The Government of Canada has introduced new rules for the mandatory insolvency counselling sessions that are required with every insolvency proceeding. The new directive called 1R4 is being implemented by the Office of the Superintendent of Bankruptcy, (OSB).
As of October 1st, 2018 every insolvency proceeding administered by a Licensed Insolvency Trustee (LIT) will be required to conform with the new rules. That includes newly filed insolvency proceedings as well as ongoing insolvencies.
What is Insolvency Counselling?
In Canada, every insolvency i.e. bankruptcy, consumer proposal, or division one proposal, includes two mandatory insolvency counselling sessions also known as credit counselling. These sessions are educational and are meant to give the debtor the tools to manage their finances in the future.
They are required in order to complete the insolvency. Without them, the debtor will not receive their bankruptcy discharge or consumer proposal certificate of compliance.
These sessions can either be administered by your LIT or their designated, registered BIA counsellor. In order for a BIA counsellor to qualify the managing LIT must register them against their individual license. In order to qualify the proposed BIA counsellor must meet the following requirements as indicated by the government of Canada:
(a) has a high school diploma;
(b) has successfully completed either:
(i) the Insolvency Administration Course available from the Canadian Association of Insolvency and Restructuring Professionals (CAIRP); or
(ii) a minimum of two (2) relevant post-secondary courses in mathematics, financial management, finance, accounting, or business administration;
(c) undertakes to complete seven and a half (7.5) hours of appropriate professional development training annually;
Practical course on Insolvency Counselling
(d) has successfully completed the Practical Course on Insolvency Counselling (PCIC) available from the Canadian Association of Insolvency and Restructuring Professionals (CAIRP);
Knowledge of Insolvency Counselling Curriculum
(e) has demonstrated a knowledge of the BIA insolvency counselling curriculum as specified in this Directive and according to requirements specified by the OSB;
(f) has obtained experience in providing insolvency counselling to bankrupts or consumer debtors through a minimum of fifty (50) counselling sessions, acquired:
(i) by delivering insolvency counselling under the direct observation of:
1) the applicant LIT or an LIT of the same firm as the applicant LIT; or
2) an insolvency counsellor registered against an LIT’s licence through the OLAA who has a minimum of one year experience in providing insolvency counselling for the applicant LIT or an LIT of the same firm; or,
(ii) by independently delivering insolvency counselling, as an insolvency counsellor previously registered against an LIT’s license through the OLAA, within the last 24 months from the date of the application.
Validation of Competency
(g) possesses the necessary competencies and is known by the LIT to be of good character, has the capabilities, knowledge, skills and proficiency to provide insolvency counselling in accordance with this Directive as personally validated during the LIT’s direct observation of the individual providing a minimum of three (3) counselling sessions to debtors on whose behalf the LIT has filed an insolvency proceeding;
(h) is covered by the LIT’s professional liability insurance or alternatively, has provided to the LIT current documentation demonstrating that he or she is covered by adequate professional liability insurance of their own.
Each credit counselling session includes a preset list of educational items:
Session 1 – Consumer and Credit Education
- money management;
- spending and shopping habits;
- warning signs of financial difficulties; and
- obtaining and using credit.
Session 2 – Identification of Roadblocks to Solvency and Rehabilitation
- Follow up on the application by the individual bankrupt or consumer debtor of the principles presented in the first session, to assist the individual bankrupt or consumer debtor to better understand his or her strengths and weaknesses with regard to money management and budgeting skills;
- Where appropriate, assist the individual bankrupt or consumer debtor:
a. to identify the non-budgetary causes (such as gambling abuse, compulsive behaviour, substance abuse, employment and marital or family difficulties) that may have contributed to his or her financial difficulties;
b. to better understand his or her behaviour in financial management and consumption habits; and,
c. to make him or her aware of the existence of resources that may help him or her achieve and maintain economic stability; and,
- Cooperatively with the individual bankrupt or consumer debtor, develop recommendations and alternatives for a financial plan of action that, if appropriate, may include referral for specialized counselling to deal with non-budgetary causes of insolvency.
However, the Government of Canada is now implementing rules that streamline the process. They outline, when, where and how the sessions are given.
The New Rules
Insolvency counselling sessions can now only be administered by LITs or registered and eligible BIA insolvency counsellors that have been pre-registered and approved by the OSB.
They can no longer be administered by individuals:
- engaged in or involved with the provision of financing and lending services to individual bankrupts or consumer debtors including, but not limited to, credit rebuilding services, loans in various forms and insurance;
- employed by, associated with, or acting as an Intermediary; or
- employed by, associated with, or acting as a Referral Arranger.
Individuals going through any of the three insolvency proceedings available in Canada are required to complete two insolvency counselling sessions per insolvency.
The OSB requires the insolvency counselling sessions to be completed in person at the authorized LIT office in which the original insolvency assessment was completed and signed. In special circumstances, there are allowances for a variance in location. In those cases, the counselling sessions may be completed virtually by video.
However, there are additional requirements when using the video counselling option:
- Video sessions must be recorded;
- Both the LIT and the individual bankrupt or consumer debtor have the necessary means and capacity to participate and the LIT agrees it is feasible and appropriate;
- The individual bankrupt or consumer debtor only receives insolvency counselling at a location that offers privacy and that is not an office of an individual who is ineligible to be registered against an LIT’s license pursuant to paragraph 13 of this Directive;
- Insolvency counselling via videoconference is provided only on an individual basis and not on a group basis, nor in the presence of an individual who is ineligible to be registered against an LIT’s license pursuant to paragraph 13 of this Directive.
Insolvency counselling sessions must be administered at specific times during the insolvency proceeding. The first session must be administered within 10 to 30 days from the insolvency date. The second session must be completed within 60 days to 210 days from the insolvency date. Each session must also be separated by a minimum of 30 days.
Extra charges for insolvency counselling sessions are no longer allowed. The debtor should never be charged for the mandatory counselling sessions. However, keep in mind that your LIT will receive a fee for each session. This fee is paid by the estate i.e. the creditors, not by the debtors.
For more information on the new insolvency counselling requirements, visit the OSB website.