Georges E. Marchand, Bruno Marchand and Marchand Syndic Inc.—June 30, 2010

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 OF MONTRÉAL

IN RE DISCIPLINARY PROCEEDINGS PURSUANT TO THE BANKRUPTCY AND INSOLVENCY ACT (hereinafter "the Act")

BETWEEN:

MICHEL LEDUC

Senior Analyst in Montréal Regional Office of Superintendent of Bankruptcy) (hereinafter "THE SENIOR ANALYST")

AND

GEORGES E. MARCHAND (hereinafter "GEORGES")

and

BRUNO MARCHAND (hereinafter "BRUNO")

and

MARCHAND SYNDICS INC. (hereinafter "MSI")
(hereinafter cumulatively "the TRUSTEES")

PRESIDING:
THE HONOURABLE BENJAMIN J. GREENBERG, Q.C., ARB. A.

Delegate of Superintendent of Bankruptcy (hereinafter "the DELEGATE")


Montréal,

Table of contents

  1. Introduction
  2. Arguments of Senior Analyst
  3. Arguments of Trustees
  4. Discussion and Analysis
  5. Conclusions
  6. Final Provisions
  7. Disposition

Corrected decision on penalties

I. Introduction

  1. On we issued our "Final Corrected Decision at Stage of Determining Questions of Ethical Liability of Trustees" (the "DECISION OF ") on the 140 counts alleged against the TRUSTEES.
  2. In addition to the terms defined herein, all the names and terms placed in capitals in the instant DECISION ON PENALTIES have the same meaning as they are given in the DECISION OF . Moreover, in order to eliminate repetition in the instant DECISION ON PENALTIES of several findings of fact and law set out in the DECISION OF , all those findings are incorporated by reference in the instant DECISION ON PENALTIES.
  3. In the disposition of the DECISION OF , we have:
    1. noted that 31 counts were considered to have been deleted or withdrawn by the SENIOR ANALYST;
    2. ordered a conditional stay of proceedings on 36 counts;
    3. found and declared one, two or all of the TRUSTEES not liable on 40 counts;
    4. approved the admission by the three TRUSTEES of their liability and held the three TRUSTEES liable on count 140; and
    5. found and held liable the three TRUSTEES, or GEORGES and MSI, or BRUNO and MSI, on 34Footnote 1 counts.
  4. We must now impose PENALTIES on the 35 counts on which the TRUSTEES, or two of them, have been held liable.
  5. Like the imposition of a sentence in criminal law, the determining of PENALTIES without a proceeding, such as the one at bar, is the most delicate task that a judge or other adjudicator can be called on to perform.
  6. Since the DECISION OF , we have received and considered the written submissions of the Parties, namely:
    a)
    the [TRANSLATION] "Arguments of the Senior Analyst on Imposition of Penalties", dated ;
    b)
    the [TRANSLATION] "Submissions on Sentencing" by the TRUSTEES, dated ;
    c)
    the [TRANSLATION] "Plan of Argument of the Senior Analyst", dated ; and
    d)
    the [TRANSLATION] "Supplementary Submissions on Sentencing of the TRUSTEES", not dated.
  7. The hearings on PENALTIES were held on and , and , 2009 and on and , 2010. We then heard five witnesses: the SENIOR ANALYST, Paula Brooks for the guardian trustee H.H. Davis & Associés, and Sylvie Laperrière, another senior analyst responsible to the SUPERINTENDENT, for the prosecution, and the two individual TRUSTEES for the defence.
  8. During the testimony and otherwise the witnesses for the SENIOR ANALYST filed 100 exhibits, one of which, general exhibit AS-74, contained 14 tabs for separate exhibits, and 57 exhibits by the TRUSTEES, one of which, general exhibit SGS-28 contained 55 tabs for separate exhibits.
  9. There were thus a total of 224 exhibits filed at the hearing on PENALTIES, aside from the many references of commentary and case law. We have considered all of these.
  10. By mutual agreement between the Parties, for the purposes of section 14.02(4) of the Act the "conclusion of the hearing" is set at , the date the DELEGATE received the Transcripts of Hearings for and 16, 2010.
  11. At the time of the testimony by the SENIOR ANALYST on , several objections made by Mr. Gervais were taken under advisement. In this regard, Mr. Tremblay argued that the Supreme Court of Canada's decision in R. v. GardinerFootnote 2 applies in the instant case.
  12. In Gardiner, the Supreme Court of Canada said the following:

    It is a commonplace that the strict rules which govern at trial do not apply at a sentencing hearing and it would be undesirable to have the formalities and technicalities characteristic of the normal adversary proceeding prevail. The hearsay rule does not govern the sentencing hearing. Hearsay evidence may be accepted where found to be credible and trustworthy. The judge traditionally has had wide latitude as to the sources and types of evidence upon which to base his sentence. He must have the fullest possible information concerning the background of the accused if he is to fit the sentence to the offender rather than to the crime.

  13. Mr. Tremblay argued that Gardiner is applied in Quebec disciplinary law and should be applied in disciplinary law under the Act. On we wrote counsel asking them to submit memorandums on this point in turn.
  14. Counsel have done this, with supporting case law and authorities.Footnote 3 We have reviewed their submissions and considered them.
  15. In our view, the arguments relied on by Mr. Gervais in his submission of went to the question of the weight and evidentiary value of the evidence to which he objected, rather than its admissibility.
  16. In short, as with the applicability of the Supreme Court decisions in Stinchcombe and Kienapple in disciplinary proceedings under the Act, we see no good reason not to recognize it for Gardiner.
  17. Consequently, the said objections made by Mr. Gervais on and taken under advisement are dismissed.
  18. In their written submissions and at the hearings, counsel for either side put forward recommendations as to the PENALTIES which, as they saw it, should be imposed on the TRUSTEES.
  19. The recommendations for the SENIOR ANALYST evolved in three stages. The first were set out in the letter from the SENIOR ANALYST to the TRUSTEES dated April 2, 2004,Footnote 4 the day following his Report in the instant case; the second on ;Footnote 5 and the third on .Footnote 6 His recommendations are set out in tabular form below:
    His recommendations are set out in tabular form below:
    Trustee Date Recommendation that:
    GEORGES His licence be suspended for a period of 15 months
    GEORGES His licence be suspended for a period of 9 months
    GEORGES His licence be suspended for a period of 18 months
    BRUNO His licence be suspended for a period of 6 months
    BRUNO His licence be suspended for a period of 5 months
    BRUNO His licence be suspended for a period of 12 months
    MSI Its licence be restricted for a period of 4 months, during which MSI may not file any new case under the Act
    MSI Its licence be restricted for a period of 3 months, during which MSI may not file any new case under the Act
    MSI Its licence be restricted for a period of 18 months, during which MSI may not file any new case under the Act
  1. As to the TRUSTEES, in their [TRANSLATION] "Submissions on Sentencing",Footnote 7 their counsel suggested that [TRANSLATION] "no further penalty is required in view of the provisional suspension of their respective licences, which extended over a period of 4 to 5 years".
  2. At the conclusion of the hearings on penalties, their counsel submitted that in view of the conservatory measures existing since February 10, 2004,Footnote 8 for four years and a month for BRUNO and six years for GEORGES and MSI, which in his submission was the equivalent of restricting their licences for those periods of time, the negative publicity about the TRUSTEES resulting from the imposition of conservatory measures, the DECISION OF and the instant DECISION ON PENALTIES, as well as the fact that he said they were rehabilitated, should lead us not to impose any further PENALTY on them.
  3. Counsel making recommendations on the PENALTIES to be imposed is a sound practice and we had to take their suggestions into account, which we have done. However, we are not in any way bound by counsel's suggestions. We must exercise and apply our own discretion and our own judgment.
  4. It is common ground on both sides that we have to consider the following factors in deciding on PENALTIES:

    (1)

    the objective seriousness of the offences committed;

    (2)

    mitigating and aggravating factors;

    (3)

    subjective matters concerning GEORGES and BRUNO;

    (4)

    protecting the public;

    (5)

    subjective deterrence for the TRUSTEES themselves and setting objective examples for other bankruptcy trustees;

    (6)

    preserving the integrity of the bankruptcy and insolvency system in Canada;

    (7)

    rehabilitating the TRUSTEES; and

    (8)

    the reputation of the TRUSTEES and their right to carry on their profession.Footnote 9

  5. Apart from what we wrote above, counsel for the SENIOR ANALYST cited as aggravating factors in the instant case the following facts:

    1. the very large number of offences for which each of the TRUSTEES was held liable;
    2. the repetitive nature of the offences;
    3. prior warnings and cautions given to the TRUSTEES but ignored;
    4. injury caused to creditors by the TRUSTEES' conduct;
    5. complete lack of awareness by the TRUSTEES of the offences committed by them and their seriousness;
    6. the TRUSTEES have indicated no wish to rehabilitate themselves and no intention to mend their ways; and
    7. as a consequence of the facts mentioned in subparagraphs E and F above, the high risk of repeat offences by the TRUSTEES.
  6. Aside from what we wrote above once again, counsel for the TRUSTEES for his part cited the following facts as mitigating factors:

    1. before disciplinary proceedings were initiated in the instant case, although over the years the TRUSTEES had a fundamental and systemic problem with excessive delays in closing files and this caused them to have repeated disputes with the SUPERINTENDENT and his officers following periodic inspections by representatives of the official receiver to whom the TRUSTEES reported, strictly speaking their disciplinary record was clean;
    2. regarding the accumulated delay in finalizing cases, their previous and voluntary admission of a systemic problem in this regard and their guilty plea on count 140 at the first opportune moment;
    3. the fact that the wording of some offences in the instant case reflected directly on their honesty and integrity, and these offences were dismissed in the DECISION OF ;
    4. the fact that in proceedings for assessment of their fees before Registrar Flamand and others the assessing officer in each case heard the evidence and analyzed the delay, and when justified imposed penalties by reducing the fees requested;
    5. the fact that as to offences of an administrative nature the TRUSTEES have already implemented the gist of auditor Nolet's recommendations;
    6. as to GEORGES, the fact that he is 79 years old; and
    7. the fact that, in the submission of counsel for the TRUSTEES, there is no risk of repeat offences as a result of the nature of the offences they have been found to have committed, their already completed rehabilitation and the evolution of their practice.

II. Arguments of Senior Analyst

  1. In his [translation] "Plan of Argument", Mr. Tremblay stressed that a bankruptcy trustee's licence [translation] "is a privilege which gives its holder a monopoly on the practice of certain professional activities relating to bankruptcy and insolvency in Canada". It also gives him or her the status of an officer of the court and allows the trustee to take possession of and [translation] "administer the property of a debtor for the benefit of creditors". In this way, he assumes an obligation of a "trustee for the funds of the estate".Footnote 10
  2. A bankruptcy trustee must accordingly act with prudence and diligence, as provided in the Bankruptcy Trustee's Code of Ethics, which is an integral part of the general rules under the act ("the rules"). rules 34 and 36 state:

    34. Every trustee shall maintain the high standards of ethics that are central to the maintenance of public trust and confidence in the administration of the Act.

    36. Trustees shall perform their duties in a timely manner and carry out their functions with competence, honesty, integrity and due care.

  3. Mr. Tremblay divided the offences for which the trustees were held liable in the decision of into three headings:

    1. offences of a banking and administrative nature;
    2. the Benchaya file; and
    3. negligence in concluding files
  4. The offences of a banking and administrative nature he further divided into three sub-categories:

    (1)

    failure to keep books and records;

    (2)

    failure to remit taxes to the Department of National Revenue; and

    (3)

    breaches of directive No. 5.

Failure to keep books and records

  1. Counsel for the senior analyst was here concerned with count 68, concerning georges and MSIFootnote 11, which noted the absence of any formal resolution by the inspectors authorizing the sale of assets for over $80,000.
  2. He noted that in her testimonyFootnote 12, Ms. Brooks mentioned that the absence of resolutions by the creditors and inspectors was a situation she frequently encountered in several of the 48 files of the trustees entrusted to the guardian trustee.

Failure to remit taxes to Department of National Revenue

  1. This concerns counts 102 and 103, which this time involved only georges. Mr. Tremblay argued that the undersigned [translation] "simply did not believe the explanations given by georges to justify his failure".
  2. Mr. Tremblay also cited the testimony of Ms. Brooks that in 48 of the trustees' files assigned to her as the guardian trustee, the trustees had not made any remittance of sales tax from the sale of assets.Footnote 13
  3. In this connection, Mr. Tremblay submitted that georges was trying to evade his responsibilities and the defence arguments relied on by him showed that he did not recognize the true nature of the actions taken by him. Accordingly, counsel for the senior analyst maintained that there was a serious risk of repeat offences by georges.

Breaches of Directive No. 5

  1. From the outset, Mr. Tremblay drew our attention to the purpose stated in paragraph 2 of the said Directive:

    Purpose

    This directive is issued pursuant to the authority of paragraph 5(4)(b) of the Act for the purpose of section 16, 24 to 26, 66.26 and paragraph 155(g) of the Act, and imposes to the trustee the minimum standards for the treatment of estate funds. (His emphasis.)

  2. He argued that this Directive is intended to protect the public by imposing strict rules for the purpose [translation] "of ensuring sound management of funds administered by trustees and is the basis of the trustee's duties regarding the administration of assets".
  3. He added that in administering assets the [translation] "standards laid down by this Directive are fundamental to a trustee's duties to the Superintendent and to the public he serves".
  4. Counsel for the senior analyst further argued that [translation] "the management of assets by trustees must be strict and rigorous since the money they are managing belongs to third parties".
  5. He further argued that [translation] "contrary to what the trustees argued, breaches of the provisions of this Directive are neither commonplace or harmless" and "the number of offences and their variety indicates a general and systematic neglect".
  6. Accordingly, Mr. Tremblay concluded that it was [translation] "their contempt for the rules and the requirements of the OSB which resulted in the offences" under this heading.
  7. Consequently, he suggested [translation] "far from having simply acted negligently or carelessly", the trustees acted deliberately.
  8. Mr. Tremblay then argued that, for the offences of a banking and administrative nature only, [translation] "only a licence suspension would be an appropriate penalty in the circumstances".

Benchaya file

  1. In this regard, Mr. Tremblay essentially relied on a summary of our comments in paragraphs 240 to 286 of the decision of .
  2. He further added that:

    [translation]

    The trustees' conduct is not only prohibited by the Trustees' Code of Ethics but, most importantly, is a complete denial of the reason for the profession of trustee which is, among other things, to conduct the smooth and orderly liquidation of the property of the bankrupt debtor.

  3. Accordingly, in this regard he also recommended that:

    [translation]

    In short, it is very significant that Marchand Syndics Inc. was found guilty of contempt of court for acts committed by Georges Marchand in the exercise of his trustee activities:

    the offences are very serious and compromise the public trust in trustees as a whole and the entire system;

    there is no good explanation to justify the trustees' conduct and their dilatory manoeuvres in Benchaya;

    in the circumstances, only a licence suspension could be a sufficient penalty.

Failure to conclude files

  1. Mr. Tremblay's arguments in this regard may be summarized by repeating a few of the key paragraphs in his Plan of Argument:

    [translation]

    For the system to operate properly, it is imperative that trustees render an account at the end of their administration in accordance with the BIA and promptly distribute available moneys to creditors; this is the purpose of the system;

    the unjustified and unjustifiable laxity caused significant injury to a large number of creditors;

    For example, in the 48 files which were the subject of conservatory measures over 525 creditors were unduly deprived of their dividends by the trustees: the amount of dividends in question came to $1,386,661; of this, $425,197 could not be paid to creditors since they could not be found; [his emphasis]

    the OSB tried several times to get the trustees' cooperation to deal with the situation, and on each occasion except one the trustees failed to carry out their commitment;

    in fact, the trustees several times deceived the OSB representatives, a clear illustration of which is the six plans for concluding that were not carried out;

    further, the problem regarding concluding of files was so serious that in August 2003, when the Initiative for the Orderly and Timely Administration of Estates ("IOTA") was started, the trustees in question had one of the worst records, if not the worst, in Canada for trustees with a case volume that was in the least significant;

    further, several complaints were made about the trustees by creditors;

    creditors even had to initiate court proceedings to compel the trustees to conclude their cases;

    worse still, even after conservatory measures were taken the trustees impeded and counteracted the work of the guardian trustee appointed by the OSB, delaying the closure of files still further and extending the injury caused to a number of creditors;

    Additionally, the delays in concluding files were the subject of several strong reprimands by various courts: even reprimands issued by higher courts did not prompt the trustees to take the action necessary to correct the situation;

    by their conduct, the trustees reflected adversely on the profession of trustee as a whole and fostered a loss of confidence by the general public in the bankruptcy and insolvency system in Canada;

    at the very least, they improperly retained moneys belonging to third parties without their consent and derived personal benefits therefrom.

  2. Further, counsel for the senior analyst argued that the trustees interfered with the guardian trustee in the latter's effort to conclude 48 of the files seized from the trustees through conservatory measures.
  3. All of the foregoing led him to recommend that:

    [translation]

    Taking all the circumstances into account, and in particular the interests of creditors, the purposes of the Act and the duties and obligations of the trustees, their determined refusal to conclude files is a very serious offence for which their licence should be suspended.

III. Arguments of Trustees

  1. Mr. Gervais reminded us that we should [TRANSLATION] "deal with each of the TRUSTEES separately because the type of offences committed by each one varies".
  2. We concur in this assertion and would add that, not only should the differing nature of the offences committed by each of the TRUSTEES be considered, the subjective aspects of each one should be as well since not only should the PENALTIES apply to the offences but also to each person individually concerned.
  3. Mr. Gervais considered that the "conservatory measures" amounted to [TRANSLATION] "provisional disciplinary measures" and the existence of these "provisional measures" should be taken into account in determining the final PENALTIES.
  4. In his submission, the length of these measures means that no additional PENALTY should be imposed on the TRUSTEES at this stage.
  5. He went on to add:

    [TRANSLATION]

    Furthermore, the language used is entirely out of keeping with the facts.

    This resort to excessively accusatory language is also found in the analyst's submissions on sentencing, which include the following inter alia:

    (para. 10):

    the acts with which the trustees are charged "undermines public trust", "compromises the dignity of the profession", "harms the reputation and image" [of the profession];

    (para. 22):

    the acts with which the trustees are charged "threaten" their ability to carry out their functions as trustees;

    (para. 24):

    the trustees' administration was characterized by a "general and systematic neglect";

    (para. 27):

    the trustees deliberately contravened a directive;

    (para. 29):

    refusal by the trustees to cooperate and "stubbornness and wilfulness" by them;

    (para. 30):

    refusal by the trustees to give an account of their management;

    (para. 32):

    "stubborn refusal" by the trustees;

    (para. 33):

    "contempt for rules" by the trustees;

    (para. 34):

    offences committed "deliberately" by the trustees;

    (para. 35):

    offences committed by the trustees "deliberately and with full knowledge of the situation";

    (para. 38):

    offences committed "deliberately" by the trustees;

    (para. 42):

    the trustees "flouted" their code of ethics;

    (para. 43):

    the trustees' conduct was "a complete denial of the reason for the profession";

    (para. 53):

    the trustees' conduct was "neglect bordering on indecency";

    (para. 55):

    the trustees "flouted" their commitments;

    (para. 56):

    the trustees "several times deceived" OSB representatives;

    (para. 63):

    the trustees "deliberately infringed" creditors' rights;

    (para. 64):

    the trustees "impeded and counteracted the work of the guardian trustee";

    (para. 65):

    the trustees "unlawfully seized estate money";

    (para. 67):

    the trustees "reflected adversely on" the profession as a whole;

    (para. 68):

    the trustees engaged in "deviant behaviour";

    (para. 69):

    the trustees were guilty of a "stubborn refusal".

  6. As to the [TRANSLATION] "technical nature" of certain offences committed by the TRUSTEES, Mr. Gervais referred us to paragraph 123 of the DECISION OF , where we wrote:

    [TRANSLATION]

    In such a case, when he has been held liable the technical or minor nature of the offence will be considered, weighed and assessed when the stage of PENALTIES is reached …

  7. In this connection, we should also not forget what we wrote at paragraphs 121 and 122 of the DECISION OF :

    Later in this DECISION, we will have to find one or other the individual TRUSTEES liable on a count as to which his counsel submitted that the nature of the count was technical or minor and did not come up to the level of ethical misconduct.

    We will agree that this was an isolated case. However, in the case of the TRUSTEES in this matter repetition of the commission of technical or minor faults was ever present.

  8. Mr. Gervais further cited what we wrote on in the Decision on Penalties in the New Brunswick case of Trustee T:

    The Trustees, their firm and its associated trustees laboured under a cloud of dishonesty from , the date of the Report, until . That surely caused the Trustee considerable anxiety, stress and sleepless nights. That cloud of suspicion could and should have been lifted much earlier and it was unfair not to do so. When the time comes to determine the sanction(s) to be imposed on the Trustees, we will be mindful of that unfairness.

  9. He further objected that the SENIOR ANALYST [TRANSLATION] "personalized the disciplinary proceeding by trying to attack the integrity and reputation of the trustees at all costs, well beyond the objective seriousness of the offences, thereby causing the trustees harm that should be taken into account when considering their sentence".
  10. In support of this claim Mr. Gervais referred to what he said was [TRANSLATION] "excessive language" in the submissions of the SENIOR ANALYST, as indicated in the texts cited at paragraph 53 above.
  11. He also described as [TRANSLATION] "excessive" in the filing of charges the fact that 31 of them were withdrawn or considered to have been deleted.Footnote 14
  12. Additionally, Mr. Gervais compared the language used by the SENIOR ANALYST in the instant case with that of the senior analyst in the disciplinary proceeding involving the trustees Allen W. MacLeod et al. In the said case Mr. Chadwick, the SUPERINTENDENT's Delegate, wrote:

    Mr. MacLeod, in his evidence, testified as to the number of estates that their firm handled. Filed as an exhibit was a breakdown showing that they handled 2177 estates, which included 89,268 transactions and the dollars transacted were $21,595,694.41. When one looks at the volume of transactions and estates, the allegations against MacLeod appear to be taken out of context. It would almost appear that OSB is searching to find some irregularity, no matter how small, in order to support their allegations of misconduct.

  13. Counsel for the TRUSTEES further argued that after 2001 his clients made a serious effort to conclude their old files, significantly reducing the number of outstanding new files. The following is a summary in tabular form:

Firm as a whole — outstanding files
Year Summary Ordinary Section I Section II Total
2001 81 6 2 15 104
2002 63 5 0 5 73
2003 23 2 0 3 28
  1. GEORGES ascribed the origin of the problem with concluding files to two major factors.

    1. When he left his position with Price Waterhouse ("PRICE") in June 1983 and formed his own firm, he took all the summary files with him but left all the commercial files at PRICE. One day in January 1985 GEORGES arrived at his office and found in the reception room about 40 boxes of commercial files which PRICE had unloaded there without any prior warning. With his own summary files he had taken with him, in addition to new files of all kinds he had opened since, he was completely overwhelmed.
    2. The original name of MSI was "MARCHAND DAOUST INC.".Footnote 15 Paul Daoust, another trustee with PRICE, joined GEORGES in 1988. When Paul Daoust left the firm in 1991, leaving all his files with GEORGES and BRUNO, the situation on concluding files became considerably worse. GEORGES and BRUNO were unable to catch up with the arrears until 2003–2004.
  2. There was also the fact that in August 2003, BRUNO had abdominal surgery which put him on sick leave for some seven weeks.
  3. This all explains the origin of the systemic and chronic problem of delays in concluding files, but does not excuse it. Instead of waiting till 2001 to do so, they should either long ago have reduced the filing of new cases in order to allow them to catch up with the arrears, or hired one or more trustees so they could adequately carry out their duties.
  4. Mr. Gervais insisted that the TRUSTEES had not in any way impeded the guardian trustee H.H. Davis & Associés Inc. in concluding the 48 files seized from the TRUSTEES through the conservatory measures.
  5. In Benchaya, Mr. Gervais suggested that the TRUSTEES had already been penalized as Jean Guibault J. held MSI guilty of contempt of court regarding the said file and imposed a fine of $1,000; and the Registrar reduced MSI's payment when its fees were assessed.
  6. Counsel for the TRUSTEES argued that the problem of concluding files was well on the way to being resolved when the conservatory measures were initiated.
  7. Mr. Gervais argued that there was no risk the TRUSTEES would commit repeat offences: his clients had learned their lesson and would avoid any repetition.
  8. As to the age of GEORGES (79), his counsel maintained that the imposition of a suspension for an extended period as sought by the SENIOR ANALYST would for all practical purposes amount to a cancellation of his licence and so should not be considered by us.
  9. As to BRUNO and the offences relating to the Benchaya case, Mr. Gervais noted that BRUNO was only held liable on account of his "statutory" responsibility and this was a mitigating factor in the imposition of PENALTIES.
  10. On counts 96 to 100, counsel for BRUNO reminded us that we wrote at paragraphs 321 and 322 of the DECISION OF :

    The latter employee allegedly sent these files to storage instead of sending them to another MSI employee for processing of the dividends. They then disappeared from sight and were relocated in fall 2001 in Mr. Nolet's audit, when he brought the problem to their attention.

    Even so, this may explain but does not excuse the situation. BRUNO and MSI will be held liable on the five counts 96, 97, 98, 99 and 100. When the stage of penalties is reached, each individual period of delay will be considered.

  11. Mr. Gervais referred in this regard to paragraph 113 of his Supplementary Submissions:

    [TRANSLATION]

    In determining sentence, therefore, it would be relevant to consider that the error resulted not from a deliberate act by the trustee or widespread administrative inefficiency, but rather from a single isolated error committed by an employee.

  12. For offence 111, BRUNO and MSI were held liable although we wrote regarding BRUNO in paragraph 272 of the DECISION OF :

    As to MSI and the Nina Benchaya file, the individual TRUSTEE responsible for this file was BRUNO, not GEORGES. Although in fact it is very likely that Mr. Vadeboncoeur wrote the letter at GEORGES's request, citing MSI as his [TRANSLATION] "client", as BRUNO was the individual TRUSTEE responsible for the file he was ipso facto involved and will be held liable on count 111.

  13. Accordingly, Mr. Gervais suggested that at the stage at which we now are we take this into account as a mitigating factor.
  14. The same is true, his counsel suggested, of count 112, namely failing to comply with the Registrar's order directing him to pay Ms. Benchaya the sum of $5,157.92.
  15. On counts 77 (Vide & Traitement Canada Inc.) and 79 (Lunair Architecture Inc.), Mr. Gervais objected to the fact that in his view we had held GEORGES and MSI liable [TRANSLATION] "without any evidence entered in the record to this effect".
  16. Needless to say, we will not make any response to this assertion as doing so would be to plead pro domo. The entire question will be left to higher judicial authorities, if necessary.
  17. Finally, Mr. Gervais asked us to treat the special facts regarding counts 68, 102 and 103 as mitigating factors.
  18. In the first one, he noted that of all the charges of the same type laid against the TRUSTEES this was the only one accepted and it was thus an isolated case.
  19. In the second and third ones, he referred to us to Exhibits A-81, SG-10, A-82, A-40, SG-11 and SG-12 in support of his argument that no tax was ultimately payable to the tax authorities and so no harm was done.

IV. Discussion and Analysis

  1. While it is true that a trustee licence "is a privilege", once granted and used by a trustee it becomes an asset which is of significant economic value to the person holding it.
  2. Accordingly, the courts have held that a trustee must be treated with a high level of procedural fairness in any proceeding which, as in the instant case, threatens his licence. This rule is so well settled that it is not even necessary here to cite or repeat the extensive case law relied on by Mr. Gervais in this regard.
  3. According to the wording of RULES 34, 36, 37, 38, 39 and 52, the public is entitled to expect professional behaviour at the highest level from all bankruptcy trustees. RULES 34 and 36 have already been cited in paragraph 27 above. RULES 37, 38, 29 and 52 are as follows:

    37. Trustees shall cooperate fully with representatives of the Superintendent in all matters arising out of the Act, these Rules or a directive.

    38. Trustees shall not assist, advise or encourage any person to engage in any conduct that the trustees know, or ought to know, is illegal or dishonest, in respect of the bankruptcy and insolvency process.

    39. Trustees shall be honest and impartial and shall provide to interested parties full and accurate information as required by the Act with respect to the professional engagements of the trustees.

    52. Trustees, in the course of their professional engagements, shall apply due care to ensure that the actions carried out by their employees, agents or mandataries or any persons hired by the trustees on a contract basis are carried out in accordance with the same professional standards that those trustees themselves are required to follow in relation to that professional engagement.

  4. Accordingly, any person holding a trustee licence must comply absolutely with the relevant provisions of the Act and the RULES, and especially RULES 34 and 53 which constitute the "Bankruptcy Trustee's Code of Ethics". The same is true of Directives issued by the SUPERINTENDENT.
  5. In the instant case, at no time was the honesty or the integrity of the TRUSTEES questioned. No one suggested that there was any embezzlement, as was improperly alleged in Trustee T in New Brunswick.
  6. What we wrote in Trustee T is not in any way ad rem here: even if in the wording of certain counts and in his document [TRANSLATION] "Arguments of SENIOR ANALYST" of he used improper language. In any case, we will take this last point into consideration in deciding on PENALTIES.
  7. While the honesty and integrity of the TRUSTEES were not put in question, their efficiency and propriety (or rather the lack of those qualities) certainly was.
  8. On relations between the TRUSTEES and the guardian trustee, both Mr. Tremblay and Mr. Gervais were wrong as well as right. At the start of the process for undertaking assessment and closing the 48 files seized through conservatory measures, the TRUSTEES did not cooperate with the guardian trustee, but on the contrary adopted an attitude that was somewhat obstructionist.
  9. However, as the process moved forward this changed completely and the cooperation between the TRUSTEES and the guardian trustee on the one hand and between counsel for either side on the other attained an acceptable and proper level.
  10. With regard to the conservatory measures, after reviewing the authorities and on careful reflection, we cannot accept Mr. Gervais's argument that the "conservatory measures" amounted to [TRANSLATION] "provisional disciplinary measures" in Quebec disciplinary law. However, we will take this into account in determining PENALTIES.
  11. The wording of the introductory part of section 14.03(1) of the Act is quite clear and not open to any ambiguity. It states:

    14.03(1) [Conservatory measures] The Superintendent may, for the protection of an estate in the circumstances referred to in subsection (2) …

  12. In this regard, this is what the Federal Court of Appeal held in the case involving the TRUSTEES and the conservatory measures taken regarding them:Footnote 16

    23. As this Court pointed out in Tremblay, supra, the conservatory measures under section 14.03 of the Act are measures taken to protect the property of third parties in the course of an administrative and disciplinary inquiry. They are dictated by a necessity to act quickly in order to ensure estates are preserved in the circumstances provided in subsection 14.03(2). "Preserve" in this case means not only protection against the loss or destruction of the estates in question, but also protection against improper or lacking management of the administration of an estate, to the detriment of creditors and the public interest. This is indeed suggested by the circumstances established by the Act whereby the Superintendent may resort to those measures.

    34. In that matter, our Court simply reiterated the principle that a person cannot initiate and judge an action. That goes without saying. But here the conservatory measures are not an action. As I already stated, they are incidental and accessory to a disciplinary proceeding brought against the appellants. The hearing of this proceeding, pending decisions on the various recourse [sic] brought by the appellants challenging the Superintendent's powers, was entrusted to Mr. Greenberg, an independent adjudicator who will hear the appellants in accordance with section 14.02. I believe it would be superfluous to say more. [Emphasis added]

  13. Accordingly, we consider that the conservatory measures are measures taken "for the protection of an estate". Even if they are sometimes associated with disciplinary proceedings, they are not in any way a predetermined disciplinary measure.
  14. Of the other four subparagraphs (a), (b), (c) and (d) of section 14.03(1), only the fourth mentions the existence of a proceeding under sections 13.2(5) (which is not applicable here) or 14.01(1).
  15. Although 99 trustees throughout Canada had been subject to the IOTA program, and several had been affected by conservatory measures, only the TRUSTEES were the subject of a disciplinary proceeding.
  16. However, because conservatory measures have the effect of limiting the licences of trustees during the periods in which they are in effect, we will take this into consideration in determining PENALTIES.
  17. The same is true regarding what we wrote at paragraph 123 of the DECISION OF , amended by what we also wrote at paragraphs 121 and 122, reproduced at paragraphs 54 and 55 above respectively.
  18. The parameters of the IOTA program, inaugurated in , were such that the program applied to trustees who had more than 15% at the summary level and more than 60% of ordinary files which were over 36 months old.Footnote 17
  19. For MSI, at that point it was 62.63% of its summary files and 97.70% of ordinary files.Footnote 18 At the same time, for GEORGES alone it was 57.76% of summary files and 94.29% of ordinary files.Footnote 19
  20. The IOTA program was intended to ensure that within a year trustees subject to the program would bring their inventory of files under the 10% level for summary cases and 40% for ordinary ones. Additionally, these trustees had to submit a plan for concluding files to the SUPERINTENDENT's office within 15 days and demonstrate regular progress throughout the year.
  21. On IOTA, the SENIOR ANALYST testified that of the 800 or so trustees in Canada 99 were covered by the program. Of those, the TRUSTEES were among the worst ones.Footnote 20 Some of the TRUSTEES' files were more than ten years old.
  22. However, we agree with Mr. Gervais in his argument that his client's bad percentages were artificially exacerbated during the years 2000 to 2004 as, in their haste to close their files, they opened less and less new files.Footnote 21
  23. Then, as the files one or two years old went beyond three years and the rate of opening new files diminished, the bad percentages increased.
  24. Accordingly, this aggravating factor is attenuated by what we described in paragraphs 102 and 103 above.
  25. On the reference by Mr. Gervais to MacLeod,Footnote 22 we consider that the language used is too strong regarding the SENIOR ANALYST in the instant case.
  26. On the Benchaya case, everything we have heard and read at the PENALTY stage has not in any way changed our assessment of the conduct of the TRUSTEES in the file in question. We specifically repeat here what we wrote at paragraphs 240 to 286 of the DECISION OF , and cite paragraphs 240, 241, 247, 248 and 249 verbatim:

    240. This bankruptcy created a highly confused situation, which in their arguments in the instant case both Mr. TremblayFootnote 23 and Mr. GervaisFootnote 24 baptized [TRANSLATION] "a legal saga". Thirteen counts arose out of it, namely 104, 105, 106, 107, 108, 109, 110, 111, 112, 113, 114, 115Footnote 25 et 116.

    241. In his judgment of May 15, 2000 Dalphond J.Footnote 26 described GEORGES's behaviour in Benchaya as "a sort of stubbornness".

    247. There then followed what counsel in this proceeding described as a [TRANSLATION] "judicial saga", but which we would be tempted to call [TRANSLATION] "judicial and procedural guerrilla warfare". See the 50 exhibits relating to the bankruptcy of Nina Benchaya:

    50 exhibits are then set out:

    248. As indicated by these 50 exhibits in the Nina Benchaya file, GEORGES made no less than seven motions in the Quebec Superior Court.

    249. He lost on six of the seven and appealed in two of these cases. In the Quebec Court of Appeal, each of the two appeals was dismissed by a motion to dismiss appeal as being [TRANSLATION] "doomed to failure".

  27. As to the risk of repeat offences by the TRUSTEES, after reviewing the record, all the exhibits, the transcripts, the arguments of counsel, authorities and case law, we have come to the conclusion that the risk is minimal with BRUNO but significant with GEORGES.
  28. As GEORGES said in his testimony before us on , we conclude that he still thinks that as a trustee he is not accountable to anyone in administering his file: neither to the SUPERINTENDENT nor the guardian trustee on the 48 seized files, nor to the bankrupts, the creditors or the courts of law.Footnote 27
  29. As to the SUPERINTENDENT, section 5(2) and (3)(a), (c), (e), (f) and (g) states:

    5.(2) [Extent of supervision] The Superintendent shall supervise the administration of all estates and matters to which this Act applies.

    5.3 [Duties] The Superintendent shall, without limiting the authority conferred by subsection (2),

    (a) receive applications for licences to act as trustees under this Act and issue licences to persons whose applications have been approved;

    (c) where not otherwise provided for, require the deposit of one or more continuing guaranty bonds or continuing suretyships as security for the due accounting of all property received by trustees and for the due and faithful performance by them of their duties in the administration of estates to which they are appointed, in any amount that the Superintendent may determine, which amount may be increased or decreased as the Superintendent may deem expedient, and the security shall be in a form satisfactory to the Superintendent and may be enforced by the Superintendent for the benefit of the creditors;

    (e) from time to time, make or cause to be made any inquiry or investigation of estates or other matters to which this Act applies, including the conduct of a trustee or a trustee acting as a receiver, within the meaning of subsection 243(2), or as an interim receiver, that the Superintendent considers appropriate, and for the purpose of the inquiry or investigation the Superintendent or any person appointed by the Superintendent for the purpose shall have access to and the right to examine and make copies of all books, records, data, including data in electronic form, documents and papers, that are relevant to an inquiry or investigation pertaining or relating to any estate or other matter to which this Act applies;

    (f) receive and keep a record of all complaints from any creditor or other person interested in any estate and make such specific investigations with regard to such complaints as the Superintendent may determine; and

    (g) examine trustees' accounts of receipts and disbursements and final statements.

  30. Consequently, we are firmly persuaded that any bankruptcy trustee must be subject to the supervision and control of the SUPERINTENDENT.
  31. Also, once a trustee's files are seized by the SUPERINTENDENT through conservatory measures and placed under the supervision of a guardian trustee, it is the latter who has the custody and control of the said files.
  32. Although the guardian trustee must of necessity refer to the original trustee for information and require his cooperationFootnote 28 in order to complete, assess and conclude the files, the fact remains that it is the guardian trustee who controls the seized files placed in his custody, not the original trustee.
  33. In the relations between GEORGES and the guardian trustee, the former did not accept that it was the latter who controlled the seized files.
  34. All this, and the fact that GEORGES still adheres tenaciously to his misconceptions, leads us to conclude that there is a significant risk of a repeat offence.
  35. In determining PENALTIES for BRUNO and GEORGES we will take into consideration in particular the arguments and facts cited at paragraphs 49, 50, 54, 55, 61, 67, 69, 70, 71, 72, 73, 74, 75, 78, 79, 80, 86, 87, 88, 89, 90, 93, 96, 97, 99, 100, 101, 102, 103, 104, 105, 106, 107, 108, 110, 111, 113 and 114 above.
  36. As to Mr. Gervais' argument which we repeated in paragraph 66 above, with respect it appears he misunderstood the distinction between the various areas of law.
  37. For example, an individual who physically attacks another and is accordingly sentenced by the criminal law for assault, when sued by his victim at civil law for damages resulting from the injuries inflicted on the victim cannot argue an estoppel on account of the fact he has been the subject of a criminal conviction.
  38. The same is true here. A fine resulting from a contempt of court committed by the trustee in the course of his professional duties, the assessment of the said trustee's fees and a disciplinary proceeding against the said trustee are all in three separate areas of law.
  39. With respect, therefore, we disagree completely with what Mr. Gervais argued and suggested in this regard, as summarized at paragraph 66 above.
  40. Accordingly, we must consider, weigh and determine all the material, principles and criteria set out above. With this in view, it is worth citing what we wrote in another connection:

    … a fit and proper sentence is the result of a "wise blending" (le "savant dosage") of those considerations (deterrence, rehabilitation, and protection of society).

    In imposing the sentence herein, I have considered the objective gravity of the offences, the subjective gravity of those crimes in relation to each of the four accused, their respective ages and backgrounds, the absence or presence of any mitigating or aggravating circumstances, the salutary or exemplary effects of the sentence on each accused specifically and on others generally and, lastly, the possible rehabilitation of each accused.Footnote 29

  41. We have considered all these matters, principles and criteria with respect to the TRUSTEES here.

V. Conclusions

  1. On careful reflection, again with respect, we cannot accept the suggestion made by Mr. Tremblay that even for offences of a banking and administrative nature only a licence suspension is an appropriate PENALTY.
  2. But for the Benchaya file and the negligence in concluding files, there would be no question in the instant case of a licence suspension.
  3. However, on the negligence of TRUSTEES in concluding files this is what the Federal Court of Appeal said regarding the TRUSTEES:Footnote 30

    44. In a situation where there was undeniable and certain negligence in the management of ordinary administration estates and a refusal to cooperate to accelerate their settlement, it was not unreasonable to avoid aggravating the existing problem by not allowing similar estates of that type to be added to those the appellants continued to administer, thereby potentially compromising the proper administration of both those and the new estates. Only 48 of the most drastic ordinary administration estates were removed from them through the conservatory measures, in accordance with the ordered and timely administration of insolvency cases across the country. The others — 144 in all — remained under their administration. [Emphasis added.]

  4. In view of all the foregoing and everything we have said above, we consider that a licence suspension is necessary for these offences.
  5. For Benchaya, what counsel on either side called [TRANSLATION] "a judicial saga" and we call "judicial guerrilla warfare" not only deserves a licence suspension, but more than that, requires it.
  6. However, the licence suspensions of the individual TRUSTEES will be for periods less than those sought by Mr. Tremblay.
  7. GEORGES, BRUNO's father, was at all relevant times manager, president and prime mover in MSI. It is he who decided on and implemented policies for the management and operation of MSI. Though BRUNO was a 50 percent shareholder in MSI, director and vice-president, he simply complied.Footnote 31
  8. In consequence of this and the distinction already made above regarding the risk of a repeat offence, the length of the suspension for BRUNO will be shorter than for GEORGES.
  9. For MSI, it will be necessary to restrict its licence but not for such a long period as that recommended by counsel for the SENIOR ANALYST.
  10. Since October 2009 BRUNO has left MSI and is operating under his personal licence on his own account.
  11. Since we have no wish to compel MSI to close down, but for the latter fact relating to BRUNO we would have ordered sequential suspensions so there would at all times have been an individual trustee with MSI who could continue to administer MSI's existing files.
  12. However, although BRUNO is no longer with MSI, as he is still a 50% shareholder in MSIFootnote 32 he may lend a hand during the suspension of GEORGES' licence and vice versa.
  13. What is more, in order to encourage MSI to conclude its files, once the limitation on opening new files ends its licence will continue for an additional period to be subject to the condition that MSI may open an ordinary or summary new file only when it concludes a similar one, preferably one of the older ones.

VI. Final Provisions

  1. We would like to repeat our warm thanks to Stephane Tremblay and Jean-Philippe Gervais for their assistance and courtesy to us during the PENALTY stage.
  2. Each copy of this CORRECTED DECISION ON PENALTIESFootnote 33 signed by the DELEGATE is equally valid and effective and may serve for all legal purposes.

VII. Disposition

  1. for all the foregoing reasons:

    1. msi's licence is hereby restricted for a period of 12 months from to , as follows:

      (i) Between and , MSI may file no new cases under the act; and

      (ii) Between and , msi may file no new cases under the act unless:

      (a) for every summary case which MSI wishes to file it has concluded a summary case after ; and

      (b) for every ordinary case MSI wishes to file it has concluded an ordinary case after .

    2. bruno's licence is hereby suspended for a period of two months from to ;

    3. georges' licence is hereby suspended for a period of six months from to .

      Signed at Montréal, Quebec, .

      space to insert signature

      The Honourable Benjamin J. Greenberg, Q.C., ARB. A.
      surintendant's Delegate

Stéphane Tremblay
McCarthy Tétrault, S.E.N.C.R.L., s.r.l.

Counsel for the senior analyst

Jean-Philippe Gervais
Gervais & Gervais

Counsel for the trustees


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


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