Submissions to Government

Streamlining Consumer Bankruptcy

March 15, 2001

Mr. Yoine Goldstein
Chair, Personal Insolvency Task Force
c/o Goldstein Flanz & Fishman
Suite 4100
1250 boul. René-Lévesque O.
Montréal, Québec
H3B 4W8

Dear Sir:  

re: streamlining consumer bankruptcy

The vast majority of practitioners in the consumer bankruptcy field are members of the Canadian Association of Insolvency and Restructuring Professionals (CAIRP). As an Association, CAIRP spends a great deal of its resources, including the volunteer time of its members to maintain the public confidence in the integrity and value of the system of insolvency administration throughout Canada.

There are a number of issues that our association requests the PITF to consider in its study of streamlining. These issues are set out in the attached discussion paper and we request that the PITF give them careful consideration.

Later this month, CAIRP will be submitting a paper on the Role of the Trustee in the consumer bankruptcy process.

We hope that our submission will be useful to the Task Force and we would be pleased to respond to any questions that you may have for us.

Yours very truly,

Peter Wedlake, LL.B, CIRP
Chair, CAIRP

c.c. Mr. Paul Goodman, FCA, FCIRP
Chair, PITF Subgroup 1

c.c. Mr. Marc Mayrand, Superintendent of Bankruptcy

PURPOSE OF CAIRP's SUBMISSION

This is a brief submission, primarily for the benefit of Subgroup 1. A longer paper on the Role of the Trustee will follow.

It is the understanding of the Canadian Association of Insolvency and Restructuring Professionals (CAIRP) that the Personal Insolvency Task Force (PITF) is considering a streamlined bankruptcy process for first time bankrupts with no assets and no surplus income.

CAIRP's mission reads in part, "to ensure the highest degree of public confidence in, and respect for, the integrity, objectivity and competence of our members and for the integrity and value of the system of insolvency administration throughout Canada". It is with this mission in mind that we make our submission.

Streamlining implies eliminating something from the current administration of a consumer bankruptcy to make it more efficient. We support cost-efficiency and effectiveness. Our concern is that streamlining does not compromise the integrity and value of the bankruptcy and insolvency system with respect to consumer bankruptcy.

This brief submission is not intended to be an in-depth analysis of any of the issues. The intent of our submission is to offer our assistance, ask for clarification of some issues and to raise issues we feel must be addressed in examining streamlining. We are not proposing a model for streamlining. Assessing and implementing streamlining will take much time, thought and consultation to do it properly. Rather, we are calling attention to issues that we feel must be considered in assessing any streamlining model, before adopting it.

WHY STREAMLINING?

In the National Insolvency Forum (NIF) National Report, the objectives of streamlining the insolvency process are stated as being to make it "less time-consuming, more cost-efficient and effective." We note that this was intended to apply to ordinary administrations and not just to summary administrations. However, we understand that the PITF mandate is only to examine streamlining in the context of a consumer bankruptcy and we will confine our remarks to that area.

We submit that the proper approach to streamlining is to establish the policy framework for consumer bankruptcies first. The next step is to develop the most efficient model for administering bankruptcies within that framework.

The two components of streamlining:

The issues can be divided into two categories:  

• Administrative; e.g., using technology for e-filing and other exchanges of information.
• Statutory objectives; e.g., rehabilitation, detection of fraud.

1. Administrative

We are confident that the OSB and CAIRP, working together can develop new, more efficient procedures for administering a consumer bankruptcy. We suggest that the Joint Committee on Bankruptcy (JCB) is the appropriate body to do this (once the policy framework has been established) and we have already given the Superintendent of Bankruptcy our Association's support for a revitalized JCB.  

Both the OSB and the trustee community should embrace opportunities for administrative streamlining enthusiastically. The current process can be improved.  

For future consideration, we list some of the technical matters that must be addressed in assessing the merits of a streamlined model.  

• Timing: If the potential criteria to qualify for a streamlined process are no surplus income and no other issues such as, credit card abuse, non-disclosure of assets, non-disclosure of liabilities to name a few, when can the trustee make these determinations? Many debtors' incomes are irregular and it often takes a number of months to determine the debtor's income and the effect that income has on the administration of the bankruptcy. Similarly, the trustee requires adequate time to obtain and review relevant information in order to determine that there are no concerns, bankruptcy offences or other matters that may impugn the integrity of the process.

 

• Interface between the trustee and the OSB: What is the optimum frequency and best means of communication between the trustee and his/her Official Receiver?

 

• Standardization of software: Electronic communication requires uniform protocols in order to connect the trustees, OSB, creditors and courts.

2. Statutory Objectives

Before addressing the administrative efficiency of the process, we must ask two questions:  

(a) What are the objectives of the consumer bankruptcy process?

(b) What procedures are required to achieve these objectives?  

When we have the answers to these two questions, the JCB can develop the most efficient way to conduct the process.

POLICY FRAMEWORK

Debtors, creditors, trustees and the Superintendent of Bankruptcy have responsibilities and expectations under the Bankruptcy and Insolvency Act (BIA). We are suggesting that before undertaking to create a second type of consumer bankruptcy, Parliament must reaffirm or revise its objectives for the consumer bankruptcy process. We understood this to be one of the objectives of the review of the 1997 amendments.

The existing summary administration procedure accomplishes many objectives:  

• transparency by having a public record of estates
• providing the debtor with a fresh start
• assisting the rehabilitation of the debtor through counselling
• maintaining unsecured creditors' confidence in the integrity of the process
• detection and deterrence of fraud
• fairness and integrity¹

We respectfully submit that before making a decision to create a streamlined administration process for consumer bankruptcies that meet certain criteria, the following policy issues must be considered:

Access:

If the motivation for streamlining is to reduce the cost of certain bankruptcies in order to allow greater access to the poorest of debtors, then the validity of this motivation should be examined.

Firstly, is there an access problem? We caution against creating solutions for problems that do not exist. In 1997, the Senate criticized amendments that were based on anecdotal evidence. The Regulatory Impact Analysis published in the Canada Gazette on March 3, 2001 refers to the Bankruptcy Assistance Program (BAP) and the fact that only .5% of bankrupts employ it. To our knowledge no debtors were refused access under the BAP.

If the concern about access is for debtors who are so poor that they do not even consult a trustee, we question whether bankruptcy is the answer. These debtors are judgment proof. If their need is to avoid harassment by collection agencies, would it not be better to restrict collection tactics? This would help to alleviate the increasing rate of bankruptcies and spare these unfortunate individuals from the stigma of bankruptcy.

The whole question of access points out how the BIA in part, has been transformed from a businessman's act to an instrument of social policy. The question of who is entitled to access to the bankruptcy and insolvency system is a public policy issue that has to be considered in a much broader context.

Creditor confidence:

If elements of the summary administration process are removed, what effect will this have on the integrity of the bankruptcy and insolvency system?  

• Will the trustee be able to respond to creditor enquiries and demands for information? Creditors want sufficient reporting to be assured that the trustee has realized on all available assets. Many debtors have no surplus income (if defined as not having surplus income under the guidelines) and no assets, yet many of these estates yield a dividend to creditors. A streamlined process should not impair the ability of the trustee to obtain payments from the bankrupt that produce dividends for creditors.

 

• The streamlining criteria must allow the trustee to safeguard the system to prevent debtors from tailoring their circumstances to fit the streamlined procedure. This is critical to creditor support and confidence.

Rehabilitation of the debtor:

Will the debtor still receive two counselling sessions? This automatically adds $170 plus tax to the cost of the estate. Counselling is intended to be part of the rehabilitation of the debtor. Are there more cost-efficient ways to rehabilitate the debtor?

On one hand, the poorest bankrupts should not have to be in bankruptcy longer than the better off bankrupts; i.e., smaller monthly payments over a longer period of time. On the other hand, should the process be easier (or be perceived as easier) for them by providing them with fewer obligations to fulfil under a streamlined process?

Transparency and public record of estates:

There must be sufficient safeguards in the process to give the public confidence that the information in these records is correct.

Proposals v. bankruptcies:

Will the creation of a streamlined process increase the number of bankruptcies and reduce the number of proposals? Proposals provide a better return to creditors. Proposals are less work for the OSB to administer and produce a higher levy. Proposals require a debtor to exercise financial discipline (under the supervision of an administrator) for a longer period of time than in a bankruptcy.

Licensing:

Will creating a second model for administering consumer bankruptcies create pressure to create a second classification of trustee's licence? As the CAIRP paper on the Role of the Trustee will demonstrate, the trustee has many roles and duties. The National Insolvency Qualification Program has just developed a new Syllabus. Is it possible to develop a streamlined system that can operate effectively without the skills and knowledge demanded by the Syllabus?

CONCLUSION

We do not claim that our list is comprehensive. However, it does illustrate that there are many issues that must be examined carefully in determining what can be eliminated from the process. The approach to streamlining should take a balanced approach by considering the effect on debtors, creditors, trustees, the OSB and the public.

Continuously examining the system to make it more effective and efficient is healthy. CAIRP has committed resources to the JCB to ensure that the policies of the BIA are carried out efficiently and effectively. Streamlining is a complex task. Streamlining must be based on complete and valid data. Streamlining must take into account the objectives of the bankruptcy and insolvency system and the interrelationships between all of the parties who are touched by it. The procedural changes can be developed only after the policy objectives have been determined.

Our members are proud of the Canadian model and the role they play in making it work. We trust that you will give our comments serious consideration in making your recommendations on BIA reform.

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¹ _{"The most important asset of the OSB is the confidence of its stakeholders and clients to whom it is accountable. If the OSB is to play a pro-active role in society, as it must, fairness and integrity in our insolvency system must be protected." (National Insolvency Forum (NIF) National Report, p. 29)}