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Council Interpretation 204.7
Insolvency Engagements
Member acting as trustee under the Bankruptcy and Insolvency Act, or as liquidator, receiver or receiver/manager
204.7/1 Rule 204.7 deals with objectivity and independence in insolvency practice. This interpretation sets out how, in Council's opinion, a reasonable observer might be expected to view certain situations related to insolvency practice.
204.7/2 A firm and a member, or member of the firm, and their respective immediate families, should not acquire directly or indirectly in any manner whatsoever any assets under the administration of the member or firm, provided that any of the foregoing may acquire assets from a retail operation under administration of the member or firm where those assets are available to the general public for sale and that no special treatment or preference over and above that granted to the public is offered to or accepted by the firm, the member or the member of the firm and their respective immediate families.
204.7/3 A member or firm should avoid being placed in a position of conflict of interest and, in keeping with this principle, should not accept any appointment:
(a) which is prohibited by law, or
(b) as a receiver, receiver-manager, agent for a secured creditor, or liquidator, or any appointment under the Bankruptcy and Insolvency Act, except as an inspector, in respect of any debtor, where the member or firm is, or at any time during the two preceding years was:
(i) a director or officer of the debtor;
(ii) an employer or employee of the debtor or of a director or officer of the debtor;
(iii) related to the debtor or to any director or officer of the debtor; or
(iv) the auditor, accountant or legal counsel, or a partner or an employee of the auditor, accountant or legal counsel of the debtor.
For purposes of this Interpretation the term "accountant" means any member or firm who has performed a review engagement with respect to financial statements of the debtor in accordance with the CICA Handbook – Assurance.
204.7/4 Where a conflict of interest may exist, or may appear to exist, a member or a firm should make full disclosure to, and obtain the written consent of, all interested parties and, in keeping with this principle, should not accept any appointment:
(a) as trustee under the Bankruptcy and Insolvency Act where the member or firm has already accepted an appointment as receiver, receiver-manager, agent of a secured creditor, liquidator, trustee under a trust indenture issued by the bankrupt corporation or by any corporation related to the bankrupt corporation, or on behalf of any person related to the bankrupt without having first made disclosure of such prior appointment. The member or firm should inform the creditors of the bankrupt of the prior appointment as soon as reasonably possible;
(b) as receiver, receiver-manager, agent for a secured creditor or on behalf of any person related to the bankrupt where the member or firm has already accepted an appointment as trustee under the Bankruptcy and Insolvency Act without first obtaining the permission of the inspectors of the bankrupt estate. Where inspectors have not been appointed at the time that the second appointment is to be taken, the member or firm should obtain the approval of the creditors of the bankrupt of having taken the second appointment as soon as reasonably possible; and if the second appointment is taken before obtaining the approval of the creditors, it should be taken subject to their approval;
(c) as receiver, receiver-manager, agent for a secured creditor or trustee under the Bankruptcy and Insolvency Act in respect of any corporation where the member or firm is, or at any time during the two-year period commencing at the date of the last audit report or the last review engagement report was, the trustee (or related to such trustee) under a trust indenture issued by such corporation or by any corporation related to such corporation without first obtaining the permission of the creditors secured under such trust indenture. Upon the acceptance of any such appointment as trustee under the Bankruptcy and Insolvency Act, the member or firm should inform the creditors of the bankrupt corporation of the prior appointment as (or relationship to) the trustee under a trust indenture issued by the bankrupt corporation or by any corporation related to the bankrupt corporation as soon as reasonably possible;
(d) as receiver, receiver manager, agent for a secured creditor, liquidator of an insolvent company under the Winding-Up and Restructuring Act, or trustee under the Bankruptcy and Insolvency Act in respect of any corporation where the member or firm is related to an officer or director of such corporation; or
(e) as receiver, receiver-manager, agent for a secured creditor, or trustee under the Bankruptcy and Insolvency Act in respect of any person or corporation where the member or firm is a creditor, or an officer or director of any corporation that is a creditor, of such person or corporation unless the relationship is sufficiently remote that the member or firm can act having independence in fact and appearance.
204.7/5 For purposes of paragraphs 3 and 4, persons are related to each other if they are defined as such under Section 4 of the Bankruptcy and Insolvency Act.
204.7/6 A member or firm engaged in insolvency practice should ensure there are no relationships with retired partners which may be seen to impair the member's or firm's independence. Refer to paragraph 29 of the interpretations in respect of Rules 204.1 to 204.6.
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