Directive No. 16
Coming into force September 18, 2009
Third-Party Deposits and Guarantees
Issued: August 14, 2009
(Supersedes Directive No. 5R issued on July 23, 1993, on the same topic)
- In this Directive,
- "Act" means the Bankruptcy and Insolvency Act;
- "OSB" means the Office of the Superintendent of Bankruptcy;
- "Rules" means the Bankruptcy and Insolvency General Rules.
Authority and Purpose
- This Directive is issued pursuant to the authority of paragraphs 5(4)(b) and (c) of the Act.
- The purpose of this Directive is to codify the basic minimum standards of practice for trustees in the treatment of third-party deposits and guarantees.
- This Directive does not apply to those situations involving the trustee acting in a proposal under Part III of the Act and/or as interim receiver pursuant to section 47 of the Act.
- Third-party deposits and guarantees shall be fully disclosed in writing:
(a) to give the creditors, the inspectors, the Superintendent and the taxing officers a complete financial picture of the entire insolvency proceedings and to conform with the requirements of subsection 152(1) of the Act;
(b) to maintain intact the principle that the trustee is paid from the estate and ensure the trustee's independence and integrity;
(c) to reinforce the principles of openness, reliability and control, which are essential foundations of a properly functioning bankruptcy process; and
(d) to ensure that advances on remuneration, in any form, continue to be subjected to the discipline and control mechanisms embodied in the Act.
- Subject to section 7, trustees shall disclose, in reporting at the first meeting of creditors and in the Estate Information Summary (EIS), the existence of and the name of the depositor or guarantor regarding any direct or indirect deposit or guarantee of fees by a third party.
- In unusual or exceptional circumstances where the disclosure of the name of the depositor or guarantor provides undue hardship, embarrassment or would otherwise result in the third-party deposit or guarantee not being given, the trustee may withhold disclosure at the first meeting of creditors of the name, but shall not withhold this disclosure from the Superintendent.
- The full disclosure and the proper treatment of these deposits or guarantees is consistent with the principles embodied in section 61 of the Rules and subsection 152(1) of the Act attesting that there were no other direct or indirect considerations paid or payable to the trustee with regard to the administration of the estate.
(1) Third-party deposits and guarantees are not estate funds.
(2) If third-party deposits are received in an estate, the trustee's file shall contain satisfactory written evidence of third party deposits, whether direct or indirect.
(3) If no such written evidence exists in the trustee's file, these deposits will be considered, by the Superintendent, to be estate funds like any other deposits and will be treated accordingly.
- Subject to section 11, the disposition of the deposit or guarantee in a summary or ordinary administration shall also be shown in the Statement of Receipts and Disbursements as follows:
(a) as a receipt to the extent of the amount required to satisfy the trustee's taxed or deemed taxed fees and costs; and
(b) as a footnote, in the case where a deposit or a guarantee has not been called upon and is not expected to be called upon.
- The trustee may, where the Court requires or accepts, show third-party deposits received as a footnote in the Statement of Receipts and Disbursements instead of as a receipt in the said Statement.
Written Agreement — Depositor
- The agreement in writing with the depositor shall include, as a minimum:
(a) the amount or the method of calculation of remuneration;
(b) a declaration by the depositor that the funds involved in the deposit are truly third-party funds and do not directly or indirectly, in whole or in part, come from assets that would otherwise be estate assets;
(c) a declaration that the deposit is given to indemnify the costs of the trustee's administration;
(d) an undertaking by the trustee to the depositor to:
(i) provide the depositor with a draft copy of the Statement of Receipts and Disbursements at the time it is submitted to the Superintendent for comments;
(ii) notify the depositor of the date and time of the proposed taxation; and
(iii) if the depositor does not attend at the taxation, provide the depositor with a taxed Statement of Receipts and Disbursements when available.
(e) the name and address of the depositor; and
(f) any other conditions of the deposit that are agreed to between the trustee and depositor and that are consistent with this Directive.
- Appendix A or a form to a like effect will satisfy the requirements concerning third-party deposits.
Written Agreement - Guarantor
- An arrangement for a third-party guarantee shall indicate in writing that its purpose is to indemnify the trustee for the trustee's fees and disbursements in a voluntary assignment or application for a bankruptcy order.
- The written agreement with the guarantor referred to above shall include, as a minimum:
(a) the existence of the guarantee;
(b) a declaration that the guarantee is given to indemnify the costs of the trustee's administration; and
(c) the name and address of the guarantor.
- Appendix B or a form to a like effect will satisfy the requirements concerning guarantees.
Banking and Accounting Arrangements
- Funds received as indemnification shall be held:
(a) in a separate trust account clearly identified for that purpose only; or
(b) in a separate trust account containing the aggregate of all these funds held, provided the accounting records in respect of the account clearly allocate the appropriate funds to each estate and fully document deposits and withdrawals. The individual estate files shall also contain references to any funds deposited in that account to facilitate audit by the Superintendent.
Disposition of Deposits Received
- Funds received under a third-party deposit or a guarantee agreement shall be disposed of, in whole or in part, as follows:
(a) to the estate trust account, including the interest earned, in those cases where the funds are required to cover the taxed costs of administration, including those cases where the trustee wishes to apply for an advance on the trustee's remuneration;
(b) to the third-party depositor, including interest or as may otherwise be stipulated in the agreement, where the funds are not required to cover the taxed costs of administration; or
(c) where (a) or (b) above are not fully complied with, the details of such arrangements shall be explained by way of a footnote on the Statement of Receipts and Disbursements.
Coming into Force
- This Directive comes into force on September 18, 2009.
- For any questions pertaining to this Directive, please contact your local OSB office.
Superintendent of Bankruptcy
Third Party Deposit Agreement
In the matter of the bankruptcy of
This agreement is made between:, hereafter referred to as the depositor, and , trustee to the above estate.
- In consideration of the trustee's acceptance to act as trustee in the above estate, the depositor deposits with the said trustee an amount of $ to be held in trust.
- The amount deposited is to guarantee the costs of administration of the trustee to a maximum of the taxed costs should the realization from other sources be less than the taxed costs or any qualification that may be explained on the Statement of Receipts and Disbursements by way of a footnote.
- The amount hereby remitted is third-party funds and did not, directly or indirectly, in whole or in part, come from assets that would otherwise be estate assets.
- The trustee will provide the depositor with a copy of the Statement of Receipts and Disbursements, when submitted to the Superintendent for comments, and then with a notice of the proposed taxation. If the depositor does not attend at the taxation, the trustee will provide the depositor with a taxed copy of the Statement of Receipts and Disbursements when available.
- The trustee undertakes to deposit and maintain these funds in a separate bank trust account for this purpose or in the estate bank account.
- Withdrawal of these funds by the trustee, prior to the completion of the administration, will be limited to the amounts authorized by the Bankruptcy and Insolvency Act.
- Upon completing the full administration of the estate, any balance of the deposit not required to pay the trustee's fees and disbursements will be immediately returned to the depositor.
- The primary responsibility for the payment of the trustee's fees and disbursements lies with the estate and the deposit is only an accessory covering any unpaid portion of the primary obligation.
- Other conditions:
Address of Depositor
Third-party Guarantee Agreement
In the matter of the bankruptcy of , , hereafter referred to as the guarantor, and , trustee,
- That in consideration for the trustee's acceptance to act in the above estate, the guarantor has agreed to guarantee the costs of administration of the trustee.
- That the funds to support the guarantee will not, directly or indirectly, in whole or in part, come from assets that would otherwise be estate assets.
Address of Garantor
Important notice: The XHTML version of this Directive is not the official version. In the event of an inconsistency between the XHTML and PDF versions of this Directive, the PDF version prevails. Users are required to exercise due diligence with respect to the XHTML version.
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