No one likes bankruptcy. Those who face bankruptcy worry over their crumbling financial health and the next steps they must take. Those who are owed money by the aforementioned individuals/entities worry about receiving payment. As Ray Parker Jr. would say, “Who you gonna call?” In my practice, I find that people do not always call the person they actually need.
At the outset of typical bankruptcy proceedings, there are two types of key players: 1) Licensed Insolvency Trustees (formerly known as Trustees in Bankruptcy) and 2) Bankruptcy Lawyers. As such, when you are either considering a bankruptcy or one of your debtors is facing a bankruptcy, it is important to note who to call first.
Licensed Insolvency Trustees
If you are a debtor, meaning you are an individual or a corporation that is insolvent, chances are you should speak with a Licensed Insolvency Trustee (“Trustee”) before necessarily obtaining any legal advice.
Trustees are governed by the Office of the Superintendent of Bankruptcy, a federal organization created by Section 5 of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (the “BIA”). Trustees are tasked with the administration of proposal and bankruptcies and ultimately assist with managing assets of the bankrupt’s estate. In order to become a Trustee, an individual (or corporation) must meet at least the following requirements:
- They must be of good character and reputation;
- They must be solvent;
- They must successfully complete the Chartered Insolvency and Restructuring Professional (CIRP) Qualification Program (CPQ), the CIRP National Insolvency Exam, and the Insolvency Counsellor’s Qualification Course or the Practical Course on Insolvency Counselling; and
- They must pass an Oral Board of Examination.
Ultimately, since Trustees are federally regulated by way of statute, they are deemed to be officers of the Court. This does not mean, however, that Trustees are lawyers (although, theoretically, nothing stops a lawyer from becoming a Trustee).
Practically speaking, an individual or corporation seeking to obtain an assignment in bankruptcy or file a proposal must speak with a Trustee, who prepares an application for approval from the Court and/or the Official Receiver. At an initial meeting, the Trustee will assess the debtors’ financial condition, including liquidity and assets, to determine whether the individual qualifies for bankruptcy. They would also assess the debtor’s circumstances in determining whether a proposal would be more appropriate than applying for bankruptcy right away.
Trustees, however, cannot give out legal advice. This is the central and main distinction when bankruptcy lawyers get involved.
Just like any other area of law, bankruptcy lawyers are those who practice in all sorts of areas of debt, security, restructuring, and insolvency law. While a bankruptcy lawyer may not be well equipped to help assess a debtor’s financial condition, they are better suited at advising of the various risks and consequences of filing bankruptcy, explaining elements such as trusts and preferential payments of creditors, etc.
By and large, a debtor – especially a corporate debtor – should seek the advice of a bankruptcy lawyer only if they’re concerned about how the corporate bankruptcy will affect the individual shareholders, directors, and employees of the corporation. Similarly, in the context of individual bankruptcies and/or proposals, bankruptcy lawyers can assist in helping the debtor understand the consequences that their insolvency will have on property shared with spouses, and prospective challenges posed on that individuals’ life. For the most part, bankruptcy lawyers are seldom heavily involved in the initial bankruptcy process.
Bankruptcy lawyers may become more involved in representing Trustees who are being challenged by various creditors of the bankrupt. Similarly, bankruptcy lawyers may represent debtors whose automatic discharge of bankruptcy under the BIA is challenged by creditors.
More often than not, bankruptcy lawyers represent and assist creditors in maximizing the amount of funds they can recover from insolvent debtors. This also includes pursuing debts owing to the bankrupt, which creditors can pursue on behalf of the debtors for their own benefit.
Ultimately, as a creditor, you are best served by speaking with a bankruptcy lawyer as to your next steps at recovery. As a debtor, you should first speak to a Trustee for an initial assessment – following which you can raise any concerns with a bankruptcy lawyer. Chances are, you may not even need one.
The foregoing is for informational purposes only and should in no way be relied upon as legal advice. If you have any further questions, or would like to schedule an appointment for legal advice tailored to your circumstances and business, please contact me at email@example.com.
 This also includes Monitors in the case of restructuring under the Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36.
 An “Insolvent Person”, under the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (the “BIA”), is defined as “a person who is not bankrupt and who resides, carries on business or has property in Canada, whose liabilities to creditors provable as claims amount to one thousand dollars, and (a) who is for any reason unable to meet his obligations as they generally become due, (b) who has ceased paying his current obligations in the ordinary course of business as they generally become due, or (c) the aggregate of whose property is not, at a fair valuation, sufficient, or, if disposed of at a fairly conducted sale under legal process, would not be sufficient to enable payment of all his obligations, due and accruing due.
 For more information, see the Government of Canada’s website: https://www.ic.gc.ca/eic/site/bsf-osb.nsf/eng/br01128.html
 BIA, ss. 49, 50, and 66.11.