The Office of the Superintendent of Bankruptcy (OSB) has been made aware of divergent interpretations as to the calculation of the additional missed monthly payments during the March 13, 2020, to December 31, 2020, period (court-ordered period) allowed by the provincial and territorial court orders obtained in the Superintendent of Bankruptcy’s omnibus applications (the orders). The OSB is also aware of differences in interpretation relating to the calculation of the threshold for a deemed annulment of a consumer proposal when payments were missed before and during the court-ordered period. Therefore, the OSB is issuing the following updated detailed guidance.
May 06, 2020
The following guidance is intended to assist with the interpretation and application of the orders. Where a conflict exists between this guidance and the orders, the orders will prevail.
The orders were sought to relieve pressure on stakeholders and the insolvency system due to COVID-19 related challenges. However, all matters that can proceed during the suspension period should proceed, particularly where any of the parties express an interest in doing so.
Additional clarity regarding key definitions in the orders
“Period of the Emergency” - is the period from March 13, 2020, to June 30, 2020, and includes both March 13, 2020, and June 30, 2020.
“Suspension Period” - is the period from April 27, 2020, to June 30, 2020, and includes both April 27, 2020, and June 30, 2020.
“Active Consumer Proposals” - includes all Division II proposals filed with the OSB or revived pursuant to the Bankruptcy and Insolvency Act (BIA) on or before June 30, 2020, but excludes Division II proposals that were deemed annulled, annulled or that were fully performed on or before April 27, 2020.
The following examples are provided to illustrate the application of the definition of “Active Consumer Proposals”:
- The definition includes all consumer proposals filed with the OSB any time up to June 30, 2020, but not deemed annulled (unless revived – see example in B), annulled or fully performed on or before April 27, 2020.
- The definition includes a consumer proposal which was deemed annulled but is revived pursuant to the BIA on or before June 30, 2020.
- The definition does not include consumer proposals which were deemed annulled (unless revived – see example in B), annulled or fully performed on or before April 27, 2020.
The following explains the provision allowing defaults for an additional amount equal to up to three payments before a consumer proposal will be deemed annulled:
- For Active Consumer Proposals that provide for monthly payments, the consumer proposal will be deemed annulled when a debtor is in default for an amount that is equal to or more than the amount of three payments for defaults having occurred during the court-ordered period plus an amount that is equal to or more than the amount of three payments missed any time during the period of the proposal.
- For Active Consumer Proposals where payments are to be made less frequently than monthly, the consumer proposal will be deemed annulled when a debtor is in default for a period of six months for those payments due during the court-ordered period or for a period of three months for payments due at any other time during the period of the proposal.
Frequently Asked Questions
Question: Do consumer proposal debtors have to make up all missed payments by December 2020?
Answer: No. Up to the equivalent of an additional three monthly payments can be missed for defaults having occurred during the court-ordered period before a consumer proposal is deemed annulled. Missed proposal payments will have to be made up by the end of the proposal or an amended proposal will have to be approved by creditors. Debtors should carefully consider whether it is necessary to miss payments. It should also be noted that creditors may apply to court to annul a consumer proposal where there is a default in the performance of any provision in the proposal. Although this provision is not often used, debtors should be aware that it is possible that a creditor could seek an annulment following even a single missed proposal payment notwithstanding the orders or section 66.31 of the BIA.
Question: If a proposal was deemed annulled prior to April 27, 2020, when does it need to be revived to be covered by the orders?
Answer: A proposal that is revived pursuant to the BIA on or before June 30, 2020, will be covered by the orders.
Question: If three payments were missed prior to April 27, 2020, but the Licensed Insolvency Trustee (LIT) did not send notices of a deemed annulment, does anything need to be done to be covered by the orders?
Answer: Yes. Once the equivalent of three or more payments prior to April 27, 2020, are missed the BIA states that a consumer proposal is deemed annulled regardless of administrative steps that may or may not have been taken. As such, where the equivalent of three or more payments have been missed, the consumer proposal will need to be revived pursuant to the BIA on or before June 30, 2020, in order to be considered an Active Consumer Proposal for the purpose of the orders.
Question: Is the period under which a consumer proposal can be automatically revived also extended?
Answer: No. The orders allow the equivalent of up to three additional missed payments for defaults having occurred during the court-ordered period before a deemed annulment of a consumer proposal is triggered. After a deemed annulment of a consumer proposal is triggered, a notice of revival must still be filed within 30 days of the deemed annulment.
Question: Will the five-year limit on consumer proposals be extended in order to give debtors the time necessary to make up missed payments?
Answer: In order to be approved, a “consumer proposal must provide that its performance is to be completed within five years”: subsections 66.12(5) and 66.24(3) of the BIA. Therefore, all payments, including missed payments, are to be made during this period unless an amended proposal is filed and approved. The BIA, however, does not provide immediate consequences for defaults that result in non-performance within this period. If a consumer proposal has exceeded the five-year period but has not been annulled, it remains in force and therefore is capable of completion. While interested parties are free to seek a court-ordered annulment, where delay in completion is related to COVID-19 and absent other circumstances, the Superintendent does not anticipate seeking an annulment or a fee reduction at taxation.
Question: Will there be no meetings of creditors within the period mentioned in the orders or does this just allow greater flexibility for meetings of creditors?
Answer: LITs are encouraged to schedule meetings of creditors as soon as possible particularly where a party has so requested. However, the timeline for holding meetings of creditors scheduled to occur during the Period of Emergency has been extended by the Suspension Period. Effectively, this means that the timelines stop running between April 27, 2020, and June 30, 2020, and start running again on July 1, 2020. If 5 days of a 21 day period had elapsed prior to April 27, 2020, then the 21 day period would expire 16 days after June 30, 2020.
Question: What is the OSB's interpretation of the orders with respect to consumer proposals for which payments are made monthly or more frequently?
Answer: Generally, when a debtor is in default of an amount equal to or more than three payments at any time during the consumer proposal, the consumer proposal is deemed annulled as per subsection 66.31(1) of the BIA. The orders are intended to allow flexibility for debtors who are adversely impacted by the COVID-19 pandemic. The orders allow a consumer debtor to be in default for an amount equal to an additional three payments for defaults having occurred during the court-ordered period before the consumer proposal is deemed annulled. The moment at which the payments are missed can be determined either by the actual date on which the consumer debtor defaulted on a payment (“Actual Date Method”), or by an accounting approach (“Accounting Method”). In all cases, all payments will be required to be paid by the end of the proposal by the consumer debtor (or an amended proposal will have to be approved by creditors) in order for a certificate of full performance to be issued.
Note that, no matter which method is used, a consumer proposal will be deemed annulled if an amount equal to or more than three payments are missed before April 27, 2020, as the deemed annulment will have taken effect before the date of the orders. In such a case, the consumer proposal will have to have been revived before June 30, 2020, to be covered by the orders.
Debtors should be aware that a creditor could seek an annulment following even a single missed proposal payment notwithstanding the orders or section 66.31 of the BIA.
Actual Date Method
Following the Actual Date Method, the date at which a payment is missed, either totally or partially, is fixed in time. Subsequent payments received according to the consumer proposal payment schedule are not used to backfill the missed payment. The payment default will be cured only if and when the consumer debtor makes an additional payment to make-up for this missed payment.
A consumer proposal will be deemed annulled if a consumer debtor, who had filed or revived their proposal prior to June 30, 2020, is in default of an additional amount equal to or more than three payments for defaults having occurred during the court-ordered period and of an amount equivalent to or more than three payments at any time during the course of the proposal. Note that, if a consumer debtor does not default on any terms of their consumer proposal during the court-ordered period, then only section 66.31 of the BIA applies and the consumer proposal would be deemed annulled when the consumer debtor is in default for an amount equal to or more than three payments.
For example, there is no deemed annulment if a proposal falling under the definition of “Active Consumer Proposal” is filed and two payments are missed before March 13, 2020, three payments are missed during the court-ordered period and no other payments are missed after that date. However, the proposal will be deemed annulled if a further payment is missed after December 31, 2020.
If the Actual Date Method is followed, Chart I lists the various possible scenarios of missed payments for Active Consumer Proposals.
Accounting Method
From an accounting perspective, payments received within the court-ordered period may effectively be applied to prior missed payments. When a scheduled payment is missed, and a make-up payment is not being made, this missed payment is rolled forward as further scheduled payments are being made. Technically, the oldest default is cured and a new default occurs simultaneously. This rolling results in pre-court-ordered period missed payments being rolled into the court-ordered period. Therefore, as of December 31, 2020, at the end of the court-ordered period, any missed payments would have been rolled to December 2020 and to the months immediately preceding December 2020 depending on the number of missed payments having occurred.
Because of this default/cure cycle and because other types of defaults can also occur, the number of defaults can be superior to the number of missed payments. A partial missed payment during the court-ordered period will also constitute a default. Note that any non-compliance with a term of the consumer proposal is considered a default. The orders do not specify a limit on the number of defaults during the court-ordered period, but rather establishes the threshold to trigger a deemed annulment as the equivalent of three missed payments.
For example, if a consumer debtor misses a payment in May 2020 and then makes all the following payments without any additional make-up payments, this May default will be cured when the June payment is made, but a new default will be created in June. The July payment will cure the June default, but a new default will simultaneously be created in July. This missed payment will be rolled further each month. The consumer proposal, in this specific example, would be deemed annulled if the consumer debtor is in default of an amount equivalent to six payments: three under section 66.31 of the BIA plus three additional defaults during the court-ordered period for amounts equivalent to up to three payments. In other words, there will be a deemed annulment only if the consumer debtor misses the equivalent of another 5 or more payments in addition to the one missed in May 2020.
When using this method, the following requirements must be complied with:
- The additional amount for which a consumer debtor can be in default according to the orders increases with every event of default occurring during the court-ordered period, up to a maximum of the equivalent of three payments.
- The additional amount for which a consumer debtor can be in default should not exceed the number of defaults having occurred during the court-ordered period.
- The additional amount for which a consumer debtor can be in default is fixed to December 31, 2020.
- The rolling of payments received during the court-ordered period to backfill payments missed before this period is acceptable. This will have the effect of considering payments actually missed before the court-ordered period as payments missed during the court-ordered period.
- Payments missed after the court-ordered period should not be treated as payments missed during the court-ordered period. The application of payments received during the court-ordered period to cover payments missed after this period is not acceptable. This would have the effect of increasing retroactively, after December 31, 2020, the number of missed payments during the court-ordered period, thus increasing the number of defaults during that period. This would result in an increase of the additional amount for which a consumer debtor can be in default before a deemed annulment occurring, whereas this amount is fixed to December 31, 2020.
- The rolling of payments received after the court-ordered period to backfill payments missed before or during the court-ordered period is acceptable.
- Payments received in excess of the scheduled payments after December 31, 2020 (i.e. to make up for missed payments before December 31, 2020) will not reduce the additional amount for which a consumer debtor can be in default before a deemed annulment occurs as that amount was fixed to December 31, 2020.
This Accounting Method is more advantageous to consumer debtors as it allows for more breathing room before a deemed annulment occurs and respects creditor and court approval of a consumer proposal. Allowing the Accounting Method reflects the intent of the orders to provide relief to debtors in the context of the COVID-19 pandemic.
Note that if a consumer debtor does not miss any payments during or before the court-ordered period and does not default on any other provisions of their consumer proposal during the court-ordered period, then only section 66.31 of the BIA applies. The consumer proposal would be deemed annulled when the consumer debtor is in default of an amount equivalent to or more than three missed payments.
If the Accounting Method is followed, Chart II lists the various possible scenarios of missed payments for Active Consumer Proposals.
Chart I: Various possible scenarios of missed payments for Active Consumer Proposals for which payments are to be made monthly or more frequently according to the Actual Date MethodFootnote 1
Scenario | Missed payments before March 13, 2020 | Missed payments during the court-ordered periodFootnote 2 | Missed payments after December 31, 2020 | Deemed annulment |
A | 0 | 0-3 | 0-2 | No |
B | 0 | 0-3 | 3 | Yes |
C | 0 | 3-5 | 0 | No |
D | 0 | 4 | 2 | Yes |
E | 0 | 5 | 1 | Yes |
F | 0 | 6 | 0 | Yes |
G | 0-2 | 0-3 | 0 | No |
H | 1 | 0-4 | 0 | No |
I | 1 | 5 | 0 | Yes |
J | 1 | 0-3 | 1 | No |
K | 1 | 0-3 | 2 | Yes |
L | 2 | 4 | 0 | Yes |
M | 2 | 0-3 | 1 | Yes |
Chart II: Various possible scenarios of missed payments for Active Consumer Proposals for which payments are to be made monthly or more frequently according to the Accounting MethodFootnote 1
Scenario | Missed payments before March 13, 2020 and/or between March 13 and October 31, 2020Footnote 2,Footnote 3 | Missed payment in November 2020Footnote 3 | Missed payment in December 2020 | Missed payments after December 31, 2020 | Number of defaults during the court-ordered period due to missed payments (max. of 3) | Number of missed payments equal to the amount required to trigger a deemed annulment (max. of 6) | Deemed annulment |
A | 0 | 0 | 0 | 0-2 | 0 | 3 | No |
B | 0 | 0 | 0 | 3 | 0 | 3 | Yes |
C | 0 | 0 | 1 | 0-2 | 1 | 4 | No |
D | 0 | 0 | 1 | 3 | 1 | 4 | Yes |
E | 0 | 1 | 0 | 0-3 | 2 | 5 | No |
F | 0 | 1 | 0 | 4 | 2 | 5 | Yes |
G | 0 | 1 | 1 | 0-2 | 2 | 5 | No |
H | 0 | 1 | 1 | 3 | 2 | 5 | Yes |
I | 1 | 0 | 0 | 0-4 | 3 | 6 | No |
J | 1 | 0 | 0 | 5 | 3 | 6 | Yes |
K | 1 | 0 | 1 | 0-3 | 3 | 6 | No |
L | 1 | 0 | 1 | 4 | 3 | 6 | Yes |
M | 1 | 1 | 0 | 0-3 | 3 | 6 | No |
N | 1 | 1 | 0 | 4 | 3 | 6 | Yes |
O | 1 | 1 | 1 | 0-2 | 3 | 6 | No |
P | 1 | 1 | 1 | 3 | 3 | 6 | Yes |
Q | 2 | 0 | 0 | 0-3 | 3 | 6 | No |
R | 2 | 0 | 0 | 4 | 3 | 6 | Yes |
S | 2 | 0 | 1 | 0-2 | 3 | 6 | No |
T | 2 | 0 | 1 | 3 | 3 | 6 | Yes |
U | 2 | 1 | 0 | 0-2 | 3 | 6 | No |
V | 2 | 1 | 0 | 3 | 3 | 6 | Yes |
W | 2 | 1 | 1 | 0-1 | 3 | 6 | No |
X | 2 | 1 | 1 | 2 | 3 | 6 | Yes |
Y | 3 | 0 | 0 | 0-2 | 3 | 6 | No |
Z | 3 | 0 | 0 | 3 | 3 | 6 | Yes |
AA | 3 | 0 | 1 | 0-1 | 3 | 6 | No |
BB | 3 | 0 | 1 | 2 | 3 | 6 | Yes |
CC | 3 | 1 | 0 | 0-1 | 3 | 6 | No |
DD | 3 | 1 | 0 | 2 | 3 | 6 | Yes |
EE | 3 | 1 | 1 | 0 | 3 | 6 | No |
FF | 3 | 1 | 1 | 1 | 3 | 6 | Yes |
GG | 4 | 0 | 0 | 0-1 | 3 | 6 | No |
HH | 4 | 0 | 0 | 2 | 3 | 6 | Yes |
II | 4 | 0 | 1 | 0 | 3 | 6 | No |
JJ | 4 | 0 | 1 | 1 | 3 | 6 | Yes |
KK | 4 | 1 | 0 | 0 | 3 | 6 | No |
LL | 4 | 1 | 0 | 1 | 3 | 6 | Yes |
MM | 4 | 1 | 1 | 0 | 3 | 6 | Yes |
NN | 5 | 0 | 0 | 0 | 3 | 6 | No |
OO | 5 | 0 | 0 | 1 | 3 | 6 | Yes |
PP | 5 | 0 | 1 | 0 | 3 | 6 | Yes |
5 | 1 | 0 | 0 | 3 | 6 | Yes | |
RR | 6 | 0 | 0 | 0 | 3 | 6 | Yes |