Review of the Trustee Licensing Regulatory Framework: The Results of the Consultation – Questions 1 to 4

Issue Number 1
Harmonization of the Directive on Trustee Licensing (Directive No. 13R2) with the Memorandum of Understanding (MOU) between the Superintendent of Bankruptcy and the Canadian Association of Insolvency and Restructuring Professionals
(Short title: Harmonization of the Directive with the MOU)

Issue

Currently, there are differences between the Directive on Trustee Licensing (Directive No. 13R2) and the Memorandum of Understanding (MOU) between the Superintendent of Bankruptcy and the Canadian Association of Insolvency and Restructuring Professionals (CAIRP) relating to prerequisite qualifications, the number of attempts at the oral examination, the amount of time a candidate has to complete the program at each stage and obtain a licence, and exemptions.

While stakeholders do not necessarily agree on specifics, there is general agreement that there is a need for better harmonization between the Licensing Directive and the MOU.

Background

According to the old Memorandum of Understanding between the Superintendent of Bankruptcy and the Canadian Association of Insolvency and Restructuring Professionals, a candidate could only take the oral examination three times over a 10-year period commencing on the date of enrolment in the National Insolvency Qualification Program (NIQP). Candidates who exhausted all three attempts at the oral examination within the 10-year period had to re-enrol in the program. The current Memorandum of Understanding does not include such restrictions, but the Licensing Directive still has restrictions regarding the number of attempts at the oral examination and the amount of time allowed to complete the program.

Generally speaking, provincial bodies in Canada governing chartered accountants and lawyers have time limitations and a maximum number of attempts to sit qualifying exams to complete programs.

At present, the Directive on Trustee Licensing also specifies that the board of examination must consist of four persons: a trustee, a lawyer, a person designated by the Regional Director to act as Assistant Superintendent and a representative of the Superintendent of Bankruptcy. In a few cases, it has been impossible for four members to sit on the board. All stakeholders agree that the Licensing Directive should provide the Superintendent with more flexibility on the makeup of the board.

Analysis

The Office of the Superintendent of Bankruptcy (OSB) considers it important to facilitate access to the profession to candidates who need more time or more experience to reach the skill level required to practise as a trustee in bankruptcy. As CAIRP pointed out in its submission: "to impose an absolute limit on the number of attempts a candidate may take before the Oral Board is unnecessary and does not recognize the enhanced competence that can result from continued practice and experience."

On the other hand, candidates who have exhausted five years after being successful at the National Insolvency Exam certified by CAIRP (CNIE) may not necessarily be up to par with respect to knowledge and experience in addressing practical issues.

Candidates who have been unsuccessful three times before the oral board should be provided with further support to help them pass the oral board in the future. On the OSB's part, the support could include a more thorough debriefing process following the oral board examination aimed at providing the candidate with insights into areas in which he/she may need to improve. This will be addressed more fully in a policy statement to be issued with regard to the Oral Board Process. Candidates should also seek to gain additional knowledge or practical experience in areas where they were weak before appearing before the oral board again.

Concerning the makeup of the board, there should be more flexibility to hold a board in cases when it is not possible or practicable to have all four members present.

CAIRP has also commented that it is willing to explore ideas for reducing the time requirements for trustees (and lawyers) when acting on boards. The OSB welcomes suggestions in this regard.

Decision

The following two decisions will be included in a revised Licensing Directive (and policy) to be issued in 2011. The revised Licensing Directive will be in effect for oral boards conducted immediately after the changes come into force.

1. Eliminate limits on time and number of attempts at oral examination

The OSB intends to eliminate the 10-year time limitation and maximum three attempts at passing an oral board. However, after the earlier of five years or three attempts at the oral examination, the onus will shift to the applicant to notify the OSB of his/her interest in seeking additional time or attempts and to provide credible reasons for approving the request. The OSB will normally grant extensions provided that a reasonable rationale is given. As well, it is expected that applicants will remain working in the insolvency field.

2. Address makeup of oral board in policy statement

The makeup of the oral board will be addressed in a policy statement rather than in the Licensing Directive. The policy will normally require that four persons sit on the oral board, but in exceptional cases, it will allow the board to be reduced. As much as possible, there should be a trustee and a lawyer on the board.

top of page

Issue Number 2a
Dual Licensing and Specialized Licences

Issue

The consultation paper requested comments about the possibility of implementing dual licences and areas of specialization for bankruptcy trustees. "Dual licensing" refers to a form of licence where a "commercial licence" and a "consumer licence" would be issued. "Specialization" refers to a form of practice where a trustee would be duly recognized as having particular expertise in one or more domains.

Currently, the Superintendent of Bankruptcy issues only one type of licence to a trustee. Like many other professionals, however, trustees tend to specialize in one or two areas.

There appears to be a general consensus among stakeholders that the current system works well and that there is no need to issue dual licences or to recognize specialization.

Regarding dual licences, the Canadian Association of Insolvency and Restructuring Professionals (CAIRP) pointed out in its submission:

"Situations often arise within any given engagement, whether ostensibly a commercial or consumer engagement, that require the full spectrum of knowledge."

Regarding specialization, the following comment mentioned:

"Currently the system that allows for a form of specialization by imposing restrictions on certain licences (consumer or commercial) is a reasonable compromise as it allows the applicant to later extend his or her licence."

Still on specialization, while there is little support for a system of specialization to be implemented by the Office of the Superintendent of Bankruptcy (OSB), there is some support for CAIRP to include in its education program a version of specialization through an extension of its professional development courses. From the CAIRP submission:

"We are contemplating developing a post-NIE and post-Oral Board education specialized practice program. In addition, CAIRP is consulting with member firms as to their interest in the development of a specialist course that would allow those that have achieved their CIRP designation and/or licence as a Trustee to further pursue continuing education in their chosen area of practice. The intent behind such education is not to prescribe an area of specialization for the individual; instead it is to permit a practitioner an opportunity to explore in greater depth the theory and practice in a specific area they feel may not have been adequately addressed in the CQP."

Background

Part of the consultation on this issue was whether the OSB should implement a dual licensing system, recognize specialization or maintain the current system of issuing licences with limitations. The OSB considered dual licensing as an option to alleviate potential capacity concerns in the insolvency profession by allowing the OSB to qualify candidates as trustees in a more expeditious manner as it would present an opportunity to streamline the professional training program.

The OSB considered how similar professions in Canada and other jurisdictions deal with this issue.

Dual Licensing

There is no equivalent to dual licensing in the United States and no Canadian professions offer the equivalent of dual licensing. In the United Kingdom, legislative changes are being considered that would allow candidates to apply for a voluntary arrangement only licence. A voluntary arrangement is similar to a consumer proposal except that there is no maximum level of debt restriction, and a vote by creditors with claims totalling more than 75 percent in dollar value is needed for the arrangement to be approved.

Specialization (other countries)

The United Kingdom has not instituted specialization designations associated with insolvency professionals (IPs).

In the United States, no regulated specialization exists with respect to trustees. The type of work the professional undertakes (including under which chapter of the United States Bankruptcy Code the trustee works) determines the expertise the practitioner develops.

In Australia, personal insolvencies are regulated by the Insolvency and Trustee Service Australia (ITSA), whereas corporate insolvency is regulated by the Australian Securities and Investment Commission (ASIC). For personal insolvency, private-sector practitioners include:

  1. Registered trustees who administer bankrupt estates and other arrangements under the Bankruptcy Act. They must be licensed by ITSA to practise. They generally handle the larger bankruptcies and arrangements with creditors that have the potential to pay fees. Most are members of medium to large accounting firms. Some are sole practitioners or operate "boutique" insolvency practices. All are qualified accountants. The representative practitioner body is the Insolvency Practitioners Association of Australia (IPAA). Other consumer bankruptcy files are administered by the government.
  2. Controlling trustees who can be solicitors, registered trustees or the Official Trustee. Solicitor controlling trustees are not licensed by ITSA, but are regulated by the legal industry. However, they can be disqualified from acting as controlling trustees in certain circumstances.
  3. Debt agreement administrators who administer debt agreements. They are not required to be licensed or hold specific qualifications.

For corporate insolvency, private-sector practitioners become registered with ASIC and are then able to be appointed as receivers, administrators and liquidators in individual cases. When they become registered with ASIC, they become known as registered liquidators.

Specialization (in Canada)

In Canada, some associations and professional orders allow for specialization, others prohibit members from using a "specialist" designation or describing themselves as a specialist. In Quebec, the code of ethics of the Ordre des comptables agréés du Québec (OCAQ) generally prohibits professionals from describing themselves as specialists.

The Canadian Institute of Chartered Accountants and provincial institutes of chartered accountants (other than Quebec) have formally recognized specializations in certain subject areas, including recognition of the Chartered Insolvency and Restructuring Professional (CIRP) for chartered accountants who wish to be recognized as specializing in insolvency and restructuring (along with recognition of the Chartered Business Valuator and Investigative and Forensic Accounting designations).

The Law Society of Upper Canada has instituted specialized designations for licensed practitioners who wish to specialize in one or more particular areas of law, such as civil litigation, bankruptcy and insolvency law, and criminal law. All of these specialized designations are add-ons to the basic licence all lawyers require to practise. Achieving Specialist Certification in a particular area of law requires that applicants comply with the requirements for certification set out in the policies governing the Law Society's Certified Specialist Program.

The 2007 Competition Bureau report Self-Regulated Professions suggests that the specialist certification system adopted by The Law Society in Ontario assists in ensuring information about particular skills and knowledge is accurate.

Analysis

The current licensing system, which trains professionals on the full range of insolvency solutions, is very important to the integrity of the system.

Throughout the training program, candidates are assessed on knowledge, competencies and practical considerations (skills) in all areas of insolvency, covering both commercial and consumer issues. Candidates who have demonstrated that they have the necessary qualifications to act as a trustee in both consumer and corporate insolvency areas will receive a licence without limitations. Strength in one area alone is not sufficient for a full licence to be issued. Occasionally, individuals demonstrate the necessary knowledge in both commercial and consumer insolvency areas, but require more experience to attain the complete range of competencies in each of the two areas. In these cases, licences subject to limitations may be issued in the area of practice in which the stronger ability was demonstrated. Licences with such limitations can be lifted by appearing before an ad hoc board where individuals can demonstrate that they have attained the full range of competencies. The current system ensures that all candidates are fully trained and will have the ability to identify issues that may need to be addressed in the files under their administration. While the OSB encourages all trustees to have a full licence, granting licences with limitations facilitates access to the profession while protecting the integrity of the insolvency system.

The OSB is of the opinion that proper professional training protects the integrity of the system. A specialized licence regime requires matching the level and breadth of training and knowledge with the actual competencies required to perform the type of practice in which a trustee seeks to specialize. It is understood that a regime of offering dual licensing would require a major change in the education process and in the assessment tools.

Regarding specialization of fully licensed trustees, CAIRP has commented that it is contemplating offering specialist course. The OSB takes no position on this point.

Decision

The Superintendent is of the opinion that a licensing framework that allows full licensing as well as a choice of specialized licences could be viable. The licensing framework would, in fact, mimic the current insolvency marketplace by having generalists as well as specialists. It could also eliminate the practice of the OSB issuing restricted licences to new trustees that place restrictions on practising in either commercial or consumer files until the trustee demonstrates the appropriate level of competence in the area found to be lacking – consumer or commercial.

The Superintendent will not consider developing and implementing such a framework at this time as the OSB believes the current system is working well and appears to be meeting demands. In addition, changes to the CIRP Qualification Program (CQP) course are currently under way and should be given time to determine their efficiency and efficacy. This option may be revisited at a later date following further study and work on training requirements.

top of page

Issue Number 2b
Administrators of Consumer Proposals

Issue

A form of specialization in insolvency work relates to the administration of consumer proposals. While trustees may act as administrators, the Superintendent also has the authority to appoint or designate individuals who are not trustees as administrators of consumer proposals. To date, these appointments have been limited to provincial employees, but the Bankruptcy and Insolvency Act (BIA) does not expressly stipulate such limitations.

The Canadian Association of Insolvency and Restructuring Professionals (CAIRP), the Insolvency Institute of Canada (IIC) and several trustee firms took the position that it would be inappropriate for the Office of the Superintendent of Bankruptcy (OSB) to appoint non-trustees as administrators of consumer proposals. Supporters of this position generally felt that only someone who has a trustee licence should be an administrator of consumer proposals because a thorough knowledge of all aspects of the BIA is necessary to properly perform the duties of an administrator of consumer proposals.

On the other hand, the Canadian Association of Credit Counselling Services (CACCS) argues that their experience in administering debt management plans (DMPs) plus their expertise in counselling would enable them to successfully perform the duties of an administrator of consumer proposals. They argue further that, by having to refer clients to trustees to administer consumer proposals, debtors have to start a new process, build a relationship with a different person, and be burdened with providing financial background information again.

Finally, the Coalition des associations de consommateurs du Québec is of the opinion that consumer proposals should not be administered by persons other than trustees. The association believes that only trustees can provide the consumer with complete and accurate information on solutions (bankruptcies and proposals).

In addressing this matter, the OSB has an interest in ensuring proper and timely access to the insolvency system and in the level of integrity in the administration of matters processed under the BIA.

Background

Since the introduction of consumer proposals in the legislative amendments of 1992, the Superintendent has had the authority, under section 66.11 of the BIA, to appoint non-trustees as administrators of consumer proposals. To date, the Superintendent has entered into Memorandums of Understanding with British Columbia, Alberta, Saskatchewan, Nova Scotia and Prince Edward Island. At this time, the only province that remains active in this field is Nova Scotia.

The OSB considered how similar insolvency proceedings are administered in other jurisdictions.

In the United Kingdom, non-trustees do not administer insolvency proceedings. However, for streamlined personal bankruptcies, known as Debt Relief Orders (DROs), an approved intermediary advises the debtor and submits the online DRO application to The Insolvency Service of England and Wales.

In Australia, there are two methods for making the equivalent of a consumer proposal:

  1. An arrangement with creditors under Part X of the Bankruptcy Act (a Personal Insolvency Agreement) is designed for debtors who have a reasonable amount of assets or are operating a business. The arrangement is administered by a registered trustee and is legally binding on all creditors. Failure to abide by the arrangement may lead to bankruptcy.
  2. An arrangement with creditors under Part IX of the Bankruptcy Act (a Debt Agreement) is restricted to debtors with low assets and relatively low incomes. The person administering the arrangement (a Debt Agreement Administrator) does not have to be licensed. Any person, including the debtor or a friend or family member, can administer a Debt Agreement, although in practice most are administered by businesses for a fee. It is designed as a less formal, low-cost procedure.

Analysis

CAIRP and several trustee firms mentioned that to perform the tasks of a trustee properly (set out in Directive No. 6R3, Assessment of an Individual Debtor), a trustee must be an expert in bankruptcy, as well as in consumer proposals, to ensure that debtors are made aware of all of the relevant aspects of both alternatives. They argue further that someone who is only an administrator of consumer proposals does not have the knowledge required to adequately describe the bankruptcy option.

Based on earlier studies and bills tabled between 1975 and 1980, 1 it appears that the intention of the 1992 legislative changes was to have consumer proposals administered either by trustees or by the provinces. In line with these studies and bills, the policy of the OSB was to allow non-trustees to administer consumer proposals as long as these non-trustees were employees of the provinces as this provided oversight, accountability and sound financial support. As well, in 1992, several provinces already had dedicated programs for helping consumers in financial distress under Part X of the BIA.

In discussing the level of knowledge and expertise required, it is appropriate to consider differences between the main processes available in the marketplace. DMPs are agreements voluntarily entered into by a debtor and one or more creditors, whereas consumer proposals are formal processes authorized and regulated under the BIA involving the debtor and all of his/her creditors. DMPs are not subject to regulatory oversight or legislated timelines, and do not normally involve any court proceedings. Consumer proposals, on the other hand, enable suspension of creditors' rights during the proposal. Under the law, administrators of consumer proposals are delegated legal authority, power and responsibility to act and are expected to carry out proceedings in court. Managing a consumer proposal, therefore, involves many added complexities related to applying the BIA and its regulations, and the directives of the Superintendent, as well as applying related laws. The administrator of a consumer proposal is also legally responsible for monitoring and reporting on the behaviour of the debtor regarding non-compliant behaviour or abuse and could be expected to take action against the debtor if warranted. The role and legal obligations of an administrator of a consumer proposal are significantly different from those of a credit counsellor negotiating a voluntary debt management agreement. As such, an administrator of a consumer proposal would require a higher level of education and training associated with such a role and obligations.

Today, the marketplace for consumer debt has changed. Consumer proposals, and indeed credit markets, are more complex than when consumer proposals were first introduced in 1992. With recent amendments, debtors with up to $250 000 in liabilities can now file consumer proposals as opposed to the previous limit of $75 000. Many more consumer proposals are being filed, many of which involve certain business aspects. These proposals will require additional expertise in commercial insolvency matters; for example, contracts for services, application of liens, partnership agreements, etc.

CACCS believes that it is very inefficient to have to refer debtors who have built a relationship with a CACCS agency to a trustee in cases where a consumer proposal would be more appropriate than entering into an informal DMP. CACCS argues that if credit counsellors were licensed as administrators of consumer proposals, the need for this referral would be eliminated and the consumer better served. It should be understood, however, that while consumers who consult a trustee for an assessment of their financial affairs may indeed file a consumer proposal, in a number of cases they may also decide, after having reviewed their situation, that bankruptcy rather than a proposal is the only viable option for them. The trustee is then in a position to offer to file an assignment in bankruptcy on the consumer's behalf, something that a credit counsellor licensed as an administrator would not be able to offer.

Furthermore, many debtors who file consumer proposals fail to successfully carry out the obligations under the proposal and then opt to file bankruptcy. Statistics from the OSB indicate that the failure rate for consumer proposals is approximately 35 percent and that roughly 85 percent of individuals whose proposals have failed then file bankruptcy with the same trustee who acted as the administrator of their consumer proposals. If non-trustee administrators of consumer proposals had acted in these cases, they would have been precluded from acting as trustees in these bankruptcies and would have been required to refer a large portion of the cases to a trustee.

Whether a referral for a different practitioner is made after consideration of a DMP or after failure of a consumer proposal, the fact remains that a large number of debtors would be required to start a new process with a different expert and be burdened with providing financial background information again. Creditors, as well, would have to re-establish their claims with a different professional.

Other Options

The OSB has an interest in ensuring proper and timely access to the insolvency system and in the level of integrity in the administration of matters processed under the BIA. Furthermore, the question of convenience has been highlighted from the perspective of a consumer/debtor who must seek professional advice and assistance. In this context, two additional options were explored.

Option A: Facilitating credit counsellors 2 in obtaining a trustee licence

In its submission, CAIRP offered the following option to those currently seeking to become non-trustee administrators of consumer proposals: "Finally, CAIRP welcomes those seeking appointment as administrators of consumer proposals to enrol in the CQP and complete the training to become a CIRP and thereafter become eligible for licensing as a Trustee. CAIRP believes the CQP is a pre-eminent program that adds substantial credibility to the public's trust in the bankruptcy and insolvency framework."

Should credit counsellors undergo the training and obtain a trustee licence, they would be able to offer the same services as current trustees, including the ability to administer consumer proposals and file assignments in bankruptcy. Credit counsellors would continue to be in a position to offer consumers expertise in budgeting and, generally speaking, counselling services.

In considering having a licensed trustee work as an employee of a counselling association, it is noted that some credit counsellors may be considered to be collection agencies under provincial legislation. However, the Licensing Directive states that being a "collection agent" is incompatible with being a trustee. A practical solution will need to be considered to overcome this barrier. In turn, a licensed trustee may wish to offer full counselling services as well. A key component of any proposed solution will be to ensure transparency, address any potential conflict of interest and ensure full disclosure to the public.

Option B: Facilitating the possibility of business relationships between trustees and credit counsellors

The role credit counsellors can play in improving the financial health of Canadians is well respected. In addition, the level of legal and insolvency expertise offered by licensed trustees is considered essential for a well-functioning insolvency system.

On many occasions, indebted consumers who initially seek help from credit counsellors are referred by the credit counsellors to trustees because neither debt management plans nor budget counselling will solve the consumers' problems. It is also recognized that some credit counsellors have already entered into a business relationship with licensed trustees to provide counselling as specified under the BIA. To offer BIA counselling, counsellors must have passed the Insolvency Counsellor's Qualification Course offered through CAIRP and be registered with the OSB. Finally, credit counsellors also offer budget counselling to consumers as a means of improving financial literacy.

Increased business relationships between credit counsellors and trustees would allow debtors to have access to the right expertise and to benefit from the right solution in a more timely fashion.

By removing unnecessary barriers to allowing "coordinated services" for debtors, a more debtor-focused system is possible. "Coordinated services" means that credit counsellors would not simply be telling debtors that they cannot help them and that they should consider other options. Rather, debtors would be able to have their problem addressed in an efficient manner.

Creditors could also benefit from credit counsellors and trustees entering into business relationships as there may be a reduction in the duplication of effort associated with initially dealing with a credit counsellor and then with a trustee on the same debtor file. Exposing more consumers to more in-depth budget counselling would potentially reduce bad debts and the cost of debt collection.

In the longer term, the option could be a one-service model that merges the strength of both trustees and counsellors through a coordinated business model that would serve to improve the financial literacy of consumers, direct consumers to the right expertise and encourage financial rehabilitation.

Decision

The proposal to license administrators of consumer proposals without them having undergone a rigid training program and examination is rejected. There is a substantial and meaningful difference between DMPs and the statutory and regulatory requirements related to consumer proposals. However, to address concerns regarding duplication of effort and inconvenience to debtors and creditors, two alternatives will be explored further.

Option A: Facilitating credit counsellors in obtaining a trustee licence

The OSB is clearly concerned with the level of competency and oversight required to operate under the BIA as an administrator of consumer proposals. With respect to licensing administrators outside the scope of provincial government oversight and accountability, it is the Superintendent's view that there is a much stronger obligation on the part of the OSB to protect the interest of the consumer. Consumers must have access to full, complete and competent assessment and advice, which means there must be substantial training with respect to the BIA, regulations, directives, legal procedures and court processes. The only training program currently approved by the OSB, and available to credit counsellors wishing to operate under the BIA, is offered through CAIRP and it leads to being tested for knowledge and competency as a trustee under the BIA. Counsellors should be able to pursue such training to acquire the skills necessary to operate under the BIA and offer consumer proposals.

Therefore, the OSB will review the Licensing Directive and, together with trustees and credit counsellors, address any issue that may be brought to the OSB's attention with respect to a training program to facilitate credit counsellors being able to apply for and be granted trustee licences upon successful completion of both the Chartered Insolvency and Restructuring Professional Qualification Program (CQP) and an oral board of examination.

The OSB encourages credit counsellors to obtain a trustee licence and thereby be able to offer the full range of insolvency services. By insisting that credit counsellors take both the CQP and oral board of examination, the OSB will be ensuring that the current high standards for applying the law and serving the insolvency system will be maintained, along with the integrity of the insolvency system. If additional professionals qualify, this will ensure that insolvency files can be serviced in a timely manner.

Option B: Facilitating the possibility of business relationships between trustees and credit counsellors

In addition to supporting option (A), option (B) provides another service model to address concerns regarding duplication of effort and inconvenience to debtors and creditors.

The OSB will remove unnecessary barriers that inhibit productive business relationships from being formed between trustees and credit counsellors where each group (trustees and credit counsellors) would be able to integrate their services and expertise to best meet consumer needs by directing consumers to the right expertise, improving their financial literacy and assisting in their financial rehabilitation.

Credit counsellors would be able to enter into business arrangements with trustees where credit counsellors would be able to perform various services for trustees in the same way that such services would otherwise be delegated to employees of the trustees pursuant to Directive No. 6R3, Assessment of an Individual Debtor, or Directive No. 4R, Delegation of Tasks. The OSB would still require the trustee to meet personally with the debtor to complete the assessment. The OSB would allow such delegated tasks to be carried out by credit counsellors at their own sites. The OSB is willing to review the range of tasks that could be delegated by a trustee to qualified staff or qualified subcontractors. At all times, the trustee must remain ultimately accountable for proper administration of the file.

There would be a requirement for absolute transparency of the relationship between credit counsellors and trustees, and any debtors benefiting from the system would be fully informed of the details of the arrangement and would be required to sign a document attesting to the fact that the details of the arrangement have been disclosed to them. Such a disclosure document will be developed by the OSB.

To facilitate business relationships, the OSB will review Directive No. 13R2, Trustee Licensing, Directive No. 6R3, Assessment of an Individual Debtor, and Directive No. 4R, Delegation of Tasks, along with other applicable directives, for possible amendments. The goal will be to better meet consumer needs while ensuring that the integrity of the insolvency system is maintained. The OSB welcomes suggestions from all stakeholders (consumer groups, creditors and trustees) to develop the types of services that could be delegated, taking into consideration the following non-negotiable principles:

  • trustees would still be required to meet personally with debtors (to complete the assessment); and
  • consumer proposals would still be administered by trustees.
Guiding principles

The OSB is sensitive to the fact that this new type of business relationship may be open to abuses or bona fide errors. To address this concern, trustees must consider the following matters prior to entering into agreements with credit counsellors and, indeed, in delegating functions to their own staff:

  • appropriate training;
  • experience and reputation of the organization and its employees, members, directors and officers;
  • historical background of the organization and its directors and officers, and references from all categories of stakeholders;
  • internal rules of ethics and compliance mechanism in that regard;
  • whether there is a system in place to ensure that funds are handled properly; and
  • whether the credit counsellor is a for-profit or not-for-profit organization.

To facilitate implementation of these guiding principles and after taking into consideration any suggestions from CAIRP and credit counsellors, the OSB will draft standards and a Disclosure Form for Multi-Professional Services.

Monitoring

The OSB encourages trustees and credit counsellors to meet to work out the details of how increased business relationships can be implemented. The progress and impact of the above changes will be monitored by the OSB.

top of page

Issue Number 3
Probationary Conditions for Newly Licensed Trustees

Issue

Newly licensed trustees are subject to probationary conditions for a minimum period of 24 months. The main condition is that a new trustee must practise in the same location as an established trustee or only act on smaller files. At the end of two years, the trustee may apply to the Superintendent of Bankruptcy to have the conditions lifted.

The issues are whether it is still relevant to impose probationary conditions on newly licensed trustees, whether the wording of these conditions is appropriate and the criteria for lifting the conditions.

Except for one comment questioning the need for any probationary conditions, none of the comments received put into question the content or wording of the two-year probationary conditions.

Background

Concerns have been expressed that newly licensed trustees do not file a sufficient number of estates to provide the Office of the Superintendent of Bankruptcy (OSB) with enough information to allow for a proper recommendation that the probationary conditions be lifted. As well, some new trustees may work exclusively on cases filed by another trustee or other trustees with whom they are associated. In addition, there is no specific onus on established trustees to supervise the work being done by new trustees.

As well, OSB staff comment from time to time that trustees without experience have difficulty operating an independent trustee practice in a compliant manner.

The OSB has considered how similar Canadian professions deal with this issue. Governing bodies for chartered accountants, certified general accountants and certified management accountants have been consulted to determine if there are any probationary conditions for individuals who have recently obtained their professional accounting designations. Each of the three governing bodies indicated that they do not have probationary conditions for newly certified professional accountants.

Anecdotal evidence from provincial bars suggests that professional conduct cases are much more frequent for lawyers during their first five years of practise than for more experienced lawyers. In that regard, the Québec Bar provides a compulsory course for lawyer candidates on running a legal practice that emphasizes professional ethics.

Analysis

Given the comments received from stakeholders, the OSB worked on the basis that the current wording of the probationary conditions is appropriate as the conditions are easily measurable.

One option presented by the OSB was to exempt new trustees who practise in a multi-trustee firm from the probationary conditions. While this option is attractive, many practical issues would have to be taken into consideration such as the size of the multi-trustee firm; whether the firm has appropriate standards; defining appropriate standards; assessing the standards; and maintaining certification standards that are appropriate.

Another option presented by the OSB was to repeal probationary conditions for new trustees working for a multi-trustee firm on the basis that corporate trustees ultimately accept responsibility for the work of the firm's individual trustees. Having different standards for different firms may create distortion in the market in that there would not be a level playing field for all newly licensed trustees.

Some stakeholders suggested that new trustees must be exposed to a wide range of insolvencies before probationary conditions are lifted. This may be the ideal, but it does not appear to be realistic.

The Canadian Association of Insolvency and Restructuring Professionals (CAIRP) also suggested that specific conditions could apply with respect to newly licensed trustees seeking to establish independent practices within the probationary period. In particular, CAIRP suggested that during their initial two years of practise, newly licensed trustees who practise on their own should be subject to peer review of their practice by a trustee in good standing with both the OSB and CAIRP. This review would focus on having the newly licensed trustee adopt the best operating practices possible.

As well, it has been suggested that a newly licensed trustee should be required to provide a business plan to the OSB before he/she begins practising. However, the OSB feels that it would not be necessary to include such a requirement in the Licensing Directive because:

  • there have been very few cases (two or three in the last 10 years) of trustees wishing to establish independent practices while being subject to the probationary conditions;
  • best practices should be applicable to all trustees, not solely to those under probationary conditions; and
  • the OSB is already assessing whether a trustee who wishes to open an independent practice (via either a corporate licence or the individual licence of the trustee) has the resources to do so and the appropriate systems and controls.

Decision

Clarifying the criteria for lifting the two-year probationary period

The Superintendent will issue a policy statement clarifying that conditions under which the two-year probationary period should be lifted, shortened or extended will be based on the performance of newly licensed trustees. Trustees will be expected to have worked in the field of insolvency during the 24-month probationary period and the onus will remain on trustees to provide details of what they have done during the 24-month period. Trustees will also undergo a review of their practice conducted by the OSB.

top of page

Issue Number 4
Reactivation of the Licence in the Event of the Trustee's Bankruptcy

Issue

In accordance with the Bankruptcy and Insolvency Act, a trustee's licence is cancelled if the trustee becomes bankrupt. The Superintendent of Bankruptcy may reactivate such an invalidated licence. In addition, the Directive on Trustee Licensing states that "the trustee must satisfy the Superintendent that reinstatement of the licence will not impair public confidence in the bankruptcy and insolvency system."

Stakeholders were almost unanimous that requests for reactivation should be dealt with on a case-by-case basis, but that the criteria for reactivation should be clarified.

Background

Over the last 15 years, there have been a few cases of bankruptcy among practising trustees, with a small number of applications for reinstatement. These applications have been handled on a case-by-case basis.

Most provincial institutes of chartered accountants and law societies have the following common themes:

  • Members must report their insolvency or bankruptcy to the governing professional body, including details related to the circumstances leading to the insolvency and information about their financial circumstances.
  • The professional body conducts a review of the circumstances leading to the insolvency or bankruptcy and determines whether:
    • the member's rights and privileges of membership should continue;
    • to negotiate a consent order that includes special terms, conditions or restrictions on the person's membership; or
    • to hold a hearing to consider the member's circumstances and to determine his/her status.
  • The reputation of the profession is paramount and the professional body exercises its discretion in favour of maintaining the public trust.
  • During a member's bankruptcy, the member is subject to increased monitoring and reporting requirements, with additional safeguards put in place to ensure the safety of trust accounts.

Analysis

The Office of the Superintendent of Bankruptcy (OSB) believes that by publishing the criteria for reactivation, the Superintendent will assist both the former trustee and the general public in knowing what criteria the Superintendent will use when considering reinstating the licences of former trustees who have been the subject of insolvency proceedings.

As a general rule, the OSB believes that the licence should only be reinstated after the discharge of the trustee administering the bankruptcy. Indeed, the final statement of receipts and disbursements is not available until that time, so it is only then that complete details of the disposition of assets will be known. As well, the statement of receipts and disbursements will show what the dividend payout to creditors actually was. Finally, from the public's perspective, the same rationale would apply, i.e., it is only at this point that there is complete disclosure of the administration of the bankruptcy. However, there may be circumstances (e.g., where the administration of the estate of the former trustee is delayed for cause) where reinstatement only after discharge of the trustee administering the bankruptcy might not be appropriate. Nonetheless, the onus should be on the former trustee to explain why his/her licence should be reinstated before the discharge of the trustee administering the bankruptcy.

In addition, if the former trustee's insolvency was the result of fraudulent activities or other wilful misconduct, reinstatement of the licence would be refused in the interest of protecting the integrity of the insolvency system.

Decision

Continue to handle reinstatement applications on a case-by-case basis, but publish the criteria that may be used by the Superintendent in considering the application

The Superintendent will continue to handle reinstatement applications on a case-by-case basis, but will publish in a policy statement the criteria that may be used. The criteria to be published, as suggested by the Canadian Association of Insolvency and Restructuring Professionals (CAIRP), will be grouped under three headings:

  1. Factors relating to the period prior to the insolvency filing
  2. Factors relating to the period of the insolvency proceeding
  3. Factors relating to the period following the insolvency proceeding

The former trustee wishing to be reinstated will be required to make a formal application to the Superintendent showing that he/she meets the applicable criteria. It will be expected that the former trustee will provide an attestation of professional competence showing that he/she has kept up to date with developments in the field of insolvency, and an attestation of good character showing that there have been no breaches, investigations or sanctions that may be related to the insolvency, whether criminal or non-criminal.

  1. Factors relating to the period prior to the insolvency filing
    • Causes of the bankruptcy.
    • Whether the former trustee breached his/her fiduciary obligations.
    • Whether the former trustee wilfully neglected his/her creditors, he/she was financially irresponsible, or his/her personal extravagance contributed to the bankruptcy.
    • Number, nature and quantum of the former trustee's creditors.
    • Nature of the former trustee's practice (number and type of files).
    • History of the former trustee's licence and the firm at which the trustee worked.
    • Whether the former trustee committed any act that is, by its nature, fraudulent or subject to sanction as criminal by a court of competent jurisdiction.
  2. Factors relating to the period of the insolvency proceeding
    • Amount of time between the bankruptcy and the discharge of the former trustee.
    • Former trustee's discharge and any conditions of discharge.
    • Whether the trustee administering the bankruptcy has been discharged.
    • Relative percentage and amount of dividends recovered by creditors.
  3. Factors relating to the period following the insolvency proceeding
    • Whether the former trustee will be working with other trustees and will, therefore, be subject to internal control processes and procedures.
    • The former trustee's financial situation, including cash reserves to enable the former trustee to operate the business, if applicable, over a period of time.
    • The former trustee's controls and reporting over trust accounts.
    • Whether the Superintendent believes the former trustee is:
      • competent to carry on the practice of a trustee;
      • capable of performing the essential duties associated with his/her employment; and
      • capable of carrying out any business or practice in which the former trustee is engaged.
    • Other factors, such as references to be submitted by the former trustee, and the time period between the discharge of the former trustee and the application for reinstatement.

While the above factors are intended to clarify the criteria that will be considered on an application to reinstate the licence of a previously bankrupt trustee, the Superintendent maintains the ultimate discretion in the matter.


1 For example, under Bill S-14 (February 27, 1979), Bill S-9 (November 8, 1979) and Bill C-12 (April 16, 1980), the Minister of Industry could enter into an agreement with a provincial government for the administration of consumer debtor arrangements. (Return to reference 1)

2 To facilitate readership, we are using the term "credit counsellors" to include any "for-profit" or "not-for-profit" organizations, firms or individuals who assist indebted consumers in resolving their non-business debts and improving their financial literacy. (Return to reference 2)