Canadian Association of Insolvency and Restructuring Professionals
Association canadienne des professionnels de l’insolvabilité et de la réorganisation
Submission on Personal Insolvency Amendments under Chapter 47 of the Statutes of Canada, 2005 and
Chapter 36 of the Statutes of Canada, 2007
To The
Standing Senate Committee On Banking, Trade and Commerce
39th Parliament, 2nd Session
February 13, 2008
TABLE OF CONTENTS
Tab 1Canadian Association of Insolvency and Restructuring Professionals
and Acknowledgements
Tab 2Introduction
Tab 3Executive Summary of Recommendations
- RRSP and RRIF Plans
- Relief from Student Loan Debt
- Revenue Canada’s Special Status Impacting
Bankrupt’s Eligibility for Automatic Discharge
Tab 4Chart of Recommendations and Comments Amendments
Tab 5Issues Not Addressed In Current Reform Legislation
Canadian Association of Insolvency and Restructuring Professionals (CAIRP)
CAIRP is the national not-for-profit organization that represents insolvency and restructuring professionals. Our 884 general members are identified by the certification mark CIRP, which stands for Chartered Insolvency and Restructuring Professional. It is earned through a combination of study, work experience and licensing as a trustee in bankruptcy by the Office of the Superintendent of Bankruptcy.
The Vision for CAIRP is that:
CAIRP members are recognized leaders in providing solutions to financially challenged individuals and businesses.
The Mission of CAIRP is to:
1)Educate and support its members in providing insolvency, restructuring and related advisory services in a manner that instils the highest degree of public trust; and
2)Advocate for a fair, transparent and effective system of insolvency and restructuring administration throughout Canada.
Values:
CAIRP and its members are committed toprofessionalism,trustworthiness and objectivity.
Acknowledgements
CAIRP gratefully acknowledges the time and effort that the following individuals have dedicated to the analysis of the personal issues in the current insolvency reform legislation.
Alan Spergel, CA CIRP, CIRP, msi Spergel inc.
Guylaine Houle, BCL, FCIRP, Pierre Roy & Associės Inc.
Dana Jurksaitis, CGA, CIRP, Canadian Association of Insolvency and Restructuring Professionals
CAIRP also expresses gratitude to its members who took the time to provide us with their thoughts and comments on the provisions of the reform legislation.
Introduction
We respectfully present, on behalf of the Canadian Association of Insolvency and Restructuring Professionals, our submission to the Standing Senate Committee on Banking, Trade and Commerce considering the current insolvency reform legislation. The legislative package contained in Chapter 47 of the Statutes of Canada, 2005 and Chapter 36 of the Statutes of Canada, 2007 (“the current reform legislation”) is of crucial importance; however, we believe that certain aspects of this legislation are worthy of further consideration.
We are pleased that many of the recommendations of CAIRP have been implemented. Even though CAIRP fully supports the current reform legislation that is being reviewed by the Standing Senate Committee, we believe there are provisions that require further amendment.
In this submission, we address the amendments to the personal insolvency provisions of the Bankruptcy and Insolvency Act (BIA). Our recommendations are made with particular attention to issues of fairness and streamlining of the process. The intent is to balance the interests of debtors, creditors and the public in an accessible, transparent and efficient insolvency system. The current system has many positive aspects that promote the objectives of rehabilitation and a fresh start; we believe that these goals should continue to guide legislative reform. A further goal is to maintain individual dignity while, at the same time, fostering the economic activity that credit allows. Equity among creditors is a principle that we believe must be respected in order to maintain fairness within the insolvency process. Our recommendations represent the collective knowledge and the many years of practical experience of insolvency and restructuring professionals.
Executive Summary of Recommendations
There are three issues in the area of personal insolvency that we believe are of particular importance and require consideration for further amendment to the current reform legislation.
Our recommendations focus directly on the principles of a fresh start, accessibility, transparency, predictability, accountability, equity among creditors and creditor confidence in the Canadian insolvency system.
- Treatment of RRSPs / RRIFs
Current Reform Legislation
The current legislation provides that all RRSPs/RRIFs wherever held (financial institutions or insurance companies) will be exempt from execution or seizure, except any contributions made within the 12 months preceding bankruptcy to any plan or fund which is not exempt under provincial legislation. [1]
Discussion
In recognition of the more extensive use of RRSP/RRIF plans as a vehicle for retirement savings, CAIRP supports treatment of these plans on an equal basis with private and public pension plans.
However, there remains the potential for abuse to defeat the claims of creditors; this possibility must be eliminated or, at the very least, minimized.
We are concerned that situations could arise where liquid assets are invested in an RRSP/RRIF just prior to bankruptcy, i.e. assets that otherwise may have been available for distribution to creditors would become exempt.
Recommendation
CAIRP recommends that all contributions made to an RRSP/RRIF within the 12 months preceding bankruptcy be automatically subject to seizure by the Trustee.
If the above recommendation is adopted, the potential for abuse from the conversion of non-exempt assets to exempt RRSPs will be minimized.
Another benefit to CAIRP's proposed amendment is that it avoids the numerous legal implications involved in determining if an RRSP/RRIF is exempt or not under provincial legislation. The current legislation does not resolve this problem in that the 12-month claw back period is allowed only for contributions made to non-exempt RRSPs/RRIFs.
- Relief from Student Loan Debt
Current Reform Legislation
The discharge period for student loan debt has been reduced to seven years and, in cases of hardship, a hearing is now available after five years.[2]
Discussion
CAIRP does not support the current reform legislation, as these amendments fail to meet public policy concerns regarding a fresh start and rehabilitation of those who have student loan debts. The current law remains extremely harsh and inequitable; students are the only class of citizens in Canadian society that are not entitled to seek relief from the crushing burden of debt, even where there is evidence of hardship. We believe these provisions unfairly discriminate against students as a class of debtor.
The seven-year period is still too long for discharge of the debt, and five years is still too long to wait for relief in cases of hardship.
Recommendations
CAIRP recommends that in cases of hardship, this issue should be dealt with at the bankrupt’s discharge hearing, with the court having express authority to grant full or partial relief from the student loan debt. Notice would be given to the student loan authority, so that it can make its views known to the court. The court could then review the specific circumstances surrounding the hardship in the context of the overall debt burden of the debtor, including consideration of medical or other factors, and make a determination as to whether to grant full or partial relief from the student loan debt.
CAIRP supports Senator Goldstein’s Bill S-205, which would reduce the eligibility period for student loan relief from seven years to two years and would, in hardship cases, allow the debtor access to the courts at any time.
- Revenue Canada’s Special Status Impacting Bankrupt’s Eligibility for Automatic Discharge
Current Reform Legislation
A bankrupt with income tax debt exceeding $200,000 [3], which represents at least 75% of total unsecured proven claims, will no longer be eligible for an automatic discharge nine months following the date of bankruptcy. The bankrupt will now be required to appear before the court for the application for discharge to be heard, solely for this reason, and in every such case.
Discussion
CAIRP supports the principles of fairness and equality for all creditors and, as such, they should be entitled to equal benefits at the time of discharge of the bankrupt. The treatment of income tax debt as a special classification of debt for the purposes of the discharge process should not be allowed.
Recommendation
CAIRP recommends that the bankrupt not be eligible for automatic discharge in all instances where a single creditor is owed an amount exceeding $200,000 representing at least 75% of total unsecured claims; this should not apply exclusively to income tax debt. We therefore recommend that the wording “personal income tax debt” be replaced with “proven debt to any one creditor.”
Comprehensive Chart of Recommendations
A chart that summarizes our recommendations for the current reform legislation with respect to personal insolvency is included in this submission.
Overall, we are very supportive of the legislation and our recommendations for additional amendments or clarification are aimed at achieving further fairness and streamlining of the process.
Issues Not Addressed In Current Reform Legislation
The Personal Insolvency Task Force, the Senate Standing Committee on Banking Trade and Commerce and CAIRP/IIC have previously made a number of recommendations aimed at enhancing the efficiency and fairness of the system that were not included as proposed reforms in Bill C-55 or Bill C-12. Among these, we believe that the following are important enough to ask Parliament to consider additional amendments to the current reform legislation.
1. Federally Prescribed List of Exemptions
CAIRP believes that there should be a federally prescribed list of exemptions that the debtor could choose to elect in place of otherwise applicable provincial or territorial exemptions. This was recommended by both the Personal Insolvency Task Force and the Senate Committee.
This optional federally prescribed list of exemptions would reduce the disparity that currently exists among provincial and territorial exemption allowances on specific assets.
The wide range of exemptions in the provinces and territories can be illustrated by the current exemptions for equity in homes and vehicles:
Homes:
British Columbia: $12,000 in Capital Regional District or Greater Vancouver Regional District; $9,000 for rest of province
Alberta: $40,000
Saskatchewan: $32,000
Manitoba: The residence or home, not held in joint tenancy or tenancy in common, of any judgment debtor other than a farmer, where the value does not exceed $2,500; or where held in joint tenancy or tenancy in common, the value of interest of the debtor does not exceed $1,500.
Ontario: Nil
Québec: Nil
New Brunswick: Nil
PEI: Nil
Nova Scotia: Nil
Newfoundland and Labrador: $10,000
Yukon, NWT, Nunavut: $3,000
Vehicles:
British Columbia: $5,000 if debtor is not a maintenance debtor under the Family Maintenance Enforcement Act; $2,000 if the debtor is a maintenance debtor.
Alberta: $5,000
Saskatchewan: Vehicle, if required for work
Manitoba: $3,000 if required to travel to work
Ontario: $5,000
Québec: Nil
New Brunswick: Vehicle, if market value not more that $3,000 and if required in course of, or to retain employment, or necessary to trade, profession or occupation
PEI: $3,000
Nova Scotia: $3,000
Newfoundland and Labrador: $2,000
Yukon, NWT, Nunavut: Nil
If there is a federally prescribed list of exemptions enacted, the bankrupt would have the option to choose either the federal or applicable provincial or territorial system for exemptions, but not be allowed to “cherry pick” among the federally and provincially prescribed exemptions. As well, it should be clearly specified that exemption amounts refer to the equity held in the particular asset.
Enactment of an optional federal list of exemptions would create a minimum base standard for bankrupts across Canada by recognizing a reasonable set of exemptions regardless of place of residence. It would enable the bankrupt and his or her family to meet their essential needs, to retain a level of dignity, and to obtain relief where the provincial or territorial exemptions are too low in terms of recognizing the cost of living of bankrupts and their families.
2. Non-purchase Money Security Interests in Exempt Personal Property
The BIA should clearly specify that creditors are not permitted to take security on pre-owned goods that would normally be exempt assets. Bankrupts do not always appreciate their rights in respect of exempt property.
CAIRP recommends that the BIA be amended to avoid (nullify) non-purchase money security interests in personal property that would otherwise be exempt from seizure. The avoidance should apply to personal proposals as well as bankruptcies. The avoidance should extend to all non-purchase money security interests in exempted property intended for the personal use or consumption of the debtor or the debtor’s family, including apparel, household furnishings and motor vehicles.
There may be cases in which the value of the creditor’s non-purchase money security interest exceeds the value of the BIA exemption. When this is true of apparel and household furnishings, the debtor should be entitled to select the items that are to be exempt from seizure. In the case of a motor vehicle or other specific assets that the creditor has financed, the lender would be obligated to pay the debtor the exempted amount before the lender could enforce its security, which would prevent undue hardship for the debtor.
3. Increase the Asset Limit for Summary Administration Bankruptcies
CAIRP recommends that the asset limit for summary administration bankruptcies be increased from the current $10,000 to a limit of $15,000, pursuant to section 49(6) of the BIA and Rule 130. Currently, where a trustee opts to limit the calculation of the tariff to the value of assets to a maximum $10,000, the summary process may continue. CAIRP recommends that the trustee should have the option to continue the summary process where asset realization exceeds $15,000. In such cases, the trustee will have elected to limit its fees by calculating it on the capped amount of $15,000.
While CAIRP supports an asset-based limit for the summary administration tariff, in some instances it may be too restrictive. Some bankrupts should continue to be governed by the streamlined summary administration process and tariff, but do not currently meet the asset criteria, particularly in instances where the summary administration assets have realized more than originally anticipated. In such cases, the trustee should have the discretion to permit the bankruptcy to proceed through the summary process, saving both time and resources in the administration of the estate by preventing unnecessary conversion to ordinary administration in straightforward cases. Such an amendment would provide flexibility to assist bankrupts in having access to a streamlined and cost-effective bankruptcy process, would prevent unnecessary court appearances, and would reduce administration costs for the benefit of creditors and the bankrupt.
1
[1] See Section 32(1) of Chapter 36 at page 21 of Tab 4 of the current submission
[2]
See Section 107(2) of Chapter 47 at page 47 of Tab.4 of the current submission
[3]
See Section 53 (1) of Chapter 36 (Bill C-12) at page 41 of Tab.4 of the current submission