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CONSUMER PROPOSALS: HOW MANY ARE REJECTED?

Introduction

When people with high debt come to see me for their free consultation, many times I shock them. They are shocked when I tell them that bankruptcy might not be required. I then tell them about consumer proposals. I also explain why I think they would be able to successfully complete a consumer proposal (CP) and therefore avoid bankruptcy.

What are consumer proposals?

I have written on the topic many times. In summary, a consumer proposal is a streamlined process under the Bankruptcy and Insolvency Act (Canada) (BIA). This process allows insolvent people to make a formal deal with their creditors. This government approved debt settlement plan is to repay only a portion of what you owe and you can take as long as 5 years of regular monthly payments to do so.

To qualify, the person must be insolvent and owe $250,000 or less to all creditors, other than for any debts secured by way of registration against your principal residence, such as a mortgage.

The person will then ask me how many we have done were rejected. They are trying to determine what the odds are for their deal to be accepted by their creditors. What I tell them is that I first do an assessment and tell them what amount of offer I think they need to make to gain the approval of their creditors. I also tell them that so far, anyone who has followed my advice has had their consumer proposal accepted by their creditors. Therefore, the number of those rejected by people who follow my advice is ZERO.

The benefits

There are benefits to submitting a successful debt settlement payment plan sanctioned under the BIA. The benefits include:

  • Unlike an informal debt arrangement, the CP develops a forum where each of your unsecured creditors has to participate in for your debt restructuring.
  • You maintain your assets and don’t have to give them up.
  • Lawsuits against you or your property and financial debts, or enforcement actions such as wage garnishments, cannot proceed.
  • You do not need to submit an assignment in bankruptcy

The process

Once prepared, the CP is submitted to the Office of the Superintendent of Bankruptcy Canada (OSB), the government department that controls Licensed Insolvency Trustees (formerly called bankruptcy trustees) (Trustee). The Trustee acts as the Administrator of the CP.

Once it is submitted, you will quit paying your unsecured creditors for past debts. The Trustee will send a notice of the filing along with a copy of the CP to all creditors affected by the CP. This includes anyone suing you or garnishing your earnings. Those activities against you will stop also.

Your creditors will have 45 days to accept or decline the debt settlement CP deal. If your unsecured creditors are disappointed with the proposal, they can vote against. In that case, the Trustee will discuss modifications with you that the Trustee believes the creditors might accept. That discussion will take place prior to the against vote counting. Usually, this means offering more money to them over the maximum 5 year period. The key is that you have to be able to afford to make those higher monthly payments. It will still be only a portion of the total you owe.

In order for consumer proposals to be accepted, a simple majority of your creditors by dollar value who has filed a proof of claim must approve it. If creditors who have filed a proof of claim choose not to vote, that is considered a vote in favour. You also may not even need to have a meeting of creditors. Unless creditors holding 25% in dollar value of the claims filed to request a meeting, or the OSB requests a meeting, there is no need to hold one. If a meeting is not requested, the proposal is deemed to be accepted by the creditors. This is all part of the streamlining.

Acceptance and performance

If your CP is accepted, the OSB (or any type of other interested parties) has 15 days to ask the Trustee to go to court to have the deal court approved. If no such demand is made, the debt plan is deemed to have actually been accepted by the court. More streamlining.

After acceptance and approval, the person is then accountable for making the regular monthly payments to the Trustee that was promised in the debt management plan. There will also be 2 counselling sessions for the person to attend with the Trustee to help them with their financial issues and behaviour.

If you miss 3 monthly payments, or you are greater than 3 months overdue since your last payment, the proposal will be considered annulled. This indicates to your creditors that they are now able to either resume or begin collection actions against you. Not a good thing.

Full performance

As I previously mentioned, the person must successfully complete the debt management settlement plan by making all the required payments and attending the 2 counselling sessions. When completed, the person is entitled to receive a Certificate of Full Performance. This means that you have successfully completed the CP and that all debts caught by it are discharged.

The Trustee will then finalize the administration of your debt settlement plan, get the necessary OSB approval and distribute the money to all the creditors who have filed a proof of claim. The Administrator also is entitled to the government approved fee.

Summary

Consumer proposals must provide your creditors with a better outcome than what they would get in your bankruptcy. I have never had a consumer proposal rejected for someone who took my advice and made all the payments required.

Are you in financial distress? Do you not have enough funds to pay your bills as they come due?

As a Trustee, we are the only professionals acknowledged, accredited and also managed by the federal government to provide insolvency advice and services. A consumer proposal is a federal government licensed debt settlement approach to eliminate your debt. We will certainly help you to pick what is best for you to clear your own debt issues.

Call the Ira Smith Team today so we can eliminate the stress, anxiety, discomfort and pain from your life that your cash problems have produced. With the distinct roadmap, we develop just for you, we will swiftly return you right into a healthy and balanced problem-free life.

We have years and generations of experience assisting people and companies looking for debt restructuring to PREVENT bankruptcy. You can have a no-cost analysis so we can help you to fix your financial troubles. Call the Ira Smith Team today. This will certainly allow you to go back to a new healthy and balanced life, Starting Over Starting Now.

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CONSUMER PROPOSAL CALCULATOR REVIEW FOR YOU

consumer proposal calculator

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

Introduction

A consumer proposal calculator is important to figure out what sort of debt settlement plan should be offered to your creditors. But to have a truly successful one, you really need clear language. In Brandon’s Blog, I review a recent court case that explains why.

Shelly Gail Corriveau bankruptcy

I recently read the Reasons for Decision dated June 13, 2019 by Registrar in Bankruptcy L.A. Smart of Court of Queen’s Bench of Alberta. This case is in the matter of the bankruptcy of Shelly Gail Corriveau. The case reference is Corriveau (Re), 2019 ABQB 438 (CanLII).

Ms. Corriveau filed an assignment in bankruptcy in April 2012. She had unsecured creditors of roughly $73,000. The reason for her insolvency was stated as offering monetary help to her child’s business. She was by all accounts a perfect example of an honest but unfortunate debtor. At the time of the bankruptcy, her only asset was her house.

In June 2012, Ms. Corriveau got a gift from her mom of $46,000. It featured instructions that $6,000 of those funds be utilized for children and certain other matters. She spent the $6,000 as instructed, with the balance of the $40,000 being paid to her licensed insolvency trustee (formerly called a trustee in bankruptcy) (the Trustee) for the benefit of her creditors.

The home was sold in October 2012. From the sale, she received her provincial exemption of $40,000 with the balance of $3,916.21 being paid to her bankruptcy estate.

Ms. Corriveau files a consumer proposal

On May 12, 2013, Ms. Corriveau advised her Trustee she had received an inheritance of $15,000 from her Mother’s estate. On May 26, 2013, Ms. Corriveau submitted a consumer proposal. The Trustee served as the Administrator of the consumer proposal.

The proposal in paragraph 4 states:

“4. That the following payments be made to [Name omitted to not embarrass the guilty] Trustee in Bankruptcy, the administrator of the consumer proposal, for the benefit of the unsecured creditors:

Proposal payments to total $10,000.00. The of (sic) funds will be provided to the Administrator as follows – $300.00 filing fee to be paid at time of filing and then a lump sum payment of $9,700.00 due 60 days after the proposal is court approved (all payments to be made within the 60 months proposal period)

The debtor reserves the right to accelerate payments should funds become available.

*** NOTE *** – There will be a significant dividend paid from the bankruptcy administration.”

In accordance with the requirements of the Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) (BIA), the consumer proposal Canada read that the payments must be completed within 60 months.

The Trustee recommended acceptance of the proposal. In his report to creditors he stated:

“This proposal will provide the debtor with relief and allow the debtor’s affairs to be restructured in an orderly fashion. It will allow the debtor to annul her bankruptcy and provide for a greater return to the creditors when compared to the bankruptcy option.”

The consumer proposal was deemed accepted by the creditors and approved by the Court. Ms. Corriveau made all the required payments and received her Certificate of Full Performance on August 2, 2013.

Have you “Noted” the problem yet?

Under the BIA, a bankrupt is allowed to lodge a proposal with the Trustee; either a consumer proposal or a Division I Proposal. In either format, it is a debt settlement plan that the bankrupt is proposing for acceptance by the debtor’s creditors. By definition, if the proposal is fully carried out, then the person or company’s bankruptcy is annulled.

When bankruptcy is annulled, it is declared to have had no legal existence. It is as if it never happened. The annulment of the bankruptcy takes place upon the approval or deemed approved by the court of the consumer proposal. There will never be a distribution to the creditors from the bankruptcy administration. The Trustee, in this case, did not issue any funds from the bankruptcy, yet.

So the Note that the Trustee added, “There will be a significant dividend paid from the bankruptcy administration.” is problematic. Actually, it is more than problematic. It is just plain wrong.

Now the Trustee wishes to complete the bankruptcy administration. The Trustee submits its Statement of Receipts and Disbursements as required to the Superintendent of Bankruptcy (OSB) for approval. This issue came before the Court because of the OSB’s unfavourable comment letter dated June 15, 2018.

The Court’s analysis

Section 66.4(2) of the BIA states:

“Where consumer debtor is bankrupt

(2) Where a consumer proposal is made by a consumer debtor who is a bankrupt,

(a) the consumer proposal must be approved by the inspectors, if any, before any further action is taken thereon;

(b) the consumer debtor must have obtained the assistance of a trustee who shall act as administrator of the proposal in the preparation and execution thereof;

(c) the time with respect to which the claims of creditors shall be determined is the time at which the consumer debtor became bankrupt; and

(d) the approval or deemed approval by the court of the consumer proposal operates to annul the bankruptcy and to revest in the consumer debtor, or in such other person as the court may approve, all the right, title and interest of the trustee in the property of the consumer debtor, unless the terms of the consumer proposal otherwise provide.”

There is a similar provision for Division I Proposals.

The Court looked at the:

  • Statute
  • wording of the consumer proposal
  • Trustee’s report to the creditors on the consumer proposal; and the
  • Trustee’s actions in administering the proposal.

The Court had to decide if the Note was a term of the proposal or not. The Registrar took all factors into consideration, including that the Trustee issued to Ms. Corriveau the certificate evidencing full completion of the proposal upon her payment of $10,000.

The Registrar decided that the Note was an unfortunate error and that the only intention was for the creditors to share in the distribution from the consumer proposal with a gross value of $10,000.

Now for the treatment of the funds collected by the Trustee under the bankruptcy that is now annulled. The Registrar further concluded that consumer proposals that purport to also include a distribution from the funds held in the bankruptcy administration, must include clear and precise language in the proposal. The Registrar said that the Trustee failed to do so.

Therefore, the Registrar concluded that subject to any entitlement to fees by the Trustee from the bankruptcy administration, the funds held in the annulled bankruptcy are Ms. Corriveau’s property and should be returned to her. Costs of the application will be dealt with at the taxation of the Trustee’s account. The Trustee was directed to arrange a suitable date for that taxation to proceed before that Registrar.

Consumer proposal calculator summary

A proposal must offer the creditors a better result than what they would get in a person or company’s bankruptcy. So although a consumer proposal calculator is important, I think clear language is more important.

Are you in financial distress? Do you not have sufficient funds to pay your commitments as they come due?

Call the Ira Smith Team today so we can remove the anxiety, stress, pain and discomfort from your life that your money troubles have created. With the distinctive roadmap, we establish simply for you, we will quickly return you right into a healthy and balanced problem-free life.

As a Trustee, we are the only experts recognized, licensed and supervised by the federal government to give insolvency recommendations and to carry out insolvency procedures. A consumer proposal is a federal government authorized debt negotiation strategy to do that. We will assist you to choose what is best for you to rid yourself of your debt problems.

Call the Ira Smith Team today. We have years as well as generations of experience helping people and companies searching for debt restructuring, a debt negotiation strategy, or a consumer proposal Ontario to AVOID bankruptcy. You can have a no-cost evaluation so we can aid you to repair your financial problems. Call the Ira Smith Team today. This will let you return to a brand-new healthy and balanced life, Starting Over Starting Now.

 

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COURTS OF JUSTICE ACT: COURT OF APPEAL FOR ONTARIO CREATES NEW RULE?

Introduction

On June 19, 2019, the Court of Appeal for Ontario, released its decision in the matter of Third Eye Capital Corporation v. Ressources Dianor Inc./Dianor Resources Inc., 2019 ONCA 508 (the Dianor decision). This case was heard in September 2018. It has to do with a Court-appointed Receiver, appointed under both the Courts of Justice Act, R.S.O. 1990, c. C.43 (CJA) and the Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) (BIA).

What the decision stands for

Dianor Resources Inc. (Dianor) was a financially troubled exploration company focused on the acquisition and exploitation of mining sites in Canada. The appointment was made under s. 243 of the BIA and s. 101 of the CJA. Dianor’s secured lender Third Eye Capital Corporation (Third Eye) made the application for the appointment of the Receiver.

Dianor’s primary asset was a collection of mining claims located in Ontario and Quebec. The mining claims were also subject to Gross Overriding Royalty agreements (GOR) in favour of two different corporations. All agreements were registered on title.

There were 2 issues that needed to be decided; one relating to the sale of real property by a Court-appointed Receiver by way of vesting order. The second question was procedural.

The questions to be answered were:

  1. Can a 3rd party interest in land in the nature of a GOR be extinguished by a vesting order approved in a receivership case?
  2. Does the appeal period in the BIA or the Courts of Justice Act, regulate the appeal period from the order of the motion judge in this situation?

I am going to tell you how the Court of Appeal for Ontario answered these questions, but I am not going to describe it in detail. Why do you ask? Because that is not the point of this Brandon’s Blog.

Some lawyers have already written summaries on the detailed thinking of the Appeal Court and I am sure there will be more. The decision is very well thought out one and is described in detail in the Court’s Reasons. I provided a link to the decision above, and if you wish to read it but don’t wish to scroll up, here it is again.

Vesting orders

I have written before on the matter of vesting orders. Simply stated, a vesting order is the means by which the transfer of acquired assets can be transferred to a buyer on a free and clear basis. It maintains the priority of competing interests against the debtor with respect to the money generated by the sale transaction and paid to the Receiver.

The Court of Appeal for Ontario decided that depending on the facts of a specific case, vesting orders approved in a receivership case can extinguish a 3rd party interest registered against the title. However, based on the facts of the Dianor case, the Appellate Court ruled that:

  1. The lower Court Judge had jurisdiction under s. 243( 1) of the BIA to provide a sale approval and vesting order.
  1. Based on the nature of the GORs the motion Judge erred in concluding that it was appropriate to extinguish them from the title.

But that is not the end of the matter.

The appeal period

Under r. 31 of the BIA Rules, a notice of appeal must be filed within 10 days after the day of the order or decision appealed from, or within such time as a judge of the court of appeal stipulates.

Under the CJA, r. 61.04(1) provides for a 30 day period from which to appeal a final Order to the Court of Appeal. On top of that, the appellant would have had to have actually applied for a stay of proceedings of the completion of the sale under the vesting order.

After its lengthy analysis, the Court of Appeal decided that the appeal period is governed by the BIA rules and not the CJA Rules of Civil Procedure. As the appellant filed its notice of appeal after the 10 day period, the appeal was unsuccessful. This is notwithstanding that the Court of Appeal agreed with the appellant that in this case, the GORs could not be extinguished. The appellate court also stated that there were not factors involved for the Court to invoke its inherent jurisdiction to provide relief to the appellant to extend the timeline so that its appeal would be valid.

I discussed this appeal period issue previously in my Brandon’s Blog – MOVE FAST TO OBJECT TO AN ONTARIO RECEIVERSHIP COURT ORDER.

But this aspect of the decision is also not my main point of this Brandon’s Blog.

So what is my point you ask?

As a licensed insolvency trustee (formerly called a bankruptcy trustee) (LIT), what really caught my eye in the Court of Appeal’s decision was something that I doubt any lawyer is going to write about when analyzing this case. What I am talking about is two sentences near the end of the decision under the heading “The Receiver’s Conduct”.

I feel these two sentences are so important that in certain cases, it will create a new rule for Receivers. By extension, it will also affect all stakeholders in the receivership and give all legal counsel something serious to think about. The two sentences are so important, I will show them to you here:

“(2) The Receiver’s Conduct

[132] The Receiver argues that it was appropriate for it to close the transaction in the face of a threatened appeal because the appeal period had expired when the appellant advised the Receiver that it was contemplating an appeal (without having filed a notice of appeal or a request for leave) and the Receiver was bound by the provisions of the purchase and sale agreement and the order of the motion judge, which was not stayed, to close the transaction.

[133] Generally speaking, as a matter of professional courtesy, a potentially preclusive step ought not to be taken when a party is advised of a possible pending appeal. However, here the Receiver’s conduct in closing the transaction must be placed in context.”

The Court of Appeal held that the Receiver’s conduct in completing the sale prior to the expiry of the appeal period was proper.

Why is this so important?

Now I am at the point of this Brandon’s Blog. The reason I am writing this. The real heart of the matter. To understand the importance of these two sentences, I must provide you with some additional background information.

In June 2004, the Ontario Court of Appeal released its decision in Regal Constellation Hotel Ltd., Re, 2004 CanLII 206 (ON CA) (the Regal Constellation case). The main points decided in that case were:

  1. There is no automatic stay of a vesting Order under appeal under the Courts of Justice Act or any other provincial statue. There must be an application to stay it while the appeal is outstanding.
  2. Once a vesting order is registered on the title under the Land Titles Act, R.S.O. 1990, c. L.5, its features as a conveyance prevail and its features are spent.
  3. A registered vesting order cannot be attacked except by ways that apply to any type of order transferring outright title and registered under the Land Titles system.
  4. Appeal from a registered vesting order is moot.

The Court of Appeal for Ontario stated in the Regal Constellation case that a vesting order has a double personality. It is, on the one hand, a court order and also a conveyancing tool vesting an interest in real or personal property as stated in the order. As soon as a vesting order has been registered on title, its features and characteristics as an order are spent. Any appeal at that stage is therefore moot.

So why is it so important? As a result of the Regal Constellation case, Receivers and their legal counsel always ask the purchaser’s legal counsel do they wish to close the transaction immediately or wait for the appeal period to expire? I have been involved in many real estate receiverships where the closing is scheduled to begin as soon as the vesting order is issued and entered. Everyone leaves the courthouse and goes straight to the closing. Registering the vesting order against the lands is part of the closing process.

Some buyers will certainly reject the option to complete the transaction before the period to appeal the vesting order has actually run out. Others are prepared to close immediately due to the fact that the chance of overturning the sale approval and setting the transaction aside is incredibly remote. This is especially so if the closing has actually taken place.

Nowhere in the Regal Constellation case is the conduct of the Receiver scrutinized.

The new rule for Court-appointed Receivers

So the new rule for Court-appointed Receivers is that the Receiver and its legal counsel will carefully have to consider in each situation, is the immediate closing of the transaction a reasonable thing to do. I can think of 8 issues to consider because of those two sentences in the Dianor decision:

  1. Has an actual appeal been filed in time?
  2. Has any party threatened an appeal prior to the 10 day appeal period expiring?
  3. Say the situation is that the vendor Receiver and the purchaser has the option of completing the transaction prior to the 10 day appeal period expiring and there is no threatened appeal. Does the Receiver now have a duty, or at least cover off the point, to put all stakeholders on notice that the closing, including the registration of the vesting order, will take place prior to the expiry of the appeal period?
  4. Should a discussion be held with a potential purchaser who has submitted an Agreement of Purchase and Sale that the Receiver believes it can work with regarding whether the Agreement should stipulate whether or not the closing must take place prior to the expiry of the appeal period?
  5. Should the Court-appointed Receiver’s Terms and Conditions of Sale to be approved by the Court now state that any bidder must stipulate that the bidder must declare whether or not it wishes to have the option to complete a Court approved transaction prior to the expiry of the appeal period?
  6. Similarly, must the Court-appointed Receiver’s standard Agreement of Purchase and Sale to be approved by the Court contain a right for the bidder to be able to elect in writing whether it wishes to complete the transaction prior to the expiry of the appeal period, if its bid is recommended by the Receiver and approved by the Court?
  7. Must such an election be made prior to the Court approving the proposed transaction, so that all stakeholders are aware at the time Court approval is sought that such a possibility may exist?
  8. Is the bidder having such an option to elect prior to obtaining Court approval sufficient, or to better protect the vendor Receiver and the purchaser, must the election be made so that such election can also be approved by the Court?

As I said before, this is not the focus of the Dianor decision. I doubt many or any writers analyzing this case will focus on those two sentences. However, as the LIT who will be the Court-appointed Receiver, in my humble opinion, I think those two sentences in the Dianor decision, now give Receivers things to think about that was not the case based on the Regal Constellation decision.

Courts of Justice Act summary

Is your business in financial distress because you cannot collect your billings? Do you not have adequate funds to pay your creditors as their bills to you come due? Are you a secured lender and your borrower is in default and you are considering your enforcement options? Does it appear that applying to the Court for the appointment of a Receiver is your best realization strategy?

If so, call the Ira Smith Team today. We have decades and generations of experience assisting companies looking for financial restructuring, a debt settlement plan and to AVOID bankruptcy. We also have the same experience in assisting secured creditors in realizing on their security and maximizing the proceeds through a receivership process.

Call the Ira Smith Team today so you can eliminate the stress, anxiety, and pain from your life that your company’s financial problems have caused. End the frustration of dealing with a borrower who can no longer meet the terms of the borrowing agreement with you. With the one-of-a-kind roadmap, we develop just for you, we will immediately return you right into a healthy and balanced problem-free life.

You can have a no-cost analysis so we can help you fix your troubles. Call the Ira Smith Team today. This will allow you to go back to a new healthy and balanced life, Starting Over Starting Now.

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CANADIAN BANKRUPTCIES LAWS: OPPOSITION TO TRUSTEE DISCHARGE

canadian bankruptcies laws_0

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

Introduction

Believe it or not, people search online for “Canadian bankruptcies laws” almost 500 times every month. Although the spelling looks a bit off, the point is that people are interested in Canadian insolvency laws. People also search for “Canadian personal bankruptcies laws”.

I recently reviewed an interesting bankruptcy case from British Columbia. The issue is one that does not normally find its way into the courts. The issue deals with the Trustee’s discharge from a bankruptcy administration.

So combining these disassociated events, it gave me the idea for this Brandon’s Blog.

Two kinds of discharges in a personal bankruptcy

In every personal bankruptcy, there are two kinds of discharges. In the normal course, first the bankrupt gets his or her discharge from bankruptcy. Then, when all parts of the bankruptcy administration is finished, the licensed insolvency trustee (formerly called a bankruptcy trustee) (Trustee), gets its discharge.

I have previously written several blogs on the discharge of a bankrupt, but for information purposes, I will briefly summarize the issues surrounding a bankrupt’s application for discharge. Then I will describe the issues in the BC case about the discharge of a Trustee.

The bankrupt’s application for discharge

A bankruptcy discharge is when the bankrupt person is released under Canadian bankruptcy legislation from his or her financial debts. Some people think that it is filing for bankruptcy that releases the bankrupt from responsibility. This is not the situation. It is the discharge process that “discharges” the debts.

The personal bankruptcy discharge is among the key advantages of the Canadian insolvency system. The discharge is crucial to the insolvency process. Debtors, after bankruptcy, can wipe the slate clean and begin again. This is a central concept under the “Canadian bankruptcies laws”.

A personal bankruptcy discharge provides the discharge of many unsecured financial debts. Certain debts will not be discharged. They are:

  • support payments to a previous spouse or to children;
  • fines or financial charges imposed by the Court;
  • debts emerging from fraudulent behaviour;
  • student loans if fewer than seven years have passed considering that the bankrupt quit being a full or part-time student.

Notice of opposition to discharge

A bankrupt’s bankruptcy discharge application might be opposed by one or more unsecured creditors or the Trustee. This occurs if the bankrupt has not met all of his/her obligations. It can likewise happen if the insolvent has committed a bankruptcy offense. Those are acts provided in Section 173 (1) of the Bankruptcy and Insolvency Act (Canada) (BIA). The Court will assess the overall conduct of the bankrupt and provide its decision.

How bankruptcies work

There are 4 kinds of discharges:

  • Absolute discharge – The bankrupt is released from the commitment to repay the financial liabilities that existed on the day of filing for personal bankruptcy, except for the types of financial obligations indicated above.
  • Conditional discharge – A bankrupt has to fulfill specific conditions to obtain an absolute discharge. As soon as all conditions have been met, an absolute discharge is given.
  • Suspended discharge – An absolute discharge that will be given at a future date identified by the Court.
  • Refused discharge – The Court has the right to decline a discharge.

What does trustee discharge mean?

A recent case decided by The Supreme Court of British Columbia in Kelowna, BC, dealt with the issue of the discharge of a Trustee. After concluding a bankruptcy administration, the Trustee applies for its discharge. The case is McKibbon (Re), 2019 BCSC 848 (CanLII).

William Edward McKibbon is a person who went through the bankruptcy discharge process. His bankrupt’s application for discharge ultimately ended with his getting an absolute order of discharge after fulfilling his discharge conditions on February 24, 2016. His Trustee then received its discharge. The Trustee discharge date was on November 5, 2016.

Mr. McKibbon made an application to the Court for the withdrawal of the Trustee’s discharge. Section 41 of the BIA deals with the discharge of the Trustee. The case was heard on April 25, 2019, in The Supreme Court of British Columbia in Kelowna, BC. The Court’s decision was released on May 30, 2019.

Section 41(1) of the BIA states:

“Application to court

41 (1) When a trustee has completed the duties required of him with respect to the administration of the property of a bankrupt, he shall apply to the court for a discharge.”

The Trustee went through all the steps required and obtained its discharge.

Section 41(5) of the BIA says:

“Objections to be filed with court and trustee

(5) Any interested person desiring to object to the discharge of a trustee shall, at least five days prior to the date of the hearing, file notice of objection with the registrar of the court setting out the reasons for the objection and serve a copy of the notice on the trustee.”

No person objected to the Trustee’s discharge, including Mr. McKibbon. Now in 2019, he was asking the Court to revoke the Trustee’s discharge as he had certain complaints about the Trustee’s conduct.

The allegations against the Trustee

Mr. McKibbon now alleges that the Trustee’s discharge was gotten because the Trustee did not disclose all pertinent facts.

Mr. McKibbon’s allegations were that: (i) the Trustee had experienced issues in the calculation of the surplus income payable by the bankrupt in that the Trustee had miscalculated the surplus income numbers; (ii) the method by which the Trustee calculated the surplus income; and (iii) the Trustee had not finalized the bankrupt’s pre- and post-bankruptcy income tax returns because it had made errors when submitting those tax returns to the Canada Revenue Agency (CRA).

These allegations were disputed by the Trustee. The Trustee claims that the surplus income calculations were appropriate. Concerning the income tax returns, the Trustee stated that the issues relating to the income tax returns were the result of the CRA, incorrectly, re-allocating income and expenses between the pre- and post-bankruptcy periods.

Can the discharge of the Trustee be revoked?

Section 41(8) of the BIA deals with the revocation of a Trustee discharge. It states:

“Effect of discharge of trustee

(8) The discharge of a trustee discharges him from all liability

(a) in respect of any act done or default made by him in the administration of the property of the bankrupt, and

(b) in relation to his conduct as trustee,

but any discharge may be revoked by the court on proof that it was obtained by fraud or by suppression or concealment of any material fact.”.

Mr. McKibbon, in his complaint, said that the Trustee suppressed and concealed material facts.

The Judge’s decision

The Judge in his decision stated that the analysis of BIA section 41(8) goes back to 1899. The case law requires that to revoke the discharge of the Trustee, there needs to be an aspect of fraud in the suppression or concealment.

The Judge also referred to a 2011 decision in the Superior Court of Québec which reached a similar conclusion. That case is Re Delorme, 2011 QCCS 236 (CanLII).

Mr. McGibbon’s position was that these authorities are mistaken and made the wrong decision. He did so with no authorities have actually been pointed out to bring into question those verdicts!

The Judge concluded that in order for there to be a “suppression or concealment of any material fact”, there has to be an element of fraud. He also concluded that Mr. McGibbon had the onus to provide evidence that the Trustee purposely did so with the intent to defraud the court, the creditors or the bankrupt. He found that as Mr. McGibbon failed to do so, he did not have to dig into the details of the allegations.

The Judge also noted that Mr. McGibbon had a bankruptcy discharge hearing, and the Court set the amount of surplus income he needed to pay as part of his conditional discharge from bankruptcy. Therefore, any issue surrounding the surplus income calculation by the Trustee was eliminated with this condition that Mr. McGibbon fulfilled.

Accordingly, the Judge found that there is no basis whereupon any kind of deceptive behaviour can be presumed for the Trustee in failing to reveal any material facts in its discharge application. Therefore, the application to revoke the Trustee’s discharge was rejected. Finally, the Judge allowed for the Trustee to make any submissions it wished to concerning costs to be paid by Mr. McGibbon.

Are you thinking about using “Canadian bankruptcies laws”?

Is your business in financial distress because you cannot collect your billings? Do you not have adequate funds to pay your creditors as their bills to you come due?

If so, call the Ira Smith Team today. We have decades and generations of experience assisting people looking for financial restructuring, a debt settlement plan and to AVOID bankruptcy.

A restructuring proposal is a government approved debt settlement plan to do that. We will help you decide on what is best for you between a restructuring proposal vs bankruptcy.

Call the Ira Smith Team today so you can eliminate the stress, anxiety, and pain from your life that your financial problems have caused. With the one-of-a-kind roadmap, we develop just for you, we will immediately return you right into a healthy and balanced problem-free life.

You can have a no-cost analysis so we can help you fix your troubles. Call the Ira Smith Team today. This will allow you to go back to a new healthy and balanced life, Starting Over Starting Now.

 

Categories
Brandon Blog Post

CREDIT COUNSELING: EVEN FREE MAY NOT GET YOU TO TALK

Introduction

In my May 3, 2017, Brandon’s Blog, DEBT SETTLEMENT OR CONSUMER PROPOSAL CANADA: REPORT SAYS CONSUMERS HARMED, I told you about a Government of Canada research study. On April 28, 2017, the Office of the Superintendent of Bankruptcy (OSB), released its study. It revealed the OSB’s concerns about credit counseling services in Canada who were doing more than just counselling, be they for-profit or non-profit.

The concerns

The concern was that the consumer was being harmed. The main areas of concern for the OSB were:

  1. Consumers paid more money than required if they had first seen a licensed insolvency trustee (previously called a bankruptcy trustee) (LIT or Trustee) rather than the debt settlement company.
  2. Dishonest debt relief firms chatted customers right into expensive car loans under the scare tactic that they would not qualify once they filed either a consumer proposal or for bankruptcy so now was the time to improve their credit score.
  3. The debt negotiation firms had no accreditation or experience to provide the sort of financial advice they were offering.
  4. Creditors obtained much less than they would have received if the insolvent person went first to see the LIT.
  5. Debtors had no idea of their obligations under the insolvency process they ended up filing for. They were not offered the chance to experience one of the most essential facets of the Canadian bankruptcy system, economic recovery.

Public consultation

On November 24, 2017, the OSB sought public consultation on amending the process by which a LIT must perform credit counselling as part of the administration of consumer proposal filings. Changes were implemented and given time to see how they would work in practice.

On June 17, 2019, the OSB announced that it was seeking public consultation on a new Directive for LITs on credit counselling. These changes are meant to streamline the administrative structure for insolvency credit counseling.

All the changes are to better control the Trustees who receive referrals from debt settlement companies that charge the debtors for services that they really do not require before handing them over to a LIT to administer a consumer proposal.

Why not just go see a Trustee first?

It makes the most sense when you realize you are in financial trouble to see a LIT. A Trustee is only professional licensed, recognized and supervised by the federal government to provide insolvency advice and to administer insolvency filings to eliminate debt problems. A restructuring proposal is a government and court approved debt settlement plan to do that. In a first consultation, a Trustee will listen to all the issues and then provide a debtor with all the available alternatives. The aim is to avoid bankruptcy. This first consultation is also free! No charge! Gratis!

So why don’t more people do so? I believe the answer is in a recent Angus Reid poll titled The Awkward Silences Survey 2019. The survey says one-in-five Canadians claimed they least like to talk about:

  1. Embarrassing health and wellness concerns – 20%
  2. Sex – 18%
  3. Finances – 17%
  4. Religious beliefs or politics 17%
  5. Small talk – 15%
  6. Family and relationships – 13%

The unwillingness to talk about humiliating health and wellness problems was more widespread amongst males (23%) than females (17%).

When asked which one money and finance subject people like discussing the very least, personal debt and bankruptcy led by a big margin with one-in-three stating it was off limits to discuss (34%). This number is significantly greater in Quebec (42%) and least in Ontario (28%).

The survey says Canadians said that in the money and finance area, the least favourite topics they like to talk about are:

  1. Personal debt or bankruptcy – 34%
  2. Assets, liabilities and net worth – 22%
  3. Their income – 16%
  4. How they spend their money – 12%
  5. Savings and investments – 11%
  6. Their mortgage – 5%

I don’t do government approved and free

I always knew that going to see a Trustee to talk about financial problems was not high on anyone’s list. This recent survey is the first time that I have seen it studied with anything other than anecdotal stories. This could explain why even though it makes the most sense, people avoid it for as long as they can. It also explains why people will search out companies that try to candy coat the topic and call it something nicer. Unfortunately, as the OSB studies have shown, consumers do so to their own detriment.

People would rather pay good money they can’t afford to be hoodwinked by an unscrupulous debt consultant until they realize they have no choice but to see a Trustee. At that point, most of their various options are no longer available and bankruptcy is more often than not inevitable.

Whether it is a business or a person, corporate or personal, it will help to talk about it to a Trustee. Sticking your head in the sand will not make things better. There are various options to look at depending on how early on you seek help.

Corporate financial problems

For corporate financial problems, the options may include:

Refinancing with a new lender who has not grown weary.

Sometimes relationships, including business relationships, just run their course and fatigue sets in. I was recently consulted by a company whose banker grew tired of their turnaround plan, that was working. By introducing this company and its senior management to a new lender, who saw the long term benefits of lending to a company that was successfully turning itself around, the company was able to refinance and continue their business.

Corporate restructuring.

Sometimes a more formal plan needs to be put into place using one of Canada’s two federal statutes: (i) Companies’ Creditors Arrangement Act (Canada) (CCAA); or (ii) the proposal provisions of the Bankruptcy and Insolvency Act (Canada) (BIA). We have done many.

Receivership or bankruptcy proceedings to take assets from a sick company and get them into a healthy one to save jobs and the business.

Sometimes the corporate body is just too sick and weak and cannot continue. However, taking healthy assets and employees and transferring them to a new or different corporation can revitalize a business and save jobs. The old shareholders may or may not be associated with the new company. However, the highest value will be obtained for creditors, employees and all other stakeholders.

Personal financial problems

For personal financial problems, the options may include:

Credit counseling and budgeting.

Many people need help with items such as:

  • Budgeting
  • achieving financial goals
  • spending habits
  • responsible use of credit

Many times once this help is received, people can continue on themselves without any further problems.

Debt consolidation.

Debt consolidation is the process that permits you to roll your varied financial debts owing to many creditors into one single loan, leaving you with just one creditor. If you are starting to have troubles staying on top of your minimum month-to-month payments, and the amount of your debt is frustrating you, debt consolidation is a choice worth thinking about.

A consumer proposal and Division I Proposal.

A consumer proposal and a Division 1 proposal are options to filing bankruptcy. Although comparable in several aspects, there are some significant distinctions. Consumer proposals are offered to people whose financial debts aren’t more than $250,000, not including any debts registered against your personal house. Division 1 proposals are readily available to both companies and people whose financial obligations go beyond $250,000 (omitting mortgages registered on their primary home).

A consumer proposal is an official process under the BIA. Dealing with a Trustee you make a proposal to:

  • Pay your creditors a percentage of what you owe them over a specific amount of time
  • Extend the time you need to repay the debt
  • A mix of both

Repayments are made via the Trustee, who makes use of that money to distribute to each of your creditors. The agreed to a lesser amount of debt has to be repaid within 5 years.

Bankruptcy.

Sometimes when there are no other options, but the pain and stress of your debt load are just too much for you to handle, and you can’t see any other way, bankruptcy may be the only answer. The purpose of bankruptcy in Canada is to return the honest but unfortunate debtor back into society, so that they may be a productive member going forward.

Are you ready to talk about finances now and get some real credit counseling?

Don’t be like those people who took part in the Angus Reid survey. Take a positive step in the right direction to help your company and yourself.

Is your business in financial distress because you cannot collect your billings? Do you not have adequate funds to pay your creditors as their bills to you come due?

If so, call the Ira Smith Team today. We have decades and generations of experience assisting people looking for financial restructuring, a debt settlement plan and to AVOID bankruptcy.

A restructuring proposal is a government approved debt settlement plan to do that. We will help you decide on what is best for you between a restructuring proposal vs bankruptcy.

Call the Ira Smith Team today so you can eliminate the stress, anxiety, and pain from your life that your financial problems have caused. With the one-of-a-kind roadmap, we develop just for you, we will immediately return you right into a healthy and balanced problem-free life.

You can have a no-cost analysis so we can help you fix your troubles. Call the Ira Smith Team today. This will allow you to go back to a new healthy and balanced life, Starting Over Starting Now.

credit counseling

Categories
Brandon Blog Post

INSOLVENT MEANING RESTORED IN COURT OF APPEAL FOR ONTARIO

insolvent meaning

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

Introduction

On November 28, 2018, I published my Brandon’s Blog titled “INSOLVENT DEFINITION: A NEW FOCUS FOR TORONTO BANKRUPTCY TRUSTEE”. I wrote about a then recent decision of the Ontario Superior Court of Justice in Bankruptcy and Insolvency in Kormos v. Fast, 2018 ONSC 6044 (CanLII). In that decision, the Judge gave a new twist on deciding whether or not Mr. and Mrs. Fast was insolvent.

If they were found to not be insolvent, their respective consumer proposal and bankruptcy filings would be annulled. In that event, Mr. and Mrs. Kormos would be able to continue enforcing their judgement against Mr. and Mrs. Fast. If unsuccessful in annulling the filings, then their only remedy would be to file a proof of claim in each insolvency proceeding. That would result in a payment far less than what might otherwise be available.

The lower court ruling

Mr. and Mrs. Kormos submitted evidence that the Fast’s assets had a value greater than their total liabilities. They submitted that therefore, Mr. and Mrs. Fast was not insolvent and should not have been able to file under the Bankruptcy and Insolvency Act (Canada) (BIA).

The evidence submitted by Mr. and Mrs. Kormos was not challenged. However, the Judge seized upon the fact that the income and expense statement of each of Mr. and Mrs. Fast indicated that on a monthly basis, their income was much less than their expenses. The Judge, therefore, concluded that Mr. and Mrs. Fast was insolvent and their separate insolvency filings should not be annulled. Accordingly, he dismissed the application by Mr. and Mrs. Kormos.

The appeal

Mr. and Mrs. Kormos did not believe that this ruling was either fair or appropriate. Therefore, they appealed the Judge’s decision with respect to Mrs. Fast only to the Court of Appeal for Ontario. On May 23, 2019, the Court of Appeal for Ontario released its unanimous decision in Kormos v. Fast, 2019 ONCA 430.

The position of Mr. and Mrs. Kormos was that the Judge erred in dismissing their application by not annulling Mrs. Fast’s assignment in bankruptcy and not deciding that her filing was a misuse of the bankruptcy procedure. They further submitted that therefore, the Judge legitimized an unjustified technique to protect the equity in Mrs. Fast’s home.

The Court of Appeal agreed with Mr. and Mrs. Kormos. They stated that the lower court erred in failing to decide that Mrs. Fast was not an insolvent person. It is for that reason, it was not necessary for the Court of Appeal to decide if her filing was a misuse of the bankruptcy scheme and procedure.

The Court of Appeal Judges determined that on the day of her bankruptcy, Mrs. Fast was not an “insolvent person” as that term is specified under s. 2 of the BIA. Her assets substantially went beyond and were readily available to pay off all of her liabilities.

Apart from the unexplained regular monthly cash deficiency, there was no proof that she could not satisfy or had actually stopped paying her liabilities as they normally came due. Instead, the undisputed proof was that she could. The only single item submitted as proof of any kind of financial hardship was that Mrs. Fast had not paid the debt owed to Mr. and Mrs. Kormos under their judgement.

The Court’s power for bankruptcy annullment

Under s. 181(1) of the BIA, a court might annul a bankruptcy order if it feels that it ought not to have actually been made. An annulment will be approved where it is revealed either:

  1. the bankrupt was not an insolvent individual when he or she made the assignment in bankruptcy, or
  2. the bankrupt abused the procedure of the court or performed a fraud on his or her creditors.

What is an insolvent person?

Section 2 of the BIA specifies an “insolvent person” as:

“insolvent person means a person who is not bankrupt and who resides, carries on business or has property in Canada, whose liabilities to creditors provable as claims under this Act amount to one thousand dollars, and

(a) who is for any reason unable to meet his obligations as they generally become due,

(b) who has ceased paying his current obligations in the ordinary course of business as they generally become due, or

(c) the aggregate of whose property is not, at a fair valuation, sufficient, or, if disposed of at a fairly conducted sale under legal process, would not be sufficient to enable payment of all his obligations, due and accruing due;”

Mrs. Fast plainly did not meet any of the requirements to be considered insolvent. The lower court erred by ignoring Mrs. Fast’s capacity to satisfy her liabilities and her accessibility to considerable assets.

On the day of her bankruptcy, Mrs. Fast’s real value of her assets over her liabilities, including her share in the value of the real estate, was $417,581.24. The debt owing to Mr. and Mrs. Kormos under their judgement was $25,565.64 plus interest. Therefore, she definitely was not insolvent.

Out and out lies

Mrs. Fast was motivated to take the actions she did because Mr. and Mrs. Kormos was beginning to execute on their judgement and there was real value in the real estate to eventually get paid from. So, Mrs. Fast lied on her sworn statement of affairs she completed with her licensed insolvency trustee (formerly called a bankruptcy trustee) (LIT). She also manufactured an income and expense statement to show that on a cash basis, she suffered a monthly loss.

It is obvious that first, her LIT did insufficient work to establish the bona fides of the values Mrs. Fast used in her bankruptcy filing. Second, the lower court Judge ignored what should have been obvious. Mrs. Fast should not have been allowed to file an assignment in bankruptcy. At least now we are back to the tried and true definition of an insolvent person with clarity from the Ontario appellate court.

The Court of Appeal ordered the annulment of Mrs. Fast’s bankruptcy. They also awarded costs to Mr. and Mrs. Kormos on a partial indemnity basis in the amount of $2,000, including disbursements and HST.

Are you insolvent?

Are you unable to pay your debts as they come due? Are your bills past due and you don’t know how you are going to pay them? Is the true value of your assets less than what you owe to your creditors? If so, then you are insolvent, and we can help end your pain and anxiety.

A LIT is the only insolvency expert accredited, licensed and supervised by the federal government to handle debt restructuring. As a LIT, our personalized strategy will assist you to know all your alternatives. The alternative you choose based on our recommendations will take away the stress and pain you are feeling because of your debt problems.

Nobody wants to visit a bankruptcy trustee. However, the Ira Smith Team has decades and generations of experience people and companies in financial trouble. We will treat you with the respect and dignity that you deserve. Whether it is a consumer proposal debt settlement plan, a larger personal or corporate restructuring proposal debt settlement plan, or as a last resort, bankruptcy, we have the experience.

Our approach for each file is to create a result where Starting Over, Starting Now takes place. This starts the minute you are at our front door. You’re simply one phone call away from taking the necessary steps to get back to leading a healthy, balanced hassle-free life.

Call us today for your free consultation, Starting Over, Starting Now.

Categories
Brandon Blog Post

WHAT IS A CREDITOR IN BUSINESS LAW NOT TO DO?

What is a creditor introduction

The purpose of this Brandon’s Blog is to tell you a true story that all business people can learn from. Especially those wishing to provide consulting services to stakeholders in an insolvency proceeding. Let’s start simply by answering what is a creditor.

A creditor is a person or company that has advanced credit and is owed the payment by a different person or company. The debtor is the party that owes the money and a creditor is a person or company that wishes to be paid.

Vaughan Crossings Inc.

In January 2017, my Firm became the court-appointed receiver of the real property of Vaughan Crossings Inc. (VCI). VCI owned real property comprised of 5.5 acres of commercial development land located at the northwest corner of Dufferin and Centre Streets in the City of Vaughan. The first mortgagee made the application to Court for our appointment. The second mortgagee was a fund made up of many small investors.

Upon our appointment, we learned that the second mortgagee stakeholders had retained a business consultant to advise and assist these investors to try to obtain value out of the receivership from their investment. We dealt with the business consultant throughout the receivership.

It became clear to everyone that there was insufficient value for the second mortgagee group to recoup any funds through the sale of the property. So, the business consultant put together a group which included those who had registered a lien against the property for non-payment and the second mortgagee group.

The business consultant was not paid in cash by the second mortgagee group for his work. His fee and costs were also part of the buying group. They ended up paying above market value in all cash. I was not involved in their financing discussions so, I don’t know how they were able to get the required financing.

The sale was completed and we were discharged as the court-appointed receiver. Now it gets even more interesting.

The business consultant

The second mortgagee group of VCI was put together by a promoter. It turns out that promoter had other properties that they financed by way of the second mortgage the same way. My Firm was not involved in those other properties. However, it appears the same business consultant was involved in at least one other property.

It also appears that the business consultant experienced the same problem in that other property that he did in VCI; no cash to be paid from. In fact, as it turns out, he didn’t even have a retainer to act on behalf of the second mortgage investors in those other properties. That didn’t stop him from trying to work that property and chase his VCI dollars!

The court case

That issue was decided in the court case, The Superintendent of Financial Services v. Textbook Student Suites (525 Princess Street) Trustee Corporation, 2018 ONSC 7392 (CanLII). The consultant’s primary claim is against the Investors’ Committee. He asserts to be entitled to costs for solutions that he executed for the board. He claimed against the Investors’ Committee that because of the work he did in advising them, his charges need to be safeguarded by a court-ordered charge against the properties.

He claims that as a “bankruptcy expert” that his solutions were for the advantage of the stakeholders. Therefore, he ought to be paid his charges in advance of any kind of distributions to lenders.

He also said that his job also helped the lenders in their recuperation of the funds owing to them. He did not provide the court with any case law to support his position. Rather, he was relying on the inherent jurisdiction of the court to order such security.

The analysis

Of course, there was not a written agreement between the consultant and the Investor’s Committee signed by both parties. The Judge stated that the legislation is well-settled that in identifying whether the parties had a binding agreement, the court will take into consideration whether they reached agreement on every one of the material terms. One term that can be material is whether an arrangement requires to be in writing or whether an oral contract will be enough.

As it turns out, there were several drafts of the consultant’s engagement letter discussed with the Chair of the Investors’ Committee. However, the Investor’s Committee found the engagement letter to be too vague. They told the consultant this and asked him to provide a more detailed engagement letter of the activities he would undertake, the time estimate for each phase of his work and what his hourly rate would be for those services. The consultant did not provide a more formal engagement letter and as a result, one was never signed.

Rather, the court found that the consultant continued working. At the same time, he was exchanging emails with the Investors’ Committee. The Committee learned that at this same time, the consultant was trying to strike a deal with the second mortgagee stakeholder in my VCI file. Now the Investors’ Committee felt that the consultant may have a conflict, and did not seek an engagement letter to sign. At the same time, the consultant advised the Investors’ Committee that his retainer, was subject to their legal counsel obtaining a court-ordered charge for his fee and costs ahead of any distribution to be paid to the second mortgage investors.

This email turned out to be the downfall of the consultant in this court case. The court found that by this email, the consultant knew that he did not have that priority, yet was continuing his work. No court application was ever made to obtain that court-ordered charge. The consultant tried advancing all sorts of other arguments as to why he should now be granted the priority claim, but none were persuasive, or even correct!

The Judge ruled against the consultant. So, not only did the consultant not get paid for his work, but he also had costs awarded against him for losing this court battle.

So what is a creditor not to do?

What you should not do is:

  • Not start working if you do not have a properly written retainer to provide the consulting services.
  • Even if you have the properly written retainer, know how you are going to be paid and that the party you are contracting with has the ability to pay.

This is especially true in an insolvency situation. In a receivership or bankruptcy administration, there are many claimants against the assets. Many times the creditor claims are competing. So anyone wishing to provide goods or services to a stakeholder in an insolvency administration better make sure there is a clear contract and know who is going to be actually paying. This consultant found out the hard way that a court is not going to protect you for your mistakes later on, no matter how reasonable you believe it is.

What is a creditor?

Is your business in financial distress because you cannot collect your billings? Do you not have adequate funds to pay your creditors as their bills to you come due?

If so, call the Ira Smith Team today. We have decades and generations of experience assisting people looking for financial restructuring, a debt settlement plan and to AVOID bankruptcy.

As a licensed insolvency trustee (formerly called a bankruptcy trustee), we are the only professionals accredited, acknowledged and supervised by the federal government to provide insolvency advice and to implement approaches to help you remain out of personal bankruptcy while eliminating your debts. A restructuring proposal is a government approved debt settlement plan to do that. We will help you decide on what is best for you between a restructuring proposal vs bankruptcy.

Call the Ira Smith Team today so you can eliminate the stress, anxiety, and pain from your life that your financial problems have caused. With the one-of-a-kind roadmap, we develop just for you, we will immediately return you right into a healthy and balanced problem-free life.

You can have a no-cost analysis so we can help you fix your troubles. Call the Ira Smith Team today. This will allow you to go back to a new healthy and balanced life, Starting Over Starting Now.

what is a creditor

Categories
Brandon Blog Post

RESP CONTRIBUTION NOT PROTECTED IN BANKRUPTCY

resp contribution
resp contribution

If you would prefer to listen to the audio version of this RESP contribution not protected in bankruptcy Brandon’s Blog, please scroll down to the bottom and click on the podcast

Introduction

Many parents contribute to a Registered Education Savings Plan (RESP) to save for their children’s post-secondary education. Unlike a Registered Retirement Savings Plan (RRSP), an RESP contribution, or the total of all contributions made by the parent(s), is subject to seizure in the bankruptcy of the owner of the RESP.

In Brandon’s Blog, I discuss the history of why an RRSP is largely exempt from seizure in a bankruptcy, while a Registered Disability Savings Plan (RDSP) and an RESP are not. The rules governing whether an RRSP or Registered Retirement Income Fund (RRIF), RDSP or RESP are exempt from seizure or not is an interplay between both federal and provincial laws. As I practise in the province of Ontario, I will speak only about the Ontario situation.

resp contribution
resp contribution

RRSP or RRIF exemption

Before 2008, whether an RRSP was exempt from seizure or not relied solely upon provincial law. There was no federal law which outlined the treatment for an RRSP in bankruptcy. Effective July 2008, the assets contained in either an RRSP or a RRIF were codified in the Bankruptcy and Insolvency Act (Canada) (BIA) to be exempt from seizure, except for contributions made to an RRSP in the 12 months prior to the date of bankruptcy.

The only exception would be based on whether or not RRSPs and RRIFs were exempt from seizure under provincial law. So, in the case of Ontario, the 12-month clawback exists. The bankrupt has to pay the equivalent of the contributions made in the 12 months before the date of bankruptcy.

The reason for making this change to the BIA was because there was an inequality amongst RRSPs. If you held your RRSP at a financial institution, then it was not exempt from seizure in a bankruptcy. However, if you held your RRSP:

  • with an insurance company; AND
  • you had made an irrevocable designation that in the event of your death, the beneficiary of your plan was a spouse, child, parent or grandchild

then under the Ontario Insurance Act the entire RRSP or RRIF was exempt from seizure.

The amendment to the BIA was done for two main reasons:

  • to put all RRSPs and RRIFs on the same footing, regardless of what institution it was held with; and
  • in order to not be destitute in their fresh start that the bankruptcy system allows them to have, retired Canadians who had to go bankrupt should not lose what was probably their single largest source of retirement income as a result of their financial problems.

So before the July 2008 amendment, people who were going to file for bankruptcy and who had a sizeable RRSP held with a chartered bank, would transfer the RRSP to an insurance company and make the required beneficiary designation. Many cases were heard in bankruptcy Courts across Canada.

If the beneficiary in an insurance policy, including the RRSP or RRIF investments, was revocable, it was held that the licensed insolvency trustee (then called a bankruptcy trustee) could revoke the named beneficiary, replace it with designating the Estate as the beneficiary, and then collapsing the plan to obtain the funds.

If the beneficiary was irrevocable, then the Trustee could not collapse the investment. Rather, it would have to be 1 of the reasons why a Trustee would oppose the bankrupt’s discharge. The reason being is that the person, knowing themselves to be insolvent, transferred an asset out of the creditors’ reach for no value obtained. This was called a settlement.

The leading case which was subsequently followed by other Courts, including Ontario, was The Court of Appeal for Saskatchewan case Royal Bank of Canada v. North American Life Assurance Co., 1994 CanLII 4696 (SK CA) which became known as the Ramgotra case.

The reason is that Dr. Ramgotra was bankrupt. Royal Bank was a creditor and obtained Court approval to appeal, in lieu of the Trustee, a lower Court decision on what should happen to the RRSP, turned into an RRIF, funds. The Court of Appeal determined that since Mrs. Ramgotra obtained an irrevocable interest in the property, notwithstanding the RRSP transfer was a settlement, the Trustee could not obtain the money.

resp contribution
resp contribution

RDSP and Budget 2019

An RDSP is a financial savings strategy that is planned to assist moms and dads and others build up funds for the long-term financial safety of an individual who qualifies for the disability tax credit.

Unlike RRSPs, the balance kept in RDSPs are not excluded from seizure in a bankruptcy. The reason for this is because the settlor of the RDSP may do an RDSP withdrawal of funds at any time. The theory is that funds will be withdrawn for the welfare of the disabled person. However, it is the ability to withdraw funds at any time, that renders this vehicle to not be a true legal trust.

In Budget 2019, it is proposed that RDSPs be given the identical treatment to RRSPs. The societal aim is to make sure that the needs of a disabled person are not negatively affected due to the financial problems of the person who is looking out for and financially contributing to the welfare of the disabled person. More than likely the contributor is a parent.

Budget 2019 intends to exclude RDSPs from seizure in bankruptcy, except for payments made in the 12 months prior to the date of bankruptcy. This will put in on the same footing as RRSPs.

resp contribution
resp contribution

RESPs are not exempt

The reason that RESP contribution funds are not exempt from seizure in bankruptcy is fairly simple. The child does not obtain property interest in the RESP funds as the parent can collapse the plan any time before maturity. Therefore it is not a trust or any form of transfer of property to the child. Therefore, the Trustee of a bankrupt parent who owns an RESP can collapse it.

If the parent wishes the RESP to continue and not be collapsed, satisfactory arrangements have to be made with the Trustee for the equivalent amount of funds in the RESP as at the date of bankruptcy be paid to the Trustee for the benefit of the bankruptcy Estate and the bankrupt’s creditors.

As a result of perceived inequality, on June 3, 2019, Dan Albas, Conservative MP for Central Okanagan—Similkameen—Nicola (B.C.), introduced as a private member’s bill, Bill C-453, An Act to amend the Bankruptcy and Insolvency Act (property of bankrupt — registered education savings plan). This Bill intends to amend s. 67(1)‍(b.‍3) of the BIA, so that RESPs receive the same treatment as RRSPs and the treatment proposed in Budget 2019 for RDSPs.

The thrust is obviously to make sure that other than for contributions made in the 12 months before the date of bankruptcy, a parent should not lose the RESP benefits for their child’s post-secondary school education because of their bankruptcy.

As private member’s bills rarely become law, I am doubtful that this initiative, no matter how well-meaning, will pass. There may also be a societal distinction between a retiree whose income earning days are behind him or her, a disabled person who is reliant upon a trust set up for their care and benefit and an elementary or high school student’s future university or college tuition.

resp contribution
resp contribution

What about you?

Are you in financial distress? Are you worried about any RRSP, RDSP or RESP contribution? Do you not have adequate funds to pay your financial obligations as they come due? Are you worried about what will happen to you in retirement?

If so, call the Ira Smith Team today. We have decades and generations of experience assisting people looking for financial restructuring, a debt settlement plan and to AVOID bankruptcy.

As a licensed insolvency trustee, we are the only professionals accredited, acknowledged and supervised by the federal government to provide insolvency advice and to implement approaches to help you remain out of personal bankruptcy while eliminating your debts. A consumer proposal is a government approved debt settlement plan to do that. We will help you decide on what is best for you between a consumer proposal vs bankruptcy.

Call the Ira Smith Team today so you can eliminate the stress, anxiety, and pain from your life that your financial problems have caused. With the one-of-a-kind roadmap, we develop just for you, we will immediately return you right into a healthy and balanced problem-free life.

You can have a no-cost analysis so we can help you fix your troubles. Call the Ira Smith Team today. This will allow you to go back to a new healthy and balanced life, Starting Over Starting Now.

resp contribution

 

Categories
Brandon Blog Post

CONSUMER PROPOSAL STORY 4 – TRUE STORIES

Introduction

This consumer proposal story 4 Brandon’s Blog is about how four of our clients were able to enter into a government approved debt settlement program, shed their debt and restart their lives.

As I have written in previous blogs, a consumer proposal is the only government approved debt settlement plan. It is designed for people who have $250,000 or less in total debt, other than for any debts secured against their home such as a mortgage or secured home equity line of credit.

If the consumer proposal receives the (deemed) acceptance by the required majority of creditors and it also receives (deemed) court approval, then the consumer proposal is approved. The insolvent person must now make the payments to the licensed insolvency trustee who is the consumer proposal administrator.

The following four real client consumer proposal story situations of mine I believe are representative of the kind of person we help end the pain and anxiety their debts are causing them. I have changed the names of the people for this Brandon’s Blog.

Buzz

This client is a 56-year-old married male. I will call him Buzz. He has annual income, net of income tax of $100,000. He has assets with a net realizable value of $1,000. His consumer debt totalled $71,000.

In reviewing his budget and affairs, we calculated that in personal bankruptcy, he would be required to contribute surplus income for 36 months as he was previously bankrupt. His surplus income obligation in bankruptcy was just over $34,000 in equal monthly instalments of $944.44.

We advised him that since his budget had room for him to make monthly payments, he should consider a consumer proposal. We drafted and filed his consumer proposal requiring him to pay $40,000 in total over 5 years. This resulted in equal monthly payments each of $667.

Buzz’s creditors accepted his consumer proposal and he is making the payments. This way he avoided bankruptcy and ended up with an approved debt settlement plan with monthly payments he can afford.

Woody

This client is a 65-year-old single male. I will call him Woody. He has annual income, net of income tax of $27,600. He has assets with a net realizable value of $500. His consumer debt totalled $108,000.

In reviewing his budget and affairs, we calculated that in personal bankruptcy, he would be required to contribute surplus income for 9 months as he was never previously bankrupt. His surplus income obligation in bankruptcy was just over $1,880 in equal monthly instalments of $208.89.

We advised him that since his budget had room for him to make monthly payments, he should consider a consumer proposal. We drafted and filed his consumer proposal requiring him to pay $24,000 in total over 5 years. This resulted in equal monthly payments each of $400.

Woody’s creditors accepted his consumer proposal and he is making his payments. This way he avoided bankruptcy and ended up with an approved debt settlement plan with monthly payments he can afford.

Mr. & Mrs. Potato Head

Our 3rd client is a 47-year-old married man and his 43-year-old wife. I will call them Mr. & Mrs. Potato Head. Their yearly income, net of tax obligations was $51,996. Their assets had a realizable value of $953. They are collectively responsible for the exact same consumer financial debts amounting to $31,820.

In assessing their budget, we computed that in a bankruptcy, they would need to pay surplus income for 9 months as neither were bankrupt before. Their surplus income responsibility in a joint bankruptcy was $5,271 in regular monthly instalments of $585.67.

We encouraged them that given their budget plan had room to make month-to-month payments, they must take into consideration the possibility of making a consumer proposal. We prepared and filed their consumer proposal needing them to pay $7,020 over 3 years. This led to regular monthly payments each of $195.

Mr. & Mrs. Potato Head’s creditors approved the consumer proposal and they are making their payments. In this manner, they will not go bankrupt and wound up with an accepted debt negotiation strategy with month-to-month payments they can manage.

Jessie

This client is a 67-year-old married female. I will call her Jessie. She has annual income, net of income tax of $58,416. She has assets with a net realizable value of $250. Her consumer debt totalled $67,000.

In examining her budget plan, we determined that in bankruptcy, she would be called for surplus income payments for 36 months as she was once a bankrupt. Her surplus income commitment in a bankruptcy would be $17,465 in regular monthly instalments of $485.13.

Considering that her spending plan had space to make month-to-month repayments, we encouraged her to seriously think about making a consumer proposal. We composed and submitted her consumer proposal needing her to pay $21,500 over a 40 month period. This would be regular monthly payments each of $537.50.

Jessie’s creditors approved her consumer proposal and she is making her repayments. By doing this she stayed clear of bankruptcy and wound up with an approved debt negotiation strategy with regular monthly repayments she can manage.

Consumer proposal story summary

I hope these real-life consumer proposal story 4 examples gives you a better idea of the kind of people this debt settlement program strategy is meant to help. It is a way for people to shed their debt and get back on a proper footing.

Are you in financial distress? Do you not have adequate funds to pay your financial obligations as they come due?

If so, call the Ira Smith Team today. We have decades and generations of experience assisting people looking for financial restructuring, a debt settlement plan and to AVOID bankruptcy.

As a licensed insolvency trustee (formerly called a bankruptcy trustee), we are the only professionals accredited, acknowledged and supervised by the federal government to provide insolvency advice and to implement approaches to help you remain out of personal bankruptcy while eliminating your debts. A consumer proposal is a government approved debt settlement plan to do that. We will help you decide on what is best for you between a consumer proposal vs bankruptcy.

Call the Ira Smith Team today so you can eliminate the stress, anxiety, and pain from your life that your financial problems have caused. With the one-of-a-kind roadmap, we develop just for you, we will immediately return you right into a healthy and balanced problem-free life.

You can have a no-cost analysis so we can help you fix your troubles. Call the Ira Smith Team today. This will allow you to go back to a new healthy and balanced life, Starting Over Starting Now.

consumer proposal story

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Brandon Blog Post

WILL CRA CONTACT ME IF I DO NOT PAY?

cra contact

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

Introduction

It seems that more often than not, the Canada Revenue Agency (CRA) is a creditor in the personal or corporate insolvency matters that I get involved with. Many times the person, be they just an individual, an unincorporated business owner or the President of the company, will ask, “will CRA contact me if I do not pay?”.

In this Brandon’s Blog, I discuss the various ways CRA will contact the responsible individual, be they the taxpayer or the authorized representative of the taxpayer company.

Types of CRA debt

The following types of tax debt are the usual ones that a person in Ontario might owe:

The following types of tax debt are the usual ones that an Ontario corporation might owe:

Most likely CRA has already contacted the insolvent person or company before they come to see me for a free consultation. The reality is that when someone owes money to Revenue Canada and gets one of those unique brown envelopes in the mail, they tend to feel sick in the stomach. So, although they may keep the envelope and its contents, they certainly don’t wish to look inside it.

Let’s look at the various ways CRA has to contact a taxpayer and for CRA payment arrangements to be made.

Ways you and the taxman can communicate

Notice of Assessment or Reassessment

The first way CRA will contact you is by sending a notice of assessment or reassessment to the individual or corporate taxpayer. This is a notice that explains the reason for the (re)assessment, the calculation and the amount owing. There is no need to talk about the situation where the taxpayer pays the balance in full on time. I am talking about the situation when the taxpayer cannot afford to pay the amount owing.

Be proactive

If you cannot pay the total you owe, be proactive by getting in touch with the CRA as soon as possible. Overlooking your debt does not make it vanish. As a matter of fact, ignoring it might make things worse. This is the same whether it is a personal debt or a corporate debt.

The CRA tacks on interest at the prescribed rate compounded daily. You can’t avoid this because whether you realize it or not, CRA has become your lender for any unpaid amounts. By taking action first, you can at least ward off a much worse result. So you contacting CRA is the first and best way to make the connection.

I will discuss below what your options are concerning amounts you cannot pay off immediately, but first, I want to discuss other ways that the CRA will contact you if you first don’t contact them.

Telephone or letter

If the taxpayer does not contact CRA to work out a payment arrangement (discussed below), CRA will then communicate with the taxpayer. The amount owing is assigned to a collections officer who will contact the taxpayer by telephone, letter or both.

If the taxpayer responds to that outreach, the collections officer will attempt to obtain payment. The collections officer will also ask many more questions. If the taxpayer is a company, the collections officer may also make an appointment to go visit the company to review its financial records.

The purpose of asking the questions and reviewing corporate financial records is to attempt to determine if any money is owed to the taxpayer by third parties and where does the taxpayer maintain bank accounts.

Garnishment by a Requirement To Pay

Armed with the information obtained from the taxpayer’s tax filings and any additional information collected through discussions or reviews, the next level of CRA contact to get the taxpayer’s attention is not with the taxpayer, but rather with third parties. A Requirement To Pay (RTP) is a lawful notification that the CRA sends out to a 3rd party when:

  • the CRA thinks that the 3rd party owes or will owe money in the future to the taxpayer that has not paid their tax obligation; and
  • the CRA has not been able to collect the taxpayer’s debt or make an appropriate settlement plan with the taxpayer.

The RTP advises the 3rd party to send the money the third party owes to the taxpayer to the CRA, rather than the taxpayer. The RTP reveals the taxpayer’s name, address, and the CRA account number.

The RTP is the way the CRA uses to garnishee bank accounts, wages or any other amount owing by a third party to the taxpayer. An RTP can garnishee all sorts of repayments a 3rd party might make to a taxpayer. The more common ones are:

  • income, earnings, payments, bonus offers, or various other amounts owing by an employer to an employee;
  • repayment of expenses owed to an employee;
  • amounts due to a professional or contractor for work performed, products, or services;
  • lease or rent payments;
  • loan payments;
  • interest or dividend payments;
  • insurance claim settlements
  • amounts on deposit at a financial institution

Seizing your assets

A garnishee through an RTP is to intercept and seize payments from a third party to the taxpayer. But what if there is no such third party that exists or can be found but the taxpayer has assets?

In that situation, the CRA has the power to seize assets found registered in the name of the taxpayer. This is how CRA goes about doing it. The CRA can lawfully register your debt with the Federal Court of Canada. By doing so they get a certificate validating the amount you owe to the Crown. As soon as it is issued, this certification, called a memorial, has the same or even greater impact as a judgment if someone sued you.

Now that the CRA has the memorial, they can register it against any assets in your name. This includes your home and its possessions owned by the taxpayer. The CRA rarely actually takes physical possession of the assets, but in most cases, they don’t need to. It will be impossible to sell or refinance your assets with the CRA memorial registered against it under provincial law. So when that time comes, the taxpayer will have no choice but to deal with the CRA on the outstanding debt, one way or the other.

Here are different ways that you can deal with the CRA on your tax debt if you cannot pay it now in full.

Payment arrangement

This is the first and most hassle-free way of paying off your tax debt. A payment arrangement is a settlement plan you make with the CRA. It enables you to make smaller regular payments over time until you have paid your whole tax debt plus interest.

Prior to agreeing to the settlement plan, the CRA collections officer will want to know that you are paying the maximum amount you can afford. Hopefully, the amount you can pay is at least the same as the minimum monthly amount the collections officer is willing to accept.

So, the collections officer will ask you all sorts of questions and may even want you to complete a questionnaire, so that they understand your monthly budget as part of any debt settlement plan.

As part of making a payment arrangement, you should also be working with your accountant to see if any of the taxpayer relief provisions are available to you. This blog isn’t meant to be a discussion of the income tax act or taxpayer relief, so, I won’t go into any more detail than that.

Any payment arrangement has to deal with 100% of the principal amount of tax owing plus interest. Unfortunately, the collections officer does not have the authority to make a deal to accept less than full payment, absent an insolvency proceeding (further discussed below).

Insolvency proceeding

If you cannot reach a satisfactory payment arrangement with the CRA, or you have one but can no longer keep up with the payments, then, the taxpayer can consider an insolvency filing. In the case of an individual, it would be either bankruptcy or a consumer proposal. For a corporation, it would be either a Division I Proposal or bankruptcy.

Either bankruptcy or a proposal will stop CRA’s ability to issue a requirement to pay or obtain a memorial. However, if CRA has obtained and registered a memorial before the taxpayer files for either a restructuring proposal or bankruptcy, the memorial cannot be eliminated.

Similarly, for a corporation, unremitted source deductions form a deemed trust claim against the company’s assets. So in either a bankruptcy or financial restructuring proposal, this trust claim cannot be eliminated or reduced. However, for both individuals and companies, the income tax debt can be eliminated. For companies, the HST arrears will not be a trust claim in bankruptcy. Unlike a bankruptcy, HST arrears are not automatically made unsecured by the wording of the Bankruptcy and Insolvency Act (Canada). However, current CRA policy in financial restructuring proposals results in the HST arrears being treated as an unsecured claim.

Personal or corporate income tax is an unsecured debt. As soon as you’ve declared bankruptcy or filed the financial restructuring proposal, the CRA cannot begin or continue any action against you, including wage garnishment or freezing your assets, including your bank account. Your licensed insolvency trustee (formerly called a bankruptcy trustee) will alert CRA as soon as you submit your filing and advise it to quit any type of enforcement activity through any RTP. As I stated above, unfortunately, any memorial already registered will remain against your assets.

Do you have too much debt?

I hope you have found this CRA contact Brandon’s Blog to have useful information for you. Do you have too much debt? Are you in financial distress? Do you not have adequate funds to pay your financial obligations as they come due?

If so, call the Ira Smith Team today. We have decades and generations of experience assisting people looking for financial restructuring, a debt settlement plan and to AVOID bankruptcy.

As a licensed insolvency trustee (formerly called a bankruptcy trustee), we are the only professionals accredited, acknowledged and supervised by the federal government to provide insolvency advice and to implement approaches to help you remain out of personal bankruptcy while eliminating your debts. A consumer proposal is a government approved debt settlement plan to do that. We will help you decide on what is best for you between a consumer proposal vs bankruptcy.

Call the Ira Smith Team today so you can eliminate the stress, anxiety, and pain from your life that your financial problems have caused. With the one-of-a-kind roadmap, we develop just for you, we will immediately return you right into a healthy and balanced problem-free life.

You can have a no-cost analysis so we can help you fix your troubles. Call the Ira Smith Team today. This will allow you to go back to a new healthy and balanced life, Starting Over Starting Now.

Call a Trustee Now!