Debt Relief Experts
Another day, another debt consultant case, but this time with a very clear message from the Official Receiver (a federal government official who works for the Office of the Superintendent of Bankruptcy).
In a recent Report of the Official Receiver regarding a consumer proposal filed in Alberta, the court was asked to consider a fundamental question:
Will a consumer proposal receive court approval if the debtor refuses to disclose payments made to a debt consultant?
The answer was unequivocal: no.
As the Official Receiver stated:
“A debtor unwilling to make full disclosure of [her] financial affairs is entitled to no relief under the BIA.”
This decision reinforces a core principle of the Bankruptcy and Insolvency Act (BIA): full financial transparency is not optional.
For those interested, here is the Report re Debtor and Metus Lykos Debt Law Firm.
Table of Contents
What Happened in This Case?
In this case, the debtor disclosed in her Statement of Affairs that she had retained the services of Metus Lykos Debt Law Firm (“Metus”, formerly known as GEM Debt Law) regarding her financial situation prior to filing.
However, the debtor refused to disclose:
- How much had already been paid to the Service Provider
- How much remained payable
- The underlying contract
- Whether ongoing monthly payments existed outside the proposal
When questioned at the reconvened meeting of creditors, the debtor, on objection from Metus representatives, refused to answer questions regarding Metus’s services, asserting “privilege”.
The Official Receiver took the position that the court should refuse approval of the proposal because there had been material non-disclosure of the debtor’s financial situation.
Why Disclosure Matters
Under subsection 66.24(2) of the BIA, the court must refuse approval if the proposal:
- Is not reasonable
- Is not fair to the debtor or creditors
- Or fails to meet statutory requirements
The Official Receiver noted:
“Neither the court nor creditors are in a position to divine a debtor’s finances; therefore, good faith transparency of a debtor’s affairs is essential to the operation of the consumer proposal process.”
In this case, the debtor’s Monthly Income and Expense Statement showed a surplus of only 16 cents per month.
If there were undisclosed ongoing payments to the consultant of $230–$263 per month (as suggested in the Report), that would materially affect the feasibility of the proposal and whether funds were being diverted away from creditors.
The court, and creditors, could not properly assess:
- Whether the proposal is viable
- Whether the debtor can complete it
- Whether creditors are being treated fairly
…if material financial information is withheld.
“Privilege” Does Not Override Disclosure Duties
A central issue was whether solicitor-client privilege prevented disclosure of the fee arrangement.
The Official Receiver addressed this directly:
“While the BIA’s consumer proposal regime does not compel the disclosure of privileged legal advice, it does require a debtor applicant to make the statutory disclosure in order to obtain court approval of the proposal.”
And further:
“A consumer debtor should not expect her proposal to be approved if she cloaks relevant information about her expenses under an assertion of privilege.”
In short, the Act does not require disclosure of legal advice. But it absolutely requires disclosure of financial obligations.
Fee payments are financial obligations.
The Integrity of the Insolvency System
The Report repeatedly emphasizes that transparency is fundamental to the integrity of Canada’s insolvency system.
The Official Receiver cited established case law confirming that relief under the BIA is reserved for the “honest but unfortunate debtor.”
Justice Yamauchi was quoted approvingly:
“Unless they are prepared to be honest with their creditors and with the court, then sought relief under legislation to ensure the integrity of the bankruptcy law is maintained… a debtor unwilling to make full disclosure of his financial affairs, is entitled to no relief under the BIA.”
This is not a technicality. It goes to the foundation of the process.
How This Relates to Our Earlier GEM Debt Law Review
Several years ago, we reviewed a GEM Debt Law contract (now operating as Metus Lykos Debt Law Firm) and raised concerns about:
- Significant third-party fees layered on top of consumer proposal payments
- Payment structures that diverted funds before creditors were paid
- The need for greater regulatory oversight
At that time, our focus was primarily on cost and value.
This case shifts the conversation.
The issue is no longer simply whether a consultant’s services are necessary or cost-effective. The court is now addressing whether undisclosed consultant fees can undermine the court approval process itself.
When payments to a third party:
- Reduce the funds available to creditors
- Affect proposal feasibility
- Or create a potential preference
…those payments become directly relevant to court approval.
Practical Implications for Consumers
If you are considering filing a consumer proposal:
- All payments made to third parties must be disclosed.
- Fee arrangements are financial obligations, not privileged advice.
- A proposal can be rejected even if creditors vote in favour.
- Court approval requires transparency and good faith.
As the Official Receiver concluded:
“Without accurate and complete disclosure of expenses, no restructuring regime would be able to function properly.”
Our advice continues to be to work directly with a Licensed Insolvency Trustee when exploring your debt relief options. Licensed Insolvency Trustees are federally regulated professionals, and all provide free initial consultations.
Final Thoughts
I have written extensively about the limited value proposition and often duplicative nature of ‘debt relief’ services provided by debt consultants in the consumer proposal process. These services frequently overlap with work already performed by Licensed Insolvency Trustees, while adding additional cost to financially vulnerable individuals.
I am encouraged to see the Office of the Superintendent of Bankruptcy taking steps to address and curtail these practices in order to protect the integrity of the insolvency system, debtors and creditors.
