Frequently Asked Questions on Legislative Amendments
- Coming into Force
1.1 Explanation of Coming into Force of New Section 172.1
Question
Did the amendment to section 172.1 of the Bankruptcy and Insolvency Act (BIA), provided for in section 53 of the Statutes of Canada, 2007, chapter 36 (S.C. 2007, c. 36), come into force on September 18, 2009? Section 53 is not mentioned in the Order.
Answer
The short answer is yes, the amendment to section 172.1 of the BIA provided for in section 53 of S.C. 2007, c. 36, came into force on September 18, 2009.
The long answer is as follows:
- Section 172.1 of the BIA was added by means of former Bill C-55 (now S.C. 2005, c. 47).
- Under subsection 141(2) of former Bill C-55 (now S.C. 2005, c. 47), section 105 (creating section 172.1) comes into force on a day or days to be fixed by order.
- Section 172.1 was subsequently amended (even before coming into force), becoming section 53 of former Bill C-12 (now S.C. 2007, c. 36).
- Section 113 of former Bill C-12 (now S.C. 2007, c. 36) indicates the sections that come into force on a day or days to be fixed by order. Section 53 of former Bill C-12 (now S.C. 2007, c. 36) is not included. According to the rules of legislative interpretation, this section came into force on the date of Royal Assent, which was December 14, 2007.
- The August 19, 2009, Order fixes the day of coming into force of section 105 of former Bill C-55 (now S.C. 2005, c. 47), which creates section 172.1, as September 18, 2009.
- Although section 53 of former Bill C-12 (now S.C. 2007, c. 36) has been in force since December 14, 2007, it was inoperative until September 18, 2009, since it amends section 172.1 (provided for in section 105 of former Bill C-55 (now S.C. 2005, c. 47)), which came into force on September 18, 2009.
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- Transitional Provisions
2.1 Refusal of Division I Proposal after Coming into Force
Question
If a Division I proposal is refused by the creditors at the first meeting of creditors or by the court after the coming into force date, it would appear that this would not be a "new" bankruptcy, but rather a bankruptcy that is the result of a no vote on the proposal. Are the rules for a bankruptcy in this case post- or pre- coming into force?
Answer
The OSB has taken the position, subject to interpretation by the courts to the contrary, that the bankruptcy that results from the refusal of the creditors of the Division I proposal is considered a "triggering event" under the transitional provisions of the legislation. As such, the rules for the bankruptcy would be those under the amended provisions of the legislation.
2.2 Notice of Intention before Coming into Force and Refusal of Proposal after Coming into Force
Question
A debtor filed a notice of intention before September 18, 2009. The deadline for filing a proposal expires on September 30, 2009.
If the proposal is rejected, the debtor will automatically become a bankrupt (first bankruptcy). The debtor has surplus income. Will this person fall under the former BIA or the new BIA (discharge after 21 months)?
Answer
The OSB takes the position, subject to interpretation by the courts to the contrary, that the bankruptcy of a debtor on the basis of the refusal of a proposal under Division I is a "triggering event" under the transitional provisions, and the new rules will apply if the refusal of the proposal occurs after September 18, 2009.
2.3 Application of Transitional Provisions to Rule 18
Question
A trustee wishes to proceed with his discharge, however he is uncertain whether the total legal fees incurred ($1,550) during the administration of a bankruptcy filed in March 2006 require taxation.
Does the trustee require the solicitor to tax his fees as they have exceeded the pre-amendment prescribed amount of $1,000, or are the fees subject to the 2008 amendment to Rule 18 and therefore not required to be taxed as they are below the new $2,500 threshold?
Answer
Rules 18(1) and 18(2) were repealed and replaced by Rule 18, thereby increasing the threshold at which a trustee’s legal bills need to be taxed from $1,000 to $2,500. A trustee may now pay its bills of costs for legal services up to the aggregate threshold of $2,500 out of estate assets without having to first submit the bills to taxation before the Registrar.
The OSB's position is that the amended Rule 18, being procedural in nature and not covered by a transitional provision, is applicable to all on-going proceedings regardless of whether they were commenced before or after the coming into force date of the Rule. As such, the proceeding mentioned above may rely on the new $2,500 threshold under Rule 18.
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- Surplus Income
3.1 Timing and Basis for Determining Surplus Income
Question
A first-time bankrupt who has no surplus income is discharged after 9 months. If a first-time bankrupt has surplus income, he/she is discharged after 24 months. Is it consistent surplus income over the first 9 months that determines the extension or does even 1 month of surplus income during the first 9 months trigger the extra 15 months?
Answer
A first-time bankrupt with surplus income will be eligible for an automatic discharge under the amended provisions on the expiry of 21 months as per s.168.1 (as opposed to 24 months).
Paragraphs 7 and 8 of Directive No. 11R2, Surplus Income, indicate the timing and basis upon which trustees are to determine whether the bankrupt has surplus income. The Directive explains that the average monthly income of the bankrupt is to be used to determine the amount the bankrupt is required to pay to the bankrupt's estate.
3.2 Possibility of Earlier Discharge
Question
With respect to surplus income being required, if the bankrupt fulfills his/her obligation before the 21st or 36th month, can the automatic discharge be issued earlier?
Answer
Under the automatic discharge provisions of the legislation, which apply to first- and second–time bankrupts with or without surplus income, the bankrupt can go to court to seek an earlier discharge (s.168.1(2) of the BIA).
3.3 Bankrupt with Irregular Income
Question
A bankrupt (first bankruptcy) has irregular income (depending on the month, the bankrupt has some surplus income or no surplus income). When will this bankrupt be discharged?
Answer
The answer is in Directive No. 11R2, Surplus Income (in force September 18, 2009). According to the Directive, the average monthly income must be used to calculate the amount the bankrupt is required to pay to the bankrupt's estate.
3.4 Timing of Automatic Discharge When Surplus Income Obligation Changes
Question
What happens if a first-time bankrupt has surplus income at the time of the assignment but the trustee determines at the time of the second counselling session (sixth or seventh month) that there is no longer a surplus requirement? Is the bankrupt entitled to an automatic discharge at the end of the ninth month? If so, what is the trustee required to send to the creditors and to the Office of the Superintendent of Bankruptcy?
Answer
According to subsection 68(3) of the Bankruptcy and Insolvency Act (BIA) and paragraph 7(1) of Directive No. 11R2, trustees are required to determine whether the bankrupt has surplus income on the following occasions:
- at the outset of the file;
- during the eighth month (for first-time bankrupts) / during the 23rd month (for second-time bankrupts);
- whenever the trustee is required to prepare a report referred to in subsection 170(1) of the BIA; and/or
- whenever there is a material change in the financial situation of the bankrupt.
In the example above, a first-time bankrupt has surplus income at the time of the assignment (outset of the file) but at the time of the second counselling session (sixth or seventh month) it is determined that there is no longer a surplus income requirement. The question is whether the bankrupt is entitled to an automatic discharge at the end of the ninth month and, if so, what the trustee is required to send to the creditors and to the Office of the Superintendent of Bankruptcy.
Pursuant to paragraph 7(2) of Directive No. 11R2, the trustee determines whether the bankrupt has surplus income by averaging the bankrupt’s monthly income for a minimum of the first six months of the bankruptcy. The operative portion of the paragraph reads: “(...) the trustee shall determine the bankrupt’s average monthly income based at a minimum on the monthly income and expense statements for the first six months / first 21 months, respectively, of the bankruptcy. The average monthly income is to be used to determine the amount the bankrupt is required to pay to the bankrupt’s estate.”
Paragraph 7(4) of Directive No. 11R2 provides that if the trustee determines in the eighth month (as the process is contemplated in paragraph 7(1) of Directive No. 11R2 noted above) that the bankrupt no longer has surplus income based on the bankrupt’s average monthly income for a minimum of the first six months (first-time bankrupts) / first 21 months (second-time bankrupts) of the bankruptcy, the bankrupt is eligible for an automatic discharge at the expiry of the ninth month / 24th month, as the case may be. When such is the case, amended Forms 65 and 68/69 must be filed.
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- Consumer Proposals
4.1 Limit for Joint Division II Proposals
Question
With regard to Division II consumer proposals, the amount of debt allowed has been increased to $250 000. Is this for a single person only? If not, has the limit for a joint consumer proposal been increased and, if so, to what amount?
Answer
The increase in the debt limit under the definition of "consumer debtor" is for a single person. Where there is a joint consumer proposal, the cap is $500 000 (in the same way that joint consumer proposals under the pre-coming into force legislation have a debt limit of $150 000 (or 2 x $75 000)).
4.2 Form 49 – Dissent not a Deemed Request for a Meeting of Creditors
Question
A dissent is not now (as of September 18, 2009) an automatic request for a meeting of creditors, but paragraph 4 also says that a dissent will not be counted in a vote on the consumer proposal unless the trustee is required to call a meeting pursuant to section 66.15 of the Bankruptcy and Insolvency Act (BIA). This doesn't make sense. It sounds like every creditor, in order to have his/her dissent counted, will also have to request a meeting of creditors. If dissents are received from creditors representing 53 percent of proven claims, for example, and they don't ask for a meeting, their votes will not count and the proposal will be accepted by a minority of creditors. This doesn't make sense to me. What am I missing?
Answer
The legislative change to subsection 66.17(2), which was aimed at streamlining the process, has generated a new issue that the OSB has endeavoured to address by the latest changes to Directive No. 8R7 (Form 49). The challenge is that the new language of subsection 66.17(2) continues to indicate that the assent or dissent has the effect as if the creditor had been present and had voted at the meeting (emphasis added). The part of section 66.17 that used to deem a dissent to be a request for a meeting was removed on September 18, 2009, by the legislative changes. Section 66.18 continues to provide that where no obligation has arisen to call a meeting, the consumer proposal is deemed to be accepted (emphasis added). The combined effect of the legislative changes, in the OSB's view, is to preclude a dissent from being counted where there is no meeting.
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- Miscellaneous
5.1 Sale of Assets to the Bankrupt
Question
I assume from new section 30(4) that trustees can continue to sell assets back to a bankrupt, but if we sell to a spouse or other related party, we will require court approval. Am I correct?
Answer
The amendment to subsection 30(4) that came into force on September 18, 2009, requires court approval for the sale of assets by the estate to a related person. The definition of related person in the amendments to subsection 4(2) and subsection 30(5) does not explicitly include the bankrupt and, as such, the sale of assets to the bankrupt is arguably not covered under subsection 30(4).
The clause by clause document prepared by the Corporate and Insolvency Law Policy Directorate of Industry Canada sheds some light on the purpose of the amendment to that section at clause 23.
Based on the clause by clause document, the amendment to subsection 30(4) was primarily aimed at issues regarding the sale of assets in a "Phoenix company" situation. The existing practice of selling some assets of the estate to the bankrupt is not, in the OSB's view, intended to be changed by the amendments. Having said that, the amendments create a bit of an odd situation — one in which there is arguably a higher standard applied to the sale of assets from the estate to the bankrupt's brother-in-law (where there would need to be a court order approving the sale if it is an ordinary administration bankruptcy or the need for such an order where creditors require it in a summary administration bankruptcy (s.155(k)) than in the case of a sale of assets from the estate to the bankrupt (which would not require a court order).
Moreover, there are checks and balances in the system that will continue to apply to the sale of assets to the bankrupt, such as the requirement to ensure that a sale of the equity in the bankrupt's home from the estate to the bankrupt is carried out in a commercially reasonable manner to maximize recovery by the estate. In addition, in summary administration bankruptcies, the new paragraph 155(k) will require court authorization of a sale to a related person only if creditors require it. As such, in most cases, court authorization will not be necessary for sales to related persons under subsection 30(4), thereby resulting in consistent treatment for sales to related persons and to bankrupts.
5.2 Consolidated Version of New Legislation
Question
When will the new legislation be available on your website?
Answer
The Department of Justice is responsible for the legislation and will amend the Bankruptcy and Insolvency Act, the Companies' Creditors Arrangement Act and the corresponding Rules as they interpret the Order-in-Council. An official and consolidated version of the legislation is now available on the Department of Justice website.
5.3 Voluntary Agreements for Post-Discharge Payments
Question
We are looking for some clarification with regard to section 156.1 and Rule 58.1.
Answer
The intent behind section 156.1 and Rule 58.1 of the Bankruptcy and Insolvency Act (BIA) is to provide some relief to first-time bankrupts who have no surplus income obligations in regard to the payment of the trustee's fees and disbursements, while ensuring that trustees are adequately compensated in circumstances where the bankrupt has little or no ability to otherwise do so. It was not intended to be a guarantee that trustees would be fully compensated in all cases.
The OSB's interpretation of the new provisions, subject to interpretation by the courts to the contrary, is that a post-discharge agreement must be entered into by the bankrupt before he/she is discharged and is enforceable after he/she is discharged to the extent of the unpaid balance (not exceeding $1 800) for a period not exceeding 12 months after discharge. If the bankrupt has paid the entire amount owed to the trustee before his/her discharge date, there is no unpaid amount owed for which estate money is to be used post-discharge. There is no requirement in the legislation to refund the bankrupt for the amount he/she has paid in excess of the $1 800 cap. There should be no refund of money to the bankrupt unless there is a surplus after the creditors have been paid in full with interest (section 143 of the BIA).
5.4 Circular 2R
Question
Paragraph 5 of Circular 2R states that the policy applies to bankruptcies commenced after September 30, 1997; however, paragraph 12 states that the policy applies to bankruptcies commenced after September 18, 2009. This Circular could be problematic.
Answer
The "Application" section (section 5) of Circular 2R should have been deleted when the Circular was updated. This section is a carry-over from the previous reform in 1997 and was inadvertently overlooked in the amendment of the Circular at this time.
The Coming into Force provision (section 12) of Circular 2R applies to and effectively replaces the wording of section 5, which, as noted, should have been deleted. We are looking at reissuing the Circular.
5.5 Licence Requirements of National Receivers and Monitors
Question
Are there any restrictions imposed by the OSB's trustee licensing regime that would restrict a receiver from being appointed under section 243 of the Bankruptcy and Insolvency Act (BIA) in any jurisdiction in Canada or a monitor from being appointed under the Companies' Creditors Arrangement Act (CCAA) in any jurisdiction in Canada?
Answer:
Section 243 of the BIA was amended to require that a receiver appointed by the court or under the terms of a security agreement to take possession or control of all or substantially all of the inventory, accounts receivable, or other property of an insolvent person or bankrupt must be a licensed trustee.
The application to appoint a receiver under section 243 of the BIA must be filed in a court having jurisdiction in the judicial district of the locality of the debtor. The appointment of a receiver by the court will be made in accordance with provincial law. Once appointed, a receiver can act in each province or jurisdiction in which the debtor's assets are located without requiring court approval in each province or jurisdiction to act. This increases efficiency by removing the need to have a receiver appointed in each jurisdiction in which the debtor's assets are located. Hence the term "national" receiver.
The new national receivership regime is not part of the bankruptcy regime. A trustee acting as a national receiver picks up the duties and protections afforded to receivers appointed under provincial law. In order to act nationally, a receiver appointed under section 243 is not required to apply for an extension of his/her trustee licence because his/her receivership powers are set out in the court order or the security agreement, whatever the case may be, and are not derived from or dependent on his/her trustee powers as set out in the BIA. There are no restrictions imposed by the OSB's trustee licensing regime that restrict a receiver under section 243 from acting in any jurisdiction.
By the same token, a monitor appointed under section 11.7 of the CCAA must be a licensed trustee. The powers of a trustee acting as a monitor appointed under the CCAA are set out in the court order appointing them as monitor and are not derived from his/her trustee powers as set out in the BIA. There are no restrictions imposed by the OSB's trustee licensing regime that restrict a monitor under the CCAA from acting in any jurisdiction.
In short, a trustee licence is a pre-requisite to act as a section 243 receiver under the BIA or a monitor under the CCAA; it is not the "source" of the receiver or monitor's powers to act in that capacity.
5.6 Filing and Service Requirements of “Section 170 Reports”
Question 1
What are the filing and service requirements under subsection 170(2) of the Bankruptcy and Insolvency Act (BIA)? Why is there a requirement to file a “section 170 report” in court “in all other cases” when there is no court hearing?
Answer 1
Subsection 170(1) of the BIA sets out the content of the report and points to the regulations for the prescribed circumstances and prescribed times for preparing the report. Rule 121.1(1) of the Bankruptcy and Insolvency General Rules lists the circumstances in which the trustee must prepare the report and Rule 121.1(2) clarifies the timing requirements for preparing the report. Whether or not a “section 170 report” must be prepared will depend on whether a bankrupt falls under one of the circumstances prescribed under Rule 121.1(1). For instance, a first-time bankrupt with no surplus income does not fall under one of the prescribed circumstances; therefore, his/her trustee will not need to prepare and file a “section 170 report” unless an opposition to the discharge is made or a court hearing of the discharge is required.
Subsection 170(2) of the BIA (which was not amended during the recent set of amendments) also speaks to the filing and service requirements of the report. Subsection 170(2) provides that whenever there is a court hearing of a bankrupt’s discharge, a “section 170 report” must be filed in court at least two days before the hearing and a copy of the report forwarded to the Superintendent of Bankruptcy, the bankrupt and every creditor who requested a copy at least 10 days before the hearing.
The portion of subsection 170(2) that reads “in all other cases” refers, in the Office of the Superintendent of Bankruptcy’s (OSB’s) view, to the other prescribed circumstances in which a “section 170 report” must be prepared but where a court hearing of the discharge is not pending. Based on the plain language of this provision, where a trustee is required by Rule 121.1(1) to prepare a report in accordance with subsection 170(1), the trustee must file the report with the court and forward a copy to the Superintendent of Bankruptcy before proceeding to the discharge.
We recognize that it may make little sense to continue to have a requirement to file the report with the court where there is no hearing pending. Nonetheless, this is what the legislation requires. It may be that revision of the wording of subsection 170(2) of the BIA was overlooked during the amendment process and will need to be considered as an issue for further reform.
Question 2
A trustee has asked for an interpretation of Rule 121.1(1)(a) — “the bankrupt has surplus income.” Must a “section 170 report” be prepared even if the bankrupt only had surplus income obligations for the first few months of the bankruptcy and no longer had to pay surplus income by the fourth month? In the trustee’s view, the requirement to prepare a “section 170 report” only arises if the bankrupt “has” surplus income at the time the trustee is looking at whether or not to prepare the report (i.e., in the eighth month).
Answer 2
It is the OSB’s position, subject to interpretation by the courts otherwise, that the “has” in “the bankrupt has surplus income” is to be broadly interpreted as meaning “has at any time during the course of the administration of the bankruptcy.” The recent amendments to the legislation limit the circumstances in which trustees are required to prepare a “section 170 report.” In cases where at some point during the course of the administration of the bankruptcy the trustee has determined that the bankrupt has surplus income, the OSB is of the view that the trustee is obligated to prepare a “section 170 report.” The report will serve to explain the bankrupt’s change of circumstances.
5.7 Is a Guarantee Included in a Consumer Debtor’s “Aggregate Debt”?
Question
An individual with a debt of $100,000 wants to file a consumer proposal; however, he/she is the guarantor of a bank loan advanced to a related (currently operating) incorporated company. The outstanding company bank loan is for $200,000. Is the individual eligible to file a consumer proposal?
Answer
The creditor named in the guarantee should be named in the consumer proposal as a creditor (so that the creditor will get notice), but for the purposes of determining the “aggregate debt” to see if the debtor is within the cap for filing a consumer proposal, the guarantee may be ascribed a value of $0.00. This is based on the Office of the Superintendent of Bankruptcy’s understanding that the principal is not in default, that no demand has been made on the guarantee and, therefore, no debt is owing.
To understand the analysis of this issue, additional background information is provided below.
Under s.66.11, “consumer debtor” is defined as meaning “...an individual who is bankrupt or insolvent and whose aggregate debts, excluding any debts secured by the individual’s principal residence, are not more than $250,000 or any other prescribed amount.” So the question is whether a guarantee of a principal’s debt, where the principal is not in default, is included in the guarantor’s aggregate debt calculation.
The BIA does not define “aggregate debt.” If aggregate debt means total provable claims, then a guarantee (even when the principal is not in default) would count:
“Even prior to the default of the principal, the creditor has a contingent claim against the estate of the bankrupt surety [i.e., our proposed consumer debtor], and thus falls within the definition of ‘creditor’ under the Bankruptcy and Insolvency Act. The right of such a contingent creditor to claim in a bankruptcy is dealt with in sections 121(1) and (2) of that Act:
(1) All debts and liabilities, present and future, to which the bankrupt is subject on the day on which the bankrupt becomes bankrupt or to which the bankrupt may become subject before the bankrupt’s discharge by reason of any obligation incurred before the day on which the bankrupt becomes bankrupt shall be deemed to be claims provable in proceedings under this Act.
(2) The court shall, on the application of the trustee, determine whether any contingent claim or any unliquidated claim is a provable claim, and, if a provable claim, shall value the claim and the claim shall after that valuation be deemed a proved claim to the amount of its valuation.
While the creditor may prove in the bankruptcy of a surety even before the bankruptcy of the principal, such claims would seem to be extremely rare, since the valuation of such a claim would be difficult” (The Law of Guarantee, McGuiness, 2nd edition, page 384).
Therefore, if provable claims are used to determine aggregate debt, the guarantee would be included in the “aggregate debt” for the purposes of determining whether the debtor is captured by the definition of “consumer debtor.” It is important to note that the guarantee should not necessarily be valued at the face value of the guaranteed debt given that it has not matured / been called upon as the principal is not in default. The trustee will need to value the contingent claim when making his/her “aggregate debt” calculation to determine if the debtor can file a Division II consumer proposal. This value may very well be $0.00.
In Automotive Finance Corp v. Davies 2002 CarswellBC 825, the principal was in default under the lending facility but the creditor did not take steps to enforce the debtors’ guarantees before filing the consumer proposals. In this case the question of whether aggregate debt includes provable claims, meaning that the guarantees would be included as contingent liabilities, is raised but not resolved (see paragraph 13). In this case the court held that the creditor’s claim on the guarantees should have been disclosed and that the debtors, by virtue of the guarantee claims, were ineligible to file consumer proposals and, as such, the proposals were annulled. The court was particularly distressed by the fact that the creditor was not given notice of the consumer proposal. The difference from the fact situation we were given is that, in this case, the principal was in default and, therefore, the guarantees could have been enforced; in fact, the guarantees were the main reason for filing the proposals (paragraph 30). Unlike in the hypothetical situation, in Automotive Finance Corp v. Davies there was a debt owed by the guarantors.
Thus, where the principal debtor is not in default, it would appear that there is no debt for the purposes of calculating “aggregate debt.” Nonetheless, the best practice would be for the administrator to ensure that the creditor receives notice of the proposal in the event that the creditor wishes to object. Given the ambiguity that the term “aggregate debt” creates, this may very well be a problem only the court can resolve.
5.8 Surplus Income and Timing of Opposition
(June 2, 2011)
Question
A first-time bankrupt who had surplus income at the outset of the file failed to provide the trustee with the information needed to determine the bankrupt’s average monthly income during the eighth month review in accordance with paragraph 7(2) of Directive No. 11R2, Surplus Income.
Is the trustee to oppose the bankrupt’s discharge at the time of the eighth month review and apply to the Court for a hearing pursuant to subsection 168.2(2) of the Bankruptcy and Insolvency Act (BIA), or must the trustee wait until the 21st month?
Answer
Pursuant to subparagraph 168.1(1)(a)(ii) of the BIA, a first-time bankrupt with surplus income is eligible for an automatic discharge at the expiry of 21 months after the date of bankruptcy, unless an opposition to the discharge is filed before the automatic discharge takes effect or there is a material change in the bankrupt’s financial circumstances such that there is no longer a requirement to make payments under section 68 of the BIA.
Pursuant to paragraphs 7(1) and 8(1) of Directive No. 11R2-2011, Surplus Income (Directive 11R2), and subsection 68(3) of the BIA, the trustee must review the financial circumstances of the bankrupt to determine whether the bankrupt is required to make payments under section 68 of the BIA on the following occasions: at the outset of the file when completing Form 65; during the eighth month in the case of a first-time bankrupt and during the 23rd month in the case of a second-time bankrupt; whenever the trustee becomes aware of a material change in the bankrupt’s financial situation; and/or whenever the trustee is required to prepare a report referred to in subsection 170(1) of the BIA / when completing Form 82.
A first-time bankrupt who had surplus income at the outset of the file, as in the case at issue, may be eligible for an automatic discharge at the expiry of the ninth month after the date of bankruptcy if the trustee determines, during the eighth month review, that there is no longer a requirement to make payments under section 68 of the BIA (as per paragraph 7(4) of Directive 11R2). If the bankrupt fails to provide the trustee with the information needed to determine the bankrupt’s average monthly income in accordance with paragraph 7(2) of Directive 11R2, the trustee shall oppose the discharge of the bankrupt as per paragraph 7(6) of the Directive.
In the case at issue, because the bankrupt has surplus income (according to the determination at the outset of the file), he/she is only eligible for an automatic discharge at the expiry of 21 months after the date of bankruptcy. Because the bankrupt has not provided the trustee with the information needed to determine the bankrupt’s average monthly income at the time of the eighth month review, the trustee is required to oppose the bankrupt’s discharge. Filing an opposition to the discharge means that the bankrupt is no longer eligible for an automatic discharge, and the normal opposition process under section 168.2 of the BIA applies.
While paragraph 7(6) of Directive 11R2 is clear that an opposition must be filed by the trustee, it is silent as to the specific timing of the opposition. The Directive does not require the trustee to oppose at month eight. Pursuant to paragraph 168.2(1)(c) of the BIA, the trustee can oppose and must give notice of his/her opposition any time before the automatic discharge would otherwise take effect, namely any time before the expiry of 21 months after the date of bankruptcy in the case of a first-time bankrupt.
As a result, because there are no restrictions in terms of the timing for the trustee to oppose the bankrupt’s discharge under paragraph 7(6) of Directive 11R2, the trustee can oppose any time between the eighth month review and before the expiry of 21 months after the date of bankruptcy in the case of a first-time bankrupt.
From a compliance and policy perspective, trustees must use their professional judgment in deciding at which time to oppose the bankrupt’s discharge. However, the Office of the Superintendent of Bankruptcy does not want to encourage trustees to apply to the Court for a sine die order (adjournment of the hearing without setting a date) at month eight as this could create additional and long-term problems for the integrity of the insolvency system, namely in terms of files remaining open indefinitely and repeat bankruptcies as debtors may not know whether or not they have been discharged. Ultimately, it is up to the Court to make the appropriate order depending on the circumstances of the case.
