What is the Office of the Superintendent of Bankruptcy and The Bankruptcy and Insolvency Act?

Although at first glance this may seem like a dry topic, we feel it is important to highlight the framework that the insolvency system operates in. These federal laws and rules are important in the operation of a modern economy so that there is both relief for the honest but unfortunate person and to allow those taking a risk to open a business to reorganize if things don’t go as well as planned. To that end, what is the Office of the Superintendent of Bankruptcy (OSB) and the Bankruptcy and Insolvency Act  (BIA)? Let’s take a look at each.

The Office of the Superintendent of Bankruptcy (OSB) is a key regulatory body within the Federal Government of Canada and is responsible for overseeing the administration of Bankruptcy laws in Canada. The OSB operates under the framework of the Bankruptcy and Insolvency Act (BIA), which is the primary legislation governing bankruptcies and insolvencies in Canada.

The OSB’s mandate is to “Protect the Integrity of the Insolvency System in Canada”. We feel that it does a good job in this regard and is an example of a part of the government that works.

Overview of the Bankruptcy and Insolvency Act (BIA)

The Bankruptcy and Insolvency Act (BIA) is a federal law that provides a framework for individuals and businesses in Canada to deal with their debts when they are unable to pay them. The BIA aims to provide a fair and orderly process for resolving insolvencies while balancing the interests of creditors and debtors.

In particular, the goal is to provide relief to the honest but unfortunate debtor, while still allowing creditors to recover on their debts via the insolvency process.

In the best case scenario, the BIA is scheduled to be updated by Parliament every five years in order to stay current with changes in the economy. However, this process always seems to be delayed by federal elections.

Role of the Office of the Superintendent of Bankruptcy (OSB)

The OSB plays a crucial role in the administration of the BIA. It is responsible for:

• Licensing and regulating Licensed Insolvency Trustees (LITs), who are the only professionals authorized to administer Bankruptcies and Proposals under the BIA. This includes monitoring the LIT’s trust bank account and performing regular office visits where the operations of the LIT are reviewed.
• Monitoring the conduct of LITs to ensure they comply with the BIA and related regulations. The OSB has the power to suspend and revoke Trustee licenses if circumstances warrant it.
• Maintaining a database of prior insolvency filings.
• Holding unclaimed dividends that have been paid to creditors by an LIT but have not been cashed.
• Regulating the cost to obtain debt relief through the Bankruptcy or Consumer Proposal process.

This last point regarding cost is very important in our opinion; the regulation provides confidence to the public that they are not getting scammed for this service. There are multiple online sources promoting debt relief but can you trust them? Buyer beware!

Bankruptcy Process in Canada

Under the BIA, individuals and businesses can file for Bankruptcy when they are unable to pay their debts as they become due. The Bankruptcy process is overseen by an LIT, who is responsible for administering the Bankruptcy estate, selling any non-exempt assets, and distributing the proceeds to creditors.

Creditors are able to participate in the process, if they wish, by:

• Filing a proof of claim with the LIT office in order to receive a dividend if any is available from the Bankruptcy. This is the most common form of creditor participation.
• Requesting a meeting of creditors where it is possible to ask more detailed questions, confirm the appointment of the LIT, and give instructions to the LIT as to what they would like to see happen
• Agreeing to act as an inspector. Inspectors perform the role of representing the creditors in order to help in future decisions such as approving offers for sale that the LIT has received.
• Objecting to the discharge of the debtor. This will result in a Court hearing for the discharge of an individual. However, there must be grounds to object. This is not applicable in the Bankruptcy of a company. Objections to a discharge of an individual do not happen very often.

Insolvencies and Consumer Proposals

In addition to Bankruptcy, the BIA also provides for another option for dealing with insolvency, which is called a Consumer Proposal. A Consumer Proposal is a legal process that allows individuals to make a formal offer to their unsecured creditors to settle their debts. If accepted, the Consumer Proposal allows the individual to avoid Bankruptcy and repay a portion of their debts over time.

This process has become the most popular debt consolidation option in Canada. Often, individuals can obtain a repayment percentage of 20 cents on the dollar of unsecured debt.

Pro Tip : This includes income tax debt owing to the Canada Revenue Agency.

Conclusion

In conclusion, both the Office of the Superintendent of Bankruptcy and the Bankruptcy and Insolvency Act are vital components to the operation of a functioning insolvency system that is necessary for a modern economy.

Here in Canada, we are fortunate to have these laws and rules which enable people to find a fresh start while still allowing creditors access to partial repayment. This should help provide confidence to the public that this system works.

As Licensed Insolvency Trustees, we are proud to provide honest and unbiased advice within this context.

Chase & Associates offer a free consultation where we will gain an understanding of your situation and provide you with some information about practical options to improve it. Once you make the decision to contact us and do something about your debt you are more than half way there to a brighter financial future.