Deemed Annulled Consumer Proposals

Issue

Where a consumer proposal goes into monetary default and is deemed annulled under paragraph 66.31(1)(a) of the Bankruptcy and Insolvency Act (BIA), it can be revived pursuant to subsections 66.31(7) or (9) of the BIA. In this context, various issues can arise:

  1. Can the consumer proposal be revived without first curing the monetary default that caused the annulment?
  2. When is the first payment required to be made after the revival of the consumer proposal?

Position

  1. Can the consumer proposal be revived without first curing the monetary default that caused the annulment?

It is the Office of the Superintendent of Bankruptcy’s (OSB) position that a monetary default may result in an annulment, followed by an administrative revival, without the missed payments being made in advance of the revival. The consumer proposal administrator may decide that monetary defaults should be cured before initiating the revival process although the BIA does not require it. The missed payments will, however, have to be made up prior to the completion of the consumer proposal, unless an amended proposal is made and accepted.

  1. When is the first payment required to be made after the revival of the consumer proposal?

Once the consumer proposal is revived, payments should resume according to the terms of the proposal unless it has been altered by the court or amended per the BIA.

Considerations

  1. Can the consumer proposal be revived without first curing the monetary default that caused the annulment?

A consumer proposal that has been deemed annulled following missed payments can be revived via two routes: the judicial route and the administrative route. In the first case, the court can revive the consumer proposal “if it considers it appropriate to do so in the circumstances… on any terms that the court considers appropriate” (ss. 66.31(9) of the BIA). In the second case, if “the administrator considers it appropriate in the circumstances…,” they can send the prescribed notice to the creditors, and, if no creditor files an objection to the revival, the consumer proposal is automatically revived (ss. 66.31(6) and (7) of the BIA).

Although the BIA does not require the missed payments to be repaid before the revival of the consumer proposal, discretion lies with the administrator to require full re-payment or the posting of a security, a guarantee or an agreement to a repayment schedule. Indeed, the BIA requires the administrator to determine whether the revival is appropriate in the circumstances and the only precondition on revival is that no creditors object. If an administrator requires the repayment of the missed payments before the revival, the reasons justifying this requirement should be indicated on Form 93, Notice to Creditors and to Official Receiver of Impending Automatic Revival of Consumer Proposal, together with the reasons why the revival is appropriate.

The missed payments that triggered the annulment would not trigger a second annulment if not cured before revival. On the date of revival of the consumer proposal, the number of missed payments in the proposal is reset to zero. However, for a certificate of full performance to be issued, the missed payments must be repaid within the term provided for in the proposal, unless the consumer proposal is amended in accordance with section 66.37 of the BIA. Should an amendment not be possible, the judicial revival route should be taken to address this situation. A judicial revival may be made “on any terms that the court considers appropriate” (ss. 66.31(9) of the BIA) but a similar power is entirely absent in the administrative route. It is the OSB’s position that the administrative revival route does not provide any authority to eliminate the need to make the promised payments. Should the consumer proposal be amended to extend the term, the failure to respect the maximal five-year term provided for in the BIA (subsection 66.12(5)) could lead to a court-ordered annulment on application by an interested party.

  1. When is the first payment required to be made after the revival of the consumer proposal?

Once the consumer proposal is revived, payments are due according to the terms of the proposal unless it has been altered by the court or amended per the BIA. Therefore, the first payment is to be made at the nearest date, following the revival date, at which a payment is due under the schedule of payments provided for in the consumer proposal.