Directive No. 22R

Proofs of Claim, Proxies, Quorums and Voting at Meetings of Creditors

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Directive No. 22R

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Directive No. 22, Proofs of Claim, Proxies, Quorums and Voting at Meetings of Creditors, has been updated to reflect amendments to subsections 109(6) and 113(1) of the Bankruptcy and Insolvency Act (BIA) (amended by chapter 47 of the Statutes of Canada, 2005) that were overlooked in the drafting of Directive No. 22, which came into force on .

Appendix B of the Directive sets out the eligibility of various types of creditors, at meetings of creditors, to be considered for establishing a quorum, to bring motions and to vote. Two rows of the chart were found to be inconsistent with the new legislation and have been amended accordingly:

  1. Removal of the row "Trustee as creditor" in Appendix B: The old section 113(1) of the BIA stated, "Where the trustee is a creditor or a proxy for a creditor, he may vote as a creditor at any meeting of creditors." 

    The new section 113(1) of the BIA states, "If the trustee is a proxyholder for a creditor, the trustee may vote as a creditor at any meeting of creditors."

    The rationale in the C-55 clause by clause analysis explains that the amendments to subsections 113(1) and (2) eliminate the possibility that a person could be both trustee and creditor in the same file as this would be a conflict of interest and contrary to the Code of Ethics for trustees.

    Rather than explicitly state that the trustee may not be both trustee and creditor in the same file, the legislative amendment simply removes the reference to the trustee as a creditor. The new section explicitly deals with the situation where the trustee is a proxyholder but is silent on the issue of the trustee acting as a creditor.

    In the result, the OSB has opted to remove the entire row "Trustee as a creditor".

  2. Amendment to the row "Creditor not dealing at arm's length in the year prior to the initial bankruptcy event": The old version of Appendix B stated that a creditor not dealing at arm's length in the year prior to the initial bankruptcy event is not considered for establishing a quorum at a first meeting of creditors or for tabling motions and can only vote with Court approval under subsection 109(6) of the BIA.

    The amended subsection 109(6) of the BIA reads as follows: "If the chair is of the opinion that the outcome of a vote was determined by the vote of a creditor who did not deal with the debtor at arm's length at any time during the period that begins on the day that is one year before the date of the initial bankruptcy event and that ends on the date of the bankruptcy, the chair shall redetermine the outcome by excluding the creditor's vote. The redetermined outcome is the outcome of the vote unless a court, on application within 10 days after the day on which the chair redetermined the outcome of the vote, considers it appropriate to include the creditor's vote and determines another outcome".

    Therefore, a creditor not dealing at arm's length in the year prior to the initial bankruptcy event can be considered for establishing a quorum at a first meeting of creditors, for tabling motions and for voting, subject to subsection 109(6) of the BIA.

    Accordingly, the OSB changed all the "Ns" (for "no") in the row to"Ys" (for "yes").

Coming into Force

Directive No. 22R comes into force on April 23, 2010.

Enquiries

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

Att.

James Callon
Superintendent of Bankruptcy


Issued:

(Due to a printing error, this version of Directive No. 22R supersedes Directive No. 22R issued on , on the same topic)

Interpretation

  1. In this Directive,
    • "Act" means the Bankruptcy and Insolvency Act;
    • "OSB" means the Office of the Superintendent of Bankruptcy;
    • "Rules" means the Bankruptcy and Insolvency General Rules.

Authority and Purpose

  1. This Directive is issued pursuant to paragraphs 5(4)(b), (c) and (e) of the Act.
  2. The purpose of this Directive is to clarify the position of the Superintendent with regard to proofs of claim, proxies, quorums and voting at meetings of creditors.

Policy

  1. The trustee shall supply to all creditors a proof of claim and a proxy in the prescribed form.

Information sheet to complete proofs of claim and a proxy form

  1. Creditors may experience difficulty when completing a proof of claim and/or a proxy form. Where appropriate, instructions should be provided with each proof of claim form that explain in detail how to complete the form. A suggested format for the instructions is attached as Appendix A.

Acceptability of proof of claim

  1. In order for a proof of claim to be acceptable, it must be completed in the prescribed form and include all information required by sections 124–128 of the Act. Related jurisprudence on the matter should also be considered when dealing with the acceptability of a proof of claim.

Review of proofs of claim

  1. The chair, at the first meeting of creditors, has the power to admit or reject a proof of claim for the purpose of voting. Prior to the time appointed for the meeting, the trustee shall review all proofs of claim and advise the chair if they are acceptable for the purpose of voting at a meeting of creditors. Often, proofs of claim are filed just prior to the time appointed for the meeting. In this circumstance, it is recommended that the chair open the meeting and then adjourn it for a brief time for the purpose of reviewing the proofs of claim. A person who has filed a proof of claim after the time appointed for the meeting shall not be permitted to vote at that meeting.

Establishing a quorum at the first meeting of creditors

  1. (1) The establishment of the quorum is governed by section 106 of the Act. When applying this section, the term "creditor" does not refer to the number of creditors appearing on the Statement of Affairs. The quorum is established by considering the number of creditors who are present in person or represented by a proxyholder (or by voting letter in a proposal) and have filed and proven their claim in proper form with the trustee before the time appointed for the meeting.

    (2) Where a voting letter is filed in a proposal, supported by a proven claim, the letter is to be considered as if the creditor were present and is to be voted in accordance with the direction contained therein. A quorum under section 106 of the Act can be established in this manner.

Accepting proofs of claim to establish a quorum, to table motions and to vote

  1. Providing that the proof of claim is in proper form and is filed with the trustee prior to the time appointed for the meeting, the types of claims presented in Appendix B will be dealt with in the manner shown as to whether or not they are to be considered for:
    • (a) establishing a quorum at a first meeting of creditors;
    • (b) tabling motions before the meeting;
    • (c) voting on an ordinary resolution;
    • (d) voting on a proposal; and
    • (e) voting on a special resolution.

Proxy

  1. (1) It is not necessary that a proxy be filed with the trustee before the time fixed for the meeting as section 109 of the Act only applies to proofs of claim.

    (2) A proxy may be filed in the form of a letter or any form of telecommunication at any time prior to a vote.

    (3) The proxy does not have to be under the seal of the company unless the incorporating act or the bylaws of the company require it.

    (4) The person designated in a proxy cannot be substituted unless the proxy provides for a power of substitution.

  2. If a proxy is signed in blank and sent to the trustee, there is a tacit authority for the trustee to vote with the said proxy.

Objection to the proof of claim

  1. (1) For the purpose of a quorum or voting, when ruling on the admissibility of a proof of claim, or any part thereof, the chair must ensure that the documents are in their prescribed form and available at that time.

    (2) Pursuant to subsection 108(3) of the Act, the proof of claim should only be marked as "objected to" when the chair is in doubt as to whether or not a proof of claim should be admitted or rejected. If a proof of claim is marked as "objected to," the creditor shall be allowed to vote subject to the vote being declared invalid in the event of the objection being sustained.

Failure to establish a quorum at the first meeting of creditors

  1. Subsection 106(2) of the Act establishes the procedure to be followed where there is no quorum at the first meeting of creditors. In this circumstance, the appointment of the trustee is deemed confirmed and the chair can either adjourn the meeting to a new time or place or may adjourn the meeting without fixing a time or place for a future meeting.
  2. In a Division I Proposal, subsection 54(2.2) of the Act provides that where there is no quorum of secured creditors in respect of a particular class, that class shall be deemed to have voted for the refusal of the proposal.
  3. In a Division II Proposal, subsection 66.18(2) of the Act provides that where there is no quorum at a meeting of creditors, the consumer proposal shall be deemed to be accepted by the creditors.
  4. It would be considered proper for the trustee to contact creditors to encourage their participation or presence at any meeting of creditors.

Coming into Force

  1. Directive 22R comes into force on May 10, 2010.

Enquiries

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

James Callon
Superintendent of Bankruptcy


Appendix A

Checklist for Proof of Claim

This checklist is provided to assist you in preparing the proof of claim form and, if appropriate, the proxy form in a complete and accurate manner. Please check each requirement.

General

  • The signature of a witness is required.
  • The document must be signed by the individual completing the declaration.
  • Provide the complete address where all notices or correspondence are to be forwarded along with your phone number, fax number and email address where appropriate.

Notes

  • It is permissible to file a proof of claim by fax.
  • A creditor may vote either in person or by proxy at any meeting of creditors if the proof of claim is filed with the trustee prior to the time appointed for the meeting.
  • A quorum at any meeting of creditors consists of at least one creditor with a valid proof of claim in attendance in person or by proxy.
  • A corporation may vote through an authorized agent or mandatary at meetings of creditors.
  • In order for a duly authorized person to have a right to vote, they must be a creditor or be the holder of a properly executed proxy. The name of the creditor must appear in the proxy.
  • A creditor who is participating in any distribution from an estate must have filed a proof of claim prior to the distribution being declared.
  • In the case of an individual bankrupt, by checking the appropriate box or boxes at the bottom of the proof of claim form, you may request that the trustee advise you of any material change in the financial situation of the bankrupt or the amount the bankrupt is required to pay into the bankruptcy, and a copy of the trustee's report on the discharge of the bankrupt.

Paragraph 1

  • The creditor must state the full and complete legal name of the individual, company or firm.
  • If the individual completing the proof of claim is a representative of the creditor, the individual's position or title must be identified.

Paragraph 3

  • The amount owing must be set out in paragraph 3.
  • A detailed statement of account must be attached to the proof of claim and marked "Schedule A" and must show the date, number and amount of all invoices or charges, together with the date, number and amount of all credits or payments. The amount on the statement of account must correspond to the amount indicated on the proof of claim.

Paragraph 4

Notes

  • Paragraph A applies to ordinary unsecured claims. In addition to recording the amount of the claim, please indicate whether the claim has a priority pursuant to section 136 of the Act.
  • Paragraph B applies to lessor claims in a commercial proposal. Please ensure that the claim applies to a commercial proposal and, if so, include the full particulars of the claim.
  • Paragraph C applies to secured claims. Please indicate the dollar value of the security and attach copies of the security document. In addition, please attach copies of the security registration documents, where appropriate.
  • Paragraph D applies to inventory claims of farmers, fishermen and aquaculturists. Please note that such claims apply only to inventory supplied from farmers, fishermen and aquaculturists within 15 (fifteen) days of the date of bankruptcy. In addition, please attach copies of any applicable sales agreements and delivery slips.
  • Paragraph E applies to claims by wage earners. Please note that such claims apply only for unpaid wages owed upon the bankruptcy of an employer or when the employer becomes subject to a receivership.
  • Paragraph F applies to claims by employees for unpaid amounts regarding pension plans. Please note that such claims apply only to unremitted pension contributions outstanding when the sponsoring employer becomes bankrupt or is subject to a receivership.
  • Paragraph G applies to claims against directors. Please note that such claims apply only to directors of corporations that have filed a commercial proposal to creditors that includes a compromise of statutory claims against directors.
  • Paragraph H applies to claims of customers of a bankrupt securities firm. Please ensure that the claim of the customer is for net equity and, if so, include the full particulars of the claim, including the calculations upon which the claim is based.

Paragraph 5

  • All claimants must indicate whether or not they are related to the debtor, as defined in section 4 of the Act, or dealt with the debtor in a non-arm's-length manner.

Paragraph 6

  • All claimants must attach a detailed list of all payments or credits received or granted as follows:
    • (a) within the three (3) months preceding the initial bankruptcy event (including the bankruptcy or the proposal);
    • (b) within the twelve (12) months preceding the initial bankruptcy event (including the bankruptcy or the proposal) in the case where the claimant and the debtor were not dealing at arm's length.

Proxyholder

Note

The Act permits a proof of claim to be made by a duly authorized representative of a creditor but, in the absence of a properly executed proxy, does not give such an individual the power to vote at the first meeting of creditors nor to act as the proxyholder of the creditors.

General

  • In order for duly authorized persons to have a right to vote, they must themselves be creditors or be the holders of a properly executed proxy. The name of the creditor must appear in the proxy.

Notes

  • A creditor may vote either in person or by proxyholder.
  • A proxy may be filed at any time prior to a vote at a meeting of creditors.
  • A proxy can be filed with the trustee in person, by mail or by any form of telecommunication.
  • A proxy does not have to be under the seal of a corporation unless required by its incorporating documents or its bylaws.
  • The individual designated in a proxy cannot be substituted unless the proxy provides for a power of substitution.
  • Bankrupts/debtors may not be appointed as proxyholders to vote at any meeting of their creditors.
  • The trustee may be appointed as a proxyholder for any creditor.
  • A corporation cannot be designated as a proxyholder.

Appendix B

Types of Creditors and Quorum/Motion
Type of Creditor Quorum Motion Ordinary Vote Proposal Vote Special Resolution Comments
Fully or partly secured creditor (secured balance) YFootnote 1 NFootnote 2 N Y N In a proposal, can only vote and be included in the quorum in its class. In a bankruptcy, cannot vote and cannot be included in the quorum.
Unsecured creditor Y Y Y Y Y Includes the unsecured portion of a partly secured claim.
Creditor with an undischargeable debt (section 178 of the Act) Y Y Y Y Y
Creditor with a contingent claim N N N N N Does not have a provable claim until it has been valued by the trustee (subsection 135(1.1) of the Act).
Creditor with an objected claim Y Y Y Y Y A creditor with an objected claim can vote subject to the vote being declared invalid by the Court (subsection 108(3) of the Act).
Creditor with a disallowed claim N N N N N
Creditor voting by voting letter in a proposal Y N N Y N
Claim of related party Y Y Y YFootnote * Y
Claim of employees and directors Y Y Y Y Y Cannot vote for the appointment of the trustee or inspectors (subsection 113(3) of the Act).
Trustee holding a proxy for a creditor Y Y Y Y Y Cannot vote on remuneration or conduct (subsection 113(2) of the Act).
Creditor not dealing at arm's length in the year prior to the initial bankruptcy event Y Y Y Y Y Permitted to vote, but if vote is determinative of outcome, chair redetermines outcome by excluding that vote. Redetermined outcome is the outcome unless an application is made and the Court determines another outcome (subsection 109(6) of the Act).
Claims acquired after bankruptcy Y Y Y Y Y Can vote only if the entire claim is acquired (subsection 110(1) of the Act).
Creditor secured by bill or note Y Y Y Y Y Can vote on the amount owing after deducting amounts recoverable from antecedent makers (section 111 of the ActFootnote 3.
Creditor with a proof of claim (property) N N N N N Not a creditor (section 81 of the Act).
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