Substituting a Bankruptcy Trustee – Creditors May Replace the Trustee of a Bankruptcy Estate

Substituting a Bankruptcy Trustee – Creditors May Replace the Trustee of a Bankruptcy Estate

The Bankruptcy and Insolvency Act (Canada) (“Act”) at subsection 14 allows the creditor(s) of a bankrupt estate, whether it be in respect of a bankrupt individual or corporation, to substitute the Trustee chosen by the bankrupt for a Trustee of their choosing. This substitution usually takes place at the meeting of creditors which occurs within 21 days of the date of bankruptcy and the following conditions must be met in order to substitute the original Trustee:

  1. the creditor(s) present at the meeting, either by proxy or in person, must obtain a special resolution of the creditors to replace the original Trustee with a “new” Trustee. A special resolution is defined as a majority in number of creditors representing at least 75% of the value of debt. Keep in mind that these metrics relate only to creditors present at the meeting. If there is only one creditor present at the meeting he/she alone can pass a special resolution; and,
  2. the “new” Trustee must provide its written consent to act.

In order to illustrate why this may be relevant, let’s look at a relatively common scenario.

Your client received a notice in the mail that a Company (or individual) of which he/she is a creditor has filed for bankruptcy.  Your client is an unsecured creditor for, let’s say, $100,000. Neither you nor your client has ever worked with the appointed Trustee. Prior to the first meeting of creditors, you reach out to a proposed replacement Trustee who you believe is competent to administer the bankruptcy estate and whom you may consider more independent of the bankrupt. Assuming your proposed Trustee consents to act, at the first meeting of creditors your client tables a resolution to replace the existing Trustee. If the special resolution is passed, the original Trustee is replaced by your favoured Trustee.

The above discussed provision of the Act is yet another example of the legislature’s intent to provide creditors with vast decision making authority in bankruptcy estates. In subsequent issues of this publication we will describe other such provision which place the decision making power of the administration of a bankruptcy estate in the hands of the creditors.

About Albert Gelman Inc.

Albert Gelman Inc.’s corporate and consumer insolvency group has over 100 years of combined experience working with businesses, individuals and creditors in insolvency related matters. 

Information contained in this email is for information purposes only and is not intended to provide legal, accounting or financial advice and should not be relied upon in that respect. Albert Gelman Inc. assumes no liability for any inaccurate, delayed or incomplete information, nor for any actions taken in reliance thereon and is not responsible in any manner for direct, indirect, special or consequential damages, however caused, arising out of the use of the information contain in this email, including if you transmit confidential or sensitive information to us or if we communicate such information to you at your request over the Internet. All information in this email is provided on an “as is” basis, without warranty of any kind, either express or implied.