Jean-Pierre Chatigny and J.P. Chatigny & Associés Inc. — September 7, 2001
Province of Quebec
Before Roger Tassé
Delegate For The Superintendent Of Bankruptcy
Jean-Pierre Chatigny, holder of an individual trustee's licence for the province of Quebec
J.P. Chatigny & Associés Inc., holder of a corporate trustee's licence for the province of Quebec
Decision Rendered on September 6, 2001
Counsel for the Department of Justice
Counsel for Jean-Pierre Chatigny
and J.P. Chatigny & Associés
On the Superintendent of Bankruptcy directed Sylvie Laperrière, senior analyst in the office of the Superintendent in Quebec ("the analyst") to conduct an inquiry into the conduct of Jean-Pierre Chatigny, holder of an individual licence, and J.P. Chatigny & Associés, holder of a corporate licence (hereinafter "the trustees" or "the trustee") in their administration of the bankruptcy of Gisèle Mercier.
In the report which she submitted to the Superintendent on ("the report"), the analyst wrote that her analysis of the trustee's file indicated that there were severe and serious discrepancies in the administration of Gisèle Mercier's bankruptcy. She accordingly recommended that the Superintendent suspend the trustees' licences. Acting in her capacity as the Superintendent's delegate, the analyst sent the trustees a copy of the report which she submitted to the Superintendent.
The analyst was not instructed by the Superintendent to give the trustees an opportunity to be heard in the disciplinary action that she might recommend. As the trustees chose to have a hearing, the Superintendent on delegated to me some of the powers conferred on him by s. 14.01 of the Bankruptcy and Insolvency Act ("the Act"), including the holding of a hearing in accordance with the rules of natural justice, considering the evidence and comments of the trustee and the senior analyst and deciding whether the recommendations made by the analyst for disciplinary action to be taken should be accepted, amended or rejected.
After pre-trial conference held on I heard counsel for the trustees and for the federal Department of Justice on and , 2001.
This decision sets out my conclusions based on that hearing and analysis of the evidence and submissions made to me at that time.
In her report the senior analyst indicated that her inquiry had shown that there were severe and serious discrepancies in the administration of the bankruptcy of Gisèle Mercier, in that:
- the trustee advised the debtor and encouraged her not to include immovable property in the bankruptcy balance sheet, thereby contravening s. 13.5 of the Act and Rule 38;
- the trustee did not discharge his obligation of adequately investigating the value of this immovable property in a timely manner, thereby contravening ss. 19.(3) and 13.5 of the Act and Rule 36;
- the trustee did not indicate immovable property which was co-owned by the debtor and the existence of a secured creditor in his preliminary report to the creditors, thereby contravening s. 5(5) of the Act and Directive No. 32 as well as s. 13.5 of the Act and Rules 39 and 45;
- in the report pursuant to s. 170 the trustee did not indicate as an asset the debtor's undivided half interest in immovable property, thereby preparing an incomplete report pursuant to s. 170(1)(a) of the Act and contravening s. 13.5 of the Act and Rules 39 and 45;
- the trustee did not file the report pursuant to s. 170 with the Superintendent within the required deadline, thereby contravening ss. 13.5 and 168.1(1)(a) of the Act and Rule 36;
- the trustee did not indicate in his statement of receipts and disbursements the full particulars, description and value of the debtor's interest in immovable property which had not then been sold or realized and did not indicate the reason why that property was not sold or realized, thereby contravening ss. 13.5 and 152(1) of the Act and Rules 39 and 45;
- the trustee did not return to the debtor the undivided half interest in immovable property found incapable of realization prior to the trustee's application for discharge, thereby contravening s. 40.(1) of the Act;
- the trustee provided inaccurate information when issuing the certificate of compliance, which contained two false statements, namely that the final statement of receipts and disbursements regarding the assets was a full and accurate account of the administration of the latter and that all property which had passed through his hands had been liquidated or disposed of in an appropriate manner, thereby contravening s. 13.5 of the Act and Rules 39 and 45;
- the trustee did not perform his obligations in a timely manner and did not carry out his duties diligently so as to realize the undivided half of the property and answer calls from a person concerned, thereby contravening s. 13.5 of the Act and Rule 36;
- the trustee wrote the debtor a letter indicating that she had concealed the fact that she was owner of an undivided half of immovable property, which he knew to be false and misleading, thereby contravening s. 13.5 of the Act and Rules 39 and 45;
- the trustee provided inaccurate and incomplete information to the Deputy Division Superintendent about the question of the time he learned of the immovable assets and the transaction for sale of the immovable property and was not honest in this regard, thereby contravening s. 13.5 of the Act and Rules 39 and 45;
- the trustee did not act in a timely manner in performing his duties, failing to do any follow-up on his listing of the immovable property and delaying action on an offer of settlement, thereby contravening s. 13.5 of the Act and Rule 36.
I do not propose to examine each of the findings made by the senior analyst in turn, but rather to consider the conduct of the trustee Chatigny chronologically, keeping in mind of course both the analyst's findings and the evidence presented at the hearing.
The appendices to which I refer are the appendices to the report, except for appendices 28 to 32, which were filed at the hearing by counsel for Justice Canada. Exhibits D-1 et seq. were filed by counsel for the trustee, and "page" refers to pages of the transcript of testimony heard at the hearing, prepared by the official stenographer.
I will first summarize the evidence presented, then analyze it and draw my conclusions.
Period between first consultation of trustee by bankrupt in August 1995 and
The analyst stated that the trustee advised the debtor and encouraged her not to list immovable property in the bankruptcy statement, thereby contravening s. 13.5 of the Act and Rule 38.
The testimony of the analyst, the bankrupt and the trustee Chatigny are relevant.
She testified she had a telephone conversation with Ms. Mercier on in which there was discussion inter alia of the affidavit signed by Ms. Mercier before the notary Langlois on (appendix 2) and in which she stated she met with the trustee Chatigny in August and October 1995 and each time told him before witnesses that she was the owner with her spouse of immovable property located at 528 rue Geneviève, Laval.
According to the analyst's notes of this telephone conversation (Exhibit D-2), Ms. Mercier stated that the trustee had taken notes and calculated that the value of her share of the immovable property was $600 and it was not necessary to list it in the bankruptcy balance sheet (p. 14).
In cross-examination, the analyst explained that appendix 4 to her report, a handwritten note titled [Translation] "File: Gisèle Mercier" was prepared by Laurent Godbout, an official receiver in the office of the Superintendent, in reviewing the bankruptcy file at the office of the trustees after a complaint by Daniel Larivière, probably late in 1997 or early in 1998. It states there: [Translation] "There is a notation in the file just after the first meeting of the creditors that the debtor is co-owner of the 50% of the family home and the other co-owner was Daniel Larivière — a call from the N.B.C. alerted the trustee — a fax dated 19.08.01"Footnote 1.
This note by Mr. Godbout was given to the analyst, who subsequently contacted the bankrupt.
The analyst explained that she had not tried to contact the notary Langlois and the witness or witnesses to Ms. Mercier's oath. She also did not attempt to contact the complainant, Daniel Larivière, the bankrupt's ex-spouse, explaining that she had sufficient documents and information available to support the findings contained in her report.
Ms. Mercier, the bankrupt
In her testimony Ms. Mercier explained that at the time of her bankruptcy things were not going well in her personal life (she had just separated from her husband); her company, a general maintenance service, was also not doing well (she had personally had to pay all the debts). She was considering the possibility of declaring bankruptcy. Her director of operations, Michel Robidoux, who had already declared bankruptcy with the trustee Chatigny, recommended that she consult him. She testified that she met with the trustee twice, once in June or July 1995 to consult him, and again in August 1995 to sign the documents in her bankruptcy.
She explained that at the time she was living on rue Noirmoutier in Laval: she had moved there the previous May. Previously she had lived at 528 rue Geneviève with her husband and children. Her husband was paying all the household expenses and looking after the children. She absolutely did not want her husband and children to lose the house if she declared bankruptcy. She discussed this with the trustee at their first meeting. Selling the house might have brought in $1,500 or $2,000. If it had been sold, she might have received $600. Adding the expenses, it would not have been worthwhile for her to sell her share. As she wanted her ex-husband and children to keep the [Translation] "family property", it was essential that the house should not be part of the bankruptcy. She said she discussed all these matters with the trustee at their first meeting (p. 86 to 88).
Ms. Mercier stated that when she signed the bankruptcy balance sheet on August 9 she made sure that the house of which she was co-owner was not included. She added that the trustee told her, following a discussion, that [Translation] "everything was fine, everything was correct" (p. 90 and 91).
In cross-examination Ms. Mercier stated that the first meeting with the trustee lasted for an hour, perhaps an hour and a half (p. 107).
The affidavit which Ms. Mercier signed was made up by the notary Langlois and given to her for signature in the notary's office: she only had to sign it. The notary had earlier called her to ask whether she would be prepared to sign an affidavit, to which she answered [Translation] "yes, provided there is nothing untrue in it" (p. 113). As we will see below, the notary Langlois had probably contacted the bankrupt at the request of Daniel Larivière, the bankrupt's ex-husband.
From the outset, at the beginning of his examination, the trustee hastened to say [Translation] "we are talking about something that happened six years ago … it is completely impossible for me to remember anything" (p. 148).
The trustee testified, referring to the testimony of the bankrupt, that it appeared he had met Ms. Mercier for the first time in June or July 1995. He had not kept any notes of this interview with the debtor. He explained that he very rarely kept notes at a first meeting. He only kept them if he was sure the person was coming back to declare bankruptcy (p. 148 and 149).
It was the trustee who met with the bankrupt and prepared the document [Translation] "Evaluation of debtor" (appendix 30) and her balance sheet for August (p. 150 and 151).
On the question of the immovable property at issue, the trustee related that [Translation] "the only thing I can say, by deduction, is if she told me she had immovable property which had no equity, then it appears that this was something of crucial importance for her not to lose her house, probably, I could have mentioned at some point that it was not — that the immovable property in question, as there was no equity, we weren't going to put it up for sale, we weren't going to incur costs in it, on top of which it was an undivided share. There may have been some interpretation by her, but at the same time she did not speak to me about it on the second occasion" (p. 160–161).
The immovable property held in co-ownership by the bankrupt was not included in her balance sheet. When the trustee was asked whether he asked the bankrupt if she had immovable property, he answered that he [Translation] "was supposed to ask her, I must have asked her, because — I no longer remember, this was six years ago — but what I know is that I never told anyone not to include immovable property, even when there is only a 5 or 6 percent share it is always included" (p. 203).
It should be noted that the debtor's address appears as 528 rue Geneviève and he did not question the debtor about her rental or mortgage expenses. He indicated that at the time trustees had no duty to ask the bankrupt what amount they spent on rental or mortgage.
Period from to
Ms. Mercier's immovable assets therefore were not included in the bankruptcy balance sheet. It appeared from the evidence that an employee of the National Bank contacted the trustee on or before to tell him that the bankrupt was co-owner of immovable property which was not included in the balance sheet. On September 18 the trustee wrote the bankrupt that [Translation] "It appears you are owner of the immovable property located at 528 rue Geneviève in Fabreville. Could you give me the name of the mortgage creditor on the said property?" (appendix 6). In the days following receipt of this letter the bankrupt tried unsuccessfully to speak to the trustee on the telephone. However, she managed to speak to Mr. Maheu, an assistant to the trustee. She [Translation] "repeated her story" to him and told him that he [Translation] "was supposed to know about it". To this Mr. Maheuu replied that he was aware of it and would check with the trustee. Despite her many subsequent calls, the bankrupt said no one ever contacted her to discuss this letter (p. 97).
The evidence was that on September 19 the trustee received from the National Bank by fax a document dated August 19, containing the following notation: [Translation] "Please note that Gisèle Mercier, Y/F No. 91591585, bankrupt , is 50% owner 528 rue Geneviève: query". Another document sent to the trustee at the same time, titled [Translation] "Search for historical links", indicates that the owners of the immovable property were Gisèle Mercier and Daniel Larivière (Ms. Mercier's ex-husband) in equal shares and that the property was valued at $96,800 for municipal purposes and subject to a mortgage in the amount of $82,875 (Exhibit D-3).
In any case, in his preliminary report on his administration of the bankruptcy pursuant to s. 16(3) of the Act, dated August 28, 1995, the trustee made no mention of the bankrupt's immovable property (appendix 5). The same is true of the trustee's report on the application for discharge of the debtor dated , prepared pursuant to s. 170 of the Act, in which the trustee stated that the bankrupt had satisfactorily performed her duties and there was nothing objectionable in her conduct (appendix 7).
On the bankrupt received her unconditional discharge and on the 14th of that month the trustee submitted his statement of receipts and disbursements pursuant to Rule 62. There was also no mention of the bankrupt's immovable property in this statement (appendix 8).
It appeared from the evidence that on the trustee had still not taken any action to check the information sent to him by the National Bank the previous September. As we will see below, the trustee did not obtain a copy of the Index of Immovables relating to the property until , that is one year later.
After obtaining her discharge on the bankrupt quickly disposed of her property. On June 1 following she signed a deed of sale of her property before the notary Jocelyn Langlois, transferring her right of ownership in the immovable property at 528 Geneviève to her ex-husband Daniel Larivière for $10,000 (appendix 9). This sale, for reasons that were not given, was not registered until . The notary Langlois knew that Ms. Mercier had declared bankruptcy on August 10, 1995 and had subsequently been discharged. Ms. Mercier saw nothing wrong in selling property she owned before her bankruptcy and which she had not declared to her trustee, as according to her testimony she had received her discharge (p. 101).
The evidence was that Ms. Mercier did not receive this sum of money directly. She apparently paid it to Michel Larivière, her ex-husband's brother, whose name appears in the bankrupt's balance sheet with a debt of $15,000. The bankrupt testified that the amount was used to pay a debt she had to Michel Larivière. This led to lively discussion in the family and caused some coolness (p. 217–224).
On the trustee, who had still done nothing to check the information sent to him by the National Bank in September 1995 about the immovable property held by the bankrupt in co-ownership, issued a Notice of Taxation of Trustee's Accounts and Discharge of Trustee (appendix 10) without mentioning the bankrupt's share in the immovable property at 528 Geneviève.
However, on July 3, as if he did not know what he had done the previous day, the trustee registered Ms. Mercier's bankruptcy in the Index of Immovables and entered himself as trustee. This was before registration of the sale by Ms. Mercier to her ex-husband on July 31.
On , three months later, the trustee signed the certificate of compliance required by s. 66.39 of the Act, in which he stated that [Translation] "The final statement of receipts and disbursements regarding the assets is a true and accurate statement of the administration of the latter" and that [Translation] "All the consumer debtor's property which passed through my hands has been liquidated or disposed of in the proper manner" (appendix 12).
The trustee explained that the reason there was no mention of the bankrupt's property in his report on application for discharge of the bankrupt (), his statement of receipts and disbursements (), the notice of application for discharge of trustee () and his certificate of compliance () was due to a [Translation] "technical error" on his part (p. 210 and 211). This error occurred first in the report on application for discharge of the debtor (appendix 7), which contained no mention of the immovable property; there was also no mention of the bankrupt's [Translation] "attempted camouflage". According to the trustee, this error led to others: the error of not indicating that the bankrupt had not performed all her obligations and the error of closing the file too early. In the trustee's submission, the same errors were passed on in the preparation of other documents. It was not until much later that he realized his mistake (p. 169–175).
The first error was made in preparing the trustee's report on application for discharge of the debtor and the trustee apparently thought it was due to the fact that when the report required by s. 170 was made up the person responsible simply [Translation] "skipped over the information in the file", and the error continued to be made (p. 257 and 258).
Period from October 2, 1996 to December 11, 1998
It appeared from the evidence that between and November 19 nothing happened, at least that the trustee took no action regarding the bankrupt's property.
However, on November 19 Ms. Mercier's ex-husband learned when he received a notice of an amendment to the valuation roll from the city of Laval that the trustee was registered on the immovable property at 528 Geneviève (p. 121 and Exhibit D-4). He attempted to contact the trustee but his many attempts over a period of several months were without result. He discussed the matter with the notary Langlois. On , at the notary's request, Ms. Mercier signed the affidavit mentioned earlier (appendix 2).
Finally, on Mr. Larivière wrote the trustee telling him that in his opinion he had not [Translation] "performed his legal obligations respecting the property at 528 rue Geneviève. This is after to several telephone calls to your office . . . The present situation is causing me serious hardship: extensive renovation work has been delayed because of this". He added that he had sent a copy of the letter to the Superintendent's office (appendix 13).
The trustee was not slow to react, and on September 5 he replied to Mr. Larivière by letter indicating that he did not understand what was said in his letter [Translation] "regarding legal obligations and contacts". He went on: [Translation] "If you wish to purchase Ms. Mercier's share you will have to send me a reasonable offer which I can submit to the creditors" (appendix 14). It was not until that Mr. Larivière wrote the trustee to make an offer of $2,000 so that his registration as trustee in the bankruptcy of Ms. Mercier would be deleted from the Index of Immovables with respect to the property at 528 Geneviève.
In the days following his letter to Mr. Larivière of the trustee wrote a series of letters to the office of the Superintendent of Bankruptcy, Industry Canada and to Ms. Mercier.
In his first letter, dated , the trustee explained to the official receiver Pierre Dessureault that [Translation] "Following contacts prior to November 1996 the notary Jocelyn Langlois contacted me on November 27 about purchase of the debtor's share in the immovable property located at 528 rue Geneviève". He added that on the lawyer Pierre Langlois told him of his intention to file an application to strike his registration as the bankrupt had sold her share on . He asked the lawyer to send him a copy of the deed, but never received it. The trustee informed the official receiver he had asked his secretary to check out the contacts with Mr. Larivière, the notary and his lawyer and obtain a copy of the Index of Immovables to date (appendix 15).
Three days later the trustee again wrote the official receiver explaining that the reason he had to be registered on the property was a discussion with a National Bank employee. He added that before accepting an offer he would have to call a meeting of the creditors to have it approved (appendix 16).
The trustee wrote a further letter on September 29 saying that [Translation] "Despite my registration on the property title, the debtor has sold the undivided half share in the property for monetary consideration: the debtor was well aware that there was a lien on this share". He repeated that he had requested a copy of the deed of sale, which he should be receiving within two weeks (appendix 17).
It may be assumed that these letters were written following conversations which the trustee had with Mr. Dessureault (or someone else in the Superintendent's office) to answer questions the latter raised about the state of the file and the trustee's conduct.
Finally, on , after obtaining a copy of the Index of Iimmovables and a copy of the deed of sale of , the trustee wrote a letter to Ms. Mercier in which he noted that [Translation] "You were discharged of your debts on while concealing the fact that you had an undivided half share in the immovable property at 525 Geneviève . . . On , before the notary Jocelyn Langlois, you sold this share for $10,000 and the said immovable property was registered on (sic)". He required Ms. Mercier to pay him the $10,000, otherwise he would have to ask the court to cancel her discharge (appendix 18). Ms. Mercier testified that she never received this letter (p. 102).
We may note that these letters indicate that the trustee
- knew before November 1996 that the bankrupt had sold her undivided share in the immovable property at 528 Geneviève;
- knew or should have known in November 1996, as a result of his conversations with the notary, that the selling price was $10,000;
- did not decide to obtain a copy of the Index of Immovables until September 1997, as a result of pressure applied by the National Bank, and we may assume, questions raised by the Superintendent's office, following Mr. Laperrière's complaint, questioning the quality of his administration of Ms. Mercier's file.
Despite these letters nothing occurred until , when the trustee wrote Mr. Larivière telling him that he was prepared to accept his offer of settlement of $2,000, provided the creditors authorized it (appendix 20). The trustee in fact convened a meeting for April 7, but no creditors attended (appendix 21). It may be noted that the list of creditors contacted differed from the list of creditors contacted at the first meeting. It went from 13 to 7 names. In particular, the name of the bankrupt's ex-husband's brother was not on it. No explanation of these discrepancies was provided at the hearing.
In any case, on the official receiver Laurent Godbout informed the trustee that certain facts had been brought to his attention which required him to initiate an official complaint. In particular, Mr. Godbout said, the trustee was aware of the existence of a right of ownership by the debtor to immovable property located at 528 rue Geneviève and failed to mention this in various documents. The receiver asked the trustee to furnish an explanation to the Deputy Superintendent of Bankruptcy within two weeks (appendix 23).
A month later, on , the trustee explained in a letter to the Deputy Superintendent that a file which seemed quite straightforward at the outset [Translation] "became complicated as the result of an action taken by the debtor when she had been discharged". He added that [Translation] "The filing of the notarized balance sheet shows no immovable property or part thereof, so I was completely ignorant of the existence of this undivided half share in immovable property". He noted that the market value of an undivided half share in immovable property is often zero. He went on: [Translation] "However, Ms. Tchakedjian of the National Bank pressured me to register myself on the title, though there was little money in the file, and this registration cost me $506.17 in notarial fees. It was the only possible compromise with the Bank and I was sure that she was going to check the title from time to time". He wrote that it was much later in 1997 when Mr. Larivière required the trustee to remove his registration that he discovered that the debtor had sold her share in the property for $10,000. He said he acted in good faith and decided to file a motion for directions in order to recover the sum of $10,000 from Ms. Mercier (appendix 23). The trustee in fact consulted a lawyer about bringing a court action (appendix 24 and Exhibit D-5). On May 5 the trustee sent a notification to Ms. Mercier requiring her to pay him the sum of $10,000. Ms. Mercier stated at the hearing that she never received this letter (p. 103). As to the court action, the trustee explained in his testimony he had concluded it would not be advisable to initiate proceedings which might prove to be costly and the outcome of which was uncertain (p. 254–255).
In this letter I note the following points:
- In his letter of the trustee said that he learned that Ms. Mercier had sold her share for $10,000 in 1997; but in his letter of he said that [Translation] "as the result of contacts prior to November 1996 the notary Langlois contacted me on November 27 about the purchase of the debtor's share in the immovable property at 528 Geneviève".
- In his letter of the trustee stated that the bankrupt's balance sheet disclosed no immovable property and added [Translation] "I was thus completely unaware of the existence of this undivided half of the immovable". Accepting his version that he did not know of the existence of the immovable property at the time the balance sheet was signed on , the fact remains that as of September 18 he had been alerted by the National Bank that Ms. Mercier was owner of a share in immovable property at 528 Geneviève. The information provided to the Deputy Superintendent was not correct and was such as to suggest that the trustee learned of the existence of the bankrupt's share in the immovable much later than he actually did.
- The trustee did not inform the Deputy Superintendent that less than five weeks before he had accepted Mr. Larivière $2,000 offer of settlement.
After these letters nothing seems to have happened until August 31, when Mr. Larivière, for the sake of peace of mind, again wrote the trustee to complain that no progress had been made since his offer was accepted, despite a letter of reminder on May 8. He informed the trustee that he was again obliged to forward a copy of his letter to the Superintendent's office (appendix 26).
The trustee explained in his testimony that he contacted the Bank several times but it was not until December 11 that the Bank gave its approval to accepting Mr. Larivière's offer of settlement (appendix 28).
Point at issue
In view of the facts submitted to me at the hearing, the point at issue is the following: were there severe and serious deficiencies in the administration of Ms. Mercier's bankruptcy, as the analyst maintained in her report to the Superintendent? Were the trustee's representations such as to indicate that, contrary to the analyst's findings, his administration was satisfactory and consistent with the requirements of the Act, except for a "technical error" which occurred repeatedly, but which according to the trustee caused no injury to anyone?
Discussion and conclusion
I propose to consider a number of more specific questions dealing with the trustee's conduct in view of the evidence presented.
Did the trustee advise the debtor not to include immovable property on her balance sheet, or encourage her to do so?
The first important question to be decided is: did the evidence show, as the analyst maintained in her report, that [Translation] "the trustee advised the debtor and encouraged her not to include immovable property in the bankruptcy balance sheet"?
I am unable to conclude from the testimony of the persons who were heard on this point, and in particular the bankrupt and the trustee, that the trustee in fact advised Ms. Mercier not to include immovable property in her bankruptcy balance sheet and encouraged her not to do so.
Relying on the affidavit signed by the bankrupt, the analyst spoke to her and in her testimony reported what the bankrupt said in their telephone conversation. In her testimony, the bankrupt had an opportunity to provide further explanations. She testified that it was essential that her share in the immovable property should not be included in the bankruptcy. She said she spoke to the trustee about this. The latter admitted he had probably discussed it with the bankrupt, but said he had never told the debtor that the immovable property should not be included in her balance sheet. He maintained that the bankrupt may have misunderstood and that he had perhaps said it was unlikely that the property would in fact be sold, in view of the small amount of equity that could result from the sale of the immovable property.
If the evidence submitted is not clear enough to support a conclusion that the trustee formally advised the debtor not to include the immovable property in her balance sheet, or encouraged her not to do so, did the trustee fail to perform his obligations by not including it in the debtor's bankruptcy balance sheet?
First, I should say that I accept that the trustee testified that at his first meeting with the debtor the immovable property at 528 Geneviève was probably mentioned and that this property was important for her children. I have great difficulty in believing that when he prepared the bankruptcy balance sheet the trustee did not recall his meeting with the debtor only a few weeks earlier. He may not have "advised" the debtor not to include her right in the property in the balance sheet or encouraged her not to do so, as I have just said; but the evidence submitted about the meetings the trustee had with Ms. Mercier and his subsequent conduct lead me to conclude that, on the contrary, despite his denials, the trustee simply chose not to include the property in the bankruptcy balance sheet though fully aware of the facts.
I therefore conclude on this first point that there was no evidence that the trustee advised Ms. Mercier not to include her right in the immovable property at 528 Geneviève in her balance sheet, or encouraged her not to do so, but my analysis of the evidence leads me to conclude that he simply chose not to include it in the balance sheet which he prepared himself and that, in so doing, he failed to perform his obligations as trustee in bankruptcy, contrary to s. 13.5 of the Act and Rule 45.
Was the trustee at fault in not mentioning the debtor's share in the property at 528 Geneviève when he prepared statutory reports and other documents?
The evidence presented leads me to answer this question in the affirmative, for the following reasons.
The trustee submitted that his statutory reports and other documents failed to mention the debtor's immovable property because of an error. He accepted responsibility for this error, which he characterized as "technical". I would like to look more closely at this argument by the trustee here.
The trustee was told on or before , in a telephone conversation with a National Bank employee, that Ms. Mercier was owner of an undivided share in the immovable property at 528 rue Geneviève. On the 19th, by fax, the Bank confirmed this information and included a document titled [Translation] "Search for historical links" dated , indicating that Ms. Mercier owned a half share with her ex-husband in the immovable property in question. The document suggested, using the municipal valuation entered in it, that after the mortgage its value was possibly near $14,000. A prudent and diligent trustee would have immediately proceeded to check this information. It would have been easy and inexpensive for him to do so, for example, by obtaining a copy of the Index of Immovables. Nonetheless, the trustee did not obtain such a copy until a year later. He simply wrote a rather innocuous letter to the bankrupt on September 18, asking her to let him know the name of the mortgage creditor, information which he learned from the National Bank's fax the next day in any case. What did the trustee do to clarify the situation? — literally, nothing. The trustee did not appear to have any interest in this information sent to him by the Bank — why?
Even his letter to Ms. Mercier is somewhat surprising. Did a trustee who learned that his debtor had not disclosed all her assets to him not have a duty to react more vigorously than the trustee did? The evidence was that the bankrupt tried to contact the trustee several times. The trustee gave the impression he was not interesting in talking to the debtor. Why? — yet the question he had asked the debtor himself in his letter was an important one. Was it because he already knew the answer the bankrupt would give him? The evidence tends to support this conclusion.
The trustee explained that an error occurred in preparing his preliminary report (s. 170 of the Act). He admitted he should have mentioned in it that the debtor had concealed the existence of the immovable property and had not performed all her obligations. He explained [Translation] "I should have seen, but I did not see it. It was my responsibility, that is clear" (p. 170–174). According to the trustee, this first error led to the same error being made in a series of documents and reports made up by the trustee.
Is the trustee's explanation credible? I do not think it is. There were several obvious discrepancies in his administration of the file for which the evidence provides no good explanation. Thus, a note prepared by the official receiver after a visit to the trustee's office indicates that [Translation] "there is [a notation] in the file just after the first meeting of the creditors that the bankrupt was co-owner of 50% of the family home and the other co-owner was Daniel Larivière — a call from the N.B.C. alerted the trustee — fax dated 19.08.95". How can we explain the fact that the trustee was unaware of this note in the bankrupt's file when he prepared the statutory documents? Accepting the trustee's account would mean that the trustee had been guilty of flagrant inattention and lack of diligence. Obviously, the trustee should be held responsible for this: but based on the evidence presented as a whole, the most likely story is that the trustee knowingly chose not include the property in the balance sheet.
This is indicated especially by the fact that on July 2 the trustee issued a Notice of Taxation and Discharge of the Trustee and the following day, on July 3, listed himself as trustee on Ms. Mercier's immovable property. In fact, the least that can be said is that his left hand did not know what his right hand was doing. The trustee described his error as "technical". His explanation is not credible.
The evidence seems more able to support the conclusion that the trustee knew that the debtor had an interest in the property at 528 rue Geneviève, he did not include it in the balance sheet and he did not want to make this apparent by entering the property in the reports made up after the balance sheet was signed.
For the reasons I have just stated, therefore, I have come to the conclusion that the trustee was at fault by not mentioning that the bankrupt was co-owner of the 528 rue Geneviève property in the statutory documents made by him, and in particular that the trustee:
- failed to indicate in his preliminary report to the creditors immovable property of which the debtor was co-owner, thereby contravening ss. 5(5) and 13.5 of the Act and Rules 39 and 45;
- did not list as an asset, in the report made pursuant to s. 170 of the Act, the debtor's undivided half of immovable property, thereby preparing an incomplete report and contravening s. 13.5 of the Act and Rules 39 and 45;
- did not indicate in his statements of receipts and disbursements all the information relating to the immovable property in question, and in particular the description and value of the debtor's interest, which had not then been sold or realized, thereby contravening ss. 13.5 and 152(1) of the Act and Rules 39 and 45; and
- provided inaccurate information when issuing the certificate of compliance, which in fact contained two false statements, namely that the final statement of receipts and disbursements regarding the assets was a true and faithful statement of his administration and that all the property which had passed through his hands had been liquidated or disposed of appropriately, thereby contravening s. 13.5 of the Act and Rules 39 and 45.
Did the trustee perform his duty to adequately verify the value of Ms. Mercier's immovable property in a timely manner?
I feel that a negative answer must be given to this question.
Even accepting that the trustee did not know on or before that the debtor was co-owner of the property (a version that I do not accept), the trustee when he learned of it did not take action promptly to determine the truth of the information received and what the value was. Consequently, he failed to carry out his duties to the bankrupt's creditors.
I do not mean by this that the trustee should necessarily have listed himself on the Register of Immovables immediately after receiving the information from the National Bank. However, in my opinion it is clear that he had a duty to immediately obtain a copy of the Index of Immovables and to check the equity of Ms. Mercier's share. This he did not do. In fact, he did not decide to make these investigations until several months later, in response to pressure from the Bank and questions from the Superintendent's office which were becoming more and more insistent (p. 174).
I have therefore come to the conclusion that the trustee did not perform his duty to investigate fully in a timely manner the value of Ms. Mercier's immovable property, contrary to ss. 19(3) and 13.5 of the Act and Rule 36.
Did the trustee provide incomplete and inaccurate information to the Superintendent's office?
For the reasons indicated earlier, I feel I must also give an affirmative answer to this question.
In my view, the letter he sent the Deputy Superintendent explaining his position in the matter was not entirely frank and was ambiguous, if not misleading, about the time he learned of Ms. Mercier's asset and the sale of the property. The trustee thereby contravened s. 13.5 of the Act and Rules 39 and 45.
Did the trustee lack diligence in performing his duties by not doing any follow-up after his registration on the property and delaying to take action on an offer of settlement?
After his listing on the property on , the trustee took no further action. On October 2 he issued his certificate of compliance, in which the immovable property was not mentioned. In November 1996 he learned that the bankrupt had sold her share in the immovable property for $10,000. It was not until the following September and October that he obtained a copy of the Index of Immovables and a copy of the deed of sale.
The "technical" error mentioned by the trustee as an explanation of his failure to act is in no way credible. It is more likely that the trustee desperately tried to find a way out of a situation that was becoming increasingly untenable. He gave the impression of someone who was trapped by his own mistake and hoped the situation would sort itself out with the passage of time.
In my opinion, it is this attitude which explains the fact that the trustee did not take more vigorous and diligent action following the offer of settlement by Daniel Larivière.
I have therefore come to the conclusion that the trustee demonstrated a lack of diligence in performing his duties by not taking further action after his registration on the immovable and delaying in acting on an offer of settlement, contrary to s. 13.5 of the Act and Rule 36.
When the trustee indicated in a letter to the debtor that she had concealed the fact that she was owner of an undivided half, did he make a statement which he knew to be false and inaccurate?
The foregoing conclusions necessarily lead me to an affirmative answer to this question.
The trustee had known since September 1995 that the debtor was co-owner. In November 1996 he learned that she had sold her share. On , a year later, he complained that she had [Translation] "concealed the fact that you had an undivided half of immovable property at 528 rue Geneviève".
Based on the evidence I have accepted, the trustee knew from the time of his first meeting with the debtor that was she co-owner. He consequently made a false and inaccurate statement when he objected that she had concealed the fact of being co-owner. Moreover, it is not clear why he waited until 1997 to complain of a flagrant breach of her obligations as bankrupt (according to the trustee's account).
I therefore conclude on the point that the trustee made a false and inaccurate statement, contravening s. 13.5 of the Act and Rules 39 and 45.
Did the trustee's deficiencies and omissions in his administration of Ms. Mercier's bankruptcy adversely affect the creditors?
I should say at the outset that there was no evidence that the trustee benefited financially and unlawfully from his improper administration of this bankruptcy.
At the same time, if the trustee had administered the bankruptcy as the Act requires, it can be assumed that the bankrupt would not have obtained her discharge so easily, that is, automatically and unconditionally.
If the trustee had promptly checked the information provided by the National Bank and had himself registered on the Index of Immovables at the proper time, there is nothing to indicate that the creditors could not have benefited from a realization of the property greater than the $2,000 Daniel Larivière paid the trustee.
Finally, it seems clear that the trustee's actions in the administration of Ms. Mercier's file were unacceptable from the outset and such as to undermine public trust in the administration of the Act.
At the close of the hearing on June 20 last I indicated that I would first render my decision as to whether, based on the evidence presented, the trustee had failed to perform his duties as trustee. In the event of an affirmative decision, a re-hearing would be held in order to hear counsel for the parties on disciplinary action that should be taken, based on the nature and seriousness of the deficiencies and omissions noted in my decision.
I propose to ask counsel to make their submissions to me at a hearing on a date and at a place to be determined after consultation with them.
originally signed by
Roger Tassé, O.C., Q.C.
Delegate for Superintendent of Bankruptcy
Footnote 1 Quotation on p. 4 of Fr. reads "19.08.01"? — TR. (Return to footnote 1 referrer)
This document has been reproduced as submitted by the delegate of the Superintendent of Bankruptcy.
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