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INSOLVENCIES IN CANADA: THE CALM BEFORE THE SCARY STORM?

The Ira Smith Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

Insolvencies in Canada introduction

Insolvencies in Canada are at a record low.  Is it the calm before the scary storm? 

Consumer insolvencies in Canada have been driven to unusually reduced degrees in recent years because of sustained low-interest rates and strong property values.

In this Brandon’s Blog, I discuss what could very well happen in the 4th quarter of 2020 and into 2021.  

Insolvencies in Canada – recent history

The lower number of insolvency filings is not a new phenomenon.  Insolvencies in Canada have been at historically low levels for many years.  It was not until last year that personal insolvency filings increased year over year.  

In 2019, consumer insolvencies for the 12-month period finishing December 31, 2019, increased by 9.5% compared to the 12-months ending December 31, 2018. Personal bankruptcy decreased by 1.2%, while consumer proposals were 17.9% higher.

After many successive years of steady decline, business bankruptcies in Canada had reached a plateau level in 2019.  Typically speaking, business bankruptcies in Canada have been stable.

During the 1st quarter of 2020, the Office of the Superintendent of Bankruptcy Canada (OSB) reports that between the 4th quarter of 2019 and the end of the 1st quarter of 2020, for insolvencies in Canada:

  • Total insolvency filings decreased by 5.4%.
  • Consumer filings were down by 5.5%.
  • Business insolvency filings were 2.6% lower.
  • In all cases, bankruptcy filings were drastically lower and restructuring proposals were essentially flat.
  • For personal filings, Alberta was basically flat while the other provinces and territory showed decreases.
  • In business filings, Ontario showed a slight increase (8.3%) and British Columbia showed a huge increase (43.5%).  Again, it was restructuring proposals, not bankruptcy, making up the majority of business filings.  All other provinces and territories showed a decrease.

Then the effects of the economic shutdown of the country started taking hold in April 2020.

April 2020 insolvencies in Canada and the United States

The total variety of insolvencies in Canada (both bankruptcy and proposal filings) decreased by 38.7% in April 2020 contrasted to March 2020. Personal bankruptcy decreased by 41.5% and proposals decreased by 37.2%.

The number of insolvencies filed in April 2020 was 43.5% less than the total in April 2019. Consumer bankruptcies decreased by 43.1%, while consumer proposals decreased by 54.8%.

The story in the United States is very similar.  American Banker reports that presently in the US, personal bankruptcy filings are actually reduced year over year. It reports that according to information from the federal courts, there were 186,000 consumer bankruptcy cases in the first quarter of 2019. By comparison, there were 175,000 for the initial quarter of 2020.

A lot more noticeably, the rate of consumer insolvency cases for April of 2020 was 46% lower than in April of 2019.

There are a variety of reasons in both countries.  From my discussions with a couple of US bankruptcy lawyers, I am friendly with, it seems the reasons in both countries are generally the same.  

In no particular order, the main reasons are:

  • Mortgage payment deferral programs masking what might otherwise be increased delinquencies.
  • Lower overall credit card spending while people are at home in self-quarantine.
  • Various government programs supplying much-needed cash to unemployed people and businesses.
  • Government programs deferring the timing for filing income tax returns and the payment of income tax.
  • Moral suasion so far stopping banks, credit card companies and collection agencies from aggressively making collection attempts during this time.
  • The closure of the courts making it impossible to sue anyone.

    insolvencies in canada
    insolvencies in canada

The economy is starting to reopen

In conjunction with the federal government, the provinces and territories are starting to reopen cities and businesses.  No doubt there will be a lot of growing pains as the economy reopens.  What should we expect?  What will it mean for insolvencies in Canada?

In his first speech as Governor of the Bank of Canada, on June 22, 2020, Tiff Macklem stated that he expects there will be an initial boost to the Canadian economy as it reopens and activity resumes.  He does not expect that good news to last very long.  Rather, he expects there will be the 2nd stage of economic recovery that will certainly be long and slow, due to the remaining unpredictability around the coronavirus.

The federal government will need to wean Canadians off of the various support programs.  When that happens, all the financial pain currently hiding under the radar will rise to the forefront.  COVID-19 support programs, payment deferrals and other “time outs” will end and the courts will reopen.  Creditors will get back to business as usual in chasing delinquent accounts.  The federal, provincial and territorial governments will feel they have done enough to the tune of trillions of dollars.  Their attitude will be, in so many words, it is now time for you to stand on your own two feet again.

In fact, some government attitudes are already changing.

Will temporary layoffs be a harbinger for business insolvencies in Canada?

Throughout the coronavirus pandemic, BC seemed to handle their lockdown and other COVID-19 things a bit differently than the other provinces and territories.  As they now consider reopening, BC businesses are worried.

British Columbia businesses are discouraged by Labour Minister Harry Bains’s failure to recognize the seriousness of problems facing the mainly small and medium-sized businesses. Their issue is the possibility for thousands of companies to have to make an insolvency filing.  Their main worry is that they will be compelled to make severance payments as a result of the unexpected scenarios brought by the COVID-19 pandemic.

The Minister has it within his power to supply a Ministerial Order to expand the temporary layoff time frame under the Employment Standards Act to provide companies with the breathing room” required to survive, recoup, and facilitate return-to-work for laid-off staff.

All provinces and territories face extraordinary difficulties as a result of the economic results from COVID-19. Few business owners can plan for or have the cash-on-hand to terminate all or a considerable part of their labour force at the same time throughout the very best of times.

BC companies will be faced with fears as the clock ticks to target dates beginning in very early July requiring several companies to either recall or permanently terminate laid-off staff members.  They don’t have enough business or money to rehire everyone.  They also don’t have the cash to make the severance payments.  Without legislative support, this problem will face all Canadian businesses.

In the nick of time, the federal government has come to the rescue.  On June 23, 2020, Prime Minister Justin Trudeau announced that the federal government has expanded the period for temporary layoffs by as much as 6 months.  Employers now have more time to recall staff members who were laid off due to COVID-19.

Now, for employees who were laid off before March 31, the government has proposed that their employers have the earlier of 6 months or up until December 30 to recall their staff. For employees laid off between March 31 and September 30, their company will have up until December 30, unless a later recall day was given on their layoff notification.

I caution that this is a proposal floated by our PM right now and not actual legislation.  Labour legislation is largely left up to the provinces and territories.  It is interesting to note that the Feds seem to be stepping into this.  As we all know, ultimately, businesses will either be able to survive or will have to restructure under our laws for insolvencies in Canada.

Will extending employee recalls be a harbinger for personal insolvencies in Canada?

So now that employees can expect to remain unemployed for longer, what is that going to mean?  For several years now polls have shown that Canadians are on the brink of insolvency.  As I already mentioned, rock-bottom interest rates and rising real estate values, leading to lots of home equity lines of credit room to borrow on.  This has kept Canadians in debt and out of becoming one of the statistics for insolvencies in Canada.

So the question is, once the Canada Employment Response Benefit (CERB) runs out, what will the unemployed do?  Seems to me there are a few options, none of them good:

  1. Cut back on spending as much as possible.  In places like the Greater Toronto Area (GTA), you have to be a magician to be able to live on $2,000 per month (after putting away the amount you will have to pay eventually in CERB income tax).
  2. Burn through the rest of your savings until you have no cash.
  3. As a result of 1 or 2, go deeper into debt on your lines of credit and credit cards until you have no more borrowing room.

Once all of this has happened, the only thing left to do will be to consult with a licensed insolvency trustee (formerly called a bankruptcy trustee) to discuss your realistic options for eliminating debt. 

Insolvencies in Canada summary

I hope you have found the insolvencies in Canada Brandon’s Blog interesting and helpful.  The Ira Smith Team family hopes that you and your family members are remaining secure, healthy and well-balanced. Our hearts go out to every person that has been affected either via misfortune or inconvenience.

We all must help each other to stop the spread of the coronavirus. Social distancing and self-quarantining are sacrifices that are not optional. Families are literally separated from each other. We look forward to the time when life can return to something near to typical and we can all be together once again.

Ira Smith Trustee & Receiver Inc. has constantly used clean, safe and secure ways in our professional firm and we continue to do so.

Income, revenue and cash flow shortages are critical issues facing entrepreneurs, their companies and individual Canadians. This is especially true these days.

If anyone needs our assistance for debt relief Canada COVID-19, or you just need some answers for questions that are bothering you, feel confident that Ira or Brandon can still assist you. Telephone consultations and/or virtual conferences are readily available for anyone feeling the need to discuss their personal or company situation.

The Ira Smith Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

insolvencies in canada
insolvencies in canada
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COMMERCIAL TENANCIES ACT ONTARIO: NEW FIX FOR YOUR UNRULY LANDLORD’S COVID-19 COMMERCIAL LEASE TERMINATION

commercial tenancies act
B commercial tenancies act

The Ira Smith Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

If you would prefer to listen to the audio version of this Brandon’s Blog, please scroll to the bottom and click on the podcast

Commercial Tenancies Act introduction

On June 18, 2020, Royal Assent was given to the Ontario Bill 192, Protecting Small Business Act, 2020, An Act to amend the Commercial Tenancies Act Ontario.  The aim of this provincial law is to prevent commercial landlords from either terminating a commercial tenancy or distraining on a commercial tenant’s property.  If that has already taken place, then this amendment to provincial law tries to compensate the commercial tenant for damages.

This is an updated to my April 27, 2020 blog titled, SMALL BUSINESS RELIEF PROGRAM: CANADA EMERGENCY COMMERCIAL RENT ASSISTANCE.  In this Brandon’s Blog, I will describe how this Bill 192 amending the Commercial Tenancies Act works.  As with everything, the devil is in the details.

Which commercial landlords qualify?

This Ontario law applies to all commercial landlords who:

  1. Are eligible to obtain help under the Canada Emergency Commercial Rent Assistance (CECRA) for small businesses program.  This is designed as an unsecured, interest-free, forgivable loan program administered by Canada Mortgage and Housing Corporation (CMHC). 
  2. Can receive help under the CECRA if the landlord participated in a rent reduction contract with the commercial tenant having a moratorium on the eviction.

To get CECRA for small businesses, the landlord must:

  • own commercial real estate which is leased to one or more affected small business tenants;
  • go into (or have actually already entered) into a lawfully binding rent reduction agreement for the period of April, May and also June 2020 (presumably subject to extension of the program by the federal government), decreasing an affected small business renter’s lease cost by at least 75%;
  • ensure the rent decrease agreement with each affected renter includes:
    • a postponement on eviction for the period throughout which the property owner consents to apply the loan funds; as well as
    • a statement of rental revenue included in the attestation.

In order to be considered an affected small business tenant, the tenant has to have been in operation before March 1, 2020, as well as should not generate greater than $20 million in gross annual income when calculated on a combined basis, based upon 2019 earnings.

The landlord also cannot:

  1. Have an owner holding a federal or provincial political office.
  2. Controlled by a person holding such a political position.

CECRA will not include any federal, provincial, or municipal-owned properties, where a government is the landlord of the small business tenant.  Initially, the landlord had to have a mortgage financing the property.  CMHC later qualified that this was not the case.

Which small business tenants qualify?

Impacted small business lessees are businesses, including charitable and non-profit  organizations that:

  • pay no greater than $50,000 in monthly gross lease cost per location (as specified by a valid and enforceable written lease).
  • creates no more than $20 million in gross yearly income, calculated on a parent company consolidated basis.
  • have experienced a minimum of a 70% decrease in pre-COVID-19 income.

Eligible small business tenants include those who have entered into written valid sub-tenancy arrangements that meet the CECRA requirements.

To determine the 70% reduction in earnings, the following two circumstances apply:

  1. Your small business was operating throughout April through June 2019.  Compare your gross income from April, May and June of 2020 to your revenues of April, May and June of 2019.
  2. The small business was not running throughout April through June 2019.  In this case, compare your average gross revenue from April, May and June of 2020 to your typical gross income for January and February 2020.

How is the Commercial Tenancies Act amended?

Bill 192, Protecting Small Business Act, 2020, modifies the Commercial Tenancies Act to forbid particular activities by property owners if the landlord is or would qualify to receive assistance from the CECRA.  If the landlord is accepted and receives the CECRA help, then these provincial amendments cease to apply.  The reason for that is because, under the federal program, the landlord has agreed not to evict the tenant.

This provincial legislation also forbids Judges from making a writ of possession that is effective throughout the non-enforcement time out if the basis for making the writ is arrears of rent under the lease. These Commercial Tenancies Act amendments also ban landlords from enforcing a right of re-entry and from seizing any property of the tenant by way of distress for arrears of rent throughout the non-enforcement time period. 

The non-enforcement period begins on May 1, 2020, and ends midnight September 1, 2020.  This will obviously be subject to either extension or even termination on an earlier day to be called by proclamation of the Lieutenant Governor. 

If a landlord exercises a right of re-entry between May 1, 2020, and August 31, 2020, inclusive, the commercial tenant has to recover possession of the commercial space.  The tenancy is regarded to be reinstated on the same terms and conditions unless the property owner and the occupant agree on other terms and conditions  If it is incapable to return the leased premises to the commercial tenant, the landlord must compensate the tenant for damages. 

Similarly, if a commercial landlord distrains against a tenant’s goods in the non-enforcement period on account of rent arrears under a commercial lease, the landlord needs to return any unsold items to the tenant.

Some obvious comments

I have some comments on this Bill 192, Protecting Small Business Act, 2020, An Act to amend the Commercial Tenancies Act Ontario.  Most of my comments I think will be obvious.  To date, whatever I have read on how landlords feel about these amendments, has not been positive.  It will be interesting to see if the Courts reopen prior to August 31, if any landlords go to Court to overturn it and what the Court decision will be.  

I think the real strength of the amendments to the Commercial Tenancies Act comes from the fact that the Ontario Courts are closed.  No one can challenge the law on a constitutional basis at this time!

So my comments are:

  1. The wording of the Bill to see if a landlord qualifies is:

80 (1) Subject to subsection (2), this Part applies to a tenancy in respect of which the landlord satisfies either of the following criteria:

  1. The landlord is eligible to receive assistance under the Canada Emergency Commercial Rent Assistance for small businesses program.
  2. The landlord would be eligible to receive assistance under the Canada Emergency Commercial Rent Assistance for small businesses program if the landlord entered into a rent reduction agreement with the tenant containing a moratorium on eviction.

A landlord is only “eligible to receive assistance” based on a two-part test;  one is a landlord test and the other is a commercial tenant test.  A landlord should have the right to receive sufficient financial information from its tenant to see if the tenant can meet its test of reduced gross revenue.  The only way a landlord is eligible is if the tenant meets the required tests.

What if the tenant refuses to divulge that information?  Can the landlord merely take the position that it is not “eligible”?  If so, then the landlord could either terminate the lease or effect distraint.  Again, with the Courts closed, it will be all over before the tenant can have their day in Court.

  1. These amendments are effective beginning on May 1, 2020.  The emergency COVID-19 shutdown in Ontario began on March 17, 2020.  As a result, many small businesses were not in a position to make their April rent payment.  Does this mean that landlords who either terminated a commercial lease or distrained on the tenant’s assets before May 1 are exempt?
  2. The landlord is not entitled to either terminate the lease or distrain during the non-enforcement period on the assets for non-payment of rent.  What if the tenant, prior to the Ontario emergency shutdown was in breach of the lease for other reasons.  If the landlord has not yet taken action as a result of those breaches and wishes to get rid of the tenant for reasons other than rent arrears, can the landlord take action during the non-enforcement period as long as rent arrears is not one of the reasons?
  1. A commercial tenant whose landlord terminated the lease is entitled to compensation for damages if the premises cannot be handed back to the tenant.  How the damages are calculated are not spelled out.  It will most certainly be the subject matter of future litigation.  

A commercial tenant whose landlord distrained on the tenant’s property is only entitled to a return of the property that has not yet been sold.  This is presumably because the lease has not been terminated.  However, I presume the tenant will not be operated again if all or most of its property has been sold.  Now what?  More litigation no doubt.

The amendments contained in the Bill 192, Protecting Small Business Act, 2020, An Act to amend the Commercial Tenancies Act Ontario is obviously done to persuade landlords to enter into the CECRA program with their tenants.  That is a good thing.  As you can see from my comments, it is more persuasion and relying on the fact that the Courts are closed than brilliant wordsmithing language.

Commercial Tenancies Act summary

I hope you have found this Commercial Tenancies Act Brandon’s Blog interesting and helpful.  The Ira Smith Team family hopes that you and your family members are remaining secure, healthy and well-balanced. Our hearts go out to every person that has been affected either via misfortune or inconvenience.

We all must help each other to stop the spread of the coronavirus. Social distancing and self-quarantining are sacrifices that are not optional. Families are literally separated from each other. We look forward to the time when life can return to something near to typical and we can all be together once again.

Ira Smith Trustee & Receiver Inc. has constantly used clean, safe and secure ways in our professional firm and we continue to do so.

Income, revenue and cash flow shortages are critical issues facing entrepreneurs, their companies and individual Canadians. This is especially true these days.

If anyone needs our assistance for debt relief Canada COVID, or you just need some answers for questions that are bothering you, feel confident that Ira or Brandon can still assist you. Telephone consultations and/or virtual conferences are readily available for anyone feeling the need to discuss their personal or company situation.

The Ira Smith Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

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Brandon Blog Post

BANKRUPTCY PROCESS: RIDICULOUS BUT TRUE BANKRUPTCY CHAPTER 11 CASE AND ONTARIO RESTITUTION LAW DEBT

The Ira Smith Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

Bankruptcy process introduction

This week two totally unrelated items caught my attention when thinking about the bankruptcy process.  The first is about Hertz Global Holdings Inc. (Hertz) bankruptcy Chapter 11 case in the United States.  An update to my recent blog about Hertz titled HOW HERTZ TEACHES US MODERN AND RISKY RULES OF BUSINESS BANKRUPTCY IN CANADA AND THE USA.

The second item that caught my eye is a decision of the Court of Appeal for Ontario.  The decision really didn’t have anything to do with bankruptcy.  However, the Court of Appeal did reference the Bankruptcy and Insolvency Act (Canada) (BIA) in its decision.  It really is about restitution law and the resultant debt.

The zany twist to the Hertz bankruptcy Chapter 11 case

In my June 8 blog about the bankruptcy process used by Hertz, I wrote about the irrational behaviour of investors in trading Hertz stock.  Legendary investor Carl Icahn sold his entire Hertz holdings at $0.72 per share.  The stock had touched a low of $0.40.  For some reason, investors bid the stock up to $5.53.  The stock at the time of writing this blog is just under $2.

This made no sense at all.  The only thing I can attribute it to is that investors saw an opportunity to buy in during upward momentum, sell-off with a profit, and leave someone else holding the bag.  Hertz debentures are selling for pennies on the dollar.  The assumption being that those creditors will largely get wiped out as part of the bankruptcy chapter 11 case.  If creditors get next to nothing, then for sure shareholders are going to get wiped out.  That is what happens in these bankruptcy process cases.

This activity did not escape Hertz’s attention.  Now the restructuring team got an idea.  What if we could sell more stock, given the interest in our shares.  If we sold $1 billion worth, while telling everyone it was worthless, then we would have the necessary cash to fund our restructuring.  Better yet, Hertz would not have to borrow money with high rate debtor-in-possession financing.  All they needed was to convince the court to approve it.  It sounds like a Mel Brooks comedy script!

The Hertz bankruptcy process application for share sale approval motion

June 19, 2020 UPDATE:  Late yesterday, Hertz announced that it has determined to end a questionable stock sale of as much as $500 million since the Securities and Exchange Commission questioned and put a hold on the insolvent company’s plans.  Hertz is currently in talks for a debtor-in-possession bankruptcy loan of up to $1 billion to fund its business reorg.

On June 11, 2020, Hertz filed its motion for court approval to issue more of its common stock. Since the common shares are being actively traded, Hertz filed its emergency motion to seek emergency relief from the court to allow the Debtor to try to capture value for the unissued Hertz shares for the benefit of the bankruptcy process Estate.

The approval sought from the court was approval to participate in a sale arrangement with Jefferies LLC (Jefferies), to act as the sales representative.  Under the sale contract, Hertz might offer and sell common shares of Hertz having an aggregate offering value not to surpass $1 billion.  Hertz has 246,775,008 unissued common stock shares.  Jefferies will use its best efforts to market, as the sales representative the unissued shares of common stock.

In support of their motion, Hertz advised the court that:

  1. The recent market prices of the trading quantities in Hertz’s ordinary shares creates a special possibility for Hertz to raise funding on terms that are much superior to any kind of debtor-in-possession funding.
  2. If successful, Hertz might possibly offer up to and an aggregate of $1.0 billion of ordinary shares.
  3. Unlike regular debtor-in-possession funding, the issuance of the ordinary shares would certainly not enforce restrictions on Hertz or its bankruptcy process restructuring efforts and would certainly not hinder any of the creditors.
  4. Additionally, the stock issuance would bring no repayment obligations to Hertz.
  5. Other than the Jeffries fee, there would be no other significant costs to obtain the funding through the sale of shares.
  6. Hertz would include disclosure in any prospectus for the sale of the unissued common shares highlighting that a financial investment in these Hertz’s shares involves substantial dangers.  This includes the danger that the common stock can inevitably be worthless (emphasis added).

What the court said

After deliberating on the issue, on June 12, 2020, Judge Mary F. Walrath of the United States Bankruptcy Court for the District of Delaware granted Hertz’s motion.  She ordered that:

  1. Hertz is allowed, but not required, to enter into the Sale Arrangement with Jeffries and perform all obligations called for in the agreement.
  2. Hertz may, but again is not required to, market the unissued common shares.
  3. Jeffries may earn its fee in accordance with the Sale Agreement.

This is truly novel, yet whacky.  Anyone who would buy these shares must be gambling on the fact that market activity will remain hot and that they will be able to sell the shares for a profit.

As I mentioned above, creditors are going to be given a haircut.  So how can shareholders expect a return on their investment?  Any savvy creditor being asked to agree to a bankruptcy process restructuring plan certainly will insist that creditors must receive payments on account of what they are agreeing to give up, should funds become available, before shareholders see one penny.

Lots of people are going to be left without a chair when the music stops.  It will be fascinating to see how this all works out.

Restitution law

This matter is totally unrelated to the Hertz bankruptcy process.  It is in Ontario and I found the Court of Appeal for Ontario’s decision very interesting.  Especially so because it really didn’t have anything to do with insolvency or bankruptcy either.

On June 11, 2020, the appellate court issued its decision in a matter dealing with restitution law.  The case involved a 32-year-old man with high school education.  In between September 30 and November 6, 2018, he went on a drug-fuelled rampage, that included the robbery of 10 businesses.  He was sentenced to 4.5 years in jail and subject to a restitution order in the amount of $15,000.  It was the restitution payment that was appealed.

His lawyer argued that the sentencing judge erred by not taking into consideration whether he had the ability to make restitution before imposing the restitution.  They also argued that it will likely hinder his possibilities of rehabilitation. They said that the restitution order ought to be vacated.

The appeal court agreed.  In allowing the appeal, the appeal court stated that the purpose of a restitution order is not intended to undermine the culprit’s chance for rehabilitation.  The appeal court then went on to equate the rehabilitative aspects of restitution law with the rehabilitation intention of Canadian bankruptcies laws in the Bankruptcy and Insolvency Act (Canada).  The Court of Appeal for Ontario also correctly stated that a restitution order made by a sentencing judge will survive through any type of bankruptcy of the criminal. This suggests it is there for life and restitution is not meant to be a life sentence.

That is what caught my attention.  I never would have equated restitution with bankruptcy or rehabilitation.

Summary

The Ira Smith Team family hopes that you and your family members are remaining secure, healthy and well-balanced. Our hearts go out to every person that has been affected either via misfortune or inconvenience.

I hope you have found this bankruptcy process Brandon’s Blog interesting.  I will eagerly watch what happens in the Hertz common share sale and the subsequent trading in the shares.  I also never thought of criminal restitution as part of rehabilitation.  I also for sure never thought of it in the area of bankruptcy and insolvency.  

We all must help each other to stop the spread of the coronavirus. Social distancing and self-quarantining are sacrifices that are not optional. Families are literally separated from each other. We look forward to the time when life can return to something near to typical and we can all be together once again.

Ira Smith Trustee & Receiver Inc. has constantly used clean, safe and secure ways in our professional firm and we continue to do so.

Income, revenue and cash flow shortages are critical issues facing entrepreneurs, their companies and individual Canadians. This is especially true these days.

If anyone needs our assistance for debt relief Canada COVID, or you just need some answers for questions that are bothering you, feel confident that Ira or Brandon can still assist you. Telephone consultations and/or virtual conferences are readily available for anyone feeling the need to discuss their personal or company situation.

The Ira Smith Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

bankruptcy process
bankruptcy process
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HOW TO USE QUADRIGA CX SCANDAL TO IMPROVE FINANCIAL LITERACY

quadriga cx
quadriga cx

If you would prefer to listen to the audio version of this Brandon’s Blog, please scroll to the bottom and click on the podcast.

The Ira Smith Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

Introduction

Quadriga CX (Quadriga, QuadrigaCX or Quadriga CX) was a subsidiary of Quadriga Fintech Solutions Corp. (Fintech).  Fintech operated an online cryptocurrency exchange system where parties interested in acquiring, offering or trading numerous cryptocurrencies were able to complete such purchases on the QCX System.

In this Brandon’s Blog, I explain how the QuadrigaCX financial scandal can be used as an important lesson to aid in our financial literacy.

The Quadriga CX demise

Quadriga was experiencing a liquidity crisis as well as having been incapable to honour withdrawal requests from individuals. Furthermore, Quadriga had not been able to find a substantial amount of cryptocurrency upon the death of QuadrigaCX founder and CEO, Gerald William Cotten.

As a result of the liquidity situation combined with missing cash and cryptocurrency, Fintech and related companies made a decision to call a time out by filing for bankruptcy protection and hope for business restructuring on February 5, 2019, under the Companies’ Creditors Arrangement Act( Canada) (CCAA).

By April 11, 2019, it was obvious that there was no possibility of restructuring.  On that date, the Court made a Termination and Bankruptcy Assignment Order was made by the court confirming the process through which the Quadriga CX CCAA procedure would terminate and shift to a corporate bankruptcy under the Bankruptcy and Insolvency Act (Canada) (BIA).

QuadrigaCX 2020 update

The demise of the cryptocurrency trading system QuadrigaCX arises from a fraudulent scam by Gerald Cotten. Clients delegated their assets to Quadriga, which supplied fraudulent guarantees that those properties would be protected. In truth, Mr. Cotten invested, traded and made use of those properties as he pleased. Running with no proper system of oversight or interior controls, he had the ability to misuse those assets, uncontrolled and undiscovered, eventually bringing down the entire trading exchange.

On January 14, 2019, Quadriga CX announced that Mr. Cotten had passed away in India the previous month.  With the Quadriga CX CEO death, he could not continue to manipulate the Quadriga CX platform and hide his fraud.  The entire business operation imploded as described above.

It turns out that over 76,000 Quadriga CX customers were owed a combined $215 million. About 40 percent of the clients were from the province of Ontario. The bankruptcy trustee recovered $46 million in assets for distribution to unsecured creditors. The people that relied on QuadrigaCX collectively lost at least $169 million.

The Ontario Securities Commission investigation into the Quadriga CX demise

The staff of the Ontario Securities Commission (OSC) carried out an evaluation of the QuadrigaCX business operations to establish how the system was run, what created its collapse, and where the money went. Over a period of approximately ten months, a multi-disciplinary team of OSC Enforcement Branch staff analyzed trading and blockchain information, interviewed key witnesses and worked together with many regulatory bodies.

Most of the $169 million shortfall arose from Mr. Cotten’s fraudulent conduct. It has been widely guessed that the bulk of the losses arose from crypto properties ending up being lost or hard to reach as a result of Mr. Cotten’s death. The OSC found that most of the $169 million shortage arises from Mr. Cotten’s deceitful conduct.

The OSC report states that the bulk of the loss– about $115 million– occurred from Mr. Cotten’s illegal trading on the QuadrigaCX platform. He opened up Quadriga CX accounts under pen names and attributed himself with phony Quadriga cryptocurrency balances which he traded without knowledge by unwary Quadriga CX customers. He incurred losses when the price of the cryptocurrency would change, thus producing a deficiency in the assets needed to satisfy customer withdrawals. Mr. Cotten covered this deficiency with other customers’ deposits. This indicated that Quadriga CX, a state of the art new technology operated an old-time Ponzi scheme.

It is reported that Mr. Cotten lost an additional $28 million while trading customer deposits on three external cryptocurrency trading systems without permission from, or disclosure to, clients. He also misappropriated millions to fund his and his wife’s, Jennifer Robertson, way of living. In its final months, Quadriga  CX had virtually no balances left and was running like a revolving door– brand-new customer deposits were quickly re-routed to money needed for Quadrigacx withdrawals.

In summary form, the OSC described the losses as:

  1. $115 million trading losses sustained by Mr. Cotten on the Quadriga CX platform.
  2. $46 million assets recovered or identified by the licensed insolvency trustee (formerly called a bankruptcy trustee).
  3. $28 million trading losses sustained on external platforms.
  4. $23 million which could not be accounted for because of the poor state of the Quadriga CX books and records.
  5. $2 million of client funds misappropriated for living and travel expenses.
  6. $1 million estimated operating loss.

What the Quadriga CX scandal can teach us for improving our financial literacy

  1. In Canada, lots of crypto property trading systems are not registered.  They have taken the view that they do not need to sign up with regulatory authorities. This is an essential message to users and possible users of these platforms.  So we need to keep in mind that there may be no regulatory oversight at all on these cryptocurrency trading platforms.
  2. Cryptocurrency trading and the trading platforms are risky.  Trading in crypto assets carries threats. Many platforms preserve safekeeping and control of their clients’ crypto assets.  Clients just have ordinary unsecured claims against the platform for their assets. Clients are relying upon the solvency and stability of the system operators. Crypto asset trading systems might not operate transparently. Clients might have restricted or no details regarding how the platform is protecting and managing their assets.
  3. Cryptocurrency system clients ought to perform due diligence and look out for signs of fraud.  Anyone considering delegating their assets to a crypto asset trading platform should take action to learn more about the platform’s operations and approach to control the risk of monitoring. I recognize that this may not be feasible with the present degree of disclosure supplied by some systems. Cryptocurrency trading platforms are a bit of a black box that ordinary people do not really understand.
  4. If cryptocurrency trading platforms were required to sign up with the provincial regulatory authority, perhaps there would be some oversight and protection for consumers.
  5. Platforms need to make sure that they have systems as well as controls in a position to take care of risks. Having an internal control system to take care of risks, including those pertaining to business protection, vital employees and compliance with regulations is an important step for consumer confidence.  The trading platforms should be able to describe the systems used to protect client assets.  That way the public at least has a chance of being able to properly evaluate between different systems.
  6. Systems should reveal key details to customers.  Supplying clients with exact details regarding crucial aspects of their operations – such as asset wardship and storage techniques, charges, reported volumes, system protection actions and internal controls will help with educated decisions by investors and also advertise capitalist confidence in the platform.

Summary

The Ira Smith Team family hopes that you and your family members are remaining secure, healthy and well-balanced. Our hearts go out to every person that has been affected either via misfortune or inconvenience.

I hope you have found this Quadriga CX scandal Brandon’s Blog helpful.  Cryptocurrency trading is still in the realm of the Wild West.  Further work must be done before crypt currency can be widely used as a cash replacement.  There are many financial literacy lessons we can garner from the Quadriga CX story.  Even if Mr. Cotten had lived, the Ponzi scheme could only have been kept afloat for a finite time period before it would implode.

We all must help each other to stop the spread of the coronavirus. Social distancing and self-quarantining are sacrifices that are not optional. Families are literally separated from each other. We look forward to the time when life can return to something near to typical and we can all be together once again.

Ira Smith Trustee & Receiver Inc. has constantly used clean, safe and secure ways in our professional firm and we continue to do so.

Income, revenue and cash flow shortages are critical issues facing entrepreneurs, their companies and individual Canadians. This is especially true these days.

If anyone needs our assistance for debt relief Canada COVID, or you just need some answers for questions that are bothering you, feel confident that Ira or Brandon can still assist you. Telephone consultations and/or virtual conferences are readily available for anyone feeling the need to discuss their personal or company situation.

The Ira Smith Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

Categories
Brandon Blog Post

THE CONTROVERSIAL QUEBEC PLAN TO REDUCE CREDIT CARD DEBT IN CANADA

The Ira Smith Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

Stay healthy, well balanced and safe and secure everyone.

Credit card debt in Canada introduction

Yesterday I received my current credit card statement in the mail.  I scanned the pages and something on the page titled “Important Changes To Your Credit Card Agreement” caught my eye.  The province of Quebec is trying to reduce credit card debt in Canada for its residents.  I will explain it in this Brandon’s Blog.

Average Canadian household debt 2020

Credit rating agency Equifax Canada says typical consumer debt boosted 2.7% to get to $72,950 on average per household at the end of 2019.  At the end of 2019, TransUnion reported that Canadians charged $100 billion in bank card financial obligations for the first time ever and they’re not done contributing to it.  So credit card debt in Canada was certainly out of control then.

I won’t bother quoting what both the Equifax and TransUnion projected as to what would happen to average Canadian household debt in 2020, or about credit card debt in Canada.  Suffice to say that in late 2019, an Ipsos poll carried out for Manulife Canada found that 45% of Canadians report spending more than they take home, and also 40% question if they will ever get rid of all of their debt. Nearly half of Canadians are afraid of being indebted for life, and 67% assume everyone is in the very same situation.

In the first quarter of 2020, unemployment was low and the Canadian economy felt like it was in decent shape.  Then came the coronavirus pandemic.  The fallout from COVID-19 and the shutdown of the Canadian economy have yet to be fully felt.  My crystal ball is definitely broken because of it.

Average line of credit debt in Canada

Suffice to say from everything that I have read so far, average Canadian household debt is going up, due mainly to job losses and falling incomes.  The Canadian government statistics about Canadians receiving the Canada Emergency Response Benefit (CERB) are staggering.  As of June 4, 2020, the government has processed applications from 8.4 million Canadians.  Overall as of that date, the federal government has paid out $43.5 billion of CERB benefits.

So with close to 9 million people getting CERB payments up until now, lots of Canadians are making a great deal less money than they did two months back. According to Statistics Canada, Canadians earned monthly, on average, $4,383; those on CERB make $2,000 a month. While it’s great to have some cash coming in, that gap (as well as it will certainly be a lot more for some) is likely to be a significant problem for out-of-work Canadians.

The Quebec plan to slow down credit card usage in Canada did not start out being controversial

To understand what additional pressure there will be on Quebeckers come August 1, 2020, we first have to understand the history of the issue.  Quebec’s intentions started out being very good, especially for the time it was developed.  But, that was then and now is now!

On November 15, 2017, Quebec’s Bill number 134, “An Act mainly to modernize rules relating to consumer credit and to regulate debt settlement service contracts, high-cost credit contracts and loyalty programs”, was enacted. On August 1, 2019, particular elements of this legislation, aimed at trying to suppress charge card financial obligations in Quebec, began.  So everyone had advance warning to change their spending ways.

Starting then, new credit card accounts opened required the minimal monthly payment to be upped to 5% of the outstanding balance on those brand-new charge cards. For cards provided prior to August 1, 2019, cardholders could continue to pay a minimum of 2% of the monthly balance. They had until 2025 to start paying the brand-new minimum of 5%. Nonetheless, the minimum monthly payment was gradually being boosted by half a percentage point annually.  This starts on August 1, 2020, up till it gets to the five percent level.

At the time, consumer advocates felt that other provinces will be watching carefully what Quebec is doing. The Quebec government certainly thought that credit card debt in Canada was a problem.  It wanted to be proactive in dealing with this problem for Quebeckers.  If you had to pay more every month on your old debt, hopefully, people would start feeling the pinch and adjust their budgets to spend less using credit cards.  That was the theory.

So that was what was printed on my credit card statement.  A reminder that if you lived in Quebec and were responsible for repaying the debt on the credit card, the minimum monthly payment was about to increase.

Given the current state of the Canadian economy and people’s personal financial affairs, this requirement in Quebec to pay more every month on your credit card debt cannot be good news.

Total credit card debt in Canada, not monthly payments, is the real problem

This leads to what or who is the real culprit.  Quebeckers having to pay more each month as a minimum monthly payment is not the problem.  I don’t mean to single out Quebec residents.  I only mention them because it is Quebec that enacted the legislation.  The real problem is that Canadians’ total credit card debt in Canada is too high and people cannot pay off the balance they charged each month on the due date.  So, they are only making minimum monthly payments, while continuing to charge more, to stay alive until the next month.

Increasing minimum monthly payments is not making a plan to be debt-free

High charge card debt is clearly jamming a lot of people.  Time will tell just how effective a technique it is to elevate the minimum monthly payment to 5% to tackle outstanding credit card debt.   Due to the current situation, it is pointless to start looking at data for the rest of 2020.  Hopefully, this year is not indicative of what future years will look like.

In my opinion, it would have been a lot more impressive for Quebec to at the very same time develop online financial education modules for its people. What is truly required is to show people that paying just the minimum monthly balance doesn’t solve their total debt problem.

As I have stated in many of my blogs, to create a real plan to be debt-free, people need to:

Unpaid credit card debt consequences Canada and how to avoid them

Right now, there is an unofficial moratorium on the banks and collection agencies calling people who are delinquent in their credit card payments.  All the lenders are treading lightly, given the many problems currently in the Canadian economy.  Given all the problems, now may be the best time to try to resolve long outstanding credit card debt issues.

Once things get back to whatever normal is going to look like, lenders and collection agencies will be calling everyone again.  If a satisfactory payment plan is not entered into, lenders may sue once the courts open up again.  Once a lender gets a judgment against you, they can garnishee your wages or your bank account.

Under the Ontario Wages Act, R.S.O. 1990, c. W.1, a financial institution that has a judgment against you (like a bank or bank card business) can garnishee up to 20% of your net wages (after statutory deductions for taxes, CPP, and EI). Try living with that kind of wage garnishee and/or your bank account frozen.

So anyone with debt problems needs to realistically look at the various solutions that may be available.  I have already talked above about how to start tackling debt problems, especially credit card debt in Canada.  

Once you have redone your budget, have family buy-in so everyone is onside helping the household and you are following it, there are extra actions that you can take in dealing with your creditors.  These steps include:

Negotiating yourself with the credit card company – Right now is the perfect time to negotiate.  Lenders are not receiving payments and many have deferral programs set up.  If you have cash on hand, now is the perfect time to approach a lender and offer a discounted amount that you can afford to pay if they agree.  Make sure you have properly budgeted so that if you pay that cash out now, you can still survive until your work and income returns back to what it was pre-pandemic.

Non-profit credit counselling agency help – If you don’t feel you can negotiate on your own, go to a community non-profit credit counselling agency.  They can review your budget to make sure that it is realistic and give you additional help.  They can also try to strike a deal with your creditors for you to either pay the full balance out over time without additional interest or penalties or, a reduced payout now.

Consolidation loan – If you are working from home and still have all your income, a decent credit rating and you can get a loan to consolidate your debts to pay them out, that has many benefits.  The issue is that the annual interest rate charged on the consolidation loan must be significantly less than the average interest rate you are paying on your debts.  Now you can pay off either your total debt, or the lower negotiated balance, and then just have the lower interest rate one loan to repay.

This can be done under either the self-negotiating method or if you are using a not for profit local credit counselling agency to help you.  Either way, stay away from payday loan lenders.

Consult with a licensed insolvency trustee (formerly called a bankruptcy trustee) – Whether things are too far gone to use any of the above methods, or you just want to know what all of your options are, consult with a licensed insolvency trustee to determine how best to deal with your credit card debt in Canada.  

Most licensed insolvency trustees, including my Firm, provide a no-cost initial consultation.  I can go over with you all of your options.  We will discuss all that I have already mentioned, plus the concepts of a consumer proposal, Division I Proposal and bankruptcy.  I will give you the pros and cons of each, give you my best recommendation and then you will have all the information you need to decide.

Credit card debt in Canada summary

The Ira Smith Team family hopes that you and your family members are remaining secure, healthy and well-balanced. Our hearts go out to every person that has been affected either via misfortune or inconvenience.

I hope you have found this credit card debt in Canada Brandon’s Blog helpful.  Quebec’s original plan for helping its residents reduce credit card debt in Canada did not start out to be controversial.  It was designed to get Quebeckers to think about how they were getting into credit card debt and to force them to work into their budget a larger monthly minimum payment.  The aim was to curb out of control spiralling credit card debt.  The COVID-19 pandemic and the resulting economic shutdown combined with the upcoming August 1 changes will no doubt make things harder for Quebeckers only able to make minimum monthly payments on their credit card balances.

We all must help each other to stop the spread of the coronavirus. Social distancing and self-quarantining are sacrifices that are not optional. Families are literally separated from each other. We look forward to the time when life can return to something near to typical and we can all be together once again.

Ira Smith Trustee & Receiver Inc. has constantly used clean, safe and secure ways in our professional firm and we continue to do so.

Income, revenue and cash flow shortages are critical issues facing entrepreneurs, their companies and individual Canadians. This is especially true these days.

If anyone needs our assistance for debt relief Canada COVID, or you just need some answers for questions that are bothering you, feel confident that Ira or Brandon can still assist you. Telephone consultations and/or virtual conferences are readily available for anyone feeling the need to discuss their personal or company situation.

The Ira Smith Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

credit card debt in canada
credit card debt in canada

Stay healthy, well balanced and safe and secure everyone.

 

Categories
Brandon Blog Post

HOW HERTZ TEACHES US MODERN AND RISKY RULES OF BUSINESS BANKRUPTCY IN CANADA AND THE USA

business bankruptcy in canada
business bankruptcy in canada

The Ira Smith Team is fully operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

Stay healthy, well balanced and safe and secure everyone.

If you would prefer to listen to the audio version of this business bankruptcy in Canada and the USA Brandon’s Blog, please scroll to the bottom and click play on the podcast.

Business bankruptcy in Canada Introduction

Late in the day on Friday, May 22, 2020, Hertz Global Holdings Inc. (Hertz) filed for Chapter 11 bankruptcy in Delaware.  The filing gives Hertz some breathing room to operate its business.  During this time, Hertz also needs to come up with a business turnaround plan and a debt restructuring plan that creditors can support.  The movement of Hertz stock last week teaches us some modern and risky rules of business bankruptcy in Canada and the United States.

Corporate bankruptcies and the Hertz investors

Hertz stock closed on the NASDAQ exchange on May 22 at US$2.84.  It dipped to a low of US$0.40 on May 26.  Legendary investor Carl Icahn sold all of his Hertz shares at an average price of $0.72.  He dumped his 39% stake in Hertz at a loss of nearly $2 billion.  Last Friday Hertz shares closed at US$2.57 per share.  This morning, the trading touched US$3.40 per share.

So Hertz is up handsomely since May 26.  Hertz has filed for bankruptcy protection.  It doesn’t make sense that investors should be pushing the stock up.  Hertz is selling off its fleet and further depressing the used car market.  So far there is no indication that a business plan and debt reduction plan has been developed, let alone accepted by the creditors.

As far as assets, they have locations and a database of customers.  But every major rental car company also has locations and a database.  Whenever business and leisure travel resumes to pre-COVID-19 levels, if you can’t rent a car from Hertz you will rent it from a different company.  So what are the non-fleet assets worth?

So on the surface, the investor money finding a home in Hertz stock and pushing up the stock price doesn’t make sense.  So, are there savvy investors getting into Hertz or are they all just following the herd and will all end up losers?

Why Hertz filed for Chapter 11 bankruptcy protection

Since 2014, Hertz has had four different CEOs.  It is difficult to develop and implement a cohesive business strategy with such turmoil in the senior management ranks.  As the coronavirus pandemic brought travelling to a sudden halt, Hertz suffered dramatically as a mass of its revenue depended on business travellers and vacationers renting vehicles when arriving at their destination airport.  Nobody knows how long it will take until travel gets back to where it was and what Hertz needs it to be.

Hertz’s debt has been increasing as it invested heavily in its vehicle fleet.  They may have also missed the mark in the mix of vehicles consumers want, requiring it to take on even more debt to make further fleet purchases.  Hertz could no longer afford to make the interest payments on its debt load.  At the time of its bankruptcy filing, Hertz had US$1 billion of cash and US$13 billion of debt.

The $13 billion in financing Hertz made use of to acquire its fleet of 500,000 automobiles. The financing was done via what is known as asset-backed securities.  These are connected straight to the value of the vehicles.  When the value of the cars drops, Hertz must make up the difference in cash within about three months, unless values rebound before that time.

However, with the coronavirus pounding the brakes on the economy and eliminating employment for so many, the drop in the value of used vehicles is expected to remain that way for a long time.  Hertz knew that it could not make up the difference to its lenders when they made a demand, which was their right.  Hence the bankruptcy filing.

The modern risky rules of investing in business bankruptcy in Canada and the USA

Normally, in a public company restructuring, it is not only the creditors that take a hit.  Shareholders usually get a good drubbing.  Share values fall and new shares are issued to raise capital.  This further dilutes the holdings and value of those holdings for shareholders.  But investors must believe that Hertz will come back.   How else can you explain the surge in the share price?

Before this year, the company had ten consecutive quarters of positive growth.  They were still losing money, just not as much.  Investors must believe that Hertz will be able to survive.  They must believe that the company although leaner and smaller, this is the time to jump on an opportunity to make money.  

I am not a financial advisor, I am not saying whether this is a good or bad investment.  It certainly is a very risky one.  All I am saying is that as a licensed insolvency trustee (formerly called a trustee in bankruptcy) administering business bankruptcy in Canada, this does not make any sense to me.

I guess only time will tell if these investors pushing up the stock price are insightful risk-takers or losers.  Carl Icahn doesn’t believe it.

Business bankruptcy in Canada and the USA summary

I hope you have found this business bankruptcy in Canada and the USA Brandon’s Blog helpful.

The Ira Smith Team family hopes that you and your family members are remaining secure, healthy and well-balanced. Our hearts go out to every person that has been affected either via misfortune or inconvenience.

We all must help each other to stop the spread of the coronavirus. Social distancing and self-quarantining are sacrifices that are not optional. Families are separated from each other. We look forward to the time when life can return to something near to typical and we can all be together once again.

Ira Smith Trustee & Receiver Inc. has constantly used clean, safe and secure ways in our professional firm and we continue to do so.

Revenue and cash flow shortages are critical issues facing entrepreneurs and their companies and businesses. This is especially true these days.

If anyone needs our assistance for debt relief Canada COVID, or you just need some answers for questions that are bothering you, feel confident that Ira or Brandon can still assist you. Telephone consultations and/or virtual conferences are readily available for anyone feeling the need to discuss their personal or company situation.

The Ira Smith Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

Stay healthy, well balanced and safe and secure everyone.

Categories
Brandon Blog Post

BANKRUPTCIES IN ONTARIO: OUR EXCLUSIVE 6 THINGS LIST CREDITORS MUST KNOW ABOUT CANADIAN BANKRUPTCY

The Ira Smith Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

Stay healthy, well balanced and safe and secure everyone.

Bankruptcies in Ontario -Introduction

Much of the insolvency chatter developing from the COVID-19 pandemic world in which we find ourselves is now concentrating on the waterfall of brand-new bankruptcies in Ontario that are predicted to arrive. I have previously written about some of the big-name US retailers that have filed for Chapter 11 bankruptcy protection.

Businesses shut down, job losses, government funding for people and businesses to try to hang on through this coronavirus are all in the headlines.  What our “new normal” will look like and which companies and jobs will survive, right now, is anybody’s guess.

In this Brandon’s Blog, I want to highlight things creditors must know about canadian bankruptcy and bankruptcies in Ontario.  By being well-versed, creditors will hopefully be able to better understand what is in store for them and for the debtors.

1. Bankruptcies in Ontario – the automatic stay of proceedings

In Canadian insolvency matters, an automatic stay of proceedings happens when a company or person files under the Bankruptcy and Insolvency Act (Canada) (BIA) for either:

  1. Bankruptcy
  2. Consumer proposal
  3. Corporate or large personal restructuring

The stay of proceedings is automatic under the BIA.  Other than in one specific situation which I will touch on in a minute, absent proof that some sort of fraud is being committed on the court, a judge will not interfere with the automatic stay provisions.  So an unsecured creditor will not be able to start or continue any action for collecting on a debt.

The one exception is in a restructuring where the major secured creditor goes to court and provides evidence that no matter what the restructuring may look like, they will never support it.  The secured creditor would at the same time be requesting the court to lift the stay of proceedings so that they can enforce on their security.  

Absent a restructuring proposal that promises to pay out that secured creditor 100% PLUS proof that the company or person has a realistic chance of refinancing to take out that secured creditor.  Even in that situation, the court could give the debtor some time to pull it off, but it will be a very short lease.  Otherwise, the secured creditor will probably get their wish and the restructuring effort will end.

In the case of a privately appointed receiver, there is no automatic stay of proceedings.  This is notwithstanding that the conduct of the receiver in a private receivership is also governed by the BIA.  The reason there is no automatic stay of proceedings is that a private receivership is not a filing under the BIA.

In either a court-appointed receivership or a corporate restructuring under the Companies’ Creditors Arrangement Act (Canada) (CCAA), the stay of proceedings authority does not come from statute per se.  The respective statutes allow for the judge to order a stay of proceedings.  That language is then incorporated into the court order appointing the receiver or authorizing the bankruptcy protection CCAA filing.  In these cases, the court is available for anyone to make an application to lift the stay if they can prove that they are being prejudiced.  Again, normally only secured creditors will be able to show prejudice.

2. Bankruptcies in Ontario – Know whether, when, and where proof of claim needs to be submitted

For bankruptcies in Ontario and restructurings, it is important to know what kind of insolvency proceeding is taking place.  The notice you receive from the licensed insolvency trustee (formerly called a bankruptcy trustee) (Trustee) will tell you what kind of proceeding it is.  It will also provide a proof of claim form to be completed.  The notice will provide all the details.

It is important that you know:

  • The details.
  • How to complete a proof of claim form.
  • Where to send it into.
  • What timelines there may be.

Some creditors wish to file a proof of claim only so that if a dividend is declared they will get one.  In that case, you can complete and file the proof of claim any time before the Trustee issues a final dividend.  The Trustee must send a final notice to all named creditors who have not yet filed a proof of claim before issuing a final dividend.

Some creditors wish to actively participate in the insolvency process.  They may wish to attend the meeting of creditors, vote on a restructuring proposal under the BIA.  If creditors wish to actively participate in bankruptcies in Ontario, they should complete and file the proof of claim with the Trustee within the time-frame indicated in the notice accompanying the proof of claim form.

In a receivership, there will only be a need to file a proof of claim if the receiver has realized enough money from the sale of assets to pay out the trust claims and secured creditor claims in full and now has money for the unsecured creditors.  This is very rare.  In that situation, the receiver will conduct a claims bar process later on in the administration.  That is when a notice with a blank proof of claim form will be sent out to the known creditors.

In a restructuring under the CCAA, first, the restructuring plan, called the Plan of Arrangement, is finalized.  Then the Trustee will send out notices and blank proof of claim forms for creditors to complete and submit.  Filling out the form at that stage will allow creditors to actively participate in the meeting and voting on the plan, as well as be in line to receive a payment.

3. Bankruptcies in Ontario – Obtaining a preference repayment from a future bankrupt debtor is not illegal or unethical, but you may have to give it back

If a customer of yours offers to pay you money, even if it turns out to be on the eve of an insolvency filing, take it!  Always take the money; stress over any claim for it by a Trustee later.

The premise of the BIA is that all unsecured creditors will be treated equally.  So, if certain unsecured creditors receive partial or full payment on the eve of filing, and then the debtor goes bankrupt, there is a presumption of a preference.  The onus is on the creditor who received payment to rebut the presumption of a preference.  If the Trustee is successful in attacking such a transaction, then the creditor must pay over the money to the Trustee.  The creditor will also have spent money on its own legal fees.  There will also probably be a cost award for all or a portion of the Trustee’s legal costs also.

Notwithstanding all this, it is better to have the money than not.  Perhaps the Trustee will not knock on your door.  Or, maybe you can avoid a lot of heartache by agreeing to and paying over a settlement amount that is less than 100% of what you received.  Finally, there is a very limited number of defences to rebut the presumption of a preference.  Perhaps your situation falls under one of them.

Taking the money is not immoral, unethical or illegal.  You just may not be able to keep it if your customer files for bankruptcy after making the payment to you.

4. Bankruptcies in Ontario – review the Trustee’s Report very carefully and ask questions

The Trustee’s report outlines issues of importance regarding the conduct of the debtor both pre and post-filing.  Sometimes, there may be an action that the Trustee could take to enhance the recovery of an asset, but lacks the funding to do so.

In those cases, a creditor or a group of creditors can choose to either:

  1. Fund the Trustee to take the action for the general benefit of all unsecured creditors.
  2. Get court approval to take the action in their own name under s.38 of the BIA.

It would be unusual for creditors to fund the Trustee.  The simple reason is that they would be responsible for 100% of the costs but have to share any recovery with all the other unsecured creditors on a pro-rata basis.  For this reason, it is not done.

Many times a creditor or group of creditors will choose to obtain court permission to take on the action in their own name.  The court will insist that the creditor group make the opportunity to all creditors.  However, a “buy-in” will be set.  Most of the time other creditors won’t pony up to join in.  Either they are not sophisticated enough to realize the potential benefit or they feel it is not worth their spending money in that way.

Under an s.38 action, if successful, the creditor can first pay back all its costs in doing the action.  Next, they are entitled to keep up to the full amount of their claim.  If any funds are left over, they must be paid over to the Trustee.

I am administering a bankruptcy file right now where there was foreign real estate.  I did my investigation and determined that although saleable, the properties would take many years to sell and then to repatriate the money back to Canada.  The major unsecured creditor wished to take control of the sales process.  So, her lawyer got court approval for her to do so under s.38 of the BIA.  No other creditor joined in with her.  The properties are now sold, we have so far received a six-figure payment from the surplus sitting in her Canadian lawyer’s trust account after she was fully repaid all of her costs and the amount of her claim.  

There is another six-figure amount sitting in a foreign country.  We have retained legal counsel in that country now to get the rest of the funds repatriated into our trust account.  Once received, we will finalize our vetting of all proofs of claim and make a distribution to the unsecured creditors.

5. A discharge from personal bankruptcies in Ontario ends the debtor’s liability for pretty well all debts

Unless the Trustee of a bankrupt corporation raises enough money for all of the creditors to be paid off in full, with interest, a corporation is never discharged from bankruptcy.  In personal bankruptcy, the debtor is eventually entitled to an absolute discharge.  The absolute discharge can be:

  • Received straight away when the debtor is able to be discharged.
  • Given once the bankrupt fulfills all of the conditions of discharge.

There are only a handful of claims that are not discharged upon the discharge of the bankrupt.  Those are:

  1. Trust claims.
  2. Secured claims.
  3. Those claims which fall under s.178 of the BIA.

If a debtor wishes to get out of a liability where the creditor holds security, such as vehicle financing, the debtor needs to trigger a default prior to filing for bankruptcy.  So continuing with the vehicle example, the debtor could tell the lender that it cannot afford to make any more payments.  The debtor would then give the vehicle and the keys to the lender.

The debtor should then wait for notice from the lender that the vehicle has been sold, the lender has suffered a shortfall and demands payment for the shortfall.  The shortfall is an unsecured claim.  The debtor now files for bankruptcy after the shortfall claim has crystallized.  There now is no longer a secured claim for this debt.

If the debtor does not wait for the shortfall notice from the lender, they run the risk that the shortfall occurs after the date of bankruptcy.  In that case, the shortfall unsecured claim will not be a debt discharged by the bankrupt’s discharge.

I have previously written about the s.178 claims.  You can read about them in my blog. 

Lacking affirmative action by a debtor or Trustee, all secured claims go through the bankruptcy unaffected.  It is incumbent on the Trustee to get a lawyer’s security opinion on the validity of any secured creditor’s security as against the Trustee.  I have a corporate bankruptcy file now where the legal opinion was that the security was not valid.  I advised the creditor who did not object.  I guess they already knew!

6. Bankruptcies in Ontario – A fully completed restructuring also discharges most debts

The most essential element of reorganization situations under the BIA and CCAA that creditors need to know is about how debts get discharged in a restructuring.  Similar to a  personal bankruptcies in Ontario, in a successfully completed corporate restructuring, the debtor’s debts are discharged.  Again, except for trust claims and secured creditor claims, the ordinary unsecured debts of a corporation are fully discharged when a restructuring plan that has been accepted by the creditors and approved by the court is fully completed.  When the payout is made to the creditors and the company has successfully completed it, there are no pre-filing debts remaining.

So what is the significance to creditors?  Well, if you are a director of the company, any debts that would have been a director liability, other than for a trust claim, vanishes.  As there is no debt left, there is nothing left for the director to be responsible for.

Likewise, if someone personally guaranteed a premises lease to the landlord, if the lease is disclaimed as part of the restructuring, then the landlord has an unsecured claim.  Once that claim is fully discharged in the restructuring, there is no debt left for the guarantor to be responsible for. 

Creditors should also know that a company in a restructuring, may come to you to renegotiate your agreement with the company.  If you refuse, the company could disclaim the agreement and any claim you have will be an unsecured claim in the restructuring.

7. Bankruptcies in Ontario bonus tip

It is better to get professional advice about extending credit to a customer and the best way to do it before you approve the credit.  Getting professional advice after they have filed for bankruptcy limits your options.

Bankruptcies in Ontario – Summary

I hope you have found this bankruptcies in Ontario Brandon’s Blog helpful.

The Ira Smith Team family hopes that you and your family members are remaining secure, healthy and well-balanced. Our hearts go out to every person that has been affected either via misfortune or inconvenience.

We all must help each other to stop the spread of the coronavirus. Social distancing and self-quarantining are sacrifices that are not optional. Families are literally separated from each other. We look forward to the time when life can return to something near to typical and we can all be together once again.

Ira Smith Trustee & Receiver Inc. has constantly used clean, safe and secure ways in our professional firm and we continue to do so.

Revenue and cash flow shortages are critical issues facing entrepreneurs and their companies and businesses. This is especially true these days.

If anyone needs our assistance for debt relief Canada COVID, or you just need some answers for questions that are bothering you, feel confident that Ira or Brandon can still assist you. Telephone consultations and/or virtual conferences are readily available for anyone feeling the need to discuss their personal or company situation.

The Ira Smith Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

Stay healthy, well balanced and safe and secure everyone.

bankruptcies in ontario
bankruptcies in ontario
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THE GREAT UNTOLD STORY ON MY CRA ACCOUNT BUSINESS UPDATED RULES THAT YOU MUST READ

my cra account business

The Ira Smith Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

Stay healthy, well balanced and safe and secure everyone.

If you would prefer to listen to the audio version of this My CRA Account Business Brandon’s Blog, please scroll to the bottom and click play on the podcast.

My CRA account business introduction

On May 28, 2020, Canada Revenue Agency (CRA) made an announcement concerning the CRA and COVID-19 collections, audit, objections and appeals procedures. It looks like they are starting to slowly open up again. So, it appears that the time-out honeymoon for my CRA account business for business and personal income tax matters is over and there will now be new rules.

In this Brandon’s Blog, I will describe them for you.

Collection on brand-new financial debts

Collections activities on brand-new debts will be put on hold up until additional notification, and also versatile settlement arrangements will be readily available. If you cannot pay your taxes, child and family benefit overpayments, Canada student loans, or other federal government program overpayments completely, payment arrangements are offered.

Collection officers will certainly attend to pre-existing cases individually. CRA says it will do so in a way to prevent financial difficulty. I think the fact that either you or your company owes CRA money that you cannot pay, that in itself spells financial difficulty!

My CRA account business audits returning

The CRA is returning to a complete function of their audit group. They say that they are adjusting their methods given the health as well as economic impacts of COVID-19. They will be focusing as a priority on:

  • higher dollar audits first;
  • audits close to the conclusion;
  • those with a calculated significance to the Government of Canada, provinces and other taxation stakeholders;
  • initiatives to combat scams and other criminal activity; and
  • CRA will for now continue to recognize electronic signatures as having met the signature requirements of the Income Tax Act, as a temporary administrative measure.

The CRA statement said that they are developing new methods of interacting with taxpayers. CRA will function with taxpayers and my CRA account business to establish steps and methods to adapt to the present truth. For instance, one new way is that they are now going to supply taxpayers with the alternative to send requested details via electronic mail.

Some vital adjustments will be given using added time and in advance consultation on requests to supply the CRA with information and access. Public health regulations will certainly be followed. Added practical steps will be expanded both in terms of timing or other aspects of any CRA request.

Requirements for Information (RFI) provided before March 16 and due after that day will be reviewed. Taxpayers as well as 3rd parties, including financial institutions, will be gotten in touch with where the CRA continues to need the information in the RFI.

The CRA is looking at new measures to catch people making unsupported claims for pandemic emergency benefits.

My CRA account business objections, appeals and taxpayer relief

CRA says that Canadians’ entitlement to benefits and credits are essential to continue to be provided throughout COVID-19. There should not be any delays with the handling of these objections.

For objections related to various other tax obligation matters submitted on personal or business income tax matters, the CRA is presently holding these accounts in abeyance. No collection activity will be taken with respect to these accounts right now. For objections that are due between March 18 and June 30, 2020, CRA has extended the due date to June 30, 2020.

The Canada Revenue Agency extended some of the filing deadlines for individuals, corporations and trusts in a move to help taxpayers and tax preparers dealing with the COVID-19 pandemic. Any money owed to the Canada Revenue Agency can be deferred until September 1st, 2020, with no penalties or interest payable.

Taxpayers that are unable to file a return or make a payment by the tax-filing and payment deadlines as a result of COVID-19 can request the cancellation of penalty as well as interest charged to their account. Penalty and interest will certainly not be charged if the new due dates that the federal government has introduced to tax-filing and payments are met.

As soon as CRA service operations begin again, the Taxpayer Relief Program will review claims associated with COVID-19 on a top priority basis.

Suspending individual (T1) validation and review

Some review of income tax returns was launched prior to the COVID-19 pandemic. Taxpayers might have been contacted to provide more details in connection with amounts declared. If Canadians have gotten any CRA correspondence that provides a timeline for action or submission of information or backup documents, that is currently on hold. You don’t yet need to respond.

CRA does remind everyone that t is necessary to keep in mind that, although assessments have been delayed, it does not avoid future actions or evaluations from being finished. Taxpayers will need to keep their information and documentation, in case they are chosen for review in the future.

My CRA account business summary

I hope you found this my CRA account business information helpful. It appears that right now CRA is still in “stand down” mode.  However, the recent announcement that I described shows that they are letting Canadian taxpayers know that soon, they will start getting back to business.

The Ira Smith Team family hopes that you and your family members are remaining secure, healthy and well-balanced. Our hearts go out to every person that has been affected either via misfortune or inconvenience.

We all must help each other to stop the spread of the coronavirus. Social distancing and self-quarantining are sacrifices that are not optional. Families are literally separated from each other. We look forward to the time when life can return to something near to typical and we can all be together once again.

Ira Smith Trustee & Receiver Inc. has constantly used clean, safe and secure ways in our professional firm and we continue to do so.

Revenue and cash flow shortages are critical issues facing entrepreneurs and their companies and businesses. This is especially true these days.

If anyone needs our assistance for debt relief Canada COVID, or you just need some answers for questions that are bothering you, feel confident that Ira or Brandon can still assist you. Telephone consultations and/or virtual conferences are readily available for anyone feeling the need to discuss their personal or company situation.

The Ira Smith Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

Stay healthy, well balanced and safe and secure everyone.

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Brandon Blog Post

THE TORONTO CORONAVIRUS EXTRAORDINARY PLAN TO BUSINESS RECOVERY

The Ira Smith Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

Stay healthy, well balanced and safe and secure everyone.

Introduction

For businesses having a hard time enduring the Toronto coronavirus pandemic, insolvency may very well be the outcome.  General insolvency filings were down in April, this is mainly because everyone has a built-in stay of proceedings right now.  

Banks, credit card companies and collection agencies are not making a name for themselves right now during the Toronto coronavirus lockdown by harassing people who cannot afford to pay their regular monthly payment.  However, that will not last too long.

In this Brandon’s Blog, I discuss options available to the entrepreneur if the Toronto coronavirus lockdown and quarantine wreaks havoc on your business.

Telltale signs from the United States

We have already seen the variety of companies that submitted to Chapter 11 insolvency.  They did so in order to attempt to reorganize their financial obligations while trying to stay in business.  This has been especially true for the large retail business sector.  Their business problems were not caused by COVID-19.  However, the pandemic merely accelerated where they were heading anyway.  

The American Bankruptcy Institute reported that Chapter 11 filings in April 2020 represent a 26% boost from April 2019.

I have previously written about Modell’s Sporting Goods and Pier 1.  Now we can add Neiman Marcus, JCPenney and J.Crew. Outside of the retail sector, Hertz Car Rental, Gold’s Gym, Foodora and Virgin Australia are also recent restructuring filings.  I also really believe that it won’t be long before the floodgates open up to subject an excess of small firms looking for relief from their financial problems, in North America and the rest of the world.  That is probably obvious to you, it really can’t be called a Toronto coronavirus news update!

Entrepreneurs are doing whatever they can

I have definitely noticed an uptick in telephone calls from people scared about their personal situation and from worried business owners in the past 4 weeks. They aren’t all set to throw in the towel right now.  They are attempting to do whatever they can through the shutdown to stabilize their company.  So for now, they are trying to take advantage of various federal government programs to help them stay afloat.  The programs include:

However, the people I am talking to are also realists.  They all understand that if what they are doing now doesn’t work, they will either have to try to restructure the company or have it go bankrupt.  So for now, there is somewhat of a pause in remedies such as distraints, repossessions, terminations of leases and financial institution collections.

The moratorium won’t last forever

Right now the Canadian federal government is taking the lead.  They have extended timelines for filing income tax and HST returns and paying amounts owing.  They have also extended certain relief programs from their original expiration date of June 30.  Right now, subject to a further extension, of course, it looks like the feds are shooting for September 30 to end the COVID-19 assistance programs.

Ultimately, the patience for non-payment being shown right now by landlords and creditors won’t last permanently. I expect business bankruptcy protection and bankruptcy filings to climb after the “all clear” is sounded on this Toronto coronavirus state of emergency and the government assistance ends.  The pent up collection activity will go into full flight. 

The floodgates will open.  I expect one of the worst offenders to be the Canada Revenue Agency (CRA).  There will be so many companies in default of their tax payment obligations. The government is spending trillions of dollars to prop up the Canadian economy. Those programs will have to be paid for and all the IOU’s will be called in.

It seems that everybody I have spoken with is simply waiting until this Toronto coronavirus period quiets down.  The pool of business problems is overflowing right now.

Corporate bankruptcy is not the only option for a company battling its financial demons.  There are going to be three categories of insolvent companies:

  1. Those who are too small and it just does not make sense for them to do anything other than paying the employees their final salary, wages and vacation pay.  Then file their final corporate and income tax files.  Then, turn the key in the door and walk away.
  2. A company that has just a few creditors and all or some of the business operations remains viable.  They can negotiate with their creditors for a reduction in each amount owing on a creditor by creditor basis.  The reason this does not work if there is a large group of creditors is because of human nature.  Everyone is worried that the next person is getting a better deal.  By the time you get the last person to say yes, the first person may have changed their mind.  There is no way to independently satisfy all the creditors that nobody is getting a better deal.  In reality, some are getting a better arrangement than others.  It will be based on the negotiation ability of the creditor and how essential maintaining the supply of their product or service from them is.
  3. Businesses where all or some of their operations remain viable.  However, the company can only survive if it can chop off the sick parts and eliminate however much debt they need to so that the newly restructured company is solvent.
  4. Companies with complex issues needing to assign their assets to a licensed insolvency trustee through a bankruptcy or whose secured creditor will enforce on their security by appointing a receiver, either a private receiver or court-appointed receiver.

Toronto coronavirus induced restructuring

If you anticipate your entire business or certain business units will remain viable but require relief from its creditors and debts, the first look at restructuring. This route enables a company to stay functioning while renegotiating its financial obligations.  This process includes looking critically at all business units and determining how operations can be made more efficient in order to improve profitability.  Many hard decisions will have to be made.

Companies have two choices in Canada for restructuring.  For the larger restructurings, the kind that you read in the newspaper, the restructuring statute is the Companies’ Creditors Arrangement Act (Canada) (CCAA).  In order to qualify for restructuring under the CCAA, the company has to owe its creditors at least $5 million.

All other companies restructure under the Bankruptcy and Insolvency Act (Canada) (BIA) restructuring provisions.  It is called Part III Division I of the BIA.  Regular readers of Brandon’s Blog will know that I have written several blogs before on aspects of both the CCAA and restructuring under the BIA.

In my blog, BANKRUPTCY EXPERTS WEIGH IN ON US & CDN SMALL BIZ RESTRUCTURING, I lamented the fact that the Canadian insolvency system does not have a streamlined restructuring process for smaller companies.  We have the consumer proposal restructuring under the BIA for smaller personal insolvent debtors trying to restructure.  

The United States has the Small Company Reorganization Act (SBRA) of 2019, also known as “Subchapter 5”.  The SBRA is aimed at simplifying restructuring procedures for small companies by boosting efficiency, lowering costs, and easing the restructuring plan confirmation process.  I believe this would be a great addition to the Canadian insolvency system.  It may very well move some companies from my #1 category listed above into #3.  

There is no sense dwelling any longer on what we don’t have.  The Toronto coronavirus news today has affected so many companies.  Many will just not survive.  Others will be able to come out of the other side of this Toronto coronavirus pandemic but will need major surgery to stay alive.

The first step for any entrepreneur is to get professional advice in order to strategize and make a decision on what plan to put into place.  You should speak either to a licensed insolvency trustee (formerly called a bankruptcy trustee) (Trustee) or a lawyer who has experience in insolvency matters.  

Most licensed insolvency trustees will provide a one-hour no-cost strategy session.

You need to understand whether or not you have a viable business and company.  Then, you need to have a sensible plan to increase your chances of success based on the viability analysis.

Both Ira and I have been doing many such strategy sessions over the telephone and video meeting since the Toronto coronavirus self-quarantine lockdown came into effect.  I know that we will be doing many more as the city and the province begin to open up.

The goals of the entrepreneur have to be the driving force. For example, if the entrepreneur is adamant about staying in business, then you have to hope that business viability can be proven so that the likelihood of a successful restructuring is enhanced.  On the other hand, if you can prove business viability but the entrepreneur has had enough and wants out, then you look at the restructuring and sale of the viable business parts.

Once viability is established, then a restructuring plan can be developed.  The restructuring will take place either under the BIA or CCAA.  Depending on the circumstances and the goals of the entrepreneur, either a refinancing of the restructured company of a sale of the business is part of any restructuring plan.

Business not viable

If the business is not viable, then pure restructuring is not possible.  However, that does not mean that the assets that form the business unit cannot be used by someone else to efficiently run the business.  I am not just talking about hard assets.  Things such as patents, trademarks, processes, experienced workforce and the customer base before they go off to find a new supplier are all valuable parts of a business.  

Perhaps the tangible and intangible assets can be sold to someone that can bring them into their existing operation and run the business profitably.  Jobs can be saved also if this were to happen.

When this is the case, then you are into some form of liquidation.  A secured creditor will move for the appointment of a receiver.  As I have written before on this topic, the appointment can either be by way of a private appointment or an application to the court for a court-appointed receiver.

If there are no secured creditors, the security taken is invalid, or there are other factors that make a bankruptcy necessary, then the company can assign itself to bankruptcy.  It isn’t every day you find this, but in a recent corporate bankruptcy filing that I am administering, I found that the security of the purported secured creditor was invalid as against us as Trustee. 

Then either the receiver or Trustee can take possession of the assets, run a well-advertised and managed sales process and hopefully find a buyer for the assets to comprise all or many parts of the operating business.  If such a buyer does not exist, then it will be a straight liquidation of individual assets.  Obviously, higher values can be achieved when selling what amounts to a business rather than just individual assets in a liquidation.

Personal guarantees and director liabilities

In any corporate or business insolvency, the exposure of the directors has to be taken into consideration.  This is not Toronto coronavirus news.  It is normal for entrepreneurs to have to give a personal guarantee to a lender in addition to the security taken.  Such a guarantee can be backed up by specific personal assets as collateral, or be an unsecured guarantee.  Or, an entrepreneur has to indemnify the landlord as part of the corporation leasing premises.

Directors also have certain liabilities under provincial or federal law.  Generally, directors will have personal liability for:

The exposure of directors must be recognized and taken into account in any restructuring attempt.

Toronto Coronavirus Summary

Businesses all over will look different due to the Toronto coronavirus pandemic and lockdown.  The current environment is unprecedented and is teaching all of us things we have never seen before.

The Ira Smith Team family hopes that you and your family members are remaining secure, healthy and well-balanced. Our hearts go out to every person that has been affected either via misfortune or inconvenience.

We all must help each other to stop the spread of the coronavirus. Social distancing and self-quarantining are sacrifices that are not optional. Families are literally separated from each other. We look forward to the time when life can return to something near to typical and we can all be together once again.

Ira Smith Trustee & Receiver Inc. has constantly used clean, safe and secure ways in our professional firm and we continue to do so.

Revenue and cash flow shortages are critical issues facing entrepreneurs and their companies and businesses. This is especially true these days.

If anyone needs our assistance, or you just need some answers for questions that are bothering you, feel confident that Ira or Brandon can still assist you. During this Toronto coronavirus state of emergency, we are doing telephone consultations and/or virtual conferences that are readily available for anyone feeling the need to discuss their personal or company situation.

 

The Ira Smith Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

Stay healthy, well balanced and safe and secure everyone.

toronto coronavirus

 

 

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Brandon Blog Post

HOW TO USE DEBT RELIEF CANADA COVID TO ACHIEVE THE BENEFIT OF MORE TIME

debt relief canada covidThe Ira Smith Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

Stay healthy, well balanced and safe and secure everyone.

If you wish to listen to the audio version of this debt relief Canada COVID Brandon’s Blog, please scroll to the bottom and click play on the podcast

Debt relief Canada COVID introduction

I have written before many blogs about debt relief in Canada and debt relief Canada COVID.  I have written about:

Personal insolvency – 

Corporate insolvency

  • Bankruptcy protection restructuring, both under the Companies’ Creditors Arrangement Act (Canada) and the Bankruptcy and Insolvency Act (Canada)
  • Receivership
  • Liquidation
  • Bankruptcy

Debt relief Canada COVID specific:

Now the federal government has drafted legislation to guarantee that Canadians, as well as Canadian companies, have the ability to meet governing time frames and target dates found in federal statutes.  Some key target dates for debt relief Canada COVID found in the BIA and other statutes, such as the Canada Labour Code, given the COVID-19 pandemic and the courts essentially being shut down and only hearing emergency matters.

In this Brandon’s Blog, I discuss the proposed Time Limits and Other Periods Act (COVID-19).  The purpose of this proposed statute will aid debt relief Canada COVID.

Canadian Department of Justice concerns

On May 19, 2020, the Canadian Department of Justice unveiled draft legislation.  The government has posted it online and is allowing 10 days for any comments to be submitted on the proposed Time Limits and Other Periods Act (COVID-19).  The federal government is concerned about debt relief Canada COVID and all other issues federal legislation deals with.

As I previously wrote, the OSB, went to court in each province to get certain deadlines suspended so that debt relief in Canada would not suffer.  The OSB ensured that the system would work for debt relief Canada COVID.  The federal government believes that so many Canadians, as well as Canadian companies, could be impacted in other federal statutes not designed for financial restructuring or debt settlement.  The government is concerned that they may encounter possible legal jeopardy if, due to the COVID-19 pandemic, they fall short to meet target dates. 

Consequently, the Government of Canada published draft legislation, which outlines prospective remedies that the Federal government might apply to deal with these essential problems. The draft legislative proposal for dealing with debt relief Canada COVID is online for 10 days. Interested stakeholders are invited to share their comments by May 29.

What the draft legislation is designed to do

The draft legal proposal is designed to suspend specific time frames as well as enable government ministers to prolong or put on hold other time limits consisted of in government regulations to:

  • Ensure that Canadians, as well as Canadian companies, are able to satisfy governing time frames and deadlines found in federal statutes, such as some key due dates found in the BIA for debt relief Canada COVID and under the Canada Labour Code during the coronavirus pandemic.
  • Protect Canadians’ rights and access to justice in the context of civil proceedings before the courts, by making sure that people and companies are protected to assert their rights and not miss a time limit or deadline during the COVID-19 pandemic.

The draft legislation includes stipulations to make certain that short-term extensions or suspensions cannot be made after September 30, 2020, and could be retroactive to March 13, 2020 when the COVID-19 pandemic officially began.

What the draft legislation says

As already mentioned, the draft relief is designed to protect Canadians under federal statutes designed for debt relief Canada COVID and other federal laws.  So here are the highlights of what the draft Time Limits and Other Periods Act (COVID-19) currently proposes.

Section 3 defines a time frame.  It says such time periods that are either suspended or prolonged under this Act, then, during the period that the suspension or extension holds, every mention in any Act of Parliament to that time restriction or duration is to be read as referring to the time limit or period as it is suspended or expanded.

Section 4 states that the Act does not refer to any time frame or any other duration related to the investigation of an offence or a proceeding arising from an offence.

Sections 6 and 7 deal with time limits related to proceedings.  The proposed legislation purports to:

  • Put on hold, as of March 13, 2020 as well as until September 13, 2020, or an earlier day set by the Governor in Council, certain time frame certain proceedings, aside from proceedings from offences, before the courts.
  • Allow courts to adjust the suspension within particular limits and take measures regarding the results of a failure to satisfy a put on a hold time limit.
  • Allow the Governor in Council to waive such suspensions in particular scenarios.
  • Permit ministers, in respect of defined regulations, to put on hold or prolong time limits and also prolong other durations for no greater than six months, as well as to offer such suspensions or extensions retroactive to March 13, 2020.
  • A time frame might be put on hold or extended and also a time duration might be expanded for a total maximum period of 6 months.
  • permit ministers in the case defined in the previous point to give specified persons, bodies or tribunals some adaptability in applying these suspensions or expansions.
  • Prevent these powers from being exercised after September 30, 2020.

This draft Act would certainly permit the Governor in Council to restrict or enforce conditions on the powers provided to ministers.  Having a federally mandated “time out” will certainly aid debt relief Canada COVID.

Summary

It appears that the federal government realizes that there are many federal laws where time periods must be met.  During the coronavirus emergency shutdown of the courts, it may not be possible to meet all the deadlines.  So, this omnibus proposed legislation aims to suspend or expand time frames to September 13, 2020.  The hope is that it will allow for more orderly conduct for debt relief Canada COVID under the BIA and for other purposes different federal legislation allows.

The Ira Smith Team family hopes that you and your family members are remaining secure, healthy and well-balanced. Our hearts go out to every person that has been affected either via misfortune or inconvenience.

We all must help each other to stop the spread of the coronavirus. Social distancing and self-quarantining are sacrifices that are not optional. Families are literally separated from each other. We look forward to the time when life can return to something near to typical and we can all be together once again.

Ira Smith Trustee & Receiver Inc. has constantly used clean, safe and secure ways in our professional firm and we continue to do so.

Revenue and cash flow shortages are critical issues facing entrepreneurs and their companies and businesses. This is especially true these days.

If anyone needs our assistance for debt relief Canada COVID, or you just need some answers for questions that are bothering you, feel confident that Ira or Brandon can still assist you. Telephone consultations and/or virtual conferences are readily available for anyone feeling the need to discuss their personal or company situation.

The Ira Smith Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

Stay healthy, well balanced and safe and secure everyone.

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