Tag: bankrptcy and insolvency act

BANKRUPTCY MEANING: OUR POWER LIST OF DUTIES OF THE BANKRUPT AND OTHERS

Post author By Brandon Smith
Post date October 19, 2020

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

Bankruptcy meaning introduction

I recently read a decision of the Supreme Court of Nova Scotia in Bankruptcy and Insolvency. It was an interesting decision about a bankrupt who essentially absented himself and became AWOL after filing for bankruptcy. I will describe the case below. However, it did get me thinking that perhaps Brandon’s Blog about the duties of the various stakeholders in the bankruptcy process would be of interest. Put another way, if everyone does not do their part, what is the bankruptcy meaning?

The Merriam-Webster dictionary provides a bankruptcy meaning definition as:

“1a: a debtor (such as an individual or an organization) whose property is subject to voluntary or involuntary administration under the bankruptcy laws for the benefit of the debtor’s creditors

b: a person who becomes insolvent

2: a person who is completely lacking in a particular desirable quality or attribute

a moral bankrupt”

In this bankruptcy meaning Brandon’s Blog, I will focus on the first definition, as that is the one I am qualified to answer.

Bankruptcy meaning: The stakeholders

There are various players in the bankruptcy process. The primary ones are:

The person or company, the debtor, who is now bankrupt.
The licensed insolvency trustee (formerly called a trustee in bankruptcy) (Trustee) who administers the bankruptcy process.
The creditors who are owed money.
The Office of the Superintendent of Bankruptcy (Canada) (OSB) who regulates and supervises all administrations under the Bankruptcy and Insolvency Act (Canada) (BIA) in Canada.

I will leave the duties of the bankrupt until the end. That description in the bankruptcy meaning list will flow nicely into my description of the Nova Scotia bankruptcy court case.

Bankruptcy meaning: Duties of the Trustee

There are of course various statutory steps that a Trustee must take in any bankruptcy administration. It is also obvious that the Trustee must perform those steps properly.

In addition, the OSB has established a Code of Ethics for Trustees. The Code of Ethics for Trustees is an integral part of the BIA General Rules.

The Code establishes a standard for services to be provided by Trustees. It addresses:

the information that Trustees must provide to creditors;
the treatment of funds entrusted to Trustees;
conflicts of interest; and
the sale and purchase of the property of a business or individual who has filed for bankruptcy.

It also contains standards for advertising by Trustees and for maintaining the good reputation of the Trustee community.

Rules 34 through 53 inclusive of the BIA General Rules contain what the bankruptcy meaning of the Code of Ethics for Trustees is. You can read them by clicking on this Code of Ethics for Trustees link.

There are also various Directives issued by the OSB that guide the statutory steps that a Trustee must take. Examples of these Directives are:

Directive No. 1R2 Counselling in Insolvency Matters – This Directive deals with how the Trustee should conduct the required financial counselling sessions.
Directive No. 4R Delegation of Tasks – A Directive about when certain Trustee or administrator tasks can be delegated to others.
Directive No. 5R4 – Estate Funds and Banking – How a Trustee must handle estate trust funds.
Directive No. 6R3 – Assessment of an Individual Debtor – The steps to be taken in assessing the financial situation of the debtor, explaining the various options available and what bankruptcy duties are.
Directive No. 11R – Surplus Income – When assessing the financial situation of the debtor who becomes bankrupt, how to calculate the surplus income payments obligation of the bankrupt person.
Directive No. 17 – Retention of Documents by the Trustee – This one is self-explanatory.

These are but a handful of the Directives issued by the OSB that Trustees must follow.

Bankruptcy meaning: Duties of creditors

In the bankruptcy meaning context, creditors have certain duties which can better be described as rights. Creditors are always invited and welcome to participate in the bankruptcy process. It begins with filing a Form 31 Proof of Claim as evidence of the debt owed to them by the bankrupt.

Once they file their claim in the bankruptcy estate, the creditor now has the status to fully participate in the administration of the bankruptcy estate. The filing of the proof of claim allows the creditor to vote, either in person or by proxy. They now have the authority to participate and vote at the First Meeting of Creditors. They can vote for the appointment of Inspectors.

A creditor may notify the Trustee of any kind of inappropriate activities or transactions on the part of the bankrupt that hurt the interests of the creditors. For instance, a creditor may have knowledge of assets or deals that the bankrupt failed to declare. In many cases, creditors who have dealt with the debtor over many years will have better information than the Trustee initially can gain. A Trustee always welcomes this kind of assistance from creditors. If a creditor thinks there is misconduct or illegal activities on the part of the insolvent the creditor should advise the Trustee and the OSB.

A creditor can oppose a personal bankrupt’s discharge from bankruptcy. The grounds for opposing are set out in section 173 of the BIA. The creditor must inform the Trustee and the bankrupt of the opposition and the reasons in the proper form.

By filing the opposition, the bankrupt’s discharge hearing must now go to court to be adjudicated. The Trustee cannot provide the bankrupt with an automatic discharge, even if they have fulfilled all of their duties. The creditor will provide its evidence to the court to support the opposition. The Trustee must file a report on the conduct of the bankrupt both before and during the bankruptcy administration.

Based on all the evidence, the court will then decide what kind of discharge the personal bankrupt is entitled to; absolute discharge, conditional, and/or a suspended discharge. In certain cases, the court may issue a refusal to the bankrupt. That is what happened in the Nova Scotia case I will shortly describe.

This is what the bankruptcy meaning for the rights and duties of creditors are.

bankruptcy meaning

Bankruptcy meaning: Advising the bankrupt or the officer of the bankrupt corporation of duties

The Trustee must explain to the bankrupt or the officer of a bankrupt company, his/her responsibilities. The responsibilities are found in sections 158 and 159 of the BIA. The Trustee must also explain the bankruptcy offences. Those are outlined in sections 198, 199, 200, and 204 of the BIA.

The minimum level of information a Trustee can give to the bankrupt or the officer of a bankrupt corporation is (as applicable):

information on bankruptcy for consumer debtors;

the above essential passages from the Act;

responsibilities of a bankrupt or the officer of the bankrupt company; and

debtor financial information (type and guide).

In all cases, the bankrupt or the officer of the bankrupt company has to be served with a copy of the relevant sections of the BIA. The Trustee must also get an acknowledgment from the bankrupt, or officer of the bankrupt corporation, that she or he has actually been provided with, and understands his/her obligations. The signoff by the bankrupt/the company’s officer needs to be kept on file by the Trustee.

If a bankrupt or officer of the bankrupt company declines to sign, regardless of being offered, Trustees have to keep in their file details of the refusal (i.e. evidence of service as well as details as to the refusal).

Bankruptcy meaning: The duties of the bankrupt or the officer of the bankrupt corporation

The focus of the BIA is for personal bankrupt, to return the honest but unfortunate debtor back to society free of his or her debts. The premise is that the bankrupt, or the officer of the bankrupt corporation, will fulfill their duties with integrity and honesty. The duties are outlined in the OSB’s Directive No. 26. If you are interested, you can read them HERE.

But what if they don’t? What if the individual bankrupt does not fulfill all of their duties and essentially absents themself from the process once they have filed their assignment in bankruptcy. In that case, the Trustee has an obligation to oppose the bankrupt’s application for discharge and bring the matter to court. What is the bankruptcy meaning in such a case?

That is what happened in the Nova Scotia case that I will tell you about now. I believe it is very instructive.

Bankruptcy meaning: Why a bankrupt’s discharge hearing may come to court

The substantial majority of bankrupts execute their obligations under the BIA. As a result, only a minority of bankruptcies end up in court. Mr. Jewkes’ case is one of them.

The usual factors for a bankruptcy case needing to involve the court include:

outstanding financial disclosure; and/or
surplus income payment obligations.

Discharges for third or more bankruptcy filings also need to come to court for a discharge hearing. Occasionally, a creditor objects to the bankrupt’s discharge. All matters are listened to on their merits and a decision is rendered as appropriate for the particular bankruptcy meaning.

Sometimes, there has actually been a lack of action in a bankruptcy file due to a bankrupt’s own difficulties. She or he may have a mental or physical illness. They may have not have been able to communicate with the Trustee for completely valid reasons. They might have genuinely misunderstood the obligations incumbent upon them. It is the responsibility of the Trustee and, that falling short, the court, to set things straight.

And then there is Mr. Jewkes. None of the factors where the Trustee or the court could excuse him for a simple oversight or mistake which can easily be corrected were present.

Bankruptcy meaning: The Nova Scotia case

Mr. Jewkes filed an assignment in bankruptcy in 2019. He cited “relationship breakdown” as the reason for his bankruptcy. This was his first bankruptcy. He showed income on filing to put him just below the OSB’s guidelines for paying surplus income. His assets were minimal, although he did identify the sale of his old vehicle and a mobile home with little or no equity just prior to his bankruptcy.

His creditors were the normal run of the mill kind of creditors in consumer files:

credit cards;
an unsecured line of credit;
a collection agency was after him, possibly for another credit card debt;
two mobile phone accounts; and
a utility company.

And that is where it ended. He has actually not provided the required income and expense information. He has not offered the Trustee with details required to prepare and file his pre-bankruptcy or post-bankruptcy income tax returns. He has not gone to his two mandatory credit counselling sessions. He has not complied with his payment arrangement for the Trustee’s fee. He has not given corroboration or accounting for his pre-bankruptcy vehicle and mobile home sales. His discharge hearing was held in August 2020. He did not show up for his own discharge hearing either by video or telephone.

The Trustee requested that the hearing be adjourned. The Registrar in bankruptcy court was not prepared to use more court resources and he denied the Trustee’s request.

Rather, he had enough and let his feelings be known. The bankrupt got his stay of proceedings. Notice of the bankruptcy was mailed out to the creditors. The collection calls from creditors or collection agencies stopped.

Garnishments, if such existed, ended. After that, this bankrupt went on with life and took the attitude that everyone else can take a hike.

Bankruptcy meaning: The Registrar’s decision

The Registrar wanted to send a bankruptcy meaning message that this kind of behaviour will not be tolerated. The Registrar decided that this bankruptcy meaning message will be sent by the:

bankrupt’s application for discharge being refused;
bankrupt having leave to apply on his own for discharge once he has fulfilled all of his duties;
Trustee finishing the administration and applying for its discharge forthwith;
Trustee being directed, upon its discharge, to write to all known creditors advising of the Trustee’s discharge and that the effect under the BIA is that the stay of proceedings protecting the bankrupt has ended and all creditors are free to begin or resume collection action against him.

This fourth point is not normal. It is obvious that the Registrar was fed up with this bankrupt and others who feel they can avoid performing their duties. The Registrar wanted to send a strong bankruptcy meaning message.

bankruptcy meaning

Bankruptcy meaning summary

I hope you have enjoyed this bankruptcy meaning Brandon’s Blog. Hopefully, you have better insight now into the fact that a sick insolvent company’s business can be saved by doing a sale of its assets to a healthy organization.

Do you or your company have too much debt? Are you or your company in need of financial restructuring? The financial restructuring process is complex. The Ira Smith Team understands how to do a complex restructuring. However, more importantly, we understand the needs of the entrepreneur or the person who has too much personal debt.

You are worried because you are facing significant financial challenges. It is not your fault that you are in this situation. You have been only shown the old ways that do not work anymore. The Ira Smith Team uses new modern ways to get you out of your debt troubles while avoiding bankruptcy. We can get you debt relief freedom.

The stress placed upon you is huge. We understand your pain points. We look at your entire situation and devise a strategy that is as unique as you and your problems; financial and emotional. The way we take the load off of your shoulders and devise a debt settlement plan, we know that we can help you.

We know that people facing financial problems need a realistic lifeline. There is no “one solution fits all” approach with the Ira Smith Team.

That is why we can develop a restructuring process as unique as the financial problems and pain you are facing. If any of this sounds familiar to you and you are serious in finding a solution, contact the Ira Smith Trustee & Receiver Inc. team today.

Call us now for a free consultation.

We will get you or your company back on the road to healthy stress-free operations and recover from the pain points in your life, Starting Over, Starting Now.

Tags assignment in bankruptcy, bankrptcy, bankrptcy and insolvency act, bankruptcy meaning, bankruptcy process, BIA, code of ethics for trustees, duties of the bankrupt, financial counselling, Ira Smith Trustee, licensed insolvency trustee, Office of the Superintendent of Bankruptcy, officer of the bankrupt corporation, OSB, trustee, trustee in bankruptcy

Brandon Blog Post

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

Post author By Brandon Smith
Post date June 3, 2020

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:

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:

Fund the Trustee to take the action for the general benefit of all unsecured creditors.
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:

Trust claims.
Secured claims.
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.