Directive No. 26

Coming into force September 18, 2009

Notice to Bankrupts and Officers of a Bankrupt Corporation with Regard to Their Duties and Status

Issued: August 14, 2009

(Supersedes Directive No. 23 issued on July 23, 1993, on the same topic)

Interpretation

1. In this Directive,
   • "Act" means the Bankruptcy and Insolvency Act;
   • "debtor" means a debtor as defined in section 2 of the Act;
   • "OSB" means the Office of the Superintendent of Bankruptcy;

Authority and Purpose

2. This Directive is issued pursuant to the authority of paragraphs 5(4)(b) and (c) of the Act.
3. The purpose of this Directive is to clarify the trustee's responsibilities in regard to the bankrupt's comprehension of the bankruptcy process.

Policy

4. The trustee should explain to the bankrupt or officer of a bankrupt corporation his or her duties (sections 158 and 159 of the Act) and the bankruptcy offences (sections 198, 199, 200 and 204 of the Act).
5. The minimum information provided should include:
   • (a) information on bankruptcy for consumer debtors;
   • (b) pertinent excerpts from the Act;
   • (c) duties of the bankrupt; and
   • (d) debtor financial information (form and guide).
6. To fulfill those obligations, the booklets "Dealing with Debt: A Consumer's Guide" and "All about Bankruptcy Mediation" are available.
7. The Superintendent encourages trustees to distribute these booklets or their own similar brochures or information.
8. (1) In all cases, the bankrupt or officer of the bankrupt corporation must be served with a copy of the pertinent sections of the Act (Appendix A) and the trustee should obtain an acknowledgement from the bankrupt (Appendix B) that he or she has received, read and understood his or her duties and obligations. The acknowledgement signed by the bankrupt must be on file.
9. (2) Debtors (bankrupts) must sign the acknowledgement form (Appendix B). If a debtor refuses to sign despite being served, trustees must keep in their file details of the refusal (i.e. proof of service and details as to the refusal).
10. If, in the trustee's opinion, the bankrupt does not comprehend his or her obligations and duties, the trustee should consider asking a relative or friend of the bankrupt to attend the interview to assist the bankrupt in comprehending the process before rejecting the assignment.

Coming into Force

10. This Directive comes into force on September 18, 2009.

Enquiries

11. For any questions pertaining to this Directive, please contact your local OSB office.

James Callon
Superintendent of Bankruptcy

---

Appendix A

In the matter of the bankruptcy of

Notice to Bankrupts or Officers of a Bankrupt Corporation

You are hereby notified of the duties imposed upon you by the Bankruptcy and Insolvency Act and certain other features of this Act that affect you in your capacity as a bankrupt (or, when the bankrupt is a limited company, an officer designated by section 159 of the Bankruptcy and Insolvency Act). You are expected to study this document carefully as a breach of your duty hereunder set out would make you liable to criminal prosecution.

Section 67

• (1)The property of a bankrupt divisible among his creditors shall not comprise
  • (a)property held by the bankrupt in trust for any other person;
  • (b)any property that as against the bankrupt is exempt from execution or seizure under any laws applicable in the province within which the property is situated and within which the bankrupt resides;

    (b.1) goods and services tax credit payments that are made in prescribed circumstances to the bankrupt and that are not property referred to in paragraph (a) or (b);

    (b.2) prescribed payments relating to the essential needs of an individual that are made in prescribed circumstances to the bankrupt and that are not property referred to in paragraph (a) or (b); or

    (b.3) without restricting the generality of paragraph (b), property in a registered retirement savings plan or a registered retirement income fund, as those expressions are defined in the Income Tax Act, or in any prescribed plan, other than property contributed to any such plan or fund in the 12 months before the date of bankruptcy,

    but it shall comprise

  • (c)all property wherever situated of the bankrupt at the date of the bankruptcy or that may be acquired by or devolve on the bankrupt before their discharge, including any refund owing to the bankrupt under the Income Tax Act in respect of the calendar year — or the fiscal year of the bankrupt if it is different from the calendar year — in which the bankrupt became a bankrupt, except the portion that
    • (i) is not subject to the operation of this Act, or
    • (ii) in the case of a bankrupt who is the judgment debtor named in a garnishee summons served on Her Majesty under the Family Orders and Agreements Enforcement Assistance Act, is garnishable money that is payable to the bankrupt and is to be paid under the garnishee summons, and
  • (d)such powers in or over or in respect of the property as might have been exercised by the bankrupt for his own benefit.
• (2)Subject to subSection (3), notwithstanding any provision in federal or provincial legislation that has the effect of deeming property to be held in trust for Her Majesty, property of a bankrupt shall not be regarded as held in trust for Her Majesty for the purpose of paragraph (1)(a) unless it would be so regarded in the absence of that statutory provision.
• (3)SubSection (2) does not apply in respect of amounts deemed to be held in trust under subSection 227(4) or (4.1) of the Income Tax Act, subSection 23(3) or (4) of the Canada Pension Plan or subSection 86(2) or (2.1) of the Employment Insurance Act (each of which is in this subSection referred to as a "federal provision") nor in respect of amounts deemed to be held in trust under any law of a province that creates a deemed trust the sole purpose of which is to ensure remittance to Her Majesty in right of the province of amounts deducted or withheld under a law of the province where
  • (a)that law of the province imposes a tax similar in nature to the tax imposed under the Income Tax Act and the amounts deducted or withheld under that law of the province are of the same nature as the amounts referred to in subSection 227(4) or (4.1) of the Income Tax Act, or
  • (b)the province is a "province providing a comprehensive pension plan" as defined in subSection 3(1) of the Canada Pension Plan, that law of the province establishes a "provincial pension plan" as defined in that subSection and the amounts deducted or withheld under that law of the province are of the same nature as amounts referred to in subSection 23(3) or (4) of the Canada Pension Plan,

and for the purpose of this subSection, any provision of a law of a province that creates a deemed trust is, notwithstanding any Act of Canada or of a province or any other law, deemed to have the same effect and scope against any creditor, however secured, as the corresponding federal provision.

Section 158

The bankrupt shall

• (a)make discovery of and deliver all his property that is under his possession or control to the trustee or to any person authorized by the trustee to take possession of it or any part thereof;

  (a.1) in such circumstances as are specified in directives of the Superintendent, deliver to the trustee, for cancellation, all credit cards issued to and in the possession or control of the bankrupt;

• (b)deliver to the trustee all books, records, documents, writings and papers including, without restricting the generality of the foregoing, title papers, insurance policies and tax records and returns and copies thereof in any way relating to his property or affairs;
• (c)at such time and place as may be fixed by the official receiver, attend before the official receiver or before any other official receiver delegated by the official receiver for examination under oath with respect to his conduct, the causes of his bankruptcy and the disposition of his property;
• (d)within five days following the bankruptcy, unless the time is extended by the official receiver, prepare and submit to the trustee in quadruplicate a statement of the bankrupt's affairs in the prescribed form verified by affidavit and showing the particulars of the bankrupt's assets and liabilities, the names and addresses of the bankrupt's creditors, the securities held by them respectively, the dates when the securities were respectively given and such further or other information as may be required, but where the affairs of the bankrupt are so involved or complicated that the bankrupt alone cannot reasonably prepare a proper statement of affairs, the official receiver may, as an expense of the administration of the estate, authorize the employment of a qualified person to assist in the preparation of the statement;
• (e)make or give all the assistance within his power to the trustee in making an inventory of his assets;
• (f) make disclosure to the trustee of all property disposed of within the period beginning on the day that is one year before the date of the initial bankruptcy event or beginning on such other antecedent date as the court may direct, and ending on the date of the bankruptcy, both dates included, and how and to whom and for what consideration any part thereof was disposed of except such part as had been disposed of in the ordinary manner of trade or used for reasonable personal expenses;
• (g)make disclosure to the trustee of all property disposed of by gift or settlement without adequate valuable consideration within the period beginning on the day that is five years before the date of the initial bankruptcy event and ending on the date of the bankruptcy, both dates included;
• (h)attend the first meeting of his creditors unless prevented by sickness or other sufficient cause and submit thereat to examination;
• (i) when required, attend other meetings of his creditors or of the inspectors, or attend on the trustee;
• (j) submit to such other examinations under oath with respect to his property or affairs as required;
• (k)aid to the utmost of his power in the realization of his property and the distribution of the proceeds among his creditors;
• (l) execute any powers of attorney, transfers, deeds and instruments or acts that may be required;
• (m) examine the correctness of all proofs of claims filed, if required by the trustee;
• (n)in case any person has to his knowledge filed a false claim, disclose the fact immediately to the trustee;

  (n.1) inform the trustee of any material change in the bankrupt's financial situation;

• (o)generally do all such acts and things in relation to his property and the distribution of the proceeds among his creditors as may be reasonably required by the trustee, or may be prescribed by the General Rules, or may be directed by the court by any special order made with reference to any particular case or made on the occasion of any special application by the trustee, or any creditor or person interested; and
• (p)until his application for discharge has been disposed of and the administration of the estate completed, keep the trustee advised at all time of his place of residence or address.

Section 159

Where a bankrupt is a corporation, the officer executing the assignment, or such

• (a)officer of the corporation, or
• (b)person who has, or has had, directly or indirectly, control in fact of the corporation

as the official receiver may specify, shall attend before the official receiver for examination and shall perform all of the duties imposed on a bankrupt by Section 158, and, in case of failure to do so, the officer or person is punishable as though that officer or person were the bankrupt.

Section 178

• (1)An order of discharge does not release the bankrupt from
  • (a)any fine, penalty, restitution order or other order similar in nature to a fine, penalty or restitution order, imposed by a court in respect of an offence, or any debt arising out of a recognizance or bail;

    (a.1) any award of damages by a court in civil proceedings in respect of

    • (i) bodily harm intentionally inflicted, or sexual assault, or
    • (ii) wrongful death resulting therefrom;
  • (b)any debt or liability for alimony or alimentary pension;
  • (c)any debt or liability arising under a judicial decision establishing affiliation or respecting support or maintenance, or under an agreement for maintenance and support of a spouse, former spouse, former common-law partner or child living apart from the bankrupt;
  • (d)any debt or liability arising out of fraud, embezzlement, misappropriation or defalcation while acting in a fiduciary capacity or, in the Province of Quebec, as a trustee or administrator of the property of others;
  • (e)any debt or liability resulting from obtaining property or services by false pretences or fraudulent misrepresentation, other than a debt or liability that arises from an equity claim;
  • (f) liability for the dividend that a creditor would have been entitled to receive on any provable claim not disclosed to the trustee, unless the creditor had notice or knowledge of the bankruptcy and failed to take reasonable action to prove his claim;
  • (g) any debt or obligation in respect of a loan made under the Canada Student Loans Act, the Canada Student Financial Assistance Act or any enactment of a province that provides for loans or guarantees of loans to students where the date of bankruptcy of the bankrupt occurred
    • (i) before the date on which the bankrupt ceased to be a full- or part-time student, as the case may be, under the applicable Act or enactment, or
    • (ii) within seven years after the date on which the bankrupt ceased to be a full- or part-time student; or
  • (h)any debt for interest owed in relation to an amount referred to in any of paragraphs (a) to (g).

• (1.1)At any time after five years after a bankrupt who has a debt referred to in paragraph (1)(g) ceases to be a full- or part-time student, as the case may be, under the applicable Act or enactment, the court may, on application, order that subSection (1) does not apply to the debt if the court is satisfied that
  • (a)the bankrupt has acted in good faith in connection with the bankrupt's liabilities under the debt; and
  • (b)the bankrupt has and will continue to experience financial difficulty to such an extent that the bankrupt will be unable to pay the debt.
• (2)Subject to subSection (1), an order of discharge releases the bankrupt from all claims provable in bankruptcy.

Section 198

• (1)Any bankrupt who
  • (a)makes any fraudulent disposition of the bankrupt's property before or after the date of the initial bankruptcy event,
  • (b)refuses or neglects to answer fully and truthfully all proper questions put to the bankrupt at any examination held pursuant to this Act,
  • (c)makes a false entry or knowingly makes a material omission in a statement or accounting,
  • (d)after or within one year immediately preceding the date of the initial bankruptcy event, conceals, destroys, mutilates, falsifies, makes an omission in or disposes of, or is privy to the concealment, destruction, mutilation, falsification, omission from or disposition of, a book or document affecting or relating to the bankrupt's property or affairs, unless the bankrupt had no intent to conceal the state of the bankrupt's affairs,
  • (e)after or within one year immediately preceding the date of the initial bankruptcy event obtains any credit or any property by false representations made by the bankrupt or made by any other person to the bankrupt's knowledge,
  • (f) after or within one year immediately preceding the date of the initial bankruptcy event, fraudulently conceals or removes any property of a value of fifty or more or any debt due to or from the bankrupt, or
  • (g)after or within one year immediately preceding the date of the initial bankruptcy event, hypothecates, pawns, pledges or disposes of any property that the bankrupt has obtained on credit and has not paid for, unless in the case of a trader the hypothecation, pawning, pledging or disposing is in the ordinary way of trade and unless the bankrupt had no intent to defraud,

is guilty of an offence and is liable, on summary conviction, to a fine not exceeding five thousand dollars or to imprisonment for a term not exceeding one year or to both, or on conviction on indictment, to a fine not exceeding ten thousand dollars or to imprisonment for a term not exceeding three years, or to both.

• (2)A bankrupt who, without reasonable cause, fails to comply with an order of the court made under Section 68 or to do any of the things required of the bankrupt under Section 158 is guilty of an offence and is liable
  • (a)on summary conviction, to a fine not exceeding five thousand dollars or to imprisonment for a term not exceeding one year, or to both; or
  • (b)on conviction on indictment, to a fine not exceeding ten thousand dollars or to imprisonment for a term not exceeding three years, or to both.

Section 199

An undischarged bankrupt who

• (a) engages in any trade or business without disclosing to all persons with whom the undischarged bankrupt enters into any business transaction that the undischarged bankrupt is an undischarged bankrupt, or
• (b) obtains credit to a total of $1,000 or more from any person or persons without informing them that the undischarged bankrupt is an undischarged bankrupt,

is guilty of an offence punishable on summary conviction and is liable to a fine not exceeding five thousand dollars or to imprisonment for a term not exceeding one year, or to both.

Section 200

• (1)Any person becoming bankrupt or making a proposal who has on any previous occasion been bankrupt or made a proposal to the person's creditors is guilty of an offence punishable on summary conviction and is liable to a fine not exceeding five thousand dollars or to imprisonment for a term not exceeding one year, or to both, if
  • (a) being engaged in any trade or business, at any time within the period beginning on the day that is two years before the date of the initial bankruptcy event and ending on the date of the bankruptcy, both dates included, that person has not kept and preserved proper books of account; or
  • (b) within the period mentioned in paragraph (a), that person conceals, destroys, mutilates, falsifies or disposes of, or is privy to the concealment, destruction, mutilation, falsification or disposition of, any book or document affecting or relating to the person's property or affairs, unless the person had no intent to conceal the state of the person's affairs.
• (2)For the purposes of this Section, a debtor shall be deemed not to have kept proper books of account if he has not kept such books or accounts as are necessary to exhibit or explain his transactions and financial position in his trade or business, including a book or books containing entries from day to day in sufficient detail of all cash received and cash paid, and, where the trade or business has involved dealings in goods, also accounts of all goods sold and purchased, and statements of annual or other stock takings.

Section 204

If a corporation commits an offence under this Act, any officer or director, or agent or mandatary, of the corporation, or any person who has or has had, directly or indirectly, control in fact of the corporation, who directed, authorized, assented to, acquiesced to or participated in the commission of the offence is a party to and guilty of the offence and is liable on conviction to the punishment provided for the offence, whether or not the corporation has been prosecuted or convicted.

---

Appendix B

Acknowledgement

I, , bankrupt or officer of the bankrupt corporation acknowledge receipt of sections 67, 158, 159, 178, 198, 199, 200 and 204 of the Bankruptcy and Insolvency Act and state that the contents have been explained to me and that I understand my duties and obligations.

Dated at , this day of .