OSB News June 2013

OSB News - June 2013

A word from the Superintendent

I am pleased to introduce another edition of OSB News, which has been published as a vehicle to update trustees and stakeholders for over two years now.

As mentioned at the Canadian Association of Insolvency and Restructuring Professionals (CAIRP) Forum, the OSB will place particular emphasis on the following initiatives in 2013 to 2014.

Updated compliance programs

The OSB is starting to implement its updated compliance framework, which is a multi-year IT-enabled initiative to standardize compliance programs and procedures. Primary elements include the BIA complaints process, trustee compliance and debtor compliance.

While this is largely an OSB internal process, it is intended to yield benefits in terms of consistency across the country. Implementation is not expected to have any direct impact on trustees; however, updates will be communicated regularly with the community.

Debtor compliance programs

The OSB will continue to focus on its debtor compliance programs as a priority. Currently, 90% of the roughly 2,000 examinations we carried out last year were based on cases identified by the OSB. Over the coming year, we intend to develop a trend-analysis capacity to better understand, among other things, which types of cases are best identified by the OSB and which types of cases are best identified by trustees. We will be contacting trustees as we seek to enhance capacity in this area.

I hope you find the updates that follow useful. We welcome your feedback on the various initiatives we have under way.

Bill James
Superintendent of Bankruptcy


Did you know that almost 40% of all consumer insolvencies filed in 2013 were proposals? Or that the number of files being closed and the number of new filings each year are continuing to converge?

These were just a few of the interesting facts presented by the OSB during the 2013 Insolvency & Restructuring May Forums. The event was organized by the Canadian Association of Insolvency and Restructuring Professionals (CAIRP).

Here are some highlights from that presentation.

By the numbers

Over the past three fiscal years, the total number of open files under the Bankruptcy and Insolvency Act (BIA) has increased slightly, while the number of new filings and the number of files that are closed each fiscal year continue to converge.

Figure 1: BIA Insolvency Trends: Volumes

BIA Insolvency Trends: Volumes (The long description is located below the image.)
Long description for Figure 1

This chart is a combination bar graph and line graph called BIA Insolvency Trends: Volumes. The title has an asterisk that notes that data presented include consumer, sole proprietor and corporate files.

The chart shows the trends for new files and closed files in relation to all open files over fiscal years, during the 2007-2008, to 2012-2013 six-year period.

The legend at the top of the chart shows that blue bars represent open files; a red line represents new files; and a green line represents closed files.

The new and closed files use different units from the open files. The y-axis on the left represents the scale for the units for the new files and closed files. Its baseline is 80,000 files and it increases by increments of 10,000, topping out at 170,000. The y-axis on the right represents the scale for the units for the number of open files. Its baseline is 100,000 files and it increases by increments of 50,000, topping out at 400,000.

The x-axis shows the fiscal years, from April 1 to March 31, for 2007–2008, 2008–2009, 2009–2010, 2010–2011, 2011–2012 and 2012–2013. There are two asterisks on the 2012–2013 label that note that the data for 2012–2013 are preliminary results subject to final review.

Based on the blue bars, in 2007–2008, there were about 270,000 open files. The number of open files increased slightly in 2008–2009, to about 275,000, and then jumped to about 310,000 in 2009–2010. There was an even sharper increase in 2010–2011 to about 365,000 open files, before the rate of growth slowed. In 2011–2012, there were about 375,000 open files and then there was an even smaller increase, to about 380,000 open files in 2012–2013.

Based on the red, upper line, in 2007–2008, about 110,000 new files were opened. The red line begins to climb steadily, to about 134,000 new files in 2008–2009, and peaking at about 158,000 new files in 2009–2010. The number of new files then begins to decline, first dropping at almost the same rate to about 135,000 new files in 2010–2011, continuing to decrease, but less sharply, to about 125,000 new files in 2011–2012, and then finishing at about 121,000 new files in 2012–2013.

Based on the green, lower line, in 2007–2008, about 109,000 files were closed, just under the number of new files opened. As the number of new files rose, however, the number of files closed began to decline, with about 100,000 files closed in 2008–2009. The number of files closed rebounded a little in 2009–2010, to about 108,000, before climbing sharply to a peak of about 126,000 in 2010–2011. The number of files closed then began to decrease very slowly, to about 123,000 in 2011–2012 and then to about 120,000 in 2012–2013, just under the number of new files opened that year.

To compare the trends for each file type, all open files were fairly steady until a jump in 2010–2011 and again in 2011–2012, and then the number of all open files levelled out again. In contrast, the number of new files opened almost present a classic bell curve, climbing dramatically from 2007–2008 until 2009–2010, and then dropping at the same rate before decreasing much more slowly in 2011–2012. For files closed, the number dips as the number of new files peaks, and then the number of files closed climbs sharply to come within about 10,000 of new files opened in 2010–2011, before mimicking the same slow decline in the number of new files opened, and staying within about 1,000 to 2,000 files.

Although the number of new filings under the BIA in 2012–13 remained higher than pre-recession levels (2007–08), the composition of these filings shifted significantly over that six-year period: Between April 2007 and March 2013, the number of bankruptcy filings dropped from 87,000 to 73,000, a decrease of 16%, while the number of proposals more than doubled from 23,000 to 48,000, an increase of 109%.

Growth in consumer proposals

The proportion of filings that are proposals has grown at different rates for consumer and business insolvencies.

On the consumer side, close to 40% of all consumer insolvencies filed in 2012 were proposals (39.6%) up from 21.7% in 2008. The BIA amendments that facilitated the filing of proposals are often cited as one of the main reasons for the increase.

On the business side, during the same five year period, the proportion of business proposals increased from 17.2% to 25.7% of total business insolvencies. However, this growth is not due to an increase in the number of proposals filed rather, the main reason for this increase is the decline in business bankruptcy volume, which has fallen 47.5% since 2008.

Figure 2: Insolvency Trends: Proposal Growth

Insolvency Trends: Proposal Growth (The long description is located below the image.)
Long description for Figure 2

This line graph is called Insolvency Trends: Proposal Growth. It compares the changes in the proportion of proposals for insolvencies for consumers and businesses from 2008 to 2012.

The legend at the top of graph shows that a blue line represents the proportion of proposals for consumer insolvencies and a green line represents the proportion of proposals for business insolvencies.

The y-axis presents the scale for the percentage that proposals represent of all insolvency files in a year. Its baseline is 15% and it increases by increments of 5, topping out at 45%.

The x-axis shows the years for the data: 2008, 2009, 2010, 2011 and 2012.

For consumer insolvencies, proposals made up about 22% of files in 2008 and about 23% of files in 2009. The proportion of proposals then increased sharply, to about 31% in 2010 and continued the sharp rise to about 36% in 2011, before increasing slightly less steeply to about 40%t in 2012.

The proportion of proposals in business insolvencies also increased over the period, but much more steadily and not as sharply. Proposals made up about 17% of business insolvencies in 2008, about 19% in 2009, about 22% in 2010, about 24% in 2011 and close to 26% in 2012.

For more data on recent insolvency statistics, read the Insolvency Statistics in Canada—First quarter of 2013 report.

Online submission of ABRs continues to grow

If this year's numbers are any indication, more and more trustees are discovering the benefits of submitting their Annual Banking Report (ABR) electronically. In 2013, 113 trustees submitted a total of 243 reports online through E-Filing.

Electronic submission provides immediate confirmation of receipt. It lowers the risk of errors, reduces shipping and other costs, lessens demands on staff time, and results in fewer follow-up questions and issues.

Thanks to everyone who used E-Filing to submit their ABR this year. If you are still submitting paper-based reports, be sure to take advantage of the convenience, accuracy and speed of online submission in 2014. Should you have any questions regarding filing your ABR electronically, please contact your ABR coordinator.

Abuse and fraud

The Bankruptcy Abuse and Fraud section on the OSB's website was created to raise awareness of the bankrupt's obligations and can assist debtors in complying with their duties under the Bankruptcy and Insolvency Act. The site also helps expose abuses and fraudulent activities by publishing updates on civil and criminal court cases involving debtor misconduct.

The last update was made this week. We encourage you to visit the OSB's website to read the most recent cases.

Trustees identify over 500 files using the Debtor Compliance Referral Program

Since it was first launched in May 2011, the Debtor Compliance Referral Program has resulted in over 500 files being referred by trustees to the OSB for review. The OSB reviews all files referred and informs trustees of the outcome upon completion of its investigation.

The program was created because trustees are in a good position to identify cases of non-compliance that would otherwise not be detected. By encouraging cooperation among stakeholders in the insolvency community, the program provides a mechanism for detecting potential cases of non-compliance, which in turn helps protect the integrity of the insolvency system.

Under the program, trustees refer files to the OSB using a form available online. The OSB is encouraged by the success of the program to date, and will continue to work closely with trustees to make the program an even better tool for identifying suspected cases of non-compliance.

As previously mentioned in the Word of the Superintendent article, over the coming year, the OSB plans to analyze the results of the program further to determine which types of files can be best identified by trustees.

If you have any comments about the program, you are encouraged to send them to the Debtor Compliance team.

OSB seeking trustee comments on e-remittance transition process

In the last edition of OSB News, we reported that, now that the pilot test has ended, the transition to a fully automated process for submitting Remittance Advice forms electronically would be completed by January 2014.

To reach this objective, trustees who are not yet submitting Remittance Advice forms electronically will begin using the new e-remittance process in staggered groups between September 2013 and January 2014. The OSB is looking at different options for managing the transition, such as grouping trustees alphabetically according to firm name or by geographic location (with a separate group for firms that operate nationally).

Although trustees must start filing electronically before an assigned deadline, everyone is encouraged to do so voluntarily at any time before that date. Once a trustee has made the transition to e-remittance, the OSB will no longer accept paper Remittance Advice forms.

The move to e-remittance offers significant benefits over the current paper-based system. Because data are sent directly from the trustee's practice–management software to the OSB, the potential for data-entry errors is greatly reduced. It also lowers trustees' paper consumption and postage costs, and enables trustees to consolidate more payments into a single remittance.

The OSB is seeking comments from members of the trustee community regarding the transition process, in particular grouping options. To provide your feedback or to sign up, please send an email to Colin Frick before .

Candidates to the Trustee Licence–2013 Oral Boards

Eighty-one candidates appeared before Oral Boards of Examination in March and April of 2013, and results indicate that more trustee licences will be issued than in any prior year. Results have now been sent to candidates, and all candidates have been offered an opportunity to receive a debriefing of board members' feedback from the OSB representative who attended their oral board.

Analysis of the results have been posted on the OSB's website. Information on how candidates can arrange for a debriefing on their results is also available on the OSB website under the section How to Become a Trustee.

The OSB thanks the Canadian Association of Insolvency and Restructuring Professionals for its collaboration in identifying trustees and lawyers for this year's boards, which emphasized a competency focussed assessment process. Special thanks are also extended to all those who participated in the oral board process.

Update evaluation of mandatory counselling

An evaluation of the mandatory counselling provided pursuant to the Bankruptcy and Insolvency Act was conducted by the Audit and Evaluation Branch and the report is now available. The evaluation examined the relevance and performance of mandatory counselling.

Overall, the evaluation found that mandatory counselling addresses a continued need and contributes to rehabilitation by helping debtors avoid future financial difficulties.

The evaluation report provides recommendations on opportunities to increase the effectiveness of counselling based on the results of trustee and debtor surveys that took place last fall, as well as other evaluation methods.

In response to the recommendations, the OSB created an action plan to:

  • collect additional performance data
  • identify and facilitate access to tools and products for use by both counsellors and debtors; and
  • examine the current counselling model to see if there are alternative ways to better address the needs of the various debtor groups

Implementation of the OSB's action plan will take place over the next two years and will include engagement with stakeholders in advance of any changes.

Directive on electronic recordkeeping now in effect

The Trustee Electronic Recordkeeping (TERK) directive, which sets out the requirements for electronic recordkeeping by trustees, came into force on .

Directive No. 32 is designed to help trustees comply with their administrative and legal requirements to keep estate records under the Bankruptcy and Insolvency Act, but without dictating the types of technology required.

The directive was put in place to preserve and safeguard the content and use of electronic estate records. It includes provisions aimed at ensuring that electronic documents comply with current legislation, are in a readable format and will be available when needed.

The project started with a pilot project conducted with the trustee firm Lemieux Nolet. Analysis of the information gathered during the pilot project provided the basis for the draft directive, which underwent public consultation last summer.

Mark your calendars: November is Financial Literacy Month in Canada

The Financial Consumer Agency of Canada (FCAC) is laying the groundwork for the third annual Financial Literacy Month (FLM) in Canada and is inviting everyone to mark their calendars and to start planning for November 2013.

The purpose of FLM is to raise awareness of the importance of financial literacy in Canada. The goal is to strengthen Canadians' knowledge, skills and confidence to make responsible financial decisions. Last year, 57 organizations across Canada, from every level of government, the private sector and the voluntary sector, organized workshops, webinars and other events to promote financial literacy. The FCAC, therefore, is encouraging organizations to plan activities and events during FLM.

In September, the FCAC will once again present an online calendar of events on its FLM web page, where Canadians can view the activities and events slated for their city and province, and across the country, that will be held throughout the month of November. Last year's calendar attracted an impressive 265 activities and events from coast to coast; the goal is to surpass that number of activities and events this year.

As details about FLM 2013 become available, the FCAC will reach out to organizations that have already taken part in FLM, as well as new organizations that wish to participate this year. If you would like to add your name or organization to the FCAC's list of participants, or if you have any questions about this year's FLM, please contact the FCAC via flm-mlf@fcac-acfc.gc.ca.

Photo of Bill James, Superintendent of Bankruptcy

When insolvency estates are in need of protection

Where insolvency estates are in need of protection, the Superintendent of Bankruptcy may appoint a guardian trustee to administer the estates. Where appointment of a private trustee is not possible or practical, an OSB employee who is also a qualified trustee will be appointed.

Although not always possible, the OSB believes it is preferable for insolvency estates to be administered by bankruptcy trustees in the private sector. As such, the OSB has made efforts to reduce the number of estates administered internally.

Over the last 15 months, the OSB has reduced the number of estates it administers by 75%. The total value of the trust funds it manages has been reduced by 80%.

The OSB will continue to make efforts to close the estates under its administration and to place newly seized estates, should that become necessary, with private trustees.

Updated position on remedying a default of a Division I Proposal

The OSB is amending its position on the process for remedying a default of a Division I Proposal, which was published on .

It is now the OSB position's that when a debtor seeks to amend a Division I Proposal before it has been annulled by the court (under section 63 of the BIA), trustees are to be guided by the case law in their jurisdiction.

Further, the process to be followed in seeking creditor and Court approval of the amended proposal should be guided by principles of fairness and transparency and should ensure that stakeholders' rights are not prejudiced.

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