OSB News August 2017
A word from the Superintendent
It is a pleasure to provide you with the latest edition of the Office of the Superintendent of Bankruptcy’s (OSB) newsletter. OSB News helps us share information on priorities and initiatives of relevance to Licensed Insolvency Trustees (LIT) and those who have an interest in the insolvency system.
This edition of OSB News provides information on regulatory initiatives that are planned based upon the observations and findings of the Review of Licensed Insolvency Trustee business practices in relation to administration of consumer insolvencies released in April, 2017. Three specific areas of focus include phased renewal of insolvency counselling requirements, the establishment of a directive on service delivery, which will address issues related to LIT offices and designated areas, and amendments to the Directive on Assessment of an Individual Debtor, to ensure a level playing field and greater consistency of existing requirements.
There is also an update on the Consumer Awareness Campaign in support of Directive No. 33, Trustee Designation and Advertising, information on the OSB Licence Administration Application (OLAA), the new online self-service application designed for Licensed Insolvency Trustees (LITs) and LIT candidates, as well as information about the modernization of the Insolvency Record Search (IRS) application.
We welcome your feedback on topics discussed in this issue of OSB News, or any other issues of importance to the insolvency community you would like to see covered in a future edition. Feedback can be sent to the OSB Communications team.
Superintendent of Bankruptcy
Renewal of counselling in insolvency matters
The insolvency counselling for consumer debtors that is provided, or provided for, by Licensed Insolvency Trustees (LITs) was introduced as an amendment to the Bankruptcy and Insolvency Act (BIA) in 1992 to promote debtor rehabilitation and help avoid repeat bankruptcies. While the scope of required counselling was expanded in 2007 to include consumer proposals, there has been no significant change in the program requirements for insolvency counselling since inception.
At the request of the Office of the Superintendent of Bankruptcy (OSB), an evaluation of insolvency counselling was undertaken in 2011, and in 2013 an evaluation report recommended enhancements to the debtor curriculum and delivery approach, as well as ongoing monitoring of results. Since that time, the OSB has also undertaken a review of LIT practices in providing for insolvency counselling and has identified opportunities to reduce compliance risks arising from individuals or organizations that some LITs may rely upon when they provide for insolvency counselling.
Accordingly, the insolvency counselling requirements will be renewed with four main objectives: to ensure that the individuals an LIT involves when providing for insolvency counselling meet OSB standards with regard to knowledge, experience and professional ethics; to ensure the learning curriculum is tailored to meet the needs of the majority of insolvent debtors; to pursue an innovative, cost-effective and efficient means of delivery adopting the best use of technology and in-person counselling, and; to facilitate the monitoring and assessment of the outcomes of insolvency counselling, to inform future improvements.
As LITs are qualified insolvency counsellors themselves, many provide the required insolvency counselling to consumer debtors personally. Other LITs provide for insolvency counselling by relying on staff or third parties to counsel insolvent debtors. The OSB is proposing to strengthen the regulatory requirements which apply to the registration and monitoring of individuals whom LITs may use to fulfill their counselling obligations. This will include having LITs register insolvency counsellors against their individual licence as well as to formally designate a registered counsellor to deliver counselling with respect to each bankruptcy or proposal. Rules related to LIT registrations will ensure that individuals providing counselling are properly qualified and not involved in activities that represent a conflict of interest. Rules around the LIT’s designation of an insolvency counsellor will also require that there is no conflict of interest between the interests of the debtor and those of the counsellor.
Based on the findings of the 2013 evaluation report and subsequent consultations that were undertaken with LITs in 2015, the OSB is proposing to introduce an enhanced debtor curriculum and an improved approach for delivery of insolvency counselling that is cost-effective and which adopts the use of modern technology. An updated debtor curriculum developed by the OSB in consultation with LITs will be designed to address issues faced by the majority of debtors and to support rehabilitation principles. A modernized delivery model will include on-line self-learning via modules available through the OSB, as well as in-person sessions with the LIT or designated counsellor.
This fall, the OSB will be consulting on proposed changes to LIT requirements for individuals they may rely upon when providing for insolvency counselling, with implementation planned for 2018.
New directive on service delivery to be proposed
This fall, the Office of the Superintendent of Bankruptcy (OSB) will be proposing a new directive clarifying minimum standards for consumer service provisions regarding authorized locations where Licensed Insolvency Trustees (LITs) deliver Bankruptcy and Insolvency Act (BIA) insolvency services. The directive will ensure service availability standards associated with registered offices and policy requirements for the provision of consumer insolvency services at LIT offices are well understood. Service delivery issues have not been substantively addressed by the OSB since the issuance of Directive No. 28: Non-Resident Office in July 1993. Given the evolution in insolvency practices, there is an opportunity to enhance the coherence of current service related regulatory requirements. The need for changes in existing provisions and increased compliance monitoring in relation to consumer service delivery issues also arises due to the consumer insolvency risks identified in the OSB Report on Licensed Insolvency Trustee business practices in the administration of consumer insolvencies.
The proposed changes will provide a clearer set of rules for all LITs, by consolidating service related elements of the existing directives, including administrative requirements from Directive 28: Non-resident Office; as well existing provisions concerning “designated areas” and “remote services” from Directive no.6R3: Assessment of an Individual Debtor and Directive No. 33: Trustee Designation and Advertising.
The principle objectives for the new requirements will include:
- a high standard of client service offering for BIA insolvency services where LITs wish to operate offices
- transparency on the availability of consumer service at different types of LIT offices
- a level playing field for LITs regarding the geographic operation of offices where they offer services
- prohibiting delivery of BIA insolvency services at unauthorized locations, including those associated with incompatible activities and the operations of unlicensed third parties
Consultations on the proposed changes are planned for the fall of 2017. Prior to the effective date of the new Directive, LITs will have the opportunity to revise their listing of registered offices in the OSB License Administration Application, in order to ensure their service offerings are consistent with the Directive requirements. OSB anticipates that the business practices of the majority of LITs should be unaffected by the new requirements, while consumers will have greater awareness regarding minimum service standards associated with the fees charged by an LIT for an insolvency filing. Compliance validation will be achieved through a variety of mechanisms, including changes to information requirements on service related forms; ongoing LIT office visits, and debtor validation. The OSB will also be exploring increased electronic data gathering opportunities via existing insolvency software.
Amendment to Directive No. 6R3, Assessment of an Individual Debtor
Flowing from observations presented in the Review of Licensed Insolvency Trustee business practices in relation to administration of consumer insolvencies, the Office of the Superintendent of Bankruptcy (OSB) will be proposing amendments to Directive No. 6R3, Assessment of an Individual Debtor, with changes to standards and requirements that apply to the individuals who may assist the Licensed Insolvency Trustees (LIT) with the debtor assessment process, as well as new standards for existing assessment requirements and related statutory documentation.
Clarified LIT requirements for the assessment of an individual debtor are proposed to ensure:
- An LIT is accountable and responsible for all elements of the debtor assessment process.
- Debtors understand the insolvency process and receive high quality advice and service from their LIT throughout the duration of their insolvency, as well as the information they need to avoid paying unnecessary costs.
- Individuals the LIT involves in the assessment process have the necessary competencies, knowledge, experience and education to independently and accurately perform prescribed assessment requirements; and they are without any real, potential, or perceived conflict of interest with the interests of the debtor they serve.
- Statutory and estate documentation is prepared by the LIT, with objectivity, and that completely and accurately represents the debtor’s financial situation.
- The OSB, LITs and debtors have increased opportunities to identify non-compliance related to the debtor assessment process.
The proposed changes are anticipated to have minimal impacts on the business practices of the majority of LITs, whose standards and process are already consistent with the intent and objectives of existing regulatory requirements for the administration of insolvency estates.
Consultation on the new measures is expected to occur by late fall 2017, with implementation and compliance measures coming into effect in 2018.
Update on consumer outreach relating to the LIT designation and insolvency awareness
In 2017, the Office of the Superintendent of Bankruptcy (OSB) is continuing its Consumer Awareness Campaign which brings attention to the “Licensed Insolvency Trustee” (LIT) designation, as well as the role and services offered by an LIT.
A number of new information products have been developed and distributed to help Canadians in financial distress become aware of their insolvency options as well as outlining the important role of an LIT. The materials promote the LIT designation, and include a social media component. So far, based on the increase in the number of visits to the OSB website’s consumer pages, promotional efforts are paying off.
New Consumer Brochure
A new brochure (Consumed by debt?), provides information on the insolvency process and the role of an LIT. It is currently posted on the OSB website in both official languages, with print copies available upon request. The brochure will soon be translated into several additional languages including Spanish, Tamil, Korean, Hindi, as well as simplified and traditional Chinese. These multi-lingual versions will be made available online.
Social media and digital advertising
Social media posts regarding LIT awareness began appearing in January 2017, and a subsequent digital ad campaign took place in March 2017. Material now appears regularly on the Financial Consumer Agency of Canada (FCAC) ItPaysToKnow @FCACan Twitter account and the Office of Consumer Affairs (OCA) Your Money Matters Facebook page and @YourMoneyCanada on Twitter.
In order to create a unifying touchstone for this new social media presence, a new Canada.ca/Deal with Debt webpage was published in February 2017. The new webpage not only supports the social media campaign but also presents the opportunity to place a focus on the role of LITs and highlight the difference between LITs and debt consultants.
The social media campaign has benefited greatly from the shares, likes and comments of LITs since content was first posted. The use of the hashtags: #onlyanLIT #LITscanhelp and #Licensedinsolvencytrustee, has started a conversation with some 20,000 Canadians, and on a monthly basis, the new Canada.ca/Deal with Debt page receives around 88,000 visits. To date, the campaign has reached 1.34M Canadians. Of these Canadians, tens of thousands seeking more information have clicked through to land on the new consumer-friendly webpage Deal with Debt.
Here is an example of a Government of Canada post:
If you have any questions or comments concerning these or other consumer outreach initiatives, please contact OSB Communications.
New OSB Licence Administration Application
The Office of the Superintendent of Bankruptcy (OSB) Licence Administration Application (OLAA) is a new online self-service application designed for Licensed Insolvency Trustees (LITs), including candidates applying for a licence. This new application integrates all licensing administrative functions into one easy-to-use system comprising a one-stop shop for licence renewal, fee payment and other service requests.
Using OLAA, LITs will be able to:
- View and update their corporate and /or individual LIT profile information, including address, licence status, and districts where they are licensed to practice;
- Apply for a corporate licence;
- Renew and pay licence fees each year;
- Manage their information and how it will appear in a new LIT Directory.
OLAA was initially introduced in January with the Licensing Candidate application and information regarding the Oral Board of Examination. All Oral Board applications in 2017 were submitted via OLAA and candidates were able to track the status of their application using the new portal. Successful licensing candidates finalized the process to receive their licence certificates by accepting the Consent Agreement in OLAA.
The OSB is now preparing for broad implementation of OLAA. LITs will soon receive an email that will invite them to register to establish secure access to the application. On the first use of OLAA, an LIT will be able to verify all information relating to address, licence status, districts of operation, etc. They will also be able to request updates and changes to any elements of their profile. Later this fall, OLAA will also be used to renew licences and pay licence fees.
Insolvency Records Search renewal Updated
New Insolvency Record Search system will include modern safeguards to protect the personal information of debtors.
Please see the addendum to this article.
The Office of the Superintendent of Bankruptcy (OSB) is modernizing its Insolvency Record Search (IRS) application. This valuable online search tool, operating in its current form since 1998, allows users access to public record information on insolvency estates, including key information concerning bankruptcies, proposals, receiverships, petitions and Company Creditor Arrangement Act (CCAA) filings. It is searched about 800,000 times annually by Licensed Insolvency Trustees (LIT), the general public, and other stakeholders. Public access to the IRS is currently based on a user fee of $8.00.
What changes are proposed?
Enhanced public access
- Improved access for Canadians through the proposed elimination of the $8 search fee, and by removing the requirement for the public to sign in and create an account
- Modern search technology allowing for multiple search paths and filtering to obtain useful results without the need for detailed debtor information. Users will be able to search by first/last name and date of birth, by estate number and last name, or by corporation name. The IRS will also allow users to filter results by province, city, or year of insolvency. Helpful tips will be provided to guide users.
- In its second phase, the ability for debtors to access key, frequently requested estate information (e.g. confirmation of discharge)
Increased protection of personal information
- Validation of personal information in the public registry would be limited to the specific information supplied by the searcher. As information will only be confirmed in the search results, the system would not show more personal details than the ones used for the search query.
- A reduced amount of personal information will be disclosed in the public database (removal of home address, and full postal code from search results) with non-matching search results no longer displayed.
- Technology to prevent unintended uses (i.e. generation of mailing lists).
- A proposed reduction in the published retention period for IRS to 10 years post-discharge (with provision for continued LIT access to older estate data for BIA administration purposes).
A beta version of the new system will be introduced in this fiscal year, which will operate in parallel to the existing system while the new functionality is validated. The existing insolvency record search application is targeted to be sunsetted in 2018.
Trends in who gets what in Canada’s insolvency system: The distribution of debtor payments
Recently, the Office of the Superintendent of Bankruptcy (OSB) examined how the money paid by debtors into their estates is divided between three key players in the insolvency system: creditors, who are owed money; Licensed Insolvency Trustees (LIT), who administer the estate; and the OSB, which regulates the insolvency system. The results provide an interesting look into the insolvency system in Canada.
In this article, we provide a synopsis of the overall distribution of these funds to LITs, creditors, and the OSB in percentage terms and in dollar amounts, based on files closed between 2010 and 2015. We also look at the average amounts received by LITs per closed file.
Trends in aggregate shares (%)
Figure one shows how the total amount paid by debtors into their estates is divided between creditors on the one hand and the cost of administration on the other hand, including LIT fees and OSB levies. The “other” category includes various costs such as postage, realization fees and sales taxes. This data is sourced from the Statement of Receipts and Disbursements.
For summary bankruptcies, creditors received between 25% and 30% of what debtors paid into their estates, while LITs received between 57% and 62%. For consumer proposals, creditors received a bigger portion of what debtors paid into their estates (60%), while LITs received between 28% and 31%.
Trends in aggregate shares ($ amount)
Figure two shows the total amount of money paid by debtors into their estates for summary bankruptcies and consumer proposals closed between 2010 and 2015. For summary bankruptcies, this amount has remained flat around $300 million, while for consumer proposals, there is a clear upward trend, reflecting increases in the number and the average estate value of consumer proposals closed during this period.
For summary bankruptcy files closed in 2015, creditors received $100 million out of the $300 million paid by debtors, while LITs received $187 million. For consumer proposals closed the same year, creditors received more than triple that amount—$350 million, while LITs received $148 million.
Trends in average amounts per file
Figure three shows, on a per file basis, how the money paid by debtors is distributed between creditors, LITs and the OSB. The average amount received by creditors and LITs per file increased between 2010 and 2015 for both summary bankruptcies and Division II proposals. For summary bankruptcies, the average amount received by LITs per file increased by 22% from $2,022 in 2010 to $2,465 in 2015, while the increase for Division II proposals was 42%, from $2,534 in 2010 to $3,606 in 2016. In the case of creditors, average payments from summary bankruptcy files increased by 60%, while for Division II proposals they increased by 68%.
Over the same years, the proportion of proposals in overall consumer filings has also significantly increased from about 30% in 2010 to about 50% in 2016.
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