Proposed changes to Directive No. 1R3, Counselling in Insolvency Matters

Draft Directive No. 1R4 Related information

Draft Directive No. 1R4, Counselling in Insolvency Matters

This information is intended solely for the purpose of seeking public comment (October 16 - November 24, 2017). Directive No. 1R3, Counselling in Insolvency Matters, remains in effect.

Interpretation

  1. In this Directive,
  2. "Act" or "BIA" means the Bankruptcy and Insolvency Act;

    "Designate" means the selection by an LIT of an insolvency counsellor who is registered against the LIT’s licence, to provide insolvency counselling on a specific insolvency estate;

    "Designated Insolvency Counsellor" means an individual, registered by an LIT with the OSB for whom the LIT is accountable, who is designated by the LIT to provide insolvency counselling on a specific insolvency estate in fulfillment of the LIT’s duties pursuant to subsection 157.1(1) and paragraph 66.13(2)(b) of the Act, and in accordance with this Directive;

    "Licensed Insolvency Trustee (LIT)" means a trustee or licensed trustee, as defined in section 2 of the Act and an administrator of consumer proposals as defined in section 66.11 of the Act;

    "LIT-in-Charge" means, where an LIT firm operates under a corporate licence, the individual LIT authorized to act on behalf of the corporate LIT in respect of the corporate licence;

    "OLAA" means the OSB Licence Administration Application;

    "OSB" means the Office of the Superintendent of Bankruptcy;

    "PCIC" means the Practical Course on Insolvency Counselling. The OSB is working with CAIRP to renew the Insolvency Counsellor’s Qualification Course ICQC including renaming the program to the PCIC. Pending this renewal and renaming, an LIT wishing to register an individual against their licence to provide for counselling shall continue to rely on the ICQC as an educational requirement;

    "Referral Arrangement" means an arrangement characterized by a pattern of activity whereby an individual or organization directs insolvent debtors to specific LITs for a professional engagement, and as consideration for the referrals, the LIT demonstrates a pattern of providing for their BIA insolvency counselling obligations by directing all or a proportion of their debtors to the individual or organization that arranged the referrals. Referral arrangements may also arise from other direct and indirect exchanges of consideration;

    "Referral Arranger" means an individual or organization in the debt advisory industry (whether for-profit or not-for-profit) that participates in a formal or informal referral arrangement with an individual LIT or corporate LIT;

    "Register" means the LIT’s request, and if the registration is validated, the LIT’s agreement that the OSB shall consider the conduct and actions of the registered individual with regard to the delivery of insolvency counselling services and compliance with this Directive as if it were the conduct of the LIT, with regard to any and all obligations associated with the LIT’s licence‎;

    "Rules" means the Bankruptcy and Insolvency General Rules made pursuant to subsection 209(1) of the Act;

    "Third-Party Debt Advisor" means an individual or organization who, in return for direct or indirect consideration, acts as an advisor to a debtor or an intermediary between debtors and LITs. This includes those who derive consideration or a benefit from selling insolvent debtors a range of services before, during, or after an insolvency filing under the BIA. Such services may include, but are not limited to: financial evaluations, representation, restructuring services, credit rebuilding, loans in various forms, or insurance.

Authority and Purpose

  1. This Directive is issued pursuant to the authority of paragraphs 5(4)(b) and (c) of the Act in accordance with section 157.1 and paragraph 66.13(2)(b) of the Act.
  2. Subsection 157.1(1) and paragraph 66.13(2)(b) of the Act require that the LIT provide, or provide for, counselling for an individual bankrupt or consumer debtor in accordance with directives issued by the Superintendent.
  3. The purpose of this Directive is to:

    (a) Identify the accountability and duties of an LIT with regard to providing or providing for insolvency counselling;

    (b) Establish the requirements necessary for an LIT to register an insolvency counsellor whom the LIT may designate to provide insolvency counselling on a specific insolvency estate, an individual for whom the LIT accepts responsibility with regard to the provision of insolvency counselling; and,

    (c) Establish the required content and process for the delivery of insolvency counselling to an individual bankrupt or consumer debtor.

Accountability for Insolvency Counselling

  1. Having satisfied all the requirements to obtain a licence to act as an LIT, an LIT is qualified under and by virtue of the Act, to provide insolvency counselling to debtors.
  2. An LIT is accountable for the provision of insolvency counselling to each individual bankrupt and consumer debtor on whose behalf they have filed an insolvency proceeding. The accountability of the LIT is the same regardless of whether they provide counselling, or provide for it.
  3. The LIT is required to maintain knowledge of the Insolvency Counselling Curriculum, consistent with paragraphs 22 through 24 of this Directive.
  4. An LIT shall only fulfill their obligation to provide insolvency counselling personally, or by designating, on a specific insolvency estate, another LIT or an individual who has been registered against the LIT’s licence. The LIT is accountable for the insolvency counselling provided by the designated individual.

Obligation to Comply with the Act, Rules, and Trustee Code of Ethics

  1. In accordance with the conditions and requirements of the Act, Rules (including the Trustee Code of Ethics), and this Directive, when providing for insolvency counselling, an LIT shall:
  2. (a) avoid any influence, interest or relationship that impairs, or appears in the opinion of an informed person to impair, their professional judgment;

    (b) never directly or indirectly pay to a third party a commission, compensation or other benefit in order to obtain a professional engagement or accept, directly or indirectly from a third party, a commission, compensation or other benefit for referring work relating to a professional engagement, including, for example, a referral arrangement;

    (c) not engage in any business or occupation that would compromise their ability to perform any professional engagement or that would jeopardize their integrity, independence or competence;

    (d) not obtain, solicit or conduct any engagement that would discredit their profession or jeopardize the integrity of the bankruptcy and insolvency process; and,

    (e) ensure that their designated insolvency counsellor adheres equally to the high standards of ethics and professionalism that apply to the LIT, with regard to carrying out insolvency counselling functions with competence, honesty, integrity, impartiality and due care.

Delivery

  1. (1) Subject to paragraphs 10(2) and (3), an LIT shall provide, or provide for, the delivery of in-person insolvency counselling only at an LIT’s authorized office, which has been registered with the OSB and which is not an office of third-party who is not licensed by the Superintendent of Bankruptcy.

    (2) The individual bankrupt or consumer debtor may request that insolvency counselling be provided, or provided for, via videoconference from an authorized office registered with the OSB, which is not an office of a third-party who is not licensed by the Superintendent of Bankruptcy, to the bankrupt or debtor, at their private residence, provided they have access to appropriate technology.

    (3) Where exceptional circumstances exist that prevent insolvency counselling from being performed in accordance with paragraphs 10(1) and (2) above, the LIT may request an exception to the requirements by completing and submitting to the OSB, via e-filing, a Request for Exception Form (Schedule III).

Registration of an Insolvency Counsellor

Registration (Individual Licence)

  1. Using the OLAA system, an LIT is required to register against their individual licence any individual whom they propose to designate as an insolvency counsellor with regard to fulfillment of their obligations for the provision of insolvency counselling.
  2. An LIT shall not register against their licence any individual whom they know or have reason to suspect, does not meet the eligibility requirements in paragraph 13 of this Directive.
  3. In accordance with the OSB registration process, and subject to the OSB’s review, the applicant LIT shall demonstrate and attest that an individual proposed for registration against the individual LIT’s licence meets the following requirements:
  4. Education

    (a) has a high school diploma;

    (b) has successfully completed either:

    (i) the Insolvency Administration Course available from the Canadian Association of Insolvency and Restructuring Professionals (CAIRP); or

    (ii) a minimum of two (2) relevant post-secondary courses in mathematics, financial management, finance, accounting, or business administration;

    (c) undertakes to complete seven and a half (7.5) hours of appropriate professional development training annually;

    Practical course on Insolvency Counselling

    (d) has successfully completed the Practical Course on Insolvency Counselling (PCIC) available from the Canadian Association of Insolvency and Restructuring Professionals (CAIRP);

    Knowledge of Insolvency Counselling Curriculum

    (e) has demonstrated a knowledge of the BIA insolvency counselling curriculum as specified in this Directive and according to requirements specified by the OSB;

    Experience Requirement

    (f) has obtained experience in providing insolvency counselling to bankrupts or consumer debtors through a minimum of fifty (50) counselling sessions, acquired:

    (i) by delivering insolvency counselling under the direct observation of:

        1) the applicant LIT or an LIT of the same firm as the applicant LIT; or

        2) an insolvency counsellor registered against an LIT’s licence through the OLAA who has a minimum of one year experience in providing insolvency counselling for the applicant LIT or an LIT of the same firm; or,

    (ii) by independently delivering insolvency counselling, as an insolvency counsellor previously registered against an LIT’s licence through the OLAA, within the last 24 months from the date of the application.

    Validation of Competency

    (g) possesses the necessary competencies and is known by the LIT to be of good character, has the capabilities, knowledge, skills and proficiency to provide insolvency counselling in accordance with this Directive as personally validated during the LIT’s direct observation of the individual providing a minimum of three (3) counselling sessions to debtors on whose behalf the LIT has filed an insolvency proceeding;

    Liability Insurance

    (h) is covered by the LIT’s professional liability insurance or alternatively, has provided to the LIT current documentation demonstrating that he or she is covered by adequate professional liability insurance of their own.

Ineligibility

  1. An individual is ineligible to be registered against an LIT’s licence as an insolvency counsellor if they are directly or indirectly involved in activities that are inconsistent with the LIT’s obligations under the Act and the Rules, including those representing a real, potential or perceived conflict of interest. Activities which preclude an individual’s eligibility to be registered as an insolvency counsellor include being:
  2. (a) engaged in or involved with the provision of financing and lending services to individual bankrupts or consumer debtors including, but not limited to, credit rebuilding services, loans in various forms, and insurance;

    (b) employed by, associated with or acting as a Third-Party Debt Advisor; or

    (c) employed by, associated with or acting as a Referral Arranger.

Registration (Corporate Licence)

  1. In accordance with the requirements and application process specified in paragraphs 11 to 14 of this Directive, the LIT-in-Charge may register an individual against the firm’s corporate licence (in the OLAA), where one or more LITs within the same firm intend to provide for counselling by designating the same individual.
  2. Eligibility for corporate registration of an insolvency counsellor is restricted to individuals presenting a low risk to the integrity of the insolvency counselling process, namely those who:
  3. (a) are already validly registered by one of the firm’s individual LIT’s as an insolvency counsellor pursuant to the requirements of the individual registration process specified in this Directive;

    (b) are employed by the corporate LIT;

    (c) have no third-party employment, earnings, or individual bankrupt or consumer debtor related financial activities or interests; and,

    (d) are covered as employees under the corporate LIT’s professional liability insurance.

LIT Designation, Duties and Prohibitions

  1. When designating a registered insolvency counselor to provide insolvency counselling on a specific insolvency estate, the LIT shall observe the prohibitions specified in this Directive.
  2. (1) An LIT shall never provide for insolvency counselling by designating a registered insolvency counselor whose interests may conflict with, or have the appearance of conflicting with the interests of the individual bankrupt or consumer debtor.

  3. (2) Such conflicts of interest may include, but are not limited to, where the insolvency counselor or an organization or person with which the insolvency counsellor has a relationship, has in the past or may during the administration of the individual bankrupt's or consumer debtor’s insolvency proceeding, receive any form of payment or remuneration, directly or indirectly from the individual bankrupt or consumer debtor, for any financial advisory product or service, other than prescribed fees paid to the LIT in respect of insolvency counselling.

  4. When designating a counsellor who is not an employee of the LIT’s firm, the LIT shall warrant that neither the designated counsellor, nor an organization or person with which the designated counsellor has a relationship, is directly or indirectly receiving any other remuneration or consideration in relation to the counselling from the individual or corporate LIT, other than the amount prescribed for providing the counselling sessions.
  5. When required, an LIT may designate another LIT to provide counselling on a specific estate, provided that the named LIT personally provides the insolvency counselling to the individual bankrupt or consumer debtor.

Providing, or Providing for Insolvency Counselling

  1. When providing insolvency counselling or designating an individually or corporately registered insolvency counsellor to provide insolvency counselling for a specific insolvency estate, the LIT shall:
  2. (a) meet with the individual bankrupt or consumer debtor to complete the Insolvency Counselling and Designation Form (Schedule I);

    (b) obtain written consent from the individual bankrupt or consumer debtor before disclosing any information concerning the individual bankrupt's or consumer debtor's insolvency to a designated insolvency counsellor who is not an employee of the LIT or the LIT himself or herself;

    (c) submit to the OSB, prior to the first counselling session, a copy of the Insolvency Counselling and Designation Form (Schedule I), signed by the individual bankrupt or consumer debtor and the LIT, confirming that the LIT will be providing for insolvency counselling, on a specific insolvency estate, themselves or through a registered insolvency counsellor;

    (d) undertake to supervise a designated insolvency counsellor’s delivery of insolvency counselling and validate and attest to its conformance with the process and standards as set out in this Directive.

Standards and Insolvency Counselling Curriculum

  1. The counselling referred to in section 157.1 and paragraph 66.13(2)(b) of the Act shall consist of the following two sessions:
  2. (a) a first session to be conducted, in accordance with paragraph 23 of this Directive,

    (i) between 10 and 60 days following the date of the initial bankruptcy event or the filing of a consumer proposal, or

    (ii) within 10 days following the first meeting of creditors held pursuant to subparagraph 57(c)(i) of the Act where a Division I Proposal was refused by the creditors; and

    (b) a second session to be conducted, in accordance with paragraph 24 of this Directive, not before the end of a 30-day period after the first session and no later than 210 days following the date of the initial bankruptcy event, in the case of a bankrupt, or of filing a consumer proposal, in the case of a consumer debtor.

First Counselling Session — Consumer and Credit Education

  1. In the first session, the LIT or designated insolvency counsellor shall present information to provide the debtor, with consumer advice in the areas of:
  2. (a) money management;

    (b) spending and shopping habits;

    (c) warning signs of financial difficulties; and

    (d) obtaining and using credit.

Second Counselling Session — Identification of Roadblocks to Solvency and Rehabilitation

  1. The second session is to determine the budgetary and/or non-budgetary causes of insolvency or bankruptcy and requires that the designated insolvency counsellor:
  2. (a) follow up on the application by the individual bankrupt or consumer debtor of the principles presented in the first session, to assist the individual bankrupt or consumer debtor to better understand his or her strengths and weaknesses with regard to money management and budgeting skills;

    (b) where appropriate, assist the individual bankrupt or consumer debtor:

    (i) to identify the non-budgetary causes (such as gambling abuse, compulsive behaviour, substance abuse, employment and marital or family difficulties) that may have contributed to his or her financial difficulties;

    (ii) to better understand his or her behaviour in financial management and consumption habits; and

    (iii) to make him or her aware of the existence of resources that may help him or her achieve and maintain economic stability; and

    (c) cooperatively with the individual bankrupt or consumer debtor, develop recommendations and alternatives for a financial plan of action that, if appropriate, may include referral for specialized counselling to deal with non-budgetary causes of insolvency.

Completion of Insolvency Counselling Requirements

  1. On completion of all insolvency counselling sessions, the LIT shall:
  2. (a) submit to the OSB, a copy of the Insolvency Counselling Completion Certificate (Schedule II) signed by the individual bankrupt or consumer debtor, the designated insolvency counsellor (if applicable) and the LIT attesting and confirming that all insolvency counselling sessions have been provided in accordance with the requirements, process and standards as set out in this Directive;

    (b) retain, in accordance with section 68 of the Rules, copies of all documents sufficient to demonstrate compliance with the conditions set out in this Directive for a minimum duration of four (4) years after the LIT’s discharge. Copies of these documents shall be provided to the OSB upon request.

Remuneration

  1. Section 131 of the Rules prescribes the fees and expenses that may be charged for counselling.
  2. Once the LIT provides the insolvency counselling to the debtor, he or she may withdraw from the estate trust account, to his or her benefit, the prescribed amount for the payment of the specific counselling session.
  3. Where an LIT provides for insolvency counselling using a registered insolvency counsellor who is not an employee, the counsellor shall receive remuneration from the LIT only in accordance with the tariff prescribed by the Rules.
  4. Where an LIT provides for insolvency counselling using a registered insolvency counsellor, he or she shall not make any payment prior to the counselling services having been provided, at which point the LIT may withdraw from the estate trust account and remit to the designated insolvency counsellor the prescribed amount for the payment of the specific counselling session.

Renewal

  1. To maintain the registration of an insolvency counsellor, the LIT shall, when fulfilling his or her annual licence renewal requirements using the OLAA, validate that:
  2. (a) all information relating to the insolvency counsellor(s) registered against their licence is accurate and up to date; and,

    (b) he or she has retained documentation demonstrating that each of the insolvency counsellors registered against their licence has completed seven and a half (7.5) hours of appropriate professional development training in the previous twelve (12) months.

Expiry

  1. Where a registered individual is not designated by an LIT to provide insolvency counselling for a period of two (2) consecutive calendar years, the registration of the insolvency counsellor may be considered to be expired and removed from the LIT’s profile, without further notice, at the discretion of the OSB.

Cancellation

  1. (1) In accordance with the established process, an LIT or the LIT-in-Charge may, at any time, cancel the registration of any insolvency counsellor whom they have previously registered against their individual or corporate licence‎.

    (2) For clarity, instances of failure to comply with the requirements of this Directive remain the responsibility of the LIT, and survive an LIT’s cancellation of a registration of any individual the LIT previously registered pursuant to this Directive.

Transparency

  1. The Registry of Licensed Insolvency Trustees maintained on the OSB website, pursuant to paragraph 11.1(1)(c) of the Act, shall include the names of insolvency counsellors registered against LIT’s licences.

Monitoring

  1. Complaints raised against any designated insolvency counsellor shall be treated by the OSB as a complaint against the LIT who designated the insolvency counsellor.

Compliance

  1. Failure by the LIT to provide, or provide for, insolvency counselling in full conformance with this Directive may result in one or more of the following consequences:
  2. (a) Restriction of the individual LIT’s licence or corporate LIT’s licence from applying to register, designating, or renewing the registration of one or more insolvency counsellors;

    (b) Increased supervision and monitoring of an individual or corporate LIT’s provision of insolvency counselling;

    (c) Taxation of LIT counselling fees;

    (d) Taxation of LIT estate fees. Where, prior to an insolvency filing or prior to the discharge of a debtor from an insolvency proceeding, the LIT’s designated insolvency counsellor or a person or organization associated with the designated insolvency counsellor solicits and receives any form of remuneration from the debtor, other than the amount provided from the estate for insolvency counselling, the OSB will seek taxation of the LIT fees in an amount which is at minimum, equivalent to the funds paid by the debtor;

    (e) Initiation of a professional conduct investigation and proceeding where warranted.

Transitional Provisions

Education Requirement

  1. (1) In registering an individual against an LIT’s licence pursuant to paragraph 11 of this Directive, and with regard to the Education Requirement as set out in this Directive, the applicant LIT may request, in lieu of a high school diploma, to have equivalent relevant experience of a previous BIA insolvency counsellor recognized.

    (2) In fulfillment of paragraph 36(1) of this Directive, the applicant LIT shall attest and demonstrate that the individual:

    (a) has actively provided insolvency counselling under the Act for the applicant LIT or an LIT who works at the same firm as the applicant LIT in the forty-eight (48) months prior to the coming into force date of this Directive; and,

    (b) has successfully completed the Insolvency Administration Course available from the Canadian Association of Insolvency and Restructuring Professionals (CAIRP).

Experience Requirement

  1. (1) In registering an individual against an LIT’s licence pursuant to paragraph 11 of this Directive, and with regard to the Experience Requirement as set out in this Directive, the applicant LIT may request to have the relevant experience of a previous BIA insolvency counsellor recognized.

    (2) In fulfillment of paragraph 37(1) of this Directive, the applicant LIT shall attest and demonstrate that the individual:

    (a) was registered prior to the coming into force of this Directive; and,

    (b) has provided a minimum of fifty (50) counselling sessions under the Act for the applicant LIT or an LIT who works at the same firm as the applicant LIT in the 24 months prior to the coming into force date of this Directive.

Coming into Force

  1. This Directive comes into force on TBD.

This information is intended solely for the purpose of seeking public comment (October 16 - November 24, 2017). Directive No. 1R3, Counselling in Insolvency Matters, remains in effect.

Enquiries

  1. For any questions pertaining to this Directive, please contact TBD.

William R. James
Superintendent of Bankruptcy

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SCHEDULE I

INSOLVENCY COUNSELLING AND DESIGNATION FORM

□ Original
□ Amended

Licensed Insolvency Trustee (LIT)
Name:
Licence Number:

Bankrupt / Consumer Debtor
Estate Name:
Estate Number [for office use only]:

Counselling to be performed by

□ Myself, the LIT
□ Another LIT
□ Insolvency counsellor registered against the corporate licence

□ Insolvency counsellor registered against the individual licence (a change requires submission of an amended Schedule I)

  • Name:
  • Registration number:

LIT DECLARATION

(To be completed by the LIT where the insolvency counselling will be provided by a registered insolvency counsellor)

I, the LIT, hereby attest that the registered insolvency counsellor (check applicable boxes):

□ does not have interests that may conflict with, or have the appearance of conflicting with, the interests of the bankrupt or consumer debtor (paragraph 18 of Directive No. 1R4.).

□ or organization or person with which the insolvency counsellor has a relationship is not directly or indirectly receiving any other remuneration or consideration from the individual LIT or corporate LIT other than the prescribed amount for payment of the counselling session(s) (paragraph 19 of Directive No. 1R4).


Space to insert signature of LIT
Signature of LIT

Space to insert date
Date (YYYY-MM-DD)

BANKRUPT OR CONSUMER DEBTOR DECLARATION

(To be completed by the bankrupt or consumer debtor)

I understand the LIT is designating an insolvency counsellor who is not an employee of the LIT to provide counselling. I consent to the LIT to disclose information concerning my insolvency to the third party insolvency counsellor.

□ Yes    □ No    □ N/A

I request that my insolvency counselling take place by videoconference at my private residence. I confirm that I have access to the technology for receiving insolvency counselling by videoconference.

□ Yes    □ No

□ I am aware that the only fees and expenses that may be charged to me or my estate for insolvency counselling are the two insolvency counselling sessions at $85 each.

I, the undersigned, understand that the completion of insolvency counselling is required by law, and I commit to completing all required counselling sessions.

Space to insert signature of Bankrupt or Consumer Debtor
Signature of Bankrupt or Consumer Debtor

Space to insert date
Date (YYYY-MM-DD)

Notes

  • This Form shall be submitted to the Office of the Superintendent of Bankruptcy (OSB) via E-Filing in both PDF and XML formats.

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SCHEDULE II

INSOLVENCY COUNSELLING COMPLETION FORM

Licensed Insolvency Trustee (LIT)
Name:
Licence Number:

Bankrupt / Consumer Debtor
Estate Name:
Estate Number:

TO BE COMPLETED BY THE LIT AFTER THE COMPLETION OF ALL REQUIRED INSOLVENCY COUNSELLING SESSIONS FOR THE BANKRUPT / CONSUMER DEBTOR

Notes

  • This Form shall be submitted to the Office of the Superintendent of Bankruptcy (OSB) via E-Filing in both PDF and XML formats.

INFORMATION ON INSOLVENCY COUNSELLING SESSION #1

Counselling performed by:

Designated Insolvency Counsellor Name:
Insolvency Counsellor Registration Number:

or

Name of LIT:
Licence Number:

Date of session: YYYY-MM-DD

Method and Location:

□ In-person, at an authorized LIT office

□ Videoconference, from counsellor at an authorized LIT office to the debtor at his/her private residence

□ Other, approved by the OSB via a Request for Exception Form.

Address of Authorized LIT Office:

Address of Authorized LIT Office:

Exception number:



I, the undersigned bankrupt or consumer debtor, confirm the information above is, to the best of my knowledge and belief, true, correct and complete in all respects.

Space to insert signature of bankrupt / consumer debtor
Signature of Bankrupt or Consumer Debtor

Space to insert date
Date (YYYY-MM-DD)

INSOLVENCY COUNSELLOR DECLARATION TO LIT

I, the undersigned designated insolvency counsellor, confirm I:

  • delivered the insolvency counselling in accordance with the insolvency counselling curriculum requirements in paragraphs 22 to 24 of Directive No. 1R4, Counselling in Insolvency Matters, in the location specified above;
  • reviewed and became familiar with the individual bankrupt or consumer debtor’s insolvency file only as prepared by the LIT, including their reasons for insolvency, prior to the provision of insolvency counselling; and
  • have not or will not receive any form of payment or remuneration, directly or indirectly from the debtor, for any financial advisory product or service, other than prescribed fees paid by the LIT in respect of insolvency counselling.

Space to insert signature of insolvency counsellor
Signature of Insolvency Counsellor

Space to insert date
Date (YYYY-MM-DD)

INFORMATION ON INSOLVENCY COUNSELLING SESSION #2

Counselling performed by:

Designated Insolvency Counsellor Name:
Insolvency Counsellor Registration Number:

or

Name of LIT:
Licence Number:

Date of session: YYYY-MM-DD

Method and Location:

□ In-person, at an authorized LIT office

□ Videoconference, from counsellor at an authorized LIT office to the debtor at his/her private residence

□ Other, approved by the OSB via a Request for Exception Form.

Address of Authorized LIT Office:

Address of Authorized LIT Office:

Exception number:



I, the undersigned bankrupt or consumer debtor, confirm the information above is, to the best of my knowledge and belief, true, correct and complete in all respects.

Space to insert signature of bankrupt / consumer debtor
Signature of Bankrupt or Consumer Debtor

Space to insert date
Date (YYYY-MM-DD)

INSOLVENCY COUNSELLOR DECLARATION TO LIT

I, the undersigned designated insolvency counsellor, confirm I:

  • delivered the insolvency counselling in accordance with the insolvency counselling curriculum requirements in paragraphs 22 to 24 of Directive No. 1R4, Counselling in Insolvency Matters, in the location specified above;
  • reviewed and became familiar with the individual bankrupt or consumer debtor’s insolvency file only as prepared by the LIT, including their reasons for insolvency, prior to the provision of insolvency counselling; and
  • have not or will not receive any form of payment or remuneration, directly or indirectly from the debtor, for any financial advisory product or service, other than prescribed fees paid by the LIT in respect of insolvency counselling.

Space to insert signature of insolvency counsellor
Signature of Insolvency Counsellor

Space to insert date
Date (YYYY-MM-DD)

LIT SIGNATURE

I, the undersigned LIT, do solemnly attest that the delivery of the insolvency counselling sessions were done in conformance with the process and standards as set out in Directive No. 1R4, and that the information set out in this Form is, to the best of my knowledge and belief, true, correct and complete in all respects.

Space to insert signature of LIT
Signature of LIT

Space to insert date
Date (YYYY-MM-DD)

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SCHEDULE III

REQUEST FOR EXCEPTION FORM

Licensed Insolvency Trustee (LIT)
Name:
Licence Number:

Bankrupt / Consumer Debtor
Estate Name:
Estate Number:

Exception Information

Proposed Method of Insolvency Counselling:
□ In person, at a non-authorized location
□ Videoconferencing, at or from a non-authorized location
□ Telephone
□ Other
If other, please specify:

Proposed Location of Insolvency Counselling:
Address from which counsellor is delivering counselling:
Address where debtor is receiving counselling:

Reason for Exception
Please explain:

Notes

  • The Request for Exception Form shall be completed and submitted by the LIT to the OSB where the LIT requires an exemption to the counselling method and locations prescribed in Directive No. 1R4.
  • The Request for Exception Form shall be submitted to the OSB via E-Filing in XML format.
  • The LIT will receive an approval/denial via email after the form has been submitted to E-Filing. An approval will contain an exception number that the LIT will enter on the Counselling Completion Form.

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Background regarding OSB’s proposed amendments to Directive No. 1R3, Counselling in Insolvency Matters

Purpose

The Office of the Superintendent of Bankruptcy (OSB) is inviting comments from Licensed Insolvency Trustees (LITs), the public, and any interested parties on proposed changes to Directive No. 1R3, Counselling in Insolvency Matters. Directives are issued by the Superintendent of Bankruptcy under the authority of paragraphs 5(4)(b) and (c) of the Bankruptcy and Insolvency Act (BIA). Directives apply to LITs and prescribe their obligations and responsibilities with regard to their administration of bankruptcies and proposals under the BIA.

While all submissions will be reviewed, please note that comments with regard to the BIA’s legislative provisions and the Bankruptcy and Insolvency Act General Rules (Rules) which are applicable to insolvency counselling and the LIT’s role fall outside the scope of this consultation.

General context

About the OSB

The OSB is responsible for supervising all estates and matters to which the BIA applies, as well as certain matters under the Companies’ Creditors Arrangement Act (CCAA). The OSB licenses and regulates the insolvency profession; supervises the administration of estates in bankruptcy, commercial reorganizations, consumer proposals and receiverships; maintains a public record of BIA and CCAA filings; records and investigates complaints from debtors and creditors regarding the insolvency process; and, ensures compliance through maintenance and enforcement of the regulatory framework.

Operating within Innovation, Science and Economic Development (ISED) Canada, the OSB recovers its costs from the insolvency process and carries out its duties at arm’s length from the government.

About LITs

LITs are federally regulated professionals who have the qualifications, skills and experience required to provide advice and services to individuals and businesses in financial difficulty. In Canada, the authority to provide insolvency services and administer regulated insolvency proceedings, such as consumer proposals and bankruptcies, is governed by the BIA and is restricted to LITs. As an officer of the court, an LIT is required to act objectively and impartially in the administration of an insolvency, and to ensure the rights and obligations of both debtors and creditors are protected. In the case of a consumer proposal this includes a legislative requirement to ensure the fairness and reasonableness of a debtor’s proposal.

About insolvency counselling

The insolvency counselling for consumer debtors that is provided, or provided for, by LITs was introduced as an amendment to the BIA to promote debtor rehabilitation and help avoid repeat bankruptcies. While the requirements related to counselling were subsequently amended, there has been no significant change in the program design or oversight of an LIT’s fulfillment of regulatory requirements for insolvency counselling since 1992.

At the request of the OSB, an evaluation of insolvency counselling was undertaken in 2011, and in 2013 an evaluation report recommended enhancements to the debtor curriculum and delivery approach, as well as ongoing monitoring of results. The OSB has subsequently monitored and reviewed current business practices of LITs who provide for insolvency counselling and has identified opportunities to reduce risks to integrity and compliance associated with some elements of the BIA’s insolvency counselling process.

Legislative Framework

In providing, or providing for, insolvency counselling, an LIT is legally obligated to ensure that they fulfill specific legislative and regulatory obligations. An LIT’s obligation to ensure compliance is the same, regardless of whether they counsel the debtor themselves or rely on another individual to fulfill their duties.

Subsection 157.1(1) and paragraph 66.13(2)(b) of the BIA require that the LIT provide, or provide for, counselling for an individual bankrupt or consumer debtor in accordance with Directives issued by the Superintendent. More specifically, section 157.1 provides for counselling in regards to individual bankrupts, while paragraph 66.13(2)(b) provides for counselling of debtors who file consumer proposals.

Debtors making a consumer proposal are obliged to undergo counselling in order to receive a certificate of full performance (s. 66.38(2) of the BIA). Bankrupts who have refused to attend mandatory counselling are not eligible for an automatic discharge (s. 157.1(3) of the BIA).

Section 131 of the Rules prescribes the fees and expenses that an LIT may charge for counselling. The fee for counselling is $85 per session. In a summary administration bankruptcy, the trustee, in addition to the fees allowed by subsection 128(1) of the Rules, can charge for the costs of counselling (subsection 128(2) of the Rules).

Sections 34 to 53 of the Rules (the Code of Ethics for Trustees) prescribe the professional obligations which an LIT must respect, regardless of the means by which their BIA counselling obligations are fulfilled.

Pursuant to the authority of paragraphs 5(4)(b) and (c) of the BIA, the procedure for counselling is prescribed in Directive No. 1R3 for individuals who made a consumer proposal and persons who became bankrupt.

LIT compliance with current regulatory requirements

Currently, the individuals an LIT may involve in providing insolvency counselling are required to complete a qualification and registration process which primarily addresses insolvency knowledge and experience, with LITs remaining accountable for selecting counsellors in conformance with the BIA, Rules, Directives and OSB position statements.

Through ongoing analysis, information provided by members of the LIT profession, and compliance monitoring and investigation, the OSB has identified a need to strengthen the regulatory requirements surrounding individuals whom an LIT may rely upon to fulfill their responsibility to provide for insolvency counselling, in order to address and prevent non-compliance with the existing regulatory framework. In particular there is a need to address the increasing prevalence in the marketplace of LIT reliance on individuals and organizations whose activities are incompatible with the LIT’s own professional accountabilities for BIA insolvency counselling under the Rules. This includes LITs who rely on referral arrangers as their insolvency counsellors and LITs who rely on third-party debt advisors as their insolvency counsellors.

LITs who rely on referral arrangers as their insolvency counsellors

Although many LITs provide, or provide for, insolvency counselling in full compliance with the intent and objectives of the BIA, one prevalent risk relates to situations in which LITs have established referral arrangements as a means to secure what are often exclusive and sustained relationships for the sourcing of insolvency work from unregulated third parties in the debt advisory industry. These referral arrangements are often characterized by a pattern of activity whereby an individual or organization directs debtors to specific LITs for a professional engagement, and as consideration for the referrals, the LIT demonstrates a pattern of providing for their BIA insolvency counselling by directing all or a proportion of their debtors to the individual or organization that arranged the referrals. Referral arrangements may also arise from other direct and indirect exchanges of consideration.

Many different variations of referral arrangements have been identified by the OSB, based on monitoring and on reporting from members of the profession. Often such arrangements may be explicitly designed to avoid detection of the non-compliant activity through normal OSB monitoring activities. For example, in some cases, rather than basing the arrangement on one-to-one reciprocal referrals, counselling organizations acting as referral arrangers may agree to direct a volume of referrals to an LIT in exchange for a volume of debtors being directed to them for insolvency counselling. In other cases, separate consideration for referrals is provided by LITs in the form of solicited donations to support a non-profit organization’s operations. Lump sum payments or file-by-file payments for third parties may be routed from various accounts to third parties, in ways that are not regularly monitored by the OSB. Such fees may be identified in the LIT’s accounts as “translation fees”, “education fees”, “advertising”, or they may involve LITs paying expenses on behalf of third party counsellors using various other descriptors, to avoid the identification of a referral fee. In association with these activities, some LITs and referral arrangers have also been observed to informally co-locate their BIA related staff and activities with those of non-licensed parties who offer unregulated services. Co-locations have been associated with deceptive practices which may further jeopardize a debtor’s understanding of their rights and obligations concerning their BIA filing.

All such referral arrangements run contrary to existing BIA requirements and the Superintendent’s Directives and policies. In numerous significant ways, referral arrangements compromise the interests of debtors, the transparency of the insolvency process and the independence and objectivity which are essential characteristics of the LIT’s role. Such non-compliant referral arrangements also create an uneven playing field among licensed insolvency professionals and distort the fair and transparent operation of the regulated marketplace. The unlawful nature of such types of arrangements was explicitly reinforced with LITs in an OSB position paper of March 31, 2006. Subsection 202(4) of the BIA provides that contraventions of the Rules are offences punishable by summary conviction and liable to a fine, imprisonment or both. Referral arrangement schemes involving the allocation of BIA counselling funds and other consideration may additionally constitute contraventions of paragraph 202(1)(h) of the BIA.

LITs who rely on third party debt advisors as their insolvency counsellors

Some individuals currently relied upon by LITs when they provide for insolvency counselling also practise as debt consultants with insolvent debtors. These relationships are also often characterized by the same incompatible activities and compliance issues described above with respect to referral arrangements. However, the nature and motivations of third-party advisors with regard to their financial interests in the debtor and their business relationship with the LIT represent additional areas of incompatibility, risk and non-compliance with respect to the integrity of the consumer insolvency process and BIA provisions.

In situations where an LIT relies on a third-party debt advisor to deliver BIA insolvency counselling, the debtor’s BIA obligation to participate in two insolvency counselling sessions at a total regulated cost of $170, is fulfilled by an individual who is concurrently in or pursuing an advisory relationship whereby the debtor is targeted to purchase a range of services before, during or after the term of their insolvency that are not required under BIA provisions, and can cost thousands of dollars. OSB interviews determined that the comingling of regulated and unregulated service offerings often confused vulnerable debtors regarding their rights and obligations with respect to their insolvency. Excerpts from OSB’s recent review of LIT business practices identify a number of related integrity and compliance issues which are associated with third-party debt advisors who are involved in insolvency counselling:

  • In all but one of the files reviewed by the OSB, where the LIT had a working relationship with a debt consultant, LITs complied with their obligation to provide BIA counselling to the debtor by paying the debt consultant with whom they had a working relationship to provide the prescribed counselling. In all of those instances, the debt consultant chosen by the LIT to provide BIA counselling was the same debt consultant who had entered into a debt counselling service agreement with the debtor prior to the insolvency filing.
  • A common observation in the statutory consumer proposal documentation filed by LITs who had ongoing relationships with debt consultants was that the Statements of Affairs and Income and Expense statements filed were inaccurate with regard to the amount and duration of fees owing to the debt consultant. While the structure of debt consultant fees varies, the OSB found they were typically not included at all as a liability or as an expense, and were not identified by the LIT in the context of any investigation of the affairs of the debtor.
  • More often than not, when records were provided by the debtor, it was found that the debt consultant was also charging for additional "financial literacy" consulting services, in addition to, and separate from, counselling fees the debtor paid the LIT for counselling as per the Rules. During interviews [with debtors], it was revealed that debtors were generally unable to distinguish between mandatory BIA counselling and other financial literacy services for which they were paying a debt consultant.
  • Debtors were often also sold supplemental services through the debt consultant and charged additional ongoing fees during the life of their consumer proposal, which further increased their costs. Through continued communications after approval of a proposal, often in conjunction with delivery of BIA counselling, debt consultants may market loans to pay out proposals at high interest rates, new credit instruments at high interest rates, proposal insurance, "credit rebuilding" loans and financial literacy services. Such expenses amounted to thousands of dollars in additional costs during the life of the consumer proposals reviewed.

Beyond the non-compliant nature of the referral arrangements previously described, an LIT’s reliance on a third-party debt advisor to fulfill their insolvency counselling obligations is inconsistent with the LIT’s obligations under BIA Rules 34, 36, 39, 47 and 52. In some cases, activities having been undertaken by the third party who is relied upon by the LIT may additionally constitute an offence, pursuant to paragraph 202(1)(f) of the BIA.

Phased renewal of counselling in insolvency matters

The OSB is proposing to amend the current parameters governing how LITs fulfill insolvency counselling requirements to ensure the intent, objectives and requirements of existing BIA legislative provisions, Rules, Directives and policies are complied with and that the objectives of planned enhancements are achieved. Proposed Directive amendments will be implemented in two phases:

Phase I Objectives

  • Individuals whom the LIT first registers and then designates to provide insolvency counselling have the necessary competencies, knowledge, experience and education and professional ethics to support implementation of an improved insolvency counselling curriculum and delivery mechanism;
  • As a condition of license, an LIT is fully accountable and responsible for the insolvency counselling that a debtor receives;
  • When an LIT provides for insolvency counselling, he/she demonstrate compliance with the relevant BIA requirements and are not involved in activities that are inconsistent with the LIT’s obligations under the Rules, including the avoidance of a real, potential or perceived conflict of interest involving the LIT and the person on whom the LIT has relied when providing for counselling;
  • Individuals designated by the LIT to provide insolvency counselling do not have any real, potential, or perceived conflict of interest with the interests of the debtor they counsel; and,
  • The OSB, LITs and debtors have increased opportunities to identify and report non-compliance related to the provision of insolvency counselling.

Phase II Objectives

  • Ensure the insolvency counselling curriculum is tailored to meet the needs of the majority of debtors who file an insolvency proceeding under the BIA;
  • A modernized delivery model will include on-line self-learning via modules available through the OSB, as well as in-person sessions with the LIT or designated counsellor; and,
  • Facilitate the monitoring and assessment of the outcomes of insolvency counselling to inform future improvements.

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Overview of Proposed Directive No. 1R4: Counselling in Insolvency Matters
Long description for graphic

A table with 4 columns and 4 rows outlines the key proposed amendments to Directive No. 1R3 Counselling in Insolvency Matters

Columns (left to right) are labelled: qualification, registration, designation and delivery.
Rows (top to bottom) are labelled: responsibility, frequency, key elements and OSB.

Qualification column

Responsibility: Potential insolvency counsellor
Frequency: One time

Key elements:

Prerequisites

  • Education:
    • High school diploma (Ref # 13(a))
    • Insolvency Administration Course (CAIRP) or two post-secondary courses (Ref # 13(b))
  • Knowledge:
    • Practical Course on Insolvency Counselling (Currently ICQC) (Ref # 13(d))
    • Insolvency counselling curriculum (Ref # 13(e))
  • Experience:
    • Delivery of fifty BIA counselling sessions under supervision (Ref # 13(f))
  • Transitional provisions:
    • Education waiver (Ref # 36)
    • Experience recognition (Ref # 37)

OSB:
OSB and CAIRP collaboration on PCIC course

Registration column

Responsibility: LIT and LIT-in-charge
Frequency: One time registration and annual renewal

Key elements:

Individual Registration
LIT verifies and attests to eligibility:

  • Education, knowledge, experience (Ref # 13(a-f))
  • Competency (direct observation of 3 sessions) (Ref # 13(g))
  • Liability insurance coverage (Ref # 13(h))
  • No ineligible activities / roles: (Ref # 14)
  • Lending
  • Third party debt advising
  • Referral arranging

Corporate Registration
a) Individual registration complete, and (Ref # 16(a))
b)LIT-in-charge verifies and attests:

  • Employee of Corporate LIT (Ref # 16(b))
  • No third party employment, earnings, or consumer debtor financial interests (Ref # 16(c))
  • Corporate liability insurance coverage (Ref # 16(d))

OSB:

  • Validating registration request from LIT
  • Add counsellor name to public registry of LITs (Ref # 33)
  • Compliance monitoring and enforcement (Ref # 34,35)

Designation column

Responsibility: LIT
Frequency: Each estate or proposal

Key elements:

LIT meets with debtor:

  • Designate a registered counsellor (Ref # 21(a))
  • Opt for in-person or videoconference (Ref # 10)
  • Debtor consents to share info with 3rd party counsellor (if applicable) (Ref # 21(b))

LIT verifies and attests:

  • Counsellor name (Ref # 21(c))
  • Delivery location (Ref # 10)
  • No conflicts of interest (Ref # 18)
  • No consideration beyond counselling fees (Ref # 19)

OSB:

  • Compliance monitoring and enforcement (Ref # 34,35)

Delivery column

Responsibility: LIT
Frequency: Each estate or proposal

Key elements:

Two counselling sessions:

  • Consumer and credit education (Ref # 23)
  • Roadblocks to insolvency (Ref # 24)

Insolvency counsellor declaration to LIT:

  • Reviewed estate file
  • Covered curriculum (Ref # 22-24)
  • No payment or remuneration from debtor (Ref # 19)

LIT verifies and attests: (Ref # 25(a))

  • counselling conformed to process and standards

OSB:

  • Investigating and responding to complaints
  • Compliance monitoring and enforcement (Ref # 34,35)

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