Oral Board of Examination—Transcript
I would advise Ron that the GST refunds are a partially exempt asset under Rule 59 of the Bankruptcy and Insolvency General Rules. I would advise that any GST refund received, in excess of the cost of estate administration, including the trustee’s tariff or trustee’s fees, must be returned to the bankrupt. I would also advise that having the bankrupt sign an assignment of the GST refund when they... they swear to the content of the Statement of Affairs is not in accordance with the Bankruptcy and Insolvency General Rules.
I would suggest to Ron that this practice should stop and that the proceeds from the GST refund cheques should be returned to the bankrupt in accordance with the Act. GST refunds are not available for the trustee to apply against conditional orders. It’s only in situations where, after we’ve realized on all the estate assets and determined that the cost of administration has been paid, should a request be made of the bankrupt to permit the remaining proceeds of GST ref... of the GST refund cheques to be used for any other purpose. So it is at this time that we should be advising the bankrupt of his right to keep any remaining funds from the GST refund cheques and seek his agreement to apply them to other outstanding obligations. If he does not agree at that time, the funds should be returned to the bankrupt.
Well, this could be considered an ethical issue because it’s taking an exempt asset away from the bankrupt, whereas the trustee should know and make it clear to bankrupts that the funds are theirs to deal with. The GST refunds can only be used to pay the cost of estate administration, including the trustee’s fees, after the proceeds from all other estate assets have been applied first. If there remains an amount available from the GST refunds that would otherwise be available as a dividend to the creditors, it is this portion of the GST refund that is an exempt asset and must be returned to the bankrupt. So trustees must balance their obligations to fully inform debtors of their rights and responsibilities with their obligations to maximize realizations to the estate for the benefit of creditors.
Well, I would advise Ron that I will set up a meeting, as soon as possible, with the trustee or trustees responsible for establishing the administrative practice of the office. I would ask him to assist me prior to this meeting in understanding when and why they started this practice. During this meeting, I would demonstrate the basis of non-compliance with the legislation and I would propose that we stop this practice immediately, and take a closer look at each open file to determine whether a refund to the bankrupt of such receipts is in order. I would emphasize the importance of having the bankrupts properly and fully informed of their rights and obligations in that process.
I would hope that the outcome of that meeting would result in a memo issued to the employees modifying the existing policy as well as an amendment to the assignment of the GST refunds form. Instructions to staff would be amended to include that debtors should be advised, during the assessment stage, of their rights to the GST refunds, subject only to that portion of the refunds required to pay the cost of administration, which would include our fees, and that any other amount received over that will be returned to them. See, we need to change this practice so it does not give rise to an ethical issue by having a known violation of the legislation persist.
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