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BIA: Consumer Proposals

Clause by Clause Briefing Book

An Act to establish the Wage Earner Protection Program Act, to amend the Bankruptcy and Insolvency Act and the Companies' Creditors Arrangement Act and to make consequential amendments to other Acts


Bill Clause No. 46
Section No. 66.11
Topic: Definition of Consumer Debtor

Proposed Wording

66.11 "consumer debtor" means 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;

Rationale

This change to the definition of "consumer debtor" increases the amount of debts that an individual may have to be eligible to make a consumer proposal from $75,000 to $250,000. This new debt ceiling appears in the Act rather than in the Rules in an effort to maintain transparency about this sizeable increase. It is believed that the current indebtedness ceiling of $75,000 is too low and forces many self-employed individuals and higher-income debtors to make a more costly and more complicated commercial proposal. The higher costs associated with a commercial proposal translate to a reduced recovery for creditors. In addition, failure of a commercial proposal results in an automatic bankruptcy, whereas failure of a consumer proposal does not. The increase in the indebtedness ceiling will channel more debtors into the simpler and more cost-effective consumer proposal scheme.

Present Law

66.11 "consumer debtor" means a natural person who is bankrupt or insolvent and whose aggregate debts, excluding any debts secured by the person's principal residence, do not exceed seventy-five thousand dollars or such other maximum as is prescribed;

Senate Recommendation

The proposed reform follows the Senate Committee's recommendation in part. The Senate recommendation called for an increase in the indebtedness threshold to $100,000, with annual increases thereafter to reflect increases in the cost of living as measured by the Consumer Price Index.

None.

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Bill Clause No. 47
Section No. 66.12(2)
Topic: Restriction for proposals

Proposed Wording

66.12. (2) A consumer debtor who has filed a notice of intention or a proposal under Division I may not make a consumer proposal until the trustee appointed in respect of the notice of intention or proposal under Division I has been discharged.

Rationale

The English version of subsection 66.12(2) has been modernized.

Present Law

66.12. (2) A consumer debtor who has filed a notice of intention or lodged a proposal under Division I may not make a consumer proposal until the trustee appointed in respect of the notice of intention or proposal under Division I has been discharged.

Senate Recommendation

None.

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Bill Clause No. 48
Section No. 66.13(2)(d)
Topic: Documents to be filed

Proposed Wording

66.13. (2)(d) subject to subsection (3), file with the official receiver a copy of the consumer proposal, signed by the consumer debtor, and the prescribed statement of affairs.

Rationale

The amendment to subsection (2)(d) is intended to make it clear that a consumer proposal must be accompanied by a prescribed statement of affairs.

Present Law

66.13. (2)(d) subject to subsection (3), file a copy of the consumer proposal, signed by the consumer debtor, with the official receiver.

Senate Recommendation

None.

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Bill Clause No. 49
Section No. 66.14(a)(iii) and (b)(i)
Topic: Documents to be filed

Proposed Wording

66.14. (a) prepare and file with the official receiver a report in the prescribed form setting out

  • (i) the results of the investigation made under paragraph 66.13(2)(a),
  • (ii) the administrator's opinion as to whether the consumer proposal is reasonable and fair to the consumer debtor and the creditors, and whether the consumer debtor will be able to perform it, and
  • (iii) [repealed,] and
  • (iv) a list of the creditors whose claims exceed two hundred and fifty dollars; and

(b) send to every known creditor, in the prescribed form and manner,

  • (i) a copy of the consumer proposal and a copy of the statement of affairs referred to in paragraph 66.13(2)(d),

Rationale

Subsection (a)(iii) was repealed and the information that was required to be provided is reworked in subparagraph (b)(i).

Subsection (b)(i) is intended to make it clear that a consumer proposal must be accompanied by a prescribed statement of affairs. This change will ensure consistency in the way in which the information is presented.

Present Law

66.14 The administrator shall, within ten days after filing a consumer proposal with the official receiver,

  • (a) prepare and file with the official receiver a report in the prescribed form setting out
  • (i) the results of the investigation made under paragraph 66.13(2)(a),
  • (ii) the administrator's opinion as to whether the consumer proposal is reasonable and fair to the consumer debtor and the creditors, and whether the consumer debtor will be able to perform it,
  • (iii) a condensed statement of the consumer debtor's assets, liabilities, income and expenses, and
  • (iv) a list of the creditors whose claims exceed two hundred and fifty dollars; and
  • (b) send to every known creditor, in the prescribed form and manner,
  • (i) a copy of the consumer proposal,

Senate Recommendation

None.

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Bill Clause No. 50
Section No. 66.17(2)
Topic: Effect of assent or dissent

Proposed Wording

66.17. (2) Unless it is rescinded, any assent or dissent received by the administrator at or before a meeting of creditors has effect as if the creditor had been present and had voted at the meeting.

Rationale

The amendment of subsection (2) streamlines the process by removing the obligation that a meeting of creditors be held when there is a dissent received by the administrator to the consumer proposal.

Present Law

66.17. (2) Any dissent received by the administrator prior to the expiration of the forty-five day period mentioned in subsection (1) is deemed to be a request for a meeting of creditors for the purpose of paragraph 66.15(2)(b), and any assent or dissent received by the administrator at or prior to a meeting of creditors has effect as if the creditor had been present and had voted at the meeting.

Senate Recommendation

The Bankruptcy and Insolvency Act be reviewed in order to identify opportunities that will contribute to greater efficiency within the insolvency system, including efforts regarding the adoption of new technologies.

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Bill Clause No. 51
Section No. 66.28(2)
Topic: Inadvertent Discharge of Section 178 (1) Claims

Proposed Wording

66.28. (2) Subject to subsection (2.1), a consumer proposal accepted, or deemed accepted, by the creditors and approved, or deemed approved, by the court is binding on creditors in respect of

  • (a) all unsecured claims; and
  • (b) secured claims for which proofs of claim have been filed in the manner provided for in sections 124 to 134.

(2.1) A consumer proposal accepted, or deemed accepted, by the creditors and approved, or deemed approved, by the court does not release the consumer debtor from any particular debt or liability referred to in subsection 178(1) unless the consumer proposal explicitly provides for the compromise of that debt or liability and the creditor in relation to that debt or liability has assented to the consumer proposal.

Rationale

The current wording in subsection (2) is ambiguous with respect to the meaning of the phrase "assents thereto", the amendment will clarify this phrase. The courts have historically interpreted "assents thereto" to refer to the proposal. Thus, when a creditor with a claim under subsection 178 (1) agrees to the proposal, the creditor also agrees, perhaps inadvertently, to a release of the claim under subsection 178 (1).

The new wording under subsection 68.28 (2.1) clarifies the ambiguity and will protect creditors from unknowingly or inadvertently relinquishing their otherwise undischargeable claims.

This correction will enhance fairness in the process by allowing these claimants to be informed participants without risking an unintentional compromise of their claims. Especially vulnerable in this area are child and spousal support recipients with claims for arrears, victims of fraud and holders of an award for damages as a result of intentional bodily harm. With the revised wording, the creditor's claim under subsection 178 (1) will be discharged only if the creditor votes in favour of a proposal that specifically provides for the compromise of the section 178 claim, thus eliminating any ambiguity.

Present Law

66.28. (2) A consumer proposal accepted, or deemed accepted, by the creditors and approved, or deemed approved, by the court is binding on creditors in respect of

  • (a) all unsecured claims, and
  • (b) secured claims for which proofs of claim have been filed in the manner provided for in sections 124 to 134,

but does not release the consumer debtor from the debts and liabilities referred to in section 178, unless the creditor assents thereto.

Senate Recommendation

None.

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Bill Clause No. 52
Section No. 66.31
Topic: Consumer Proposal Default

Proposed Wording

66.31. (1) Unless the court has previously ordered otherwise or unless an amendment to the consumer proposal has previously been filed, a consumer proposal is deemed to be annulled on

  • (a) in the case when payments under the consumer proposal are to be made monthly or more frequently, the day on which the consumer debtor is in default for an amount that is equal to or more than the amount of three payments; or
  • (b) in the case when payments under the consumer proposal are to be made less frequently than monthly, the day that is three months after the day on which the consumer debtor is in default in respect of any payment.

(2) If an amendment to a consumer proposal filed before the deemed annulment of the consumer proposal under subsection (1) is withdrawn or refused by the creditors or the court, the consumer proposal is deemed to be annulled on the day on which the amendment is withdrawn or refused.

(3) Without delay after a consumer proposal is deemed to be annulled, the administrator shall

  • (a) file with the official receiver, in the prescribed form, a report in relation to the deemed annulment; and
  • (b) send a notice to the creditors informing them of the deemed annulment.

(4) When a consumer proposal made by a bankrupt is deemed to be annulled,

  • (a) the consumer debtor is deemed to have made an assignment on the date of the deemed annulment;
  • (b) the trustee who is the administrator of the consumer proposal shall, within five days after the deemed annulment, send notice of the meeting of creditors under section 102, at which meeting the creditors may by ordinary resolution, despite section 14, affirm the appointment of the trustee or appoint another trustee in lieu of that trustee; and
  • (c) the trustee shall, without delay, file with the official receiver, in the prescribed form, a report of the deemed annulment and the official receiver shall, without delay, issue a certificate of assignment, in the prescribed form, which has the same effect for the purposes of this Act as an assignment filed under section 49.

(5) A deemed annulment of a consumer proposal does not prejudice the validity of any sale, disposition of property or payment duly made, or anything duly done under or in pursuance of the consumer proposal, and despite the deemed annulment, a guarantee given under the consumer proposal remains in full force and effect in accordance with its terms.

(6) If the administrator, in the case of a deemed annulment of a consumer proposal made by a person other than a bankrupt, considers it appropriate to do so in the circumstances, he or she may, with notice to the official receiver, send to the creditors, within 10 days after the day on which the consumer proposal was deemed to be annulled, a notice in the prescribed form informing them that the consumer proposal will be automatically revived 45 days after the day on which it was deemed to be annulled unless one of them files with the administrator a notice of objection, in the prescribed manner, to the revival.

(7) If the notice is sent by the administrator and no notice of objection is filed during the 45-day period, the consumer proposal is automatically revived on the expiry of those 45 days.

(8) If a notice of objection is filed with the administrator during the 45-day period, the administrator must, without delay, send to the official receiver and to each creditor a notice in the prescribed form informing them that the consumer proposal is not going to be automatically revived on the expiry of the 45-day period.

(9) The administrator may at any time apply to the court, with notice to the official receiver and the creditors, for an order reviving any consumer proposal of a consumer debtor who is not a bankrupt that has been deemed to be annulled, and the court, if it considers it appropriate to do so in the circumstances, may make an order reviving the consumer proposal, on any terms that the court considers appropriate.

(10) Without delay after a consumer proposal is revived, the administrator shall

  • (a) file with the official receiver, in the prescribed form, a report in relation to the revival; and
  • (b) send a notice to the creditors informing them of the revival.

(11) The revival of a consumer proposal does not prejudice the validity of anything duly done--between the day on which the consumer proposal is deemed to be annulled and the day on which it is revived--by a creditor in the exercise of any rights revived by subsection 66.32(2).

Rationale

This proposed change sets out the rules by which a consumer proposal is deemed to be annulled and the process by which it can be revived. The proposal provides the administrator with the discretion to revive a consumer proposal that has been deemed annulled under subsection 66.31(1).

Currently, there is no way to revive a consumer proposal that is in default. Once the consumer proposal is in default, the administrator and the courts have no flexibility, and the consumer proposal is deemed annulled. Defaults in the agreement can only be remedied by a court order made prior to the deemed annulment by way of an amendment to the proposal previously agreed to by the creditors. The new section will allow an administrator to rectify the default by providing notice to the creditors. It is especially beneficial in situations where the debtor faces a temporary problem meeting payments, for example, due to illness or temporary unemployment, but otherwise is making good faith efforts to comply with the terms of the proposal.

The ability to revive a consumer proposal that is deemed to be annulled benefits all stakeholders if the proposal is still viable and can be completed despite the default in payments. This process continues to retain the principle of accountability to the creditors through notice provisions, and creditors have the opportunity to object to the revival. The creditors' rights to the amount of their claims less any dividends received are revived between the day on which the proposal is deemed to be annulled and the day on which it is revived-a period of 45 days.

Subsection (1) clarifies that the consumer proposal is deemed to be annulled the day on which the debtor is in default for an amount that is equal to or more than the amount of three payments, in cases where payments are to be made monthly, or the day that is three months after the day on which the debtor is in default in respect of any payment in cases where payments are to be made less frequently than monthly.

Subsection (2) also clarifies that the consumer proposal is deemed to be annulled the day on which any amendment filed prior to the dates mentioned in subsection (1) is withdrawn or refused by the creditors or the court.

Subsection (3) sets out the duties of the administrator in the event of a deemed annulment, i.e., to file a report with the official receiver and to send a notice to the creditors.

Subsection (4) sets out what happens in the specific case when a consumer proposal that is made by a bankrupt is deemed to be annulled. In this case, (a) the debtor is deemed to have made an assignment on the date of the deemed annulment; (b) the trustee who is the administrator of the consumer proposal shall within 5 days send notice of a meeting of creditors. At the meeting, the creditors may affirm the appointment of the trustee or appoint another trustee; and (c) the trustee shall file a report with the official receiver who shall issue a certificate of assignment in bankruptcy.

Subsection (5) confirms the validity of actions taken under the consumer proposal before the date of the deemed annulment. The changes made to this subsection are minor technical matters, such as, the numbering and modernizing the language.

Subsection (6) allows for the possibility of reviving a consumer proposal that has been deemed annulled if the proposal was made by a person other than a bankrupt. The discretion on whether to revive a proposal lies with the administrator. Within 10 days after the day on which the consumer proposal is deemed to be annulled and if the administrator considers it appropriate, he or she may notify the creditors and the official receiver that the consumer proposal will be automatically revived 45 days after the day on which it was deemed to be annulled unless they file a notice of objection.

Subsection (7) confirms that if the administrator sends the notice under subsection (6) and no objection is filed within the 45-day period, the consumer proposal is automatically revived on the expiry of the 45 days.

Subsection (8) sets out the notice requirements if an objection to the revival is filed with the administrator during this 45-day period. In these cases, the administrator must notify the official receiver and each creditor that the consumer proposal is not going to be automatically revived at the expiry of the 45-day period.

Subsection (9) enables the administrator at any time in this process to apply to court, with notice to the official receiver and the creditors, for an order reviving the deemed annulment of a consumer proposal made by a person other than a bankrupt. This subsection also enables the court, if it considers it appropriate, to make an order reviving the consumer proposal on any terms that it considers appropriate.

Subsection (10) sets out the duties of the administrator after a consumer proposal is revived. The administrator shall file a report in relation to the revival with the official receiver and send a notice to the creditors informing them of the revival.

Subsection (11) confirms the validity of things done by a creditor in the exercise of the creditor's rights between the day on which the consumer proposal is deemed to be annulled and the day on which it is revived.

Present Law

66.31. (1) Independently of section 66.3,

  • (a) where payments under a consumer proposal are to be made monthly or more frequently and the consumer debtor is in default to the extent of three months payments, or
  • (b) where payments under a consumer proposal are to be made less frequently than monthly and the consumer debtor is in default for more than three months on any payment,

the consumer proposal shall thereupon be deemed to be annulled unless the court has previously ordered otherwise or unless an amendment to the consumer proposal has previously been filed, and the administrator shall forthwith so inform the creditors and file a report thereof in the prescribed form with the official receiver.

(2) Where an amendment to a consumer proposal filed before the deemed annulment of the consumer proposal by virtue of subsection (1) is withdrawn or refused by the creditors or the court, the consumer proposal shall thereupon be deemed to be annulled.

(3) A deemed annulment of a consumer proposal by virtue of subsection (1) or (2) does not prejudice the validity of any sale, disposition of property or payment duly made, or anything duly done under or in pursuance of the consumer proposal, and notwithstanding the deemed annulment of the consumer proposal, a guarantee given pursuant to the consumer proposal remains in full force and effect in accordance with its terms.

Senate Recommendation

None.

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