OSB News June 2011

Welcome to our new publication!

Hello, and thank you for taking the time to read our newsletter.

It is my pleasure to present OSB News. Previously called the OSB Newsletter, it is designed to update insolvency professionals on new initiatives and changes taking place at the Office of the Superintendent of Bankruptcy (OSB). In addition to two full editions annually, special editions of the newsletter will be published throughout the year as needed.

We'd like to hear from you! Tell us what you think, and let us know if you have a topic you'd like to see covered in a future issue.

James Callon
Superintendent of Bankruptcy

New approach for identifying debtor misconduct

The OSB has undertaken a new initiative aimed at addressing the issue of debtor non-compliance by encouraging more collaboration between the OSB and its stakeholders in the insolvency community. In this regard, we are asking trustees to assist in identifying non-compliant debtors (consumer and corporate) whose actions should be reviewed by the OSB.

There are four main criteria a trustee may use in determining if a file should be referred to the OSB:

1. Inappropriate disposition of assets — transferring assets at undervalue or rolling over assets inappropriately.
2. Inappropriate delivery and disclosure — failing to deliver all property, books and records; failing to file a complete and accurate Statement of Affairs; and forging and falsifying records.
3. Lack of cooperation on the part of the debtor — failing to attend the examination; failing to attend the first meeting of creditors and to provide requested information; failing to attend all mandatory counselling sessions; and failing to contribute surplus income to the estate.
4. Inappropriate behaviour by the debtor — abusing the insolvency process; abusing borrowing practices; and wrongful conduct of directors.

In the event a trustee identifies a debtor who meets any of these criteria, the trustee may refer the file to the OSB, using the E-Filing system, by uploading as a softcopy document the "Debtor Compliance Referral Form" available on the OSB website.

Until June 27, 2011, trustees can refer a file by uploading the softcopy form using the title "Other" and typing the title of the document in the window as "Debtor Compliance Referral." Beginning June 27, 2011, it will be possible to select the title "Debtor Compliance Referral" from the drop-down list. An email will be sent to all E-Filing users prior to June 27 as a reminder of this new procedure.

The OSB will review the file referred and determine if an investigation is required.

Results of an investigation may lead to the following:

• Court intervention by the OSB
• Sending the file back to the trustee for action
• Criminal Investigation Order
• Closing the referral

The OSB looks forward to trustees' continued cooperation in identifying debtor misconduct.

Improving awareness of debtor responsibilities

The OSB website will soon include a new section on abuse of and fraudulent activity within the insolvency system by debtors. Designed to raise awareness about debtor compliance, the new content will focus on the duties of the bankrupt and provide information on what constitutes non-compliant behaviour. Real examples of penal and criminal convictions and Court decisions on debtor discharges will be included to further inform visitors to the site.

The site will also explain the discharge process, provide details on the roles of debtors and creditors, and provide information and statistics on investigations by the OSB Special Investigation Units and the Royal Canadian Mounted Police (RCMP).

Professional conduct decision MacLeod: Due diligence defence

On January 13, 2011, the Federal Court of Appeal (FCA) delivered its decision in Office of the Superintendent of Bankruptcy v. MacLeod.

The FCA concluded that the Delegate of the Superintendent of Bankruptcy erred in determining that a defence of due diligence had successfully been established by the respondents. The Court held that the finding was made on the basis of irrelevant criteria and failed to hold the respondents to the correct burden of proof.

Specifically, the FCA held that

• errors made in good faith are not tantamount to due diligence;
• proof of reasonable care in the general conduct of one's affairs is not sufficient to escape liability;
• it is incumbent upon the person claiming due diligence to show that a system was in place to prevent the prohibited act; and
• the fact that the contraventions did not cause prejudice to third parties is irrelevant.

Coming soon: Online levy and fee statement and levy deadline

The OSB is updating some of its financial processes to increase efficiency and make it easier for trustees to obtain up-to-date information on their outstanding balances and to submit remittance advice forms electronically.

The new, online "Trustee Statement of Outstanding Balances" for both levies and fees will replace the current paper statement of fees that is mailed to trustees. The statement will be updated 24/7 and will be available through E-Filing later this month.

In a related move, the remittance advice form is being replaced by two new user-friendly forms aimed at improving the accuracy of the information transmitted. The new forms will be posted on the OSB website this month. Trustees will be notified by email when the new forms and online statement become available.

In addition, the OSB will be introducing a deadline for payment of levies. Levies will be payable no later than 45 calendar days after the date Forms 11, 15 or 58 are filed with the OSB, including the objection period. The new deadline will be integrated into the Trustee Statement of Outstanding Balances, but there will be a transition period before it is applied. More information on the application of the new deadline and the collection process will be provided later in June.

Later in the year, an E-Remittance process is planned that will allow trustees to send remittance advice forms electronically to the OSB through the E-Filing system, replacing the current paper-based remittance advice forms. However, trustees will still need to continue to mail cheques to the OSB. Trustees will be notified by email when the new functionality becomes available.