Trustee Act Ontario: Introduction

I want to highlight a provincial statute that is also important for the administration of a deceased estate; the Trustee Act, R.S.O. 1990, c. T.23 (Trustee Act Ontario). This blog continues my blog series to show how it would be proper to appoint a licensed insolvency trustee (LIT or bankruptcy trustee) (formerly known as a bankruptcy trustee) as the estate trustee (formerly called an executor or executrix) of a solvent deceased estate.

As always, since we are not lawyers, and I am by no means providing in this and upcoming Brandon’s Blogs advice on wills or estate planning matters. For that, you must consult your lawyer.

My prior estate blogs

In my blog TRUSTEE OF DECEASED ESTATE: WHAT A TORONTO BANKRUPTCY TRUSTEE KNOWS, I looked at some essential matters when it involves a deceased estate and why a LIT would be extremely knowledgable and competent to act as an estate trustee of a deceased estate with those basic requirements.

In the blog, TRUSTEE OF PARENTS ESTATE: DO I REALLY HAVE TO?, I explained why many times parents try doing the proper thing by appointing their children as estate trustees and how many times it just turns out all wrong.

In ESTATES ACT ONTARIO: TORONTO BANKRUPTCY TRUSTEE REVEALS HIDDEN SECRET, I describe how the requirements and provisions of the Estates Act are already very familiar to a bankruptcy trustee. In fact, most of the duties required by the Estates Act are already performed in the insolvency context by a LIT.

My blog ADMINISTRATION OF ESTATES ACT CANADA: EASY FOR TORONTO BANKRUPTCY TRUSTEE TO DO, I explained why a LIT is a right professional to lead the administration of Estates Act Canada.

In this and my next blog, I will focus on two more Ontario statutes that impact the administration of a deceased estate by an estate trustee. The three statutes are:

As you have by now correctly guessed, in this blog, I will show how a bankruptcy trustee would be very familiar with the workings of this provincial legislation.

Things an estate trustee must be aware of

There are various sections of the Trustee Act Ontario that affects the duties and responsibilities of an estate trustee in administering a deceased estate. All the concepts are very familiar to a LIT.

Power of court to appoint new trustees

Section 5(1) of this statute gives the Ontario Superior Court of Justice the authority to make an Order for the appointment of a new trustee. This is the same Court that we attend for Court-appointed receivership and bankruptcy matters. So, a LIT is very familiar with the workings and requirements of this Court.

Who may apply for the appointment of a new trustee, or vesting order

Section 16(1) of this provincial statute says that anyone who has a beneficial interest in the property of the trust can apply for the appointment of a new trustee. This is very similar to how a Court-appointed Receiver is appointed. Although it is normally a secured creditor who makes the application, in theory, it could be any party that has an interest. Section 101(1) of the Courts of Justice Act, R.S.O. 1990, c. C.43 states that a receivership Order may be made “…where it seems to a judge of the court to be just or convenient to do so.”. It is the “just and convenient” clause that was relied upon by the judge when we were appointed Receiver and Manager of the assets, properties and undertakings of The Suites at 1 King West condo strata hotel back in August 2007.

For this reason, as a LIT, we are very familiar with this aspect of appointing a trustee.

Power and discretion of trustee for sale

In my blog ADMINISTRATION OF ESTATES ACT CANADA: EASY FOR TORONTO BANKRUPTCY TRUSTEE TO DO, I referred to sections 16 and 17 of the Estates Administration Act. Section 17 in particular, provides the estate trustee with the power to pay off the debts of the deceased. It also allows a trustee to distribute or divide the estate among the beneficiaries.

Section 17 of the provincial Act provides the trustee with the authority to sell, but subject to the requirements of the Estates Administration Act.

A LIT, either in receivership or bankruptcy, is extremely acquainted and experienced in the sale of real and personal property. The LIT likewise makes certain that the creditors are paid in the correct order of priority.

Sales by trustees not impeachable on certain grounds

Section 18(1) deals with a certain aspect of the sale of the property. It states that unless it is proven that there was an inadequate sales price, a sale properly made cannot be impeached by any beneficiary. Any beneficiary wanting to try to impeach a sale must prove that the process used resulted in a sales price at less than fair market value.

Similarly, in a Court-appointed receivership or bankruptcy, the LIT must be able to prove that both the conditions of the sales process and the sales price achieved, was right for the types of assets in the circumstances.

The leading case is the Ontario Court of Appeal decision in Royal Bank of Canada v. Soundair Corp., 1991 CanLII 2727 (ON CA). The process a LIT must follow is known as the “Soundair principles”. This is the test used when deciding whether a receiver or trustee applying for Court approval of a sales process and the authority to sell assets has acted properly. The Court must decide whether the receiver or trustee has:

made a sufficient effort to get the best price and has not acted improvidently;
considered the interests of all parties;
Devised a fair process that has integrity by which offers were obtained; and
Introduced any element of unfairness in the working out of the process.

Therefore, I submit, that a LIT is very experienced in devising a sales process and selling assets in a way that is fair to all stakeholders or beneficiaries to attempt to maximize sales proceeds.

Trust funds and investing

Section 26 of the Act deals with the area of the requirement for a trustee to maintain trust accounts and to invest trust property in a way that will maximize the return while not putting the capital at risk to swings in investment pricing, inflation or income tax.

The LIT is very familiar and experienced in trust accounts and the investing of trust funds. Section 25 of the Bankruptcy and Insolvency Act (Canada) (BIA) deals with the requirement of a trustee to establish trust accounts. Also, the Superintendent of Bankruptcy Directive no. 5R5 deals with Estate funds and banking. The Superintendent also monitors the banking of trust funds by all LITs across Canada.

Therefore a LIT is very knowledgeable and experienced in the banking, investing and protection of trust funds.

Security by the person appointed

If letters of administration were granted under the Estates Act, R.S.O. 1990, c. E.21, section 37(2) of the provincial legislation requires every trustee to post security.

I discussed in my blog ESTATES ACT ONTARIO: TORONTO BANKRUPTCY TRUSTEE REVEALS HIDDEN SECRET, the experience of a LIT in the posting of security by way of an insurance company bond.

Actions for torts

Section 38(1) of the provincial statute gives authority to an estate trustee of a deceased person to maintain an action for all torts and injuries to the deceased person or his or her property, except in cases of libel and slander. Any recovery forms part of the deceased’s personal estate. Section 38(3) provides for a limitation on such actions. The action cannot be brought after the expiration of two years from the date of death.

As a LIT, this is a familiar concept to us. When a person or company is insolvent and has a chose in action against one or more parties, such action can be started or continued by a receiver or bankruptcy trustee. In fact, in a bankruptcy, the action actually vests in the trustee.

The receiver or trustee has to make sure that they have a legal opinion on the likelihood of success. The receiver or trustee also has to make sure that they can afford to fund the litigation. The litigation cost cannot reduce the value of the assets under administration. This includes the issue of costs if the action proves unsuccessful.

Distribution of assets under trust deeds for benefit of creditors, or of the assets of the intestate

Section 53(1) of the Act lays out the requirements of a trustee to make a distribution for the general benefit of creditors. As I have described in previous blogs, Section 135 of the BIA deals with the admission and disallowance of proofs of claim and proofs of security.

A LIT is an expert at sorting out creditor claims and could certainly do so under the Trustee Act also.

Trustee Act Ontario: Summary

I hope that this blog reveals to you how the provisions of this provincial statute, detailing the duties of a trustee or estate trustee tracks really close to how a LIT performs in either a Court-appointed receivership or bankruptcy administration.

Therefore, the LIT is used to acting as a Court officer and could very easily perform the requirements and duties of a trustee as described in this provincial legislation.

If you have any questions about a deceased estate and the need for an estate trustee, whether it is solvent or insolvent, contact the Ira Smith Team. We have decades and generations of experience in helping people and companies overcome their financial problems. You don’t need to suffer; we can end your pain.

In my next blog, I am going to write a similar comparison. It will be about the requirements outlined in the Succession Law Reform Act and how a LIT is most familiar with it also.

In the meantime, if you have any questions at all, contact the Ira Smith Team.

trustee act ontario

receiver mortgagee $6.2 million flipped $9 million, property flip, real estate flipping, bankruptcy, professional trustees, receiver, Receiver, receivership, trustee, ira smith trustee, Ahmed Baig, Soundair Corp., restructuring and turnaround, Ahmed Baig, Meridian Credit Union, Meridian Credit Union Limited v. Baig, bankruptcy trustee, starting over starting now The television air waves are clogged with real estate reality shows – buying properties, selling properties, real estate flipping properties, renovating properties, income properties… There’s a real estate show that demonstrates every facet of the business and it all looks very simple. But I’m pretty sure that not one real estate reality show told you that real estate flipping when purchasing from a Receiver in Ontario can land you in a heap of legal trouble. Here is the story surrounding the Court of Appeal for Ontario case of Meridian Credit Union Limited v. Baig, 2016 ONCA 150.

Real Estate Flipping

Mr. Ahmed Baig’s corporation bought a downtown Toronto property located 984 Bay Street in a receivership sale. The property was purchased from the court-appointed Receiver with court approval, for $6.2 million in August 2006. Before the deal went through Mr. Baig secretly flipped the property for $9 million, netting a tidy profit of $2.8 million. The Receiver had no clue that when Mr. Baig bought the property he’d already agreed to resell it to Yellowstone Property Consultants (Yellowstone). In fact the Receiver assumed Yellowstone was Baig’s company and neither Mr. Baig nor his lawyer corrected that misunderstanding. On the advice of counsel the deal was structured so that the property would go directly to Yellowstone to avoid duplicate land transfer taxes. What a score for a little paperwork and some creative bookkeeping!

The Flopping

It’s hard to keep a $2.8 million real estate flipping secret and in 2009 Meridian Credit Union Limited (Meridian), the first ranking secured creditor at the time of the sale, and the Applicant in the receivership case, discovered the resale to Yellowstone. Meridian sued Mr. Baig. The Receiver, obliged to maximize the return on assets of any sale, argued it would never have recommended court approval had it known about the real estate flipping.

The Court noted that one of the terms of the Agreement of Purchase and Sale entered into between the Receiver and Mr. Baig’s company stated:

“Article 39 of the agreement of purchase and sale provided that Mr. Baig could assign the agreement to a corporation to be incorporated for the purposes of the sale with the receiver’s consent which could not be unreasonably withheld. However, in respect of any other assignment, the receiver had a consent right and its consent “may be arbitrarily withheld”.”

In the original case in the Ontario Superior Court of Justice, The Honourable Mr. Justice F.L. Myers found that:

“Apart from the normal circumstances where any buyer would be reluctant to tell its vendor that there was another buyer available who would pay substantially more for the property, the fact that the sale occurred in a receivership is important. A receiver requires approval of the court to make a material sale of the debtor’s property. To obtain court approval, a receiver must establish that it engaged in a fair and commercially reasonable process to try to obtain fair market value for the property to maximize realization for the creditors. See: Royal Bank of Canada v. Soundair Corp., 1991 CanLII 2727 (ON CA), 1991 CanLII 2727 (ONCA). If a Receiver learns that it has undersold property it can be in a very difficult position in which it is contractually bound to seek court approval for its sale but it must, at the same time, disclose to the creditors and to the court that it has not maximized realization.”

The Honourable Mr. Justice Myers made the finding that Mr. Baig is liable to Meridian for fraudulent misrepresentation in an amount to be determined by the court.

The Appeal Court Ruled On The Real Estate Flipping

Upholding the lower court decision, the Court of Appeal found Ahmed Baig had deliberately misled the Receiver handling the receivership by failing to alert them to the resale through the real estate flipping. “In certain circumstances, silence and half-truths can amount to a misrepresentation,” the Appeal Court ruled. “Both the appellant and his counsel wanted to prevent the Receiver from discovering the sale to Yellowstone, because the $2.8 million differential in the price would jeopardize court approval,” the Appeal Court said. “Both the appellant and his counsel actively hid the agreement,” the Appeal Court found. Instead of making a fast $2.8 million Mr. Baig was held responsible for the misrepresentations made by his lawyer, who knew documents given to the receiver were false. While Baig had no obligation to disclose the resale agreement, the court decided that his failure to correct the misunderstanding that Yellowstone was his company amounted to fraudulent misrepresentation.

Would this real estate flipping decision be the same in a bankruptcy?

In my view, this ruling would also extend to bankruptcy administrations, as the bankruptcy trustee would be required to obtain either inspector or court approval, and be held to the same high standards as in this case. As professional trustees we are extremely ethical and would never support a fraud or blatant misrepresentation. We help individuals and companies throughout the Greater Toronto Area (GTA) facing financial crisis in need of restructuring and turnaround, receivership or bankruptcy that need a plan for Starting Over, Starting Now. The Ira Smith Team brings a cumulative 50+ years of experience dealing with diverse issues and complex files, and we deliver the highest quality of professional service. Don’t worry about debt; instead take immediate action.

Call us today. If you or your company is trapped in high debt, you need a professional trustee to help you manage the situation before it reaches a critical stage where bankruptcy or receivership is your only option. We have been able to help many individuals and companies carry out a successful debt settlement programs or corporate restructuring and turnarounds. It all began with an initial consultation. The first step is a realistic cash-flow budget. Successful completion of such a program, will free you from the burden of your financial challenges to go on to live a productive, stress-free, financially sound life.