Who Should Administer Consumer Proposals: The Discussion Continues
On this Trustees Talk site we attempt to comment on items in the news, and items of interest to Canadians. As we have discussed previously, in June 2010, the Office of the Superintendent of Bankruptcy (OSB) initiated a Review of the Trustee Licensing Regulatory Framework . One of the items up for discussion was whether or not credit counsellors should be permitted to act as consumer proposal administrators.
On June 28 we published the thoughts of a trustee from Edmonton, Barton Goth, who asked the question: Consumer Proposals: A need for more administrators or a slippery slope? He concluded that the expertise of a licensed trustee is very valuable to anyone in financial trouble. While credit counsellors offer debt management plans, a consumer proposal is a legally binding, court approved procedure, so a higher standard of care is required.
We have reported on Debt Management Plans, and we encourage everyone to “run the numbers” to determine if you are using the proper solution to deal with your debt problems.
We’ve concluded that Licensed Bankruptcy Trustees are most qualified to administer consumer proposals, again due to the expertise required.
I have also provided my thoughts on whether or not credit counsellors should administer consumer proposals.
The Canadian Association of Insolvency and Restructuring Professionals has now produced their thoughts on the issue, in a 108 page report that comments on all aspects of the proposed new licensing framework. They have specifically commented on the Canadian Association of Credit Counselling Services (CACCS) submission, and they have responded as follows:
CACCS mistakenly refers to the trustee community operating as a monopoly; with 1,017 practicing trustees in Canada competing for work, nothing could be further from the truth. In essence the position of CACCS is analogous to a position that dentists have a monopoly over fixing teeth and surgeons have a monopoly over performing surgery, again these are not monopolies, but regulated (or self-regulated) professions, with a goal to have the most qualified professional provide the service to achieve the most desirable and predictable result. The dentist, surgeon and trustee all fit into this category;
CACCS mistakenly believes there is an access constraint within the consumer debtor market that fundamentally must be addressed by adding capacity. The issue, however, is not capacity, but quality; currently only trustees embody the depth of knowledge, breadth of experience and professional standards to meet the needs of consumer debtors within a Court-supervised restructuring process. As for capacity, we are dumbfounded by this CACCS assertion given that the economy has just experienced the worst economic downturn since the Depression and yet no consumer debtor went without access to a trustee to meet their needs through the provision of quality services;
CACCS asserts that its members are uniquely qualified to service the consumer debtor market. The very principle of a profession is that the individuals within it maintain a distinct expertise that allows them to perform a service to benefit an individual or entity—a service that is superior to that offered by all other providers. In the case of consumer debtors, it is trustees who have proven their ability based on depth of knowledge, breadth of experience, adherence to strict standards and oversight and ability to deliver a complete suite of services that differentiates them as the market leader in servicing the needs of financially distressed Canadians;
CACCS asserts that Debt Management Plans (DMP) and consumer proposals have many of the same characteristics. The truth is that DMP and consumer proposals are more dissimilar than similar. DMP are not Court-supervised restructuring proceedings; they do not require an administrator to balance the competing interests of the stakeholders; they do not require the administrator to opine on the reasonability of the Plan; they do not require an assessment of realization under alternative proceedings; they do not require consideration of all aspects of the Bankruptcy and Insolvency Act, provincial legislation, jurisprudence and, most importantly, professional judgment; and they are not subject to regulatory oversight by the OSB and supervision of the Court; nor are the administrators subject to the strict standards of professional practice, code of conduct and by-laws of CAIRP. Are they the same – not really!
CACCS believes that the consumer debtor is a client for the purpose of a consumer proposal, in which CACCS articulates a role for negotiation with creditors based on a client’s ability to repay their debt, according to their situation and the best of their ability. Unfortunately, CACCS fundamentally misunderstands the role of an Officer of the Court, a trustee, and the conceptual requirements of the BIA, that while preserving the principles of rehabilitation and a fresh start for the consumer debtor, must also respect the responsibility of the consumer debtor to his or her creditors. The role of the trustee is complex, as it requires a balancing of the competing interests to achieve equity through the facilitation of an arrangement between a consumer debtor and his or her creditors, having regard to the personal circumstances of the consumer debtor. Is the fundamental mindshift easy? No. Is it a requirement? Absolutely.
CACCS asserts that, by granting credit counsellors status as administrators of consumer proposals, the current referral system between credit counsellors and trustees will be unnecessary in the future. CACCS asserts that such a referral stream is “problematic and very inefficient while presenting a major disservice to the Client. Specifically, once the Client’s trust has been gained and the clinical relationship has formed”. CAIRP asserts that the referral system remains a necessary and important aspect of the insolvency process, irrespective of the status of creditor counsellors to provide consumer proposal services. The assertion lacks situational recognition that consumer proposals are not the answer for all financially distressed individuals; it fails to recognize that the seeds of success are not embedded within every consumer proposal filed; it fails to recognize that client referrals from trustees to credit counsellors should be equally common based on an assessment of an individual’s personal circumstances; it fails to recognize that specialized counselling may be required to meet a consumer debtor’s needs, counselling beyond the ability of a trustee or a credit counsellor. CAIRP is concerned, based on the assertion of CACCS, that its members will see the consumer proposal legislation as the sole alternative to a DMP. Is the real risk referrals? No, it is practitioner perception; and
CACCS presents survey results that are at best self-serving, at worst libelous. The survey makes bold statements pertaining to trustees failing to meet their statutory duties in performing adequate assessments (in accordance with Directive 6R5). The survey presents a tainted picture, but lacks transparency and substantive and objective correlation between the methodology and results; it lacks any source reference or verifiable basis on which to conclude whether any comments are substantively supportable. It is the position of CAIRP that the entirety of the survey results is inappropriate for a public consultation by the OSB as to the Licensing framework. CAIRP will in the coming weeks hold CACCS to account.
Wow. Sounds like a war of words between CAIRP (the trustees) and CACCS (the credit counsellors).
I have already provided my thoughts on this issue, so I will not belabor the point further here, other than to say this: if you are experiencing financial trouble, who do you want to assist you? If you want a credit counsellor working for a not for profit credit counselling agency, then see a credit counsellor. If you want a consumer proposal administrator or a bankruptcy trustee, go see them. You have the choice.
I work with many excellent credit counsellors, and I regularly refer people to credit counsellors when I believe they are best able to provide a solution. In many cases a credit counsellor can provide a solution; in other cases a bankruptcy trustee’s services are required. I pride myself on always looking out for the best interests of the people who seek my help. If all advisors (trustees, credit counsellors, lawyers, accountants) focus on providing advice that is in the best interests of the person in debt, everyone will get the professional assistance they deserve.