Guidance on Collecting and Reporting Certain Types of Fees

May 24, 2016

Issue

The Office of the Superintendent of Bankruptcy (OSB) has been asked for clarification on collecting certain types of fees that may appear to be outside of the insolvency system and, where collection of such fees is authorized, how these fees should be reported.

Examples include Licensed Insolvency Trustees (LITs) charging reopening fees, various fees included in fee agreements and fees for consultations with individuals following the LIT’s discharge. Current practices vary regarding collecting these types of fees and their disclosure in the Statement of Receipts and Disbursements (SRD).

Position

It is the OSB’s position that all fees collected during, or in relation to, an insolvency proceeding (i.e., where the LIT has not been discharged) must be disclosed in the SRD as prescribed in s. 152 of the Bankruptcy and Insolvency Act (BIA).

In limited cases, fees charged do not need to be reported in the SRD.

Examples of certain fees required to be reported in the SRD

LITs may charge a reasonable fee for reopening an estate. Where they collect this fee, LITs must deposit it into the estate’s trust account and must report the fee in the SRD pursuant to s. 152 of the BIA. In any particular estate, if an LIT’s fees have been limited to an amount calculated on total receipts no greater than $15,000 (i.e., a summary administration), the LIT may seek to convert the estate to an ordinary administration in accordance with ss. 49(8) of the BIA. To effect a conversion pursuant to a direction, an Official Receiver must determine whether either condition referred to in paragraph 49(8)(a) or paragraph 49(8)(b) of the BIA has been satisfied and, if so, that a conversion is appropriate in the circumstances.

Amounts collected pursuant to voluntary fee agreements under s. 156.1 of the BIA must be reported in the SRD.

With respect to various fees included in fee agreements, LITs should not charge separate or distinct fees for routine duties; otherwise, the OSB may intervene in this practice. If LITs do charge and collect separate or distinct fees, however, they must report these fees as a separate line item in the SRD.

For example, the OSB considers preparation of a post-bankruptcy tax return by an LIT to be a routine duty so LITs must not charge for this service separately.

An LIT may accept payment from a third party (for example, from the president of an insolvent corporation) for acting as a financial advisor to this third party prior to the company filing an assignment. However, the OSB’s position is that the LIT must disclose the amount of the payment in question in the final SRD.

An LIT may assist a debtor with regard to an application under ss. 178(1.1) of the BIA, (hardship application with respect to student loans). If the LIT has not been discharged and charges the debtor for work related to such an application, the monies so charged must be accounted for in the SRD and are subject to applicable provisions relating to tariffs associated with or taxation of accounts.

Examples of certain fees not required to be reported in the SRD

Where the LIT has been discharged, and he or she or another LIT offers services to a debtor in relation to an application under ss. 178(1.1) of the BIA, he or she is permitted to charge the debtor outside of the insolvency proceeding.

An LIT may not act in a dual capacity in relation to a particular estate. However, in certain circumstances, the LIT may act simultaneously for a secured creditor in relation to an estate pursuant to s. 13.4 of the BIA. Where the LIT meets the requirements of s. 13.4, he or she must comply with reporting remunerations as required by ss. 13.4(1.1).

Fees for consultation work after the LIT has been discharged may be charged outside of the insolvency proceeding if administration of the insolvency proceeding is complete and the work does not relate directly to the duties of an LIT. However, LITs must bear in mind ss. 41(10) of the BIA, which states that “[n]otwithstanding his discharge, the LIT remains the LIT of the estate for the performance of such duties as may be incidental to the full administration of the estate.” Fees charged post-discharge for administration of the estate must be reported in the SRD.

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