- Ex Parte Orders
There are a number of ethical issues facing lawyers today in bankruptcy and insolvency litigation. One of the main issues is the level of disclosure in ex parte applications, such as those for a stay of proceedings in order to file a proposal under the BIA or a plan under the CCAA. The courts have held that counsel must make full and frank disclosure of all material facts and circumstances that may be relevant to the court’s decision, as the court does not have the benefit of opposing counsel to ensure that all facts are brought to their attention.32 Counsel must note that this includes facts that may be harmful to the applicant’s case. While the client may request that counsel present only the facts that assist in the application, counsel has a duty to the court to put forward all relevant information, particularly in the cases of ex parte applications where the bankrupt’s counsel is the only counsel present. If counsel fails to make full and frank disclosure, the ex parte order will likely be set aside.33 As there can be serious consequences to an ex parte order made on deficient facts, counsel must make sure that they have all the relevant facts and present those facts to the court in any ex parte application. The court will not accept an excuse from counsel that there was insufficient time to prepare such materials.34 While ex parte applications are generally brought on an urgent basis, counsel should ensure that they take the time to include all relevant materials available to them at the time of application.
In addition to ensuring that full and frank disclosure is made, counsel should also ensure that applications made ex parte are necessary. Orders obtained through ex parte applications, where insufficient reasons were found for bringing such applications ex parte, may vacated regardless of whether counsel made full and frank disclosure in such application.35 In making any ex parte application, counsel must provide reasons for not providing notice to the other parties, such as urgency due to a potential seizure of assets, or the court may refuse to grant such an order without notice to other parties.
- Solicitor/Client Privilege
It has been well established that “solicitor‐client privilege is an essential element of the judicial system that will be rigorously protected by the law and which will not yield to any but the most essential exceptions.”36 However, the bankruptcy and insolvency process can make keeping such protections more difficult. This difficultly is particularly prominent where a trustee of a corporate bankrupt wishes to access and use privileged materials in the bankruptcy proceedings for the benefit of the creditors. In these circumstances, the bankrupt’s prior counsel must ensure that the bankrupt has waived privilege over the materials before providing such information to the trustee. In the case of a corporate bankrupt, counsel must obtain a waiver from the company’s current directors or through a shareholder’s resolution, if the company has no directors.
Previous counsel for the bankrupt may also find themselves subject to an examination under section 163 of the BIA. In this case, counsel must ensure that they take care to protect privileged communications, while answering all questions that do not require privileged information honestly. If required to produce documents, counsel must produce all documents, even if confidential, unless they are privileged. In these circumstances, counsel must take special care to cooperate with the examination process while at the same time protecting privileged information until the bankrupt has waived privilege.
As the trustee acts for the creditors and not the bankrupt, former solicitors for the bankrupt are not entitled to act for the trustee once the bankrupt makes an assignment into bankruptcy.37 As the holders of privileged materials, acting for the trustee puts the solicitor in a position of conflict that cannot be resolved. Counsel has access to privileged information that it should be protecting, but at the same time knows it has information useful to the trustee, which it may feel obligated to provide.38 While counsel may believe that the trustee stands in the place of the bankrupt entirely and their interests are aligned, this is not the case as the trustee acts in the interest of the creditors. Even in the case of a corporate bankrupt, the bankrupt continues to survive post‐bankruptcy and continues to have interests that may or may not be in line with the trustees. If a solicitor’s firm has previously acted for the bankrupt, but the solicitor has not, the solicitor may only act for the trustee where the strong presumption of shared information amongst firm members is overcome.39