Effect of the Annulment of a Notice of Intention to Make a Proposal

Issue

What is the effect of the annulment of a Notice of Intention (NOI) to make a proposal and does a Licensed Insolvency Trustee (LIT) have ongoing duties including a requirement to submit a Statement of Receipts and Disbursements (SRD)?

Position

The annulment of an NOI by the Court, even expressed as an ab initio order, does not invalidate things done, work performed, or actions taken in the course of the proceedings initiated under the Bankruptcy and Insolvency Act (BIA), and additional steps may be required after the order is made to complete the LIT’s mandate. The LIT is still subject to the supervision of the Office of the Superintendent of Bankruptcy (OSB) and the Court until the mandate is completed such that an SRD will be required among other steps, such as informing the creditors.

Analysis

Where an NOI is annulled or withdrawn with the authorization of the Court (s. 181 and 183 of the BIA), or is terminated because the restructuring process has failed (ss. 66(1) and 66(1.2) of the BIA),Footnote 1 the LIT must submit an SRD to complete its mandate.

Pursuant to subsection 66(1), the section 152 taxation process applies to proposals. Subsection 66(1.2) provides that the LIT “is to prepare the final statement of receipts and disbursements referred to in section 151 without delay after

  • (a) the debtor files or is deemed to have filed an assignment;
  • (b) the trustee informs the creditors and the official receiver of a default made in the performance of any provision in a proposal; or
  • (c) the trustee gives the certificate referred to in section 65.3 in respect of the proposal.”

The BIA requires the Superintendent to “supervise the administration of all estates and matters to which this Act applies,” and this supervision includes the duty to “examine trustees’ accounts of receipts and disbursements and final statements” (ss. 5(2) and par. 5(3)(g) of the BIA).  LIT’s are required to forward a copy of the SRD to the Superintendent before the taxation process (ss. 152(3) and (4) of the BIA). The court cannot dispense with this requirement or usurp the Superintendent’s supervisory duties.Footnote 2 The taxation process provides for a level of transparency and oversight mandated by Parliament and is applicable to NOIs.Footnote 3

When an LIT is appointed to a BIA proposal or bankruptcy engagement, the LIT is required to prepare an SRD at the end of the engagement, regardless of how that engagement is concluded.

An NOI may be annulled by court order, for example where the issuance of a reverse vesting order (RVO) renders the debtor solvent. The statutory authority for an annulment is section 181, which is applicable to proposals by virtue of subsection 66(1). Subsection 181(2) protects the validity of steps taken during the BIA proceeding by ensuring that “all sales, dispositions of property, payments duly made and acts done before the making of the order by the trustee . . . or by the court, are valid.” Subsection 181(2) also ensures that the LIT will be entitled to their fees, as taxed, for services provided during the tenure of the BIA proceedings.

Conclusion

The failure of an LIT to fulfil their obligations under the BIA, including the failure to submit an SRD, in a timely manner may lead to legal consequences including possible professional conduct proceedings under subsection 14.01(1).