Who Does A Licensed Insolvency Trustee Work For?

Do they work for the government?

While LITs are regulated by the federal government, they are not government employees. They do, however, have to follow rules set and enforced by the government and report to a government regulator on a regular basis.

Do they work for the creditors?

LITs don’t work for your creditors. They must consider the interests of your creditors and provide information to them, but they don’t necessarily take instruction from them (though in certain situations creditors have power to decide things, such as when they are voting on a proposal, or they’ve been appointed as an “inspector”).

Do they work for the court?

Though an LIT is an officer of the court, they are not employed by the court. They are, however, required to follow the rules of court and have obligations to report to the court or obtain a court order in certain situations.

Do they work for you (the person in debt)?

Although you may approach the LIT and choose to file a bankruptcy or proposal with them, the LIT doesn’t work for you. When an LIT meets with you, they are legally required to explore all your debt options to give you proper advice to help you find the best solution for your debt problems based on your unique situation. When talking to you about options, the LIT and their staff will be supporting you in the journey to move on from your debt because that's what they do! And in our experience, most LITs and insolvency administrators choose this career because they genuinely want to help people.

If you do make an insolvency filing with an LIT (only an LIT can offer a Consumer Proposal or bankruptcy), they are required to balance your interests with those of the creditors and the public at large during the administration of your insolvency. Their neutrality is an important part of maintaining the integrity of the insolvency system so that it works for those who need it. However, this may occasionally mean they end up taking a position that you don't agree with when issues arise.

An LIT is an independent for-profit professional who works either in a firm with others or for themselves.

The LIT doesn’t work for any specific party in an insolvency situation. They are required to balance the interests of every party that has an interest in your case. Often, the analogy used is that of a referee. Without an LIT to make sure everyone understands and follows the rules, you cannot make a Consumer Proposal or bankruptcy filing, just as you can’t play a sanctioned game of hockey without a referee. 

How does an LIT get paid?

It is important that you understand how any professional you’re working with or taking advice from gets paid, as money can introduce a bias.

LITs typically get paid from the pot of money you create for your creditors when you make proposal payments or turn over assets or a portion of your income in bankruptcy. In most cases, the amount the LIT gets from that pot is calculated based on a government-regulated tariff – essentially, a percentage of the money in the pot. The tariff is the same for every LIT, such that you should not see a difference in the fees between LITs.

The amount you are required to pay into the pot depends heavily on your unique situation (your assets, your income, your family situation, your creditors, etc). The LIT uses that pot of money to pay its fees and then distributes the remainder to your creditors. As this is a legal requirement of the process and the amount the LIT gets is regulated and transparent, the creditors generally understand and accept the allocation of the pot of money between the LIT and themselves. However, there is an opportunity built into the process to allow the creditors or the government regulator to raise concerns with the LIT’s compensation and ask the court to review it.

Does this fee structure mean that LITs want you to pay as much as possible into the pot?

This is the claim that some debt consultants or others use to convince you to come to them for advice (for a fee) instead. It is true that the LIT typically makes more when you pay more. However, the amount you have to pay isn't ultimately determined by the LIT. In a proposal, it is creditors who decide whether the amount you're offering is sufficient to sway them to vote in favour. In a bankruptcy, there are very strict laws and rules that govern which assets you must turn over and the amount of any surplus income payments you have to make.

Even if the LIT could control how much you are required to pay, we remind you that LITs are highly regulated and only given a license if they have proven to be of good moral character. They must also follow a strict code of ethics. Therefore, LITs have good reason to set aside any inherent bias that such a payment structure may create. However, if you don’t feel this is the case with an LIT you are dealing with, you have options such as contacting the LIT’s regulator (the Superintendent of Bankruptcy), or seeking a second opinion from a different LIT or a lawyer.

At the end of the day, if you are dealing with overwhelming debt, an LIT is the best resource for advice about your options. While they don’t work for you, they are required to assist you in determining the option that is best for you. And when you reach out to an LIT, you know that you are getting reliable advice from a highly trained and regulated professional.

 

Charla Smith & Company is a Calgary-based Licensed Insolvency Trustee, serving the southern Alberta region. We regularly help individuals review their options for dealing with overwhelming debt. If you'd like some advice, please reach out to us.

Disclaimer: This publication provides general information and should be seen as broad guidance only. The information contained herein cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon this information without obtaining specific professional advice relating to your particular circumstances. Charla Smith & Company Ltd. does not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.