In Firepower Debt GP v. TheRedPin, the Ontario Court of Appeal grappled with the question of what happens to a real estate agent’s uncollected commissions when their real estate brokerage becomes insolvent. 

The brokerage, TheRedPin.Com Realty, had a roster of real estate agents actively engaged in trades, which entitled the brokerage to commissions. Red Pin had commission-split agreements with their agents. Before all of the commissions were collected, Red Pin became insolvent and a receiver was appointed. 

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The receiver went to court to seek guidance on whether the agents’ commissions, when collected, had to be held in trust for the benefit of the agents or the brokerage. Guidance was needed as secured creditors can collect from an insolvent business before unsecured creditors.  If the secured creditors deplete all of the assets of the business, there will be nothing left for unsecured creditors to collect. If the commissions were held in trust for the benefit of the agents, the commissions would be excluded from Red Pin’s available assets and secured creditors would not be able to access those funds before the agents. If on the other hand, the commissions were not held in trust, then the agents’ claims to their share of commissions would be as unsecured creditors, ranking them behind secured creditors. 

The motions judge found that a trust had not been created for the benefit of the agents, as there was no evidence of Red Pin and the agents’ mutual intention to create such a trust. The agents appealed. 

The Ontario Court of Appeal agreed with the motions judge. The Court of Appeal found as follows:

(a) Agreements between Red Pin and the agents.

The independent contractor agreements between Red Pin and each of its agents neither explicitly created a trust, nor required that one be created in relation to the treatment of commissions. This failure to express that intention indicated that the parties did not intend to create a trust.

(b) Red Pin’s financial statements.

Red Pin’s financial statements supported an inference that there was no intention to create a trust. Red Pin’s financial statements reflected certain amounts as held in trust in the “Restricted cash” category. That category, however, did not include the agents’ commissions. Instead, the agents’ commissions were shown as assets of Red Pin in the “cash and cash equivalents” category. The financial statements were approved as accurate and not misleading by the auditors and by Red Pin’s Board of Directors. 

(c) History of a separate commission account at Red Pin’s banks.

Red Pin had three bank accounts – a trust account where buyers’ deposits were kept, a commission account where all commissions were deposited and an operating account in which Red Pin transferred its portion of the commission split. The commission account was not opened as a trust account at Red Pin’s bank but rather as a standard operating account. This supported the conclusion that there was no intention to create a trust.

(d) Trade records sheets.

The reference to the “contract” in the trade records sheets was to the independent contractor agreements between Red Pin and its agents and that these agreements, as discussed above, contained no mention of a trust. Therefore, the fact that the trade records sheets showed that the agents’ commissions were split with Red Pin and stated that it constituted a commission “trust” agreement “as set out in the contract”, this was not determinative of the parties’ mutual intention to create a trust. 

(e) Evidence of Red Pin’s founder.

Finally,the evidence of Red Pin’s founder, Tarik Gidamy, who testified that the commissions were held in trust for the agents, was after-the-fact evidence inconsistent with his behaviour at the relevant time (i.e. his representation to Red Pin’s auditors and Board of Directors of the financial statements where the agents’ commissions were shown as assets). 

Based on the above, the Court of Appeal dismissed the agents’ request that they receive priority over secured creditors, in respect of the uncollected commissions.

What does this mean for agents and brokerages?

If it is the expectation of real estate agents and their brokerages that commissions, when collected, will be held in trust for the benefit of the real estate agents, this intention should be clearly articulated in the agreement between the agent and the brokerage. At a minimum, that mutual intention should be recorded in the agreements that the real estate agents have with their brokerage. If necessary, have a lawyer prepare or review any independent contractor agreement to ensure that the parties’ reasonable expectations are clearly communicated. 

As the business progresses, ensure that the parties’ behaviours are consistent with what would be expected for a trust relationship including respecting the fiduciary obligations owed by a trustee to the beneficiaries of the trust.

Eugenia Bashura joined Boghosian + Allen LLP in 2019 to complete her articles. She is a graduate of the University of Windsor.


  1. RECO’s mandate is consumer protection on behalf of the Ontario government. Employment contracts are not within their purview and it is solely the individuals responsibility. Real Estate Agents expectations revolve around being hand held by their national, provincial and local trade associations…got to get with the plot and stop incorrectly blaming others for their own deficiencies.

  2. Commission Trust Accounts were designed by OREA in 1993 after the depletion of the OREA Commission Recovery Fund, and were introduced as part of mls system. Brokerages were not obligated to set up but most did. Commission trusts were upheld, by the courts, in a few brokerage bankruptcies over the years. Originally when RECO was formed the commission insurance program required a brokerage to maintain a Commission Trust account designated as a trust in order to claim insurance.

  3. Nelson
    I have written on this topic multiple times over the years.

    I can’t take credit for the concept but I’m guessing I was the only one who struck my neck out and used it. The concept was shot down in flames by the local board at the time (in the late 80s/early 90s). RUI Alves brought before the board at a general meeting a concept where the co-op brokerage would bill the law office acting on behalf of a seller, direct. Sending off an invoice and copy of the transaction related instead of billing the listing office, in an effort to avoid not getting paid.

    Now of course that was prior to the mid 90s onslaught of buyer brokerage. We were still practicing sub-agency completely.

    But I quoted a transaction where I sold the MLS listing of a gossiped said to be wobbly brokerage. And of course this was when the boards dictated how commissions were split between brokerages and such.

    In the APS I spelled out clearly how my Corp commission owed on the transaction was to be paid direct on a full price offer presented on a Saturday night when I couldn’t get the listing agent of the brand new listing that wasn’t even on MLS yet to confirm an appointment (my buyer and I both had discovered the new sign driving the streets). We both knew the floor plan from having viewed other area listings and I had builder drawings of the floor plan. So the location was where my buyer wanted to be; a desirable street.

    I did the unthinkable. I called the franchise broker manager at home and asked HIM to page his agent that I was preparing an offer. He refused, saying when his agent was ready he would call.

    My buyer was furious and called the answering service to get in touch with the listing agent to say he wanted to buy that house. Guess what? Agent returned the call immediately. But I digress.

    The offer was accepted sitting at the kitchen table, complete with the clause denoting Rui’s concept. I said nothing trying to explain it because no one asked. The sellers were end-price conscious. The agent had never seen such before but so long as his sellers had no problem, okay by him; happy to put up the sold sign.

    Nothing ever discussed in the interim. I half expected a call from the broker; maybe even demanding an amendment. Talk about swimming in unknown waters! No problem until closing day; I got a call from the seller law office to pick up my cheque, the transaction had closed. They had honoured my invoice. I did and immediately deposited my corporate commission cheque.

    Next call, really quick came from the listing “broker” demanding I return the law office cheque and didn’t I know I had destroyed his accounting system! He accused me of stealing his “receivables.” (Maybe the incoming transaction commissions had been pledged to a bank line of credit as was sometimes done?) After all, those commissions would have been showing on the balance sheet as income? (To the listing brokerage and might not have been listed as payables/liabilities?) Lots of brokerages apparently did that, was the word on the street.

    Guess what ? No one in the listing office had read the APS. And clearly the trade record sheet was incorrect. So NOBODY in the listing office had read or understood what I had done. But I got paid and they had to redo their invoicing to the seller law office.

    Point being Rui was SO RIGHT! Just way ahead of the times.

    Not many months later the listing office closed. I don’t know the details nor do I care. Any and every transaction “follows” the contract. Read the contract at the brokerage maybe? A full time job for someone there ?

    To this day, I believe Rui’s concept would prevent the current situation as described from having happened.

    Just my thoughts.

    Carolyne L ?

    • Afternoon Carolyne,
      Rui’s concept, I apologize for my ignorance & lack of knowledge of Rui’s concept…what is this.
      Could you please elaborate on this or provide further information as to how the clause was written?

      • Reply to Scooter (the reply button isn’t connecting)…
        Thank you, Scooter, for your REM comment.

        Now with all the webforms the topic is handled under buyer brokerage.

        I used Filogix offer program and of course it was preprogrammed with all the OREA clauses. But occasionally there was an incidence where a specific unique clause was needed so with Merv Burgard’s (d) blessing of the day, he told me to create my own custom clauses. I did and when I used them they got put into custom clauses in my Filogix offer program.

        Then suddenly the program could no longer be updated. I was very concerned to lose my custom clauses. So I copied and pasted my 85 custom clauses into a Word Doc. What a job. Because Filogix was not helpful but finally they agreed to let me recapture my custom clauses with using a special file. But it could only open in their program.

        This situation I wrote about at REM happened when we were still operating under sub-agency prior to 1995.

        I’ve had several computer crashes over the years, but had a Word Doc with all 85 custom clauses in. I opened the folder to send you the exact clause. A horrific surprise: there’s only 35 clauses there. After buyer brokerage became mandatory I had never had need to open that folder but still have it designated as such.

        Do you work in an area that still practices sub-agency? If not you would have to use the webforms/clauses that apply where you are located and modify them accordingly. Here we are not any longer permitted to address commissions directly in offers since buyer brokerage forms cover most things, but notes can be attached to the forms for unusual circumstances.

        But to speak to the topic, I believe firmly that Rui’s concept of being paid, as the co-op brokerage, by billing the seller’s closing law firm direct should be prescribed. Accounting programs are still, to best of my knowledge, not set up to accommodate. As President and sole shareholder of my boutique corp (prior to broker of record requirement), since I worked alone as an independent I was in position of making choices and I was prepared to deal with any consequences because I so firmly believed in the concept Rui had brought forward. Rui and I only knew each other through various board work and committees. But I knew him always to be conscientious and think things through using common sense.

        But to have followed Rui’s concept would have saved the commissions for many agents in such as this current REM story and many others when brokerages go upside down.

        It’s outrageous that brokerages don’t have commission trust accounts. Here it is mandatory. And so it should be. But that’s not to say proper procedures in money management are always followed. And wherever the quoted judge’s findings are on record, the future is grim for agents finding themselves not getting paid. It’s now apparently law that they don’t count.

        Part of the shock for me was discovering and putting two and two together at the time of the broker’s phone call on closing day that confirmed the APS in his office had never been read; and likely not the practice to read any transactions the agents wrote.

        As an addendum note in buyer brokerage docs that have to be acknowledged by all parties prior to presenting offers, I personally would spell out in clause fashion that Mr. and Mrs. Seller agree to permitting the co-op brokerage so named in the AGS to invoice the Seller’s law firm directly instead of invoicing the listing brokerage, and attach a copy of the signed acknowledged annotated form along with a copy of the offer and a copy of the buyer broker contract wherein the topic also would have been addressed, as double confirming that the Seller understands. It isn’t meant to be derogatory toward the listing brokerage. It’s just another way of doing business and I happen to believe Rui’s old concept is the only way to protect commissions. I understand Rui is now a RECO director. You might want to contact him directly.

        Wish I could help more but for medical reasons I put my licence on hold. Maybe also talk to your own broker maybe suggesting this alternative billing process might be useful,

        Carolyne L ?

  4. Time Passes and you forget stories your industry has forgot….

    I believe there was a case in Ontario in 1990 that resulted in charges being laid against a Burlington Ontario Broker Owner who mistakenly did not understand the legal outcomes of the newly allowed Independent Contractor Agreements that his Franchisor had gotten the Registrar to allow for the first time and that he had just recommended his agents sign a year or so earlier for tax purposes.

    Luckily the sales reps had the ear of the Owner of the American arm of that struggling franchise brand at the time and his Canadian grid holders. The brand had just watched 4 of their 5 franchisees go under over the previous 6 years in that city and desperately did not want these sales reps to cross to another brand.

    I believe the fraud charges laid ended up with the Registrar for Real Estate in Ontario seeking guidance from the sales reps impacted in how to create solutions going forward. I believe the Registrar at the time had just installed a fax machine in his office so these sales reps could send their ads to him pre-publication in order to avert wasted time in them having to respond to complaints from their competitors. Their recommendations to the Registrar were to create a ….
    1) Commission Insurance Program
    2) Deposit Insurance Program

    If my memory is correct I believe he actually did create both.

    I believe the result of the civil case that followed and subsequently where the Bankruptcy “out” excuse failed to provide relief for said Broker Owner, ended with the Judge on the criminal charges ( I believe the judge was the same judge who became well known over the Bernardo case 4 yrs later who ironically these sales reps had sold the victims parents a Burlington Home years earlier ) explained to the sales reps that they needed to include a “Held in Trust” provision to the independent contractor agreement going forward to ensure criminal charges could be filed and their income be deemed theirs not the Brokerage.

    Sadly the Franchisors could not convince their Franchisees to alter ICs to include a “Commission Trust” accounts
    because Banks refused to allow “Funds Held In Trust” to be leveraged through Lines of Credit by the brokerage.

    What no one ever told you this???

    Unfortunately it is now 2020 and unless a Sales Rep demands a clause be added to the common franchisor IC agreements they are still treated like 2nd class business people by their broker owners, the banks and the courts.

    Where is BB that former broker owner working today BTW?

    You really could not make up a story like this if you were writing a novel. It must be made up……

  5. So thanks to the incompetence of RedPin realty, all other Ontario realtors will pay the cost via higher insurance premiums.

    Outrageous! RECO should be FORCING brokerages to maintain a separate ‘in-trust’ commission account the way they do for deposit accounts.

  6. Unfortunately, the trial judge is, in my belief, completely correct. I have learned the hard way that we do not have a justice system, we have a legal system. What is legal and what is just are two entirely different things.
    If those were farmers or nurses or police officers or any other group of employees, it would actually have been a crime, and havoc would have been cried from the rooftops.
    Now, we are partly to blame because we knowingly choose the independent contractor route for the benefits we derive. We must also accept the costs.
    That said, the judge gave us the ammunition we need. We need to establish that our income is a trust; how do we do that? Our regulatory bodies are highly unlikely to do it, we don’t even appear on their radar except as targets.
    Our associations are our best bet, but we will have to drag them kicking and screaming to tackle this issue.
    I believe our most likely avenue to success is to pressure our brokerages to include our fees as trust monies held in actual trust accounts (as the judge noted, the agents’ fees were held in a regular account), and (this is critical), change our independent contractor agreements to reflect such.
    Really, when you think about it, a broker should have absolutely no reason to refuse such a request. Our fees should only flow through the brokerage from the client (or other brokerage) directly to us. Our fees are not their personal slush funds.
    Realtors of the world unite! :-)

  7. It’s shocking and eye opener to read it. Reco should have seen it at its earliest stage to protect agents’ hard earned money. And what about Reco Commission insurance ? It’s only for the clients deposit and insurance is being paid by the agents? Mohammad Niaz

  8. When Reco do there audit on the deposit trust account
    why they don’t do the audit with the commission trust
    As the same time
    After all there the one who put the regulation in the rule ang regulation in place.

    Tom Muldoon

  9. It is a tragedy that REBBA 2002 doesn’t mandate commissions being held in a trust account. Registrants are not educated in any way about the risks associated with aligning with a brokerage and would not have reasonably known their hard-earned income wasn’t safe when received by their brokerage.

    The amount of income-loss to these registrants – through no fault of their own – is such a disappointment for the industry. Registrants lost millions in fairly-earned personal income, and our government let them down. Because a creditor has a higher priority than an individual needing to feed their family. The fact that nobody stepped in to lobby on behalf of the registrants is even more shocking.

    At the very least, we should see clear communication from the Registrar and Council ensuring its registrants are aware of important aspects of their brokerage contracts under REBBA 2002 and the insurer.

  10. Bob
    And once more it proves the point that judges clearly in many cases have no idea how our business works or that in reality the rules are put in place by the Ministry (that of course means by the government) and only acted upon by RECO. This is a most disturbing now legal point of reference that seems to defy the purpose of the Ministry rules? It’s barely believable,

    Carolyne L

  11. RECO and the RECO insurer (for which we all pay a fortune) should have intervened in this case in order to protect the salespeople involved. RECO has a position on Commission Trust agreements and it is clear between salespeople and a brokerage what the objective is. For someone to skirt the commission trust and prevent the salespeople from what is rightfully due to them is a gross miscarriage of justice. Where is RECO when we need them? This is an abhorrent situation and should be a warning to all salespeople and brokerages.


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