OSB News – 2021 edition
Table of contents
- A word from Elisabeth Lang, Superintendent of Bankruptcy
- A review of the OSB’s executive structure
- Trustee licensing – changes requiring prior approval
- Opportunities to Enhance the Usefulness of the Insolvency Counselling Sessions
- Notices of Intention and Division I Proposals – holding proposals
- OSB and CAIRP Initiatives on Diversity and Inclusion
- Updated bankruptcy abuse and fraud section on OSB Website
- Ontario principal residence equity exemption
- No unclaimed dividends or undistributed funds to OSB in a CCAA Matter
A word from Elisabeth Lang, Superintendent of Bankruptcy
After a one-year hiatus due to our focus on COVID priorities and an abundance of notices issued to Licensed Insolvency Trustees (LITs) in 2020, it is my pleasure to share this issue of the OSB News, the official newsletter of the Office of the Superintendent of Bankruptcy (OSB).
In brief, COVID required all insolvency stakeholders to act swiftly to mitigate the devastating impact on debtors, businesses, and the economy. In addition to providing as much flexibility as possible to help LITs continue to deliver, the OSB mobilized to obtain court orders in all Canadian provinces and territories to provide much needed relief for approximately 500,000 Canadian debtors. At the same time, the OSB had to adapt operational activities and systems to accommodate remote work, necessitated by the pandemic.
In our last edition of OSB News, I presented the OSB’s 2019-20 Business Plan, built on our three strategic objectives - engagement, compliance and organizational excellence - that would guide OSB's business priorities for 2020 and beyond. This past September, I presented virtually at the 2021 Canadian Association of Insolvency and Restructuring Professional (CAIRP)’s Annual General Meeting, where I provided updates on our progress. The updates are now available in our Report on 2020-21 Business Plan Priorities.
Thanks to the feedback received from stakeholders, the OSB is making positive changes in terms of modernizing and improving the regulatory framework, helping debtors make informed decisions about insolvency options and making progress, in collaboration with CAIRP, to increase diversity and inclusion in the LIT profession. We have also taken steps to strengthen our compliance framework. Leveraging state of the art technology has contributed to more efficient and effective compliance activities and our in-house operational training continues to ensure our employees are equipped to deliver.
While we have made good strides in building on our priorities while adapting our activities and operations in response to COVID-19, we still have work to do, as outlined in our 2021-22 Business Plan. I look forward to continued engagement with insolvency stakeholders in 2022, and hope that we get an opportunity to meet in person soon. In the meantime, happy reading and stay well.
A review of the OSB’s executive structure
Following the establishment of the OSB’s strategic objectives in 2018, engagement, compliance and organizational excellence, and based on feedback received from OSB employees and external stakeholders as well as significant study and analysis, I initiated a review of the OSB’s Executive structure. Changes were introduced in the spring of 2021 and the OSB continues to incorporate adjustments to this new structure.
The changes being implemented are driven by a need to modernize our regulatory activities to ensure the OSB is increasingly agile and capable of anticipating and addressing compliance risks now and in the future. The changes are also aimed at increasing the OSB’s capacity and focus to address the most egregious cases of non-compliance and insolvency offences, as well as issues which may arise in large, complex files whether they be filed under the Bankruptcy and Insolvency Act (BIA) or Companies’ Creditors Arrangement Act (CCAA). I encourage you to read further to see what these changes entail.
Integrity and Enforcement
The OSB established a new Integrity and Enforcement branch (I&E), predominantly to handle low volume / high impact insolvency issues which require unique training and skill sets.
I&E consolidates the OSB’s three Special Investigation Units (SIUs) under a single Executive to enhance efficiency, cooperation, and national consistency, with a mandate to ensure that serious insolvency offences are investigated and referred for prosecution.
Additionally, a new Major Case Unit was created to handle the most serious cases of non-compliance and to deal with high profile and complex cases, whether they be filed under the BIA or CCAA. Professional Conduct Investigations and Conservatory Measures now also fall under the purview of the Major Cases Unit.
Innovation and Transformation
There have been many changes in Canada’s insolvency landscape, with new technologies and ever-evolving risks presenting themselves. To keep pace with these changes, the OSB must continue to innovate and adapt. The Innovation and Transformation branch (I&T) will focus on implementation of new technologies, as well as researching initiatives to help us better understand potential changes in the insolvency landscape so we are better positioned to respond to them effectively.
Regulatory Policy and Public Affairs
The branch previously know as Program Policy and Regulatory Affairs (PPRA) has had the Communications and Outreach unit added to the team and was renamed Regulatory Policy and Public Affairs (RPPA). RPPA is responsible for Policy and Regulatory Affairs, Licensing, Training, and Communications and Outreach.
The OSB acknowledges the significant value in focusing on compliance promotion, which is well recognized as a highly efficient and effective compliance technique. The Communications team will work closely with Policy and Regulatory Affairs, Operations and I&E to better promote compliance which includes providing timely guidance to ensure stakeholders have a clear understanding of what is expected.
A senior deputy superintendent oversees Operations and provides leadership in program delivery, with an increased focus on compliance promotion and a risk-based approach. The position continues to have the three Regions under its umbrella, and the structure continues to consist of a regional director and deputy director for each region, who provide leadership to the assistant superintendents and Operations staff. The senior deputy superintendent is responsible for providing the superintendent with an Operations-specific perspective on program and policy issues, as they relate to the BIA.
A new National Programs team has also been established to bring a more comprehensive approach to the OSB’s oversight programs.
Corporate Services will continue to oversee the following teams: Finance and Revenue; Planning, Evaluation and Project Management; Human Resources; Information Management; and National Administrative Services.
A new special advisor position is being created, reporting directly to the superintendent, to provide strategic advice and support to the superintendent and the executive team.
I am confident that these changes will benefit both the OSB and its stakeholders and position us as a modern and effective regulator today and for the future.
Compliance – LITs Duty to Cooperate
The recent Ontario Court of Appeal decision in Law Society of Ontario v. Diamond, 2021 ONCA 255 (CanLII), provides a reminder of the professional conduct expected of regulated professionals including Licensed Insolvency Trustees (LITs), such as the duty to cooperate with the Office of the Superintendent of Bankruptcy (OSB) promptly and fully in day-to-day regulatory oversight interactions.
Pursuant to sections 36 and 37 of the Bankruptcy and Insolvency General Rules (Rules), LITs are required to perform their duties in a timely manner with competence, honesty, integrity, and due care. LITs must cooperate fully with the OSB, and disclose information upon request pursuant to paragraph 5(3)(e) of the Bankruptcy and Insolvency Act (BIA) and Rule 37. Any information relevant to whether an LIT has acquitted themself of their duties under the BIA it must be disclosed.
The Superintendent has a mandate to supervise the administration of all estates and matters to which the BIA applies pursuant to subsection 5(2). Further to this mandate, the Superintendent is specifically required to make inquiries or investigations of estates or matters under the BIA, as she may deem appropriate, including such inquiries or investigations into trustee conduct. The Superintendent has the right to access, examine and make copies of all books, records and data relevant to an inquiry or investigation relating to any estate.
While remote work has facilitated much of our day to day work in many ways, it has also presented various challenges. LITs are reminded that when requested documents and records are not provided to the OSB in a timely manner, such a failure to cooperate may constitute professional misconduct leading to licence sanctions.
Compliance – remote assessments
On March 13, 2020, the OSB issued a Notice to LITs entitled “Temporary Guidance for LITs During the COVID-19 Pandemic.” The notice stated:
“The OSB recognizes the COVID-19 pandemic is an extraordinary circumstance and, until further notice, no separate approval will be required to conduct assessments using methods other than in-person. Where video-conferencing is not feasible, assessments may be performed via a combination of telephone discussion and email for document receipt.”
On June 8, 2020, the OSB clarified that until March 31, 2021, no separate approval would be required to conduct assessments using methods other than in-person for those areas where LITs have an approved resident or non-resident office as per OSB records.
Due to continued uncertainty caused by the ongoing pandemic, on January 4, 2021, the OSB extended the option for LITs to conduct assessments using methods other than in-person until December 31, 2021, for those areas where LITs have an approved resident or non-resident office as per OSB records.
LITs are reminded that they may not accept insolvency filings in locations where they do not maintain a resident or non-resident office and may face consequences including a professional conduct proceeding.
Trustee Licensing – changes requiring prior approval
Section 46 of Directive No. 13R7, Trustee Licensing, outlines Licensed Insolvency Trustees’ (LITs) obligations to obtain the Superintendent’s prior approval before making certain changes to their business practice. In particular, section 46(d), stipulates that mergers and purchase agreements of corporate trustees require the superintendent’s prior approval.
Part IX: Changes Requiring Prior Approval
The LIT shall submit an electronic request through the OSB Licence Administration Application (OLAA) to the Superintendent and receive prior approval before any of the following changes can be effected:
- A change to the LIT’s resident office or business address (within the same district);
- A change to the LIT’s district (transfer or extension);
- A change to the individual LIT’s licence or practice, including a change or departure from the firm with which the LIT is associated, a change to the LIT’s administrative status, retirement or cancellation of the individual LIT’s licence; and
- A change to the corporate LIT’s licence or practice, including a change to the corporate name, a change to the corporate structure, a merger or purchase agreement between two or more corporate LITs, or cancellation of the corporate LIT’s licence.
LITs are reminded that they are required to submit a written request to obtain the Superintendent’s prior approval before scheduling an application to court for the transfer of estates. This request should be made as soon as possible. Licensing Services may require additional information regarding the sale or merger and the approval process may take several weeks.
Requests for prior approval of a merger or purchase must also be provided as soon as possible as Licensing Services must ensure that all the requirements for a merger or purchase have been met and may require additional information before submitting the request to the Superintendent. LITs can be assured that any proposed merger or purchase will be kept confidential by the OSB.
All requests for prior approval should be submitted via the OLAA.
Opportunities to Enhance the Usefulness of the Insolvency Counselling Sessions
In 2018 and 2019, the Superintendent made a series of amendments to the insolvency counselling directive that sought to enhance and modernize the insolvency counselling program by establishing education and experience requirements for insolvency counsellors, enhancing flexibilities for the delivery of counselling, updating the insolvency counselling curriculum, and adding performance data to help measure the effectiveness of the program.
In its oversight capacity, the Office of the Superintendent of Bankruptcy (OSB) has an interest in understanding what conditions are correlated with the optimal insolvency counselling outcomes. To support this, the OSB has completed a review of the counselling performance data received to date. The full report is accessible on the OSB’s website.
The review found that insolvency counselling appears to have a positive impact on debtors and most debtors found the insolvency counselling sessions useful. Furthermore, analysis found the following factors are corelated with increased perceived usefulness from debtors: the use of the online modules, 30‑minute insolvency counselling sessions, insolvency counselling by videoconference, and completion of both a budget and financial goals. LITs and insolvency counsellors should examine this information to determine how they can improve their counselling offerings.
The OSB will continue to review insolvency counselling performance data to help measure the effectiveness of the program in support of the financial rehabilitation of debtors.
Notices of Intention and Division I Proposals – holding proposals
As Licensed Insolvency Trustees (LITs) are aware, subsections 50.4(8) and (9) of the Bankruptcy and Insolvency Act (BIA) provide time limits for extensions of a Notice of Intention before a Division I proposal must be filed, and subsection 50.4(10) of the BIA expressly provides that these timelines cannot be extended by the court. A “holding proposal,” which essentially consists of a notice setting out the debtor’s intention to file a proposal, should no longer be used in areas where the courts are fully operational, whether virtually or in-person. In the event that courts are not fully operational, every effort should be made to file a proposal within the prescribed timelines.
OSB and CAIRP Initiatives on Diversity and Inclusion
The Office of the Superintendent of Bankruptcy (OSB) and the Canadian Association of Insolvency and Restructuring Professionals (CAIRP) have joined forces in an effort to increase representativeness within the LIT profession. Increasing representativeness within the LIT profession was established as a priority in the OSB’s 2019-20 Business Plan, based on the premise that fostering diversity and inclusion will help sustain and build productivity, innovation and public confidence in the insolvency system.
Some of OSB and CAIRP's recent initiatives include research to better understand the level of diversity within the insolvency profession, convening a Representativeness Roundtable comprised of LITs from across the country to share best practices and identify areas for improvement, implementing a self-identification data collection tool within the OSB Licence Administration Application, publication of a Joint Statement on Representativeness, and the recently published OSB/CAIRP Guide to Promote Diversity and Inclusion.
In recent years, most private and public entities have been turning their minds to how they can increase diversity and inclusion, given the proven benefits. This commitment to diversity and inclusion has been seen not only in the Speech from the Throne, and numerous federal, provincial and territorial government initiatives, but also internationally through the work of the International Association of Insolvency Regulators Diversity Community of Practice, of which the Superintendent is a member. Private sector entities, including many financial and insolvency firms have also taken a leadership role in implementing programs, policies and processes to support diversity and inclusion.
Both the OSB and CAIRP believe that a diverse and inclusive LIT profession, with a broad range of perspectives, may better serve the complex needs of financially burdened Canadians. The OSB and CAIRP encourage insolvency professionals to join in fostering and advocating for diversity and inclusion within their organizations.
Updated Bankruptcy abuse and fraud Section on OSB Website
The Office of the Superintendent of Bankruptcy (OSB) has updated the Bankruptcy abuse and fraud section on its website and has added a selection of more recent criminal case summaries. The section provides an overview of abuse and fraudulent activity by debtors within the insolvency system. The content focuses on the duties of the bankrupt, provides information on what constitutes non-compliant behaviour, and includes real-life examples of criminal convictions which can be a useful deterrent to debtor non-compliance.
Ontario principal residence equity exemption
Based on information provided to the Office of the Superintendent of Bankruptcy, it appears that some Licensed Insolvency Trustees are not aware that a difference exists between the principle residence exemption rules in Ontario from those in other provinces. While, the Bankruptcy and Insolvency Act (BIA) exempts certain property of the bankrupt from execution or seizure, sections 2(2) and (3) of the Ontario Execution Act effectively operate to allow a forced seizure and sale of a debtor’s principal residence if the value of the residence exceeds the prescribed amount (currently $10,783), regardless of whether the debtor’s equity is at or below the prescribed amount.
The provisions are as follows:
Execution Act, R.S.O. 1990, c. E.24
Principal residence of debtor
2(2) The principal residence of a debtor is exempt from forced seizure or sale by any process at law or in equity if the value of the debtor’s equity in the principal residence does not exceed the prescribed amount. 2010, c. 16, Sched. 2, s. 3 (5).
Principal residence exceeding exempted value
2(3) Despite subsection (2), if the value of the debtor’s principal residence exceeds the prescribed amount, the principal residence is subject to seizure and sale under this Act.
Another important difference, is that there is no provision in the Ontario Execution Act for the debtor to receive amounts up to the dollar amount of the equity exemption from the sale proceeds. In other provinces, such as British Colombia, Alberta, and Manitoba, legislation explicitly allows debtors to retain amounts up to the exempt equity limits when the principal residence is sold.
No unclaimed dividends or undistributed funds to OSB in a CCAA matter
Licensed Insolvency Trustees acting as monitors in Companies’ Creditors Arrangement Act (CCAA) matters are reminded that there is no provision to allow unclaimed dividends (UDs) or undistributed funds (UFs) to be submitted to the Office of the Superintendent of Bankruptcy (OSB). The Superintendent’s mandate per the CCAA is limited to addressing the conduct of monitors and maintenance of the public record. The Superintendent cannot accept UDs or UFs in a CCAA proceeding as there is no such provision in the CCAA and Parliament has not provided the Superintendent with the resources or mandate to address this issue. No monitor should ask the Court to impose additional mandates on the Superintendent, and no issue implicating the Superintendent should be raised without notice to the Superintendent, as this denies the Superintendent the opportunity to inform the court of the inappropriateness of the relief. The treatment of possible UDs or UFs should be addressed in the CCAA plan (recent examples include redistribution to other creditors, distributions to charity, or a return to the debtor company). Any UDs or UFs submitted to the OSB in a CCAA matter will be returned to the monitor with a requirement that it remedy the situation. This practice may also lead to compliance action by the OSB.
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