Bennett on Consumer Bankruptcy. Frank Bennett

the Superintendent of Bankruptcy or the Office of the Superintendent of Bankruptcy (OSB), the Official Receiver, the Bankruptcy Registrar, and the judge. In all bankruptcies, the consumer debtor comes in contact only with the trustee in bankruptcy. Depending on the nature and size of the bankruptcy, the consumer debtor may come into contact with the other persons referred to in this chapter. The consumer debtor will, of course, have some knowledge about each of the creditors through his or her dealings. Most consumer debtors have many credit cards in their possession and on their Statement of Affairs, they list them with their account numbers, addresses, and debts.

      See Figure 1 for a visual of the people involved in a bankruptcy.

      Figure 1: Structure

      1. The Trustee in Bankruptcy (the Administrator)

      The trustee in bankruptcy is an individual person or corporation that is licensed by the Superintendent of Bankruptcy under the Department of Industry of the federal government of Canada, referred to as Industry Canada. The trustee’s role is to administer the bankrupt’s estate, essentially liquidating a debtor’s assets and then making a distribution of the sale proceeds to the creditors. It is the trustee in bankruptcy who assists the debtor through this cleansing process.

      The trustee has many duties that are described in the Bankruptcy and the Insolvency Act. The trustee is usually a person who is a chartered accountant or certified management accountant in private practice, or who is associated with an accounting firm that has a corporate licence to act as a licensed trustee in bankruptcy. The trustee does not, however, have to be a chartered accountant or a certified management accountant. Most of the larger accounting houses in Canada have a bankruptcy department and there are numerous smaller firms and individuals who practise in the bankruptcy field. Most insolvency practitioners are members of the Canadian Association of Insolvency and Restructuring Profession and are given a Chartered Insolvency Restructuring Professional (CIRP) designation to follow their name if they have successfully completed their course of study. As of December 31, 2012, there were approximately 1,000 licensed trustees in Canada.

      The trustee is an officer of the court who acts as an intermediary between the debtor and the creditors. While the trustee is appointed to protect the debtor from harassment, the trustee must also assure the creditors that all the debtor’s assets have been accounted for and that they have been properly disposed of. The trustee must be even-handed and impartial to both the debtor and the creditors.

      The trustee is the person who administers each of the bankruptcy estates. Some of the trustee’s responsibilities are to —

      • review with the debtor how the bankruptcy process operates;

      • interview the debtor with respect to recovering all the debtor’s assets including past and present and attaching future assets;

      • advise the debtor of his or her duties under the Bankruptcy and Insolvency Act

      • call and chair a meeting of creditors when required;

      • sell or dispose the assets and then distribute the proceeds according the priorities under the Act;

      • report to the creditors generally as to the financial affairs of the bankrupt and on the bankrupt’s discharge; and

      • counsel the debtor as to the causes of financial problems and how to avoid them in the future. There are three counselling sessions, two of which are mandatory.

      In situations where the insolvent person is a consumer, the Superintendent of Bankruptcy has the authority under the Bankruptcy and Insolvency Act> to appoint any person or a trustee to be an administrator under the Act for bankruptcies and consumer proposals. The administrator need not be a licensed trustee or an accountant. This is useful in remote communities which may not have access to a licensed trustee in bankruptcy. The administrator has all the powers and duties of a trustee in bankruptcy.

      2. Different Types of Creditors

      Under the Bankruptcy and Insolvency Act, there are three general types of creditors.

      First, there are secured creditors. Secured creditors are types of creditors that hold some form of property as security for the payment of a debt. For example, if a bank holds a mortgage over the debtor’s home, the mortgage document creates the security against the home. The consumer debtor cannot sell or transfer the home without paying the bank. If the debtor fails to pay monthly, or fails to pay taxes or other amounts under the mortgage, the bank has the right to foreclose, that is to become the owner, or the bank has the right to sell the home to pay the debt. If the bank does not sell the home for enough money to cover the mortgage debt, then the bank has a shortfall and the amount of that shortfall is an unsecured claim in the bankruptcy.

      Consider this example: The Dominion Bank holds a mortgage against the debtor’s home for $200,000. There are no other mortgages against the debtor’s home. If the debtor defaults in making monthly payments to the bank, the bank has a right through legal process to take the debtor’s home and eventually sell it. If the bank realizes $160,000 towards the $200,000 loan, then $40,000 is the shortfall or deficiency. The bank then has an unsecured claim for the $40,000. However, if the bank sells the home for $240,000, the bank has a $40,000 surplus, and the debtor is entitled to that money. If the debtor were bankrupt for other debts, the trustee would intercept the $40,000.

      Second, there are the preferred creditors. These are certain types of creditors that are specifically recognized under the Bankruptcy and Insolvency Act. There are several different types including wage earners, claims under support orders, municipalities for business taxes, and landlords of commercial premises. They receive a preferred place if there is a distribution of monies from the sale of the debtor’s assets. Preferred creditors are reviewed in Chapter 5.

      Last, there are ordinary unsecured creditors. These are creditors who do not hold any of the property of the debtor as security for the debt and they are not given any priority or preferred standing in the administration. One example might be a mobile phone service provider. They have no special rights against the debtor or against his or her property. Creditors who obtain judgment against the debtor are also in this group.

      3. The Superintendent of Bankruptcy

      The Superintendent of Bankruptcy is a person appointed by the Minister of Industry Canada in Ottawa to supervise the administration of all bankruptcies, receiverships, and other matters to which the Bankruptcy and Insolvency Act applies throughout Canada. The Superintendent is appointed as the senior administrator under the Department of Industry and has an office in Ottawa. The Superintendent’s role is to review and monitor the performance of all trustees across Canada as well as review debtor compliance with the Act, its rules, and directives. The Superintendent can also become involved, where necessary, with the administration of any bankruptcy or receivership estate where there may be reason to believe that there are irregularities, or for the protection of the public.

      The Superintendent of Bankruptcy and staff, called the Office of the Superintendent of Bankruptcy (OSB), review the conduct and practice of all licensed trustees and bankrupts. The Office of the Superintendent keeps statistics of all bankruptcies and proposals for Statistics Canada.

      The OSB is the official licensing board for trustees in Canada. All candidates and trustees must obtain a licence from the Superintendent’s office before they can administer bankruptcies. The OSB, in conjunction with the Canadian Association of Insolvency and Restructuring Professionals, an association of insolvency professionals throughout Canada, work together in setting up a course for students. Jointly, they prescribe the materials and examinations that a person must perform adequately before a licence is granted. There are both written and oral examinations held at least once a year in major centres across Canada for this purpose. The OSB website is www.ic.gc.ca/eic/site/bsf-osb.nsf/eng/home. The website