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In the normal course of a bankruptcy, the Licensed Insolvency Trustee (LIT) must call a meeting of creditors in order to allow examination of the affairs of the bankrupt person. The meeting of creditors must also allow for the confirmation of the LIT’s role, the appointment of inspectors and the opportunity to provide instructions to the LIT that the creditors or inspectors may consider appropriate.

The inspector’s role is important although nebulous. That is why it is appropriate to clarify the work of the inspector during a bankruptcy.

Appointment of Inspectors (section 116 of the Bankruptcy and Insolvency Act)

At the first meeting of creditors, the Licensed Insolvency Trustee asks the creditors to suggest nominations to the board of inspectors.

The appointment of inspectors is decided by ordinary resolution, carried by the majority of votes, and each creditor has the right to one vote for each dollar of every claim of that creditor.

The Act does not specify criteria for the appointment of inspectors. It does, however, stipulate that no person who is party to any contested action or proceedings by or against the estate of the bankrupt may be appointed an inspector.

The officers of a bankrupt company, its directors (e.g., president, secretary), and/or its shareholders are excluded and cannot act as an inspector for that company in bankruptcy.

Although persons appointed as inspectors generally are creditors, a person who is not a creditor can be appointed as an inspector. For example, a lawyer representing a client may be appointed an inspector.

It should be noted that inspectors do not represent their employers and must perform their duties in the best interests of all creditors.

In a bankruptcy of an individual, there are generally no inspectors appointed unless the creditors decide otherwise. In consumer proposals, creditors may appoint a maximum of three inspectors.

For all other proposals and bankrupt estates, a maximum of five inspectors may be appointed.

Vacancies on the Board of Inspectors

Resignation of an inspector

The Act contains no provision for the resignation of inspectors. In practice, an inspector resigns by delivering a written notice of resignation, and the remaining inspectors fill the vacancy.

If a vacancy arises, the creditors or inspectors may fill it at any meeting.

Revocation of an inspector

The LIT or a creditor may apply to the court to have an inspector’s appointment revoked. As well, creditors may revoke the appointment of any inspector and appoint a replacement. Revocation of an inspector’s appointment normally arises when an inspector appears to be in a position of conflict of interest.

If no inspectors are appointed to fill the vacancy, the LIT is required to call a meeting of creditors for the purpose of appointing inspectors.

Inspector’s Responsibilities

Inspectors give direction and advice to the Licensed Insolvency Trustee regarding certain particular actions to be taken in the administration of the bankrupt’s estate. They also supervise the LIT’s administration and ensure the LIT acts in accordance with their directions.

Generally, these responsibilities are grouped into 3 categories.

Action: Taking of some specific actions

The first inspectors’ meeting is usually held immediately after the first meeting of creditors. After this initial inspectors’ meeting, the LIT calls other meetings when deemed advisable or when a meeting is requested in writing by a majority of the inspectors. If all of the inspectors consent, any inspector may participate by telephone. Inspectors have no power to call meetings on their own. The powers of the inspectors are exercised by the majority.

If there is a conflict between the directions given to the LIT by a meeting of creditors and those given by the inspectors concerning the administration of the estate, the directions given by the creditors prevail.

Inspectors may ask the LIT to carry out an examination of the bankrupt, or any other person reasonably thought to have knowledge of the affairs of the bankrupt. The LIT must obtain a resolution passed by the creditors, or a resolution of a majority of the inspectors.

Authorization: Giving permission to the Licensed Insolvency Trustee to perform certain acts

Under Section 30 of the Bankruptcy and Insolvency Act, the LIT can, with the permission of inspectors:

Dispose of the bankrupt’s assets by tender;

  • Lease real property
  • Carry on the business of the bankrupt
  • Start or defend legal proceedings relating to the property
  • Hire a lawyer to deal with matters sanctioned by the inspectors
  • Accept future payment and security in the sale of property
  • Incur obligations, borrow money and give security
  • Settle any claim made by or against the estate
  • Settle debts owing to the bankrupt
  • Divide property among the creditors that cannot be readily or advantageously sold
  • Deal with leases or other temporary interests in any property of the bankrupt
  • Appoint the bankrupt to help in the administration of the estate in such manner and upon such terms as the inspectors direct

However, if no inspectors are appointed, the LIT may decide on his or her own initiative to take one or more of the above-mentioned actions.

Supervision: Approving various reports, documents and accounts, and the Licensed Insolvency Trustee’s administration of the estate

The books, records and documents relating to the administration of an estate are the property of that estate. The LIT must allow the estate’s books and records to be inspected and copied by certain persons, including any creditor or creditor’s agent, at any reasonable time. In addition, the LIT shall, from time to time, report:

  • To every creditor, when required by the inspectors
  • To any specific creditor at that creditor’s request
  • To the Superintendent or to the creditors in general when required by the Superintendent of Bankruptcy

The purpose of these reports is to show “the condition of the bankrupt’s estate, the monies on hand, if any, and particulars of any property remaining unsold.”

The inspectors must verify the bank balance, examine the LIT’s accounts; and inquire into the adequacy of the estate bond filed by the LIT with the Official Receiver.

The LIT must prepare a report on the debtor’s bankruptcy, if the bankrupt has surplus income, if there is opposition to the bankrupt’s discharge, and if the bankrupt has been bankrupt before.

This report is prepared prior to the bankrupt’s application for discharge or prior to automatic discharge. The report is accompanied by a resolution of the inspectors indicating whether they approve or disapprove of this report.

Inspectors are required to approve, at a meeting, the LIT’s final statement of receipts and disbursements, the dividend sheet and the disposition of unrealized property. Participation by telephone is possible, if physical attendance is not possible.

The inspectors must meet certain conditions before they can approve the LIT’s final statement of receipts and disbursements. They must satisfy themselves that all the property has been properly accounted for, that the administration of the estate has been completed as far as is reasonable, the disbursements and expenses incurred are proper and have been duly authorized, and that the fees and remuneration are fair and reasonable.

Sale of Assets

The LIT, with the inspectors’ permission, can sell estate assets;

LITs can sell the estate’s assets to “any person or company”, and “any person” includes the bankrupt person.

In accordance with their Code of Ethics, LITs cannot purchase, either directly or indirectly, the property of any debtor for whom they are acting with respect to a professional engagement. In addition, the Code does not permit sales to their employees or agents, other LITs or, knowingly, to employees or related persons of other LITs.

Furthermore, inspectors may not acquire estate assets, either directly or indirectly, except with the prior approval of the court.

Remuneration of Inspectors

Inspectors’ fees range from $10 to $40 per meeting. The fee is based on the net receipts of the estate, which are calculated by subtracting the payments to secured creditors.

Net receiptsFee per meeting
Less than $10,000$10
$10,000 to $50,000$20
$50,000 to $100,000$30
More than $100,000$40

Conclusion

The inspector’s role is exercised particularly at the first meeting of creditors. At that meeting, the creditors confirm the LIT’s appointment (or substitute another), provide the LIT with directions, and appoint a board of inspectors.

The inspectors play important roles, as representatives of all creditors they occupy positions of trust. They are expected to assist the LIT and are required to supervise certain aspects of the administration of a bankruptcy.

We would be pleased to provide further clarification if you have any other questions regarding the role of inspectors. Feel free to contact a Ginsberg Gingras Licensed Insolvency Trustee for any other information about this article or anything related to insolvency in general.

Sylvie Lyons

CIRP, Licensed Insolvency Trustee

Official Office: Gatineau (Gatineau)
Phone: 613-729-4391

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