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Can a lawyer practice law while bankrupt?

Can A Bankrupt Lawyer Practice Law?

Yes, even lawyers can struggle with debt, and when they do their first question is often: How will a consumer proposal or assignment in bankruptcy affect my license with the Law Society of Upper Canada (the “LSUC”)?

The short answer, is that the LSUC imposes no restrictions on debtors who file consumer proposals, while they impose a number of restrictions on debtors who make an assignment in bankruptcy.

A member must notify the LSUC immediately upon making an assignment in bankruptcy, and while bankrupt may not:

  • Receive or hold money in trust;
  • Have signing authority or co-signing authority on any trust account; or
  • Practice real estate law.

In addition, while bankrupt:

  • The member’s status will be listed as “practice restricted” on the LSUC’s online directory; and
  • Specific information concerning your financial affairs must be reported to the LSUC.

Please note that the information contained in this blog post is based upon information that was received from the LSUC’s regulatory compliance department on February 23, 2017.  If you are a lawyer who is concerned about the impacts of an insolvency proceeding upon your license it is incumbent upon you to independently confirm any impact that such a proceeding would have upon your license as rules, regulations, and by-laws change and no Licensed Insolvency Trustee has any ability to prevent restrictions imposed by the LSUC, or any other applicable governing body.

The Details

I have provided detailed information below that was obtained directly from the LSUC for your more in-depth consideration.

By-Law 8, Part 1, section 1, provides that a licensee shall immediately notify the Law Society whenever any of the following events occurs:

  1. The licensee receives notice of or is served with a petition for a receiving order against him or her filed in court under subsection 43 (1) of the Bankruptcy and Insolvency Act (Canada).
  2. The licensee makes an assignment of all his or her property for the general benefit of his or her creditors under section 49 of the Bankruptcy and Insolvency Act (Canada).

By-Law 9, Part II, of the Law Society Act imposes on bankrupt licensees certain obligations and restrictions on activities, including the handling of money and other property.  Bankrupt licensees must comply with these requirements.

By-Law 9, Part II, section 2(1) states:

Subject to subsection (2) and (3), a licensee who is bankrupt within the meaning of the Bankruptcy and Insolvency Act (Canada) shall not receive from or on behalf of a person or group of persons any money or other property and shall not otherwise handle money or other property that is held in trust for a person or group of persons.

Practice Restrictions While Bankrupt

Please note that pending a discharge from bankruptcy a member may not:

  • Receive or hold money in trust;
  • Have signing authority or co-signing authority on any trust account.  Trust money includes money advanced on account of fees for services not yet rendered or money advanced on account of disbursements not yet made.  Endorsing a cheque representing trust money constitutes receiving and disbursing trust money and is prohibited; or
  • Practice real estate law.  LawPRO requires that all lawyers who practice real estate law purchase additional coverage that provides specific protection for the registration of fraudulent instruments under the Land Titles Act.  Lawyers who are in bankruptcy are not eligible to receive this extra coverage. 

A member’s status will be listed as “practice restricted” on the Law Society’s online Lawyer and Paralegal Directory because of the restrictions noted above. 

Information Required

We would require the following information in order to monitor the member’s compliance with the bankruptcy provisions and restrictions:

  1. A signed copy of your Statement of Affairs;
  2. Questionnaire of the Official Receiver, if any;
  3. Written confirmation from your financial institution that your trust account(s) has been closed. Information about closing a trust account can be found on the Law Society’s website at www.lsuc.on.ca;
  4. Please advise if you intend to propose a custodian to operate a trust account on your behalf.  You may propose another licensee to receive and hold client money and property in trust (the “custodian”).  This licensee must be approved by the Law Society. A paralegal may not be a custodian for a bankrupt lawyer;
  5. Please advise in writing, whether any claims provable in bankruptcy, including any of the debts listed in your Statement of Affairs, represent debts which arose from a current or previous solicitor/client relationship(s).  If any of the debts fall into this category full particulars are required; and
  6. A copy of your Certificate of Absolute Discharge is required as it becomes available. 

 

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