The Personal Liabilities of Insolvency Practioners under Insolvency Legislation: A Comparative Analysis of the Canadian, English and American Positions — Part II

II  IPS' Personal Liabilities under Canadian Law

A. Structure of Canadian Insolvency Legislation and Roles of IPs in the Administration of Estates

1. Structure

Canada's first insolvency act was adopted in 1869. It ran into much opposition from various interest groups and was repealed in 1880. Between then and 1919 Canada had no general insolvency legislation at all. However, in relation to companies, the gap was partially filled by the Winding Up Act of 1882,¹⁰ which was based on British precedents. The Act is still in force in a revised form¹¹ but is rarely used by insolvent corporate entities other than those (mainly financial institutions) that are not free to proceed under the BIA or the CCAA.

The Bankruptcy Act adopted by Parliament in 1919¹² was largely based on the British Bankruptcy Act of 1914. One key difference between the two acts was that the British Act only applied to individuals and partnerships; the winding up of insolvent companies continued to be governed by the British companies legislation.¹³ The 1919 Canadian Act did not adopt this distinction and applied to companies as well as individuals, partnerships and other persons. Another important conceptual difference between the Canadian and English approaches involved (and continues to involve) the types of insolvency administrators used in insolvency proceedings. Under the Canadian legislation, the trustee serves as IP for all bankrupts, companies as well as individuals and whether or not the individuals are engaged in trade. The British legislation, on the other hand, continues to distinguish between the administration of unincorporated estates and the administration of incorporated estates and uses trustees for the first type and liquidators for the second. These basic distinctions survive in the current British and Canadian legislation.

(a) Post-1919 Canadian Developments

The 1919 Bankruptcy Act was revised in 1949¹⁴ and substantial amendments were adopted in 1966,¹⁵ 1992, and 1997. Major changes affecting almost every part of the BIA were also adopted in Bill C-55, which received royal assent on November 29, 2005 but has not been proclaimed.¹⁶ Despite the many statutory changes adopted since 1919, the essential roles and attributes of the various types of IPs remain the same under the current bankruptcy legislation as they were under the earlier legislation. This is particularly true with respect to the status and role of the trustee as the pivotal figure in the administration of bankrupt estates in Canada.

(b) CCAA

The Companies' Creditors Arrangement Act was first adopted in 1933 in response to the Depression crisis and was designed to allow large companies with outstanding bonds and debentures to restructure their debts without first having to suffer the indignity and possibly fatal consequences of having to declare bankruptcy under the BIA. Significantly, the original CCAA contained no provisions for the administration of the company's assets pending the creditors' vote on the company's proposal for the reorganization of the company's debts. ¹⁷ The Act was little used during the first fifty years of its life.¹⁸ The position changed significantly in the early 1980s when Canada was faced with the worst recession since the end of World War II. Debtors' counsel prevailed on the courts to relax or 'reinterpret' the strict eligibility requirements in the Act so as to permit its use by a much wider range of insolvent companies.¹⁹ In addition, as part of the Initial Order bringing the debtor company under the court's protection, the courts imposed a comprehensive stay of proceedings against the company under s 11 of the Act and also appointed a monitor to act as watchdog of the creditors' interests pending the crafting of a plan of reorganization for the creditors' approval. The monitor's role was formally recognized in the 1997 amendments to the CCAA²⁰ and was further refined as part of the much more comprehensive amendments to the CCAA included in Bill C-55 in 2005.²¹

B. Role, Powers, Duties and Liabilities of IPs under the BIA

1. Trustee in Bankruptcy

As previously mentioned, Canadian trustees play a pivotal role in the liquidation of bankrupt estates under the BIA. The trustees are required to be licensed by the Superintendent of Bankruptcy²² and are subject to the Superintendent's ongoing supervision and control. Importantly, trustee licences may also be issued to corporations;²³ as of November 1, 2005, there were 1057 individual licences and 228 corporate licences. Of the 1057 individual licensees, 829 also practised in corporate form.²⁴ Judging by the reported cases, corporate trustees are now predominantly appointed to act as trustees of bankrupt estates. As a condition of their licence, trustees are required to furnish the Superintendent with a general bond to secure the faithful and honest performance of their duties and of the funds entrusted for their administration;²⁵ trustees must also provide an additional bond for each estate administered by them.²⁶

The trustees' rights, powers and duties are all embracing under the BIA but are subject to the supervision of the bankruptcy court and of the inspectors elected by the creditors. Trustees are charged, inter alia, with the collection and realization of the assets of the estate²⁷ (including investigation of suspect prebankruptcy transactions), determination and verification of liabilities of the estate and proofs of claim submitted by creditors,²⁸ the ranking of creditors' claims,²⁹ and the distribution of the net proceeds of the estate among creditors in accordance with entitlements.

Of key conceptual importance is the fact that, to enable them to discharge their functions, the BIA automatically vests in the trustee, once the trustee has been appointed to administer the estate, all the bankrupt's property, real and personal, present and future and wherever situated.³⁰ The vesting of title assists the trustee to take control of the assets, and to convey title to a buyer when selling the assets. Just as importantly (particularly in the case of individual bankrupts), the vesting of title prevents the bankrupt from disposing of the assets and transferring title to a third party who may not know of the bankruptcy.³¹

Obviously, to enable him to discharge his functions, the trustee must enter into many different types of contract. These include contracts of employment with respect to those of the bankrupt's employees whose services the trustee elects to retain,³² the services of independent contractors, the provision of utility services, the renting of temporary premises where the trustee elects to disclaim an existing lease, and contracts for the sale of the estate's assets either piecemeal or in their entirety.

(a) Trustee's Personal Liability for Contractual Debts of the Estate

Given the range of activities engaged in by the trustee, a threshold question is whether the trustee is personally responsible for the debts properly incurred by him in the discharge of his functions or whether the debts are solely those of the estate.³³ In principle, the answer is that the trustee is personally responsible because in contemplation of law he is a principal and not an agent for the estate. At common law, the estate has no legal personality of its own and only exists in the eyes of equity.³⁴ Basically, absent contrary statutory provisions, a trustee is in no different position with respect to his contractual liabilities than is any other type of trustee.³⁵ The following extracts from two leading Canadian and US treatises describe the general position:

Scott on Trusts, 4^th ed.:

Where a trustee in the administration of the trust makes a contract with a third person, the trustee is personally liable on the contract in the absence of a stipulation in the contract relieving him of personal liability. This is true not only where the trustee exceeded his powers in making the contract, but also where he was acting in accordance with the terms of the trust or even under the direction of the court. It is true not only where the third person had no notice of the existence of the trust and believed that the trustee in making the contract was acting for his own benefit, but also where the third person knew that the contract was made by the trustee in the administration of the trust and not for his own benefit. As we shall see, the trustee is not personally liable if the contract provides that he shall not be personally liable; but the mere fact that he signs the contract in his representative capacity is ordinarily held not of itself sufficient to relieve him of personal liability.³⁶

D.W.M. Waters, M. Gillen, L. Smith, Waters' Law of Trusts in Canada, 3^rd ed., Thomson Canada Limited (2005):

[Liability for contracts concluded for the benefit of the estate]

[The trustee] is not only invested with title in the trust property, [but] he contracts with third parties as if he also had the beneficial enjoyment of that title, being personally liable on those contracts. His right of recovery from the trust property for the outgoings from his own pocket is of no concern or interest to the third party, nor whether the trust property is sufficient to meet any action for damages the third party might have.

FN 62 If the trustee wishes to limit his liability in any breach of contract action, thus ensuring that he will be liable only to the extent of the trust property, he must have a term to that effect in his contract with the third party.

Despite the clear conceptual position, a substantial number of Canadian courts have equivocated when faced with contractual claims against a trustee. In an excellent discussion of the issues, Prof Bohémier divides the cases into two groups.³⁷ The first group³⁸ holds that if the other party knows he is dealing with a trustee the presumption is that the trustee is not to be held personally liable unless the parties have agreed otherwise. The second group of cases³⁹ adopts the reverse position. Here the presumption is that the trustee is personally liable by virtue of trustee's status unless the creditor has agreed to limit his claim to the assets in the estate. Prof Bohémier claims there is no practical difference between the two positions but this is surely mistaken, at least from a common law perspective. Determining who has the burden of proof in a litigated claim is always important, particularly where there are disputed facts about the terms of the contract and about what was said by the parties at the time of the formation of the contract. ⁴⁰

It is easy to understand why some Canadian courts would feel sympathetic towards a trustee who acted properly for the benefit of the estate and then found, through no fault of the trustee, that the estate lacked sufficient funds to satisfy the creditor's claim. However, the sympathy may be misplaced. The trustee is a professional and should know what the law says about his contractual liability. If the trustee thinks the burden is misplaced. it is easy enough for him to make it plain that he is not assuming personal liability.

Some clarification is also needed about the meaning of a judgment that finds that the parties agreed that the creditor's claim would be against "the estate" and not against the trustee personally. Does this mean the creditor can only sue the estate where there is default in payment even though the estate has no legal personality at common law and the estate's bank accounts are all in the trustee's name? Will the courts allow a writ to be issued against an estate where the writ does not also name the trustee as a co-defendant, and will the sheriff be willing to levy execution against the trust estate without the trustee also being named in the writ of execution?

(b) Trustee's Liability for Occupation Rent

A surprising amount of litigation has arisen over the trustee's personal liability to pay for occupation rent where the trustee has elected not to reaffirm an existing lease relating to the premises. In addition to the subsisting ambiguity with respect to the trustee's personal liability for the estate's postbankruptcy debts, further confusion may have been induced by the fact that the trustee's and landlord's positions are partly regulated under provincial landlord and tenant legislation⁴¹ and partly by the priority of ranking provisions in s. 136(1)(f) of the BIA.⁴² Additional uncertainty arises from the fact that it is not entirely clear whether occupation rent is intended to be treated as a postbankruptcy claim against the estate, and therefore outside s.136 altogether, or whether it is meant to be included as part of the recognized landlord's claims against the estate for prebankruptcy liability.⁴³

(c) The Impact of Section 31(4) of the BIA on the Trustee's Contractual Liability⁴⁴

Section 31(4) of the BIA was adopted in 1949 as part of the revision of the 1919 Bankruptcy Act. Unfortunately the Parliamentary record does not indicate what inspired the introduction of the subsection and what exactly it was designed to accomplish. We may fairly infer however that its objective was to insulate the trustee from personal liability for the estate's debts. It seems equally clear that, as drafted, the subsection falls far short of the drafters' presumed intention. Section 31(4) reads: 

(4) All debts incurred and credit received in carrying on the business of a bankrupt are deemed to be debts incurred and credit received by the estate of the bankrupt.

Subsection 4 gives rise to the following interpretive problems and raises the following policy issues: 

1. It only applies to "debts incurred" by the trustee. Whatever "debts incurred" may mean linguistically, the meaning cannot reasonably be extended to cover claims for breach of contract, breach of fiduciary obligations, claims in negligence, or to conversion or other types of tort alleged to have been committed by the trustee in his official capacity.
2. It is not clear from the English version of s 31(4) whether "debts incurred" is meant to be confined to contractual debts incurred by the trustee or whether the words include non-contractual obligations imposed on an enterprise such as the various forms of municipal, provincial and federal taxes. Read in context, the words can be read either way though the French version of "debts incurred"⁴⁵ indicates that only consensual debts were meant to be covered. Assuming the propriety of using the French version to resolve the ambiguity, it still raises the policy question why the trustee's immunity from personal liability should be limited to contractual debts. The distinction also leads to numerous anomalies. For example, if the trustee has purchased supplies for the benefit of the business of the estate he will not be held personally liable but he can be held personally liable if he has failed to pay the provincial and federal sales taxes.
3. The debts must be incurred by the trustee in the course of "carrying on the business of the estate." Even if the quoted words are construed broadly, many of the debts incurred by trustees in administering the debtor's estate will fall outside this sphere. It is not obvious why the drafters only wished to insulate trustees from the estate's business debts.
4. It has also been held that s 31(4) does not apply to actions against the trustee brought in the regular provincial courts, or required to be brought there, because the disputes were not regarded as intrinsic bankruptcy disputes.⁴⁶ The reasoning used in these cases is suspect and seems to contradict the drafter's intention to protect trustees from liability for estate debts. The cases suggest that some judges resort to these technical distinctions because they have ambivalent feelings about the merits of the underlying policy of s 31(4) and the imputed justification for insulating trustees from personal liability.
5. It is not clear to what extent section 31(4) enures for the benefit of interim receivers appointed under ss. 46, 47 and 47.1 of the BIA since they are not mentioned in the subsection. It is well settled that a receiver appointed under these provisions is personally liable for debts incurred in the course of the receivership⁴⁷ unless the order appointing the receiver provides otherwise, and that the receiver is not an agent of the bankrupt. This suggests that an interim receiver should be entitled to the protection of s 31(4) if he was acting within the scope of his authority and to promote the estate's interests since the underlying policy of subs (4) is the same in both cases.

However, several arguments militate against this view. One is that an interim receiver under s 46 only serves a watch dog or monitoring role and is nor ordinarily authorized to carry on the debtor's business. So far as receivers appointed under ss 47 and 47.1 are concerned, their claims for protection encounter the following objections. The receiver is almost invariably appointed to protect and advance the interests of secured creditors who have secured their appointment. This being the case, it would be difficult to argue that the receiver is carrying on the business of the debtor if these words mean that the business must be carried on for the benefit of the debtor's estate. Conceivably the interim receiver may be promoting the business interests of both the debtor and the secured party. It seems reasonably clear however that what the drafter of s 31(4) had in contemplation were IPS acting for the estate's benefit or for the benefit of the general body of creditors, and not IPS appointed primarily for the protection and advancement of secured creditor interests.

(d) Other Protective Devices available to Trustee

The trustee is not limited to s.31(4) in his search for defences to a contractual claim or, for that matter, against other types of claim. In contractual matter, the best strategy would be to exclude the trustee's personal liability on the contract but this may be a counsel of perfection. Many contracts are concluded orally and it would be unrealistic to expect to be reduced to writing. However, in this electronic age it would be easy enough for the trustee to follow up a telephone conversation with an electronic confirmation excluding his personal liability.⁴⁸ Another very common device, not a defence, is for the trustee to insist on a full indemnity where he has agreed to serve as trustee on a creditor's request.⁴⁹ Finally, there is the procedural device offered by s 215, which requires the Court's consent before prospective plaintiff can sue the trustee.⁵⁰ Section 215 is only a screening device and does not of course eliminate the plaintiff's claim. Apart from this feature, Section 215 has its own interpretive problems⁵¹ and the propriety of its purpose is coming under increasing scrutiny.⁵² Two difficulties are of particular relevance. First, it seems to be well settled that s 215 does not apply where the plaintiff can bring his action in another court because it is not regarded as an intrinsic bankruptcy matter.⁵³ The second difficulty arises out of the fact that, in a less than persuasive judgment, the Supreme Court of Canada held in Mercure v. A Marquette et Fils Inc.⁵⁴ that s 215 does not apply where the prospective plaintiff is complaining of an act of omission and not of commission.

A more powerful device available to individual trustees to protect themselves against personal liability is to incorporate themselves and to use the corporation as the contracting vehicle. As we have seen, BIA s. 14.08 allows a licence to be issued to a corporate trustee. It is true that s. 14.09 also provides that a licensed corporation can only act through a director or officer of the corporation who are themselves licensed trustees but, on general principles of corporate law, this does not mean that the officers or directors can held personally liable on the contracts even though they are the ones who authorized the engagements.⁵⁵ The corporate veil will be especially valuable where trustees are exposed to environmental liabilities or to liabilities as successor employers.⁵⁶

(e) Trustees' Public Law Liabilities

In addition to their private law and statutory liabilities to a broad range of persons, trustees are also exposed to potentially very burdensome public law liabilities especially in the environmental, employment, pensions and taxation fields, which quantitatively and qualitatively, may exceed in importance the private law liabilities. This alone would warrant the public law liabilities being treated separately as they are in this study.⁵⁷ There is however an added reason and this that their impact is often felt more heavily by receivers and interim receivers than by trustees. This makes it convenient to address this topic after I have dealt with the status and personal liabilities of Interim Receivers.

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¹⁰ Now replaced by WURA. Return to text

¹¹ See infra, Part II. Return to text

¹² 9 & 10 Geo. V, S.C. 1919, c.36. Return to text

¹³ See e.g., Companies (Consolidation) Act 1908, 8 Edw VII, c. 69, ss. 182 et seq. Return to text

¹⁴ S.C. 1949 (2ndSess.) c.7. Return to text

¹⁵ S.C. 1966-67, c. 32. Return to text

¹⁶ The Minister of Industry and the Minister of Labour gave a written undertaking to the Senate that Bill C-55 would not be proclaimed before June 30, 2006 and that before then, following the January 2006 elections, the incoming government would refer the bill to the Canadian Senate for detailed study and recommendations. See further J Ziegel (2005) 42 CBLJ 440, 447. Return to text

¹⁷ This was because the court was expected to call a meeting promptly to consider the company's proposal to its creditors so that there was no need for a protracted stay of proceedings against the company pending the outcome of a vote on the proposal. The current practice of seeking an ex parte stay of proceedings against the company coupled with an initial order providing the company with the means to continue to carry on business while it was negotiating with its creditors and developing a plan of reorganization only emerged in the 1980s and 1990s. Return to text

¹⁸ See Stanley E. Edwards, "Reorganization under the Companies' Creditors Arrangement Act" (1947) 25 Can. Bar Rev. 587. The author was only able to find seven reported decisions on the Act between 1933 and 1947. Return to text

¹⁹ See Elan Corp. v. Comiskey (1990) 1 C.B.R. (3d) 101 (O.C.A.). Return to text

²⁰ See now CCAA s. 11(7). Return to text

²¹ See infra Part II.C.(a). Return to text

²²BIA s 13. Return to text

²³ BIA s 14.08. Return to text

²⁴ Email information, December 5, 2005, provided by Claude Le Duc, Assistant Superintendent of Licences, OSB, to Norman Kondo, Executive Director, CAIRP. Return to text

²⁵BIA s 16 and Directive 13. Return to text

²⁶ Ibid. Return to text

²⁷ BIA ss. 16(3), 71(2). Return to text

²⁸BIA s 135. Return to text

²⁹BIA s. 136. Return to text

³⁰BIA ss 71(2), 67(1). Return to text

³¹ Note however that BIA s 75 confers protection on a purchaser or mortgagee of the debtor's real property in accordance with applicable provincial law if the purchase or mortgage occurred before notice of the debtor's bankruptcy had been filed in the relevant provincial land registry office. Return to text

³² Employment issues raise special problems and are further considered, infra, Part II.3(b). Return to text

³³ At the outset it is important to draw a clear distinction between prebankruptcy and postbankruptcy debts of the estate. Prebankruptcy debts are provable claims against the estate and will be paid (if at all) out of bankruptcy dollars. BIA s 151. Postbankruptcy debts are debts for which the trustee may be personally liable as described above and for which he will seek reimbursement under the heading of disbursements and costs of administration if there are enough funds in the estate to cover them. See BIA s 136(1)(b). Return to text

³⁴ See further, infra, Part II-D. Return to text

³⁵ The Québec civil law position should be even clearer since the Civil Code does not recognize the distinction between legal and equitable interests in property and the dual status of a trustee as owner and trustee. As a result, in interpreting the BIA provisions Quebec jurists have difficulties understanding how a trustee can be treated as owner of the estate's property given the many BIA restrictions on his powers of disposition and his duty to account for his dealing with the property. See A. Bohémier, Faillite et Insolvabilité, vol. 1, pp 714 et seq. (1992). Return to text

³⁶ Note however that some American states go further and exempt the trustee altogether from personal liability for debts properly incurred for the estate's benefit. Return to text

³⁷ Albert Bohémier, Faillite et Insolvabilité, Tome 1, pp 781-87. Return to text

³⁸ See Edwards v. Duclos (1940-41) 22 C.B.R. 215 (Que. C.A.); In re Steven & Gross Lbr Co. Ltd. (1924-25) 5 C.B.R. 522 (Ont.). Return to text

³⁹ In re Smith & Son (1929) 10 C.B.R. 393 (Ont.); In re Walker (1929-30) 11 C.B.R. 288 (Ont.); Transalta Utilities Corp. v. Hudson (1983) 44 C.B.R. (N.S.) 97 (Alta.) See also F. Bennett, "The Personal Liability of a Trustee in Bankruptcy" (1973) 17 C.B.R. (N.S.) 122, and I. Duncan & J.D. Honsberger, Bankruptcy in Canada, 3^rd ed. (1961), 123, 141-42. Return to text

⁴⁰ If the presumption is that the trustee is not personally liable unless he has agreed to assume liability, the burden rests with the other party to show that the trustee assumed personal responsibility for the debt and if the evidence is inconclusive the claim will fail. If the rule is that the trustee is prima facie liable he will have to prove that the other party had agreed not to hold the trustee personally liable. Apart from the question of the burden of proof, it is clear that Prof. Bohémier's sympathies are with the first line of cases holding the trustee prima facie liable. Op. cit., 794-95, also citing with approval the following English Court of Appeal's reasoning in Burt, Boulton & Hayward v. Bull [1895] 1 Q.B. 276 to justify the personal liability of a receiver-manager for debts incurred while the receiver-manager was in charge of the debtor's business: "[F]or the result would be that no tradesman could safely deal with such a manager without inquiring as to the existence of a fund to which he might look, whether, if such a fund existed it was not subject to other liabilities … ". Return to text

⁴¹ See BIA s 146 and, for Ontario, the Commercial Tenancies Act, RSO 1990, c. L.7 as am., ss. 38-39. Return to text

⁴²BIA s 136 is extensively revised in s 88 of Bill C-55 (2005) but the changes do not affect the treatment of landlords' claims for rent. Return to text

⁴³Mr. Rowe adopted the latter position in an elaborate argument. See William A.C. Rowe, "The Trustee in Bankruptcy's Liability for Occupation Rent" (1985) 51 C.B.R. (N.S.) 206. Mr. Rowe also relies heavily on the impact of s. 31(4) of the BIA, discussed infra, on the trustee's personal liability. Mr. Rowe's thesis was rejected by Isaac J in his careful judgment in Sasso v. D. & A. MacLeod Co. (1991), 5 C.B.R. (3d) 239 (Ont. Gen. Div.). Isaac J also found that the trustee could not rely on BIA s. 31(4) because he was not purporting to carry on the debtor's business while occupying the premises. For other cases that have found the trustee personally liable for occupation rent see 1133 Yonge Street Holdings Ltd. v. Clarke Henning & Hahn Ltd. (1991), 2 C.B.R. (3d) 11 (Ont. Gen. Div.); and Re Yonemitsu Investments Ltd. (1992), 14 C.B.R. (3d) 279 (Ont. Gen. Div.). For examples of contrary decisions, see Ottawa Eglin Investment Ltd. v. McKechnie (1983), 42 O.R. (2d) 366; and Re Listowel Feed Mill Ltd. (1990) 1 O.R. (3d) 628 (Ont. Gen. Div.) It is suggested that the answer turns on the proper interpretation of the provincial legislation. Typically, the legislation gives the trustee the option of affirming the lease, assigning the lease or disclaiming the lease, and allows the trustee a substantial period of time for making the election. The better view is that if the trustee is in active occupation of the premises before he has made his election he is under an implied obligation to pay a reasonable occupation rent. This reasoning to the conclusion that if the trustee has not assumed possession of the premises he is not personally liable and the landlord's claim will be against the estate for the stipulated rent under the prebankruptcy lease but subject to the limits of recovery for preferred claims under BIA s.136(1)(f). If the trustee affirms the lease as authorized under the provincial legislation he should on principle be held personally liable unless the landlord has agreed only to look against the estate for payment. Return to text

⁴⁴ Other defenses and mechanisms, procedural and substantive, available to a trustee to avoid or mitigate the risks of personal liability are discussed infra Part II.B1(d). Return to text

⁴⁵ 'Toute dette contractée'..In St Mary's Paper Inc. (1993) 19 O.R. (3d) 163 (OCA) the trustees invoked BIA s.31(4) as one of the grounds to show that they should not be held liable personally for pension contributions payable under the Pension Benefits Act. The Ontario Court of Appeal rejected the argument on the ground that the statutory liability arose under the PBA because of the agreement the trustees had made with the employees and not because of the provisions of BIA s.31(4). The Court's attention was not drawn to the French version of s.31(4) and, if it had been, would have provided a simpler answer to the trustees' contention, viz. that the debt under the PBA was a statutory and not a contractual debt and therefore unaffected by s.31(4) altogether. Return to text

⁴⁶ See e.g., Re Walker (1930), 11 C.B.R. 288, 37 O.W.N. 473 (S.C.); Re Smith & Son (1929), 10 C.B.R. 393, 35 O.W.N. 323 (S.C.). Return to text

⁴⁷ See infra, Part II.B.2. Return to text

⁴⁸ Of course, there is nothing to preclude the trustee from making it clear orally that he is not to be held personally liable on the contract but proving that the parties actually agreed on such a term may prove difficult. Return to text

⁴⁹ Very often the creditor is a bank and the trustee is also serving as the bank's agent for enforcing the security interest. On the propriety of the trustee also acting as receiver for the secured party see BIA s 13.4. On the frequent use of indemnity agreements where the trustee is acting at the request of a creditor, see infra, Appendix and Replies to Questionnaire. Return to text

⁵⁰ Section 215 reads: "Except by leave of the court, no action lies against the Superintendent, an official receiver, an interim receiver or a trustee with respect to any report made under, or any action taken pursuant to, this Act". Return to text

⁵¹ See Bennett, op cit., pp 36 et seq; Bohémier, op cit., pp 802-04. Return to text

⁵² Neither English insolvency law nor the US Bankruptcy Code requires a litigant to secure the court's permission to initiate proceedings against a trustee or other insolvency administrator. Return to text

⁵³ In re J.H. Smith & Son (1929) 10 C.B.R. 393 (Ont.). Return to text

⁵⁴ [1977] 1 S.C.R. 547. Return to text

⁵⁵ Nevertheless, incorporation will not protect the officers or directors from personal liability where they would be held personally liable under general principles of the common law for tortious conduct or where a statutory provision expressly so provides. Cf. C.C. Nicholls, "Liability of Corporate Officers and Directors to Third Parties" (2001) 35 CBLJ 1. Return to text

⁵⁶ See infra, Part II.B.3. Return to text

⁵⁷ Ibid. Return to text