OSB News May 2014

OSB News - May 2014

A word from the Superintendent

It is my pleasure to present the latest edition of the Office of the Superintendent of Bankruptcy's (OSB's) newsletter. OSB News helps us communicate initiatives and changes taking place at the OSB that have an impact upon you or may be of interest to the insolvency community.

This edition of OSB News highlights some trends in insolvencies and provides updates on matters such as the Debtor Compliance Referral Program and electronic remittance. On the regulatory side, you will find information on important policies and directives that have recently been issued and information on other insolvency matters, such as legislative review and a new process for selecting private sector guardian trustees.

Forums held by the Canadian Association of Insolvency and Restructuring Professionals (CAIRP) throughout the month of May provide us with an opportunity to meet and engage with trustees on priorities and key issues to ensure that together we continue to strengthen the Canadian insolvency system.

I hope you will find the updates that follow useful. We welcome your feedback on the various initiatives we have under way. Please tell us what you think or let the OSB Communications team know if you have a topic you would like to see covered in a future issue of OSB News.

Bill James
Superintendent of Bankruptcy


Insolvency by the numbers

Following are some of the latest statistics on insolvencies in Canada.

Overall volume of insolvencies remains steady

A total of 122,959 new insolvencies were filed in 2013, an increase of just 0.2 percent (208 files) over 2012.

During the economic recession and its immediate aftermath, insolvency volumes reached record highs. Volumes in 2012 and 2013 reflect a return to relative stability.

Figure 1: Total insolvencies in Canada, 2008 to 2013

Total insolvencies in Canada,  2008 to 2013
Long description for Table 1

This line graph is called Total insolvencies in Canada, 2008 to 2013.

The x-axis shows the year for the data points, starting at 2008 and continuing for each year until 2013.

The y-axis shows the number of insolvencies. Its baseline is 100,000 insolvencies and it increases by increments of 10,000 to top out at 170,000 insolvencies. The data points on the line graph are also labelled with the number of insolvencies for the respective year.

The 2008 data point indicates that there were 123,234 insolvencies, rising to 158,441 insolvencies in 2009, which is the highest number of insolvencies in the 2008–2013 period. The number of insolvencies dropped to 140,234 in 2010 and further declined to 127,774 in 2011. The number of insolvencies declined more gradually in 2012, dropping to 122,751—the lowest number of insolvencies in the period shown in the graph—before increasing slightly in 2013 to 122,959.

Consumer proposals as a proportion of insolvencies continue to grow

There were a total of 118,678 consumer insolvencies in 2013, which accounted for 96.5 percent of all insolvencies for the year.

Total consumer insolvency volumes are now below 2009 levels. However, the ratio of bankruptcies to proposals has changed significantly over the years: in 2013, proposals represented 42 percent of all consumer insolvencies, compared with 23 percent in 2009.

In Ontario, proposals represented approximately 51 percent of all consumer insolvencies filed in 2013, a proportion that has been stable for the last three years. In other provinces, the proportion of proposals grew over this same period and currently ranges from 9 percent in Newfoundland and Labrador to 43 percent in Alberta.

National consumer insolvency rate continues to drop

The national consumer insolvency rate dropped for the third straight year in 2012 to 4.4 (the same as the 2008 rate), after peaking at 5.8 in 2009.

Figure 2: National consumer insolvency rate

National consumer insolvency rate
Long description for Table 2

This line graph is called National consumer insolvency rate.

The x-axis shows the year for the data points, starting at 2008 and continuing for each year until 2012.

The y-axis shows the national consumer insolvency rate. Its baseline is 4.0 and it increases by increments of 0.5 to top out at 6.0. The data points on the line graph are also labelled with the national consumer insolvency rate for the respective year.

The line graph indicates that the national consumer insolvency rate was 4.4 in 2008, the lowest rate during the 2008–2012 period. In 2009, the rate jumped to 5.8, the highest level in the period shown in the graph. The rate declined fairly steadily from 2009 to 5.1 in 2010, 4.6 in 2011 and, as it was in 2008, 4.4 in 2012.

Consumer insolvency rates measure the number of consumer insolvencies per 1,000 population and can be used to compare regions with different population sizes.

In 2012, all of the western provinces had insolvency rates below the national average, while the Atlantic provinces and Quebec had the highest rates and were above the national average. Ontario's rate was slightly above and closest to the national average.

Figure 3: Regional Variance in Consumer Insolvency Rate

Regional Variance in Consumer Insolvency Rate
Long description for Table 3

This line graph is called Regional variance in consumer insolvency rate. It presents how much the consumer insolvency rate in the regions differed from the national rate in the period shown.

The legend on the right side of the chart shows that the Atlantic is represented by a blue line with darker blue diamonds for data points; Ontario is represented by an orange line with pink squares for data points; Quebec is represented by a green line with yellow triangles for data points; Manitoba is represented by an aqua line with an aqua X for data points; Saskatchewan is represented by a purple line with purple star-shaped data points; Alberta is represented by a red line with darker red circles for data points; and British Columbia has a teal line with teal crosses for data points.

The x-axis represents the year for the data points, starting at 2008 and continuing for each year until 2012. The years are shown in the middle of the chart, however, because they are labelled on the national rate, which is the baseline represented by a dashed line. Each year label also includes the national consumer insolvency rate for the year:

  • 4.4% in 2008
  • 5.8% in 2009
  • 5.1% in 2010
  • 4.6% in 2011
  • 4.4% in 2012

The y-axis shows percentage points used to display the variance in the consumer insolvency rate for each region from the national rate. The national rate represents zero, with the percentage points increasing by increments of 0.5 to +2.0 going up from zero and decreasing by increments of 0.5 going down to -3.0 from zero.

The consumer insolvency rate was consistently higher than the national rate for the same three regions in the 2008–2012 period: Atlantic, Ontario and Quebec.

The Atlantic region, the blue line, starts as the highest consumer insolvency rate, about 1.3 percentage points higher than the national rate in 2008. It dipped below Quebec in 2009 to about 0.7 percentage points higher than the national rate and then rose to almost 1.5 percentage points higher than the national rate in 2010, which is the highest rate during the period shown on the graph. It dropped to almost the same level as Quebec in 2011, just over 1.2 percentage points above the national rate and remained at about that level in 2012, also matching Quebec.

Quebec, the green line, had the second highest consumer insolvency rate in 2008, just over 1.0 percentage points above the national rate. Quebec's rate didn't fluctuate very much during the 2008–2012 period, remaining at about the same level for 2009—the year in which Quebec had the highest rate—and about the same again for 2010. It rose slightly to reach about 1.2 percentage points higher in 2011, but this rate was slightly below the Atlantic rate. In 2012, Quebec's rate rose slightly again to about 1.3, matching the rate for the Atlantic, with these two regions having the highest rate in 2012.

Ontario, the orange line, is the last region to consistently be above the national consumer insolvency rate during the 2008 —2012 period. Its rate was also the closest to the national rate. In 2008, Ontario's rate was about 0.6 percentage points above the national rate, rising to about 0.8 percentage points above the national rate in 2009. The Ontario rate began to decline in 2010, dropping to about 0.4 percentage points above the national rate, then dropping to about 0.2 percentage points above the national rate in 2011 and less than 0.1 percentage points above the national rate in 2012.

The consumer insolvency rate in all the other regions was consistently lower than the national rate in the 2008–2012 period.

Of those regions below the national rate, Manitoba's consumer insolvency rate, the aqua line, was the closest to the national rate in 2008, about 1.6 percentage points lower. Manitoba did not stay in that position; its rate dropped to about 2.3 percentage points lower than the national rate in 2009, making it the second lowest rate that year. Although Manitoba's rate climbed in 2010, reaching about 2.1 percentage points below the national rate, Manitoba maintained the lowest consumer insolvency rate for the 2010–2012 period. In 2011, Manitoba's rate rose to about 2.0 percentage points below the national rate and then began a gradual decline: first dropping to about 2.2 percentage points below the national rate and then to about 2.3 percentage points below the national rate in 2012, the lowest rate for that year and the second lowest rate overall.

Alberta, the red line, had the next lowest consumer insolvency rate in 2008, although this region was generally the closest to the national rate of those regions that were below the national rate. In 2008, Alberta's rate was about 1.7 percentage points below the national rate. Alberta's rate rose to about 1.4 percentage points below the national rate in 2009 and then rose only slightly above the rate in 2010. Its rate rose to about 1.1 percentage points below the national rate in 2011 before it dropped back down to about 1.4 percentage points below the national rate in 2012.

British Columbia, the teal line, had the second lowest consumer insolvency rate in 2008, about 1.9 percentage points below the national rate. Its rate dipped to about 2.0 percentage points below the national rate in 2009 before rising to about 1.5 percentage points below the national rate in 2010. It stayed at about the same rate in 2011 with a slight increase in 2012, where British Columbia's rate was about 1.3 percentage points below the national rate.

Saskatchewan, the purple line, had the lowest consumer insolvency rate in 2008, about two full percentage points below the national rate. Saskatchewan still had the lowest rate in 2009, when its rate dropped to about 2.5 percentage points below the national rate. In 2010, Saskatchewan's rate climbed above Manitoba's to be about 1.9 percentage points below the national rate. In 2011, its rate climbed slightly, to about 1.8 percentage points below the national rate, before its rate dipped to about 2.2 percentage points below the national rate in 2012.

Business insolvencies down

The volume of business insolvencies declined for the 12th straight year in 2013. It now represents 3.5 percent of the total volume, down from 11.6 percent in 2001, the last year that saw an increase in new business filings.

Highest volume of insolvencies found in construction sector

On an annual basis, construction is the industry sector responsible for the most new filings and this held true in 2013. With 748 new filings in 2013, the construction sector maintained its typical position as the industry with the highest number of insolvencies. Filings by the construction sector represented 17.5 percent of total business insolvencies, accounting for 11.5 percent of total assets and 10.1 percent of total liabilities.


New policy and directive on trustee conduct issued

A new policy and a new directive concerning trustee professional conduct have come into force.

The Overview of Trustee Professional Conduct Proceedings (the Policy) and Directive No. 31, Procedure Governing Trustee Professional Conduct Proceedings (the Directive) reflect the OSB's commitment to effectively investigate and resolve allegations of professional misconduct by trustees through a fair and transparent, and an expeditious, interactive and efficient process.

The Policy and the Directive were informed by input received from stakeholders, such as CAIRP, following publication of drafts for consultation in December 2012.

Key elements include:

  • placing a higher priority on resolving professional conduct matters informally where appropriate;
  • providing specific opportunities for resolution during the investigation phase;
  • providing an opportunity for the parties to pursue mediation with a third party prior to formal adjudication; and
  • adding provisions concerning disclosure and a pre-hearing to facilitate a more effective process at the adjudication stage.

To request more information on the Directive or the Policy, you may send an email to the OSB's Registry.


New trustee licensing directive issued

The OSB has amended Directive No. 13R4, Trustee Licensing, and created Directive No. 13R5, Trustee Licensing.

Taking into account the results of stakeholder consultations, Directive No. 13R5:

  • has been reworked to follow a more logical, life-cycle approach;
  • maintains the current corporate naming provision, which since 2012 has allowed for justifiable exceptions to the naming criterion;
  • replaces the corporate trustee requirement to be a private/closed company with a requirement that a corporate trustee not have a class of shares of the corporation listed on a stock exchange nor be the primary subsidiary of a corporation whose shares are listed on a stock exchange; and
  • no longer includes administrative processes, which can now be found on the OSB's website.

Directive No. 13R5, Trustee Licensing, came into force on March 17, 2014.

For any questions pertaining to this Directive, please contact the OSB licensing team.


OSB moves forward with the development of a renewed model for mandatory counselling

Following an evaluation conducted by Industry Canada's Audit and Evaluation Branch in 2012, the OSB is beginning discussions with experts on counselling regarding renewal of mandatory counselling.

The OSB has established an advisory committee of trustees and registered insolvency counsellors to obtain advice and input from practitioners to ensure that mandatory counselling responds to today's debtors' needs, and reflects counselling best practices and the current business environment.

The objectives of the new model are to ensure that the curriculum reflects best practices and current needs; pursue an innovative, cost-effective and efficient means of delivery; and monitor and assess results.

The OSB will provide updates as work progresses. The draft directive will be posted online for consultation before it is finalized.


Update on 2014 Oral Board of Examination

A total of 74 aspiring trustees recently participated in the OSB's Oral Board of Examination, which was held in seven cities across Canada in March. This was just slightly fewer than the 81 candidates who took the exam in 2013, suggesting that interest in the profession remains high.

The OSB extends its appreciation to the 20 board members—lawyers and trustees from across Canada—who generously offered their time and expertise to provide their licensing recommendations to the Superintendent. The OSB also thanks the CAIRP members for assisting in identifying potential board members.

Results are targeted to be sent to candidates later this month; an analysis of the results will be published on the OSB's website shortly thereafter.

A number of improvements were made to the new competency-based process this year in response to feedback received from candidates and their sponsors. The OSB made a number of new resources available to help candidates better prepare for the boards, including sample questions and answers and an audio recording of a well-crafted response. An article was also published in the spring edition of CAIRP's magazine Rebuilding Success offering tips on preparing for the exam, and the examination format was modified to enhance interaction and to put candidates at ease. Overall, these measures were implemented to assist candidates in preparing to demonstrate their abilities and to help explain the thought process behind their answers to the board's questions.

After they have received their results, candidates who are interested can arrange for a debriefing. Information on how to arrange a debriefing is available on the OSB's website under How to Become a Trustee.


Preparations for review of the BIA and the CCAA
under way

In accordance with legislation, Industry Canada must periodically review the BIA and the Companies' Creditors Arrangement Act (CCAA). As part of this review, Industry Canada, in collaboration with the OSB, is currently conducting an environmental scan of the sector to identify outstanding and emerging issues.

Leading up to this exercise, the OSB has identified and analyzed a number of regulatory and operational issues in support of the review. Informal meetings have taken place with some key stakeholders, including CAIRP, the Insolvency Institute of Canada and other government departments, on specific issues such as student loans, family law and employment.

Once Industry Canada has gathered information, a report will be prepared that will be tabled in Parliament in the fall of 2014. Once tabled, the report will be referred to a parliamentary or Senate committee for review.


Court rulings uphold BIA “fresh start” principle

In recent decisions, the courts have upheld the fresh start principle and also the scheme of distribution of assets prescribed by the BIA.

On December 19, 2013, the Ontario Court of Appeal issued a ruling in Canada (Superintendent of Bankruptcy) v. 407 ETR Concession Company Ltd. (“Moore”). The ruling provides that individuals who owed money to the 407 ETR for unpaid tolls—debts that were discharged by their bankruptcy—could not be prevented by the provision of the Highway 407 Act from renewing their vehicle registration. The Court held that 407 ETR's practice of ignoring insolvency proceedings and enforcing collection of money owed by threatening to deny vehicle registration presented a systemic challenge to the BIA's “fresh start” principle. The Court confirmed that creative attempts to enforce claims released by bankruptcy will not be permitted.

It is important to note that the 407 ETR is seeking leave to appeal to the Supreme Court of Canada, and the Ontario Court of Appeal's decision has been stayed pending the leave application. The Supreme Court of Canada's decision on the leave application is expected May 8, 2014. In the meantime, the 407 ETR is legally entitled to deny vehicle registration to customers who fail to pay outstanding 407 ETR tolls and who have gone bankrupt or who have been released from bankruptcy. This will continue until the customer pays the full amount owing to the 407 ETR (including any pre-bankruptcy amounts) or makes an arrangement with the 407 ETR to pay a lesser amount.

Licensing enforcement against discharged bankrupts has also been the subject of litigation in other provinces. For example, in Moloney v. Alberta (Administrator, Motor Vehicle Accident Claims Act), the Alberta Court of Appeal issued a ruling in 2014 that mirrors the Moore decision. The Court ruled that the province is not entitled to deny the respondent a driver's licence because of the unsatisfied personal injury debt that was discharged in bankruptcy. In pursuing repayment of a claim released by an order of discharge, the province was denying the debtor the right to a “fresh start,” which is a key principle of the BIA. The Court also indicated that provincial legislation could not adversely impact the provision of fair and equal distribution to creditors.


Easier process coming for reporting debtor non-compliance

The Debtor Compliance Referral Program (DCRP) was created because trustees are in a good position to identify cases of non-compliance that would otherwise not be detected. The program encourages trustees to collaborate with the OSB in addressing debtor non-compliance. Since it was first launched in May 2011, the program has resulted in more than 700 files being referred to the OSB, where each file is reviewed.

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.

The OSB is working on a more streamlined approach to submitting files for review. Trustees will be provided with more information on the process in the coming months. If you have any questions about the program, you are encouraged to send them to the Debtor Compliance team.

Photo of Bill James, Superintendent of Bankruptcy

Interested in becoming a guardian trustee?

The OSB has launched a Request for Standing Offer (RFSO) process to establish a list of pre-qualified trustees who can act as guardian trustees upon request in the context of conservatory measures under the Bankruptcy and Insolvency Act (BIA).

Why should I apply now?

The 2014 RFSO application process has been streamlined and designed to minimize the effort required for trustees to apply and qualify. Reporting and billing requirements for the administration of seized estates have been simplified.

Interested trustees are encouraged to review the RFSO free of charge via the Government Electronic Tendering Service.

(Note: Trustees who qualified as guardian trustees under the previous RFSO in 2011 [IC 800075] must submit a new bid because the terms and conditions have changed.)

Full roll-out of e-remittance under way

The OSB has begun rolling out e-remittance to the entire trustee community. The process is being managed alphabetically—firm names starting with “A” to “F” are currently transitioning. Other firms will follow, but trustees may begin using e-remittance at any time prior to their assigned transition window.

Before the roll-out began, over 30 percent of trustees had already volunteered to start using the new, fully automated process for submitting Remittance Advice forms electronically.

The move to e-remittance offers significant benefits over the current paper-based system. Because the 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 aware that a commonly used software package (ISS Insolvency Manager) is no longer being upgraded.

If there are other reasons why trustees have chosen not to participate in the e-remittance process or for more information about the process, please contact the OSB Finance team.

Where to send GST/HST reimbursement cheques for debtors

A reminder that all GST/HST reimbursement cheques for debtors should be sent to the Canada Revenue Agency (CRA) and not to the OSB. For details on where to submit GST/HST reimbursement cheques and other CRA-related documents, please refer to the notice to trustees from the Canada Revenue Agency.

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