As part of its responsibility to oversee the administration of estates and matters under the Bankruptcy and Insolvency Act (BIA), the Office of the Superintendent of Bankruptcy (OSB) monitors the activities of Licensed Insolvency Trustees (LITs) in order to validate compliance with insolvency legislation, regulations, directives, and policies.
The following is intended to provide LITs with information on what compliance issues the OSB considers as priorities as well as how the OSB goes about monitoring and validating compliance.
1. What LIT compliance monitoring focuses on:
Annual compliance priorities
Each year, the OSB identifies one or more specific priorities for compliance monitoring. Priorities can include new or revised regulatory requirements, as well as compliance risks identified through monitoring activities.
Example: Directive No.33, Trustee designation and advertising
Ongoing compliance prioritiesCompliance review activities are conducted in a cyclical manner in order to validate LIT compliance in core risk areas, including:
- Management of estate trust funds
- Management of the administration of estates
- LIT business practices
Issues raised in statutory complaints
The OSB’s complaints handling unit reviews and assesses specific complaints received regarding insolvency matters to determine if there has been any non-compliance with insolvency legislation, regulations, directives, and policies.
Find more information regarding the OSB’s service standards and types of complaints reviewed.
For further details on what the OSBs LIT compliance monitoring focuses on, please refer to Annex A.
2. How the OSB monitors and validates compliance:
The approach for validating LIT compliance varies depending on subject matter. Generally, the OSB is seeking to evolve its validation approaches to maximize efficiency and minimize burden on LITs.
There are four common approaches:
- Compliance requirements are identified through communications such as Trustee Notices in order to ensure new or revised regulatory requirements are being adequately implemented, or in response to the detection of a new risk.
- The preferred approach is the advance communication of clear information regarding the regulatory issue and specific compliance requirements and timelines. Subsequently, the design and commencement of monitoring activities is intended to minimize or eliminate reporting burden on compliant trustees.
Division Office staff review of trustee reporting, records and E-Filing documentation
- At the OSB’s division offices, staff annually review and analyze information to validate LIT compliance with ongoing compliance priorities.
- When further documentation is necessary, contact is generally initiated by an analyst through email or telephone to the relevant personnel at the LIT’s office.
- If issues are identified during the course of a review activity, an analyst will follow up with the LIT to address the matter. For example, an explanation and/or additional information or documentation relating to the applicable activity.
- If non-compliance is identified, or there are delays in resolution with the LIT, the OSB will continue to interact with and make requests of the LIT on an escalating basis, starting at the local level, until compliance is achieved.
LIT office visits
On a cyclical basis, and while taking into account compliance risks, LIT Office Visits by OSB staff are also used as a means to validate compliance. A LIT Office Visit is normally structured to validate both annual and ongoing compliance priorities, with a broader and deeper scope than the activities conducted at the Division Office. LIT Office Visits may also be initiated in response to the identification of specific compliance risks.
How LIT office visits are conducted
- LITs normally receive at least two weeks’ notice prior to the commencement of the LIT Office Visit. A mutually convenient date and time will be coordinated with the LIT.
- At the time that the LIT Office Visit is scheduled, the analyst will provide the LIT with a questionnaire relating to his/her business practices, to fill out prior to the start of the LIT Office Visit.
- As much as possible, LIT Office Visits will be conducted on the entire firm/office at the same time, while taking into account the firm’s operational structure.
- LIT Office Visits include a Debrief Session with the LIT at the end of the visit to review and discuss the analyst’s findings, and allow the LIT to provide additional information, if needed.
- The final LIT Office Visit Report outlining the LIT’s level of compliance with the risk areas reviewed will be issued to the LIT within 30 days of the Debrief Session. The LIT will then be allotted 30 days from the receipt of the report to respond and/or comment as to how they intend to comply with recommended corrective measures.
Expectations of LITs during an office visit by OSB employees
- Accommodating the presence of the reviewing OSB analyst(s) in their office for a set duration of time, which will be communicated in advance.
- Completion of a questionnaire relating to his/her business practices prior to the start of the LIT Office Visit.
- Facilitation of any requests for documentation during the course of the review or afterward.
Complaint review and validation
The OSB’s complaints handling unit receives, reviews and assesses complaints received regarding insolvency matters to determine if there has been any non-compliance with insolvency legislation, regulations, directives, and policies. If a complaint is filed against an LIT, the LIT may be requested to provide information or documentation to the OSB, through contact initiated by an analyst with OSB’s complaints team.
3. Feedback & questions
The OSB welcomes feedback from LITs and stakeholders regarding all of its compliance monitoring activities. Suggestions or questions can be sent to the National Service Center.
Our website also includes a list of senior managers across the country to which specific operational issues can be escalated.
Annex A: Details on the OSB's LIT compliance monitoring
1. Trust account management
The OSB analyzes LITs' estate banking information. Examples of issues that can generate follow-up include:
- Discrepancy between bank account balances and trustee’s reconciled trust account balance
- Negative trust account balance in open estates
- Non-zero trust account balance in closed estates
- No trust account balance and no Statements of Receipts and Disbursements in active estates
Key legislation and policy:
- Directive No. 5R5, Estate Funds and Banking
- BIA subsections 6(2), (3) and (4), sections 25, 26, 27 and 66.26, paragraphs 155(g) and 14.01(1)(f), and sections 65, 67, 101, 103, 128 and 129 of the Rules
2. Management of the administration of estates
The OSB conducts a review of a selection of files and final Statements of Receipts and Disbursements (SDRs). At the time of this review, the OSB may request documentation or clarification on any estate-related matter, including, but not limited to:
- Identification of assets
- Appraisals performed on assets
- Asset realization
- Calculation & collection of surplus Income
- Trustee's fees and disbursements
- The initial assessment of the debtor
- Contents of estate documents
- Performance of debtor's duties and debtor discharge
- Estate-related litigation
Key legislation and policy:
- Directive No. 6R3, Assessment of an Individual Debtor
- Directive No. 7, Inventory of Estate Assets
- Directive No. 10R, Redemption of Security and Section 147 Levy of the BIA
- Directive No. 11R2, Surplus Income
- Directive No. 14, Use of Related Persons to Perform Services for Bankruptcy Estates and Costs Chargeable to the Estate
- Directive No. 16R, Preparation of the Statement of Affairs
- Directive No. 19R, Reporting of Receipts Resulting from the Realization of Certain Assets in Summary Administrations
- Directive No. 25R, Realization of Estate Assets
- Directive No. 27R, Advances of Trustee's Remuneration for Bankruptcies under Ordinary Administration
- Circular No. 2R2, Summary Administration Estates with Realizable Assets Exceeding $15,000
- BIA subsections 5(2), 5(3), 5(4) and 5(5), sections 6, 21 and 158
3. Aged estates
The OSB conducts a review and analysis of open inventory held by an LIT with a view towards identifying and following up on any aging deficiencies. Typical selection criteria include:
- Summary/Ordinary estates open for more than 3 years
- Proposal estates open for more than 6 years
The OSB may follow up with the LIT to determine if there are aged inventory concerns. Typically, aged inventory follow-ups occur at the following thresholds:
- 20 % for open summary administrations
- 70 % for open ordinary administrations
- 5 % for open Division II Proposal administrations
- 30 % for open Division I Proposal administrations
Key legislation and policy:BIA subsections 34(2) and 66.12(5)
4. Disclosure and reporting requirements
The requirements placed on the LIT regarding reporting and disclosure are established to ensure that debtors, creditors and the OSB are informed and can exercise their rights at the appropriate time. The OSB conducts a review of estate documents, with a view towards identifying and following up on significant deficiencies. The scope of review can include forms related to initial filings, bankrupt discharge process, full performance of a proposal, and trustee discharge process.
Key legislation and policy:
As set out in the BIA and relevant directives.
5. Additional administrative and LIT practice related requirements
In addition to the areas of focus above, the OSB’s monitoring program also focuses on other areas of insolvency legislation, regulations, directives, and policies that fall under the OSB’s mandate, including, but not limited to, LIT business practices.
Key legislation and policy:
As set out in the BIA, relevant directives, OSB Position Papers and LIT Notices.