Directive No. 13R7, Trustee Licensing

Date: June 12, 2020

To: Licensed Insolvency Trustees

Subject: Directive No. 13R7, Trustee Licensing

The Office of the Superintendent of Bankruptcy (OSB) has amended Directive No. 13R6, Trustee Licensing.

Amendments to Directive No. 13R6 clarify who may be a director and an officer of a corporate trustee and confirm the good character requirement and the corporate trustees’ requirements. The requirement for individual and corporate LITs (paragraph 13(d)) to continue to meet the good character requirements after the issuance of a licence has also been clarified in the Directive. Other technical amendments align this Directive with Directive No. 1R6, Counselling in Insolvency Matters and Directive No. 33, Trustee Designation and Advertising (and any subsequent versions).

Directive No. 13R7, Trustee Licensing, comes into force on the date it is issued.

For any questions pertaining to this Directive, please contact the Office of the Superintendent of Bankruptcy at ic.osblicencebsf-bkhq.ic@canada.ca.

Att.

Elisabeth Lang
Superintendent of Bankruptcy

Issued: June 22, 2020

(Supersedes Directive No. 13R6 issued on June 17, 2015.)

Interpretation

1. In this Directive,

“Act” means the Bankruptcy and Insolvency Act;

“applicant” means a person who applies for a licence under the Act;

“CAIRP” means the Canadian Association of Insolvency and Restructuring Professionals;

“CIRP” means the Chartered Insolvency and Restructuring Professional;

“incompatible activity” means an activity that would or may be perceived to create a conflict of duties, compromise an LIT's ability to perform any professional engagement, or jeopardize an LIT's integrity, independence or competence, including, but not limited to, the activities of a collection agent, a bailiff, an employee of the Office of the Superintendent of Bankruptcy (except when acting pursuant to sections 14.03 or 29 of the Act), a lawyer and a notary in the Province of Quebec;

“licence” means a licence to act as an LIT issued by the Superintendent pursuant to the Act;

“Licensed Insolvency Trustee (LIT)” means a trustee or licensed trustee, as defined in section 2 of the Act and an administrator of consumer proposals as defined in section 66.11 of the Act;

“MOU” means the Memorandum of Understanding between CAIRP and the Office of the Superintendent of Bankruptcy signed on October 16, 2019, or any further MOU as may be entered into between the parties thereafter. The MOU sets out the roles, responsibilities and interests of the parties with respect to the delivery of a professional qualification program for insolvency and restructuring professionals seeking a licence to act as an LIT;

“OLAA” means the OSB Licence Administration Application;

“professional engagement” means any bankruptcy or insolvency matter in respect of which an LIT is appointed or designated to act in that capacity pursuant to the Act or to the Companies' Creditors Arrangement Act (CCAA);

“resident office” means the principal place of business from which the LIT normally practises;

“Rules” means the Bankruptcy and Insolvency General Rules; and

“Superintendent” means the Superintendent of Bankruptcy or such persons as the Superintendent may delegate or direct.

Authority and Purpose

2. This Directive is issued pursuant to paragraph 5(4)(c) and (d) of the Act for the purpose of specifying the requirements to obtain and maintain a trustee licence and governing the activities of LITs.

Obtaining a Licence

Part I: Application for Licence

Application for Individual Licence

3. A person who wishes to obtain an individual licence may complete and file with the Superintendent, through the OLAA, Form 2, Application for Trustee Licence (Individual).

Application for Corporate Licence

4. A person who wishes to obtain a corporate licence may complete and file with the Superintendent, through the OLAA, Form 3, Application for Trustee Licence (Corporation).

Part II: Prerequisite Requirements for Issuance of Licence

Prerequisite Requirements for Individual Licence

5. The following are the prerequisite requirements for issuance of an individual licence under the Act:

the applicant shall have successfully completed the following, which are administered by CAIRP in accordance with the MOU:
1. the CIRP Qualification Program (CQP) unless otherwise exempted;
2. the CIRP National Insolvency Exam; and
3. the Practical Course on Insolvency Counselling (PCIC), or, at the date of issuance of this Directive, held a valid Insolvency Counsellor’s Qualification Course Certificate;
the applicant shall pay the prescribed fee under Rule 134(1);
the applicant shall be solvent;
the applicant shall be of good character and reputation; and
the applicant shall pass the Oral Board of Examination.

6. Without limiting paragraph 5(a) of this Directive, an applicant shall satisfy the Superintendent that he or she has adequate knowledge, experience and skills to carry out the duties of an LIT.

Good Character and Reputation Requirement

7. An applicant shall satisfy the Superintendent that he or she is of good character and reputation and that issuance of a licence will not impair public confidence in the bankruptcy and insolvency system.

8. An applicant who has been found guilty of an indictable offence for which a pardon has not been granted shall satisfy the Superintendent that such finding is not of a nature that would impair the LIT's capacity to perform his or her fiduciary duties nor impair public confidence in the bankruptcy and insolvency system.

9. An applicant shall be in good standing with, and not be subject to, any current disciplinary action by any professional organization of which the applicant is or was a member.

10. An applicant who has been found guilty of professional misconduct by any professional organization of which the applicant is or was a member shall satisfy the Superintendent that such finding is not of a nature that would impair the LIT's capacity to perform his or her fiduciary duties or impair public confidence in the bankruptcy and insolvency system.

Oral Board of Examination – Assessment of Competencies

11. An applicant who has filed through the OLAA Form 2, Application for Trustee Licence (Individual), and meets the prerequisite requirements under paragraphs 5(a) to 5(d) of this Directive shall receive an invitation from the Superintendent to appear before an Oral Board of Examination to demonstrate that he or she possesses the necessary skills and competencies to carry out the duties of an LIT.

12. An Oral Board of Examination is conducted in accordance with the established process.

Prerequisite Requirements for Corporate Licence

13. The following are the prerequisite requirements for issuance of a corporate licence under the Act:

The applicant shall be a corporation incorporated under an Act of Parliament or the legislature of a province;
The applicant shall be solvent;
The applicant shall obtain prior approval of the proposed corporate name from the Superintendent and the appropriate federal or provincial regulatory body regarding the proposed corporate name; and
The applicant shall satisfy the good character and reputation requirements under paragraphs 7 to 10 of this Directive and the corporate requirements under paragraphs 31 to 41 of this Directive.

Validation of Prerequisite Requirements

14. The Superintendent may conduct any investigation concerning an applicant as the Superintendent considers necessary, to be satisfied that the applicant meets the prerequisite requirements under this Directive, including, but not limited to, a bankruptcy and insolvency search and a criminal background check.

15. The applicant shall provide any information and/or documentation and shall sign any authorization for information and/or documentation as the Superintendent considers necessary for the purpose of an investigation under paragraph 14 of this Directive.

Part III: Issuance of Licence

Issuance of Individual Licence

16. The Superintendent considers the contents of an applicant's Form 2, Application for Trustee Licence (Individual), and the results of any investigation and the Oral Board of Examination when making a decision on the issuance of an individual licence.

17. The Superintendent may issue a full licence, issue a licence subject to such conditions and limitations as the Superintendent considers appropriate, or refuse to issue a licence.

Issuance of Corporate Licence

18. An applicant who satisfies the corporate requirements under paragraphs 31 to 41 of this Directive may be issued a corporate licence.

Review of Decision

19. An applicant may request a review of the Superintendent's decision in accordance with the process established for such a review.

Requirements to Practise

Part IV: Probation Period

20. (1) For a minimum of twenty-four (24) months following issuance of an individual licence (the "probation period"), the LIT shall actively practise with, and in the same physical location as, an active established LIT.

(2) Where the LIT does not satisfy the requirement under paragraph 20(1) of this Directive, the LIT may only act in the following cases, subject to any condition(s) and limitations imposed upon his or her licence:

consumer proposals;
summary administration estates;
ordinary administration estates for which unsecured liabilities do not exceed $500,000 and for which the realizable assets, after deducting the value of all security interests, do not exceed $15,000; and
all other cases (notices of intention, Division I Proposals, receiverships, CCAA filings and any other cases not covered by paragraph 20(2)(iii) above), with the approval of the Superintendent and on any terms that the Superintendent considers appropriate based on the performance of the LIT.

21. In granting the LIT approval to act in the cases described in paragraph 20(2)(iv) of this Directive, the Superintendent may require that the LIT have a sponsor to supervise the administration of those cases.

22. Subject to a determination to the contrary, the restrictions imposed under paragraph 20 of this Directive shall be automatically lifted following the probation period.

Part V: Administrative Status of LIT

23. The administrative status of an individual LIT is “active,” “semi-active” or “inactive” depending on the practice of the LIT. LITs are advised of their status and may contact the OSB to verify or request changes to their status.

24. The administrative status of a newly licensed LIT is generally “active.”

25. Regardless of the LIT's administrative status, the LIT shall pay the prescribed annual fee to maintain a valid licence.

Active

26. An active LIT may file professional engagements in the LIT's personal name or on behalf of a corporate LIT, if associated with a corporate LIT. The filing LIT is responsible for the professional engagement.

Semi-Active

27. A semi-active LIT may administer and carry out the duties related to professional engagements, but shall not file professional engagements in his or her personal name.

Inactive

28. An inactive LIT shall not file or administer professional engagements or perform any of the functions that are exclusively reserved for a LIT, including, but not limited to, supervision, receivership or liquidation work, look-see or consultation in insolvency matters (e.g., an LIT who has gone back to school or has temporarily left the profession).

Part VI: General Requirements for Individual LITs Not Associated with a Corporate LIT (Sole Practitioners) and for Corporate LITs

29. The following are requirements for individual LITs Not Associated with a corporate LIT (Sole Practitioners) and for Corporate LITs, that shall be met prior to the trustee accepting professional engagements:

The LIT shall have a valid licence;
To maintain a valid licence, the LIT shall pay the prescribed fee in accordance with s. 13.2(2) of the Act;
The LIT shall be solvent;
The LIT shall not practise an incompatible activity;
The LIT shall be compliant with paragraphs 7 to 10 of this Directive;
The LIT shall have sufficient financial resources to properly administer professional engagements;
The LIT shall have adequate facilities and personnel to administer professional engagements in the district(s) in which he or she is entitled to act;
The LIT shall have adequate professional liability insurance and adequate employee dishonesty (also known as fidelity) insurance; and
Where applicable, the corporation shall be in good standing with the applicable federal or provincial regulatory body that registers corporations.

Part VII: General Requirements for Individual LITs Associated with a Corporate LIT

30. The following are requirements for Individual LITs Associated with a Corporate LIT that shall be met prior to an individual LIT administering professional engagements on behalf of a corporate LIT:

The LIT shall have a valid licence;
To maintain a valid licence, the LIT shall pay the prescribed fee in accordance with s. 13.2(2) of the Act;
The LIT shall be solvent;
The LIT shall not practise an incompatible activity; and
The LIT shall be compliant with paragraphs 7 to 10 of this Directive.

Part VIII: Corporate Requirements

Corporate Name

31. (1) Subject to paragraphs 31(2), 32 and 33 of this Directive, the name of a corporate LIT shall only be composed of the names of one or more LITs or accountants that are practising or have actively practised either as LITs, or accountants. In addition to the aforementioned requirements, the corporate name may include the first letter of the surname of one or more of the LITs or accountants that are practising or have actively practised either as LITs, or accountants.

(2) The name of a corporate LIT may consist of the name of a monitor appointed in CCAA proceedings commenced after September 30, 1997, and before the day on which subsection 1(1) of Chapter 36 of the Statutes of Canada, 2007, came into force.

32. A corporate LIT may continue to use a name approved by the Superintendent prior to the date of coming into force of this Directive.

33. The requirements of paragraph 31(1) of this Directive may be waived or varied in circumstances where the Superintendent is satisfied it is appropriate.

34. A corporate LIT shall operate and do business only under the name under which it is licensed and shall not use trade names.

Corporate Structure

35. A corporate LIT shall restrict its business to the duties and responsibilities of an LIT licensed pursuant to the Act and to other related functions, such as those of a liquidator, a receiver, an interim receiver, a receiver/manager, an agent for a secured creditor or a consultant in insolvency matters, and may not engage in any business that would compromise its ability to perform any professional engagement or that would jeopardize its integrity, independence or competence.

36. A majority of the directors and a majority of the officers of a corporate trustee shall be licensed trustees, and the corporate trustee may not be subject to any influence, interest or relationship that impairs, or appears in the opinion of an informed person to impair, its professional judgment.

37. A corporate LIT shall not have a class of shares of the corporation listed on a stock exchange or be the primary subsidiary (i.e., more than 50 percent of the business interest of a parent company) of a corporation whose shares are listed on a stock exchange.

38. Subject to paragraph 39 of this Directive, a corporate LIT shall, at all times and in the district(s) in which it is entitled to act, operate through an individual LIT.

39. In extraordinary circumstances, where a corporate LIT is left with no individual LIT in a given district due to an unforeseen event, such as death, sickness or resignation of an individual LIT, the corporate LIT shall submit a written request to the Superintendent for authorization to maintain the corporate LIT's operation in the given district for a specified period of time.

Shareholder Restriction

40. An LIT may, with the approval of the Superintendent, be a shareholder or a financial backer of more than one corporate LIT provided that:

The LIT satisfies the Superintendent that there is no conflict of interest; and
The LIT respects any other condition or limitation that the Superintendent considers appropriate.

41. Notwithstanding paragraph 40 of this Directive, an LIT may, with the approval of the Superintendent, be a shareholder or a financial backer of more than one corporate LIT in the same district, for a limited period of time, to wind up the LIT's practice.

Designated LIT

42. A corporate LIT shall, for each professional engagement it has accepted, or for which it has been appointed, designate an individual LIT in the applicable district who shall administer the professional engagement.

43. The designation of an individual LIT by the corporate LIT shall not relieve the corporate LIT of its accountability for any professional engagement it has accepted, or for which it has been appointed.

44. An individual LIT designated pursuant to paragraph 42 of this Directive shall not accept professional engagements under the individual LIT's personal name.

45. Where an individual LIT designated by the corporate LIT is to be replaced, the corporate LIT shall forthwith notify the Superintendent of the reason for such replacement and of the name of the newly designated LIT.

Modifications to Licence or Practice

Part IX: Changes Requiring Prior Approval

46. The LIT shall submit an electronic request through the OLAA to the Superintendent and receive prior approval before any of the following changes can be effected:

A change to the LIT's resident office or business address (within the same district);
A change to the LIT's district (transfer or extension);
A change to the individual LIT's licence or practice, including a change or departure from the firm with which the LIT is associated, a change to the LIT's administrative status, retirement or cancellation of the individual LIT's licence; and
A change to the corporate LIT's licence or practice, including a change to the corporate name, a change to the corporate structure, a merger or purchase agreement between two or more corporate LITs, or cancellation of the corporate LIT's licence.

Change or Departure from Firm, Retirement or Cancellation of Licence

47. Without limiting paragraphs 46(c) or (d) of this Directive, before an LIT changes or departs firms, retires, or has his or her licence cancelled, the LIT shall ensure that all professional engagements under his or her name are completed or transferred to another LIT by court order or otherwise, as applicable.

Change to Corporate Name

48. Any change to the corporate LIT name requires approval of the Superintendent and of the appropriate federal or provincial regulatory body.

Part X: Other Changes Requiring Notification

49. The LIT shall notify the Superintendent of any other change to the LIT’s licence or practice within fifteen (15) days of the change.

General Provisions

Part XI: Coming into Force

50. This Directive comes into force on the date it is issued.

Part XII: Enquiries

51. For any questions pertaining to this Directive, please contact the Office of the Superintendent of Bankruptcy at ic.osblicencebsf-bkhq.ic@canada.ca.