ARCHIVED — Rules Amending the Bankruptcy and Insolvency General Rules

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Vol. 143, No. 17 — August 19, 2009

Registration

SOR/2009-218 July 30, 2009

BANKRUPTCY AND INSOLVENCY ACT

P.C. 2009-1208 July 30, 2009

Her Excellency the Governor General in Council, on the recommendation of the Minister of Industry, pursuant to subsection 209(1) of the Bankruptcy and Insolvency Act (see footnote a) hereby makes the annexed Rules Amending the Bankruptcy and Insolvency General Rules.

RULES AMENDING THE BANKRUPTCY AND INSOLVENCY GENERAL RULES

AMENDMENTS

1. The Bankruptcy and Insolvency General Rules (see footnote 1) are amended by adding the following after section 1:

1.1 A stock exchange that is regulated by an Act of Parliament or of the legislature of a province is prescribed for the purposes of the definition “income trust” in section 2 of the Act.

2. Section 18 of the Rules is replaced by the following:

18. All bills of costs for legal services – other than those that do not exceed $2,500 in aggregate, excluding applicable federal and provincial taxes – must be taxed by the taxing officer.

3. Paragraph 20(a) of the Rules is repealed.

4. Section 26 of the Rules is repealed.

5. Subsection 58(4) of the Rules is amended by replacing “108(3)” with “108(2)”.

6. The Rules are amended by adding the following after section 58:

58.1 (1) For the purposes of section 156.1 of the Act, the amount required to be paid under the agreement must not be more than $1,800.

(2) Subject to section 136 of the Act, money from the estate of the bankrupt shall be applied to satisfy the amount to be paid under the agreement.

(3) The trustee shall provide the Superintendent and the bankrupt with a signed copy of the agreement immediately after it is entered into.

7. Paragraph 61(2)(c) of the Rules is repealed.

8. Paragraph 62 of the Rules is amended by adding “and” at the end of paragraph (a) and by repealing paragraph (c).

9. Paragraph 65(3)(a) of the Rules is repealed.

10. Subsection 70(2) of the Rules is replaced by the following:

(2) After service of an application in accordance with this section, a copy of that application must immediately be filed at the office of the registrar.

11. Section 77 of the Rules is repealed.

12. Section 87 of the Rules is replaced by the following:

87. The court may order the trustee to file with the court, before or immediately after the first meeting of the creditors, a copy of the following documents:

(a) the assignment that was filed with the official receiver;

(b) the statement of affairs that was filed with the official receiver; and

(c) the minutes of the first meeting of creditors.

13. The portion of section 94 of the Rules before paragraph (a) is replaced by the following:

94. If an official receiver, under paragraph 57(b.1) or 61(2)(b.1) or subsection 63(6) of the Act, issues a certificate of assignment, the official receiver shall immediately

14. Section 95 of the Rules is replaced by the following:

94.1 The notice to disclaim or resiliate an agreement that is given by the debtor under subsection 65.11(1) of the Act must be served or be sent by registered mail, by courier or, if the recipient agrees, by electronic transmission.

95. The notice to disclaim or resiliate a lease that is given by an insolvent person under subsection 65.2(1) of the Act must be served or be sent by registered mail, by courier or, if the recipient agrees, by electronic transmission.

15. Paragraph 101(3)(a) of the Rules is repealed.

16. The Rules are amended by adding the following after section 103:

PRESCRIBED REGULATORY BODY

103.1 A stock exchange that is regulated by an Act of Parliament or of the legislature of a province, the Investment Industry Regulatory Organization of Canada and the Mutual Fund Dealers Association of Canada are prescribed for the purposes of section 69.6 of the Act.

17. (1) Subsection 105(1) of the Rules is amended by replacing “170.1(6)” with “170.1(2)”.

(2) Section 105 of the Rules is amended by replacing “170.1(5)” with “170.1(1)” in the following provisions:

(a) paragraph (2)(c);

(b) subsection (4);

(c) paragraphs (9)(b) and (d);

(d) paragraphs (12)(d) and (f); and

(e) subsection (20).

(3) Section 105 of the Rules is amended by replacing “170.1(7)” with “170.1(3)” in the following provisions:

(a) paragraph 105(14)(b); and

(b) subsection 105(15).

18. The heading before section 107 of the Rules is replaced by the following:

PREFERENCES AND TRANSFERS AT UNDERVALUE

19. Paragraphs 107(a) and (b) of the Rules are amended by replacing “100” with “99”.

20. (1) Subsections 108(1) and (2) of the Rules are replaced by the following:

108. (1) For the purposes of paragraph 155(d.1) of the Act, the notice of the first meeting of creditors must be sent to the persons referred to in subsection 102(1) of the Act at least 10 days before the day of the meeting.

(2) Subsection 108(3) of the Rules is renumbered as subsection 108(2).

21. The Rules are amended by adding the following after section 121:

TRUSTEE REPORT

121.1 (1) For the purposes of subsection 170(1) of the Act, the circumstances in which the trustee shall prepare a report are the following:

(a) the bankrupt has surplus income;

(b) an opposition to the discharge of the bankrupt has been made;

(c) the bankrupt has been bankrupt on a previous occasion under the laws of Canada or any prescribed jurisdiction; or

(d) a court hearing of the discharge is required.

(2) The report shall be prepared

(a) in the case of an individual who is eligible for an automatic discharge and who has never before been bankrupt under the laws of Canada or any prescribed jurisdiction,

(i) during the eighth month after the date of the bankruptcy, or

(ii) during the twentieth month after the date of the bankruptcy, if the individual is required to make payments under section 68 of the Act;

(b) in the case of an individual who is eligible for an automatic discharge and who has been bankrupt once before under the laws of Canada or any prescribed jurisdiction,

(i) during the twenty-third month after the date of the bankruptcy, or

(ii) during the thirty-fifth month after the date of the bankruptcy, if the individual is required to make payments under section 68 of the Act; and

(c) in the case of an individual who is not eligible for an automatic discharge, not less than 10 days and not more than 60 days before the date of the hearing of the application for discharge.

22. Section 130 of the Rules is replaced by the following:

130. For the purposes of subsections 49(6) and (8) of the Act, the amount is $15,000.

23. The Rules are amended by adding the following after section 137:

NOTICE RELATED TO FOREIGN PROCEEDING

138. For the purposes of paragraph 276(b) of the Act, the notice must contain the following information:

(a) the name and contact information of the foreign representative;

(b) the name of the debtor and the name under which the debtor carries on business in Canada, if any;

(c) the following information respecting the order, namely

(i) the name of the court that made it,

(ii) the legislative provision under which it was made, and

(iii) the date on which it was made;

(d) the country in which the foreign proceeding is filed;

(e) whether the proceeding is a foreign main or foreign non-main proceeding; and

(f) the name and contact information of legal counsel for the foreign representative.

COMING INTO FORCE

24. (1) Except for section 16, these Rules come into force on the day on which section 2 of An Act to establish the Wage Earner Protection Program Act, to amend the Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act and to make consequential amendments to other Acts, chapter 47 of the Statutes of Canada, 2005, comes into force, but if these Rules are registered after that day, they come into force on the day on which they are registered.

(2) Section 16 of these Rules comes into force on the day on which section 37 of An Act to amend the Bankruptcy and Insolvency Act, the Companies’ Creditors Arrangement Act, the Wage Earner Protection Program Act and chapter 47 of the Statutes of Canada, 2005, chapter 36 of the Statutes of Canada, 2007, comes into force, but if these Rules are registered after that day, section 16 comes into force on the day on which they are registered.

REGULATORY IMPACT
ANALYSIS STATEMENT

(This statement is not part of the Rules.)

Issue and objectives

Amendments to the Bankruptcy and Insolvency General Rules and new Companies’ Creditors Arrangement Regulations have been made with regard to two initiatives. The first initiative is a comprehensive legislative reform package that requires corresponding regulatory amendments in order to give effect to the legislative amendments. The second initiative is the Government of Canada’s commitment to reduce the paper burden by 20% as included in Advantage Canada, the 2007 Fall Economic Statement and the 2008 Budget.

Description and rationale

These regulatory amendments and new regulations provide certainty and clarity for stakeholders with respect to recent amendments to insolvency legislation by adding definitions and standardizing information to be provided under the Bankruptcy and Insolvency Act. They also streamline the administrative burden particularly for trustees in bankruptcy.

1. Legislative reform

In 2005, a comprehensive insolvency reform package was introduced in Parliament in the form of Bill C-55 to modernize the Bankruptcy and Insolvency Act (BIA) and the Companies’ Creditors Arrangement Act (CCAA), as well as to create the legislative framework for the Wage Earner Protection Program (WEPP). The Bill received Royal Assent on November 25, 2005, thereby becoming chapter 47 of the Statutes of Canada, 2005 (Chapter 47). Certain technical amendments were required to be made to Chapter 47 before it could be brought into force. Those technical amendments were contained in Bill C-12, An Act to amend the Bankruptcy and Insolvency Act, the Companies’ Creditors Arrangement Act, the Wage Earner Protection Program Act and chapter 47 of the Statutes of Canada, 2005 (Bill C-12). Bill C-12 received Royal Assent on December 14, 2007, thereby becoming chapter 36 of the Statutes of Canada, 2007 (Chapter 36).

The Bankruptcy and Insolvency General Rules are amended in order to give effect to the new provisions in the legislation. In addition, the Office of the Superintendent of Bankruptcy (OSB) has a new mandate under the CCAA. Therefore, new regulations were required under the CCAA in order for the Superintendent to carry out the new mandate and to implement the changes to the legislation. The nature of the amended BIA Rules and the Companies’ Creditors Arrangement Regulations are as follows:

(A) Bankruptcy and Insolvency General Rules

  • Rule that prescribes certain stock exchanges and regulatory bodies for the purpose of the Act;
  • Increase to the asset limit for summary administration bankruptcy estates from $10,000 to $15,000 to allow more bankrupts to qualify for this more streamlined and simplified process of administration of a bankruptcy estate;
  • Rule prescribing the form and manner to send a notice to disclaim or resiliate an agreement in order to increase consistency in this process;
  • Rule regarding the maximum prescribed amount ($1,800) for post-discharge payment agreements between the trustee in bankruptcy and the bankrupt in order to ensure individuals who need access to the insolvency system are able to do so;
  • Rule outlining the prescribed circumstances and times under which the trustee is obliged to prepare a report under section 170 of the BIA in order to streamline the administration of a bankruptcy estate and to decrease the regulatory burden on trustees;
  • Rule describing the information that a foreign representative must include in a notice of the order recognizing a foreign proceeding, which is to be published in a newspaper in Canada, in order to provide consistency, predictability and transparency; and
  • Updates to section references in the legislation that have changed as a result of the legislative amendments.

(B) Companies’ Creditors Arrangement Regulations

The CCAA permits debtor companies with debts exceeding $5 million to make compromises or arrangements with their creditors in order to avoid bankruptcy. The Superintendent of Bankruptcy has a new mandate to create a registry of CCAA filings and to oversee the monitors in CCAA filings. Specifically, the Superintendent is required to keep a public record of filings under the CCAA; may apply to the court to review the appointment or the conduct of a monitor; keeps a record of all complaints regarding the conduct of the monitor; and may make, or cause to be made, any inquiry or investigation regarding the conduct of monitors that he or she considers appropriate. This new role of overseeing the monitor provides increased transparency to the proceedings under the CCAA and protects the integrity of Canada’s insolvency system. Additionally, the monitor, who did not have to be a licensed trustee in bankruptcy prior to the legislative amendments, must now be a trustee licensed by the Superintendent thereby increasing the level of oversight. The new Regulations provide:

  • Regulation that prescribes certain stock exchanges and regulatory bodies for the purpose of the Act;
  • Regulation outlining what prescribed representations are to be included in the report regarding the preparation of the debtor company’s cash-flow statement that must accompany the initial application under the CCAA;
  • Regulation outlining the prescribed manner for giving notice to the monitor of the delegation by the Superintendent under the CCAA;
  • Regulation outlining the prescribed information to be contained in the notice of the order made on the initial application in respect of a debtor company;
  • Regulation outlining the prescribed manner in which the order made on the initial application and a list of creditors are to be made publicly available;
  • Regulation outlining the documents to be filed with the Superintendent of Bankruptcy;
  • Regulation outlining the prescribed documents that the monitor is to make publicly available including the manner and time in which the monitor is to make the documents publicly available;
  • Regulation outlining the prescribed information to be contained in the public record and the prescribed period for keeping the public record;
  • Regulation prescribing the manner in which the notice to disclaim or resiliate an agreement is to be sent; and
  • Regulation describing the information that the foreign representative must include in a notice of the order recognizing a foreign proceeding, which is to be published in a newspaper in Canada, in order to provide consistency, predictability and transparency.

2. Paper burden reduction initiative

The Government of Canada’s commitment to reduce the paper burden by 20% was included in Advantage Canada, the 2007 Fall Economic Statement and the 2008 Budget.

The goal of the initiative is to reduce the administrative burden borne by businesses, by implementing a 20% reduction of the number of federal administrative requirements and information obligations set out in the consolidated statutes and the associated regulations, policies, guidelines and forms for which key federal departments and agencies are responsible.

In keeping with the initiative, certain Bankruptcy and Insolvency General Rules were amended in order to streamline some of the administrative steps in an insolvency file with a view to eliminating unnecessary administrative requirements and information obligations.

These amendments to the Bankruptcy and Insolvency General Rules are the following:

  • Increase from $1,000 to $2,500 the existing cap on the amount that the trustee may pay for legal services without first obtaining court approval. This will streamline administrative steps;
  • Repeal certain rules that are repetitive;
  • Eliminate the circumstances under which the OSB receives copies of the same document from separate stakeholders; and
  • Eliminate any unnecessary filing of documents with the court where no court appearance is required.

Consultation

Both the legislative and regulatory amendments take into account the recommendations of the Senate Committee on Banking, Trade and Commerce which issued a report entitled Debtors and Creditors Sharing the Burden: A Review of the Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act in November 2003. The Report made recommendations on a full range of consumer and commercial insolvency issues as well as on administrative and procedural issues. The Report reflects the input received from a broad spectrum of stakeholders: insolvency practitioners, representatives of the financial and business communities, labour groups, consumers associations and members of the academic community.

The proposed amendments to the Bankruptcy and Insolvency General Rules and Companies’ Creditors Arrangement Regulations were published in the Canada Gazette, Part I, on June 21, 2008, for a 30-day public comment period. During this period, submissions were received from the Canadian Association of Insolvency and Restructuring Professionals (CAIRP), members of the Executive of the Canadian Bar Association’s National Insolvency Section, the Investment Industry Regulatory Organization of Canada (IIROC) and the Mutual Fund Dealers Association of Canada (MFDA). In general, the stakeholders have expressed their support for the amendments. No comments were received from other federal or provincial government departments or agencies.

The following address the comments received during the pre- publication of the Bankruptcy and Insolvency General Rules and the Companies’ Creditors Arrangement Regulations in the Canada Gazette, Part I:

(A) Bankruptcy and Insolvency General Rules

Section 2, which replaces section 18 of the Rules The wording of this Rule has been amended to clarify that bills of cost for legal services in amounts greater than $2,500 must obtain court approval.

Section 16, which adds a heading and Rule 103.1 This Rule has been amended so that it now makes reference to the Investment Industry Regulatory Organization of Canada (IIROC) instead of Market Regulation Services Inc. because, as of June 1, 2008, all of the market regulation operations and liabilities have been assumed by IIROC. The Mutual Fund Dealers Association of Canada (MFDA) is also prescribed.

Section 21, which adds a heading and Rule 121.1 — Stakeholders have suggested that the language prefacing BIA Rules 121.1(2)(a)(i) and (ii) and 121.1(2)(b)(i) and (ii) that states “during the...” should be amended to “before the end of the...”. This recommendation was not adopted because the policy intent is to specify a time frame during which the report is to be prepared so that the information contained in the report is timely.

Rule 121.1(2)(c) is amended to change “40 days” to “60 days.” This increased time frame is more reflective of court processes without increasing it so much that the information would no longer be timely and relevant.

Section 23, which adds a heading and Rule 138 Rule 138(a) has been amended to add the contact information for the representative of the foreign proceedings. This will allow stakeholders to contact the foreign representative directly in appropriate circumstances.

(B) CCAA Regulations

Section 4 — The text in the table has been amended at paragraph “3” to amend the phrase “a set of probable and hypothetical assumptions” such that the provision simply reads, “using the probable and hypothetical assumptions set out in the Notes...” This wording is clearer and more precise because it refers directly to the probable and hypothetical assumptions as referenced in paragraph 1 of the table.

Section 5 This Rule has been amended so that it now makes reference to the Investment Industry Regulatory Organization of Canada (IIROC) instead of Market Regulation Services Inc. because, as of June 1, 2008, all of the market regulation operations and liabilities have been assumed by IIROC. The Mutual Fund Dealers Association of Canada (MFDA) is also prescribed.

Section 9 Regulation 9(a) has been amended to change the requirement for the monitor to file Form 1 from “within eight hours” to “within one business day.” This deadline is more practical for monitors and takes into consideration that the orders are not time-stamped for verification purposes. The policy intent is to have these documents as soon as possible and “within one business day” is reflective of that intent.

Stakeholders have suggested amending Regulation 9(d) and (e) to link the time when the monitor is to provide certain documents to the OSB to the order of discharge of the monitor or the monitor’s filing of a certificate of compliance with the court. This suggestion was not adopted so that the timing of filing the documents with the OSB is standard across the country (i.e. linked to the order of discharge only) and to reflect best practices. Thus, the reference to the “order discharging the monitor” remains. In addition, this standard time frame enables the OSB to collect relevant information for statistical and policy development purposes. It also takes into consideration the concern of stakeholders that the disclosure of post-sanction hearing financial information is undesirable as it may affect the debtor’s competitiveness.

Section 10 The English version of Regulation 10(1)(a) has been amended for clarification.

Section 14 Regulation 14(a) has been amended to add the contact information for the representative of the foreign proceedings. This will allow stakeholders to contact the foreign representative directly in appropriate circumstances.

Finally, some technical amendments were made to the prescribed forms. For example, Form 2 is amended to add to item 3 “other corporation to which the CCAA applies” in order to make the item more complete by covering all categories. Also, on Form 3, an item was added to indicate whether the financial statements were audited or unaudited and to include the name of the auditor. Formatting changes were also made to Form 3 to group together all the questions on the financial statements in order to avoid repetition.

All of these amendments to the Regulations since publication in the Canada Gazette, Part I, are minor and do not substantially impact the policy. Therefore, no further consultations are deemed necessary.

Other comments and suggestions received from stakeholders require further analysis and consultation and cannot be dealt with at this time. They are in the nature of:

  • The classification of creditors, including fragmentation in the CCAA. This issue has not been previously identified in consultations and are not within the scope of this regulatory change.
  • Prescribing the content and/or form of certain CCAA reports. The reports are tailored to the particular circumstances of the file, and the monitor is best placed to determine the content of the report depending on the circumstances pertaining to the particular file.
  • Other documents that the monitor may be required to make publicly available. The documents prescribed in the Regulations are standard documents for any CCAA file. Best practices are that monitors provide additional documents depending on the particular circumstances of a CCAA file.

Implementation, enforcement and service standards

The OSB does not anticipate the requirement for any significant increases to human or financial resources, based on a stable regulatory environment. Only a small number of stakeholders will be subject to the new requirements. The existing compliance and enforcement mechanisms are sufficient and will be applied.

Contact

Sheila Robin, MBA
National Manager
Regulatory Affairs and Parliamentary Review
Office of the Superintendent of Bankruptcy
Industry Canada
Heritage Place
155 Queen St., 4th Floor
Ottawa, Ontario
K1A 0H5
Telephone: 613-948-5006
Fax: 613-948-4080
Email: robin.sheila@ic.gc.ca

Footnote a
 R.S., c. B-3; S.C. 1992, c. 27, s. 2

Footnote 1
 C.R.C., c. 368; SOR/98-240