Advising The Trustee: The Lawyer's Role In The Case Of Fraud

INTRODUCTION

You are at your desk. An email flashes across your screen. One of the bankruptcy trustees you have recently begun acting for asks you to call. You do. The trustee tells you that it thinks it has uncovered a fraud in one of its files. The trustee says that this has never happened before. What should the trustee do?

You realize that this is a first for you too. You have never actually had to deal with fraud in a bankruptcy file before. What do you tell the trustee? Your advice will be important to the management of the estate, and it could even be crucial. It could result in one or more investigations, reports to various authorities, calling in the RCMP, criminal proceedings, the commencement of civil proceedings. Or it could result in the trustee doing nothing at all. What do you do? And what do you advise the trustee?

This paper will address these questions and others. As with most things in law, the responses you provide will depend upon many things. Is the bankrupt a corporation or an individual? What kind of fraud or fraudulent activity has been discovered? Does it involve real property, personal property, or cash? How much money is involved? Does the trustee know where the money is now? What is the likelihood of being able to recover all or part of that money? Does the estate have sufficient funds to be able to conduct an investigation and any appropriate additional steps? Is the bankrupt being cooperative? Are there other persons you can identify as being involved with the fraud? How did the trustee learn about the fraud in the first place? All of these are important questions and the answers will be critical in your being able to properly advise the trustee.

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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.