtors and not deposited in the bank and the report "Register Reports" from the "Quicken" system, and by referring as well to the "Deposit Account History" from the TD Bank, which confirmed the withdrawals that were made in excess of the tariff.

[67]

Explaining this process, the senior analyst Sylvie Laperrière also referred to calculations provided when the translation "specific details" were filed on , and in particular to items 5, 6, 7, 8 and 9 of the said translation "specific details" (testimony of February 25, pages 170 et seq.).

[68]

All these calculations and their conclusions regarding the amount of fees owed were made on the basis of fees owed at , the date possession was taken of each of the files, also taking into account the state of the file at that date and with reference to the provisions contained in Rule 128, section 49(6) of the Act and Rule 130.

[69]

After examining the form used and the corrections made, the undersigned is satisfied with the results that were established by the evidence.

[70]

This method of making calculations and drawing the conclusion from them is contained in the testimony of the senior analyst Sylvie Laperrière, and in particular in her cross-examination by Henry Sztern on inter alia, at pages 84 et seq.

[71]

As we saw earlier, these unauthorized transfers were made under Henry Sztern's control or on his instructions and for his benefit.

[72]

In this regard, when cross-examined by Henry Sztern, Kathy Stitchman described everything as follows, referring to documents A-18 (examination of , pages 67 et seq.).

"Q. [311] (…) Now, when asked…before I get to that, if you go to Exhibit 18, that sheet that you have in front of you…

A. Yes.

Q. [312] …do you have any expertise in handwriting?

A. No.

Q. [313] Okay. So, you state that this is my handwriting on this…

A. Yes.

Q. [314] …first page, the lead sheet?

A. Yes.

Q. [315] Based on…

A. Just having seen your handwriting over four (4) years of working there.

Q. [316] Four (4) years. Okay. Can you equally state on the next pages, on the margins…

THE DELEGATE:

Sorry, could you show me that because if they are not…

Mr. HENRY SZTERN:

It's these with the amounts…with the amounts on the margin. That's it. I think…

THE DELEGATE:

This one?

A. Well, they are all with the same handwriting.

Mr. HENRY SZTERN:

Q. [317] It's the page after the one that you displayed.

A. Yes, that's it, yes.

Mtre MICHEL OVAYON:

That's page 2.

THE DELEGATE:

Page 2?

A. Yes.

Mr. HENRY SZTERN:

Q. [318] These amounts in the margins, can you equally state that these are all my handwriting?

A. Yes.

Q. [319] How?

A. Because it's your numbers, Henry. It's your handwriting.

Q. [320] It's my numbers.

A. Yes.

Q. [321] I see. And you're certain that it would not have been Frank Karch, Bill Hafner, Roula or anyone else in that office?

A. Yes.

Q. [322] Okay. You're absolutely certain of that?

A. Yes.

Q. [323] Okay. You say that debit memos were entered in both Quicken and Insolvency Manager when you were asked the question.

A. Yes.

Q. [324] But if they were entered in both systems, then why wouldn't both systems be equal?

A. Well, the good work was entered in both systems.

Q. [325] Explain what you mean by good work.

A. Good work were all the deposits and the fees that were allowed to be taken were good fees.

Q. [326] Good fees. And…

A. These are bad fees.

Q. [327] How do you know that those are bad fees?

A. Because they're not taken at the proper time and a lot of it is … a lot of the time it's more than should have been taken.

Q. [328] Now, I asked that question earlier, where here or anywhere do you have any evidence that any of those fees are bad fees?

A. Well, I don't have anything here in front of me.

Q. [329] Alright. Why didn't you bring it with you?

A. What? The computer?

Q. [330] Evidence to that effect?

A. Henry, I haven't worked in your office for over six (6) years. When I left, I didn't know I should have brought a computer with me."

[73]

In defence, Henry Sztern submitted that the evidence showed that in the 399 files as a whole, the work was completed and the fees at issue above were authorized. He admitted that the only remaining work was "final notice to the creditors and the Trustee's discharge". He went on to insist that the amounts transferred as fees had already been earned at and that as such there was no basis for the claim for reimbursement by the senior analyst Sylvie Laperrière. We will return to this latter argument by Henry Sztern below.

[74]

Did the fact that the work was completed in most of the summary administration files as Henry Sztern maintained authorize or justify him in taking out fees at a date prior to , or transferring fees in excess of the tariff?

[75]

Rules 62 et seq. and rule 128 lay down the conditions which a trustee must observe in withdrawing fees. To these provisions may be added sections 155 and 156 of the Act and section 49(6) and 49(8) of the Act, as well as Rule 130.

[76]

There is nothing in the evidence to show that the transfer of each of these amounts as fees indicated in offence B. 2 complied with the conditions laid down in the aforesaid provisions.

[77]

Even if it is maintained that several files were awaiting the letter from the Superintendent referred to in Rule 63, that did not justify the trustee transferring fees that were only due at the conclusion of the process set out in sections 63 et seq.

[78]

Consequently, offence B. 2 must be upheld. On the reimbursement sought, I will return to this when the measures specified in section 14.01 of the Act are imposed, if any.

***

"B. Unauthorized withdrawals

3.Between the months of and , the trustees made withdrawals in excess of the tariff totalling $574,687.91 from the trust accounts for 201 consumer proposal files, thereby contravening section 66.26 of the Act and section 129 of the Rules, section 13.5 of the Act and section 48 of the Rules. (attachment 12)"

[79]

This offence relates to files of consumer proposals. The senior analyst Sylvie Laperrière referred us to attachment 12 of her report.

[80]

After making certain corrections regarding the files of Marcel Lavoie (No. 119 of the list — $2,035.80, corrected to $1,820.80 — see her testimony of , page 97) and of Jacques Vigier (No. 191 of the list, $14,429.27 and $11,872.56 – see testimony of , page 94), she alleged that in these files, numbering 201, a total sum of $574,687.91 was withdrawn by Sztern without authorization and in excess of the tariff.

[81]

Just as offence B. 2 referred to the blue sheets, the senior analyst this time referred us to the pink sheets filed as No. A-32, parts 1 and 2.

[82]

These pink sheets indicated the amount of fees paid to Sztern in excess of the applicable tariff.

[83]

As with offence B. 2, the senior analyst checked the calculation in each of the files together with Louis Nolet (see testimony of Louis Nolet on , page 49), taking into account the date possession was taken on , the state of the file and the data found in the "Quicken" system ("Receipts and Disbursements and Register Report"), in the "Insolvency Manager" system ("Detail Trial Balance") and from the TD Bank ("Deposit Account History Financial Enquiry"), all in accordance with the tariff in section 129 of the Rules.

[84]

Claire Bédard (testimony of , pages 68 et seq.), who was in charge of Sztern's consumer proposal files, explained using Exhibit A-18 how they proceeded with the transfer of fees, following the instructions given by Henry Sztern.

[85]

After referring to the handwritten notes on documents, some of which were in Henry Sztern's handwriting, and in particular to the notes appearing on page 15 of A-18, Claire Bédard answered Mr. Wetzel's question as follows (testimony of , page 175):

"Q. [568] was there any particular reason for keeping copies of this?

A. Well, I think we kept them because this was starting to be a little a procedure where lots of money were coming out of the accounts, not specially at… we were not following the regular procedure by doing this.

THE DELEGATE:

Q. [569] By doing this you didn't follow the…

A. Regular procedure. Regular procedure was a certain date you're allowed to take counselling fees, fees or registrar fees or whatever but…and then, you know, you wait until you send your last receipts and disbursements in and then you get your last fees and that's fine. But this was like taking…a request for taking some fees before the time that they were supposed to be taken. So, we just made ourselves a copy because we didn't think…we thought that they shouldn't have taken it at that time."

[86]

cross-examined by Henry Sztern on the same date of , page 217:

"Q.

[768] Okay. Now, do you recall a number of accounts where if you would give me, let's say, cash for ten (10) estates or whatever, that you would, in return, depending on whether I was there or not, get a cheque from Henry Sztern & Associates to cover the cash that I had given you?

A.

It wouldn't… it wouldn't always be like that. We would give you sometimes the cash and we would sometimes ask you for a cheque to cover that amount on another date. That was not necessarily the same date."

[87]

In the same cross-examination, she referred us to Exhibit A-17 to show that the amount of $12,565 there indicated was fees not owed or authorized on the date indicated (page 225).

[88]

The consequence of this manner of proceeding was that because there were no funds in the bank account they stopped issuing dividend cheques (Claire Bédard, testimony of , page 77). Referring to the JJ. Vigier file:

"Q.

[194] Do you know why there would have been what appears to be a one year break without any dividend cheques?

A.

Well, we stopped issuing dividend cheques because there was no advance on proposals' fees and we were issuing advances to Henry on the proposals' fees and there was no money in the account to issue dividends."

[89]

It was Claire Bédard who prepared the pink sheets, after checking each of the files (attachment 32, parts 1 and 2).

[90]

Also, Lynda Lalande, a trustee employed by the guardian trustee H.H. Davis & Associates Inc. (testimony of May 5, 2008, pages 115 et seq.), explained the method used by the guardian trustee H.H. Davis & Associates Inc. to determine the status or condition of each of Sztern's files, hence the reference to the blue sheets (attachment 24) and pink sheets (attachment 32).

[91]

She stated that she checked the work done by Claire Bédard. Her verification led her to the following conclusions (testimony of May 5, 2008, pages 127 et seq.):

"GARRY WETZEL:

Q.

[317] Ms. Lalande, before the break, you were talking about the blue sheets and the pink sheets, which dealt with summary administrations and consumer proposal files. Insofar as the general administration of each of those groups of insolvencies is concerned, do you have any comment about the administration that was carried out by Henry Sztern & Associates Incorporated?

translation

A.

My comment would perhaps be more about what I noted in the banking area. For example, in consumer proposals there were two main rules which I noted, that as of a certain date, almost all the monthly deposits which were made in the asset files were withdrawn on the same day.

The second finding, as I mentioned earlier, in many, many consumer proposal files, there were very large withdrawals which were made which were in addition to the total fees potentially owed to the trustee, because there I would say there was always a portion that was owed at different times in the administration. Accordingly, in addition, even if 100% of the fees possibly owed was allocated, there were large withdrawals made from files which naturally corresponded to amounts that should have been paid to the creditors or the Superintendent for the withdrawal.

Those are more or less the two major general findings I made in the proposal files.

In the summary files, well, there were more files in terms of volume, but many, many files in which there was no longer any activity, or bank accounts were nil, or there was no longer any bank account.

One finding in those files was that as of a certain given date deposits which were made were withdrawn the same day they were made, in several files. If you ask me for a percentage, I could not say, but of 839 summary bankruptcy files there were at least half in which there was still activity.

Q.

There was still …?

A.

Activity.

Q.

Activity. Another question in regard to trustee practice. In your practice, what do you do with respect to cost of lawyers, legal fees, before paying them?

translation

A.

The legal fees in the files, well, there are very clear rules on this. My practice follows them. First we ask for a fee account, fee account which is submitted to inspectors who are appointed in the file, who are approved by resolution or by minutes.

With that approval, the trustee issues a trustee's declaration, which confirms that the trustee submitted the fees to the inspectors, that they were approved. That I think also confirms the receipts to date in the file and that the legal fees have actually been earned. This declaration is used by counsel in applying to the court to have their fees taxed and it is only after the taxation that the trustee can pay the legal fees."

[92]

This evidence showed that Sztern contravened Rule 139 and offence B. 3 must be upheld, despite the admission by the senior analyst Sylvie Laperrière that:

"(Item 21)— In regard to subparagraph 5 (m) of the Motion for Particulars, the Senior Analyst does not have any copies of the front or back of cheques for withdrawals from consumer proposal estate accounts except for the four estates identified in the Senior Analyst's response to subparagraph 5(m) of the Motion."

***

"C. Prohibited actions while the license of trustee: Henry Sztern was suspended between and

4.The trustee Henry Sztern exercised his powers as trustee while his license was suspended by:

a) making 6 withdrawals totalling $3,300 from the consumer proposal file of Alain Germain between and ; (attachments 14 and 15)

b) making 7 withdrawals totalling $2,450 from the consumer proposal file of Benoît Kollar & Chantal Séguin between and ; (attachments 14 and 16)

c) making 6 withdrawals totalling $950 from the summary bankruptcy files of Alain Bazinet, Chet Rom, Duc Trong Nguyen, Jacques Rondeau & Dany Huppé, Sébastien Lamontagne & Sylvain Gagné, on or about ; (attachments 14 and 17)

d) making a withdrawal of $6,700 from the summary bankruptcy files of Duc Trong Nguyen on or about ; (attachments 13, 14, 17 and 18)

e) making a withdrawal of $450 on or about from the summary bankruptcy file of Jacques Rondeau & Dany Huppé; (attachment 17)

f) making a withdrawal of $100 from the summary bankruptcy file of Sylvain Gagné on or about ; (attachment 17)

g) making 6 withdrawals totalling $2,520 from the consumer proposal file of Jean-Jacques Vigier & Pierrette Laprade between and ; (attachment 10)

h) making a withdrawal of $2,500 on or about and a withdrawal of $850 on or about from the trust account of the bankruptcy file of Service de Mini-Remorque H.C.H. Inc.; (attachment 19)

i) making a withdrawal of $6,000 on or about and a withdrawal of $5,000 on or about from the trust account of the bankruptcy file of 176984 Canada Inc., (attachment 20);

thereby contravening the Trustee Suspension Order issued on by the Honourable Benjamin J. Greenberg, delegate of the Superintendent of Bankruptcy, section 13.5 of the Act and section 34 and 36 of the Rules (attachment 2)."

[93]

It should be recalled that the personal licence of Henry Sztern was suspended for a seven-month period beginning on . Accordingly, the suspension was effective until (see decision of Greenberg J., attachment 2).

[94]

The evidence regarding offences C. 4(a), (b) and (c) is found in attachments 14, 15, 16 and 17 and concerns the files of Alain Germain, Benoît Kollar and Chantal Séguin, and finally those of Alain Bazinet, Chet Rom, Duc Trong Nguyen, Jacques Rondeau and Dany Hupé, Sébastien Lamontagne and Sylvain Gagné.

[95]

At pages 115 et seq. of her testimony of the senior analyst Sylvie Laperrière described the facts supporting the offence alleged in paragraphs C. 4(a), (b) and (c).

[96]

There is no doubt that in these first three files, those of Alain Germain (C. 4a), Benôit Kollar and Chantal Séguin (C. 4b), and finally those of Chet Rom, Duc Trong Nguyen, Jacques Rondeau and Dany Hupé, Sébastien Lamontagne and Sylvain Gagné (C. 4c), the entries both in the computer systems "Quicken" and "Insolvency Manager" and the banking transactions contained in the "Deposit Account History" for these files, and the cheques or "Debit Memos", confirm that certain transactions were carried out by Henry Sztern while his licence was under suspension.

[97]

The alleged transfers of $3,300 for the Alain Germain file (C. 4a), $2,450 for the Benoît Kollar and Chantal Séguin file (C. 4b) and $950 for the Alain Bazinet, Chet Rom, Duc Trong Nguyen, Jacques Rondeau and Dany Huppé, Sébastien Lamontagne and Sylvain Gagné files, were proved and documented.

[98]

Moreover, if we refer to the Sébastien Lamontagne file, it appears from the evidence that following the discharge judgment of the debtor Lamontagne had to deposit the sum of $900 with the trustee Henry Sztern. He was discharged and it appears from the statement of trustee receipts and disbursements (page 39, tab 17) signed by Henry Sztern on that Lamontagne did deposit the sum of $900 with the trustee and that an amount of $150 was transferred to Sztern's account No. 806407, on his instructions, on (page 9 of attachment 14), that is, during Sztern's suspension.

[99]

With regard to the file of Sylvain Gagné (page 30, attachment 17), we also find that on there was a transfer of fees to Sztern in the amount of $100, including taxes. The breakdown of this amount is contained in the "Register Report" and the "Deposit Account History".

[100]

We must accordingly conclude that for the six files in C. 4(a) to (c), the sum $6,700 was transferred to Sztern's account while his licence was under suspension.

[101]

Allegation C. 4(d) regarding the sums of $6,700 is supported by the evidence presented in attachment 18 (pages 149 et seq. – testimony of Sylvie Laperrière on ). By a "Debit Memo" this sum of $6,700 was transferred to Sztern's account on . The amount was part of a total transfer of $6,930.

[102]

Finally, as to offence C. 4(e) (Jacques Rondeau), the evidence showed that on the sum of $450 was transferred to Sztern's account by the same procedure (see "Deposit Account History", page 27, attachment 17).

[103]

Finally, in the Sylvain Gagné file (C. 4(f)), if we refer to attachment 17, page 41, a transfer of $100 was made on .

[104]

On allegation C. 4(g), in the consumer proposal file relating to Jean-Jacques Vigier and Pierrette Laprade, we find in attachment 10 B, pages 13 et seq., and in particular in the "Register Report" of the "Quicken" system, page 21, reference to cheques with the Nos. 47, 48, 49, 50 and 51, all dated , the day before Sztern's suspension began, and making a total sum of $2,520.

[105]

If we refer to the bank's translation "Deposit Account History – Financial Enquiry" (pages 22 et seq. of attachment 10B), and in particular to pages 29 and 30, we find that these cheques were cashed between and and that the balance in the account at (page 28) was only $285.

[106]

Further, we note that at a "Debit Memo" transfer of $425 was made.

[107]

The same applies to file C. 4(h), Service Mini-Remorque (page 165 of the examination of , attachment 19). We find that cheque transfers, one of $2,500 (cheque No. 29) and one of $850 (cheque No. 31), were made dated and respectively.

[108]

Finally, as to the offence alleged in C. 4(i), namely the file of 176984 Canada Inc., we find the cashing of fee transfers, namely cheques of $6,000 and $5,000 dated and made out to Henry Sztern, on and  (attachment 20).

[109]

All these transactions benefiting Sztern, whether by cheque or "Debit Memos", were carried out while Sztern's licence was under suspension.

[110]

Consequently, offences C. 4(a) to C 4(i) inclusive are upheld.

***

"C.

5. The trustee Henry Sztern, while his licence was suspended, predated cheques to:

a)

make a withdrawal of $550 from the trust account in the consumer proposal file of Alain Germain on or about ; (attachments 14 and 15)

b)

make a withdrawal of $350 from the trust account in the consumer proposal file of Benoît Kollar & Chantal Séguin on or about ; (attachments 14 and 16)

c)

make 5 withdrawals totalling $2,095 from the consumer proposal file of Jean-Jacques Vigier & Pierrette Laprade between and ; (attachment 10)

d)

make a withdrawal of $2,500 on or about and a withdrawal of $850 on or about from the trust account in the bankruptcy file of Service de Mini-Remorque H.C.H. Inc.; (attachments 13 and 19)

e)

make a withdrawal of $6,000 on or about and a withdrawal of $5,000 on or about from the trust account in the bankruptcy file of 176984 Canada Inc., (attachment 20)

thereby contravening section 13.5 of the Act and sections 45 and 48 of the Rules."

[111]

On offence C. 5, we refer to the testimony and exhibits filed in support of the offences alleged in C. 4. The cheques referred to in the offences alleged in C. 5(a) to (e) inclusive were in fact antedated to be used or deposited during Sztern's suspension.

[112]

We need only note that on , the date of the cheques in question, most if not all of the debtors' accounts did not have the necessary funds to cover the amounts of the cheques in question.

[113]

There is no doubt that Henry Sztern sought to avoid the effects of his suspension by antedating the cheques in question in offence C. 5(a) to (e) inclusive. It will be recalled that the suspension began on and the decision imposing the sentence was dated (attachment 2).

[114]

Further, Claire Bédard confirmed that on Henry Sztern's instructions she prepared most of the cheques dated (testimony of , pages 109 et seq.).

[115]

In cross-examination she added that only Henry Sztern was authorized to sign the cheques and that the cheques for were signed by Henry Sztern (pages 181 et seq.).

[116]

Finally, if we refer to attachment 19 we see that the Messagerie Premier invoices No. 1021, dated , and No. 1226, dated , were paid in part by cheques antedated on .

[117]

Accordingly, it seems clear that there were antedated cheques.

[118]

The same is true for the transfer of fees by antedated cheques of (attachments 10, 13, 14, 15, 16, 19 and 20) which were all cashed during Sztern's suspension. These cheques were signed by Sztern.

[119]

Henry Sztern's argument on the offences alleged in C. 4(a) to (i) and in C. 5(a) to (e) was that his personal suspension as a trustee did not affect the files in question since he acted as administrator of Henry Sztern & Associés inc., the alleged transfers were made beyond the suspension dates of Henry Sztern & Associés inc., namely , for a period of two months, and the preparation of documents originating with the "Quicken" or "Insolvency Manager" systems was done by employees.

[120]

The answer to Henry Sztern's argument that in law a distinction should be made between being administrator of a corporation holding a trustee licence and being an individual who holds a trustee licence personally is to be found in section 14.08 of the ActFootnote 3.

[121]

Although the acts performed by Henry Sztern were carried out as administrator of Henry Sztern & Associés inc. and are not subject to the limitations contained in the licence of Henry Sztern & Associés inc., the fact remains that they were carried out contrary to the suspension order against Sztern by Hon. Benjamin Greenberg. The trustee Henry Sztern & Associés inc. could only act through one of its administrators or managers, who was himself the holder of a valid trustee licence (s. 14.09 of the Act).

[122]

The actions taken in connection with the offences in C. 4(a) to (i) and with the offences mentioned in C. 5(a) to (i) were taken by Sztern while Henry Sztern's personal licence was suspended. Consequently, Henry Sztern could not act as administrator of Henry Sztern & Associés inc.

[123]

Henry Sztern also raised the fact that the actions taken were performed by employees of Henry Sztern & Associés inc. The evidence shows the contrary. Not only did Henry Sztern intervene in the transactions described, but in addition the employees always acted on his instructions and were subject to his control.

[124]

As with the offences covered in paragraphs C. 4(a) to (i), those covered in paragraphs C. 5(a) to (e) of the declaration are upheld.

***

"E. Moneys not deposited in estate and insolvency trust accounts

7. Between 1999 and , the trustees did not deposit in a bank all moneys received for the account of each estate in the trust account, which amount totalled $89,782.43 received in 183 summary bankruptcy administration files and $43,648.62 received in 42 consumer proposals, thereby contravening subsections 5(5) and 25(1) of the Act and subsections 3b), 4(1)a) and 4(1)b) of Directive 5 of the Superintendent of Bankruptcy on Estate Funds and Banking issued on (attachment 22)."

[125]

The senior analyst Sylvie Laperrière referred us to attachment 22 (testimony of , pages 84 et seq.). This list shows the amounts received in cash in 183 summary administration files that were not deposited in a trust account, totalling $89,782.43, and the amounts received in cash in 42 consumer proposals that were not deposited in a trust account, totalling $43,648.62.

[126]

This five-page document was prepared by the senior analyst Sylvie Laperrière from documents in each of the files in possession of the guardian trustee H.H. Davis & Associates Inc. This list was further prepared with the assistance of Louis Nolet, who testified and who on the basis of a sample of 25 files contained in an appendix of the senior analyst Sylvie Laperrière's document made a test which he called a translation "data consistency test". He endorsed the calculation method used (testimony of Louis Nolet, , pages 49 et seq. attachment 22, appendix prepared on , pages 1 and 2).

[127]

As an example which was part of the said test, he referred to Exhibit A-10, that is number 9 of his test.

[128]

This handwritten list of attachment 22 was acknowledged by Claire Bédard. As already indicated, she described, as did Kathy Stitchman, the process or operation when they received cash from debtors. The cash was given to Henry Sztern, who in return signed a copy of the receipt issued to the debtor: the last copy remained in the receipt book (Claire Bédard, testimony of , pages 214 and 215, and Kathy Stitchman, testimony of , pages 31 et seq., and in cross-examination, pages 59 et seq.).

[129]

Without in any way denying these allegations, Henry Sztern objected to the quality of the evidence presented.

[130]

I am persuaded both by the testimony heard and the review made of each of the files, possession of which was taken by the guardian trustee H.H. Davis Associates Inc., as well as by Louis Nolet's test, that the amounts received in cash mentioned in offence E. 7 were not deposited in a trust account, contrary to the Act or Rules cited above.

[131]

Offence E. 7 must be upheld.

***

"F. Moneys received as indemnification not deposited in a proper account

8. The trustee did not deposit the funds received as indemnification:

an amount of $2,000 received in the matter of the bankruptcy file of Pisos Inc. on or about ; (attachments 23, 25, 26 and 27)

an amount of $1,500 received on or about and $2,000 received on or about in the matter of the bankruptcy file of Création Liboria Ltée; (attachments 24, 25, 26 and 27)

in the estate bank trust account, in a separate bank account clearly identified for that purpose or in a separate bank trust account containing the aggregate of all such funds held, thereby contravening subsection 25(1) of the Act, subsection 5(5) of the Act and sections 16 and 17 of Directive No 5R of the Superintendent of Bankruptcy on Third Party Deposits and Guarantees."

[132]

On the Pisos Inc. file, the evidence indicated the following:

(a)

the trustee's preliminary report (attachment 23) indicates that he received a third party security for costs and disbursements of $2,000;

(b)

this security was received in cash (see the receipt signed by Kathy Stitchman on (attachment 23));

(c)

the only deposit found in the bank documents is that of $227.84 on (Deposit Account History No. 520737 – attachment 25), although the bank account was opened on .

[132]

On the Création Liboria Ltée file, the evidence indicated the following:

(a)

Sztern received as security from third parties to secure costs and disbursements the sum of $3,500 (attachment 24 — list of amounts received and trustee's preliminary report);

(b)

this security was received in cash, according to the testimony of Claire Bédard referring to the handwritten list (attachment 22);

(c)

the only deposit that can be found in the bank document ("Deposit Account History", attachment 26) is dated , cheque No. 00103-011098050), and in the "Register Report" (Exhibit A-12) is $378.79.

[134]

According to the evidence of Kathy Stitchman and Claire Bédard, these amounts received in cash were given to Henry Sztern.

[135]

There is no basis in the evidence for concluding that these two amounts received in cash were deposited in the bank as required by the Act and Rules.

[136]

The only reference to an in trust account for this purpose is in attachment 26 (account No. 0361664), and it can be seen from this that the amounts mentioned above, $2,000 and $3,500, do not appear on the dates on which they were received.

[137]

Consequently, the offences alleged in paragraph F. 8 must be upheld.

***

"G. Bankruptcy of Linh Khan Nguyen

9. In , the trustees made an unauthorized withdrawal of $84,000 from the trust account of the estate of Linh Khan Nguyen, thereby contravening subsection 25(1.3) of the Act. (attachments 28 and 29)"

[138]

It appeared from the evidence that a cheque having No. 39 for the sum of $84,000 was issued by Sztern on to ETK International Vehicule inc. This cheque was drawn on account 0335744 in the TD Bank, an in trust account for the bankruptcy of Linh Khan Nguyen (attachment 28).

[139]

On the back of cheque No. 39, it indicates that it was deposited in the account of Henry Sztern & Associés inc., referring to "re estate 338-492", which is the file of ETK International Terrestrial Vehicule inc. In the document "Deposit Account History, Financial Enquiry" (attachment 28), we find for that a cheque having No. 00000-0012105824 in the amount of $84,000 was cashed in.

[140]

In the Register Report on the same date, derived as we saw earlier from Sztern's "Quicken" computer system (attachment 28), cheque No. 39 referred to above is shown on the same date, namely , as having been used to purchase a TD Bank term deposit. This entry seems to be suspect to say the least, as we find in the document "Deposit Account History, Financial Enquiry" for file 338492 ETK International Terrestrial Vehicule inc. (attachment 29) a deposit of $84,000, which subsequently, on May 5, 1998, was used to pay a cheque of $84,000 (cheque No. 3, attachment 29) issued by Sztern to Hydraulic Industries Corporation to repay research and development costs.

[141]

The question raised by Henry Sztern's contention (his testimony of , pages 51 et seq.) is the following: did this sum of $84,000 represent a fee transfer authorized by section 25(1.3) of the Act?

[142]

First, there is no basis in the evidence for concluding that there was authorization from the Court in this regard.

[143]

Secondly, the overwhelming evidence regarding copies of resolutions filed as Nos. S-20 and S-21 is that the wording of those resolutions was to say the least doubtful (see testimony of Gordon Millen, May 6, 2008, pages 152 et seq.). Further, the very content of resolutions S-20 and S-23 does not represent approval by a majority of the inspectors, since only the signature of one inspector, Michel Ste-Marie, appears on resolution S-23.

[144]

The evidence indicated that the other signatory, Brigitte Dumouchel, was an administrator for Sztern.

[145]

The typed resolution filed by Sztern as No. S-20 cannot be conclusive, especially if we look at the testimony of Gordon Millen mentioned above.

[146]

However, there is more: the senior analyst Sylvie Laperrière filed as No. A-7 a copy of a letter from her counsel dated October 24, 2005 and sent to Henry Sztern at his request, attaching a series of documents from the guardian trustee and relating to the Linh Khan Nguyen file (30-497).

[147]

Among these documents is a copy of a letter from Henry Sztern dated October 25, 1999 to Andrew H. Heft, by which Sztern gave him an "Estimated Draft of the Accrued Receipts and Disbursements" in the Linh Khan Nguyen file.

[148]

This estimate prepared by Henry Sztern accompanying the letter of October 25, 1999 refers to the estimate of Henry Sztern's trustee fees at $14,750.

[149]

This is far from the claims made by Henry Sztern regarding the $84,000, which he maintained was a transfer of fees authorized by inspectors.

[150]

Finally, even if resolutions S-20 and S-23 were regarded as valid, how does one explain the difference between the fees mentioned therein totalling $83,644.66 ($74,191.13 + $9,454.53) and the cheque for $84,000, and how does one explain the mention in the "Detail Trial Balance" that this sum was used to purchase a term deposit?

[151]

Henry Sztern's evidence on this question of fees is not credible and essentially it can be seen from the documentary evidence as a whole, including the documents filed in attachment 29 for the ETK International Terrestrial Vehicule Inc. file, that the transfer of $84,000 in this file was made solely to cover a claim of the same amount made by Hydraulics Industries Corporation to reimburse research and development costs.

[152]

Consequently, the offence alleged in paragraph G. 9 must be upheld.

***

"H. Bankruptcy of LCT Metal Inc.

10.Between the months of and , the trustees made unauthorized withdrawals totalling $32,522.88 (including taxes) from the trust account of the estate of L.C.T. Metal Inc., thereby contravening subsection 25(1.3) of the Act. (attachments 30 and 31)"

[153]

Referring to attachments 30 and 31, the senior analyst Sylvie Laperrière testified that Sztern transferred fees totalling $69,000. In this regard she referred us to the cheques included in the said attachment 30, in the statement of "Receipts & Disbursments by Account" and in the "Registrar Report", both taken from the "Quicken" computer system used by Sztern, and also in the bank statements and "Deposit Account History" with regard to LCT Metal Inc. There is no doubt that this amount of $69,000 was transferred to Sztern.

[154]

Henry Sztern admitted that "there were no Court order sic issued approving the withdrawal of money from the bankruptcy estate trust account of LCT Metal Inc." (see admissions of Sztern on ).

[155]

This amount of $69,000 is higher than the agreed rate of 15% of realization of assets included in the inspectors' resolution of (attachment 30, page 3).

[156]

The two inspectors in this file were Dominique Gagné and Serge Noiseux, representatives of Hydro-Québec.

[157]

At the inspectors' meeting of October 17, 2002 (attachment 31), after Henry Sztern gave the inspectors his statement of translation "receipts and disbursements" for discussion purposes, which contained paid and accumulated trustee fees of $67,000 and disbursements of $2,831.57, the said inspectors refused to approve such fees and authorized them in the amount of $40,725.38 (paragraph 2 (d) of the resolution of October 17, 2002).

[158]

Further, in his "Trustee & Reamended Final Statement of Receipts and Disbursements" (attachment 31, paragraph 7) the trustee Henry Sztern referred to this reserve in connection with the request to authorize Sztern's fees of $67,000.

[159]

In his testimony Henry Sztern did not dispute the facts mentioned above. In his argument, he referred to a possible error in calculation by his employees and argued that the fees should be based on the time spent on the file, in addition to the percentage authorized by the inspectors.

[160]

This argument by Henry Sztern cannot stand. It will be recalled that nothing was done by Henry Sztern to be authorized to transfer fees other than those set by the inspectors.

[161]

Consequently, the amount transferred contrary to section 25(1.3) of the Act comes to $26,274.62 plus tax, or $32,522.88, and the offence alleged in paragraph H.(10) must be upheld.

***

"I. Bankruptcy of 176984 Canada Inc.

11. Between the months of and , the trustees made unauthorized withdrawals totalling $82,018.89 (including taxes) from the trust account of the estate of 176984 Canada Inc., thereby contravening subsection 25(1.3) of the Act. (attachment 32)"

[162]

In attachment 32 submitted by the senior analyst Sylvie Laperrière, we find a list of cheques which refers to the amounts transferred from the in trust account of 176984 Canada Inc. to Sztern's account, stretching from to . We also find a list of inspectors' resolutions authorizing the payment of fees to Sztern, namely those of and of .

[163]

Those authorizations total the sum of $53,165.73, including tax, whereas the transfers from the in trust account total $136,596.16, including tax: hence the alleged offence of an authorized transfer of $82,018.89.

[164]

Sztern admitted the following (see letter from Sztern on ):

"There were no Court orders issued approving the withdrawal of money from the bankruptcy estate trust account of 176984 Canada Inc. "

[165]

The evidence on this offence indicated the following:

(a)

Henry Sztern was acting as agent for the secured creditor in the said bankruptcy, namely the Banque Nationale de Paris;

(b)

the "Final Statement of Receipts and Disbursements" signed by Sztern in the file (Exhibit S-5) indicated that trustee fees amounted to $138,099.62.

[166]

Although the provisions of section 13.4 of the Act which applied in 1993 are different from those applicable at the present time, that is since 1997, a trustee acting for a secured creditor must obtain "a written opinion of a solicitor who does not act for the secured creditor that the security is valid and enforceable as against the estate", the offence alleged refers to a completely different subject.

[167]

Section 25(1.3) of the Act concerns the permission necessary to make a withdrawal or transfer from the trust account or trust of an asset.

[168]

In this file the evidence indicated that the amounts transferred to Sztern for fees were taken from the in trust account of 176984 Canada Inc., without any authorization from inspectors or the Court.

[169]

Consequently, offence I. 11, as alleged, must be upheld.

***

[170]

The next five offences are contained in paragraphs J. 12, J. 13, J. 14, J. 15 and J. 16 of the declaration of the senior analyst Sylvie Laperrière, and concern the file of Meco Limited.

"J. Bankruptcy of Meco Limited

12.Between the months of and , the trustees made eight payments totalling $173,105.59 to the lawyer of the estate from the trust account of the estate of Meco Limited without previously submitting their bill of costs to the court for taxation, thereby contravening subsection 197(4) of the Act and subsection 18(1) of the Rules (attachments 33, 34 and 35)"

[171]

In attachments 33, 34 and 35, we are given the source of the evidence submitted by the senior analyst Sylvie Laperrière. The counsel's fees paid amounted to a total of $619,604.63, as appears from eight cheques contained in an appendix to attachment 34.

[172]

It was also established that the counsel's fees were assessed in the amount of $446,499.04, including tax, paid by cable (taxation of ), leaving an amount paid in counsel's fees that was taxed of $173,105.59 (see attachment 35, letter to Lorne Goldman on and letter from Lorne Goldman on ).

[173]

In his letter of reply (), Lorne Goldman wrote the following regarding this amount of $173,105.59 which was paid to him and was not taxed (page 2):

"In respect to the other 1998–2000 invoices presented and of which you inquire, these have never been returned by the trustee since we sent them. We have not received proper Trustee Certificates for each reflecting of the amounts charged. Countless phone calls from myself and Me. Tiger and many letters did not succeed in obtaining same. We did receive a trustee's certificate without inspectors resolutions for some billing through the efforts of Bill Hafner before he left that office. The certificate figures did not match the invoices. Consequently, it is correct that these bills have never been taxed."

[174]

As to this, it appears from the inspectors' resolution of that they approved the payment before taxation of counsel's fees amounting to $25,284.80.

[175]

Using this approval Henry Sztern, extrapolating this inspector's approval to the sum of $173,105.59 and referring to the generally accepted procedure that everything is straightened out at the time of the Final Statement of Receipts and Disbursements, maintained that he was entitled to pay counsel's fees without their having first been taxed.

[176]

Finally, he submitted that section 197(4) of the Act and section 18 of the Rules do not apply to the offence alleged in J. 12.

[177]

He referred to section 30(1)(e) of the Act to support his right to pay fees before taxation.

[178]

Section 30(1)(e) of the Act reads as follows:

"30.(1) The trustee may, with the permission of the inspectors, do all or any of the following things:

(e) employ a barrister or solicitor or, in the Province of Quebec, an advocate or employ any other representative, to take any proceeding or do any business that may be sanctioned by the inspectors… "

[179]

This power of retaining the services of or employing counsel under that section does not preclude the application of section 197(4) of the Act, which determines the time of payment, and especially Rule 18, which determines the requirement that "all bills of costs for legal services must be taxed by the taxing officer" and "Bills of costs for legal services may be paid by the trustee without being taxed if they do not exceed in aggregate $1,000, excluding applicable federal and provincial taxes".

[180]

The offence mentioned in paragraph J. 12 must therefore be upheld.

***

"J.

13. On or about , the trustees wired a payment of $446,499.04 to "LORNE GOLDMAN 'IN TRUST'" from the trust account of the estate of Meco Limited, even though this lawyer's bill of costs was only taxed by order dated , thereby contravening subsections 25(1.3), 25(2) and 197(4) of the Act. (attachments 35 and 36)"

[181]

On this offence the senior analyst Sylvie Laperrière referred us to attachments 35 and 36.

[182]

It appeared from the evidence submitted that the sum of $446,499.04 was transferred translation "by cable" to the lawyer "Lorne Goldman in trust" on , that this sum as specified in the inspectors' resolution of represented 25% of the amounts collected and that the debit at the TD Bank of for $446,525.04 also included bank costs.

[183]

The transfer by cable was confirmed by the TD Bank representative Jacqueline Topikian (testimony of , pages 45 et seq.).

[184]

The evidence indicated that this sum represented counsel's fees and that the transfer was made before these costs were taxed. The taxation only took place on , over two years after the payment.

[185]

Do these facts constitute an offence pursuant to section 25(1.3) and 25(2) of the Act and section 197(4) of the said Act?

[186]

The answer must be in the affirmative and the offence mentioned in paragraph J. 12 of the declaration of the senior analyst Sylvie Laperrière must be upheld.

***

"J.

14. On or about , the trustees deposited in their account No. 0301637, "henry sztern & associés reg'd", 42 GST refunds (input credits) issued in the name of the debtor, Meco Limited, and totalling $52,145.03, rather than depositing them in the estate trust account, thereby contravening subsections 25(1) and 25(3) of the Act. (attachment 37, p. 5, and attachments 44 and 49)"

[187]

On Louis Nolet, senior assessment officer of the Office of the Superintendent of Bankruptcy, received from his hierarchical superior Raymond Villeneuve instructions to undertake an audit of a limited number of the bankruptcy files of Henry Sztern & Associés inc. and Henry Sztern, including that of Meco Limited (attachment 37, page 3).

[188]

In conducting his audit Mr. Nolet referred to the official receiver of Sztern's files, Gerry Baberio, to trustee Linda Lalande with the guardian trustee H.H. Davis & Associates Inc., to Sztern's file documents in the possession of the guardian trustee H.H. Davis & Associates Inc. and to the relevant banking documents.

[189]

These documents are found in attachments 44 and 49.

[190]

The conclusions of his inquiry into Meco Limited are to be found in pages 4 and 5 of attachment 37. At page 5 (para. D 32-1), he wrote the following:

translation

"32-1. Further, on or about the trustee Sztern deposited in his general account in the name of "H. Sztern & Associates Reg'd", No. 301-637, in the TD Bank, a group of cheques for GST refunds (input credits) issued in the name of the debtor Meco Limited. The total of the said cheques converted, which should have been deposited in the debtor's trust account, is $52,145.03."

[191]

Page D-32-2 of attachment 44 contains the detailed calculation in support of the deposit of a total of $52,145.03 in Sztern's account 301637 on (D-33).

[192]

Further, the cheques referred to by Mr. Nolet are refunds or payments from Revenu Québec and bear the stamp "Deposit only to the credit of Henry Sztern & Associates Reg'd 301632" (D-33).

[193]

Moreover, we find a deposit of $52,145.03 in the "Deposit Account History Financial Enquiry" of the Bank (D-33) and deposit coupon D-34 (attachment 44).

[194]

On this question of offence J. 14 Henry Sztern was silent, without even denying the facts entered in evidence.

[195]

It is clear that these sums of money were intended for the Meco Limited file and that Henry Sztern knowingly converted them to his personal account of Henry Sztern & Associates Reg'd. (301632).

[196]

These cheques should have been deposited in the Meco Limited in trust account.

[197]

The fact that persons other than Henry Sztern benefited from the amounts of money paid by cheque or otherwise from account 301632 of Henry Sztern & Associates Reg'd. does not in any way alter or diminish the duty which Henry Sztern had to deposit this amount of $52,145.03 in Meco Limited's in trust account.

[198]

Consequently, the offence mentioned in paragraph J. 14 is upheld.

***

"J.

15. Between the months of and , the trustees made unauthorized withdrawals totalling $492,957.82 (including taxes) of which $440,812.79 came from the trust account of the estate of Meco Limited and $52,145.03 from monies deposited to an account No. 0301637 opened under the name "H. SZTERN & ASSOCIÉS REG'D", thereby contravening subsection 25(1.3) of the Act. (attachment 37, p. 4–5 and 14, and attachments 44 and 49)."

[199]

Nolet was the principal witness on this allegation J. 15 in the report of the senior analyst Sylvie Laperrière.

[200]

Based on documents which he obtained from the guardian trustee H.H. Davis & Associates Inc., Mr. Nolet reviewed the Meco file. He also referred to the docket and minutes of inspectors in the said bankruptcy. In particular, he referred to attachment 44 (section D-6 and section D-18). The conclusions of his review are found at page 5 of attachment 37:

translation

"D18-2 p. 2 In conclusion, therefore, we must delete from the trustee Sztern's fee authorization an amount of $263,269.51, leaving only authorized fees totalling $588,790.89 (including tax). Since the trustee Sztern cashed a total amount of $1,029,603.68, it follows that he made unauthorized withdrawals amounting to $440,812.79 (including tax)."

[201]

If we add to this sum the amount included in offence J. 14, we get a total amount of $492,957.82 not authorized.

[202]

Mr. Nolet reviewed the various resolutions by the inspectors, those found in the file kept by the guardian trustee H.H. Davis & Associates Inc. and those given to him by one of the inspectors, Denis Monette.

[203]

As a result of his review, he came to the conclusion that three of the said resolutions appeared to be false.

[204]

The three questionable resolutions are found at pages D-18-15-1 et seq., D-18-16-1 et seq. and D-18-17-1 et seq. of attachment 44, respectively having the dates of , and .

[205]

Exhibit A-30 (D-18-1, D-18-2 and D-18-3) contains the calculation showing that the alleged unauthorized fees amounted to $228,880.25 before tax and $263,269.51 after tax. On page D-18-2 of Exhibit A-30, there are calculations leading to the alleged unauthorized withdrawals by Sztern in the amount of $492,957.82.

[206]

The disputed resolutions mentioned above, which according to document D-18-1 refer to an amount of $263,269.51 actually transferred to Sztern as fees, were the subject of a lengthy debate. Inter alia, Lynda Lalande of the guardian trustee H.H. Davis & Associates Inc. and Denis Monette were examined on this matter.

[207]

After reviewing the Meco file Lynda Lalande (testimony of May 6, 2008, pages 23 et seq.), stated that unlike the other inspectors' resolutions in the file, the disputed resolutions were not accompanied by any document showing transmission to the inspectors nor any documents originating with the inspectors.

[208]

Denis Monette testified (Exhibit A-13, pages 58 et seq.) that the signature "Denis Monette" on the resolution of was not his signature, the one for February 16 appeared to be his but of a smaller size than the one on the resolution of (D-18-13-1 of attachment 44) and that the one for was not signed by him and was not part of his file.

[209]

The disputed resolutions were submitted to Sonia Michaud for an expert opinion. The conclusions in her expert opinion are found at Exhibit A-13 (pages 176 et seq.) and Exhibit A-31 (affidavit and report):

translation

"5. conclusions

(…)

3. The signature "Denis Monette" on Exhibit 5 was reproduced from the original signature on Exhibit 19 or a copy thereof (Exhibit 6).

4. The signatures "Jean-Pierre Christophory" on Exhibits 7 and 8 were reproduced from the same original signature or a copy thereof.

5. The signatures "Armand Corbeil" on Exhibits 9 and 10 were reproduced from the same original signature or a copy thereof."

(Sonia Michaud's testimony in the Superior Court is contained in Exhibit A-13 and was entered in the instant case to have effect as such.)

[210]

Further, the evidence indicated that the Superior Court docket of the Meco Limited case contains no authorization by the Court for fees to be paid to the trustee Sztern.

[211]

In defence, the latter referred to the resolution of and maintained that the amount in dispute concerning the fees, including the sum of $52,145.03 discussed in offence J. 14, came to a total of $430,439.54. This contention must be dismissed: the resolutions in dispute were identified as being those of , and and Mr. Nolet's calculations follow from that. He reduced accordingly the fees specified in the other resolutions, including that of which was not disputed.

[212]

On the fees authorized by the resolution of , Henry Sztern maintained based on the cross-examination of Denis Monette that the sum authorized was $500,000 before tax, not $400,000 as alleged.

[213]

The testimony of Denis Monette (Exhibit A-13, pages 92 et seq.) on this resolution indicates that the sum authorized was $500,000. However, to qualify this resolution one must, as Mr. Monette did, refer to the actual terms of the resolution on (D18-12-1, attachment 44), which reads as follows:

"In addition the Trustee advised the Inspectors that his fees and costs to totalled $400,000 and $100,000. (relative to Nathan Schulman's time involvement) respectively."

[214]

The amount of $100,000 authorized refers to the word "cost" in the sentence. That is the understanding which Denis Monette had of it (page 94 of Exhibit A-13, lines 10 et seq.).

[215]

Accordingly, we have to conclude that the authorization included the sum of $100,000 representing the costs of Nathan Shelman and $400,000 fees for Sztern.

[216]

Sztern clearly cannot rely on this resolution, as defined by its wording and the testimony of Denis Monette, to justify the transfer of fees of $500,000 in his name.

[217]

Further, no accounting mention or reference specifically relates to this authorization which Sztern claimed was $500,000.

[218]

Henry Sztern referred to Exhibit S-22 to justify the transfer of fees. It is true that Exhibit S-22, an agreement made between Sztern and James Leggett, the secured creditor in the Meco file, stated that Sztern acting as Leggett's agent "shall be entitled to FIFTY (50%) percent of the ultimate realization of the proceeds of the Federal sales tax claim".

[219]

This agreement, dated , was not disputed by the senior analyst Sylvie Laperrière. Under the agreement, Sztern would accordingly be entitled to 50% of $1,532,406.79, as established by the evidence, as agent for the secured creditor Leggett.

[220]

If that was the case, and Henry Sztern relies on this agreement to justify the fees transferred, how do we explain the various inspectors' resolutions authorizing fees to Sztern of $588,790.89, excluding the resolutions of ($28,037.63, including tax), ($45,492.39, including tax) and ($189,739.49, including tax), or $263,269.50, for a grand total of $852,060.40? It will be recalled that these withdrawals made by Sztern amounted to $1,029,603.68.

[221]

This argument by Henry Sztern does not stand up. Mr. Nolet's accounting analysis appears to be consistent with the accounting and banking documents and the inspectors' resolutions. The cheques and bank statements filed under D-13-1 et seq. of attachment 44 would seem to be consistent with the document filed as No. A-30 (D-18-1, D-18-2 and D-18-3).

[222]

Alternatively, Henry Sztern argued that only the signatures of Denis Monette were given to Sonia Michaud for an expert opinion, and that if the undersigned accepted Sonia Michaud's conclusions the fact remained that the signatures of the other inspectors, Mr. Corbeil and Mr. Christophory, made the said resolution valid.

[223]

To begin with, Ms. Michaud's expert opinion concluded, on the contrary, that the signatures of Jean-Pierre Christophory and Armand Corbeil on the resolution of translation "were reproduced from the same original signature or a copy thereof".

[224]

Secondly, whatever the authenticity of signatures other than that of Denis Monette, the latter's false signature on the three disputed resolutions makes the said resolutions void.

[225]

There is no question that Henry Sztern used the said invalid resolutions to make fee transfers and that those fees were transferred without proper authorization.

[226]

On the evidence as a whole, the undersigned accepts the testimony of Mr. Nolet, Sonia Michaud, Denis Monette and Lynda Lalande.

[227]

Further, no mention was made in the various resolutions by the inspectors of Sztern's fees following the agreement with Leggett, nor was there any mention in the file of compliance with the provisions of section 13.4 of the Act.

[228]

Consequently, the offence mentioned in J. 15 must be upheld as stated.

***

"J.

16. The trustees signed false minutes from a meeting of inspectors dated and associated themselves with two other false minutes from meetings of inspectors dated and , by using them to withdraw fees totalling $212,658.51 (including taxes) from the trust account of the estate of Meco Limited, thereby contravening section 13.5 of the Act and sections 36 and 45 of the Rules (attachment 37, p. 5 and attachment 44)."

[229]

The evidence showed both by the testimony of Denis Monette and that of Sonia Michaud (Exhibits A-13 and A-31) that Denis Monette did not sign the resolution.

[230]

As to the other two resolutions, those of February 16 and , as we saw earlier the evidence showed, through the expert opinion prepared by Sonia Michaud, that Denis Monette's signature, though it appeared to be in his handwriting, was the result of a copy.

[231]

On the resolutions of , as we have seen, the expert evidence prepared by Sonia Michaud was that the signatures of Jean-Pierre Christophory and Armand Corbeil were also the result of copies.

[232]

In view of Sztern's control over the Meco file, the fact that on the face of the said resolutions Henry Sztern acted as president, the use made by Henry Sztern of the said resolutions to transfer fees, his involvement in the said file, especially if we look at the agreement made with the secured creditor James Leggett, it seems quite clear that Henry Sztern knew or reasonably should have known that the said resolutions contained false signatures and were misleading.

Consequently, offence J. 16 must be upheld as alleged.

***

"K. Bankruptcy of Eric Lacroix

17. Between the months of and , the trustees made unauthorized withdrawals totalling $18,133.73 (including taxes) from the trust account of the estate of Éric Lacroix, thereby contravening subsection 25(1.3) of the Act (attachment 37, p. 6–7, and attachments 45 and 49)"

[233]

The evidence of the senior analyst Sylvie Laperrière on this offence comes from Louis Nolet and his review of the Lacroix file, based on the documents in the possession of the guardian trustee H.H. Davis & Associates Inc., the civil docket and banking documents. These documents are found in E-7 et seq. of attachment 45.

[234]

In his report on the Éric Lacroix file (attachment 36, page 6), Mr. Nolet for the reasons described therein and after reviewing the said documents, came to the conclusion that based on the accounting documents Sztern transferred unauthorized fees amounting to $18,133.73 by the following cheques:

June 8, 2000
cheque No. 9
$2,032.73
July 6, 2000
cheque No. 10
$4,000
April 20, 2001
n/a
$4,601
October 25, 2001
cheque No. 19
$7,500
 
 
 
$18,133.73
[236]

In the Receipts and Disbursements by Account (E-8), we find a credit amount of $18,137.62, which is the same amount as that appearing in the Register Report of "Quicken", the system used by Sztern (E-9.2).

[237]

However, the Deposit Account History (E-11.1 et seq. of attachment 45) shows withdrawals by cheques made out to Sztern (E-13.1 et seq.) totalling $18,133.73.

[238]

The account statement of TD Canada Trust (re: Éric Lacroix) shows a balance at of $3.89 (E-10).

[239]

There is no doubt that this amount of $18,133.73 was transferred to Sztern.

[240]

The question that arises is as to whether this amount transferred as fees was authorized by the inspectors or by the Court.

[241]

A check of the docket indicates that neither the tribunal nor the Court authorized such fees.

[242]

No inspector's minutes and no document indicating the appointment of inspectors were found in the file in the possession of the guardian trustee H. H. Davis & Associates Inc.

[243]

The only document in the file that might refer to the inspectors is contained in the trustee's report on the application for discharge (section 170(1) of the Act, documents E-5-1 et seq., attachment 45). This report was signed by Bill Hafner, a trustee employed by Sztern. At note 23 of the said report there is a reply to the question translation "Did the inspectors approve this report?" that is, to say the least, ambiguous.

[244]

As for questions 20, 21 and 22, we find the indication "N/A" (not applicable) and an "X" in the reply translation "Yes". This report is dated . Further, it is noted in the said report, at note (1), that Fiducie Desjardins was informed of the trustee's right to the debtor Lacroix's RRSP totalling $18,170.

[245]

Even if we accept Henry Sztern's argument that the references to the 170(1) report are an indication that there were minutes of the first meeting of the creditors, appointment of an inspector, and, consequently, authorization of the fee transfer, how does one explain the fact that Sztern's fees were transferred between and (see E-13-1, attachment 45), while the amounts received from Fiducie Desjardins, as indicated in the Register Report, fall between and , totalling $18,334.44, as confirmed by the Deposit Account History Financial Enquiry (document E-11-2, attachment 45), and how does one explain that as to fees nothing is entered in the Register Report, a Sztern computerized document, on the dates of the cheques (E-13-2 et seq., attachment 45) made out to Sztern and debited to the account of Éric Lacroix (Exhibit E-11-2 et seq. of attachment 45)?

[246]

In the Register Report, the balance after the last entry of was $18,137.62, and on the same date in the bank's Deposit Account History, the account balance was $386.11.

[247]

No fee transfer appearing in the Deposit Account Financial Enquiry (E-11-2 et seq.) by the cashing of cheques (E-13-1 et seq.) appears in the Register Report.

[248]

This confusion supports the evidence that there was no inspector resolution and offence K. 17 must be upheld.

***

"L. Bankruptcy of 9084-8144 Quebec Inc.

18. On or about , the trustees made an unauthorized transfer of $20,000 from the trust account of the estate of 9084-8144 Quebec Inc. to their account No. 0301637, « H. SZTERN & ASSOCIÉS REG'D », thereby contravening subsection 25(1.3) of the Act. (attachment 37, p. 8, and attachments 46 and 49)"

[249]

On this offence, the evidence was submitted by Louis Nolet based on his analysis of the file from documents found with the guardian trustee H.H. Davis & Associates Inc. and banking documents. It was established that, following the first meeting of creditors on , no inspectors were appointed (F-6.2, attachment 47).

[250]

This transcript came to the Office of the Superintendent of Bankruptcy by a letter of , which also attached a copy of the preliminary report (F-6.1).

[251]

On an amount of $21,000 received in trust from Pierre Robillard (F-9.1) for the bulk sale of the debtor company was deposited in the in trust account (F-8, attachment 47). On the same day a transfer of the sum of $20,000 was made to account No. 301637 of Henry Sztern & Associated Reg'd (personal).

[252]

In the bank's Deposit Account History Financial Inquiry, we find a deposit of $20,000 on , and on the same day a transfer of $20,000 with the notation "BCRS", which on the evidence was a transfer to the line of credit (F-13).

[253]

There are the same entries in the Register Report produced by Sztern's "Quicken" system, where the transfer of in the amount of $20,000 is noted with the word "FEES" (F-14.5).

[254]

In defence, Henry Sztern relied on the absence of instructions to his employees and their possible error. He added that he relied on the information he was given.

[255]

The undersigned rejects Henry Sztern's testimony.

[256]

How can one believe such testimony when the evidence showed that he was the only one who managed and controlled the trust accounts and transfers of money to account No. 301637, Henry Sztern & Associates Reg'd?

[257]

If by chance Henry Sztern had argued that, as there was no inspector, he had the necessary authority to authorize the transfer, by a power of attorney, this procedure would be contrary to section 113(2) of the Act.

[258]

Furthermore, in the Superior Court docket it appears that no fees were authorized for Sztern.

[259]

Offence L. 18 must accordingly be upheld.

***

"M. Service de Mini-Remorque H.C.H. Inc.

19. Between the months of and , the trustees made unauthorized withdrawals totalling $46,107.40 (including taxes) from the trust account of the estate of Service de Mini-Remorque H.C.H. Inc., thereby contravening subsection 25(1.3) of the Act. (attachment 37, p. 9-10, and attachments 47 and 49)"

[260]

On this offence, the evidence was also submitted by Louis Nolet following a review of the offences and an analysis of the file (attachments 37 and 47, testimony of , pages 8 et seq.).

[261]

According to the first meeting of creditors two inspectors were appointed, but no fees were authorized (G 5.2, attachment 47).

[262]

However, on the inspectors authorized fees of $4,000 plus tax (G-8.2.4).

[263]

As in the preceding files, Mr. Nolet made his analysis on the basis of the same Sztern accounting documents and bank documents, including the Final Statement of Receipts and Disbursements submitted to the Superintendent (attachment 47, G 13.1).

[264]

That analysis showed that Henry Sztern withdrew from the trust account the sum of $55,241.05 (G-4.7.5, attachment 47) including tax, or $49,360, as fees and $5,881.05 as disbursements.

[265]

On , on submission of the Final Statement of Receipts and Disbursements by the trustee, the Court pursuant to section 152 of the Act taxed the disbursements in the amount of $14,509.75 and the trustee Sztern's fees in the amount of $6,993.67 (G-14.3).

[266]

These two amounts appear in the trustee's Final Statement of Receipts and Disbursements (G-13.1).

[267]

The amounts transferred by Sztern as fees and disbursements, including the applicable taxes, appear in reconciliation G 47.1 to G 47.5.

[268]

The summary of calculations is found at page G 47.5, indicating that the excess amounts transferred to Sztern came to $46,107.40.

[269]

This reconciliation was, as we have already noted, made on the basis of the accounting and banking documents in the file, including the Final Statement of Receipts and Disbursements (G-14.1) signed by Sztern.

[270]

Henry Sztern's testimony was that there was an error by his employees, which cannot be accepted in view of the control he exercised or should have exercised.

[271]

No evidence was presented to contradict the analysis made by Louis Nolet.

[272]

Offence M. 19 must accordingly be upheld.

***

"N. Bankruptcy of Kenneth Roy Sinclair

20. Between the months of and , the trustees made unauthorized withdrawals totalling $77,423.67 (including taxes) from the trust account of the estate of Kenneth Roy Sinclair, thereby contravening subsection 25(1.3) of the Act. (attachment 37, p. 10-11, and attachments 48 and 49)"

[273]

By his defence and testimony Henry Sztern denied the unauthorized transfer of fees and found his principal basis for challenge in the document filed as No. S-11.

[274]

Before analyzing this question of document S-11, we should look at the evidence presented by Mr. Nolet. His review was based, as with the other offences, on the documents in the file and on the banking documents (attachment 37, pages 10 et seq.). As indicated on page 11 of his report, he referred to the documentation found in attachment 48 and inter alia to the transcript of the first meeting of the creditors (H.5) and the accounting documents (H.14 et seq.).

[275]

In that documentation are found the cheques, the Deposit Account History and the Register Deposit, which indicate that the trustee transferred fees amounting to $77,423.67 without authorization.

[276]

I agree with the conclusion put forward by Mr. Nolet.

[277]

It only remains to consider the exhibit filed as No. S-11, an affidavit by the inspector Margaret Regan containing as an appendix a resolution of the inspectors dated October 10, 2000.

[278]

That resolution was only signed by Henry Sztern. No signature by Margaret Regan appears on it.

[279]

That resolution apparently approved fees including tax and disbursements for a total of $67,864.75.

[280]

Both in her testimony (Exhibit A-13) and her affidavit (Exhibit S-11), Margaret Regan not only denied the content of the resolution but also the existence of such a meeting.

[281]

The undersigned accepts the testimony of Margaret Regan and rejects the claims by Henry Sztern that the resolution of October 10, 2000 is valid.

[282]

If I were to accept Sztern's defence, how would one explain the fact that the attached resolution (S-11) approved fees and disbursements totalling $67,864.75 when, according to the accounting reconciliation by Mr. Nolet, the total unauthorized transfers were $77,423.67, leaving an unexplained amount of $9,558.92?

[283]

Consequently, resolution S-11 must be set aside and considered non-existent, and offence N. 20 must be upheld.

***

"O. Submitting falsified bank statements to the Official Receiver

22. The trustee Henry Sztern, in the following consumer proposal files:

Richard Archambault & Andrée Jean (41-235334/35),

Michel Jobin & Diane Bouchard Jobin (41-240676/77),

Denis Dufour & Linda Bouchard (41-241615/16)

Marcel Lavoie (41-270213),

falsified bank statements for the period from Nov. 29/02 to Dec. 31/02, copies of which were submitted on to representatives of the Office of the Superintendent of Bankruptcy, thereby contravening section 13.5 of the Act and sections 36, 39 and 45 of the Rules. (attachment 38) 

23. The trustee faxed falsified bank statements on or about to representatives of the Office of the Superintendent of Bankruptcy in the following consumer proposal files :

Rachel Chartrand (41-240055), (attachments 39 and 40)

Michel Jobin & Diane Bouchard Jobin (41-240676/77), (attachments 38 and 39)

Marcel Lavoie (41-270213), (attachments 38 and 39)

Bernard Séguin (41-230928), (attachments 39 and 40)

Richard Archambault & Andrée Jean (41-235334/35), (attachments 38 and 39)

Rémi Dumais & France Beauregard (41-239883/84), (attachments 39 and 42)

thereby contravening section 13.5 of the Act and sections 36, 39 and 45 of the Rules.

24. The trustee faxed falsified bank statements for the consumer proposal file of Denis Dufour and Linda Bouchard on or about to representatives of the Office of the Superintendent of Bankruptcy, thereby contravening section 13.5 of the Act and sections 36, 39 and 45 of the Rules. (attachment 43)"

[284]

These various offences will be dealt with together. The allegation in each of these offences was that the bank statements filed by Sztern with representatives of the Office of Superintendent of Bankruptcy in consumer proposal files O. 22, O. 23 and O. 24 were false bank statements.

[285]

For these three groups of offences, the filing of these bank statements by Henry Sztern referred to specific dates :

O. 22:

this filing was allegedly made between and ;

O. 23:

this filing was allegedly made on or about ; and finally,

O. 24:

this filing allegedly took place on or about .

[286]

The evidence refers us to attachments 38, 39 and 43.

[287]

The documents contained were assembled by Mr. Baberio or Gilles Lavallée and given after review to the senior analyst Sylvie Laperrière (testimony of Mr. Baberio on , pages 18 et seq., and testimony of Gilles Normand Lavallée of , pages 96 et seq.).

[288]

Mr. Baberio explained that after receiving complaints he went to Sztern's office with Gilles Lavallée. On he met with Henry Sztern and Elizabeth Tansery. Henry Sztern told them that the documents which were the subject of their inquiry were on a conference table, primarily the banking documents and accounting files. Noting that there was certain missing information, they decided to copy what they had in hand and take the said documents to the Office of the Superintendent of Bankruptcy.

[289]

Mr. Baberio subsequently made a comparative review based on these documents and the Deposit Account History from the TD Bank and found significant differences between the two documents.

[290]

If we refer to attachment 38 we find, in the Richard Archambault and Andrée Jean file, that the bank account statement (page 3) at shows a balance of $3,845.07, while the balance at the same date in the Deposit Account History Financial Enquiry of the TD Bank is nil (page 4).

[291]

In the Michel Jobin and Diane Bouchard file, the bank account statement shows a balance at , of $7,704.24 (page 7), while a balance of $600 appears in the Deposit Account History Financial Enquiry (page 8).

[292]

In the Denis Dufour and Linda Bouchard file, the balance on the bank account statement at is $5,430.58 (page 11), while in the Deposit Account History Financial Enquiry it is $0.58 (page 12).

[293]

Finally, in the Marcel Lavoie file, the balance in the bank account statement is $1,699.08 (page 14) while the Deposit Account History Financial Enquiry at the same date is $215 (page 15).

[294]

On the second series of offences, O. 23, the evidence is in attachment 39 where, in response to a request from Gilles Lavallée dated about bank statements, he received by fax dated from Elizabeth Tansery the documents requested in part, those concerning the Rachel Chartrand, Michel Jobin and Diane Bouchard, Marcel Lavoie, Bernard Séguin, Richard Archambault and Andrée Jean, and Rémi Dumais files.

[295]

Mr. Baberio did the same for these bank statements and the Deposit Account Financial Enquiry for each of the files.

[296]

The differences found in attachments 38 and 39 are the following:

Differences found in attachments 38 and 39
Bank statement Date Deposit Account History
Financial Enquiry
Rachel Chartrand p. 3, Att. 39 $1,959.67 15/01/2003 p. 10, Att. 40 $440
Michel Jobin
Diane Bouchard
p. 8, Att. 39 $4,104.24 27/01/2003 p. 8, Att. 38 $914.49
Marcel Lavoie p. 9, Att. 39 $2,214.08 10/01/2003 p. 15, Att. 38 $0
Bruno Séguin p. 10, Att. 39 $1,008.94 21/01/2003 p. 2, Att. 41 $1,099.71
Richard Archambault et Andrée Jean p. 3, Att. 38 $3,845.07 04/12/2002 p. 4, Att. 38 $0
Rémi Dumais p. 16, Att. 39 $18,687.33 22/01/2003 p. 12, Att. 42 $1,619.89
[297]

Finally, on offence O. 24, on , Mr. Baberio received from Sztern the bank account statement of the Denis Dufour and Linda Bouchard file indicating a balance at of $5,430.50 (attachment 43), whereas the Deposit Account History Financial Enquiry on the same date indicated a negative balance of -$39.42.

[298]

Additionally, the evidence in this file indicated that an NSF cheque (No. 41) of $197.82 dated appears in the Deposit Account History Financial Enquiry, page 5 of attachment 43, whereas it does not appear in the bank account statement faxed by Sztern on .

[299]

To this should be added the testimony of the TD Bank representative, Ms. Topikian, who confirmed the differences between the two documents and noted that there could not be an entry for cheque No. 41, an NSF cheque, without a deduction from the account found in the bank statement in the Rémi Dumais file, namely that from to .

[300]

It will be recalled that Exhibits S-3, A-22 and A-29 are identical and that they are photocopies.

[301]

I therefore came to the conclusion that the bank statements provided by Henry Sztern in respect of offences O. 22, O. 23 and O. 24 are false.

[302]

In the cross-examination Henry Sztern did try to challenge not only the chain of possession of the documents filed but also the lack of originals, suggesting that the documents filed in support of offences O. 22, O. 23 and O. 24 had been manipulated. He failed in his attempt.

[303]

He also mentioned a possible error by employees. Here again, his claim cannot stand.

[304]

As we saw earlier, Henry Sztern had control of operations and was responsible for the actions of his employees, and knew or should have known that the documents submitted were false and were not a true statement of the situation in the said files.

[305]

Consequently, offences O. 22, O. 23 and O. 24 must be upheld.

Penalties

[306]

The letter of served on Sztern sets out the recommendations sought by the senior analyst Sylvie Laperrière. Making the amendments introduced, they should read as follows:

"Those recommendations, which will be provided to the Superintendent at the time of the hearing provided for under subsections 14.02(1) of the Bankruptcy and Insolvency Act, are as follows:

that the corporate licence of Henry Sztern & Associés inc. be cancelled;

that the licence of Henry Sztern be cancelled;

that trustees Henry Sztern & Associés inc. and Henry Sztern solidarily, make restitution to the trust accounts of 399 summary administration estates in the total amount of $156,205.48; [B. 2]

that trustees Henry Sztern & Associés inc. and Henry Sztern solidarily, make restitution to the trust accounts of 201 consumer proposal files in the total amount of $574,687.91; [B. 3]

that trustees Henry Sztern & Associés inc. and Henry Sztern solidarily, make restitution to the estate of Pisos Inc. in the amount of $2,000; [F. 8]

that trustees Henry Sztern & Associés inc. and Henry Sztern solidarily, make restitution to the estate of Création Liboria Ltée in the amount of $3,500; [F. 8]

that trustees Henry Sztern & Associés inc. and Henry Sztern solidarily, make restitution to the estate of Linh Khan Nguyen in the amount of $84,000; [G. 9]

that trustees Henry Sztern & Associés inc. and Henry Sztern solidarily, make restitution to the estate of L.C.T. Metal Inc. in the amount of $32,522.88; [H. 10]

that trustees Henry Sztern & Associés inc. and Henry Sztern solidarily, make restitution to the estate of 176984 Canada Inc. in the amount of $82,018.89; [I. 11]

that trustees Henry Sztern & Associés inc. and Henry Sztern solidarily, make restitution to the estate of Meco Limited in the amount of $492,957.82; [J. 15]

that trustees Henry Sztern & Associés inc. and Henry Sztern solidarily, make restitution to the estate of Éric Lacroix in the amount of $18,133.73; [K. 17]

that trustees Henry Sztern & Associés inc. and Henry Sztern solidarily, make restitution to the estate of 9084-8144 Québec Inc. in the amount of $20,000; [L. 18]

that trustees Henry Sztern & Associés inc. and Henry Sztern solidarily, make restitution to the estate of Service de Mini-Remorque H.C.H. Inc. in the amount of $46,107.40; [M. 19]

that trustees Henry Sztern & Associés inc. and Henry Sztern solidarily, make restitution to the estate of Kenneth Roy Sinclair in the amount of $77,423.67; [N. 20] "

[307]

By a letter of the senior analyst Sylvie Laperrière withdrew her recommendations on offences J. 15, K. 17, L. 18, M. 19 and N. 20, namely the last five requests.

[308]

We are persuaded from the evidence submitted as a whole that Henry Sztern & Associates Inc. and Henry Sztern personally disregarded the provisions of the Bankruptcy and Insolvency Act and the Rules made thereunder. The Sztern trustees, by accounting directions to their employees that were to say the least questionable and illegal or by other means, knowingly converted to their own use large sums of money, without regard to those to whom they were accountable.

[309]

By their actions they disregarded the high standards of ethics required, which are central to the maintenance of public trust in administration of the Act (section 34 – Bankruptcy Rules).

[310]

They used subterfuges and even falsified documents, knowing them to be false, to conceal the true state of files controlled or administered by them pursuant to the Act and Rules made thereunder.

[311]

Henry Sztern's attempts at explanations and his testimony were full of inaccuracies, facts owing more to his imagination than to the truth: his conduct before the undersigned, including many references to possible misconduct by third parties, was not that of a responsible professional.

[312]

There is no question that, based on the overwhelming evidence submitted, Henry Sztern and Henry Sztern & Associés inc. knew of the irregularity of the said transfers of funds.

[313]

In my opinion, the respondents had systematically anticipated the fees to be earned, without the necessary authorizations under the Act and Rules, whether authorization by inspectors or by the Court.

[314]

There was no application to renew the licences of the trustees Henry Sztern & Associates Inc. and the trustee Henry Sztern.

[315]

The undersigned further concludes that there should be reimbursement to the estates of the files discussed above at the date of the taking of possession by the trustee H.H. Davis & Associates Inc., namely , and in accordance with the proceedings filed in the Superior Court of Montreal and their outcome, if any.

[316]

In this regard, the undersigned requests the senior analyst Sylvie Laperrière to submit her written representations to him within 30 days of the date of this decision and Henry Sztern to file his reply to those representations within the next 30 days thereafter.

accordingly :

cancels for all legal purposes the corporate trustee licence of Henry Sztern & Associés inc.;

cancels for all legal purposes the trustee licence of Henry Sztern;

reserves decision on the other penalties sought.

montréal,

andré deslongchamps



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

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