1. CONSUMER PROPOSAL PRESENTATION
September 26, 2016
Ian Penney

2. DEFINITION
A consumer proposal is: A formal (legal) procedure filed by an insolvent debtor or a bankrupt which, if accepted by a majority of creditors, will settle all debts save those described in Section 178(1).

3. PARTICIPANTS
DEBTOR:
Ø      Insolvent (or bankrupt), natural person (66.11).
Ø      Having less than $250,000 in debts excluding mortgages on principal residential dwelling. These debts can be of commercial nature (66.11).
Ø      Joint filings between debtors are allowed as described in Superintendent directive.

4. EXCLUDES:
Ø      A debtor who has filed a Division I Proposal or a notice of intention until the trustee is discharged (66.12)
Ø      A debtor whose consumer proposal has been annulled unless Court orders otherwise or unless all debts included in 1st proposal have been completely paid. (Note: this does not apply to a debtor whose 1st proposal was rejected by creditors).
TIME FRAME:
Ø Not greater than 5 years

5. THE CONSUMER PROPOSAL PROCESS

6. Commencing the Proceedings
Ø Prepare proposal and related documents in prescribed form, have signed and filed with the Official Receiver.
Ø Prepare Report.
Ø Send creditors: the proposal, report, proof of claim form, and letter explaining the procedure.

7. Creditor Acceptance or Request for Meeting of Creditors:
A.     Deemed Acceptance:
Ø      If no request for meeting of creditors after 45 days of filing the consumer proposal, consumer proposal deemed accepted by creditors.

8. B.     Request for Meeting:
Ø      After 45 days of filing the consumer proposal, 25% or more proven claims requested a meeting be called; or
Ø     Within 45 days following the filing the consumer proposal, Official Receiver requests a meeting (66.15(2)).

9. If Request for Meeting:
Ø      Meeting to be held within 21 days after being called.
Ø      Notice to every known creditor of time and place of meeting at least 10 days prior (66.15(3)).

10. Meeting of Creditors:
Ø      No quorum at meeting, consumer proposal deemed accepted.
Ø   Voting by Ordinary Resolution.
Ø     Related creditors may vote against, but not for acceptance.
Ø      Administrator as creditor, may not vote.

11. If Consumer Proposal refused, deemed refused by creditors, or withdrawn:
Ø      Inform all creditors, O.R. and Debtor within 5 days of the:
i)     refusal of proposal by creditors
ii)    refusal of proposal by court (discussed later)
iii)   withdrawal of proposal by debtor

12. Deemed Court Approval or Court Approval
A. If after 15 days subsequent to approval by creditors, no request exists for the Court to review the consumer proposal, it is deemed accepted.
B. Application to Court if requested by O.R. or interested party, within 15 days of creditor acceptance or deemed acceptance.

13. Procedure for Application to Court (66.23)
Ø      At least 15 days prior to hearing, notice to debtor, proven creditors and O.R.
Ø      Prepare report and file with Court at least 2 days before hearing – file same report with O.R. at least 10 days prior to hearing.

14. Court May Approve or Refuse to Approve Proposal
Ø Court shall refuse to approve proposal that is not fair to debtor and the creditors or if it does not comply with the Act (66.24(2) and (3))
And
Ø May refuse proposal when established:
(1) Debtor committed an offence, or (2) was not eligible to make a consumer proposal.

15. During Term of Proposal
Ø     Monitor consumer proposal for compliance with terms and frequency of payments (deemed annulment or annulment may be required (66.30 and 66.31)). This is discussed later.
Ø     If annulment (deemed or not), advise Official Receiver and creditors without delay.
Ø     If dividends are not payable at least once every 3 months, inform the Official Receiver and all known creditors of any change that might jeopardize consumer proposal (after having consulted debtor).

16. Ø      Receive in trust, payments from debtor and distribute dividends according to terms of consumer proposal – See directive on Banking – Estate Funds
Ø      Prepare any required notice of stay of proceeding.
Ø      Conduct or arrange for Counselling as required by Superintendent’s directive. – Counselling is Mandatory
Ø      Deliver certificate of full performance and proceed with discharge.

17. GENERAL COMMENTS

18. CONSUMER PROPOSAL WRONGFULLY FILED
It is strictly forbidden to knowingly file a proposal if the debtor is not eligible or if you have any reason to believe that there has been non-compliance with Section (66.13(3)).

19. You can still have proposals that should not have been filed but were
You can still have proposals that should not have been filed but were. This can happen when:
i)  an undeclared debt “shows up” and the $250,000 limit is surpassed.
ii)  the debtor happens to be an undischarged bankrupt or has filed a previous consumer proposal which was annulled.
iii) the reason on which you based your decisions to file a joint proposal are false (e.g.. Absence of the responsibility of spouse for major debt.)

20. DUTIES OF THE ADMINISTRATOR (s.66.14)
Ø    evaluate debtor
Ø    investigate property value and finances
Ø    obtain and verify where applicable
Ø    property tax assessment and/or comparable listings or sale documents
Ø    review mortgages
Ø    car registration and Black Book evaluation/appraisals
Ø    chattels or liens on car and balance due on secured claims

21. The creditors need to be informed on the realizable value of the assets and on contributions that would be required if the Debtor filed for bankruptcy (surplus income) because the alternative to the proposal (in case of refusal) generally is bankruptcy. In order to convince the creditors that they should accept a proposal in which they may lose more often than not a good portion of the claim is to show them that they risk to lose even more if the debtor is forced to file for bankruptcy.

22. Furthermore, the acceptance of a proposal will mean renunciation of sections 95 to 101 recourses, therefore, it is important that the administrator analyze any transaction that would give rise to potential realizations in a bankruptcy. Complete information must be given to the creditors in order to fulfill your duties and to preserve your credibility.

23. Prepare and file a report on
i)        results of investigation i.e. estimated realization in case of bankruptcy
Ø  Reasonableness and fairness should be determined in a mathematical manner. That is, the best alternative (between bankruptcy and the proposal) that will yield the best dividends for creditors with a minimum of risk.

24. ii) your opinion on reasonableness and fairness of proposal i. e
ii) your opinion on reasonableness and fairness of proposal i.e. vis-à-vis creditors Ø Fairness and reasonableness are from the creditors’ point of view and not the debtors’. It is presumed that the debtor is the author of his/her proposal and therefore is reasonable and fair to himself/herself.

25. iii)       your opinion on capacity of debtor to excuse
Ø     The last point is the administrator’s opinion as to the capacity of the debtor to fulfill his promise. That is probably the most difficult point to evaluate because most often, the payments are spread over a two to five year term and therefore many mishaps can occur in that time frame.

26. ADJOURNING MEETING OF CREDITORS FOR FURTHER INVESTIGATION
Section 66.16(2) provides that the meeting of creditors may be adjourned for further investigation.
Ø   The Official Receiver has no authority to commence an examination pursuant to Section 161 as wording in this section relates to bankrupt.
Ø   Section 163 also refers to the word “Bankrupt” and not “Consumer Debtor” and therefore is unlikely that this Section could be used in examining the debtor.

27. DEEMED ANNULMENT OF CONSUMER PROPOSAL (66.31(1))
Unless the Court has previously ordered otherwise, or unless an amendment to the Consumer Proposal has previously been filed, proposal is deemed annulled on: 
Ø     Payments are made monthly, or more frequently, consumer debtor is in default for an amount equal to three payments; or 
Ø     Payments are made less frequently than monthly, when the consumer debtor is in default for more than 3 months on any payment.

28. EFFECT OF ANNULMENT
Ø      Stay of proceedings lifted and creditor rights revived.
Ø      No deemed bankruptcy for debtor, unless debtor was bankrupt when proposal commenced.

29. Duties of administrator in relation to deemed annulment – 66.31(3)
Without delay after a consumer proposal is deemed annulled, the administrator shall
file with the official receiver a report in the prescribed form in relation to the deemed annulment; and
send a notice to the creditors informing them of the deemed annulment.

30. REVIVAL OF CONSUMER PROPOSAL
Notice of possibility of consumer proposal being
automatically revived – 66.31(6)
In the case of a deemed annulment of the consumer proposal made by a person other than a bankrupt, if the administrator considers it appropriate to do so in the circumstances, he or she may, with notice to the official receiver, send to the creditors – within 30 days, or any other number of days that is prescribed, after the day on which the consumer proposal was deemed to be annulled – a notice in the prescribed form informing them that the consumer proposal will be automatically revived 60 days, or any other number of days that is prescribed, after the day on which it was deemed to be annulled unless one of them files with the administrator, in the prescribed manner, a notice of objection to the revival.

31. Automatic revival – 66.31(7)
If the notice is sent by the administrator and no notice of objection is filed during the period referred to in subsection (6), the consumer proposal is automatically revived on the expiry of that period.

32. Notice if no automatic revival – 66.31(8)
If a notice of objection is filed during the period referred to in subsection (6), the administrator is to send, without delay, to the official receiver and to each creditor a notice in the prescribed form informing them that the consumer proposal is not going to be automatically revived on the expiry of that period.

33. Administrator may apply to court to revive consumer proposal – 66
The administrator may at any time apply to the court, with notice to the official receiver and the creditors, for an order reviving any consumer proposal of a consumer debtor who is not a bankrupt that was deemed to be annulled, and the court, if it considers it appropriate to do so in the circumstances, may make an order reviving the consumer proposal, on any terms that the court considers appropriate.

34. Duty of administrator if consumer proposal is revived – 66
Duty of administrator if consumer proposal is revived – 66.31(10) Without delay after a consumer proposal is revived, the administrator shall file with the official receiver a report in the prescribed form in relation to the revival; and (b) send notice to the creditors informing them of the revival

35. CONSUMER PROPOSAL BY BANKRUPT (66.4(2))
When a consumer proposal is filed by a bankrupt
Ø   Must be approved by the inspectors.
Ø   Time with respect to determining claims shall be the time at which consumer debtor became bankrupt.
Effect of Consumer Proposal by Bankrupt
Ø   Operates to annul bankruptcy and revest assets in debtor, unless otherwise stated in proposal.

36. Effect of an Order Annulling the Consumer Proposal by a Bankrupt
Ø      Consumer Debtor becomes bankrupt.
Ø      Consumer Debtor not eligible to make another consumer proposal (unless court order obtained). 
Effect on Deemed Annulment of the Consumer Proposal made by a Bankrupt
Ø      Debtor becomes bankrupt again.
Ø Deemed to have made and assignment on date of proposal annulled.
Ø      Administrator shall become Trustee of Bankrupt Estate.

37. Ø      Trustee shall within 5 days of annullment call FMOC per Section 102.

38. REMEDIES AVAILABLE TO ADMINISTRATOR TO ENSURE FULL PERFORMANCE OF PROPOSAL
Ø      Assignment of wages (66.35(1))
Ø      Certificate registered on title (66.29(1) and (2))

39. OTHER MATTERS

40. Child/Spousal Support
Ø      Child support and spousal support claims are a preferred claim – given the large correlation between matrimonial problems and financial problems, the administrator needs information pertaining to support obligations.

41. Student Loans
Ø    Student Loans (less than 7 years after leaving school) are provable claims and are stayed by Section 69. HRDC has advised that they will accept proposals regarding student loans, provided a term is added to the proposal stating that student loan is not discharged.

42. STAY OF PROCEEDINGS (S. 69.2)
Ø Paragraph 1 and 4 is same as in bankruptcy i.e. stay of proceedings for all unsecured creditors subject to s.69.4 and stay of proceedings for secured creditors with court order and only under certain circumstances.
Paragraph 2 specifies that there is no stay of proceedings of 2nd proposal is filed within 6 months of the previous.
Ø Paragraph 3 specifies that there is no stay if two amendments are filed within 6 months of each other.

43. COMMENTS RE. STAY OF PROCEEDINGS
 Contrary to Division I proposals, there is no general stay of proceedings for secured creditors. The only protection against secured creditors is s in which the protection is only valid if no other default than having filed a proposal has occurred prior to the filing of the proposal. This means for example, that if the mortgage payments aren’t up to date or if property taxes are in default, the secured creditor would be entitled to realize on his mortgage.

44. Section protection covers any type of contract including: mortgages, leases, chattel mortgage, conditional sale contracts, credit lines, loans, etc. Where a lease is concerned, the protection is enlarged to include cases where there are arrears in rent.

45. PUBLIC UTILITIES (66.34(3))
Generally, they are not allowed to discontinue service even if in arrears.
Practically, however, public utilities and lessor can require cash payments i.e. pre-payment for services rendered after filing of proposal. (66.34(3))
A service provider can ask the Court to be excluded from these provisions if it is likely to cause financial hardships. (It is not likely that utilities co. involving this section will suffer financial hardship)(s (6)).

46. PROTECTION FROM EMPLOYERS
The debtor is also protected against dismissal or other means of discipline by his employer on the sole ground that he has filed a consumer proposal (s )

47. ADMINISTRATORS RENUMERATION
Tariff: proposal filed on or after April 30th, 1998 $750 upon filing $750 upon court approval 20% of all sums distributed to creditors payable upon said distribution. Remuneration is paid according to section 136. Therefore, you are entitled to pay fees and disbursements in priority to ordinary creditors. Section 66.12(6) sets out the procedure relative to taxation and discharge (see also rules )

48. VARIOUS FEES Same as bankruptcy: Ø Counselling $85.00 each
Ø      Filing Fee $100.00
Ø      Court Fee $50.00
Ø      HST/GST
N.B. no fee is provided for inspectors.

49. CASE LAW

50. Re. Sutherland 36 CBR (3d) 208:
Once 45-day period for acceptance by creditors is passed, Courts do not have jurisdiction to postpone this date.

51. Re. Derksen 34 CBR (3d) 252:
Consideration was given to equity in home to determine if in fact the Debtors were insolvent. Court found that Debtors not insolvent when considering equity and therefore not eligible to make a consumer proposal.

52. Re. Plesh 1994 CanRepMan 266, 93 Man. R. (2d) 66
Application to have the Consumer Proposal approved by Court. Court found that proposal should be refused on the grounds that the principals relating to approving proposals are not different from those for a bankrupt’s discharge and that egregious conduct justifies refusal of proposal.

53. Re. Vanbove 29 CBR (3d) 59
Court examined trustee’s responsibility to remit assets belonging to a Section 81.1 claimant.

54. Minister of National Revenue vs. Engdahi 27
CBR (3d) 114
Court having to deal with a demand by Canada Revenue Agency (CRA) to annul proposal because debt exceeding $75,000. Court decided it had discretion to annul or not annul proposal. In this case the Court did not annul the proposal, however, a major factor was that CRA waited until after the Certificate of Compliance was issued, prior to challenging.

55. AMENDMENTS TO THE BIA

56. 66.28(2.1)
When consumer debtor is released from debt –
A consumer proposal accepted, or deemed accepted, by the creditors and approved, or deemed approved, by the court does not release the consumer debtor from any particular debt or liability referred to in subsection 178(1) unless the consumer proposal explicitly provides for the compromise of that debt or liability and the creditor in relation to that debt or liability voted for the acceptance of the consumer proposal.

57. The purpose of this amendment is to clarify that Section 178 claims survive the discharge provisions, unless there was a clear vote/acceptance to be bound by the term compromising the creditor’s right.

58. 66.31(2) Deemed annulment – amendment withdrawn or refused – If an amendment to a consumer proposal filed before the deemed annulment of the consumer proposal under subsection (1) is withdrawn or refused by the creditors or the court, the consumer proposal is deemed annulled at the time that the amendment is withdrawn or refused.

59. The purpose of this amendment is to clarify that the proposal becomes annulled upon the amendment being withdrawn or refused.

60. 66.38(2) Effect if counselling refused – Subsection (1) does not apply in respect of a consumer debtor who has refused or neglected to receive counselling provided under paragraph 66.13(2)(b).

61. QUESTIONS

62. 1. The Debtor is well into his second year of a 4 year proposal
1. The Debtor is well into his second year of a 4 year proposal providing for the payment of $20,000 ($500 for 40 months).
Two months ago, his wife lost her job and she still has not found another one. The monthly payments were fine when both were working, but now, the EI income is not sufficient to cover all expenses. The debtor does not want to default on his proposal and does not want to file for bankruptcy.
What can you suggest as a solution? Explain the process?

63. 2. The Debtor filed a Consumer Proposal with
2. The Debtor filed a Consumer Proposal with another firm and the Proposal was rejected last week by a majority of creditors at the first meeting.
Can the Debtor file a new consumer proposal with you today? What do you tell the Debtor?

64. 3. Can you have more than one class of
3. Can you have more than one class of unsecured creditors in a consumer proposal?

65. 4. A debtor files a proposal in January of 2012 and
4. A debtor files a proposal in January of 2012 and dividends are payable every six months. The debtor and his wife separate and their budget is very tight. You feel the obligation to advise creditors of the change that you feel might jeopardize the proposal. However, the Debtor does not want you to inform the creditors, fearing their panic and danger of annulment of the proposal. He insists that he and his wife will revise their budgets and make all the payments pursuant to the proposal.
What do you do? Explain.