Jun 9, 2020

Are the activities of a debt consulting business in breach of the BIA?

Pearce v 4 Pillars Consulting Group Inc., 2019 BCSC 1851 (CanLII)

1. The Plaintiffs sought to certify their respective actions as class proceedings, pursuant to s. 4 of the Class Proceedings Act. In both actions, the Plaintiffs alleged that the Defendants provided debt restructuring services in breach of both the Business Practices and Consumer Protection Act and the Bankruptcy and Insolvency Act. The Plaintiffs claimed for recovery of the allegedly unlawful fees charged by the Defendants in their debt restructuring businesses. The Plaintiffs also alleged that by failing to adhere to the applicable regulatory schemes as set out in the BPCPA and the BIA, the Defendants obtained fees from their insolvent clients as payment for services which the Defendants were not licenced to provide and which these clients could have obtained elsewhere at a considerably lower cost.

2. The requirements for the certification of an action as a class proceeding are set out in s. 4 of the CPA. The provisions of s. 4(1) are mandatory. When the requirements of s. 4(1) are met, the proceeding must be certified as a class action. Certification is not meant to be a test of the merits or strength of the action. Instead, certification focuses on the form of the action. The question is not whether the claim is likely to succeed, but whether the action is suitable to proceed as a class action.

3. The primary issue in these certification applications was whether the pleadings disclosed any causes of action against the Defendants. In both actions, the Plaintiffs sought a declaration that the debt restructuring services provided by the Defendants were contrary to ss. 66.11, 66.12, 66.13 and s. 202(1)(f) of the BIA, as well as s. 129(1) and s.131 of its regulation, the Bankruptcy and Insolvency General Rules.

4. The Plaintiffs contended that they have pleaded all of the material facts necessary to support their claims under the BIA and the Bankruptcy Rules:

a. None of the entities or individuals providing debt restructuring services as part of the Defendants’ businesses were licenced insolvency trustees (“LITs”).

b. The Defendants carried out various “regulated activities” that only LITs are authorized to carry out.

c. The Defendants collected financial information from the debtors and prepared consumer proposals for the debtors.

d. In breach of ss. 129 and 131 of the Bankruptcy Rules, the Defendants required debtors to pay an initial fee, plus additional fees which were in excess of the prescribed amounts.

e. The debt restructuring services constituted the direct solicitation or canvassing of the Plaintiffs to make a consumer proposal, contrary to the s. 202(1)(f) of the BIA.

5. The Defendants contended that the BIA is a complete code that does not govern the activities of debt consultants—it only governs the activities of LITs. They argued that they were not acting as a LIT, but rather as debt consultant merely assisting debtors in getting their affairs in order to present to a LIT. They claimed that such activities are not regulated under the BIA and, consequently, the fee provisions in the BIA do not apply to them.

6. Arguably, some of the alleged activities of the Defendants are regulated activities which can only be carried out by LITs, pursuant to s.66.13(2) of the BIA. These activities include providing counselling, preparing a draft consumer proposal, and filing and investigating a consumer debtor’s property and financial affairs. As such, the fee provisions of ss. 129 and 131 of the Bankruptcy Rules apply to them. It is also arguable that some of the fees charged by the Defendants were in excess of the prescribed amounts. As a result, it is not plain and obvious that the fees charged by the Defendants do not breach the fee provisions outlined in the Bankruptcy Rules.

7. The evidence established that the Defendants’ business activities included attempting to attract clients who may have qualified for filing a consumer proposal. Arguably, these activities constituted direct or indirect solicitation and canvassing by the Defendants. The Court noted that the question of whether the Defendants, in fact, carried out this activity is a question of fact to be determined at trial. Nevertheless, on a generous interpretation of the Plaintiffs’ pleadings, the pleadings suggested that the Defendants either directly or indirectly solicited or canvassed consumer transactions in breach of s. 202 of the BIA.

8. The Court disagreed with the contention of the Defendants that the BIA is a complete code that precludes common law causes of action. The BIA does not provide a statutory remedy for debtors who are charged excessive fees by unlicenced providers. Thus, the BIA is not a complete code covering all manners of potential claims arising from a breach of its provisions. The Court found that the Plaintiffs’ pleadings with respect to their claims under the BIA disclosed a cause of action, satisfying the requirement of s. 4(1)(a) of the CPA.

9. Having found that the Plaintiffs satisfied the first requirement for certification set out in s. 4 of the CPA, the Court proceeded to assess whether the remaining four requirements were also made out. Based on the evidence put before it, the Court held that all of the requirements for certification were satisfied. Accordingly, the Court certified both actions.