John Hainsworth Todd and Todd McMahon Inc. (British Columbia)

Professional Conduct Decision

What is a professional conduct decision?

An investigation into a Licensed Insolvency Trustees (LIT)'s professional conduct is initiated when there is information to suggest that the LIT has not properly performed the duties of a trustee or there has been improper administration of an estate or lack of compliance with the Bankruptcy and Insolvency Act (BIA).

In some cases, the findings are sufficiently serious to support a recommendation for sanctions against the LIT's licence (cancel or suspend a LIT's licence (subsection 13.2(5) of the BIA) or impose conditions or limitations (subsection 14.01(1) of the BIA)).

The professional conduct decision is deemed to be a decision of a federal board, commission or tribunal and may be judicially reviewed by the federal court.

In the Matter of
John Hainsworth Todd
Holder of a Trustee License
For the Province of British Columbia
Todd McMahon Inc.
Holder of a Corporate Trustee License
for the Province of British Columbia

Decision on Sanction
under the Bankruptcy and Insolvency Act
in Respect of Professional Conduct

The hearing of all the evidence in this case, and of argument on responsibility only, took place in Vancouver from April 6 to 12, 2005. It was agreed at the hearing that I would first decide the question of responsibility, and that if I found that it did exist, written briefs on the second issue of sanction would be submitted, followed by oral argument by way of a telephone conference.

I rendered my first decision on , finding that responsibility existed, and the parties' briefs were duly submitted as agreed. That of counsel for the Senior Analyst was followed by that of counsel for the Trustees, then by a reply from counsel for the Senior Analyst, and finally by a rebuttal letter from counsel for the Trustees. Oral argument by telephone conference took place on . Participants included counsel for the Trustees as well as the individual Trustee himself (in Vancouver); counsel for the Senior Analyst (in Ottawa); the Senior Analyst (in Toronto); and the undersigned Delegate (in Montreal).

I have carefully studied the arguments and authorities cited by both parties, the evidence, and the applicable law, and am now in a position to render my decision on the appropriate sanction and penalty, taking into account the reasoning and recommendations of both counsel. It will not be necessary for me to go into great detail, to the extent that I have already rendered a decision on the question of responsibility in which much has already been dealt with.

I should like to first consider the final letter of Mr. Clark for the Trustees, which raises objections to paragraph 10 of the reply to his brief by Ms Lang for the Senior Analyst.

In this reply, Ms Lang responds to Mr. Clark's allegations, concerning Mr. Todd's allegedly unblemished disciplinary record and his being a first offender, by referring to and attaching a number of decisions or official findings in the OSB, of a negative character concerning Mr. Todd, but not of a disciplinary nature. Mr. Clark objected strenuously to that portion of her brief which, in effect, alleged new facts not previously in evidence.

I concluded at the telephone conference that Mr. Clark's objection was well-founded, in that of I took any notice whatsoever of the documents in question I would have to order the re-opening of the hearing, in order to afford Mr. Clark the opportunity of leading further evidence in this regard. After some discussion, Ms Lang agreed to withdraw everything in paragraph 10 after the word "counter-intuitive" in the seventh line, as well as the documents in question. I have consequently paid no attention whatsoever to the said documents or the withdrawn part of the paragraph; Mr. Clark declared himself satisfied, and both counsel agreed that it would not be necessary to re-open the hearing.

In considering the appropriate sanction, I have taken into account the facts established, the arguments and authorities cited, the purpose of imposing a penalty, and the subjective and objective factors that must be weighed, as well as the specific recommendations of both parties.

It is true that the individual Trustee did not seek or obtain for himself any inappropriate financial or other advantage, though the perpetration of a fraudulent act, and that his sole intention may well have been to minimize the time and expense involved by "cutting corners". It is also true that this case only involves one specific joint consumer proposal, that of Mr. and Mrs. Davies, and that this is the first time Mr. Todd has been the subject of disciplinary proceedings under the BIA.

In spite of this, the case in an extremely serious one, and is also one of the very few in which violations of the Code of Ethics for Trustees are alleged. Mr. Todd's conduct, and the numerous inexplicable acts and omissions established by the evidence, have compromised the integrity of the insolvency system. In addition, serious harm has been caused to a number of persons and institutions, including: Mr. Orrell, a friend and fellow-trustee, who through naiveté was induced to do Mr. Todd a favour, and as a result suffered a disciplinary sanction and negative consequences to his career; Deloitte Touche, a respected accounting firm, which was lucky to avoid disciplinary action itself and had to take proceedings to disentangle itself from the file; AFC, the debtors' most important creditor, excluded by Mr. Todd from the list of creditors, and obliged to institute legal action to annul the proposal; and the debtors themselves, whose fully satisfied proposal was totally ineffective to solve their problems, because of Mr. Todd's acts and omissions, particularly in the case of Mr. Davies, whose substantial indebtedness to AFC persists to this day, as a result of the annulment of his proposal. (AFC had graciously agreed to withdraw its motion to annul Mrs. Davies' proposal on compassionate grounds, although presumably it would otherwise have been granted as well)

Every case is unique, and the appropriate sanction must be determined having regard to the particular situation involved. In the present matter, the individual Trustee does not seem to have internalized and accepted the wrongfulness of his behaviour in so many respects: failing to follow the basic rules and procedures in consumer proposals; failing to legally change the administrator appropriately; failing to call required meetings of creditors; failing to give notice to the most important creditor; administering the estate and signing documents and representing himself and/or the corporate Trustee as the administrator without right; illegally altering an already signed or sworn document without right; failing to legally amend the proposal; failing to observe the rules concerning the admissibility of a proof of claim; and in general, failing to understand what the duties of an administrator of a proposal are, or deliberately ignoring them.

Having regard to all the circumstances, I conclude that the appropriate sanctions are as follows:

  1. As to the individual Trustee:

    1. The license of John Todd is hereby suspended for a period of not less than one year from the date of this decision, during which he shall not perform the duties and functions of a Trustee in Bankruptcy.

    2. The suspension of the license of John Todd shall not be lifted until he has:

      1. appeared before an Ad Hoc Oral Board, and successfully demonstrated his knowledge, competence and professional ethics in relation to the administration of Consumer Proposals

      2. successfully completed a course in business ethics at a recognized institution, said course and institution to be acceptable to the Regional Director of the OSB for Western Canada.

  2. As to the corporate Trustee, Todd McMahon Inc.:

    The license of the corporate Trustee is hereby restricted for a period of ninety (90) days from the date of the present decision, during which time the corporate Trustee is not permitted to accept any new appointment under the BIA in its Abbotsford office, and no new appointment in its Vancouver office arising from the Abbotsford Chilliwac area, or which would normally be opened in its Abbotsford office.

  3. As to both the individual and corporate Trustees:

    The Trustees are hereby condemned jointly and severally to reimburse to the estate of the consumer proposal of April Davies the sum of $ 2,107.61, being the net dividend paid to John and Maxine Vozza without proper documentation (and which the individual Trustee had previously undertaken to reimburse) together with interest thereon at the rate of 5 % from , the date of payment of the said dividend; such reimbursement to be made within thirty (30) days of the present decision, to be re-distributed to the creditors, together with interest thereon as aforesaid, as follows:

    Reimbursement to be made
    Creditor % of Total Dividend Payable
    CIBC Visa 79% 1665.01 + interest
    Van City CU 3% 63.23 + interest
    Van City Visa 18% 379.37 + interest

Upon the failure of the Trustees to comply with any of the ordered sanctions to which their licenses are subject, such Trustee shall immediately be deemed in default pursuant to paragraph 13.2 (5)(b) of the Act. The sanctions (except for the payment of $2,107.61 plus interest) shall come into effect three (3) business days after the date of the present decision.

Signed at Montreal this

The Honorable Perry Meyer, Q.C.
Delegate of the Superintendent of Bankruptcy

This document has been reproduced as submitted by the delegate of the Superintendent of Bankruptcy.