Directive No. 10R

Redemption of Security and Section 147 Levy of the BIA

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Directive No. 10R

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The Office of the Superintendent of Bankruptcy (OSB) has amended Directive No. 10, Redemption of Security and Section 147 Levy of the BIA, in order to provide trustees and other stakeholders with clearer direction as to how redemption of security and section 147 levy of the Bankruptcy and Insolvency Act (BIA) should be applied.

The amended Directive states that the levy under section 147 of the BIA is payable on all payments by a trustee to a secured creditor. Two noteworthy exceptions are: (1) when the trustee has acted as agent, receiver or mandatary for the secured creditor in selling the encumbered assets; and (2) when the trustee proceeded with redemption of the security within the meaning of subsection 128(3) of the BIA.

When proceeding with redemption of the security within the meaning of subsection 128(3) of the BIA, trustees must assess the value of the security and amount of the debt before redeeming in full. The assessment shall be made by examining the proof of claim or proof of security submitted by the secured creditor. Also, trustees should only redeem the security if the net price realizable on the sale of the encumbered asset is equal to or greater than the debt or value of the security as per the proof of security or proof of claim. The requirement to file an attestation with the statement of receipts and disbursements remains. The receipts, disbursements and trustee's remuneration must still be recorded in the statement of receipts and disbursements.

Coming into Force

Directive No. 10R, Redemption of Security and Section 147 Levy of the BIA, comes into force on .

Enquiries

If you require further information, please do not hesitate to contact the OSB office nearest you.

James Callon
Superintendent of Bankruptcy


Issued:

(Supersedes Directive No. 10 issued on , on the same topic)

Interpretation

  1. In this Directive,
    • "Act" means the Bankruptcy and Insolvency Act;
    • "Net price" means the gross price paid by the purchaser less the trustee's disbursements and remuneration pertaining to the redemption;
    • "OSB" means the Office of the Superintendent of Bankruptcy.

Authority and Purpose

  1. This Directive is issued pursuant to the authority of paragraphs 5(4)(b) and (c) of the Act.
  2. This Directive is intended:
    • (a) To clarify the operation of section 147 of the Act in the case of the liquidation of encumbered assets and a consequent payment to a secured creditor.
    • (b) It is also aimed at ensuring greater transparency and uniformity in the trustee's presentation of the statements of receipts and disbursements.
    • (c) To ensure that the body of creditors is not penalized in any way and does not bear any cost for the trustee's liquidation of encumbered assets on behalf of a secured creditor.

Sections of the Act concerned:

13.4, 128, 147 and 152.

Policy

  1. Under section 147 of the Act, a levy is payable to the Superintendent of Bankruptcy on all payments (except the cost referred to in subsection 70(2) of the Act) made by the trustee by way of dividend or otherwise on account of the claims of creditors whether unsecured, preferred or secured. The levy is payable when the payments are made by the trustee in its capacity as a trustee in the course of an administration under the Act.
  2. Except in the cases listed in paragraph 7 of this Directive, the section 147 levy is payable on all payments by a trustee to a secured creditor. This principle stands even if a third party, such as a notary public, a liquidator or an auctioneer, makes the payment to the secured creditor for and on behalf of the trustee.
  3. Since the redemption is not a "consensual operation", but rather a unilateral action taken by the trustee with the intention of obtaining an advantage for the estate, it excludes the case of the trustee acting as agent, receiver or mandatary for the secured creditor.

Exceptions

  1. The section 147 levy is not payable on payments by a trustee to a secured creditor in situations where:
    • (a) The trustee has acted as agent, receiver or mandatary for the secured creditor in selling the encumbered assets;
    • (b) The trustee proceeded with redemption of the security within the meaning of subsection 128(3) of the Act.
  2. When proceeding with redemption of the security within the meaning of subsection 128(3) of the Act:
    • (a) The trustee must assess the value of the security and amount of the debt before redeeming in full. The assessment shall be made by examining the proof of claim or proof of security submitted by the secured creditor. If the secured creditor does not produce a proof of claim, it is the trustee's responsibility to take advantage of the provisions of subsection 128(1) of the Act.
    • (b) The trustee should only redeem the security if the net price realizable on the sale of the encumbered asset is equal to or greater than the debt or value of the security as per the proof of security or proof of claim.
  3. Where the trustee has proceeded with redemption of a security within the meaning of subsection 128(3) of the Act, the trustee must file, with the statement of receipts and disbursements, an attestation, pursuant to Appendix I of this Directive, containing the following information:
    • (a) date of receipt of the secured creditor's proof of claim or proof of security;
    • (b) amount due to the secured creditor and valuation of the security;
    • (c) date the encumbered assets are offered for sale and date of sale of the said assets;
    • (d) gross price paid by the purchaser;
    • (e) trustee's disbursements and remuneration pertaining to the redemption; and
    • (f)  date of redemption of the security.
  4. The receipts and disbursements, as well as the trustee's remuneration pertaining to the redemption, must be recorded in the statement of receipts and disbursements. If the trustee makes several redemptions, the trustee must submit an equivalent number of Appendices with the statement of receipts and disbursements.
  5. In the event that the trustee sells unencumbered and encumbered assets in the same transaction, the disbursements must be shared pro rata between these two categories of assets. If another method is used, the trustee must indicate the method used and justify the choice.

Enquiries

  1. For any questions pertaining to this Directive, please contact your local OSB office.

James Callon
Superintendent of Bankruptcy


Appendix I

Attestation Concerning Redemption of the Security

In the matter of the bankruptcy of space to insert name of insolvent person
I, space to insert name of trustee, trustee, report to the Office of the Superintendent of Bankruptcy on the following:

  1. I received the proof of claim or proof of security from the secured creditor, space to insert name of creditor, on space to insert date of reception of proof of security.
  2. According to this proof of claim or proof of security, a sum of $space to insert due sum is due to the creditor. The creditor has estimated his/her security in the amount of $space to insert amount of security.
  3. As trustee, I initiated the sale of the assets on space to insert sale initiation date.
  4. I sold the encumbered assets on space to insert date of encumbered assets sold for $space to insert sum of encumbered assets sold.
  5. The disbursements relating to the redemption are as follows:

    Total
    $space to insert amount of disbursements (first line)

    $space to insert amount of disbursements (second line)

    $space to insert amount of disbursements (third line)

    $space to insert total of amounts of disbursements
  6. The part of my remuneration pertaining to this redemption amounts to $space to insert part of my remuneration pertaining to this redemption.
  7. I redeemed the security of the creditor, space to insert name of creditor , and delivered the amount of $space to insert amount of security to the creditor on space to insert date of redemption.

Dated at space to insert name of city, this space to insert day of month day of space to insert month 20space to insert two last digits of present year.

space to insert signature of trustee
Trustee

Important notice:

The HTML version of this Directive is not the official version. In the event of an inconsistency between the HTML and PDF versions of this Directive, the PDF version prevails. Users are required to exercise due diligence with respect to the HTML version.

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