Comprehensive review of directives and regulations under the Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act
The insolvency regime
A well functioning insolvency regime, comprised in Canada of the Bankruptcy and Insolvency Act Footnote i (BIA), the Companies’ Creditors Arrangement Act Footnote ii (CCAA), the regulations that support each of these Acts, and directives from the Superintendent of Bankruptcy, is key to creditor and investor confidence and a well-functioning society and economy.
The aim of the insolvency regime is to minimize the impact of a debtor’s insolvency on all stakeholders. It does this by pursuing the key objectives of the equitable and orderly distribution of the debtor’s assets and providing a fresh start for the debtor. It seeks to ensure these objectives by providing certainty in the marketplace to promote economic stability and growth and by striking the appropriate balance among competing interests.
Regulatory review
The Function of the Office of the Superintendent of Bankruptcy
The Office of the Superintendent of Bankruptcy (OSB) is responsible for the administration of all estates and matters under the BIA, as well as certain aspects of the CCAA, including investigating complaints regarding the conduct of monitors. It licenses and regulates the insolvency profession, supervises compliance with the insolvency process, and maintains public records and statistics. These activities are vital to ensuring that the insolvency regime functions effectively such that it contributes to an efficient marketplace and promotes confidence in the Canadian economy. To reinforce these activities, the OSB provides detailed requirements through directives and forms and by developing regulations. Directives, forms and regulations contribute to the goal of increased predictability and are able to more nimbly reflect current realities of the insolvency system and the economy, all of which ultimately supports improved financial outcomes for Canadian consumers and businesses.
The objective of the regulatory review
The OSB is undertaking a comprehensive regulatory review to identify areas of Canada’s insolvency system that can be made more agile, transparent and responsive without jeopardizing the integrity of the system. The OSB will consider potential amendments to the regulatory framework, specifically the Superintendent’s directives, forms and regulations, to position the insolvency system for success now and in the future.
In this regulatory review, the OSB will strive for an outcome- and principle-based approach, where appropriate, while also maintaining a predictable, fair and level playing field for all stakeholders. The central theme will be to explore how the OSB can better deploy the tools within the scope of its authority to ensure that the insolvency system continues to function as intended and is able to effectively adapt in an ever-changing environment.
Consultation
The OSB is inviting stakeholders to contribute comments and suggestions on how to modernize and improve the regulatory framework, enhance the effectiveness of its administration, and increase accessibility to insolvency proceedings.
The OSB is interested in receiving submissions on topics that concern stakeholders. Previous feedback from the OSB’s continuing engagement with stakeholders, along with some OSB perspectives, are set out in the Annex. To encourage broad stakeholder input, this paper has been intentionally framed with high-level concepts.
A few areas on which the OSB would welcome comments include the following:
- Modernization/Innovation
Technological development presents opportunities for the insolvency system to leverage innovations and new processes to modernize the administration and regulation of the system. COVID-19 has accelerated the use of technological solutions such as electronic signatures and video or telephonic conferencing and meetings. For example, to accommodate physical distancing amid the COVID-19 pandemic, the OSB issued temporary guidance allowing the use of electronic or digital communications without OSB approval for the purposes of conducting debtor assessments, providing counselling, and holding meetings of creditors.
At the same time, technological innovation presents challenges. For example, the functioning and integrity of the insolvency system requires complete, transparent disclosure of debtors’ assets to facilitate fair repayment of creditors. However, the increased use of cryptocurrencies and other digital assets could pose challenges for trustees and creditors in terms of asset recovery and verification. Investment in cryptocurrency is growing and will likely continue to grow. Companies are purchasing Bitcoin as a reserve asset on their balance sheets and major financial services companies are making it easier for consumers to buy, sell, and store cryptocurrencies. The OSB is interested in assessing issues that technological innovations raise with respect to the insolvency system including the verification and realization of assets.
We have prepared the following questions to help guide your submission:- What are the challenges and opportunities, including those brought to light by the COVID-19 pandemic, that you, your firm, your sector, or consumers face? Could the use of technology and more efficient processes address these?
- Which technologies could be leveraged to modernize the insolvency system? How could technology further reduce administrative burden, transaction costs, and increase efficiency?
- Are there risks or concerns associated with the use of certain technologies?
- Does technology present opportunities to more effectively verify whether a debtor has disclosed all of their assets and to verify and realize upon those assets?
- Are there issues with regard to digital assets like cryptocurrency? What changes within the insolvency system could help address these issues?
- Licensing Modernization
With virtual service delivery, firms are adapting their business models to incorporate online options that better serve the public. The OSB is interested in assessing the impact of virtual service delivery on its licensing program and how the program could be modernized to encourage innovations that lead to service excellence. A focus on service delivery also includes an examination of the viability of other licensing models that allow a choice of the type of licence granted. For instance, a Licensed Insolvency Trustee (LIT) candidate could choose a licence to administer either commercial or consumer estates, or a licence to administer both types of estates. Introducing these options may be beneficial to LITs who have interests and competencies that lend themselves toward specific areas, reduce barriers to entry, and improve representativeness. LITs will remain accountable for ensuring they can fulfill their mandate to the highest professional standards and debtor choice would be given prominence.
We have prepared the following questions to help guide your submission:- Should licences be issued on a national basis? What opportunities and/or challenges would this create?
- Should there be conditions to be met to qualify for a national licence? For instance, should there be a probationary period to allow for sufficient experience to be gained? If so, how long a period would be appropriate and why?
- What office requirements should be considered with respect to a national licence? What benefits and/or challenges would this create?
- Should LIT candidates have the option to apply for a consumer only, commercial only, or full licence? What opportunities and/or challenges would this create?
- Consumer Protection
The Canadian insolvency system seeks to offer honest but unfortunate consumer debtors a fresh start while maximizing returns to creditors. LITs are officers of the court who must carry out their functions honestly and impartially. They are bound by federal insolvency legislation and regulations. Other service providers within the debt advisory marketplace who are not trustees may be driven by profit motives to engage in practices that pose risks to the integrity of the insolvency system, impeding debtors from finding the right solutions for their financial situations. They are not subject to the same advertising restrictions that govern trustees, allowing them to engage in marketing activities that may create confusion for debtors or cause debtors to pay unnecessary and costly fees. The OSB is seeking stakeholders’ views on these issues and what actions, if any, should be considered.
We have prepared the following questions to help guide your submission:- What business practices affecting the insolvency system, if any, expose consumers and creditors to potential harm?
- How could regulatory changes within the insolvency system better protect consumers and creditors against these harms?
- Are there compliance and enforcement activities that the OSB should consider to strengthen consumer protection and protect the integrity of the insolvency system?
- Accessibility to the Insolvency System
Insolvency proceedings should be accessible, efficient, and cost-effective, particularly for low-income consumer debtors and micro, small and medium sized enterprises (MSMEs), while still providing creditors adequate protection for their interests. The OSB is seeking input on potential opportunities to improve accessibility through regulatory changes that could streamline proceedings or reduce costs and other barriers to access.
We have prepared the following questions to help guide your submission:- Could the summary process be further simplified for eligible low-income/low-asset estates? What checks and balances would be needed?
- Could estate administrators perform the bulk of the work where the estate is largely administrative with LITs remaining accountable?
- What would be a fair rate for a simple consumer estate if a debtor fully complies with their duties?
- What would be a fair rate for a simple business estate if a debtor fully complies with its duties?
- What characteristics of consumer or business estates would qualify them as simple?
- Could changes in the fee structure associated with the administration of estates, or the waiver of fees in certain instances, serve to enhance accessibility?
- In addition or alternately, could a pro bono program help to ensure the administration of services for low-income/low-asset estates?
Submissions
The OSB welcomes all suggestions on how to modernize the insolvency system through changes to directives, forms and regulations. Please be aware that legislative changes fall outside of the scope of this consultation. The OSB recognizes, however, that submissions relating to directives and regulations may suggest the need for legislative change. Such submissions will be shared for consideration with Innovation, Science and Economic Development Canada officials responsible for legislative policy with respect to the insolvency framework.
Please provide your feedback by June 10, 2021. Submissions are to be sent to OSB, Policy and Regulatory Affairs at ic.osbregulatoryaffairs-affairesreglementairesbsf.ic@canada.ca.
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Annex
Instrument |
Stakeholder/OSB feedback previously received |
Regulations (Bankruptcy and Insolvency General Rules) |
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Section 53 of the Bankruptcy and Insolvency General Rules (electronic transmission) |
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Sections 60 and 62 of the Bankruptcy and Insolvency General Rules |
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Sections 64 and 65 of the Bankruptcy and Insolvency General Rules (30-day Rule) |
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Section 68 of the Bankruptcy and Insolvency General Rules (Retention of files) |
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Sections 7 and 72, and subsections 70(2) and (3) of the Bankruptcy and Insolvency General Rules |
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Paragraphs 64(2)(a), 66 (2)(a), 100(2)(a) and 102(2)(a), sections 94.1, 95, 113 and 124, and subsection 104(3) of the Bankruptcy and Insolvency General Rules (Registered mail) |
Points raised:
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Section 97 of the Bankruptcy and Insolvency General Rules (in person) |
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Section 105 of the Bankruptcy and Insolvency General Rules (mediation) |
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Section 128 of the Bankruptcy and Insolvency General Rules (Trustee fees and disbursement) |
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Section 131 of the Bankruptcy and Insolvency General Rules (Counselling Fees) |
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Subsection 132(1) of the Bankruptcy and Insolvency General Rules (Filing fees) |
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Regulations (Companies’ Creditors Arrangement Regulations) |
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Schedule of the Companies’ Creditors Arrangement Regulations |
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Directives and circulars |
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Directive 1R6, Counselling in Insolvency Matters |
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Directive 4R, Delegation of Tasks |
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Directive 5R6, Estate Funds and Banking |
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Directive 6R3, Assessment of an Individual Debtor |
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Directive 7, Inventory of Estate Assets |
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Directive 9R3, Electronic Filing and Other Methods |
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Directive 11R2, Surplus Income |
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Directive 13R7, Trustee Licensing |
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Directive 16R, Preparation of the Statement of Affairs |
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Directive 17, Retention of Documents by the Trustee |
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Directive 20, Bankruptcy Assistance Program |
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Directive 23, Publication in Local Newspaper |
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Directive 25R, Realization of Estate Assets |
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Directive 28R, Non-resident Office |
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Directive 32, Trustee Electronic Recordkeeping |
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Directive 33, Trustee Designation and Advertising |
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Circular 3R3, Employment Insurance |
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Forms |
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Directive 8R18, Bankruptcy and Insolvency Act Forms |
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Directive 34R, The Licensing Form Under Section 13(1) and 13.1 of the Bankruptcy and Insolvency Act |
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Footnotes
- Footnote i
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R.S.C., 1985, c. B-3.
- Footnote ii
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R.S.C., 1985, c. C-36.
- Date modified:
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