OSB Temporary Guidance March 25: LIT Flexibility during the COVID-19 Pandemic

Please note that this guidance was amended on April 14 and may be subject to further amendment.

March 25, 2020

Further to the guidance to Licensed Insolvency Trustees (LITs) published on March 13, and 17, 2020, this message provides additional guidance based on stakeholder concerns and enquiries in the context of the COVID-19 pandemic.  LITs are best placed to determine where flexibility within existing rules can be of most benefit to individual consumer and commercial debtors impacted by the pandemic.

Thus, LITs are encouraged to exercise their professional judgment in using as much flexibility as possible to avoid unintended harm or prejudice in the current circumstances. Section 187 of the Bankruptcy and Insolvency Act (BIA) could be considered as appropriate (in particular subsections 187 (9), (11) and (12) with the caveat that some sections of the BIA, such as subsection 50.4(10), may override this provision). LITs are expected to document their policies, procedures and rationales during this period. The OSB’s approach to compliance will also be flexible and practical in light of the situation.

Closure of Non-Essential Businesses

Some provinces have required the closure of all non-essential businesses in an effort to help stop the spread of COVID-19.  Given the current situation and the non-exhaustive nature of the businesses typically deemed essential, the Superintendent is of the view that insolvency services may, directly or by analogy, be covered by professional, accounting, legal and/or financial services. However, many LIT firms have already made significant efforts to have staff work remotely and all efforts to respect provincial efforts should be undertaken. While it may be necessary to keep an office open in order to provide necessary access to insolvency services for Canadians businesses and consumers with a current filing or for those who may need to seek an insolvency solution, all due care to ensure physical distancing and to ensure the health and safety of those involved is encouraged.

Directive 1R6 and Software Updates

Directive 1R6 will come in to force on April 6, 2020. The amendments are intended to provide additional flexibility for telephone counselling in exceptional circumstances and, as noted in OSB’s Guidance on March 13, 2020 the COVID-19 situation meets that definition. OSB’s E-filing system will be ready to accept counselling certificates for non-LITs providing counselling by phone once LITs have updated their software systems. Until then, the OSB’s E-filing system will continue to accept the 1R5 forms and any counselling conducted by non-LITs by phone should be held for filing once LIT system updates are in place.

LIT Fees or Missed Surplus Income Payments

As LITs will be aware, many creditors are choosing to forbear, provide payment relief and other flexibilities to support individuals and businesses affected by the pandemic. The Superintendent strongly urges LITs to do the same and expects that courts will hold LITs to high standards in this regard when matters are brought forward.

Provincial Courts and Avoiding Prejudice to Debtors

LITs are encouraged to monitor communications from their local courts and to file documents with the court and/or OSB as necessary to extend timelines as appropriate. Alternatively, LITs might temporarily delay filing, where such a step may prejudice the debtor and where permissible under the BIA, for example  by delaying the filing an opposition to discharge for non-payment of surplus income or voluntary fees. In order to avoid the deemed annulment of a Division II Consumer Proposal following three missed payments, LITs are encouraged to consider all possible options including filing an amended proposal. In order to avoid the failure of a Division I Proposal and/or a deemed assignment into bankruptcy, LITs should file the necessary extensions with the court and/or e-file with the OSB where applicable.

Swearing Documents

The Statement of Affairs is a document that must be sworn by a commissioner of oaths prior to E-Filing. LITs are to be guided by the accepted practice in their province in this regard. Some provincial courts and/or law societies have adopted interim measures, such as virtual oaths or witnessing of documents by video conference. Other provinces have yet to communicate any interim measures. If no interim measures have been communicated by the courts and/or law societies, LITs are encouraged to be flexible.

For greater clarity, debtors could sign and make oaths via video conference (e.g. via a computer or smart phone) or the use of electronic signature software in provinces that have adopted such interim measures for swearing oaths. Where this has been done, and the original document is available, it should be e filed. Where the original sworn document is not in the LIT's possession at the time of filing, the LIT may print the Statement of Affairs with the debtor’s information as they normally would and e file the XML version of the document. Note that the E-Filing system will not accept a Statement of Affairs if the “declarant” field is blank. The previously sworn documents should be obtained when possible and uploaded to the LITs system for their records and for review by the OSB, as needed. Official Receivers will be flexible and accommodating regarding such interim measures.

Questions may be submitted to the OSB via email to ic.osbregulatoryaffairs-affairesreglementairesbsf.ic@canada.ca.

The OSB continues to consider all possible options to address the impacts of COVID-19 on Canadian businesses and consumers and will provide additional guidance as appropriate.