Review of the Trustee Licensing Regulatory Framework
Consultation Paper – Annex D to G

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Annex D

Dual Licensing, Specialized Licences and Administrators of Consumer Proposals

A. Background

1. Training Program for Obtaining a Licence

Currently, the candidate for licence follows a mandatory program of study that includes five courses aimed at providing complete academic training in bankruptcy and insolvency. Candidates study under the guidance of a mentor who directs their studies, marks their assignments and attests to their readiness to be examined. In addition, candidates must complete 2400 hours of practical experience prior to writing the National Insolvency Examination. This practical experience shall consist of, but not be limited to, areas such as fact-finding, administration and supervision of a file, application of legal concepts and information technology, and office management. In short, the training covers all academic and practical material.

Once candidates have passed the National Insolvency Examination, they appear before a board of oral examination to demonstrate that they have the ability to administer professional engagements; the ability to apply relevant insolvency legislation and jurisprudence; appropriate experience and good judgment in terms of business and consumer matters, and a high standard of professionalism, including the rules of ethics.

Upon recommendation of the members of the oral board, the Superintendent of Bankruptcy issues a licence, without making any distinction in terms of the type of licence. The licence may, however, be subject to limitations when the candidate has the necessary abilities in one specific area, but requires more time to acquire the experience and knowledge to attain the level expected of a trustee in bankruptcy with a full licence. When this happens, the licence is limited to the area in which the candidate has proven the required abilities. The restrictions are imposed as follows:

1. A candidate who is stronger in commercial matters could receive a licence limited to corporate bankruptcies and proposals.
2. A candidate who is stronger in consumer matters could receive a licence limited to consumer bankruptcies and proposals. For purposes of this annex, "consumer bankruptcy" means a bankruptcy in which an individual has, directly or indirectly, no business liabilities. A consumer proposal is as defined in the Act.

Where a bankruptcy does not constitute a "consumer bankruptcy" as defined above, and is not a corporate bankruptcy, it may only be administered by a trustee holding a licence without limitations. This would be the case, for example, in the bankruptcy of a professional such as a doctor or lawyer.

It should be noted that having excellent abilities in one area is not sufficient to obtain a limited licence; the candidate must also demonstrate basic abilities in the other area. This is, therefore, not a "consumer licence" nor a "corporate licence" but, in fact, a trustee licence with limitations attached. These limitations may be lifted after a period of at least one year following the candidate's appearance before an ad hoc board of examination.

2. Specialization

The Directive on Advertising by Trustees (Directive No. 29) states that trustees may not refer to themselves as specialists in a particular industry or area of insolvency. Furthermore, the Canadian Association of Insolvency and Restructuring Professionals (CAIRP) confers the Chartered Insolvency and Restructuring Professional (CIRP) certification on its members, thereby reflecting their various forms of practice.

However, some legal and accounting professional bodies do recognize specialization. The rules for recognizing and maintaining specialization vary depending on the professional body. In some cases, the professional must follow a mandatory training course; other professionals must acquire a certain number of years of experience; while others must demonstrate that they have acquired both specialized training and experience.

When specialization is recognized, it is after the general permission to practise has been issued.

3. Appointment of Administrators of Consumer Proposals

Since the introduction of consumer proposals in 1992, the Superintendent has had the authority, under section 66.11 of the Bankruptcy and Insolvency Act, to appoint persons who are not trustees as administrators of consumer proposals. To date, the Superintendent has only appointed representatives of certain provinces as administrators. Provinces that have had their representatives appointed include British Columbia, Alberta, Saskatchewan, Nova Scotia and Prince Edward Island. At this time, the only province that has remained active in this field is Nova Scotia.

Currently, persons to be appointed follow a similar process prior to their appointment as exists for candidates for a trustee licence in that they must be successful in both a written and an oral exam.

B. Demographic Data and Statistics

As of March 31, 2009, 94 trustees that had renewed their licensing fees had a limitation allowing them to administer either consumer files or corporate files. On that date, 66 trustees (70 percent) held a licence restricted to the corporate field.

According to a 2007 study, between 1998 and 2006, one in two trustees with a limitation for consumer files converted to a full licence. However, three out of four trustees with a licence limited to corporate files tended to maintain that licence limitation.

As of January 19, 2010, 90 individual trustees (or 8.85 percent) had limitations on their licences, while 927 individual trustees (or 91.15 percent) did not have limitations on their licences.

C. Discussion

1. Dual Licensing

The issue of dual licensing has been debated since the mid-1980s. About 15 years ago, CAIRP, then known as the Canadian Insolvency Practitioners Association (CIPA), established a subcommittee on dual licensing. The subcommittee's report was published in CIPA's June 1994 newsletter and is provided here in Annex E.

Concurrently with this industry study, the Superintendent decided not to issue specialized licences and to continue the practice of subjecting some licences to limitations, as set out above.

2. Administrators of Consumer Proposals

The following is an example of representations that are made from time to time by persons wishing to be appointed administrators of consumer proposals.

In February 2008, the Ontario Association of Credit Counselling Services (OACCS) appeared before the Standing Senate Committee on Banking Trade and Commerce and asked the Committee to recommend that the OACCS and its member agencies be designated as administrators.

Three of the main reasons advanced by the OACCS to be appointed as administrators were:

• it would allow for the availability of a credible alternative to Canadians for unbiased advice and consumer choice related to consumer proposals;
• it would help to offset the fact that the OACCS's revenue has been adversely impacted by the issuance by the Superintendent of the position paper "Referral Agreements between Trustees and a Third Party" (this position paper forced the largest of the credit counselling services to stop preparing files for consumer proposals as agents for certain trustees); and
• it would change what is, in essence, a monopolistic approach that limits access to the consumer proposal option for those in need.

The transcript of the appearance of representatives of the OACCS before the Committee is available at www.parl.gc.ca.

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Annex E

Report of the Subcommittee of Canadian Insolvency Practitioners Association (CIPA) on Dual Licensing – June 1994

The Dual Licence Debate

The basic issue resolves around the question as to whether the current "one license" regime should be continued, or whether the CIPA should encourage the Superintendent of Bankruptcy to introduce a "dual licensing" format to give recognition to the differences between consumer and commercial insolvencies.

The Backdrop

The debate over "dual licensing" has been continuing since the inception of the CIPA over a decade ago. In essence, it focuses on the differences between consumer and commercial insolvencies. More recently, this debate has become heightened with the marked changes in the nature of professional insolvency services being demanded by the marketplace. These changes have been expansive, calling for skill sets in otherwise non-traditional areas of insolvency practice or those outside of the receivership and bankruptcy arena. A great number of insolvency practitioners, particularly in the major cities across Canada, find themselves almost exclusively engaged in areas such as debt restructuring, Companies Creditors' Arrangement Act proceedings, monitoring assignments, and in an environment where the engagements are larger and more complex, with much more involvement from the legal profession. These are also complex, often multi-jurisdictional, receivership proceedings and, in any event, are clearly commercial matters. This shift naturally affects the experience and training of candidates working for firms (and sponsors) where the mainstay of the practice is commercial rather than consumer debtor work.

There are also several other dimensions. One of these is the Bankruptcy and Insolvency Act which codified the concept of counselling consumer debtors, emphasizing society's expectations that the bankruptcy/proposal process should in part rehabilitate the debtor which, in large measure, is designed to minimize repeat insolvencies. These expectations demand of practitioners new responsibilities and augmented skill sets. The argument follows that the training requirements for the practitioner differ depending on whether the practice is consumer debtor or commercial driven.

CIPA President, William J. Drake, notes that a definition of the prototypical insolvency practitioner of the next decade and the expectations of the users of its members' services will be a major consideration in addressing the need for dual licensing. Concurrently, it is timely to focus on this debate to allow the Association's articling members to understand clearly the curriculum they are expected to meet, and to afford the sponsoring general member an opportunity to ensure the candidate for a license is adequately trained and prepared.

The Issues

Certain members of the profession have raised the notion that the need for differentiation in licensing is, in effect, a Toronto "Bay Street" problem, although there are practitioners in Montreal and to a lesser degree, in Vancouver, who have also expressed a desire for dual licensing.

Several of the major issues raised by proponents of dual licensing follow:

Education and Testing Program

Candidates for trustee licenses must take a prescribed education and testing program involving commercial and consumer areas of bankruptcy practice, even if there is an intention to practice and keep up-to-date in only one area of practice.

It is argued that a licensed candidate, after having passed the examinations jointly administered by the CIPA and the Superintendent, should have the option of declaring that s/he only wishes to practice in either the commercial or consumer area and, after displaying adequate knowledge and experience in the area, to be awarded a restricted license. In effect, the candidate would pass the written examination and sit before the oral board as currently exists but, if a desire for a restricted license is stated, a special commercial or consumer oral board would undertake the testing process.

It is further argued that if this new process were adopted, the candidates would not be subject to going through a difficult process involving heavy concentration of study in an area of which they have little or no experience or interest, and no intention of practicing in the area in the future. They also argue that it makes little commercial or practical sense to subject practitioners to onerous requirements in areas which they will never practice.

Finally, if a restricted license were granted and the restricted license holder subsequently wished to practice in the other area as well, s/he would always be able to appear again before another oral board to qualify for a removal of the restriction. The office of the Superintendent of Bankruptcy would retain its right to impose additional conditions on any license granted.

Current Licensees

Current licensees may undertake both consumer and commercial bankruptcy work but, a grandfathering of current rights and privileges, subject to annual renewals, appropriate conditions, and adherence to appropriate standards of practice, should take place.

It is recognized that holders of current licenses have obtained their designations by pursuing a prescribed program which existed at a particular point in time. In this context, it is suggested that practitioners should be urged by the Office of the Superintendent not to take on engagements in the commercial or consumer area, unless they practice with reasonable frequency in a specific area and have sufficient resources to carry out the engagement in a professional, effective manner. This urging extends also to licensees to consider a restriction of their license on a voluntary basis, all of which seems to underpin the notion for grandfathering.

Unconditional Licence Renewal

Certain current license holders may not be performing within acceptable standards, and a more vigilant approach to unconditional license renewal would be desirable.

It would appear, as a point ancillary to dual licensing, that the Superintendent is being encouraged to restrict the licensee's right to practice in a certain area where an adequate level of performance cannot be demonstrated.

The Oral Board Process

This process is not consistent throughout the country.

Proponents of the dual licensing format raise the concern that the oral board process has been influenced by the need for licensed practitioners where there is a perceived shortage in certain geographical areas. Furthermore, it is argued, that there has been a tendency for oral boards to examine candidates closely in the commercial areas if their involvement has been almost exclusively in the consumer area, and vice versa. Dual licensing, they note, will overcome this inconsistency.

Rebuttal and comments

Strong opposition has been raised by many practitioners across Canada to the arguments in favour of dual licensing, and it is recognized by the subcommittee that a "personal" element creeps into both sides of the opposing points of view. Several seasoned practitioners note that "too much is being made of the new responsibilities concerning counselling and that counselling by trustees does not justify the continuation of the dual licensing controversy." Additionally, by analogy, there is the argument that Chartered Accountants practice in different areas after qualification but the basic, minimum qualification remains uniform and consistent. Likewise, lawyers have preferred areas of practice but are all required to have the same qualifications; and so it should be for a licensed Chartered Insolvency Practitioner.

Still there are others who oppose dual licensing, but on somewhat different grounds. For example, a regional firm in Québec that has numerous offices located throughout the province, and a substantial portion of its practice in both Montréal and Québec City, notes that the survival of its practice depends on a broad mix of bankruptcy and other insolvency engagements. Dual licensing would lead to the possible need to withdraw from certain markets. Furthermore, it could result in a marked increase in the number of licensees, the emergence of new professional firms and an unwarranted degree of competitiveness which may result in the deterioration of the quality of services provided. Ancillary to this would be the increased involvement of the Superintendent monitoring the services provided in order to protect the public.

There are those who point to the difficulty the public already has in understanding the role of the trustee in bankruptcy. Dual licensing will exacerbate that confusion.

Numerous other points have been raised in opposition to dual licensing at this time:

• a perception that a consumer license would be substandard to a commercial license;
• the added costs of education and oral board examinations;
• the added burden of administering two streams of licenses;
• defining the limits of practice may be difficult (e.g., consider the degree to which a small retail store is different as a corporation than as a proprietorship);
• it could be divisive to the CIPA;
• the dual licensing format could eventually lead to further division, as for example, administrators being licensed to handle summary administrations;
• the problem is localized to large firms in major metropolitan areas;
• the degree of evolution of the "insolvency industry" does not yet warrant dual licensing; and
• implementation costs do not justify the end.

Subcommittees Recommendations

The subcommittee, in its efforts to assess the need for dual licensing, has considered all points of view. It has also examined the demographics of receivership appointments as reported to the Official Receiver in Toronto noting that approximately one-third of such appointments were reported by major firms who are the thrust behind the introduction of dual licensing. Other analyses such as the number of licensees who are with large national firms, "mid-sized" firms and others have not been completed, nor does the subcommittee have details of the number of licensees who, today, would describe themselves as either "corporate" or "consumer" practitioners. Finally, the subcommittee believes it would be valuable to trace the success of those candidates who in the past two years gained experience and training with the larger firms that endorse dual licensing compared to those who are opposed. This understanding, the subcommittee believes, will also provide additional insight into concerns raised that the oral process is not consistent throughout the country.

In its deliberations, the subcommittee has also taken into account the degree to which the profession is in its process of maturity considering factors such as number of CIPA general and articling members, non-members (and non-licensees) carrying out assignments other than bankruptcy, and the demand for services in the industry generally.

Recommendation

Dual Licensing should not be introduced by the Superintendent at this time and should be deferred by the CIPA for further assessment for at least 18 months to two years hence. In the interim, the CIPA, in cooperation with the Superintendent of Bankruptcy, should develop the statistical and demographic analyses which will form a key component in future assessments.

L. Hulzingh

Chairman
Subcommittee

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Annex F

Probationary Condition

Newly licensed trustees are subject to conditions that are generally referred to as "probationary conditions", set out in paragraphs 27–30 of Appendix A of the Directive on Trustee Licensing. Basically, a new trustee must practise in the same location as an established trustee or only act in smaller files. On an exceptional basis, the new trustee may act in larger files, but only with prior approval of a Designated Assistant Superintendent of the Office of the Superintendent of Bankruptcy (OSB). At the end of two years, the trustee may apply to the Superintendent of Bankruptcy to have the conditions lifted. The Superintendent may lift the conditions based on the recommendation of a Designated Assistant Superintendent of the OSB as to the trustee's performance.

Concerns have been expressed that newly licensed trustees do not file a sufficient number of estates to provide the 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. Also, there is no specific onus on the established trustee to supervise the work being done by the new trustee.

Anecdotal evidence from professional bodies (lawyers, accountants) suggests that the first years of practice are critical for a practitioner to learn to apply the expected standards of performance set by the professional body.

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Annex G

Insolvency of a Trustee

In the event of a trustee's insolvency, the Superintendent of Bankruptcy can take conservatory measures to protect an estate (paragraph 14.03(2)e of the Bankruptcy and Insolvency Act). In addition, to perform professional engagements, the trustee must be solvent at all times (paragraph 27 of the Directive on Trustee Licensing) and the Superintendent may, from time to time, conduct an inquiry to verify that the trustee is still solvent and to require that the trustee provide additional information and documentation, such as the trustee's financial statements (paragraphs 34–35 of Appendix A of the Directive).

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. Where reinstatement was granted, the following factors were considered:

• debtor-trustee's discharge and any conditions of discharge;
• amount of time between the bankruptcy and the discharge of the debtor-trustee;
• causes of the bankruptcy;
• debtor's conduct before and during the bankruptcy;
• nature of the debtor-trustee's practice (number and type of files);
• history of the trustee's licence and the firm in which the trustee worked;
• debtor-trustee's financial situation, including cash reserves to be able to operate the business over a period of time;
• access to trust accounts; and
• other factors (for example, references submitted by the debtor-trustee).

The Directive should be transparent and identify the essential criteria to be met for reinstatement.