“Who is the best Licensed Insolvency Trustee in Toronto?”
If you came across this blog post after entering this search query into Google, you’re not alone. This is one of the most obvious questions to ask when seeking the services of a Toronto Licensed Insolvency Trustee.
To answer this question, let us review some important factors you should take into consideration when choosing the best Trustee for you:
Obtaining a Professional Referral
Many lawyers and accountants are acquainted with Trustees and are usually familiar with what Trustees do and how they operate. Therefore, if you have a lawyer or accountant, he or she can refer you to a reputable Trustee.
Reading Online Trustee Reviews
You can find many detailed and honest customer reviews of Trustee services on platforms such as Google, Facebook and Yelp. Some user reviews you may come across will provide very emotional recountings of experiences working with Trustees, both good and bad.
Trustee Professional Conduct Issues
Has a Trustee been subject to any disciplinary action for professional misconduct?
Trustees are licensed by the Office of the Superintendent of Bankruptcy and are subject to their supervision. The OSB publishes the results of investigations into Trustee professional conduct on their website. Professional Conduct Decisions of the OSB can be found here.
Moreover, many Trustees are also licensed accountants. Therefore, you should consider investigating whether a Trustee has been subject to any disciplinary action by the accounting body in which he or she is a member. For an example of disciplinary cases, here is a link to CPA Ontario Decisions, Orders, Settlement Agreements and Reasons in Cases Involving Disciplinary Proceedings.
Beware of “Debt Consultants”
Is the Trustee you’re considering retaining affiliated with a third party who receives compensation for client referrals?
There has been a trend of “credit counsellors”, “debt counsellers”, “debt experts” (and I use these terms loosely), referring work to Trustees in return for compensation. From what I have seen in the Toronto area, here is how it usually works:
- An individual who aspires to be a “debt consultant” or “credit counsellor” will approach a Trustee about referring work to his practice in return for a percentage of the Trustee’s fees.
- The individual in question usually has no financial training or background at all. He’ll be largely self-taught and in some cases, fell into his profession because he was bankrupt himself at one time and learned how the process works during the course of his bankruptcy. Also, he is often a prominent member within his community. Therefore, he can be a valuable source of referrals for the Trustee.
- Moreover, many individuals in financial difficulty can be understandably intimidated by the prospect of meeting with a Trustee. The “credit counsellor” exploits this by advertising himself as a credit counsellor, debt consultant, or some other euphemism, who can help people solve their debt issues “without going bankrupt”. This is far less intimidating for the debtor.
- In fact, the credit counsellor himself may not be able to do anything about the situation at all, especially if it’s dire (e.g., wage garnishment, collection calls, etc.). He has no legal authority to stop such proceedings and moreover, may lack the training and knowledge to provide sound financial advice. So he refers his client to a Trustee and is paid a percentage of the estimated fees from the pending bankruptcy engagement.
Trustee Code of Ethics
The professional conduct of Trustees are governed by a Code of Ethics in the Bankruptcy and Insolvency Act. Specifically, Rule 49 of the Act states that:
Trustees shall not, directly or indirectly, pay to a third party a commission, compensation or other benefit in order to obtain a professional engagement, or accept, directly or indirectly from a third party, a commission, compensation or other benefit for referring work relating to a professional engagement.
So you’re probably wondering: how can a Trustee pay a commission if he’s prohibited from doing so under the law? Certain Trustees have been very creative in getting around this. Here are some examples:
- As previously indicated, some Trustees are also accountants, and will have accounting practices which are legally separate from their respective insolvency practices. The commission will be paid by the accounting firm, not the Trustee firm.
- Some Trustee’s will pay “rent” to the credit counsellor for meeting the debtor at the credit counsellor’s premises when signing the legal paperwork.
- Another method is to have the debtor directly pay the credit counsellor a fee for the referral, and the Trustee deducts the payment made by the debtor from his own fees.
Although these tactics may not directly violate the law, they clearly contravene the spirit of the law.
The Ethics of Referrals From Debt Consultants
Generally speaking, there is nothing inherently unethical about paying someone for a referral – this is a normal business practice. However, because of the nature of insolvency proceedings, such arrangements have the potential to create major problems for the debtor, his creditors and the Trustee. Here is an example I have seen far too often:
- John has a lot of debt and no assets, other than an antique 1961 Ford Mustang he inherited from his father. It’s worth about $20,000.
- John doesn’t want to file bankruptcy but sees a TV advertisement by “AOK Debt Management”. The TV ad says that AOK can “help you deal with your debts without going bankrupt”.
- John meets with the AOK debt counsellor who convinces him that bankruptcy is the only solution for him. John is understandably disappointed, but agrees to proceed with a bankruptcy through a Trustee referred to him by AOK. John is concerned about losing the car, but the debt counsellor reassures him that if he doesn’t mention the car to the Trustee, he won’t lose it. If the car is somehow discovered, then John can simply state that it slipped his mind, without any serious consequences.
- John files his bankruptcy and AOK receives its commission from the Trustee. Some months after the bankruptcy is filed, the Trustee discovers the existence of the car, which was sold by John right after he filed bankruptcy. The money is gone – John has spent it all. The Trustee informs John that he’s committed a very serious offence under Canadian bankruptcy law and can even go to jail for bankruptcy fraud. John protests the he was only doing what he was told by the debt counsellor and was informed that the consequences wouldn’t be that serious.
As you can see in this example, because of its commission, it was in AOK’s interest to have John file for bankruptcy, even though it may not have been in John’s best interes.
So be warned and follow this old adage: if you something is too good to be true, it usually is!
Find a Trustee You Like
You may meet with meet with two Trustees that have the same professional qualifications and experience, but you’ll instinctively have a good feeling about one and apprehensions about the other.
Therefore, with all the aforementioned factors taken into consideration, it’s important that you choose a Trustee that you’re personally comfortable with. If you are filing a bankruptcy, your bankruptcy will last a minimum length of 9 months. If you are filing a consumer proposal, your proposal can last up to 5 years. Therefore, if you’re working with a professional for that length of time, it’s important that you assess his or her personality to see if the Trustee’s personality best fits with yours.
Who you consider to be the “best Licensed Insolvency Trustee in Toronto” (or any other city) will ultimately depend on the factors discussed in this post. Personality match is particularly subjective factor and therefore, who is the best Trustee for you will really depend on who you are as a person.