Licensed Trustees in Canada – The Best Solution
June 21st, 2010 by A Licensed Insolvency Trustee
Last week we provided our thoughts on whether or not Credit Counsellors should be licensed to administer consumer proposals in Canada.
The Office of the Superintendent of Bankruptcy (“OSB”) is currently conducting a policy review. One topic they are considering is whether or not they should implement specialized licenses for bankruptcy trustees. Currently all bankruptcy trustees in Canada must go through a very rigorous educational program. Most trustees have a university degree, many have an accounting background, and all are required to pass five levels of courses (with each level taking approximately one year to complete), culminating with a final one and a half hour oral exam. All trustees must have a breadth of knowledge, and must understand both personal and commercial insolvency issues. The OSB is now considering graduated licenses: consumer insolvency only, commercial only, and proposal administrators. Frankly, I’m concerned that these potential changes are being actively considered.We operate a consumer bankruptcy practice in central and southwestern Ontario. You might think that we would be pleased to see consumer licenses and proposal administrator licenses issued as these would cover 90% of our practice. We’re not – our concern focuses on the fact that there are very few sections of the Bankruptcy and Insolvency Act (“Act”) that persons operating our type of practice do not need to “know”.
I will concede that there are not many personal bankruptcy estates that have to deal with complicated commercial issues like commercial leases, or 30 day goods, or the Wage Earner Protection Program. Having made that concession, these issues do arise and the trustee on the file needs to be knowledgeable and experienced enough to deal with the “unexpected”. If the OSB intends to issue limited scope licenses then a policy needs to be developed to deal with estates that develop into types that the specialized trustee has not been licensed to handle. It is not difficult to imagine an estate that starts out quite simple and straightforward that somehow transforms itself into a highly technical, highly complicated file. A self employed person, or someone involved in a legal dispute prior to filing are two possible candidates for this type of transition.
Further, the assessment requirements currently set out in the Act require the trustee performing the assessment to present a debtor with all of their alternatives. If a person with a specialized license doesn’t’t have a good working knowledge of all aspects of the Act they will not be able to comply with this requirement. If they cannot comply with the assessment requirement debtors may be counseled into the “wrong” solution for them.
My concerns thus far seem to deal with personal insolvencies – what about issuing limited commercial licenses? In my experience the level of general knowledge about the Act is higher for those trustees working in the personal insolvency area. This is based on my experience hiring and training trustees and students with commercial and consumer backgrounds. The consumer practice requires a much broader understanding of the Act. The law is the same for both types of files – the difference seems to be on the volume of estates. A consumer practice is often a volume business – it is therefore more likely you will encounter more unusual situations. A commercial file is almost always larger and more complicated, but in the most complicated commercial files a trustee is not working alone – they have other professionals, including other trustees and lawyers, that they can call on for assistance.
I would not object to specializations once a trustee license has been granted. In other words, if after someone has demonstrated the knowledge and skills to be licensed as a trustee and they decide to limit their practice to certain types of insolvencies, they may do so. Of course they may already do so simply be restricting the types of files they accept.
If the purpose of these specialized licenses is to make it easier to obtain a trustee license then I have to question the wisdom of such a course. At a time when the world is becoming more complicated, why would you simplify the requirements to deal with complicated financial situations? If the OSB is anticipating a shortage of trustees then the correct solution is not to make it easier to become a trustee, the correct solution is to make it more attractive to obtain a license. The market will then correct for any shortfall.
In short, I don’t support the idea of specialized licenses, in particular if the goal is simply to create more trustees. There are better ways to achieve that goal, if that is the true objective of this policy.
If simplified, specialized licenses were to be created, my top ten predictions for what will happen if specialized consumer proposal licenses are issued by the OSB are as follows:
1) The number of persons applying for these specialized licenses will exceed the number of persons pursuing a full trustee in bankruptcy licence (why pursue a full licence when you can obtain a licence to provide the most lucrative services that trustees provide).
2) Over time the number of fully licensed trustees will diminish to the point that there will be serious access to service issues for anyone requiring the services of a full trustee.
3) Dollars spent on advertising “debt relief without filing bankruptcy” will increase dramatically. The total number of insolvency filings will increase. Initially the number of consumer proposal filings will increase, but within a few years bankruptcy filings (assuming people can find a full trustee) will also increase as proposals fail.
4) Credit losses will increase – persons that might not previously have considered a proposal will be enticed by the less emotionally charged services of a proposal administrator as opposed to a trustee (there are in fact trustees now advertising themselves as proposal administrators for this very reason).
5) Abuses currently in evidence from non-regulated “debt consultants” will now become muddied with these non-trustee proposal providers.
6) Many debt consultants may attempt to obtain these specialized licenses not fully a appreciating (or intending to provide) the level of service and control that holding funds in trust requires.
7) Failures of these new limited service providers will erode the publics’ trust in the system – currently the insolvency industry is not well known or understood; in the future these failures will display the industry in a less than favorable light.
8) The not for profits currently providing debt management solutions will either fold or become proposal administrators, effectively removing one form of debt relief from the market.
9) Unless specifically prohibited, law firms may move into this service area just as they have moved into collection activities, further confusing the public.
10) OSB resources will not be sufficient to properly monitor and control the persons and firms providing these proposal only services.
In summary, I strongly believe that debtors experiencing debt problems should have access to advice from well educated and highly experienced professionals. Would you rather see a doctor that went to medical school for one year, or a doctor with five years of additional training and many more years of practical experience? Personally, I would prefer to deal with the most knowledgeable professional possible, and so I believe that granting fully qualified licenses to trustees is the best interests of the public.