Receivers and Mortgage Fraud
I have been critical about the failure of the adversarial system when it comes to reviewing receivership fees in the Kirk Wright and IMA bankruptcies. There seemed to be only a pro-forma review of fees, which in my opinion seemed excessive.
Is the situation any different in Ontario?
Well, in Pandya v. Simpson, 2006 CanLII 19443 (ON S.C.) the receiver's counsel presented a fee schedule of some $400,000, with respect to the receivership of an alleged mortgage fraud scheme.
How much was at risk? "Counsel for the Receiver attended before Farley J. on December 13, 2005 and filed the First Report of the Receiver of the same date. That report summarized the nature of the two alleged frauds. At that time the Receiver estimated that there were eighteen victims of the deposit scheme fraud owed approximately $3.6 million and at least 54 victims of the Ponzi Scheme/mortgage fraud with a total loss of approximately $11 million."
What did the receiver's counsel accomplish, in order to have earned the $400,000 fee? How should a Court determine whether, after the fact, what the value of the receiver's efforts should be?
In the leading case in Ontario, it was said that "in determining what is fair and reasonable remuneration, Borins J.A. observed that there is no guideline controlling the quantum of fees as there is in respect to a trustee's fees. He referred to what he described as the "leading case" in the area of receiver's compensation, Belyea & Fowler v. Federal Business Development Bank[4], a decision of the New Brunswick Court of Appeal, and adopted with approval the observations of Stratton J.A. in Belyea that compensation is
usually allowed either as a percentage of receipts or a lump sum based upon time, trouble and degree of responsibility involved. The governing principle appears to be that the compensation allowed a receiver should be measured by the fair and reasonable value of his service and while sufficient fees should be paid to induce competent persons to service receivers, receiverships should be administered as economically as reasonably possible."
In Pandya v Simpson, the Judge found that the Recevier's"First Report estimated the equity in real estate to be anywhere from $654,000 to $1.3 million. The claim by Pahwa had been asserted and the position of RECO was known. Although further information on the assets and claims became known to the Receiver and its counsel as the receivership progressed, it was certainly clear from the outset that subject to litigation with RECO, the assets of the estate were modest, particularly relative to the quantum of the claims.
The numbers have not changed that much. Based on the statement of assets and liabilities filed before Mesbur J., the estimate of the net assets to be realized from the defendants is approximately $1.8 million."
And for this work, counsel for the Receiver wanted $400,000 in fees. They didn't get it, but in my opinion given the cooperation of the defendant in this case, the amount of fees that were awarded, $260,000, was not justified either.
We cannot have receivers simply stripping the estate of most of its liquid assets and committing a double fraud on the hapless investors. Time to tender out these recoveries.
