Vol. 142, No. 25 — June 21, 2008

Rules Amending the Bankruptcy and Insolvency
General Rules

Statutory authority

Bankruptcy and Insolvency Act

Sponsoring department

Department of Industry

(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 are proposed 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 will provide certainty and clarity for stakeholders with respect to recent amendments to insolvency legislation by adding definitions and standardizing information to be provided. They will also streamline the administrative burden particularly for trustees in bankruptcy.

1. Legislative reform

In 2005 a comprehensive insolvency reform package was introduced in Parliament 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).

In order to give effect to the new provisions in the legislation, the Bankruptcy and Insolvency General Rules need to be amended. In addition, the Office of the Superintendent of Bankruptcy (OSB) will have a new mandate under the CCAA. Therefore, new regulations are 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 BIA Rules and the Companies’ Creditors Arrangement Regulations are as follows:

(A) BIA Rules

• New rules that prescribe 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 system of administration of a bankruptcy estate;
• New rule prescribing the form and manner to send a notice to disclaim or resiliate an agreement in order to increase consistency in this process;
• New rule regarding the maximum prescribed amount ($1,800) for post-discharge payment agreements between the trustee in bankruptcy and the bankrupt in order to enable access to the insolvency system for those who may otherwise be unable to afford it;
• New 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;
• New 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 clarity; 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 without going into bankruptcy. The Superintendent of Bankruptcy will have a new mandate to create a registry of CCAA filings and to oversee the monitors in CCAA filings. Specifically, the Superintendent will keep a public record of filings under the CCAA; may apply to the court to review the appointment or the conduct of the monitor; must keep a record of all complaints regarding the conduct of the monitor; and may make any inquiry or investigation regarding the monitor’s conduct. This new oversight role of the monitor is to provide increased transparency to the proceedings under the CCAA and to protect 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 OSB. The new regulations provide

• Rules that prescribe 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 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 clarity.

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. Following the approach taken in British Columbia to reduce regulatory and administrative requirements by one-third over three years, this initiative notes that key federal regulatory departments and agencies are required to

• Establish an inventory of administrative requirements and information obligations, with which business must comply, by September 2007; and
• Achieve a 20% reduction of those requirements and obligations by November 2008.

The goal of the initiative is to reduce, by November 2008, 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 need to be 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 having to be taxed first. This will streamline administrative step;
• 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

The proposed regulations 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.

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 individuals will be subject to the new requirements. The existing compliance and enforcement mechanisms are sufficient and will be applied.

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