Superintendent’s Notice: Directive No. 1R4, Counselling in Insolvency Matters
Questions relating to the Directive can be sent to OSB Regulatory Affairs team.
Date: January 29, 2018
To: Licensed Insolvency Trustees and Registrars
Subject: Directive No. 1R4, Counselling in Insolvency Matters
The Office of the Superintendent of Bankruptcy (OSB) has amended the Directive to Licensed Insolvency Trustees on Counselling in Insolvency Matters.
The amendments address objectives of the first phase of a two-phased renewal of the insolvency counselling requirements under the Bankruptcy and Insolvency Act (BIA). Phase I, described herein, will support strengthened Licensed Insolvency Trustee (LIT) compliance with existing legislative and regulatory provisions, while Phase II will include the implementation of a modernized and enhanced insolvency counselling curriculum and delivery model.
Through changes to the oversight of existing registration and reporting requirements that will help prevent and identify non-compliance, this first phase of amendments to the Directive will contribute to a level playing field for all LITs. In particular, the amendments will reduce observed risks to the integrity of the consumer insolvency process related to:
- LIT involvement in prohibited referral arrangements; and,
- reliance on intermediaries whose activities are incompatible with an LIT’s legal and professional responsibilities.
The amendments also support Canadians who file a BIA consumer proposal or bankruptcy, by providing LITs with flexibility to accommodate debtor circumstances in the delivery of insolvency counselling, and by ensuring insolvent Canadians continue to benefit from:
- Access to insolvency proceedings at regulated rates;
- Open choice of an LIT; and,
- Protection from unnecessary costs and predatory activities.
Input from public consultation
Changes to the Directive have been informed by input from LITs and interested stakeholders. More than fifty submissions received over a forty-day public comment period were carefully reviewed and considered, resulting in enhancements that are reflected in the new Directive and its associated forms.
The comments that were received supported revisions to several Directive requirements and contributed additional clarity to numerous provisions, particularly with regard to:
- BIA Insolvency Counsellor registration requirements and transitional provisions;
- activities that may preclude an individual’s eligibility to be registered by an LIT as a BIA Insolvency Counsellor;
- safeguards to protect the integrity of counselling when an LIT agrees to exceptions involving delivery by video or at a third-party BIA Insolvency Counsellor’s office;
- streamlining administration and strengthening of compliance monitoring; and,
- the design of associated forms.
A number of submissions included input relevant to the second phase of the BIA insolvency counselling renewal process; these will inform the work underway on an updated curriculum and delivery process, and implementation of Phase II amendments. Part of this undertaking will involve the development and introduction of a new Practical Course on Insolvency Counselling, which will be available from the Canadian Association of Insolvency and Restructuring Professionals and will build upon the existing course offering.
Finally, some contributions included comments and recommendations extending beyond the scope of the current consultation that would require legislative change. These will be retained for consideration in the context of any future legislative review.
Consistent with the consultation parameters published, and in support of transparency regarding input received, submissions to the OSB can be found here.
The amended Directive will come into force on October 1, 2018, and Directive No. 1R3 remains in effect until that time. As with previous Directive amendments, the time between issuance and coming into force allows for efficient and effective implementation planning by LITs. Beginning on or about June 1, 2018, LITs will have the opportunity to register BIA Insolvency Counsellors against their licence. The Directive’s transitional provisions reflect input from the Canadian Association of Insolvency and Restructuring Professionals, and will facilitate smooth implementation of the new requirements, and continued reliance by LITs on qualified, previously registered insolvency counsellors who meet Directive No. 1R4 requirements.
LITs will receive information regarding implementation in advance of key dates. A dedicated web page has been established to support implementation planning and several direct communications will occur. Directive No. 1R4 implementation information and contacts for questions can be found here.
William R. James
Superintendent of Bankruptcy
Additional delivery flexibility and improved protection for insolvent persons
Directive No. 1R4 includes numerous elements to better protect vulnerable consumer debtors and bankrupts and to provide increased flexibility for participating in BIA insolvency counselling, which is required to be completed in order to obtain an automatic discharge from bankruptcy or a Certificate of Full Performance of a consumer proposal.
Changes reflected in the new Directive will help ensure Canadians are not charged more for the insolvency process than is allowed under the BIA through measures to prevent persons who perform BIA insolvency counselling services on behalf of an LIT from also being involved in any comingling of unregulated and unnecessary services or predatory activities. The Directive also confirms that consumer debtors and bankrupts are able to make an open choice of an LIT, rather than being directed to a specific LIT chosen for them under an arrangement negotiated by the person who will then provide their BIA insolvency counselling.
To ensure consumer debtors and bankrupts receive clear and accurate information, Directive No. 1R4 requires disclosures regarding responsibility for insolvency counselling, related fees, and the roles and responsibilities of debtors, LITs and registered BIA Insolvency Counsellors. A consumer debtor’s or bankrupt’s informed consent to the LIT is now required prior to the sharing of that debtor’s insolvency information with a third-party BIA Insolvency Counsellor, who will also be required to avoid conflicts of interest, and have liability insurance.
Additional delivery flexibility
Directive No. 1R4 provides flexibility to accommodate an insolvent person’s circumstances related to participation in insolvency counselling. While the standard and preferred method for insolvency counselling remains in-person at the LIT’s authorized office, an LIT may agree that it is feasible and appropriate to make an exception, when requested by a consumer debtor or bankrupt, to receive counselling by video in order to avoid significant inconvenience; or at the third-party location of a registered BIA Insolvency Counsellor assigned by the LIT, for reasons of geographic proximity to the debtor.
Upcoming renewal of the BIA insolvency counselling curriculum will provide further delivery enhancements, such as the addition of on-line learning modules at no cost to the debtor.
LITs relying on third-party BIA Insolvency Counsellors
Under Directive No. 1R4, LITs may continue to rely on third-party BIA Insolvency Counsellors provided these counsellors meet registration requirements under the Directive and adhere to the same professional standards as LITs themselves are required to follow. Standards include adherence to all relevant provisions of the BIA, its Rules -- including the LIT Code of Ethics – and Directives from the OSB.
Directive No. 1R4 provides LITs with increased flexibility in methods to deliver insolvency counselling to accommodate consumer debtors and bankrupts, including when an LIT provides for counselling by relying on a third-party BIA Insolvency Counsellor. Numerous specific elements in the Directive, such as those related to debtor privacy, liability insurance, and the means to validate counselling when delivery is non-standard, facilitate the participation of third-party BIA Insolvency Counsellors, while ensuring that the interests and circumstances of insolvent consumer debtors and bankrupts are protected.
In preparing to register third-party BIA Insolvency Counsellors pursuant to Directive No. 1R4, LITs are advised to review their practices involving third parties (such as avoiding material “donations” to individuals and organizations they rely on for insolvency counselling), and to exercise due diligence to ensure counsellors are not involved in activities that would preclude them from being registered. See Release Note on Implementation Planning for additional information. Operational guidance will be issued as required in the coming months.
For clarity, as Directive No. 1R4 applies only to LITs and concerns their responsibilities with respect to insolvent persons who are filing a consumer proposal or bankruptcy, it does not restrict or have any impact on the ability of an intermediary or other third party to provide unregulated products and services to Canadians outside the scope and parameters of federal insolvency legislation.
Planning for the implementation of Directive No. 1R4, Counselling in Insolvency Matters
To effectively plan for the implementation of Directive No. 1R4, Counselling in Insolvency Matters, LITs are expected to familiarize themselves with the changes reflected in the Directive. LITs will need to assess their current practices regarding the provision of BIA insolvency counselling, and determine whether they align with the Directive requirements. In advance of formal communications regarding implementation, the OSB recommends that LITs consider the information below, as applicable. Additionally, interpretation and implementation questions can be submitted at any time to the OSB contacts identified below.
Planning (February – May 2018)
- Fully review the Directive No. 1R4 upon release to determine requirements and facilitate smooth implementation, particularly where third-party insolvency counselling or the use of intermediaries is a current practice.
- If LITs rely on staff and/or third parties to perform counselling, they should identify any activities which may need to change or terminate to ensure eligibility to register. Consult with third parties to identify activities which may preclude them from being registered. Examples include: referral arranging, and charging fees to insolvent persons before referring to an LIT.
- Identify and plan to address any qualification /experience gaps for previously registered counsellors whom LITs plan to register per the new Directive.
- LITs planning to provide exceptions for debtors that include video or in person delivery at a third-party office location need to ensure they have adequate means to make a temporary audio record.
Prepare for registration
- Review the registration guide and form that will be provided prior to registration opening, and ensure individuals to be registered have assembled necessary supporting documentation.
- Determine whether BIA Insolvency Counsellors will be individually or corporately registered. Note that corporate registrations will also require a signature by the LIT-in-Charge.
- Ensure your access credentials to log-in and use the OSB License Administration Application (OLAA) are available and up to date.
Registration (June 1 – September 15, 2018)
- LITs are reminded to confirm that any individual to be registered as a BIA Insolvency Counsellor is not involved in ineligible activities.
- Access OLAA and submit registration request and upload copies of the required supporting documentation.
Validation of registration requests
- OSB will review and validate registration requests and issue BIA Insolvency Counsellor registration numbers, or notify the LIT when a validation issue has arisen or is not confirmed.
- LITs submit BIA Insolvency Counsellor registration requests based on an established OSB schedule that will be communicated.
- Validated registrations will be shown in the LIT’s profile in the OLAA and available in OSB’s public registry of LITs.
Ensure delivery readiness
- Ensure staff familiarize themselves with the requirements of the amended Forms (Schedule I, II, III).
- Ensure all software updates are completed and ready for use before October 1, 2018.
- Update internal operational procedures to accommodate completion of the amended Forms (Schedule I, II, III).
Assignment and reporting (effective date of Directive No 1R4- October 1)
- LITs provide, or provide for, insolvency counselling according to the provisions of Directive No. 1R4.
- LITs must file:
- Schedule I- Insolvency Counselling Disclosure and Assignment Form, and
- Schedule II- Insolvency Counselling Completion Form.
- Schedule III-Request for Variance Form is to be submitted to OSB as required for delivery in extraordinary circumstances. Remote counselling requests will be replaced with the Request for Variance Form.
- LITs may be required to submit copies of the original forms to the OSB only upon request.
- The OSB will monitor compliance of LITs with the amended Directive No. 1R4 with a risk-based approach.
Implementation information and questions
OSB BIA insolvency counselling web page
- Check the web page any time for current information on implementation, interpretation guidance, FAQs, and related Notices.
- LITs will receive e-mail notices from the OSB in relation to key stages of the implementation process.
- Additional information on the renewal of BIA insolvency counselling will be available at educational events provided by the Canadian Association of Insolvency and Restructuring Professionals (CAIRP). This information will also be available via the OSB website.
Submit a question
- The OSB has a specific email address where enquiries related to the implementation or interpretation of the Directive may be sent: email@example.com.
- LITs are encouraged to suggest interpretation topics for the FAQ page, or can submit specific questions for direct reply.
Renewal of the BIA insolvency counselling curriculum and delivery model (Phase II)
Based on the findings of a 2013 evaluation report and subsequent consultations undertaken with LITs and insolvency counsellors in 2015, the OSB will be engaging with LITs and BIA Insolvency Counsellors in 2018 regarding the establishment of an enhanced debtor curriculum and an improved approach for delivery of BIA insolvency counselling. These elements will be introduced in Phase II of the renewal of insolvency counselling through amendments to Directive No. 1R4.
The content of submissions received through the public consultation in Fall 2017 that addressed the curriculum and delivery of BIA insolvency counselling will help inform work underway for Phase II.
There has been significant change in the consumer financial landscape and technology since BIA insolvency counselling was first introduced in 1992. An objective of renewal is to ensure the curriculum is tailored to meet the needs of the majority of modern consumer debtors and bankrupts. Another objective is to design and implement an innovative and efficient means of delivery that adopts the best use of technology for counselling.
The introduction of on-line self-learning for consumer debtors and bankrupts will be a complement to the personal counselling that LITs provide, or provide for, making core financial literacy materials available around-the-clock and from anywhere in the country at no cost to a debtor. This will allow counselling sessions with a BIA Insolvency Counsellor to focus on assisting consumer debtors and bankrupts with practical application, understanding, and problem-solving skills specific to the their unique circumstances.
Practical Course on Insolvency Counselling
In conjunction with the development of an enhanced debtor curriculum and improved approach for delivery of BIA insolvency counselling, the Canadian Association of Insolvency and Restructuring Professionals will develop a new Practical Course on Insolvency Counselling. Once available, this course will be recognized by the OSB as confirming that an individual possesses the knowledge and ability to perform BIA insolvency counselling.
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