Update and New Measures Regarding Reasonable and Fair Provisions in Consumer Proposals

March 2, 2017

On December 5, 2016, the Superintendent of Bankruptcy issued a position paper regarding Reasonable and Fair Provisions in Consumer Proposals. This note provides Licensed Insolvency Trustees (LITs) with an update on the results of recent monitoring and on new measures to support efficient creditor identification of consumer proposals that may contain discount clauses.

Office of the Superintendent of Bankruptcy (OSB) Supervision Activity

Since the publication of the Superintendent’s position paper, the Official Receiver has been monitoring all consumer proposals filed with the OSB and closely reviewing those that have included a discount clause. In each instance where the OSB has identified the clause, the Official Receiver has directed the responsible LIT to call a first meeting of creditors to be chaired by the Official Receiver at the OSB’s office. In keeping with the risks associated with consumer proposals that include a discount clause, the Official Receiver has also reviewed LIT files and examined some debtors under oath for the purposes of validating due diligence by LITs in addressing the issues raised in the position paper.

The OSB appreciates the efforts of those LITs who have worked proactively to protect debtors from predatory lending and have removed discount clauses from consumer proposals following the release of the Superintendent’s position paper.

Discount Clause Volumes and Licensed Insolvency Trustee Involvement

More than 1850 consumer proposals containing discount clauses were filed in 2016. In the months prior to the release of the Superintendent’s position paper, proposals containing discount clauses were filed at a rate of about 165 per month. In January 2017, 24 consumer proposals that included discount clauses were filed. Since the release of the position paper, the number of individual LITs filing consumer proposals with discount clauses has decreased from approximately 31 to 4.

New Measure to Facilitate Participation of Creditors

Since December 6, 2016, creditors have regularly voted against consumer proposals where they have identified discount clauses, either by requesting removal of the clause or by voting against the proposal.

As indicated in the Superintendent’s position statement regarding Reasonable and Fair Provisions in Consumer Proposals, the process for filing and administering a consumer proposal is streamlined. Given the streamlined framework as well as high volumes, effective administration depends on creditors’ ability to efficiently review and participate in the insolvency process. Beginning on March 21, 2017, the OSB will publish a weekly public registry extract of any consumer proposal filings since March 13, 2017 that contain discount clauses, to allow creditors to easily identify and review them. On a weekly basis, estates will be removed from the report when proposals are accepted, rejected, amended or withdrawn. The public record information in this report will include: estate number; date of filing; name of individual LIT; name of corporate LIT and office location.

The OSB welcomes questions or comments at: ic.osbregulatoryaffairs-affairesreglementairesbsf.ic@canada.ca.

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