Tag: Bankruptcy and Insolvency Act

COURT ORDERED RECEIVERSHIP SALE: THE SHOCKING COURTROOM AUCTIONS THAT STUNNED EVERYONE

Post author By Brandon Smith
Post date November 10, 2025

Court ordered receivership sale

In October 2025, the Court of Appeal for Ontario delivered a landmark decision that fundamentally changes how a court ordered receivership sale works in Ontario. As further discussed below, this is not unique to Ontario. The case answered a critical question that haunts receivers, creditors, and buyers:

Can a judge reject a perfectly executed receivership sale simply because someone offers substantially more money at the last minute?

The answer, according to Ontario’s highest court, is a resounding yes. Section 243 of the Bankruptcy and Insolvency Act provides the authority in Canada for the court to appoint a receiver. Once the court is involved, it is the judge who ultimately drives the process through its court officer, the court-appointed receiver.

In Cameron Stephens Mortgage Capital Ltd. v. Conacher Kingston Holdings Inc., 2025 ONCA 732(CanLII), the court ruled that even when a receiver runs a flawless eight-month sales process, the judge can—and should—reopen bidding if a late offer is substantially higher. In this case, that threshold was 37% more than the accepted bid, representing approximately $3.5 million in additional recovery for creditors.

This isn’t an isolated decision. Courts across Canada, particularly in British Columbia, have been moving in this same direction for years. Together, these cases signal a new era in Canadian insolvency law: maximizing creditor recovery now trumps process certainty.

If you’re involved in a —as a creditor, business owner, receiver, potential buyer or legal counsel for any of these parties—understanding this shift could mean the difference between losing millions and capturing every available dollar.

Court Ordered Receivership Sale: Why This Case Matters to You Right Now

Before we dive into the legal details, here’s why the Cameron Stephens decision demands your immediate attention:

If You’re a Creditor:

Courts will now aggressively intervene to protect your right to maximum recovery
Even “late” competing offers will be considered if they’re substantially higher
The 37% threshold provides clear guidance about when judges will reopen bidding

If You’re a Business Owner Facing Receivership:

Higher asset values mean less shortfall and reduced personal liability
The process isn’t over until the judge signs the approval order
You may have opportunities to challenge sales that seem too low

If You’re Buying Assets in Receivership:

Your accepted offer isn’t final until court approval
Courts may reopen competitive bidding even at the approval hearing
You need to bid your true maximum value from the start

If You’re a Receiver or Insolvency Professional:

Running a perfect process no longer insulates you from judicial intervention
Price gaps of 30%+ will trigger intense scrutiny
Courts expect aggressive value maximization strategies

The Cameron Stephens Court Ordered Receivership Case: A Deep Dive into Ontario’s Landmark Decision

The Background: A Textbook Receivership Process

The facts of Cameron Stephens Mortgage Capital Ltd. v. Conacher Kingston Holdings Inc. began routinely enough. A Toronto property was subject to a court-appointed receivership, secured by a $15,600,000 mortgage held by Cameron Stephens Mortgage Capital Ltd.

The receiver did everything by the book:

Eight-Month Professional Marketing Campaign:

Comprehensive marketing materials prepared and distributed
Property is widely advertised to qualified buyers
Multiple showings conducted
Professional broker engaged
Extensive outreach to potential purchasers

Serious Negotiations:

Multiple offers received and evaluated
Good faith negotiations with qualified buyers
Financial due diligence conducted
Terms and conditions carefully reviewed

Agreement Reached:

The receiver negotiated an Agreement of Purchase and Sale (APS) with Arjun Anand
The only condition: court approval
Price and terms deemed fair and reasonable by the receiver
All standard protections included

The receiver brought this agreement to the Ontario Superior Court of Justice for approval, expecting a routine hearing. The receiver’s conduct throughout the entire process was later described by the motion judge as “unassailable”—meaning it was beyond criticism, flawless, and professionally executed at every stage.

Everything appeared ready for the judge to simply approve the sale and allow it to close.

The Bombshell: Three Escalating Late Offers

Then, just before the scheduled court approval hearing, something dramatic happened.

A company called 100 Inc.—which was actually a subsidiary of the property owner—submitted not one, but eventually three competing offers:

First Late Offer: 6.7% higher than Anand’s accepted price
Second Late Offer: 14.2% higher than Anand’s accepted price
Third Late Offer (after adjournment): 37% higher than Anand’s accepted price

That final 37% differential represented approximately $3.5 million in additional value that would flow to creditors if the higher offer was accepted instead of Anand’s deal.

The motion judge faced an agonizing dilemma that strikes at the heart of every court ordered receivership sale:

Option 1: Approve the Original Deal (Protect Process Integrity)

Arguments in favour:

The receiver ran a perfect eight-month process
Anand negotiated in good faith and had an accepted agreement
Accepting late bids undermines the integrity of receivership processes
Future buyers won’t participate seriously if deals can be overturned
The famous 1991 Court of Appeal for Ontario case Royal Bank of Canada v. Soundair Corp., 1991 CanLII 2727 (ON CA) (Soundair) warns against creating “chaos in the commercial world.”

Option 2: Reopen Bidding (Maximize Creditor Recovery)

Arguments in favour:

The 37% price gap is enormous—approximately $3.5 million
Creditors deserve the highest possible recovery
Approving the lower offer might be “improvident” (unwise)
The primary purpose of the Bankruptcy and Insolvency Act (BIA) is to maximize creditor recovery
The late offer appears genuine, not a manipulative tactic

The Motion Judge’s Controversial Decision

After considering extensive submissions from all parties, the motion judge made a bold choice that shocked many that day.

Even though he explicitly found:

The receiver’s conduct was “unassailable”
The sales process was “without flaws”
The receiver had acted properly at every stage

The judge refused to approve Anand’s deal.

His reasoning was straightforward:

The 37% price difference was so substantial that it qualified as “substantially higher.” Approving the lower offer in the face of such a large differential would risk being improvident—meaning unwise and harmful to creditors.

The judge couldn’t ignore $3.5 million that could flow to creditors simply to protect a process that, while perfect, had inadvertently missed the property’s true market value.

The Judge’s Creative Solution:

Rather than simply rejecting Anand’s deal and accepting the 100 Inc. offer (which would be grossly unfair to Anand), the motion judge crafted a balanced remedy:

Six-Day Bidding Extension: Reopened the bidding process for six additional days
All Prior Bidders Invited: Both Anand and 100 Inc. could submit new, higher bids
Level Playing Field: Both parties had equal information and opportunity
Cost Protection for Anand: If Anand wasn’t the successful bidder, the property owner would reimburse his reasonable legal costs incurred to date.

This solution aimed to:

Maximize value for creditors (the paramount goal)
Treat both bidders fairly (maintaining process integrity)
Compensate Anand for his good faith participation (preventing unfairness)

Critical Insight: This decision shows that even perfect receivership processes can be disrupted when significantly higher offers emerge. Process integrity, while important, takes a back seat to maximizing creditor recovery when millions are at stake. The judge essentially turned Anand’s APS into a stalking horse bid.

Court ordered receivership sale

Court Ordered Receivership Sale: The Appeal Tested the Limits of Judicial Discretion

Understandably, Arjun Anand was unhappy with this outcome. He had negotiated in good faith, secured an accepted agreement, and now faced having to re-bid against a competitor in a court-ordered auction.

He appealed to the Ontario Court of Appeal, raising important legal arguments that would determine how a court ordered receivership sale would function going forward.

Anand’s Main Arguments on Appeal

1. The Soundair Test Was Misapplied

Anand argued that the motion judge incorrectly interpreted the famous Soundair case. According to Anand, Soundair requires a court to find both:

A significantly higher price, AND
A compromised process integrity

He contended that because the receiver’s process was flawless (unassailable), the judge had no authority to reject the sale, regardless of the price differential.

2. Judicial Discretion Has Limits

Anand argued that allowing judges to reopen bidding whenever a higher offer appears—even after a proper process—would:

Create chaos in the commercial marketplace
Discourage serious buyers from participating
Turn every receivership sale into an unwanted courtroom auction
Undermine the authority and expertise of professional receivers

3. Good Faith Parties Must Be Protected

Anand emphasized that he negotiated in good faith with the receiver, spent considerable time and legal fees on due diligence, and reached an agreement. The Soundair case emphasizes protecting bona fide purchasers. Rejecting his deal, he argued, violated this fundamental principle.

The Court of Appeal for Ontario Groundbreaking Ruling

In the October 27, 2025, appellate court decision, the court dismissed Anand’s appeal and upheld the motion judge’s decision to reopen bidding.

The court’s reasons are crucially important for understanding how a court ordered receivership sale will work going forward:

Key Finding #1: The 37% Price Gap Alone Was Sufficient

The court ruled that the motion judge was correct to focus heavily on the magnitude of the price differential.

The court held:

A 37% higher offer (approximately $3.5 million more) was “substantially higher” and alone created a serious risk that approving the lower offer would be improvident.

Improvidence means approving a sale that is unwise and fails to adequately protect creditors’ interests. When the price gap is this large, it suggests the original offer doesn’t reflect true market value, even if the process was perfect.

The court emphasized: The receiver’s job is to obtain the highest price possible for creditors. When a substantially higher offer emerges—even late—the court must take it seriously to fulfill this mandate.

Practical Implication: The 37% threshold now provides concrete guidance. If you’re involved in a receivership and a late offer exceeds the accepted bid by 30%+, expect the court to seriously consider reopening the process.

Key Finding #2: Soundair Factors Are Flexible, Not Rigid

The Ontario Court of Appeal explicitly rejected Anand’s argument that courts must find both a significantly higher price and compromised process integrity to justify intervention.

The court stated:

The four Soundair factors are flexible and case-specific. They’re not a checklist where all boxes must be ticked. Courts must weigh all circumstances and exercise discretion based on the particular facts.

No single factor is determinative. Different cases will emphasize different factors depending on circumstances.

What this means:

A flawed process with a moderate price gap might justify rejection
A perfect process with a massive price gap might also justify rejection
Courts evaluate the totality of circumstances
Judicial discretion is broad and entitled to deference

For Receivers: You can’t rely on process perfection alone to guarantee approval. You must also be prepared to justify why your recommended price represents maximum market value.

Key Finding #3: Maximizing Recovery Is Paramount

The three-judge panel reaffirmed what has become increasingly clear across Canadian courts: the paramount objective of any court ordered receivership sale is to maximize recovery for creditors.

The court emphasized that the BIA exists primarily to:

Preserve and liquidate assets efficiently
Ensure liquidation results in maximum return
Benefit creditors who are owed money

When the goal of maximum recovery conflicts with other considerations (like protecting a negotiated agreement), maximum recovery takes priority if the circumstances warrant it.

The court noted that while protecting good faith purchasers is important, it cannot override the fundamental duty to creditors when the price differential is substantial.

For Creditors: This ruling provides powerful protection for your interests. Courts will actively intervene to prevent you from receiving less than maximum value.

Key Finding #4: Deference to the Motion Judge’s Discretion

Finally, the Court of Appeal for Ontario emphasized that the motion judge’s decision was discretionary and therefore entitled to substantial deference on appeal.

Appellate courts don’t second-guess discretionary decisions unless the judge made a clear error in law or reached an unreasonable conclusion.

Here, the appellate court found:

The motion judge properly considered all relevant factors
He balanced competing interests appropriately
His exercise of discretion was reasonable, given the 37% price gap
The creative solution (reopening bidding with cost protection) was a proper exercise of judicial authority

The bottom line: Judges have broad authority to craft creative solutions in a court ordered receivership sale when necessary to maximize creditor recovery.

Court Ordered Receivership Sale: What the Cameron Stephens Decision Means in Practice

The 37% Threshold: New Guidance for All Parties

Cameron Stephens establishes that a 37% price differential is substantial enough to justify judicial intervention, even when the receiver’s process is beyond criticism.

For a property whose value justified a mortgage loan of millions of dollars, the 37% difference is not a trivial amount. For many creditors, this additional recovery represents:

The difference between a substantial or full recovery and a significant shortfall
Avoiding deficiency claims against personal guarantors
Business survival versus bankruptcy
Personal financial security versus personal insolvency

Open Question: While 37% clearly justifies intervention, what about lower differentials?

Would 30% be enough? Probably.
Would 20% be enough? Maybe, depending on other factors.
Would 10% be enough? Perhaps, depending on all the circumstances of the particular case.

The Cameron Stephens decision doesn’t establish a bright-line rule, but it provides important guidance about the magnitude of price differential that triggers judicial scrutiny.

Process Perfection Is No Longer Sufficient Protection

For decades, receivers believed that if they ran a thorough, professional process following all best practices, courts would defer to their recommendations and approve their chosen deals.

Cameron Stephens fundamentally changes this assumption.

What This Means for Receivers:

Even when you:

Obtain a professional appraisal
Market extensively for many months
Engage professional brokers
Conduct comprehensive outreach
Receive and evaluate multiple offers
Negotiate terms professionally
Document everything meticulously

You can still face court intervention if:

A substantially higher offer emerges (30%+ above your accepted bid)
The court questions whether your accepted offer reflects true market value
The judge believes creditors would be better served by reopening competition

New Best Practices:

Obtain professional appraisals for significant assets to support your pricing
Document market testing thoroughly to demonstrate that the accepted offer reflects market reality
Consider stalking horse structures with break fees to encourage early, strong bids
Build flexibility into timelines to accommodate potential competing offers
Prepare for potential bidding reopening by having contingency procedures ready

At Ira Smith Trustee & Receiver Inc., we’ve administered receivership processes where both a late higher offer emerges or when there is opposition to a recommended sale but there was no competing offer. We always anticipate potential challenges and build in protections from the start.

Buyers Should Bid Their True Maximum Early

Cameron Stephens sends a clear message to potential purchasers in a court ordered receivership sale: don’t lowball and expect to have the last word.

The New Reality for Buyers:

Your accepted agreement with the receiver is not final until:

The court approval hearing occurs
No substantially higher offers emerge
The judge signs the approval order

What You Should Do:

Bid aggressively from the start,, realizing the maximum you are prepared to pay
Don’t negotiate down, expecting no competition
Budget for legal costs that might not be recoverable
Be prepared to re-bid if the court reopens the process
Understand timing risk because approval isn’t guaranteed

The Good News: If you submit a strong initial offer and someone submits a late, higher bid, you’ll have the opportunity to increase your bid through a reopened process. The highest bidder ultimately wins.

The Risk: If you lowball initially and someone else is prepared to offer closer to the property’s true value, you may end up losing the deal entirely or paying more than you would have if you’d bid fairly from the start.

Creditors Have Powerful New Tools

If you’re a creditor in a court ordered receivership sale, Cameron Stephens is excellent news.

Your New Rights:

Courts will actively protect your right to maximum recovery
You can challenge sales that appear improvident
Late offers that are substantially higher (30%+) will be seriously considered
Judges will use creative solutions to capture additional value

What You Should Do:

Monitor the receivership process closely from the beginning
Review the receiver’s reports and ask questions about pricing
Conduct your own market research to assess whether proposed prices seem reasonable
If you become aware of potentially higher offers, bring this to the receiver’s and court’s attention
Attend court hearings to voice concerns about inadequate pricing
Consider retaining your own advisor if significant money is at stake
Court ordered receivership sale

This Is Not an Isolated Case: B.C. Supreme Courts Have Been Leading the Way in Court Ordered Receivership Sale Process

The Cameron Stephens decision might seem revolutionary, but it’s actually part of a broader trend across Canadian courts. The British Columbia Court of Appeal has been issuing similar rulings for several years, establishing that courts will use creative interventions to maximize creditor recovery in court ordered receivership sales.

Ontario’s highest court has now aligned with this approach, confirming that this is the new Canadian standard, not a regional anomaly.

The BC Trend: Three Landmark Cases

Case #1: The Versante Hotel Live Courtroom Auction (2025)

What Happened:

I would like to express thanks to Eamonn Watson of Dentons Canada LLP in Vancouver, who provided us with information regarding the currently unreported Court ordered receivership sale in the Versante Hotel case.

In International Trade Center Properties Ltd. (the Versante Hotel case), a Richmond, BC receiver had negotiated a $48 million sale of a luxury hotel with Citation Properties. At the court approval hearing, a competing party (Silverport Properties) appeared with a sealed bid higher than $48 million.

The BC Supreme Court judge faced the same dilemma as the Cameron Stephens judge: approve the negotiated deal or pursue the higher offer?

The Court’s Creative Solution:

Justice Fitzpatrick ordered an unprecedented live auction in the courtroom the following day. Both Citation (the original buyer) and Silverport would compete on equal footing with transparent bidding.

The Result:

The bidding was “lively,” going back and forth multiple times. Citation ultimately won but had increased its offer to $51.5 million—a $3.5 million gain for creditors achieved in mere minutes.

Key Parallels to Cameron Stephens:

Both involved late competing offers
Both courts prioritized maximizing recovery over protecting negotiated deals
Both judges created creative solutions (live auction vs. reopened bidding)
Both resulted in approximately $3.5 million in additional creditor recovery
Both show courts will intervene dramatically when a substantially higher value is available

The Lesson: When immediate opportunities to capture significantly more value arise, courts have the power and willingness to create extraordinary processes to realize that value quickly and transparently.

Case #2: QRD (Willoughby) Holdings – When Process Flaws and Price Gaps Combine (2024)

What Happened:

In QRD (Willoughby) Holdings Inc. v. MCAP Financial Corporation, 2024 BCCA 318 (CanLII) (Willoughby), a receiver was selling a suspended real estate development in Langley, BC. The receiver marketed the property for less than 2.5 months (described as “markedly short”) and recommended accepting a $35 million offer.

However, a competing proposal from Foundation Residence Society offered $64 million—a staggering $29 million difference, though with significant conditions and a longer closing timeline.

The Court’s Findings:

The BC Court of Appeal found the chambers judge erred by:

Insufficient weight to the massive price gap: The $29 million differential suggested the receiver hadn’t adequately tested the market
No professional appraisal: The absence of a valuation undermined confidence that $35 million represented the best value
Markedly short marketing period: Less than 2.5 months was inadequate for a major development property

The Result:

While the Court of Appeal criticized the process and found it flawed, they still dismissed the appeal because by the time of the appeal, the higher bidder still hadn’t firmed up their conditional offer. Continuing delays would have cost even more in mounting debt.

Key Parallels to Cameron Stephens:

Price gap signals improvidence: Both courts held that large price differentials (37% in Cameron Stephens, 83% in Willoughby) raise serious concerns about whether the accepted offer represents market value
Court scrutiny is intense: Even though Willoughby involved process flaws while Cameron Stephens didn’t, both cases show that courts will heavily scrutinize pricing when competing offers differ substantially
Timing matters: Both cases emphasize the tension between capturing higher value and managing time/cost pressures

The Key Difference:

Cameron Stephens shows that process perfection doesn’t insulate you from intervention when the price gap is substantial. Willoughby shows that process deficiencies combined with price gaps will definitely attract court criticism.

The Lesson: Whether your process is perfect or flawed, substantial price gaps will trigger judicial intervention to prevent improvident sales that shortchange creditors.

Case #3: Peakhill Capital – Creative Structures to Maximize Recovery (2024)

What Happened:

In British Columbia v. Peakhill Capital Inc., 2024 BCCA 246 (CanLII) (Peakhill)the , a receiver was selling valuable real property in a court ordered receivership sale. Rather than a traditional sale, the receiver structured the transaction using a Reverse Vesting Order (RVO).

An RVO is a complex legal structure that:

Moves unwanted liabilities out of the debtor company
Leaves the core assets in place
Sells the company’s shares instead of transferring the land title

The Purpose:

This complicated structure had one clear goal: to avoid approximately $3.5 million in BC property transfer tax (PTT), thereby maximizing the net recovery for creditors.

The Province of BC challenged this, arguing courts don’t have jurisdiction to approve structures designed solely to avoid tax.

The Court’s Decision:

The BC Court of Appeal upheld the RVO, ruling that:

The of gives courts broad authority to approve creative solutions
Structuring commercial transactions to avoid unnecessary taxes is legitimate outside of insolvency
Therefore, using an RVO to achieve this in receivership is appropriate
Maximizing creditor recovery is a proper purpose under the BIA
Saving $3.5 million in tax means $3.5 million more for creditors

Key Parallels to Cameron Stephens:

Maximizing recovery is paramount: Both courts emphasized that the primary purpose of receivership is maximizing creditor returns
Creative solutions are acceptable: Just as Peakhill approved a novel legal structure, Cameron Stephens approved reopened bidding—both are creative judicial interventions
Courts have broad discretion: Both decisions emphasize the wide authority courts have under the BIA to achieve optimal outcomes
The $3.5 million parallel: Interestingly, both Peakhill and Cameron Stephens involved capturing approximately $3.5 million in additional value

The Lesson: Courts will approve unconventional approaches—whether creative deal structures or creative bidding processes—if the goal is to lawfully maximize what creditors receive.

The Emerging Court Ordered Receivership Sale Canadian Consensus: Maximizing Recovery Above All

When we look at Cameron Stephens alongside the BC Court of Appeal decisions, a clear pattern emerges:

Common Principles Across All Cases:

1. Creditor Recovery Is The Top Priority

Every case—Cameron Stephens, Versante, Willoughby, Peakhill—emphasizes that the paramount objective of any court ordered receivership sale is maximizing what creditors recover.

When this goal conflicts with other important values (process integrity, protecting negotiated deals, following traditional procedures), maximizing recovery wins if the circumstances warrant it.

2. Courts Will Intervene Creatively When Necessary

Canadian courts have shown remarkable willingness to create extraordinary solutions:

Live courtroom auctions (Versante)
Reopened competitive bidding (Cameron Stephens)
Novel legal structures (Peakhill)
Extensions of marketing time (Willoughby—though ultimately denied for other reasons)

The days of rigid, formalistic receivership processes are over. Judges will craft pragmatic solutions tailored to specific circumstances to achieve optimal outcomes.

3. Substantial Price Gaps Demand Judicial Attention

Whether it’s:

37% higher (Cameron Stephens – approximately $3.5M)
7.3% higher (Versante – $3.5M on $48M)
83% higher (Willoughby – $29M differential)

Courts treat significant price differentials as red flags suggesting the accepted offer may not reflect true market value and may be improvident.

4. Process Perfection Is Necessary But Not Sufficient

Cameron Stephens definitively establishes that running a flawless receivership process doesn’t guarantee approval if substantially higher offers emerge.

You need both:

A thorough, professional process (necessary)
Pricing that reflects maximum market value (also necessary)

One without the other isn’t enough.

5. Flexibility Over Rigidity

All these cases emphasize that the Soundair factors are flexible and case-specific, not a rigid checklist. Courts evaluate the totality of circumstances and exercise broad discretion to achieve outcomes that serve the BIA’s core purposes.

What This Means: A New Era for the Court Ordered Receivership Sale Process

Taken together, these cases signal that Canadian court ordered receivership sales have entered a new era characterized by:

✓ Greater judicial activism in protecting creditor interests
✓ Less deference to receivers when pricing seems questionable
✓ More creative interventions to maximize recovery
✓ Heightened scrutiny of price, even when the process is perfect
✓ Willingness to disrupt negotiated deals when a substantially higher value is available
✓ Emphasis on outcomes (maximum recovery) over process (following procedures)

For everyone involved in receiverships, this means:

Uncertainty until court approval is actually granted
Higher ultimate recoveries for creditors
More competitive pressure on buyers
Greater need for professional expertise to navigate complex proceedings
Increased importance of documentation to justify pricing recommendations

[Need expert guidance navigating these new realities? Contact us to schedule your free consultation.]

Court ordered receivership sale

Court Ordered Receivership Sale Practical Implications: What You Must Do Now

If You’re a Creditor in a Court Ordered Receivership Sale:

Your Rights Are Stronger Than Ever:

The Cameron Stephens decision, combined with the BC cases, provides powerful tools to protect your interests.

Action Steps:

Monitor the process actively from the beginning—don’t just wait for the receiver’s reports
Question pricing if you have doubts about whether the accepted offer reflects market value
Conduct independent research to assess comparable sales and market conditions
If you become aware of potentially higher offers, bring this immediately to the receiver’s and the court’s attention before the approval hearing
Attend court hearings and consider retaining counsel if significant money is at stake
Don’t assume the receiver’s recommendation is automatically optimal—you have the right to challenge it

What Cameron Stephens Confirms:

Courts will protect your right to maximum recovery, even if that means disrupting processes and negotiated deals. Don’t hesitate to advocate for your interests.

If You’re a Business Owner or Guarantor Facing Receivership:

There’s Both Risk and Opportunity:

Cameron Stephens shows that receivership sales can be unpredictable, but courts actively work to maximize asset values.

What This Means for You:

The Good News:

Courts will push for higher asset values, reducing deficiency amounts
Larger recoveries mean less personal liability under guarantees
You have grounds to challenge sales that seem improvident

The Challenges:

Process uncertainty can delay resolution
You have limited control once a receiver is appointed
Courts prioritize creditors’ interests over yours

Action Steps:

Get professional advice early—before receivership if possible
Understand your rights to participate in and observe the receivership process
Monitor asset sales and question pricing that seems low
Consider whether alternatives to receivership (proposals, refinancing, restructuring) might be available
Cooperate with the receiver—obstruction reduces values and increases costs

Critical Timing:

The earlier you engage an experienced licensed insolvency trustee, the more options you’ll have to protect your interests.

[Facing potential receivership? Contact us so that we may provide you with a free, confidential consultation before it’s too late.]

If You’re Buying Assets in a Court Ordered Receivership Sale:

The Rules Have Changed:

Your accepted agreement isn’t final until court approval, and that approval is no longer a formality.

Key Realities:

Bid closer to your true maximum early—don’t expect to lowball and win
Budget for uncertainty—approval timelines are unpredictable
Prepare to re-bid—courts may reopen competitive processes
Understand cost risks—your legal fees might not be recoverable
Factor in delay—closing may take longer than anticipated

Strategic Considerations:

Early participation protects you—engage in the official process from the start
Due diligence matters—understand true market value before bidding
Financial readiness is crucial—be prepared to increase your bid quickly
Relationship with receiver helps—serious, professional buyers get respect

The Upside:

If you bid fairly based on true value, you’ll likely succeed. The Cameron Stephens approach actually rewards buyers who recognize and are willing to pay for true asset value.

If You’re a Receiver or Insolvency Trustee:

Your Job Just Got Harder:

Cameron Stephens raises the bar for what courts expect from receivers conducting court ordered receivership sales.

Requirements:

Professional Valuations: Obtain appraisals for significant assets to support pricing recommendations
Enhanced Documentation: Meticulously document marketing efforts, offer comparisons, and provide pricing justification
Market Testing: Ensure marketing periods are adequate (Willoughby warns against “markedly short” timelines)
Contingency Planning: Build flexibility into processes to handle late competing offers
Price Justification: Be prepared to explain why your recommended price represents maximum market value
Creative Solutions: Consider stalking horse structures, auction mechanisms, or other approaches that maximize competition

The Reality:

Even if you do everything perfectly, courts may still intervene if substantially higher offers emerge. Your role is to:

Run the best process possible
Document everything thoroughly
Recommend the highest supportable price
Be prepared to adapt to judicial intervention

At Ira Smith Trustee & Receiver Inc., we understand these lessons from our past receivership administrations. We understand what courts expect and how to structure processes that satisfy Cameron Stephens’ requirements.

Frequently Asked Questions (FAQ) About Cameron Stephens and The Court Ordered Receivership Sale Process

Q: Does the 37% threshold mean courts won’t intervene for smaller price gaps?

Not necessarily. Cameron Stephens establishes that 37% is clearly sufficient, but doesn’t set a floor. The Versante case shows courts may intervene for smaller differentials (around 7%) depending on circumstances. Each case is evaluated on its facts. Generally, price gaps of 30%+ will almost certainly trigger scrutiny, while gaps under 10% are less likely to justify intervention absent other issues.

Q: Can receivers prevent late bids from disrupting approved sales?

Not entirely. Courts have ultimate authority over sale approvals. However, receivers can use strategies to minimize disruption:

Stalking horse agreements with break fees (compensating the initial bidder if outbid)
Clear deadlines for competing offers
Auction mechanisms are built into the process from the start
Professional appraisals supporting the accepted offer

These don’t prevent courts from considering late bids, but they structure processes that make late challenges less likely to succeed.

Q: What if the late higher offer has conditions that might not be satisfied?

Courts will consider the reliability and certainty of competing offers. In Willoughby, the $64 million offer had extensive conditions, which was one reason for skepticism. However, if the conditions are reasonable and the price gap is substantial, courts may grant time extensions to allow the bidder to satisfy conditions. The judge will balance:

The magnitude of the price increase
The reasonableness of conditions
The likelihood conditions will be satisfied
The cost of delay to the estate

Q: As a creditor, how do I know if I should challenge a receiver’s recommended sale?

Key warning signs that a sale might be improvident:

The accepted offer is significantly lower than you expected based on market research
The marketing period was very short (under 3 months for a major sale of assets)
No professional appraisal was obtained
You’re aware of other potential buyers who weren’t contacted
The receiver’s report doesn’t adequately justify the pricing
A competing offer exists that’s substantially higher (30%+)

If you see these red flags, consult with an experienced licensed insolvency trustee or legal counsel before the court approval hearing.

Q: If I’m the original buyer and the court reopens bidding, am I protected?

Cameron Stephens shows courts will try to balance fairness. The motion judge ordered reimbursement of Anand’s legal costs if he wasn’t the successful bidder. However, this protection isn’t guaranteed in every case. You should:

Negotiate cost protection into your initial agreement if possible
Budget for the risk of non-recoverable costs
Be prepared to increase your bid to remain competitive
Understand that court approval is required and not automatic

Q: How long does a typical court ordered receivership sale take now?

It varies widely, but Cameron Stephens and the BC cases suggest timelines are becoming less predictable:

Marketing period: 2-6 months typically (though Willoughby warns against being “markedly short”)
Negotiation to court hearing: 4-8 weeks usually
Court approval: Previously routine, now potentially extended if challenges arise
Total process: 3-12 months, depending on complexity and whether issues arise

The key change is that court approval is no longer a formality—it’s now a substantive hearing where pricing will be scrutinized and competing offers may be entertained.

Q: Does Cameron Stephens apply outside of real estate receiverships?

Yes. While Cameron Stephens, Versante, and Willoughby all involved real property, the legal principles apply to all court ordered receivership sales regardless of asset type:

Business operations and equipment
Intellectual property
Shares and securities
Inventory and accounts receivable
Any other assets sold through court-supervised receivership

The Soundair principles, which Cameron Stephens interprets, were established in an airline sale case. The duty to maximize creditor recovery applies universally across all asset types.

[Have questions about your company’s specific financial situation? Contact us for expert answers.]

Court ordered receivership sale

Court Ordered Receivership Sale: Take Action Now

Don’t wait until you’re in the middle of a receivership crisis to seek professional help. Whether you’re:

A creditor is concerned about an ongoing receivership process
A business owner facing potential receivership
A buyer interested in distressed assets
A professional needing guidance on complex insolvency matters

The time to act is now.

Contact Ira Smith Trustee & Receiver Inc. today:

905,738.4167

Toronto line: 647.799.3312
brandon@irasmithinc.com or ira@irasmithinc.com
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Disclaimer: This analysis is for educational purposes only and is based on the cited legal decisions (Cameron Stephens Mortgage Capital Ltd. v. Conacher Kingston Holdings Inc., 2025 ONCA 732, and the other identified cases) and my professional expertise as a licensed insolvency trustee. The information provided does not constitute legal or financial advice for your specific circumstances.

Every situation is unique and involves complex legal and factual considerations. The outcomes discussed in this article may not apply to your particular situation. Court decisions are fact-specific and depend on the particular circumstances of each case.

Please contact Ira Smith Trustee & Receiver Inc. or consult with qualified legal or financial professionals regarding your specific matter before making any decisions.

About the Author:

Brandon Smith is a Senior Vice-President at Ira Smith Trustee & Receiver Inc. and a licensed insolvency trustee serving clients across Ontario. With extensive experience in complex court ordered receivership sales, corporate restructuring, and insolvency proceedings, Brandon helps businesses, creditors, and professionals navigate challenging financial situations to achieve optimal outcomes.

Brandon stays current with landmark developments in Canadian insolvency law, including the recent Cameron Stephens decision and BC Court of Appeal cases that are reshaping receivership practice. He brings this cutting-edge legal knowledge to every client engagement, ensuring his clients benefit from the most current understanding of their rights and options.

Court ordered receivership sale

Brandon Blog Post

CONDITIONAL DISCHARGE BANKRUPTCY COMPLETE GUIDE: IRA SMITH TRUSTEE TORONTO

Post author By Brandon Smith
Post date October 27, 2025

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As a Licensed Insolvency Trustee at Ira Smith Trustee & Receiver Inc., I’ve guided many people through the bankruptcy process in the Greater Toronto Area. One of the most common questions I hear is: “What happens at my discharge hearing?” Recently, a significant Ontario court decision has shed new light on this crucial aspect of bankruptcy proceedings, particularly regarding conditional discharge orders.

This case is especially relevant when considering my recent blog posts. In my previous blog posts about the Toronto condo market and current issues in the Ontario mortgage default space, I’ve discussed how many people have found themselves in similar predicaments to the woman described in this recent decision.

Filing for bankruptcy may be a viable option for many people who are on the wrong end of a shortfall claim due to a failed real estate investment. Every person thinking about bankruptcy as a way to eliminate hundreds of thousands of dollars of debt must also consider the possibility that they may not get an absolute discharge from bankruptcy. This is what this case that I describe below highlights.

Today, I want to walk you through the detailed case of Re Xianglan Li, 2025 ONSC 5812. It illustrates what can happen when things go wrong in bankruptcy – and what you can learn from it to protect yourself.

Why Not All Discharges Are Absolute: Introducing Conditional Discharge

Before diving into the case details, let’s establish some fundamentals. When you file for bankruptcy in Canada under the Bankruptcy and Insolvency Act (Canada), the ultimate goal is to receive a discharge from bankruptcy – your legal release from most debts. However, not everyone receives an automatic discharge.

There are four types of discharge orders under the Canadian Bankruptcy and Insolvency Act:

Absolute Discharge – You’re immediately released from your debts that can be discharged with no conditions
Conditional Discharge – You must fulfill certain conditions (usually payment obligations) before being released from your debts
Suspended Discharge – Your discharge is delayed for a specific period. A suspended discharge can be combined with conditions that also must be fulfilled, if appropriate. Otherwise, the person receives an absolute discharge after the suspension period expires.
Refused Discharge – The court denies your discharge entirely (rare and only used in extreme cases)

A conditional discharge typically requires the bankrupt person to pay a certain amount of money to the trustee before being released from bankruptcy. This payment goes toward creditors’ claims and demonstrates a good-faith effort to repay at least some portion of the outstanding debts.

The Real Estate Speculation Case: A Cautionary Tale

The recent Ontario Superior Court decision in Re Xianglan Li provides valuable insights into how courts determine what kind of discharge order to grant, and whether it should be a conditional discharge, what conditions to impose, or should it be a different form of discharge.

The Background Story

Ms. Li’s bankruptcy story began with a failed real estate transaction in Richmond Hill, Ontario. In July 2017, she signed an Agreement of Purchase and Sale (APS) to buy a property for $1,435,607.67 – a significant investment by any measure, but not unusual for a home in the GTA. She paid deposits totalling $179,810.67, including upgrades.

Here’s where things get interesting: Ms. Li signed this agreement while her husband had just purchased another property four months earlier for $955,472.87. The new property she was planning to purchase cost approximately $480,000 more than the one her husband had just bought.

The real problem? The combined total of Ms. Li’s reported taxable income and that of her husband in 2017 was less than $20,000 – yet they were trying to purchase properties for a combined cost of over two million dollars. So either they had a lot of unreported income or they could never afford what they were trying to accomplish in real estate, or both.

When the closing date arrived in November 2018, Ms. Li couldn’t complete the purchase. The developer, Arista Homes, terminated the agreement, kept all deposits, and sued for damages totalling $281,421.39.

In April 2020, before a judgment was issued, Ms. Li filed for bankruptcy. It turns out that Arista was her only creditor in the bankruptcy. That is the Reader’s Digest version of a long, sordid tale.

Why This Matters for Toronto Area Residents

If you’ve been following real estate trends in the Greater Toronto Area, this story might sound familiar. It is a similar story to my prior blogs on the Toronto condo market and current issues in the Ontario mortgage default space.

The combination of rising interest rates, cooling real estate prices, and overextended purchasers has created a perfect storm. Many individuals who signed pre-construction purchase agreements during the hot market now cannot close on their properties.

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What Happened at the Discharge Hearing Before the Registrar in Bankruptcy?

Ms. Li’s discharge hearing revealed several significant problems that led to a conditional discharge order rather than an absolute discharge.

Section 173(1) Facts: The Court’s Concerns

Under the Bankruptcy and Insolvency Act (Canada) (BIA), Section 173(1) lists specific “facts” that, if proven, prevent the court from granting an absolute discharge. This section of Canada’s bankruptcy legislation lists facts for which discharge may be refused, suspended or granted conditionally. In Ms. Li’s case, the court found three such facts proven:

1. Section 173(1)(a) – Assets Not Equal to 50 Cents on the Dollar

This provision requires the bankrupt person to prove that their financial collapse arose from circumstances they cannot “justly be held responsible” for. Ms. Li couldn’t meet this burden.

The court found that Ms. Li had engaged in conduct similar to what the judge called “rash and hazardous speculation.” She had signed a $1.4 million purchase agreement without:

Consulting her husband
Considering how to finance the purchase
Having a reasonable income to support a mortgage qualification
Securing any form of financing commitment

As the court noted, she was “impulsive, naive and irresponsible in committing for a home purchase without any financial planning.”

2. Section 173(1)(e) – Rash and Hazardous Speculation

The court determined that Ms. Li’s conduct constituted “rash and hazardous speculation” under the BIA. The judge emphasized that this assessment must be made relative to the person’s financial circumstances.

For someone with Ms. Li’s paltry reported income to commit to purchasing a $1.4 million property was objectively rash and hazardous. Even if the real estate market had cooperated, there was no realistic path to securing mortgage financing with her income level.

3. Section 173(1)(o) – Failure to Perform Duties

Perhaps most damaging to Ms. Li’s case was the court’s finding that she failed to fulfill her duties as a bankrupt person. Under Section 158 of the BIA, bankrupts have various duties, including:

Deliver all books, records, and documents to the trustee
Make full disclosure of all property dispositions
Submit to examinations under oath
Aid the trustee to the utmost of their power

Ms. Li failed to complete the undertakings from her examination, leaving crucial questions unanswered about:

Bank account statements from relevant periods
Details of family loans and their sources
Contributions to previous mortgage payments
Disposition of proceeds from other property sales
Repaying a loan to a family in China

The court emphasized that bankrupts must “actively aid” the trustee, not “remain passive and hope that the financial storm would blow over.”

Conditional Discharge: The Doctrine of Avoiding Judgment Through Bankruptcy

One particularly important principle emerged from this case: courts don’t look favourably on people who use bankruptcy primarily to avoid paying a judgment claim.

The Supreme Court of Canada established in Kozack v. Richter, 1973 CanLII 166 (SCC), that when someone files for bankruptcy mainly to escape a judgment arising from their wrongful conduct, courts should impose meaningful payment conditions if the person can pay.

In Ms. Li’s situation, even though Arista hadn’t obtained a formal judgment before she filed for bankruptcy, it was clear that the lawsuit was the primary reason for her assignment into bankruptcy. The court considered this factor heavily in determining the appropriate conditions.

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The Final Conditional Discharge Order: How the Court Decided

After reviewing all the evidence in this case, Associate Justice Ilchenko ordered a conditional discharge requiring Ms. Li to pay 10% of the proven claim, being $28,142.14, within 24 months.

This amounted to roughly 10 cents on the dollar of the total claim of $281,421.39. While this was significantly less than the 20-30% sought by Arista, it was also much more than the $5,000 recommended by the trustee.

The court balanced several competing considerations:

Factors Supporting a Lower Amount:

Ms. Li had already paid $179,810 in deposits that Arista kept
She earned a modest income as a bus driver ($64,974 in 2024)
She had some chronic medical conditions
She had tried to extend the closing date and complete the purchase

Factors Supporting a Higher Amount:

The proven Section 173((1) facts show poor judgment
The need to maintain the integrity of the bankruptcy system
Her failure to cooperate fully with the trustee
The public interest in commercial morality
Her age (51) and continued earning capacity

Conditional Discharge: Key Lessons for Anyone Considering Bankruptcy

This case offers several crucial lessons for anyone in the Greater Toronto Area or elsewhere in Ontario dealing with overwhelming debt:

1. Be Realistic About Real Estate Commitments

If you’re considering purchasing property – especially pre-construction condos or high-value homes – ensure you have:

Verified mortgage pre-approval from a qualified lender
Realistic assessment of your income and expenses
Contingency plans if market conditions change
Professional advice from mortgage brokers and real estate lawyers

Don’t rely on optimistic assumptions about future property value increases or income growth.

2. Cooperate Fully With Your Trustee

If you do file for bankruptcy, complete cooperation with your Licensed Insolvency Trustee is essential. This means:

Providing all requested documents promptly and completely
Answering all questions truthfully and thoroughly
Attending all required meetings and examinations
Disclosing all assets, income sources, and property dispositions
Responding to undertakings and follow-up requests
Attending the two mandatory bankruptcy and credit counselling sessions with the Licensed Insolvency Trustee under the Insolvency Counselling Program established by the Office of the Superintendent of Bankruptcy Canada

Failure to cooperate can transform what might have been an absolute discharge into a conditional discharge – or even a refused discharge.

3. Understand Your Duties as a Bankrupt

The BIA imposes significant duties on anyone who files for bankruptcy. You’re not just passively waiting for discharge – you have active obligations to:

Aid the trustee in realizing your assets
Submit to examinations under oath
File all required tax returns
Report material changes in your financial situation
Attend financial counselling sessions

These aren’t optional suggestions – they’re legal requirements that the court takes very seriously.

4. Consider Consumer Proposals as an Alternative

Many people in situations similar to Ms. Li’s might be better served by filing a consumer proposal rather than bankruptcy. A consumer proposal allows you to:

Negotiate a settlement with creditors for less than 100% of your debts
Keep control of your assets
Avoid some of the restrictions that apply to bankrupts
Make predictable monthly payments over up to five years

At Ira Smith Trustee & Receiver Inc., we often find that consumer proposals, or for those with debts greater than $250,000, not including any mortgages or lines of credit secured against your personal residence, a Division I Proposal under the BIA, provide better outcomes for clients, particularly those arising from failed real estate transactions.

5. Document Everything

If you’re involved in property transactions that later fail, maintain meticulous records of:

All agreements and amendments
Payment receipts and bank statements
Communications with developers or sellers
Financial advice you received
The efforts you made to complete transactions

This documentation becomes crucial if you later need to demonstrate that your financial difficulties arose from circumstances beyond your control.

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The Current Real Estate Reality in the GTA

As I discussed in my blog about mortgage default, we’re seeing increasing numbers of people facing similar challenges to Ms. Li’s situation.

The combination of:

Higher interest rates
Stricter mortgage qualification rules
Declining property values
Economic uncertainty
Job market volatility

…has created a situation where many pre-construction purchasers simply cannot close on their agreements.

If you signed a pre-construction purchase agreement during the hot market of 2020-2022, you may now be facing:

Inability to qualify for necessary mortgage financing
Property values below your purchase price
Difficulty selling your current home to fund the new purchase
Developer demands for additional deposits or price increases

These situations require professional guidance from a Licensed Insolvency Trustee who understands both insolvency law and real estate market realities.

Life After Conditional Discharge: Rebuilding Your Financial Future

If you receive a conditional discharge in bankruptcy, here’s what you need to know:

You Remain Bankrupt Until Conditions Are Met

A conditional discharge doesn’t release you from bankruptcy immediately. You remain an undischarged bankrupt with all associated restrictions and obligations until you fulfill the court-ordered conditions.

This means:

You cannot obtain credit over $1,000 without disclosing your bankruptcy
You cannot act as a director of a corporation
You may face professional restrictions depending on your occupation
You must continue reporting income and expenses to your trustee

Payment Terms Are Usually Flexible

Courts typically give reasonable time periods to fulfill payment conditions – often 12 to 24 months. Section 172(3) of the BIA does allow for modifying a conditional discharge order.

If you face genuine hardship preventing payment, you can apply to the court to vary the terms. However, you must demonstrate that you’ve made reasonable efforts and that circumstances beyond your control prevent compliance. Also, you cannot even apply for such relief until at least 1 year after the date the conditional discharge order was made.

Your Credit Report Is Affected

A conditional discharge appears on your credit report differently from an absolute discharge. The bankruptcy notation expiry time period cannot even begin until you satisfy the conditions and receive your discharge certificate.

This can affect:

Your ability to obtain credit
Employment opportunities in the financial sector
Professional licensing in certain fields
Your credit score and borrowing costs

You Can Rebuild Afterward

Once you fulfill the conditions and receive your discharge, you can begin rebuilding your financial life. While the bankruptcy remains on your credit report for six to seven years from discharge, many people successfully rebuild credit within two to three years through:

Secured credit cards
Small installment loans
Consistent bill payment history
Steady employment and income
Financial counselling and budgeting
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When to Seek Professional Help

If you’re facing financial difficulties related to real estate commitments or mounting debts for any other reason, and are considering a potential bankruptcy, don’t wait until the situation becomes critical.

Warning Signs You Need Help Now

Contact a Licensed Insolvency Trustee immediately if you’re experiencing:

Inability to make mortgage or rent payments
Collection calls from creditors or legal proceedings
Using credit cards or loans to pay basic living expenses
Considering withdrawing RRSP funds to pay debts
Losing sleep or experiencing stress-related health problems due to debt
Contemplating a consumer proposal or bankruptcy

What We Can Do for You

At Ira Smith Trustee & Receiver Inc., we provide comprehensive debt relief services for individuals and businesses throughout the Greater Toronto Area, including:

Free Initial Consultations – We’ll review your complete financial situation and explain all available options
Consumer Proposals – We’ll negotiate with creditors to reduce your debt and create affordable payment plans
Personal Bankruptcy Filings – We’ll guide you through the entire bankruptcy process professionally and compassionately
Credit Counselling – We’ll help you understand what went wrong and develop strategies to avoid future problems
Business Restructuring – For entrepreneurs, we offer financial restructuring through commercial proposal services to save your business and the jobs you create

Our team understands the unique challenges facing Greater Toronto Area residents dealing with high housing costs, challenging economic conditions, and complex debt situations.

The Importance of Choosing the Right Trustee

Choosing an experienced, knowledgeable Licensed Insolvency Trustee matters so much. The relationship between the trustee’s recommendations and the court’s final order can significantly impact your outcome.

When selecting a trustee, look for:

Experience with similar cases – Has the trustee handled situations like yours?
Clear communication – Do they explain complex legal concepts in understandable terms?
Comprehensive service – Do they offer alternatives to bankruptcy like consumer proposals?
Local knowledge – Do they understand the specific challenges in your community?
Professional reputation – What do other clients and legal professionals say about them, such as in Google reviews

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Moving Forward, Your Next Steps

If you’re dealing with overwhelming debt, potential mortgage default, or considering bankruptcy, here’s what to do next:

Step 1: Gather Your Financial Information

Collect documentation, including:

Recent pay stubs and tax returns
List of all debts with balances and payment terms
Monthly expense breakdown
Asset list with current values
Mortgage statements and property tax bills
Any legal documents, like demand letters or court papers
All of this information can be captured by completing our Debt Relief Worksheet

Step 2: Schedule a Free Consultation

Contact Ira Smith Trustee & Receiver Inc. for a confidential, no-obligation consultation. We offer both video and in-person meetings. We’ll review your situation and explain your options clearly, including:

Whether bankruptcy is necessary or if alternatives exist
What type of discharge might you expect
How to avoid a conditional discharge if possible
Timeline and costs for each option
Impact on your family, employment, and future

Step 3: Make an Informed Decision

After understanding all options, you can make the choice that’s right for your situation. We’ll never pressure you – our role is to provide expert advice and support whatever decision you make.

Step 4: Take Action

Once you’ve decided on a path forward, we’ll handle all the legal requirements, court filings, and creditor communications. You’ll have experienced professionals managing every aspect of your case.

Conditional Discharge Conclusion: Learning from Others’ Experiences and Embracing the Path to a Bright Financial Future

The case of Ms. Li’s conditional discharge offers important lessons for anyone struggling with debt in the Greater Toronto Area. While her situation involved failed real estate transactions, the principles apply broadly:

Be realistic about your financial capacity before making major commitments
Cooperate fully with professionals trying to help you
Understand your legal duties and responsibilities
Seek expert advice early, before problems become crises
Choose experienced professionals to guide you through difficult processes

A conditional discharge isn’t the end of the world – it’s a manageable step toward financial recovery. However, the best approach is avoiding situations that might lead to bankruptcy in the first place, or choosing alternatives like consumer proposals when appropriate.

At Ira Smith Trustee & Receiver Inc., we’ve helped many individuals and families in the Greater Toronto Area successfully navigate financial difficulties and emerge with a fresh start. Whether you’re facing mortgage default, overwhelming consumer debts, failed business ventures, or other financial challenges, we’re here to help. You can also visit our Google Business Profile to learn more about our services and read client testimonials.

Don’t let financial stress control your life. Contact Ira Smith Trustee & Receiver Inc. today for a free, confidential consultation. Call us at (647) 799-3312 to discuss your options with an experienced Licensed Insolvency Trustee who truly cares about your future, Starting Over Starting Now.

Remember: seeking help isn’t a sign of failure – it’s a smart step toward financial recovery and peace of mind. Let us help you find the right path forward.

The information provided in this blog is intended for educational purposes only. It is not intended to constitute legal, financial, or professional advice. Readers are encouraged to seek professional advice regarding their specific situations. The content should not be relied upon as a substitute for professional guidance or consultation. The author, Ira Smith Trustee & Receiver Inc., and any contributors do not assume any liability for any loss or damage.

Brandon Smith is a Licensed Insolvency Trustee and Senior Vice-President at Ira Smith Trustee & Receiver Inc., serving individuals and businesses throughout the Greater Toronto Area. With years of experience in insolvency cases, including financial restructuring, Brandon helps clients navigate complex financial challenges and find sustainable solutions, Starting Over Starting Now.

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Brandon Blog Post

INSOLVENCY TRUSTEE COURT ORDER: THE FULL POWER OF THE COURT IN ONTARIO REGULATORY PROCEEDINGS

Post author By Brandon Smith
Post date October 6, 2025

Insolvency Trustee Court Order: Introduction

As a Licensed Insolvency Trustee (formerly called a trustee in bankruptcy) at Ira Smith Trustee & Receiver Inc. in the Greater Toronto Area, I meet with people and business owners every day who feel overwhelmed by debt. Many believe we only handle bankruptcies. The truth is, our role goes much deeper. We act as a bridge between financial trouble and the Canadian legal system.

From our Vaughan office at 167 Applewood Crescent, Suite 6, we help clients find a secure path through their financial challenges. One of the most powerful tools in this process is the insolvency trustee court order.

These court orders form the backbone of fairness and legality in Canadian insolvency cases. Whether you’re a small business owner looking for a way to save or safely close your business, or dealing with a multi-million-dollar corporate restructuring, court orders protect everyone involved.

Let me share a very recent Ontario court decision. In 2025, the Ontario Securities Commission (OSC) took action against Cacoeli Asset Management and related entities (Cacoeli). This case shows exactly how an insolvency trustee court order can stop improper conduct and protect investors.

In this post, I’ll explain:

What happened in the Cacoeli case and why it matters
How the court decided to appoint a receiver
What a Licensed Insolvency Trustee does under a court order
When you need a court order in insolvency proceedings

Let’s start with the case that brought these issues to light.

The Superior Court’s Insolvency Trustee Court Order Appointing the Receiver

In the recent Ontario court case of, Ontario Securities Commission v. Cacoeli Asset Management, 2025 ONSC 3012, the OSC asked the Ontario Superior Court of Justice for urgent help. They wanted an insolvency trustee court order to take control of the Cacoeli assets before their investigation was even finished. This is a serious step that requires strong reasons.

The Problem: Misused Investor Money

The OSC found that Cacoeli had raised at least $13 million from about 53 investors. Each investor thought their money was going to buy and manage a specific property. Different limited partnerships were created for each unique property.

However, the investigation revealed something troubling. Money meant for one property was allegedly being moved to support completely different properties. This is called “fund diversion.”

Investors who thought their money was buying Property A discovered it might have been used for Properties B, C, or D instead.

What Standard of Proof Was Needed?

Cacoeli’s lawyers argued that appointing a receiver is extremely serious. It takes away the company’s control over its own business. They said the OSC needed to prove a “strong prima facie case” – meaning very strong evidence that laws were broken.

Justice Steele disagreed. She confirmed that for protective orders under Ontario’s Securities Act, the OSC only needs to show “serious concern that there have been possible breaches.”

Why does this matter? It means courts can act quickly to protect investors. They don’t have to wait months or years for a full trial when people’s money is at risk.

Reading the Partnership Agreements

Cacoeli argued that their partnership agreements allowed them to move money around. They pointed to clauses that gave the General Partner power to “invest funds” and “engage in any transaction with affiliates.”

Justice Steele carefully read the agreements. She found that the “Purpose” section was crystal clear. Each partnership existed for one specific reason: to acquire and manage that particular property only.

The broad powers mentioned elsewhere in the agreement could only be used to support that specific purpose. They couldn’t be used to break the fundamental promise made to investors.

This finding confirmed that the fund diversion was serious and possibly illegal.

Why Include All Properties Under One Receiver?

Certain secured creditors held mortgages on specific Cacoeli properties. Some of them asked the court to exclude their properties from the receivership. They wanted to seize and sell those properties themselves.

Justice Steele said no. She ordered the insolvency trustee court order to cover all Cacoeli properties and companies.

Why? Excluding properties would create chaos:

Different creditors would fight over different assets
Multiple court cases would overlap and contradict each other
Costs would skyrocket
Small creditors would get nothing

Appointing one Licensed Insolvency Trustee as the court-appointed receiver guaranteed central oversight, coordination, and fairness for everyone.

Insolvency Trustee Court Order: The Court of Appeal Upholds Investor Protection

Cacoeli appealed Justice Steele’s decision. The case went to the Court of Appeal for Ontario. A panel of three justices – Hourigan, Zarnett, and Pomerance – reviewed the lower court decision in Ontario Securities Commission v. Cacoeli Asset Management Inc., 2025 ONCA 654 (CanLII).

The Main Argument on Appeal

Cacoeli made the same argument again. They insisted that appointing a receiver was so powerful that courts should require the higher “strong prima facie case” standard of proof.

The Court of Appeal’s Strong Response

The Court of Appeal rejected this argument completely. Their reasoning matters for anyone dealing with financial regulation:

Public protection comes first: Requiring a high standard of proof would “impede the public protection mandate of the OSC”
Early action is essential: A high standard would make it “impossible for the OSC to obtain receivership at the early stages of an investigation when the facts are not fully known.”

This is a clear message from Ontario’s highest court: when protecting the public is the priority, courts will allow regulators to act fast using an insolvency trustee court order – even before every detail is fully investigated.

The receivership order acts as a protective shield, not a final punishment.

The Final Decision

The Court of Appeal found “no question that the OSC has established a serious concern” about possible legal breaches.

The appeal was dismissed. The original insolvency trustee court order appointing the receiver remained in force.

Cacoeli was ordered to pay the OSC $15,000 for the costs of the appeal.

The Foundational Role of a Licensed Insolvency Trustee in Canada

Who Is a Licensed Insolvency Trustee?

A Licensed Insolvency Trustee (LIT) is the only professional in Canada authorized to administer bankruptcies and consumer proposals. In addition, only LITs can act as a receiver, be it private or court-appointed under an insolvency trustee court order.

We are not lawyers. We are officers of the court.

To become an LIT, you must:

Complete rigorous education requirements
Gain practical experience in the field
Pass demanding written and oral examinations
Demonstrate expertise in financial assessment, accounting, and insolvency law

This high standard allows us to act as impartial administrators of insolvency estates. Think of us as neutral referees. Our job is to balance the rights of:

The debtor (the person or company owing money)
The creditors (the people or companies owed money)

The Law That Guides Everything We Do

The first piece of legislation that covers every action a Licensed Insolvency Trustee takes is the federal law: the Bankruptcy and Insolvency Act Canada (BIA).

The BIA is the ultimate authority for virtually all consumer and corporate insolvency proceedings in Canada. It:

Lays out the rules for debt relief
Sets the framework for proposals (which help restructure debt)
Defines the powers and duties of trustees

Very large corporate restructurings are usually done under a different federal law, the Companies’ Creditors Arrangement Act (CCAA).

The BIA and CCAA are our playbooks. The courts are the referees who make the final calls. Provincial laws also apply, but the federal BIA governs all Licensed Insolvency Trustees.

Federal Oversight: The Office of the Superintendent of Bankruptcy

Unlike most private professionals, Licensed Insolvency Trustees are constantly supervised by a federal regulator: the Office of the Superintendent of Bankruptcy Canada (OSB).

The OSB’s job is to ensure that Canada’s insolvency system is fair, efficient, and that trustees perform their duties with integrity.

This creates two layers of oversight:

The OSB (administrative supervision)
The Courts (judicial supervision)

This dual oversight gives the public and creditors confidence in the system. We must report all significant actions to the OSB. For many major decisions, we seek court approval through an insolvency trustee court order.

Our Core Responsibilities

Whether helping an individual consumer get a financial fresh start through a personal insolvency process or managing a complex corporate wind-down, our core responsibilities stay the same:

Secure Assets: Take possession and control of all assets belonging to the debtor (subject to provincial exemptions for individuals and the rights of trust claimants and secured creditors)

Investigate Financial Affairs: Examine the debtor’s finances, including transactions before the insolvency filing, to ensure fairness

Realize Value: Sell assets in a way that maximizes returns for creditors

Distribute Funds: Distribute money collected to creditors according to the priority rules in the BIA and/or as approved by the court through an insolvency trustee court order

Report: Provide detailed financial reports to creditors, the OSB, and the court

Understanding the Necessity of an Insolvency Trustee Court Order in Insolvency Proceedings

What Is an Insolvency Trustee Court Order?

A court order is a written ruling by a judge that must be followed. In insolvency, an insolvency trustee court order is an official directive that either:

Grants the Licensed Insolvency Trustee specific powers, or
Approves a significant decision or action

In the Cacoeli case, the Ontario Superior Court of Justice issued an insolvency trustee court order appointing a receiver. This order gave the receiver legal authority to seize control over all assets and properties of the Cacoeli companies.

Why Court Involvement Is Essential

Courts aren’t involved just to follow bureaucratic procedure. They serve two critical purposes:

Neutrality and Impartiality: Insolvency creates conflict. A judge provides a neutral, binding decision that everyone must respect. This ensures no single party unfairly benefits.

Legal Compliance: By reviewing the Trustee’s requests and issuing an order, the court confirms that proposed actions follow the BIA and other relevant laws strictly.

What Requires Court Approval?

Not every action a Licensed Insolvency Trustee takes requires a judge’s approval. The insolvency trustee court order appointing the receiver gives certain discretionary powers, such as handling routine matters, including administrative disbursements.

However, any major decision that impacts the fundamental rights of debtors or creditors must be sanctioned by an insolvency trustee court order. This creates a clear line between day-to-day administration and actions requiring judicial authority.

Key Scenarios Requiring a Licensed Insolvency Trustee to Obtain an Insolvency Trustee Court Order

Many actions taken by a Licensed Insolvency Trustee in a court-supervised receivership require court permission through an insolvency trustee court order. Here are the most common situations:

Approval of Trustee Fees and Administrative Costs

Our fees are strictly regulated through a process called “taxation.” The ultimate fees and costs must be approved by the court through an insolvency trustee court order.

This is a critical check to ensure the estate isn’t being overcharged. It protects creditors from excessive fees eating into their recovery.

Authorizing Unusual or Complex Transactions and Asset Sales

A key duty of a Licensed Insolvency Trustee is to liquidate (sell) assets. However, court approval is required when the transaction is:

Unusual: Selling a non-standard asset or unique piece of real estate

Complex: Selling an entire business as a “going concern” (a live business that continues operating)

Controversial: When one or more stakeholders object to the sale price or terms

In these cases, the Trustee must provide sufficient evidence to a judge for an insolvency trustee court order to approve the transaction.

Resolving Disputes Among Stakeholders

The Trustee may face disputes such as:

A party claiming ownership of an asset under the receiver’s control
A dispute over the validity or priority of different security interests
Creditors disagreeing about distribution

When these disputes can’t be settled through negotiation, the Trustee brings a motion to court. A judge issues an insolvency trustee court order that settles the matter legally and definitively.

In the Cacoeli case, secured creditors wanted their properties excluded from the receivership. Justice Steele rejected this request. She stated the receivership must cover all properties to prevent chaos among creditors. This is a prime example of the court resolving a major stakeholder dispute.

Approving Debtor Proposals and Restructuring Plans

The goal of a business proposal under a BIA Division I Proposal or major corporate restructuring under the CCAA is to financially restructure the company to save it and as many jobs as possible.

A significant insolvency trustee court order is always required for final approval of a Division I restructuring proposal or restructuring plan. The court confirms that the plan is fair, reasonable, viable and calculated for the general benefit of all creditors.

Modifying, Annulling, or Terminating Insolvency Proceedings

Sometimes a debtor’s situation changes. They may need to alter their original plan based on changed circumstances. Or the Trustee may discover an issue that warrants ending the insolvency proceeding entirely, as the original plan is no longer viable.

A judge must review the facts and issue an insolvency trustee court order to modify, annul, or terminate the proceeding.

Addressing Trustee Liability or Allegations of Misconduct

If any stakeholder alleges that a LIT has breached their duties or acted improperly, the matter goes before a judge.

The court must issue an order to investigate the claim. If necessary, the court can order compensation or disciplinary action against the Trustee. This ensures absolute accountability.

The Far-Reaching Significance of Judicial Oversight in Insolvency

Protecting the Interests of All Parties

Judicial oversight is about trust. By demanding an insolvency trustee court order for critical actions, the system provides comfort to all parties:

Debtors know the process is being handled legally

Creditors know assets can’t be sold cheaply or favour one creditor over another

The Public knows the integrity of capital markets is being enforced, as the Court of Appeal confirmed in the Cacoeli case

Ensuring Transparency, Accountability, and Due Process

Every court motion becomes part of a public record. This transparency ensures every stakeholder can review the trustee’s actions.

The process also provides due process – the right to be heard. Any party can attend a hearing and object to a proposed action.

Upholding Public Confidence in the Canadian Insolvency System

Canada’s entire economy relies on:

The ability of businesses to take risks
The ability of creditors to enforce their rights

According to Industry Canada’s publication “Fresh Start: A Review of Canada’s Insolvency Laws“:

Insolvency legislation is a key component of Canada’s marketplace framework legislation that governs commercial relationships for both consumers and businesses. Certain and reliable rules provide security for investors and lenders that, in turn, influences the cost and availability of credit in the Canadian marketplace.

When the system fails, the court restores order. They are the clear, final legal instrument that upholds the integrity of the process and ensures public faith in financial markets and debt restructuring.

The Ultimate Framework for All Decisions

Regardless of the unique facts of any case, every judicial decision is rooted in federal and provincial law. Judges interpret the law to deliver their orders, making it the ultimate framework for every action taken by a Licensed Insolvency Trustee.

Consequences of Acting Without a Necessary Insolvency Trustee Court Order

Potential Ramifications for the Licensed Insolvency Trustee

A trustee who ignores the need for an insolvency trustee court order faces serious consequences:

Personal Liability: The trustee could be held personally responsible for any financial loss to the estate caused by unauthorized action

Disciplinary Action: The court and the OSB could impose sanctions, fines, or, in severe cases, the OSB could revoke the LIT’s license

Voided Actions: The action itself (such as an asset sale) could be reversed or voided by a subsequent court decision, creating chaos and cost

Adverse Impacts on the Insolvency Estate and Stakeholders

When a Licensed Insolvency Trustee acts outside the BIA or without proper authorization, the entire estate suffers:

Increased Costs: The estate incurs significant costs fighting legal challenges and correcting unauthorized actions

Delayed Proceedings: Disputes and legal challenges drag out the process, delaying final distribution of funds to creditors

Loss of Confidence: Creditors and debtors lose faith in the insolvency administration, leading to an unnecessarily hostile environment

Section 37 of the BIA provides that any person aggrieved by any act or decision of a Licensed Insolvency Trustee can apply to court to reverse or alter that act or decision. The court also has the authority to sanction the trustee.

Frequently Asked Questions: Insolvency Trustee Court Order

What is a Licensed Insolvency Trustee?

A Licensed Insolvency Trustee is the only professional in Canada who can legally administer receiverships, bankruptcies and consumer proposals. We used to be called trustee in bankruptcy, but the name changed to better reflect our broader role.

Think of us as a bridge between your financial troubles and the Canadian legal system. We’re officers of the court, which means we have a legal duty to be fair and impartial.

Only Licensed Insolvency Trustees can act as receivers, whether privately appointed or through an insolvency trustee court order.

To become an LIT, you must:

Complete rigorous education requirements
Gain practical experience in insolvency work
Pass demanding national examinations
Demonstrate expertise in insolvency law, accounting, and financial assessment

This ensures that every LIT has the knowledge and skills to handle complex financial situations fairly.

What does a Licensed Insolvency Trustee actually do?

Whether we’re helping someone with personal debt or managing a complex corporate restructuring or bankruptcy, our core responsibilities stay the same:

Secure Assets: We take control of all assets belonging to the debtor. This protects them from being hidden or sold improperly. (Some assets are exempt, and trust claimants and secured creditors keep their rights.)

Investigate Financial Affairs: We carefully examine the debtor’s financial transactions made before filing for insolvency.

Realize Value: We sell assets in a way that gets the best possible return for creditors. This might mean selling items individually or selling a business as a going concern.

Distribute Funds: We distribute the money we collect to creditors following the strict priority rules in the Bankruptcy and Insolvency Act. Sometimes, an insolvency trustee court order determines the distribution.

Report: We provide detailed financial reports to the court, creditors, and the Office of the Superintendent of Bankruptcy. Transparency is essential.

What law governs Licensed Insolvency Trustees in Canada?

The primary law that guides almost everything we do is the federal Bankruptcy and Insolvency Act. This is Canada’s main insolvency legislation.

The BIA covers:

Rules for debt relief and bankruptcy
The framework for consumer proposals and corporate proposals
The powers and duties of Licensed Insolvency Trustees
Priority rules for paying creditors
When court orders are required

For very large corporate restructurings (typically companies with debts over $5 million), the federal Companies’ Creditors Arrangement Act often applies instead. The CCAA allows for more flexible restructuring options.

Both laws work together with provincial legislation to create Canada’s comprehensive insolvency system.

Who oversees Licensed Insolvency Trustees?

Licensed Insolvency Trustees operate under two layers of oversight. This dual supervision ensures the system works fairly:

The Courts: Provide judicial supervision and make final decisions on major actions. Courts issue insolvency trustee court orders that authorize significant steps in the process.

The Office of the Superintendent of Bankruptcy Canada: This federal regulator provides administrative supervision. The OSB ensures:

Canada’s insolvency system remains fair and efficient
Trustees perform their duties with integrity
Trustees follow all rules and regulations
Any complaints against trustees are investigated

This two-level oversight gives the public, debtors, and creditors confidence that the process will be handled properly.

What is an insolvency trustee court order?

An insolvency trustee court order is a written ruling issued by a judge that must be followed. It’s a legally binding document.

In insolvency cases, these court orders serve two main purposes:

Grant the Licensed Insolvency Trustee specific legal powers
Approve a significant decision or action that the LIT plans to take

These orders form the backbone of fairness and legality in Canadian insolvency cases. They ensure that major decisions have judicial approval and oversight.

For example, when a receiver is appointed (like in the Cacoeli case discussed in our blog), the insolvency trustee court order gives that receiver the legal authority to take control of assets and manage the insolvency process.

Why do courts get involved in insolvency proceedings?

Courts aren’t just following bureaucratic procedure. They serve two critical purposes in insolvency:

Ensuring Neutrality and Impartiality: Insolvency creates conflict. Creditors want their money. Debtors need protection. The judge provides a neutral, binding decision that everyone must respect. This prevents any single party from benefiting unfairly at the expense of others.

Confirming Legal Compliance: Before issuing an insolvency trustee court order, the court reviews the Applicant’s request carefully. This confirms that the proposed actions strictly follow the BIA and other relevant laws. If something doesn’t comply with the law, the judge won’t approve it.

This judicial oversight protects everyone’s rights and maintains public confidence in Canada’s insolvency system.

When does a Licensed Insolvency Trustee need a court order?

Not every action requires an insolvency trustee court order. We have discretionary powers for routine administrative matters – like paying regular administrative expenses or communicating with creditors.

However, any major decision that impacts the fundamental rights of creditors or debtors must be sanctioned by a court order. Here are the most common scenarios:

Approval of Fees and Costs: Our fees and administrative costs must be approved by the court through a process called “taxation.” This protects creditors from excessive charges eating into their recovery.

Authorizing Complex Transactions: Court approval is required for asset sales that are:

Unusual (non-standard assets or unique properties)
Complex (selling an entire business as a going concern)
Controversial (stakeholders object to the sale price or terms)

Resolving Disputes: When disputes arise – such as someone claiming ownership of an asset, or secured creditors disagreeing about distribution priorities – we bring a motion to court. The judge issues an order that settles the matter legally and definitively.

Approving Restructuring Plans: Final approval of a BIA Division I restructuring proposal or a CCAA corporate restructuring plan always requires a significant insolvency trustee court order. The court must confirm that the plan is fair, reasonable, and has a realistic chance of success.

Modifying Proceedings: If circumstances change and the insolvency proceedings need to be modified, annulled, or otherwise terminated, a court order is required.

Addressing Trustee Issues: If anyone alleges the LIT has breached their duties, the matter goes before a judge who can investigate and order appropriate remedies.

What happens if a trustee acts without getting a required court order?

Ignoring the requirement for an insolvency trustee court order leads to serious consequences for the Licensed Insolvency Trustee:

Personal Liability: The LIT may be held personally responsible for any financial loss to the estate caused by the unauthorized action. This means paying out of their own pocket.

Disciplinary Action: The court or the OSB can impose:

Sanctions
Significant fines
Suspension from practice
In severe cases, complete revocation of the LIT’s license

Voided Actions: The unauthorized action itself – such as an improper asset sale – could be reversed or voided by a subsequent court decision. This creates chaos and additional costs.

Negative Impact on Everyone: Unauthorized actions harm the entire insolvency estate:

Increased legal costs
Delayed proceedings
Loss of creditor confidence
Potential loss of asset value

Section 37 of the BIA specifically allows any person who is aggrieved by an LIT’s decision to apply to court to reverse or alter that decision. The court has full authority to sanction the trustee.

What standard of proof is needed to appoint a receiver in regulatory cases?

This is one of the most important takeaways from the Cacoeli case about insolvency trustee court orders.

When a regulator like the Ontario Securities Commission asks the court for urgent protection, they only need to show “serious concern that there have been possible breaches.”

This is a lower standard than criminal cases or even most civil cases. The court doesn’t need:

Absolute proof of fraud
Complete evidence
A finished investigation

The Court of Appeal for Ontario specifically rejected the argument that regulators must meet a higher “strong prima facie case” standard.

Why does this matter?

This lower standard allows courts and regulators to act quickly through an insolvency trustee court order to:

Protect investors from ongoing harm
Freeze assets before they disappear
Stop improper conduct immediately
Preserve evidence

The insolvency trustee court order appointing a receiver acts as a protective shield, not a final punishment. Full investigations and trials can happen later, but the immediate protection comes first.

Why did the Cacoeli court order cover all properties, even those with secured creditors?

In the Cacoeli case, some secured creditors held mortgages on specific properties. They asked the court to exclude their properties from the receivership so they could seize and sell those properties themselves.

Justice Steele refused this request. The insolvency trustee court order covered all Cacoeli assets and properties without exception.

The Court of Appeal upheld this decision. Here’s why centralized control under one Licensed Insolvency Trustee as receiver was essential:

Prevents Creditor Chaos: If different creditors could seize different assets, they would fight over everything. The process would become a free-for-all with no coordination.

Avoids Multiple Court Cases: Excluding properties would lead to numerous separate legal proceedings, all overlapping and potentially contradicting each other.

Controls Costs: Multiple proceedings mean multiplied legal costs. A single insolvency trustee court order with one receiver keeps costs manageable.

Protects Small Creditors: When secured creditors grab assets first, unsecured creditors and small suppliers are not given a forum. Centralized control ensures everyone is treated fairly according to their legal priority.

Enables Efficient Administration: One receiver can see the whole picture, make coordinated decisions, and maximize value for all stakeholders.

This principle applies to most complex insolvency cases: centralized control through an insolvency trustee court order produces better outcomes than fragmented, competing proceedings.

Insolvency Trustee Court Order Final Thoughts: The Licensed Insolvency Trustee’s Role in a Regulatory Receivership

The insolvency trustee court order is an instrument of authority, protection, and fairness. As Licensed Insolvency Trustees, our job – whether in a standard bankruptcy, a financial restructuring or a specialized receivership like the Cacoeli case – is to impose order and protect stakeholders.

The Cacoeli decisions confirmed two critical points:

Lower Standard for Protection: Courts won’t wait for proof of fraud to a certainty. The “serious concern” standard is enough to appoint an LIT as a receiver quickly. This is essential to freeze assets and prevent further investor harm.

Centralized Control Is Key: The court agreed that the entire portfolio of assets must be placed under one receiver’s control – even properties secured by third parties. This centralized approach, ordered by the court, prevents a fragmented, costly, and unfair outcome for all stakeholders.

Need Help With Debt or Insolvency Issues?

If you’re facing financial challenges – whether personal or business-related – understanding the role of an insolvency trustee court order is just the beginning. At Ira Smith Trustee & Receiver Inc., we’ve helped many individuals and businesses in the Greater Toronto Area find their path to financial recovery.

From our Vaughan office, we provide:

Free, confidential consultations
Expert guidance on bankruptcy alternatives
Consumer proposals that can reduce your debt
Corporate restructuring solutions
Court-supervised receiverships

Contact us today to discuss your situation. Let us help you understand your options and find the best solution for your financial future.

Brandon Smith, Licensed Insolvency Trustee
Senior Vice-President
Ira Smith Trustee & Receiver Inc.
167 Applewood Crescent, Suite 6
Vaughan, Ontario
Greater Toronto Area

Brandon Smith is a Licensed Insolvency Trustee and Senior Vice-President at Ira Smith Trustee & Receiver Inc., serving individuals and businesses throughout the Greater Toronto Area. With years of experience in insolvency cases, including financial restructuring, Brandon helps clients navigate complex financial challenges and find sustainable solutions, Starting Over Starting Now.

Tags administrative disbursements, Bankruptcy and Insolvency Act, Cacoeli Asset Management, Companies’ Creditors Arrangement Act, Consumer Proposal, court approval, Court of Appeal for Ontario, court orders, court permission, Division I restructuring proposal, insolvency law, insolvency trustee court order, licensed insolvency trustee, Office of the Superintendent of Bankruptcy Canada, Ontario court decision, Ontario Securities Commission, Ontario Superior Court of Justice, personal insolvency process, trustee in bankruptcy

Brandon Blog Post

A CANADA TRUSTEE’S COMPLETE VIEW OF CANADA’S ‘TWO-SPEED’ ECONOMY: WHY CONSUMER INSOLVENCIES ARE SOARING WHILE CORPORATIONS AREN’T

Post author By Brandon Smith
Post date September 15, 2025

Canada trustee

The economy, much like a highway during rush hour, can move at different speeds. For some, it’s a smooth, open road. For others, it’s a gridlock of financial stress and mounting debt. As a Canada Trustee, I just read the new 2024-25 Annual Report from the Office of the Superintendent of Bankruptcy (OSB). It shows that Canada’s economy is looking more and more like this “two-speed” highway.

On one side, we have everyday Canadians and small businesses facing a significant increase in financial trouble requiring help with debt solutions. On the other hand, large corporations appear to be cruising along, handling economic bumps with ease. This striking difference is at the heart of the OSB’s 2024-25 Annual Report. It tells a powerful story about why more people are struggling and what the country’s official insolvency watchdog is doing about it.

This blog post will explore the key findings of the report, dive into the reasons behind this two-speed economy, and explain the important role of a Canada Trustee in helping people navigate these challenging times.

The Numbers Tell the Story: A Tale of Two Economies

The most surprising and important finding in the OSB’s report is the clear split between consumer and corporate financial health. The numbers don’t lie.

First, let’s look at the side of the road where most people are stuck: the world of consumer debt.

The OSB accepted 143,864 insolvency filings in the 2024-25 fiscal year.
This represents a notable increase of 7.6% from the year before.

To put this into perspective, an insolvency filing is when an individual or a small business officially asks for help with their debts, usually through a bankruptcy or a consumer proposal. Both these administrations occur under the Canadian Bankruptcy and Insolvency Act (BIA). A 7.6% jump in one year is a significant red flag. It points to a growing number of Canadians who are feeling the squeeze and can no longer keep up with their financial commitments.

Now, let’s look at the other side of the highway, where the big companies are. The OSB also tracks filings under the Companies’ Creditors Arrangement Act (CCAA). The CCAA is a law used by large corporations that need to restructure and reorganize their business when they are in serious financial trouble.

There were only 70 CCAA filings in 2024-25.
This is actually a decline of 2.8% from the previous year.

This is the core of the “two-speed” economy. The number of everyday people needing help is climbing fast, while the number of big companies in distress is going down. This trend suggests a Canada where financial stability depends heavily on your size. If you are a large, well-established company, you have been able to navigate recent economic challenges. But if you’re an individual, a family, or a small business, the ride has been much bumpier.

Why Are More Canadians Drowning in Debt?

The OSB report doesn’t go into a deep analysis of the “why” behind these numbers, but it points to some key factors that are widely recognized as the main drivers of financial stress. These are not new headlines, but their combined effect has been felt more deeply this year.

Inflation and the Rising Cost of Living: We’ve all felt it at the grocery store, the gas pump, and in our monthly bills. Inflation means that our money doesn’t go as far as it used to. For many families, this has made it harder and harder to afford the necessities of life. When prices for food, housing, and transportation keep climbing, it leaves less money for everything else, making it difficult to pay off existing debts.
High Interest Rates: Over the past couple of years, central banks have raised interest rates to try and control inflation. While this is a necessary step for the economy, it has a direct and painful effect on anyone with a mortgage, car loan, or credit card debt. Higher interest rates mean that more of your money goes toward interest payments and less goes toward paying down the actual debt. This can turn a manageable debt load into an impossible one very quickly. A higher interest rate on a mortgage can add hundreds, or even thousands, of dollars to a person’s monthly expenses, putting immense pressure on their budget.

When you combine these two factors, you get the perfect storm for consumer financial distress. A family might be earning the same income, but their expenses are higher, and the cost of servicing their debt is higher. Something has to give, and for many, that “something” is their ability to stay on top of their financial obligations. It’s a situation where hard work and careful budgeting are simply not enough to keep up with the rising costs. This is often the point where people begin to look for solutions and seek the help of a Canada Trustee.

Why Are Big Companies Staying Afloat?

The other half of the story is why large corporations seem to be faring so much better. While the OSB report does not provide a detailed explanation for this, we can draw some logical conclusions based on the nature of a large business.

Large companies are often more resilient to economic headwinds than small businesses or individuals. They have some advantages that help them ride out the storm:

Financial Resources: Large corporations typically have significant cash reserves and better access to credit. This means they can absorb higher costs and interest rates more easily. They can borrow money at lower rates and for longer terms than an individual.
Diversification: Many big companies operate in multiple industries or regions. If one part of their business is struggling, another part might be thriving, helping to balance things out.
Ability to Absorb Costs: Large companies have more power to pass along increased costs to their customers without losing them. They also have the resources to find ways to cut costs in their own operations, such as by streamlining processes or using new technology.

This creates a clear imbalance. While a single person might be overwhelmed by a credit card payment jump of $50, a large corporation can absorb an increase of millions of dollars in interest payments without having to file for protection. The system is designed to allow large corporations to handle big economic swings, but it leaves individuals and small businesses much more exposed. This is why the role of a Canada Trustee becomes so crucial.

Introduction: Understanding the Role of a Trustee in Canada

The OSB’s report mentions that a Canada Trustee is a key figure in the country’s insolvency system. But what exactly are licensed insolvency trustees, and what do they do? The term “trustee” is used to describe a professional who holds property and acts on behalf of others. This role is a foundation of Canada’s legal and financial system.

What is a Canada Trustee? Defining the Core Concept

Licensed Insolvency Trustees are federally regulated professionals. They help people and businesses with serious debt problems. They are the only professionals allowed to handle insolvencies in Canada. The OSB report shows they play a key role during financial hardship. They act as a link between a person in debt and their creditors. The person who gives the property to the trustee is called in this case, a bankrupt.

The Foundation of Trust: Legal Framework and Fiduciary Duty

The most important part of being a Canada Trustee is the “fiduciary duty.” The word “fiduciary” comes from a Latin word that means “trust,” and this is the core of the relationship. A trustee has a legal and moral obligation to always act with honesty, loyalty, diligence, and prudence. They must put the interests of the beneficiaries or creditors ahead of their own. This means they must avoid any personal conflicts of interest and not try to profit from their role. The trustee must also be ready to account for everything they do, keeping accurate records of all financial transactions concerning the trust property.

Why Canada Trustees are Essential in the Canadian Landscape

Trustees are an essential part of the Canadian legal landscape because they provide a way for someone to manage important assets or affairs for another person, especially if that person is unable to do so themselves. A trustee can be appointed in a will, chosen through a separate trust document, or appointed by a court. For instance, a trustee can be appointed to manage an inheritance for a minor or to handle the finances of an adult who is no longer capable of making their own decisions and handling their financial situation on their own.

Canada trustee

The Diverse Landscape of Trusteeship in Canada

While the blog focuses on the Licensed Insolvency Trustee, it’s important to know that the term “trustee” covers a wide range of roles in Canada.

Licensed Insolvency Trustees (LITs): Navigating Financial Hardship

This is the specific type of Canada Trustee that the OSB report focuses on. A Licensed Trustee is a professional who specializes in helping individuals and businesses with serious debt problems. They are the only professionals legally authorized to administer insolvencies in Canada. As the OSB report shows, they play a critical role in times of financial hardship, acting as a link between a person in debt and their creditors.

Estate Trustees (Executors): Stewarding Legacies

An Estate Trustee, often called an executor, is a person named in a will to manage and settle the affairs of someone who has died. Their duties are numerous, including making funeral arrangements, locating all of the deceased’s assets, paying off any debts and taxes, and finally, distributing what is left to the beneficiaries as directed by the will.[8, 9] It is a legally demanding role that requires careful attention to detail.

The Public Guardian and Trustee (PGT): Protecting Vulnerable Interests

Each province has a Public Guardian and Trustee, a government office created to protect the legal and financial interests of the most vulnerable people in society.[10, 11, 12, 13] The PGT acts as a trustee of last resort when there is no trusted family or friend available to do so.[10, 13] This includes protecting the interests of mentally incapable adults, children under a certain age, and deceased or missing persons when no one else can administer their estate.

Professional Trustees and Trust Companies: Specialized Asset Management

For those with large or complex estates, or when family conflicts are a concern, a professional trustee or trust company can be appointed to handle the trust property. These are professional fiduciaries—often a trust department of a bank or a private trust company—that are fully staffed with experts in law, taxes, and finance. They offer expertise and impartiality and can take on the day-to-day work of managing a trust.

Judicial Trustees: Court-Appointed Oversight

In some cases, a court may appoint a judicial trustee.] This happens when a person with mental or physical challenges needs help with their finances, and there is no one else to step in. A judicial trustee is authorized by the court to manage a person’s money and property, ensuring their bills are paid and their needs are met.

Core Responsibilities and Fiduciary Duties of a Trustee

Regardless of the type, every Canada Trustee is held to a high standard of conduct and has specific duties that are legally binding.

The Paramount Fiduciary Duty: Acting in the Best Interest of Beneficiaries/Creditors

An Estate Trustee, also called an executor, is named in a will to manage and settle a deceased person’s affairs. Their duties include making funeral arrangements, finding all assets, paying debts and taxes, and distributing what is left to beneficiaries as the will directs. This role requires careful attention to detail. The licensed trustee firm, Ira Smith Trustee & Receiver Inc., also acts as a court-appointed independent Estate Trustee.

Prudent Management of Trust Property and Assets

A Canada Trustee has a duty to manage and invest the assets they control responsibly and prudently. This means they must make informed decisions and act as a careful person would in similar circumstances. They must avoid risky or speculative investments and must treat all beneficiaries fairly.

Legal Compliance and Regulatory Adherence

A trustee must always follow the law. This can be complex, as a Canada Trustee must comply with a range of federal and provincial laws, as well as the terms of any will or trust document. For example, an Estate Trustee must ensure that all debts and taxes are paid before distributing assets, or they could face personal liability. In Ontario, the Trustee Act comes into play.

Reporting, Disclosure, and Accountability

A trustee must keep detailed and accurate records of all transactions and be ready to show these to the beneficiaries at any time. This “duty to account” is a crucial part of their role, ensuring that they are transparent and accountable for their actions. If a trustee fails in their duties, they can be removed by the court and ordered to pay for any losses.

Trustee Remuneration: Compensation for Services Rendered

Trustees are entitled to be paid for their services.] How much they are paid is usually determined by the will or trust document, or if not specified, it is decided by provincial law or the court. For example, the Public Guardian and Trustee of British Columbia charges prescribed fees for their services, typically ranging from 3% to 5% of the estate’s value.

Canada trustee

Navigating Financial Challenges: How Trustees Provide Debt Relief

As the OSB report highlights, the need for debt relief is growing. This is where the Licensed Insolvency Trustee becomes the most relevant kind of Canada Trustee for many people.

Understanding Financial Difficulties and Debt Problems

The first step in seeking help is acknowledging the problem. The OSB report shows that more Canadians are facing a financial gridlock due to factors like high interest rates and the rising cost of living. When you find yourself unable to pay your bills, a Licensed Insolvency Trustee is the professional to consult.

Options for Individuals: Consumer Proposals and Personal Bankruptcy

While consumer credit counselling can help many Canadians manage their debts, sometimes your financial situation requires more powerful legal solutions. When your debt load exceeds what you can realistically repay through traditional methods, consumer proposals and personal bankruptcy offer legal protection and genuine fresh starts.

As a Licensed Insolvency Trustee serving the Greater Toronto Area, I help people understand when these formal insolvency options become necessary alternatives to credit counselling. These government-regulated processes can eliminate or significantly reduce your debts while protecting you from creditor actions – something that consumer credit counselling services cannot legally provide.

If you’re facing overwhelming debt that exceeds 40% of your annual income, dealing with aggressive collection actions, or finding that minimum payments aren’t making a real dent in your balances, it may be time to explore these more comprehensive debt relief solutions that only Licensed Insolvency Trustees can administer:

Consumer Proposals: A consumer proposal is a legally binding offer to your creditors to pay back a portion of what you owe over a set period (up to five years).
Personal Bankruptcy: This is a legal process that allows you to be released from your debts and get a fresh financial start.

A Licensed Insolvency Trustee ensures that your rights are protected throughout these processes.

Corporate Insolvency and Restructuring

Beyond personal debt, a Licensed Insolvency Trustee also plays a key role in helping businesses that are in financial trouble. They can help companies reorganize and restructure their debt, which can save the business and its jobs. The OSB report’s mention of a decline in corporate filings suggests that this part of the economy is holding steady, but the service remains critical for businesses in distress.

Choosing the Right Canada Trustee for Your Specific Needs

The type of Canada Trustee you need depends entirely on your situation. Knowing who to turn to is the first step toward finding a solution.

When to Consult a Licensed Insolvency Trustee

You should consult a Licensed Insolvency Trustee when you are facing debt problems that you cannot solve on your own. They are the only ones who can legally help you with options like a consumer proposal or bankruptcy. A consultation with an LIT is free and will help you understand your situation and your legal options without any obligation.

When to Plan for an Estate Trustee/Executor

This is a step you should take when you are planning your will. Naming a trustworthy and competent person or company as your Estate Trustee is crucial for ensuring that your wishes are carried out and your beneficiaries are protected.

When the Public Guardian and Trustee May Be Involved

The PGT is an office of last resort. This means you should only expect them to be involved if there is no other suitable person to act as a trustee for a vulnerable individual or an estate. If you are worried about a family member who needs help, but no one is available to act, you can contact the PGT’s office.

When to Engage a Professional Trustee or Trust Company

A professional trustee is a good choice if you have a large and complex estate, or if you anticipate conflicts between family members after your death. They can provide professional expertise and impartiality, which can save a lot of stress and family disputes in the long run.

Key Factors in Trustee Selection

When choosing any type of Canada Trustee, remember to consider factors beyond just a personal relationship. Trustworthiness is a given, but you should also look for someone with the right skills, knowledge of tax and legal requirements, and the ability to act prudently and impartially.

Canada trustee

Regulatory Oversight and Professional Standards for Canadian Trustees

The different types of trustees in Canada are held accountable by various regulatory bodies and legal frameworks, ensuring they maintain high professional standards.

Licensed Insolvency Trustees (LITs): As the OSB report makes clear, LITs are strictly regulated by the Office of the Superintendent of Bankruptcy. The OSB conducts office visits, initiates compliance actions, and launches professional conduct investigations to ensure that LITs are following all the rules.
Estate Trustees: The duties of an Estate Trustee are regulated by provincial laws and overseen by the courts. If a trustee fails in their duties or mismanages an estate, the courts can remove them and hold them personally responsible for any losses.
Public Guardian and Trustee (PGT): These are government-appointed roles, and their authority and duties are set out in provincial laws.] They are held to the highest ethical and legal standards.
Trust Companies: Trust companies, which are often a part of a bank, are highly regulated entities.[16] They are regulated at the federal level by organizations like the Financial Consumer Agency of Canada (FCAC) and the Office of the Superintendent of Financial Institutions (OSFI).

Canada Trustee Conclusion

The OSB’s 2024-25 Annual Report shows that Canada’s economic reality is difficult for a growing number of people. In this “two-speed” economy, the role of a trusted professional like a Canada Trustee is more important than ever. Whether you need help with debt, are planning your will, or are a family member of a vulnerable person, knowing who these professionals are and how they can help is the first step toward securing your financial future.

The path to financial freedom in Canada’s current economic climate may be challenging, but it is not impossible. With the right information, a clear plan, and professional guidance, you can overcome your cost-of-living and debt challenges and move towards a more secure and hopeful financial future.

You’re not alone in this. There’s a path forward, and it starts with reaching out for the right kind of help. Take that step—you deserve it. If you’re a GTA resident dealing with overwhelming debt, don’t wait for your credit situation to get worse. As a licensed insolvency trustee serving Toronto, Mississauga, Brampton, Markham, and surrounding areas, I’m here to help you understand your debt relief options.

Free consultation available:

No obligation to proceed
Complete review of your debt and credit situation
Clear explanation of how debt relief options affect your Equifax credit score
Practical next steps you can take immediately

Remember: Your current financial situation doesn’t define your future. With the right help and information, you can overcome both debt challenges and credit score problems.

As a licensed insolvency trustee serving the Greater Toronto Area, I encourage consumers and business owners to view financial difficulties not as failures but as challenges that can be addressed with proper guidance. By understanding the warning signs of insolvency and seeking professional advice early, many people and businesses can find a path forward – whether through restructuring, strategic changes, or in some cases, an orderly wind-down that protects their future opportunities.

Remember: The earlier you seek help for company insolvency concerns, the more options you’ll have.

If you or someone you know is struggling with too much debt, remember that the financial restructuring process, while complex, offers viable solutions with the right guidance. As a licensed insolvency trustee serving the Greater Toronto Area, I help entrepreneurs understand their options and find a path forward during financial challenges.

At the Ira Smith Team, we understand the financial and emotional components of debt struggles. We’ve seen how traditional approaches often fall short in today’s economic environment, so we focus on modern debt relief options that can help you avoid bankruptcy while still achieving financial freedom.

The stress of financial challenges can be overwhelming. We take the time to understand your unique situation and develop customized strategies that address both your financial needs and emotional well-being. There’s no “one-size-fits-all” approach here—your financial solution should be as unique as the challenges you’re facing.

If any of this sounds familiar and you’re serious about finding a solution, reach out to the Ira Smith Trustee & Receiver Inc. team today for a free consultation. We’re committed to helping you or your company get back on the road to healthy, stress-free operations and recover from financial difficulties. Starting Over, Starting Now.

Canada trustee

Brandon Blog Post

RELATED PARTY LOANS IN BANKRUPTCY: HUGE ATLANTIC SEA CUCUMBER CASE LESSONS FOR GTA BUSINESSES

Post author By Brandon Smith
Post date July 21, 2025

A recent Nova Scotia court decision shows how a related party loan when a business is insolvent has tricky rules that can leave the lender in a difficult situation when the borrower company goes bankrupt. The Atlantic Sea Cucumber Ltd. court decision shows how everything can go wrong when critical mistakes are made with related party business loans and security agreements.

As a Licensed Insolvency Trustee firm serving the Greater Toronto Area for over 20 years, we’ve seen similar disasters happen to local businesses. The good news? These problems are completely preventable when you know the business insolvency rules.

Need help with related party loan or your debt issues? Schedule your free consultation today – don’t wait until it’s too late.

A related party is anyone with close ties to your business. Under Canada’s insolvency legislation, the Bankruptcy and Insolvency Act (BIA), this includes:

You and your company – if you lend money to your own business
Sister companies – two companies owned by the same person
Family members – spouse, children, parents lending to your business
Connected entities – companies with shared ownership or control

Regular bank loans have strict rules, credit applications, other formal paperwork, and clear terms. Related party loans often rely on handshake deals or simple agreements downloaded from the internet.

In bankruptcy, courts scrutinize these “insider” deals carefully. They want to ensure related parties aren’t jumping ahead of other creditors or moving money around unfairly.

Warning: Courts can void related party security granted within 12 months of bankruptcy. This means your security becomes worthless, leaving you as an unsecured creditor.

Atlantic Sea Cucumber Case: The Facts

Let me walk you through the case that every business owner needs to understand: Atlantic Sea Cucumber Ltd. (Re), 2025 NSSC 234.

The Players

Atlantic Sea Cucumber Ltd. (ASC) – The company that went bankrupt
Atlantic Golden Age Holdings Inc. (AGAH) – ASC’s parent company (the related party lender)
Weihai Taiwei Haiyang Aquatic Food Co. Ltd. (WTH) – Major supplier owed $1.32 million

What Went Wrong

The trouble started with a shipment of sea cucumbers, which ASC claimed were “too salty.” This led to a massive legal battle. By February 2023, WTH won a $1.32 million court judgment against ASC.

ASC filed for bankruptcy protection through a Notice of Intention to Make A Proposal in May 2023. The restructuring failed, and there wasn’t enough money to pay everyone. AGAH claimed they should get paid first because they had “security” on ASC’s assets.

The court disagreed. Here’s why AGAH lost.

Why AGAH’s Security Failed: The Critical Mistakes

Mistake #1: “Spent” Security Problem

In 2018, AGAH lent money to ASC with proper security, as elementary as it was. But this loan was fully repaid by November 2020. The court ruled this made the security “spent” – like a used gift card with no value left.

When AGAH made new loans after 2020, they weren’t covered by the old security agreement.

Mistake #2: Last-Minute Paperwork

In March and April 2023, just weeks before bankruptcy, AGAH tried to register new security documents. The timing looked suspicious to the court.

The court’s message was clear: “Late efforts to paper over prior advances rarely work, especially when bankruptcy is looming.”

Mistake #3: Internet Security Agreements

The court noted AGAH’s original security agreement was “inelegant” and likely downloaded from the internet. As the judge said, “The internet is a lousy lawyer.”

Result: AGAH’s argument that the 2018 security agreement was really for a revolving line of credit, rather than a one-time advance, failed. It became an unsecured creditor, losing its priority position and likely getting very little or nothing in the bankruptcy.

1. Proper Transaction Test

The court must determine if related party transactions were “proper,” meaning fair and not designed to cheat other creditors.

The ruling: The 2018 loan was proper, but the 2023 security registration was not proper because it tried to benefit the related party at other creditors’ expense.

2. Void Against the Trustee

This is the most damaging concept for related parties. Even if security seems valid between two or more related parties, it can be “void against the trustee” in bankruptcy.

What this means: Licensed Insolvency Trustees can ignore your security and treat you as an unsecured creditor.

3. 12-Month Look-Back Rule

The BIA presumes related party security granted within 12 months of bankruptcy is void. You must prove it was proper and given for fair value.

Take action now: If your business has financial problems, don’t wait to fix related party loan documentation.

1. Document Everything Professionally

Never rely on:

Handshake agreements
Simple emails
Internet-downloaded forms
AI-generated documents

Always include:

Exact loan amounts
Interest rates
Repayment schedules
Specific collateral descriptions
Default conditions

2. Register Security Immediately

Don’t just sign documents. For personal property, you must register security with your province’s Personal Property Security Act (PPSA) system immediately. Real property security has a different registration system in each province.

In Ontario, this means proper (PPSA) registration that gives public notice to other creditors.

3. Act Before Crisis Hits

Don’t wait until:

Your business faces lawsuits
Cash flow problems emerge
Other creditors demand payment
Bankruptcy becomes likely

The window for proper related party loans closes quickly once financial trouble begins.

4. Get Professional Help Early

As a Licensed Insolvency Trustee firm in the GTA, we are debt professionals who help businesses structure related party transactions correctly from the start. We can work with your lawyer to:

Review existing related party loans
Ensure proper documentation and registration
Plan debt restructuring strategies
Protect your assets legally

Don’t learn these lessons the hard way. Contact us for a free consultation before problems arise.

Lessons for Other Creditors

If you’re owed money by a company with related party loans, have your lawyer investigate those claims. Improperly documented related party loans mean more money available for ordinary unsecured creditors. Also, make sure that you prove your debt by filing your proof of claim if you are an ordinary unsecured creditor. This gives you standing to act and even review what the Trustee is doing and, perhaps more importantly, not doing!

2. The Licensed Insolvency Trustee Protects You

The Licensed Insolvency Trustee’s job is to ensure fairness for all creditors (although that was not necessarily the case in the Atlantic Sea Cucumber matter). We investigate and challenge suspicious related party claims that unfairly benefit insiders.

3. Verify Security Claims

Before extending credit, verify any existing security registrations. This reveals problems with documentation or scope that could affect your recovery.

4. Speak Up About Unfair Deals

If you suspect unfair related party dealings in a bankruptcy, raise concerns with the Trustee. We can investigate and take legal action when necessary.

Any loan between a business and its owners, family members, or connected companies is a related party transaction requiring special documentation and scrutiny.

The BIA allows challenges to related party security granted within 12 months of bankruptcy. Earlier transactions may also be challenged if they’re improper.

You need professional loan agreements, promissory notes, security agreements, proof of advance(s) and proper PPSA or land registry registrations. Internet downloads, AI-generated forms and casual agreements don’t work.

Yes, but they must be documented professionally, registered immediately, and given for fair market value of cash advances or credit lines in the ordinary course of business when the company is financially healthy.

Improperly secured related party loans become unsecured debts, meaning they’re paid after trust claims and valid secured creditors and may receive nothing if assets are insufficient.

The Bottom Line: Don’t Cut Corners

The Atlantic Sea Cucumber case teaches us that related party loans require professional handling from day one. Waiting until financial trouble hits or relying on DIY legal documents almost always fails.

As the court noted: “Don’t cut corners on legal paperwork.” This is especially true for related party transactions that face extra scrutiny in bankruptcy.

Key Takeaways for GTA Businesses:

Document related party loans professionally – no internet forms or handshake deals
Register security immediately – don’t wait for financial trouble
Act while financially healthy – late efforts rarely work
Get expert help early – prevent problems before they start

Don’t let related party loan mistakes destroy your business like they did for Atlantic Sea Cucumber Ltd.

Ira Smith Trustee & Receiver Inc. has helped Greater Toronto Area businesses and consumers navigate complex debt situations for over 20 years. We understand the unique challenges of related party transactions and can help you:

Structure loans properly from the start
Review existing related party agreements
Navigate financial restructuring
Protect your interests in bankruptcy proceedings

Take action now – contact us for a free, confidential consultation. Don’t wait until it’s too late to fix these critical issues.

Ira Smith Trustee & Receiver Inc. is a Licensed Insolvency Trustee firm serving consumers, entrepreneurs, and businesses in the Greater Toronto Area. Brandon Smith has 19 years of experience, and Ira Smith has 45 years of experience in the Greater Toronto Area insolvency marketplace. We specialize in helping clients navigate complex debt situations, business restructuring, and if required as a last resort, bankruptcy proceedings. Licensed and supervised by the Office of the Superintendent of Bankruptcy Canada and its local Official Receiver.

Contact Information:

Phone: 647.799.3312
Email: ira@irasmithinc.com or brandon@irasmithinc.com
Office: 167 Applewood Crescent #6, Vaughan, ON L4K 4K7
Website: https://irasmithinc.com

Brandon Blog Post

BANKRUPTCY AND INSOLVENCY ACT FORMS: YOUR COMPLETE GUIDE

Post author By Brandon Smith
Post date July 14, 2025

Bankruptcy and Insolvency Act Forms

Bankruptcy and Insolvency Act Forms Introduction

Dealing with debt can feel overwhelming. If you are a person looking into bankruptcy or a consumer proposal in Canada, or you are a business owner putting your company into a formal financial restructuring process, you’ll need to understand the paperwork involved by the insolvency profession.

As a Licensed Insolvency Trustee who has helped many individuals, their families and companies in the Greater Toronto Area over the last 20 years, I’ll walk you through everything you need to know about the regulatory framework carried out through Bankruptcy and Insolvency Act forms and precedents.

What Are Bankruptcy and Insolvency Act Forms and Precedents?

Think of the Bankruptcy and Insolvency Act (BIA) forms as official paperwork required by the Canadian government when someone files for bankruptcy proceedings or makes a consumer debt proposal. The Office of the Superintendent of Bankruptcy creates these Bankruptcy and Insolvency Act forms to make sure the process is legal and fair for everyone involved. The Office of the Superintendent of Bankruptcy is part of Innovation, Science and Economic Development Canada.

Bankruptcy and Insolvency Act Forms

These aren’t just suggestions – they’re required by law. Each form serves a specific purpose, like declaring bankruptcy, proving what creditors are owed, or reporting your monthly budget (Form 65). These necessary forms provides the Licensed Insolvency Trustee and all other stakeholders with the necessary information concerning the financial situation of the insolvent debtor, being either a person or company.

Why These Bankruptcy and Insolvency Act Forms Matter to You

Legal Protection: Once filed, these Bankruptcy and Insolvency Act forms stop creditors from calling you or taking money from your paychecks.

Clear Process: They create a step-by-step path to deal with your debt.

Your Rights: The forms protect both your rights and your creditors’ rights.

Fresh Start: Completing them properly gets you closer to financial freedom.

Who Needs Bankruptcy and Insolvency Act Forms?

People filing for personal bankruptcy proceedings
Individuals making consumer proposals
A business owner facing financial trouble whose company enters formal financial restructuring proceedings, including bankruptcy protection
Creditors are sent a notice in writing of your filing. Those who want to collect a portion of what they’re owed as a claim provable through the proof of claim process
A Licensed Insolvency Trustee is the only authorized person in Canada to manage the insolvency process

The Most Important Forms You’ll Encounter

Here are the key Bankruptcy and Insolvency Act forms most people deal with (there are over 90 in total, but you won’t need them all):

Form 21 – Assignment for Bankruptcy

What it does: Officially declares you bankrupt
Who uses it: You and your trustee
When: At the start of bankruptcy proceedings

Form 31 – Proof of Claim

What it does: Creditors use this to prove what you owe them
Who uses it: Your creditors who have a claim provable in your insolvency proceeding
When: After you file for bankruptcy or a proposal

Form 47 – Consumer Proposal

What it does: Your formal offer to pay creditors less than you owe
Who uses it: You and your trustee
When: If you choose a proposal instead of bankruptcy proceedings

Form 65 – Monthly Income and Expense Statement

What it does: Shows your income and expenses each month
Who uses it: You file this monthly during bankruptcy
When: Throughout your bankruptcy period

Form 78 – Statement of Affairs (Business/Corporate Bankruptcy/Proposal)

What it does: Lists everything your business owns and owes
Who uses it: Your company and your trustee
When: At the beginning of the corporate bankruptcy/proposal process

Form 79 – Statement of Affairs (Personal)

What it does: Lists everything you own and owe
Who uses it: You and your trustee
When: At the beginning of the process

Form 84 – Certificate of Discharge

What it does: Officially ends your bankruptcy
Who uses it: Your trustee files this for you
When: When you complete all bankruptcy requirements, you are entitled to a discharge certificate

Bankruptcy and Insolvency Act Forms

Note: New versions of Bankruptcy and Insolvency Act Forms 31, 65, 78, and 79 must be used for all cases filed after September 16, 2024.

Your Step-by-Step Journey Through the Forms

Based on my experience with hundreds of clients, here’s what happens:

Step 1: Free Consultation

We meet to discuss your situation. I will explain your options and what paperwork is involved. No Bankruptcy and Insolvency Act forms have been filed yet – this is just information gathering.

Step 2: Document Collection

You gather information about your debts, assets, income, and expenses. I provide you with a checklist so nothing gets missed.

Step 3: Form Preparation

Together, we complete your forms. I handle the technical aspects while you provide the financial information. Common Bankruptcy and Insolvency Act forms at this stage include your Assignment (Form 21) and Statement of Affairs (Form 79 for an individual or Form 78 for a Company).

Step 4: Filing with the Government

I file your completed forms electronically with the local representative for the Office of the Superintendent of Bankruptcy, known as the Official Receiver for that bankruptcy district. Once filed, creditor protection begins.

Step 5: Creditor Notification

Creditors receive notice in writing of your bankruptcy or proposal. They can then file their Bankruptcy and Insolvency Act forms (like Form 31) to participate.

Step 6: Ongoing Requirements

During bankruptcy, you’ll file monthly income and expense statements and may attend meetings. I guide you through each requirement.

Step 7: Completion

When you finish all duties, I will file your discharge papers (Form 84), which legally end your bankruptcy.

Bankruptcy and Insolvency Act Forms

Recent Changes You Should Know About

The government updated several key forms in September 2024. If you’re starting the process now, you’ll use the newest versions. These updates made some Bankruptcy and Insolvency Act forms clearer and added new questions about your financial situation.

Common Frequently Asked Questions About Bankruptcy and Insolvency Act Forms

What are the common signs that indicate I might need to consider bankruptcy or a consumer proposal?

If you are experiencing persistent collection calls, constant anxiety about your bills, sleepless nights, and feel trapped by overwhelming unsecured debt, these are strong indicators that exploring options under the Bankruptcy and Insolvency Act could be beneficial.

What is the primary purpose of Form 79 Statement of Affairs in the bankruptcy or consumer proposal process?

Form 79, also known as the Statement of Affairs, is a crucial, government-mandated document that provides a comprehensive, sworn disclosure of your entire financial situation. This includes all your assets, debts, income, and the reasons for your financial difficulties, forming the essential basis for your debt relief plan.

What immediate relief can I expect once I file for bankruptcy or a consumer proposal?

The moment the documents are accepted by the Official Receiver of the bankruptcy district, a “stay of proceedings” comes into effect. This legal protection immediately stops direct contact from your creditors, putting an end to collection calls and significantly reducing your financial stress, allowing you to breathe again.

What is the role of a Licensed Insolvency Trustee in helping with debt?

A Licensed Insolvency Trustee is the only professional in Canada to be the legally authorized person to administer bankruptcies and consumer proposals. They serve as your guide, explaining your available options, preparing all necessary legal documents like Form 79, and managing all communications with your creditors on your behalf.

What happens if I make a mistake on a form?

Small errors can usually be corrected. Major mistakes or missing information can delay your case. That’s why working with a Licensed Insolvency Trustee is important – we catch these issues before they become problems.

Can I fill out the forms myself?

Legally, yes. Practically, it’s not recommended. In my 15+ years of practice, I’ve seen people struggle with forms that seem straightforward but have legal implications they don’t understand.

How long does the paperwork take?

For most people, we can complete the initial Bankruptcy and Insolvency Act forms before you arrive for our meeting to sign and file the forms. Monthly forms take about 15 minutes once you get used to them.

What kind of information do I need to provide to my Licensed Insolvency Trustee to start the process?

To begin, you will need to provide your Licensed Insolvency Trustee with full personal details, a complete list of everything you own (assets), all your debts (both secured and unsecured), the names and addresses of all your creditors, any expected future income or lump sums, and the underlying reasons for your current financial situation. Also helpful are:

Recent pay stubs or proof of income
Bank statements
Credit card statements
Loan documents
Property tax bills
List of monthly expenses
Any legal documents related to your debts

Why is complete honesty crucial when providing information for forms like Form 79?

Complete honesty is the absolute foundation of the entire debt relief process. Attempting to conceal assets or providing false information can lead to severe consequences, including the denial of your bankruptcy or charges of perjury, which would undermine your path to a fresh start.

How does the process of filing for bankruptcy or a consumer proposal lead to a “fresh start”?

Bankruptcy and Insolvency Act Forms

Guided by your Licensed Insolvency Trustee and based on the detailed financial disclosure provided in Bankruptcy and Insolvency Act forms like Form 79, this legal process offers a clear path to eliminate or significantly reduce your debt. This allows you to regain control of your finances, alleviate stress, and begin anew without the burden of your past financial obligations.

Tips from My Experience

After helping people through this process, here’s my advice:

Be completely honest. Hiding assets or debts can have serious legal consequences. I’ve seen cases delayed by months because someone wasn’t upfront initially.

Keep copies of everything. You’ll want records for your the files.

Ask questions. If something doesn’t make sense, speak up. Understanding the process reduces stress.

Meet deadlines. Some forms have strict timelines. Missing them can cost you money or delay your fresh start.

Stay in touch. Let me know if your financial situation changes during the process.

Red Flags: Mistakes That Can Hurt Your Case

Using old versions of forms after new ones are released
Forgetting to include all debts or assets
Missing required signatures
Providing outdated financial information
Waiting too long to file the required monthly reports

How Working with a Licensed Insolvency Trustee Helps

Only Licensed Insolvency Trustees are authorized persons who can file BIA forms and handle bankruptcies in Canada. Here’s what this means for you:

Expertise: We know the forms inside and out. I’ve completed thousands of these documents.

Legal Protection: Once I file your forms, creditors must stop collection activities immediately.

Government Oversight: We’re regulated by the federal government and must follow strict professional standards.

No Surprises: I explain each form and what it means for your situation.

Ongoing Support: You’re not alone in this process. I’m here to answer questions and handle complications.

Your Next Steps

If you’re in the Greater Toronto Area and considering bankruptcy or a consumer proposal:

Book a free consultation – Call me and we’ll discuss your specific situation and options
Bring your financial documents – The more complete your information, the better I can help
Ask about alternatives – Bankruptcy isn’t always the best solution
Let me handle the paperwork – Focus on your future while I manage the legal requirements

Ready to take the next step? Contact me for a confidential, no-obligation consultation. Together, we’ll review your situation and determine the best path forward.

If you’re struggling with debt, don’t wait. The longer you wait, the fewer options you might have. Contact a Licensed Insolvency Trustee today for a free consultation.

At Ira Smith Trustee & Receiver Inc., we’ve helped thousands of Canadians overcome their debt challenges, starting with honest, professional consumer credit counselling. We’ll review your complete financial situation, explain all your options, and help you choose the best path forward.

Remember: you don’t need to pay someone to access professional help. Real consumer credit counselling starts with a free consultation and continues with transparent, regulated services designed to get you back on your financial feet.

Free consultation available:

No obligation to proceed
Complete review of your debt and credit situation
Clear explanation of how debt solutions affect your credit score
Practical next steps you can take immediately

Remember: Your current financial situation doesn’t define your future. With the right help and information, you can overcome both debt challenges and credit score problems.

Remember: The earlier you seek help for company insolvency concerns, the more options you’ll have.

Your financial future is too important to leave to chance. Choose regulated, professional consumer credit counselling and take the first step toward financial freedom today.

Bankruptcy and Insolvency Act Forms

Brandon Blog Post

BANKRUPTCY STAY OF PROCEEDINGS, EVICTION, AND ONTARIO LAW: WHEN HUGE TENANCY TROUBLES COLLIDE

Post author By Brandon Smith
Post date July 7, 2025

What is a Stay of Proceedings?

A stay of proceedings is like hitting the pause button on debt collection. When you file an assignment in bankruptcy, a consumer proposal or a Notice of Intention To Make A Proposal in Ontario, this legal protection automatically stops most unsecured creditors from taking collection action against you. If a claim is one purely for the collection of a debt advanced by one or more unsecured creditors, otherwise known as a claim provable in a bankruptcy or consumer proposal, then the stay of proceedings applies. But what happens when the legal action is not for the collection of a debt, like when an eviction is involved? A recent Ontario court case shows how complex this can get.

Understanding Stay of Proceedings in Canada

The Basics of Stay Protection

Under Canada’s Bankruptcy and Insolvency Act (BIA), a stay of proceedings provides immediate relief from:

Debt collection lawsuits
Wage garnishments
Asset seizures
Harassing creditor collection calls and collection agency calls

This protection starts the moment you file for bankruptcy or a consumer proposal with a Licensed Insolvency Trustee in your bankruptcy jurisdiction.

How Long Does a Stay of Proceedings Last?

The duration depends on your filing type:

First-time bankruptcy: Usually 9 months (21 months with surplus income)
Consumer proposal: Remains active while you make payments (up to 5 years)
Notice of Intention To Make A Proposal: This is a preliminary filing before filing a restructuring Division One Proposal for the benefit of creditors, where you don’t qualify to make a consumer proposal. The timeline is similar to that of a consumer proposal

Stay of Proceedings and Eviction: A Real Ontario Case

The Snaith Case: What Happened

A recent Ontario Superior Court of Justice – Ontario In Bankruptcy and Insolvency case (Re Snaith, 2025 ONSC 3413) shows what happens when bankruptcy meets eviction. Here’s the story:

Leanna Mae Snaith owed $46,250 in rent arrears by January 2025. Despite making some payments, she couldn’t catch up. The Landlord and Tenant Board ordered her eviction unless she paid $47,986 by February 28, 2025.

When Ms. Snaith couldn’t pay, she filed for bankruptcy in April 2025, hoping the stay of proceedings would stop her eviction.

Why the Stay Didn’t Stop the Eviction

The court made several key points:

Eviction orders aren’t debt collection: The tenancy was already terminated before bankruptcy
Post-bankruptcy rent must be paid: New rent after filing isn’t discharged in bankruptcy
Prior court orders remain valid: The eviction order was made before the bankruptcy filing

When Stay of Proceedings Doesn’t Apply

Exceptions to Stay Protection

A stay of proceedings doesn’t stop everything. It doesn’t apply to:

Criminal court cases
Family support payments (child support, spousal support)
Some secured creditor actions
Eviction enforcement when the tenancy was already terminated

Getting Around Stay Protection

Creditors can ask the court to “lift the stay” in certain situations. Under the BIA, the court has the authority to lift the stay if the person requesting the authority to begin or continue their action is likely to suffer material prejudice or if it is equitable on other grounds.

However, in eviction cases, landlords often don’t need to do this if the tenancy ended before bankruptcy.

Stay of Proceedings: What Tenants Need to Know

Can Bankruptcy Stop My Eviction?

The short answer: probably not if you’re already facing eviction.

Before eviction proceedings: A stay might pause the process temporarily
After eviction order: The stay won’t usually stop enforcement
Current rent: You must keep paying rent during bankruptcy

Smart Strategies for Rent Problems

If you’re behind on rent:

Act early: File for bankruptcy or a consumer proposal before eviction proceedings start
Keep paying current rent: Post-filing rent isn’t protected by the stay
Get professional help: Licensed Insolvency Trustees understand these complex rules

Stay of Proceedings: What Landlords Should Know

Your Rights During Tenant Bankruptcy

As a landlord, you should know:

Pre-bankruptcy rent arrears: These become unsecured debts in bankruptcy
Post-bankruptcy rent: Fully collectible and can lead to eviction
Eviction timing: File early to avoid stay complications

Working with Sheriff’s Offices

The Snaith case revealed confusion even among enforcement officers. Some sheriff’s offices won’t enforce evictions during bankruptcy, even when they legally can. You might need a court order confirming your right to proceed as was the case here.

Consumer Proposals vs. Bankruptcy: Stay Differences

Consumer Proposal Stay Benefits

A consumer proposal offers a stay of proceedings while potentially providing better outcomes:

Keep your home (if you can afford the payments)
Paying a portion of your debts
Protection lasts for the duration of the consumer proposal as long as you are meeting your payment obligations (usually up to 5 years)

Bankruptcy Stay Limitations

Bankruptcy provides immediate stay protection, but:

You will lose non-exempt assets
Post-bankruptcy obligations remain
Unless there are extenuating circumstances causing a longer period, the bankrupt will normally be discharged between 9 months (first time bankruptcy and no surplus income) and 21 months (first time bankruptcy with surplus income requirement)

Professional Guidance: Why You Need a Licensed Insolvency Trustee

The Snaith case shows how complex stay of proceedings rules can be. As Licensed Insolvency Trustees in the Greater Toronto Area, we help by:

Explaining how stays apply to your specific situation
Timing filings for maximum protection
Handling creditor communications
Ensuring compliance with legal requirements

Avoiding Common Mistakes

Many people misunderstand stay protection. We’ve seen clients assume bankruptcy solves everything, only to face continued problems with:

Housing costs
Post-filing obligations
Non-dischargeable debts

FAQs About Stay of Proceedings

Does a stay of proceedings stop all creditors?

No. While most creditors must stop collection, some exceptions exist. Secured creditors, family support, and certain government actions may continue.

Can I get evicted during bankruptcy?

Yes, especially if eviction proceedings started before bankruptcy or if you don’t pay current rent.

How quickly does stay protection start?

Stay of proceedings protection begins immediately upon filing bankruptcy or a consumer proposal.

What happens if I violate the stay conditions?

Courts can lift the stay, removing your protection and allowing creditor actions to resume.

Getting Help with Stay of Proceedings Issues

If you’re facing debt problems and potential eviction, don’t wait. Early action often provides better options and stronger stay of proceedings protection. The longer you wait, the fewer options you might have. Contact a Licensed Insolvency Trustee today for a free consultation.

At Ira Smith Trustee & Receiver Inc., we’ve helped Ontario residents and companies overcome their debt challenges, starting with honest, professional advice. We’ll review your complete financial situation, explain all your options, and help you choose the best path forward.

Remember: you don’t need to pay someone to access professional help. Our help starts with a free consultation and continues with transparent, regulated services designed to get you back on your financial feet.

Remember: Your current financial situation doesn’t define your future. With the right help and information, you can overcome debt challenges.

Remember: The earlier you seek help for company insolvency concerns, the more options you’ll have.

Brandon Blog Post

PAYING CREDITORS BEFORE BANKRUPTCY? ONTARIO COURT’S $400,000 DECISION CHANGES EVERYTHING

Post author By Brandon Smith
Post date May 26, 2025

A Recent Ontario Court Decision Every Business Owner Should Know About

As a Licensed Insolvency Trustee practicing in the Greater Toronto Area, I’ve guided many businesses through difficult financial times. Today, I want to share an important recent court decision showing the legal development of how companies handle creditor payments when facing money troubles.

What Happened: The $400,000 Payment That Backfired

The Court of Appeal for Ontario recently made a big decision in a legal action called RPG Receivables Purchase Group Inc. v. American Pacific Corporation (released May 15, 2025).

Here’s what happened in simple terms:

A company called Specialty Chemical Industries was struggling financially
They owed over $11 million to various parties in respect of various secured loans and unsecured creditor suppliers’ unpaid debts
One supplier, American Pacific Corporation (AmPac), was their main supplier
Specialty paid AmPac $400,000 to get $100,000 worth of chemicals
They hoped this would help them fill an order for their main customer
Less than two months later, Specialty went bankrupt

The court ruled that this $400,000 unsecured debt payment was a “preference” – meaning Specialty unfairly favoured one creditor (AmPac) over all their other creditors. AmPac was ordered to return the money.

Creditor vs. Debtor: What Is a Creditor Preference?

When a business is going under, the law says all creditors should be treated fairly. Section 95 of the Bankruptcy and Insolvency Act (BIA) calls this “creditor equality.”

A preference happens when:

A debtor pays one creditor shortly before bankruptcy (within 3 months)
This payment gives the payee better treatment than others
The debtor knew it couldn’t pay all its debts

The law assumes any payment made within 3 months of bankruptcy was intended to prefer that payee. It’s up to the business to prove otherwise.

Why Did Specialty’s “Business Survival” Argument Fail?

The argument was that Specialty paid AmPac under unsecured credit terms because they needed to keep their business going. It was argued this wasn’t preferring one over others – it was trying to save the company for everyone’s benefit.

The court didn’t buy this argument. Here’s why:

No solid plan: Specialty had no clear plan showing how this payment would help the company and all stakeholders
Poor financial position: After the payment, they had only $35,000 left but owed $11 million
Low profit margins: Their profit margins were only 2-10%, not enough to dig out of debt
No testimony: No company director testified to explain their plan
Failed strategy: Their main customer left anyway

FULL DISCLOSURE: My Firm was the licensed insolvency trustee administering the company director’s bankruptcy. The personal bankruptcy occurred by the court issuing a Bankruptcy Order in January 2019, through a legal proceeding initiated by RPG. Both the director and my Firm have since been discharged. My Firm was not involved in this court case I am writing about.

What This Means for Your Business

If your business is facing financial problems, this case offers important lessons:

Do:

Treat all creditors fairly if you’re approaching insolvency
Document your business plans that show how payments benefit all stakeholders
Seek professional advice early from a Licensed Insolvency Trustee

Don’t:

Pay one unsecured party a large sum when you can’t pay others
Make last-minute payments, hoping to save your business without a solid plan
Assume “business necessity” justifies preferring one over another

I often see business owners make decisions based on hope rather than reality when facing financial trouble. They think, “If I just pay this one supplier, I can keep going.”

The court’s message is clear: hope isn’t enough. If you can’t prove your plan truly benefits all stakeholders,, not just one, the payment could be considered a preference and later clawed back.

Key Takeaways

All unsecureds rank equally under bankruptcy law
Payments made shortly before bankruptcy are carefully scrutinized
Commercial pressure doesn’t justify preferring one over another
Only evidence-based rescue plans can justify paying one over others

Protecting Your Business from Preference Issues

As a business owner, you need to understand these rules before financial troubles hit. If you’re struggling to manage all your payments, it’s time to speak with a Licensed Insolvency Trustee about your options.

We can help you develop strategies that comply with the law while giving your business the best chance for recovery, or at least ensure you will not be giving yourself bigger headaches and legal liability if bankruptcy becomes necessary.

Final Thoughts on Fairness

The law may seem harsh, but it serves an important purpose: ensuring everyone is treated fairly when a business fails. Without these rules, stronger or favoured suppliers would get paid while others get nothing.

Remember: when it comes to creditor treatment during financial distress, good intentions aren’t enough. The law demands fairness – even when that’s difficult.

Preference FAQ: Your Questions Answered

What exactly does “anti-preference” mean in bankruptcy law?

The anti-preference rules in the BIA stop businesses from playing favourites when they’re about to go bankrupt. These rules make sure all regular unsecureds are treated fairly and share equally in whatever assets are left. This is the cornerstone of Canadian bankruptcy law – fairness for all stakeholders.

When might a payment to a creditor be considered unfair?

A payment might be considered unfair (or “void”) when:

It’s made within 3 months before bankruptcy
It’s made while the business can’t pay all its debts
It gives that party better treatment than others

If these conditions are met, the court assumes the payment was meant to give special treatment.

What is a “rebuttable presumption” regarding creditor payments?

This legal term simply means the court starts by assuming any payment made to a creditor within 3 months of bankruptcy was intended to favour them. It’s then up to the business to prove this wasn’t their intention. Even if a creditor was putting pressure on the business, that pressure alone isn’t enough to justify the payment.

Can a business explain that they were under pressure from a creditor?

Yes, but with limits. A business can tell the court about pressure put on them to help explain their situation, but pressure alone won’t justify the payment. The court will consider this information as part of the whole picture, not as a valid reason for favouring one over others.

How can a business prove they weren’t trying to favour one creditor?

A business must show that its main goal wasn’t to give one stakeholder special treatment. They need to prove, with clear evidence, that they had a different reason for making the payment, like trying to keep the business going with a solid plan that would benefit all stakeholders in the long run.

When is “trying to save the business” a valid reason for paying just one creditor?

This reason only works if the business had a realistic plan that would help everyone, not just one. Having a vague hope or wish isn’t enough. The business needs to show:

A sensible business plan
Evidence that the plan could realistically work
Proof that the plan would benefit all stakeholders, not just one
That the financial situation wasn’t already hopeless

Why does a business continuity plan need to be “reasonable”?

The “reasonable plan” requirement ensures businesses don’t drain their remaining assets, helping one or two parties while leaving nothing for everyone else. A reasonable plan aligns with bankruptcy law’s core purpose – fair treatment for all. If a payment is part of a genuine strategy that could improve the situation for everyone, then it isn’t considered unfair to others.

What factors do courts look at when deciding if a business plan was reasonable?

Courts consider several practical factors:

Was there a clear, sensible business plan?
Was the business already too far gone financially?
Did the potential benefits outweigh the payment amount?
Would a bankruptcy trustee have made the same decision to maximize recovery for all creditors?

Six Key Lessons from the Preference Case

This case teaches us important lessons about how creditors are treated when a business is heading toward bankruptcy. Let’s break down what the Court of Appeal for Ontario said in simple terms:

1. All Creditors Must Be Treated Equally

The court firmly reminded us that the foundation of bankruptcy law is treating all creditors fairly. Section 141 of the BIA states that “all unsecured creditors rank equally and share equally in the bankrupt’s assets.” This isn’t just a nice idea – it’s the law.

2. Payments Shortly Before Bankruptcy Can Be Reversed

When a business pays one creditor right before bankruptcy (within 3 months), that payment can be “voided,” – meaning the creditor has to give the money back. This happens when:

The business was already unable to pay all its debts
The payment gave that creditor better treatment than others

In this case, AmPac had to return the entire $400,000 payment.

3. Courts Assume Preferential Intent

If arrangements with creditors, including a payment, check the boxes above, the court starts with the assumption that the business intended to give that creditor special treatment. This is called a “rebuttable presumption,” which means it’s up to the business to prove otherwise.

4. Pressure from a Supplier Isn’t an Excuse

The court clarified an important point: just because a creditor was demanding payment doesn’t justify giving them special treatment. While the court will consider creditor pressure as part of the whole story, it can’t be the main excuse for the payment.

5. Business Continuation Plans Need to Be Realistic

The court established a clear standard: if a business claims they made a payment to stay afloat (not to prefer one creditor), they must show they had a reasonable plan. This plan must:

Be more than just wishful thinking
Shows real potential to benefit all creditors, not just one
Be something a bankruptcy trustee might reasonably do to help all creditors

6. Courts Look at Hard Facts, Not Just Good Intentions

When deciding if a business plan was reasonable, courts look at practical factors:

Was there a sensible, detailed business plan?
Was the business already beyond saving?
Did the potential benefits outweigh the payment amount?
Would the plan help satisfy all creditor claims?

The Hard Truth About Equality

The outcome of this case might seem harsh. AmPac provided goods, Specialty made a payment, and now AmPac has to give the money back. But bankruptcy law has a greater purpose – making sure one creditor doesn’t get special treatment while others get nothing.

In the end, the court ordered AmPac to return the entire $400,000. This reinforces an important principle: when a business is heading toward bankruptcy, fairness to all creditors matters more than the survival of one relationship.

For business owners, the message is clear: when you’re facing financial trouble, you can’t play favourites with creditors – even if it feels like the only way to keep your business alive. The law demands fairness, even when fairness is difficult.

As a licensed insolvency trustee serving the Greater Toronto Area, I encourage business owners to view financial difficulties not as failures but as challenges that can be addressed with proper guidance. By understanding the warning signs of company insolvency and seeking professional advice early, many businesses can find a path forward – whether through restructuring, strategic changes, or in some cases, an orderly wind-down that protects their future opportunities.

Remember: The earlier you seek help for company insolvency concerns, the more options you’ll have.

Brandon Blog Post

INSOLVENCY ADVISORY SERVICES: STANDOUT HELP DOES NOT NEED HORRIFYING HIGH COSTS

Post author By Brandon Smith
Post date December 23, 2024

This is our last blog post for 2024. We will be back with more in January. Happy Holidays and a Happy and Healthy New Year to all of our readers.

Insolvency Advisory Services: Introduction

Insolvency is a complex financial situation with significant legal and practical implications. This Brandon’s Blog post explores the key aspects of insolvency law in Canada, drawing on authoritative sources to provide a clear and informative overview.

As the pandemic-induced economic rollercoaster continues, I recently read an article in The Globe & Mail Report on Business about the world of insolvency advisory services. On the one hand, professionals like me help to fix corporate car crashes during crises, seemingly thriving off others’ misfortunes. On the other hand, our services can lead struggling businesses to a new beginning, saving jobs and families. Not just the workers or the owners, but all the businesses that rely upon that one business. Let’s dive into this fascinating landscape where financial insolvency wizardry collides with corporate despair.

What is Insolvency?

Insolvency refers to a situation in which an individual or a company is unable to fulfill their financial obligations as they become due. In Canada, the legal framework offers several mechanisms to manage insolvency, with the goal of balancing the interests of both debtors and creditors.

The Insolvency Legal Framework

Key Legislation in Canadian Insolvency Law

The Bankruptcy and Insolvency Act (BIA) serves as the fundamental legislation governing insolvency in Canada. This federal law establishes the protocols for addressing bankruptcies and proposals, ensuring a fair and systematic approach for all parties involved.

In conjunction with the BIA, the Companies’ Creditors Arrangement Act (CCAA) offers a framework specifically designed for the restructuring of insolvent corporations, particularly those with debts exceeding $5 million. Both the BIA and CCAA are administered by the Office of the Superintendent of Bankruptcy (OSB), which operates under the Department of Innovation, Science and Economic Development Canada. The OSB is essential in overseeing the insolvency process, licensing insolvency professionals, and maintaining public records related to insolvency matters.

Provincial Laws and Their Impact on Insolvency

Federal legislation primarily regulates the fundamental aspects of insolvency in Canada; however, provincial laws significantly influence this area, particularly concerning property and civil rights. Specific issues addressed by provincial legislation include:

The establishment of security interests The handling of absconding debtors Regulations surrounding bulk sales Provisions related to fraudulent conveyances

This interaction between federal and provincial laws results in a comprehensive legal framework for managing insolvency in Canada.

Roles and Responsibilities

Licensed Insolvency Trustees are licensed professionals authorized by the OSB to administer bankruptcies, handle proposals, and act as monitors or receivers. Insolvency Trustees play a pivotal role in guiding debtors and creditors through the insolvency process, ensuring compliance with legal requirements.

Access to Insolvency Information

The OSB provides a searchable database of bankruptcy and insolvency records that is available to the public for a fee. This database includes detailed information on various insolvency proceedings, such as bankruptcies, proposals, receiverships, and proceedings under the CCAA. Furthermore, the publication “Insolvency Insider Canada” offers current news and legal updates on trends related to insolvency in Canada.

Insolvency Advisory Services: The Profit Motive

Have you ever thought about how much insolvency advisers bill out per hour? The article stated that downtown Bay Street bankruptcy legal counsel and licensed insolvency trustees charge up to $1,300 per hour for their services. Are these fees justified? Or are they merely a symptom of a broken system?

Understanding Senior Claims

In insolvency cases, fees charged by advisers are classified as senior claims. This means they get paid before other creditors. When a company admits insolvency and makes a filing under either the BIA or the CCAA, these advisers work hard to navigate the complex legal landscape.

But who benefits the most? According to The Globe & Mail article:

Adviser fees have been climbing steadily over the years. While companies going through insolvency struggle with debt, they may very well be paying unnecessarily high fees.

The Financial Implications

What does this mean for businesses? When firms find themselves in the dire straits of insolvency, they owe a mountain of money. The debt piles up, and the cost of hiring pricey advisers only adds to their woes. In many cases, legal and financial advisers are feasting on the carcass of struggling companies.

The Cold Reality

This narrative reveals the harsh truth: while companies drown in debt, they may very well be paying too much for their advisers. Insolvency advisers are essential for navigating bankruptcies and restructurings, but many companies may be paying too much for the help they need. No doubt there are certain regulated industries or overly complex businesses that need the minds and skills of the downtown Bay Street advisers. But that is not the majority of Canadian businesses.

Insolvency Case Study: Do Our Fees Hold Up In Court?

We are involved in the liquidation case of two companies. Certain stakeholders, including the Estate Trustees of the Estate of a deceased shareholder, disagreed with the fees we and our legal counsel charged. A court hearing concerning our fees as a court-appointed liquidator and those of our legal counsel was held in the winding-up case.

As liquidator we sought approval for substantial fees which were challenged by the respondents, shareholders of the companies, as disproportionate to the assets involved. The judge considered various factors including the complexity of the case, the time spent, and the results achieved, ultimately approving the fees, citing prior court approvals of the liquidator’s actions and rejecting the respondents’ arguments as a collateral attack. The decision highlights the principles of fairness and reasonableness in determining court officer fees.

What factors influenced the assessment of the fairness of our liquidation fees?

The court evaluated several factors to assess the fairness of the liquidation fees charged by the Liquidator and their counsel. Ultimately, the judge ruled in our favour based on the following considerations:

Nature, Extent, and Value of Assets: The Liquidator was responsible for liquidating two companies that presented moderately complex tax and accounting challenges.
Complications and Challenges Encountered: The Liquidator faced numerous obstacles, including concurrent family and estate proceedings, conflicts between the Estate Trustees and another shareholder, and multiple adjournments. Additionally, delays in court proceedings instigated by the Estate Trustees contributed to increased costs.

These delays included:

The conversion of the liquidation proceedings from voluntary to court-supervised, happened almost a year after the liquidation proceedings began.
The proposed sale of was delayed because the Estate Trustees continued accepting new orders despite the initial agreement to not accept new orders during the voluntary liquidation. They requested time to procure an offer to sell the company.
Further delays were caused when the Estate Trustees proposed to remove one of the companies from the liquidation but failed to do so. The Liquidator was then required to notify customers that business operations would cease once current orders were completed.
The Estate Trustees switched counsel, which caused adjournments and increased time spent on the case.

The degree of assistance provided by the company. The Estate Trustees were confrontational and slow to provide information, which made the Liquidator’s job more difficult.
The time spent. The liquidation proceedings were protracted due to issues between the stakeholders.
The Liquidator’s knowledge, experience, and skill. Both the Liquidator and its counsel were found to have significant knowledge and experience in corporate and insolvency matters.
Diligence and thoroughness. The Liquidator produced three comprehensive reports and affidavits for the motion. Their invoices provided a clear understanding of the thoroughness of their work.
The responsibilities assumed. The Liquidator was responsible for extensive activities, which were outlined in its reports and approved by the court. These activities included monitoring business operations, selling one of the companies’ primary assets, engaging various professionals, establishing and monitoring a claims process, and taking steps to wind down an active business.
The results of the efforts. The Liquidator successfully converted the voluntary liquidation into a court-supervised process. They managed the companies’ finances, initiated a claims process, and made interim distributions.
The cost of comparable services when performed prudently and economically. The rates charged by the Liquidator and its counsel were comparable to those charged by other providers in the Toronto market. Although the respondents argued that the fees were disproportionate to the value of the businesses, the court ultimately ruled that the fees were fair and reasonable given the factors outlined above.

The Mechanics of Corporate Insolvency

Understanding corporate insolvency and bankruptcy law can feel like navigating a maze. Why is there a need for specialized expertise in this field? Let’s dive into this complex world.

1. The Ins and Outs of Bankruptcy Law

Bankruptcy law is not just a set of rules; it’s a detailed framework designed to address financial distress. At the core is the legal process that aims to protect debtors while ensuring creditors get as much back as possible. This is where specialized knowledge comes in. It is critical to understand the nuances, strategies and strategizing, litigation processes, and the potential financial ramifications of each decision.

Think about it: would you trust someone who has only dabbled in the subject to handle a significant financial crisis? I wouldn’t. Expertise in this area enhances efficiency. A knowledgeable insolvency adviser can streamline the process and avoid costly missteps.

Also, this specialized knowledge often leads to reduced competition. But there are alternatives; there are experienced insolvency professionals who operate in lower-cost boutique firms like mine. Their offices may not be as fancy as the Bay Street crowd, but, what do you want to pay for. Their knowledge and expertise or their office furnishings and high rent?

2. A Day in the Life of a Licensed Insolvency Trustee Adviser

What does a licensed insolvency trustee adviser actually do day-to-day? Most of our time on corporate restructuring files involves analyzing company financials and negotiating with creditors. Navigating through heaps of paperwork is part of the gig, too. Advisors must also attend court hearings and meetings with various stakeholders, always looking to find the best possible outcome.

Typical Tasks Include:

Drafting essential documents and filings.
Conducting asset evaluations.
Coordinating with legal teams and financial analysts.

On any given day, a licensed insolvency trustee adviser may switch gears between solving legal puzzles and crunching numbers. It’s a mixture of law, finance, and a bit of psychology when negotiating to save distressed businesses.

3. Key Players in Corporate Insolvency

Corporate insolvency involves several key roles, each contributing to the process in distinct ways:

Legal Counsel: Legal professionals represent the interests of their clients and assist in navigating the complex legal landscape associated with insolvency proceedings. Court-
Court-Appointed Receivers/Insolvency Trustees: These individuals are tasked with managing the assets of the company during the insolvency process, ensuring proper handling and distribution according to legal guidelines.
Monitors: Monitors oversee the restructuring process to prevent the company from entering receivership or bankruptcy. They ensure that the company adheres to all legal requirements throughout the process.

Each of these roles is essential in facilitating a fair and orderly insolvency process. Together, they work towards achieving the best possible financial recovery while upholding the integrity of the legal framework.

4. Why Experience Really Matters

Experience can make or break an insolvency case. A seasoned insolvency professional will have seen various crises unfold, equipping them with the knowledge of what strategies work. They can anticipate challenges and react swiftly to changes in circumstances.

Also noteworthy is that judges usually have a high regard for seasoned practitioners. The more experienced the insolvency adviser, the more likely they will get favourable outcomes – and that’s crucial. After all, when dealing with millions on the line, would you want a novice watching your back?

Ultimately, the world of corporate insolvency is a ripe field for those with the right set of skills and experience. But remember, it’s about guiding businesses through some of the most turbulent waters they face.

The Ripple Effect of Rising Insolvency Advisories

In today’s economic climate, the rise in insolvency advisory fees is an issue that’s hard to ignore. It touches everyone – from entreprenurial businesses trying to stay afloat to investors scratching their heads over diminished returns.

Entrepreneurial Businesses and Higher Fees

As advisory fees rise, entrepreneurs are generally shut out of being able to restructure. That is one of the reasons why Ira Smith Trustee & Receiver Inc. was established. We offer the highest quality of service that rivals any Bay Street licensed insolvency trustee firm. However, due to our unique boutique formula, our hourly rates are slightly less than half of those charged by downtown Toronto Bay Street insolvency professionals.

We know that many entrepreneurs find themselves squeezed by Bay Street hourly rates, unable to afford the very advice meant to save their companies. That is why we can earn a fair return for our services in running our insolvency advisory business, without killing off the company we are trying to save because of higher fees. Downtown firms don’t think we can, but with the combined experience of Ira and Brandon Smith totalling over 60 years, we know how to and have done complex corporate restructuring. We are also one of those experienced seasoned firms that judges recognize as such. Our clients also give us 5-star reviews!

The Role of Insolvency Advisers

Despite the high costs, insolvency advisers play a crucial role in reviving struggling companies. When firms like Groupe Dynamite sought protection during tough times, savvy advisers helped them navigate those murky waters. Their expertise can mean the difference between a successful turnaround and a grim closure.

Lending and Creditworthiness

But there’s a catch. Rising advisory fees may also undermine a company’s creditworthiness. Imagine a lender reviewing a firm burdened by steep fees. They might hesitate, fearing that funds directed to advisers are funds that won’t go toward debt repayment. Essentially, high fees could close the door on future lending.

Myths Surrounding Formal Insolvency Proceedings

It is essential to clarify some misconceptions regarding the beneficiaries of formal insolvency proceedings. A common belief is that companies undergoing restructuring are guaranteed to be saved; however, this is not always the reality. Once advisers get to work, there are situations where we realize that most of the company isn’t salvageable. This emphasizes the importance of critically assessing the situation as quickly as possible so that unnecessary steps are not taken using up scarce resources.

In certain cases, such as that of Groupe Dynamite case, advisers have successfully revitalized struggling brands. Conversely, there are situations where advisers do earn fees from a business that ultimately cannot be sustained. Therefore, an effective insolvency assessment must identify these challenges from the outset in every case. It is crucial to ensure that a successful restructuring does not come at the expense of overwhelming financial burdens.

A candid and transparent dialogue between the insolvency advisor and company management is necessary before initiating any restructuring efforts. This collaboration is vital for determining the viability of the company and the best course of action moving forward.

The Ethical Dilemma In Insolvency Advisory

Navigating the complexities of insolvency involves not only strategic calculations but also significant ethical considerations. A critical question arises: at what point does one profit from another’s misfortune? The high fees charged by downtown Toronto Bay Street insolvency advisers, which can exceed $1,300 per hour, certainly prompts the question. This raises an important discussion about whether these professionals are genuinely aiding in recovery or merely capitalizing on the difficulties faced by their clients.

Insolvency advisory fees are typically structured to be front-loaded, meaning that the initial phases of an insolvency case require significantly more effort from advisers. This is necessary as they work to thoroughly understand the various issues at hand. Consequently, the execution of the devised strategy tends to be less intensive than its formulation.

This structure can exacerbate the financial strain on already struggling businesses, leading to concerns about the fairness of such practices. Therefore, transparency regarding fees is not merely a preferable quality but an essential component of ethical practice in insolvency advisory. Business owners deserve clarity to make informed decisions during challenging times.

Finding Balance

Achieving a balance between risk and reward is essential for long-term success in business. While it can be tempting to chase higher gains, it’s important to carefully consider the potential consequences. Understanding the balance between your business’s viability and the associated advisory fees is key to making informed decisions.

As we navigate the challenges ahead, let’s stay vigilant and compassionate, ensuring we take care of our businesses and those who support us in maintaining them.

I encourage you to take a moment to reflect on these points and prepare not just for success, but for stability in the ever-changing marketplace. Together, we can build a resilient foundation for the future.

Insolvency in Canada: FAQs

1. What is insolvency and how does it impact businesses in Canada?

Insolvency happens when an individual or a company is unable to fulfill their financial obligations when they are due. This situation can have important legal and practical implications, and it is guided by a detailed set of federal and provincial laws in Canada. For businesses facing insolvency, there are several potential outcomes, such as increasing debt, legal actions from creditors, and the possibility of closure. However, it’s important to remember that there are options available to help navigate this challenging situation, and seeking advice from financial professionals can be a valuable step forward.

2. What key legislation governs insolvency in Canada?

The BIA serves as the primary federal legislation governing bankruptcies and proposals in Canada. It establishes a structured process to protect the interests of all parties involved in insolvency proceedings. In contrast, the CCAA is specifically designed for the restructuring of insolvent corporations, with debts that exceed $5 million. Additionally, provincial laws contribute to the framework surrounding bankruptcy, particularly in matters related to property rights and fraudulent conveyances.

3. What role do Licensed Insolvency Trustees play in insolvency proceedings?

Licensed Insolvency Trustees are professionals authorized by the OSB to oversee bankruptcy proceedings, manage proposals, and act as receivers or monitors. Their responsibilities include offering guidance to both debtors and creditors throughout the legal processes, ensuring compliance with applicable regulations, and working to balance the interests of all parties involved.

4. Why are insolvency advisory fees considered a concern, especially for entrepreneurial smaller businesses?

Insolvency advisory services, though crucial in navigating complex legal and financial landscapes, often come with high hourly rates. This can be a significant burden for struggling businesses, particularly smaller enterprises, as these fees are prioritized as senior claims, meaning they are paid before other creditors. Some argue that these fees add to the financial strain and may not always guarantee a successful recovery.

5. What are some alternatives to high-priced Bay Street insolvency firms?

While large Bay Street firms dominate the insolvency landscape, boutique firms like ours offer comparable expertise and experience at lower hourly rates. Smaller Firms like ours prioritize practical solutions and cost-effectiveness, all delivered with a large dose of empathy. This makes us a viable alternative for businesses seeking quality advice without exorbitant fees.

6. How can businesses prepare for potential insolvency and mitigate risks?

Organizations can effectively mitigate the risks associated with insolvency by prioritizing strong financial management practices. This entails diligent monitoring of cash flow, diversifying revenue sources, maintaining adequate reserves, and establishing a contingency plan to address potential financial challenges. Timely identification of warning signs, along with seeking guidance from qualified professionals, can greatly enhance the likelihood of recovery.

7. What ethical considerations arise in the field of insolvency advisory services?

The power dynamics and the potential for substantial fees in insolvency advisory raise significant ethical considerations regarding the profit derived from a company’s financial difficulties. It is crucial to ensure transparency in fee structures and demonstrate a sincere commitment to prioritizing the client’s best interests over the pursuit of maximum profit. Such practices are essential for upholding ethical standards within the industry.

Insolvency Conclusion: Navigating the Stormy Waters Ahead

As I reflect on the unpredictability of the business world, it strikes me how everything can change in an instant. What appears stable today can be rocky tomorrow. We’ve seen thriving companies face insolvency as consumer habits shift overnight. There are many such examples. They soared high, only to crash due to rising interest rates impacting consumer spending. It’s a stark reminder that no one is immune to the tides of economic downturn.

For business owners, the key is preparation. Have you considered what your plans are if faced with potential insolvency? It’s essential to develop mitigation strategies. Keeping an eye on cash flow, diversifying income streams, and maintaining a strong financial buffer can save a business from downfall. By creating a robust financial foundation, we can cushion ourselves against unforeseen storms.

I hope you enjoyed this insolvency Brandon’s Blog. 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 someone with 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 the bankruptcy process. We can get you debt relief freedom using processes that are a bankruptcy alternative.

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 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 about 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.

The information provided in this Brandon’s Blog is intended for educational purposes only. It is not intended to constitute legal, financial, or professional advice. Readers are encouraged to seek professional advice regarding their specific situations. The content of this Brandon’s Blog should not be relied upon as a substitute for professional guidance or consultation. The author, Ira Smith Trustee & Receiver Inc. as well as any contributors to this Brandon’s Blog, do not assume any liability for any loss or damage resulting from reliance on the information provided herein.

Tags advisory services, Bankruptcy, Bankruptcy and Insolvency Act, bankruptcy proceeding, BIA, business insolvency, CCAA, Companies’ Creditors Arrangement Act, court appointed receiver, financial restructuring, formal insolvency proceedings, insolvency process, Ira Smith Trustee, legal advice, legal counsel, legal fees, Office of the Superintendent of Bankruptcy, OSB, public record

Brandon Blog Post

FRAUD AND MISREPRESENTATION AND BANKRUPTCY: SUPREME COURT OF CANADA’S REVOLUTIONARY RULING ON ADMINISTRATIVE FINES AND BANKRUPTCY

Post author By Brandon Smith
Post date August 5, 2024

fraud and misrepresentation

Fraud and Misrepresentation: Introduction

On July 31, 2024, the Supreme Court of Canada released its decision in the case of Poonian v. British Columbia (Securities Commission), 2024 SCC 28. This appeal to the Supreme Court was heard on December 6, 2023. The Canadian insolvency community has been anxiously awaiting this decision to drop.

Thalbinder Singh Poonian and Shailu Poonian engaged in market manipulation that caused vulnerable investors to lose millions of dollars. The British Columbia Securities Commission (BCSC) found that they had contravened the province’s Securities Act. It ordered them to pay $13.5 million in administrative penalties; it also ordered them to disgorge approximately $5.6 million, which represented the amounts they obtained as a result of the market manipulation fraud and misrepresentation scheme.

These sanctions were registered with the Supreme Court of British Columbia under the Securities Act, which provides that, on being filed in a registry of that court, a decision of the BCSC has the same force and effect, and all proceedings may be taken on it as if it were a judgment of that court.

On April 20, 2018, the Poonians initiated a voluntary assignment in bankruptcy. Subsequently, on February 13, 2020, they sought a discharge from bankruptcy; however, this request was opposed by both the BCSC and the Canada Revenue Agency. On April 8, 2020, the Supreme Court of British Columbia denied the Poonians’ application, and as a result, they continue to remain undischarged bankrupts to this day.

In this Brandon’s Blog, I discuss the decision of the Supreme Court of Canada in this case. The Poonian case stems from stock market manipulation, fraud and misrepresentation. It highlights the intersection of fraud, bankruptcy law, and investor protection. Its impact stresses the need for reform to ensure accountability for dishonest practices while fostering trust in financial markets. The ruling may serve as a crucial step towards a more ethical financial landscape.

Fraud and Misrepresentation: The Core Issues of the Case

Delving into the intricacies of the case provides a rich tapestry of legal nuances that underscore the importance of regulatory frameworks in financial markets. The case was centred around the role of the BCSC, a critical entity in safeguarding investor interests and maintaining the integrity of the marketplace.

An important question arose: could the

administrative penalties and disgorgement orders imposed by the BCSC withstand the complexities introduced by bankruptcy discharges as delineated in the Bankruptcy and Insolvency Act (Canada) (BIA)? This question reflects legal intricacies and highlights ethical implications in financial governance.

First, let’s examine the significant penalties. The case’s details reveal staggering financial penalties: Thalbinder Poonian was hit with a hefty $13.5 million administrative penalty, while his partner, Shailu Poonian, faced $3.5 million. Additionally, a $5.6 million disgorgement order was made by the BCSC representing the Poonians’ illicit gains from their fraud and misrepresentation activities between 2007 and 2009.

The BCSC applied to the Supreme Court of British Columbia for a declaration that the debts represented by the administrative penalties and disgorgement orders not be released by any order of discharge, under s.178(1)(a), (d) and (e) of the BIA. The chambers judge allowed the BCSC’s application, finding that the debts were exempt and would survive any discharge. While only one exception had to apply for the debts not to be released, the chambers judge found the exceptions in s. 178(1)(a) and (e) both applied.

The Poonians filed an appeal with the British Columbia Court of Appeal, contesting, among other points, the chambers judge’s interpretation of the Bankruptcy and Insolvency Act (BIA). Justice Willcock, representing the British Columbia Court of Appeal, determined that the chambers judge had made an error in concluding that the debts were exempt from discharge under section 178(1)(a) of the BIA. However, the court upheld the chambers judge’s finding that the debts were exempt under section 178(1)(e). As the debts were deemed exempt, albeit only under section 178(1)(e), the appeal was ultimately dismissed.

Not satisfied with this result, the Poonians appealed to the Supreme Court of Canada. Before delving into the findings of the Supreme Court of Canada, we should review some basics about the BIA.

fraud and misrepresentation

The Legal Background of Bankruptcy and Fraud and Misrepresentation

The Bankruptcy and Insolvency Act

The Supreme Court’s analysis of the BIA centred on interpreting and applying the exceptions listed under section 178(1) in the context of the Poonian v. British Columbia Securities Commission case. Here are the key aspects of the court’s analysis:

Financial Rehabilitation and Fresh Start Principle:

The court acknowledged the primary objective of the BIA, which is to facilitate the financial rehabilitation of debtors by enabling them to achieve a fresh start and relief from burdensome debt.
Subsection 178(2) of the BIA delineates the fresh start principle, permitting an honest yet unfortunate debtor to be discharged from outstanding debts upon completing the bankruptcy process.

Limits of Financial Rehabilitation:

The court acknowledged that while financial rehabilitation is a key goal of the BIA, it is not unlimited. There must be a proper balance of interests. Sections 172 and 178(1) of the BIA set out specific debts and considerations that balance financial rehabilitation with other policy objectives.

Section 178(1) Exceptions:

The court highlighted that Section 178(1) enumerates particular debts that are not extinguished by discharge and consequently persist beyond bankruptcy. This provision reflects Parliament’s intention to reconcile financial rehabilitation with other policy objectives, including the maintenance of confidence in the credit system.

Specific Debt Exemptions:

The court addressed exemptions under sections 178(1)(a) and 178(1)(e) of the BIA, which were central to the case.
Section 178(1)(a) relates to fines, penalties, restitution orders, recognizances, bail, and orders imposed by a court (emphasis added). The court interpreted this subsection to clarify its scope and application to the BCSC’s orders.
Section 178(1)(e) pertains to debts or liabilities resulting from obtaining property or services by false pretenses or fraudulent misrepresentation. The court provided a detailed analysis of the elements and requirements of this subsection concerning the case at hand.

Interpretation of Court Orders:

There was an analysis of the effect of administrative tribunal decisions being registered as judgments of a court and whether they fall under the exemptions listed in section 178(1)(a) of the BIA.

Decision on Exemptions:

Ultimately, the court determined whether the administrative penalties and disgorgement orders in the Poonian case were exempt from discharge under section 178(1)(a) and (e).

Overall, the court’s analysis primarily focused on the relevant exceptions under section 178(1) of the BIA, their interpretation, and their application to the specific circumstances of the case.

Section 178(1) Explained

The legal background of bankruptcy concerning fraud and misrepresentation involves specific elements that need to be established for a debt or liability to survive bankruptcy under section 178(1)(e) of the BIA. Here are the key points in the Supreme Court analysis related to this legislative history:

False Pretences or Fraudulent Misrepresentation:

- The first requirement is for the creditor to prove that the debts or liabilities were obtained as a result of the debtor’s false pretences or fraudulent misrepresentation.
- A court cannot infer fraud easily and must independently review the evidence presented.
- Judicial notice of fraud is not admissible, and fraud cannot be inferred in a cursory manner.
- The creditor must establish that a deceitful statement was made, which was false, made knowingly without belief in its truth, and that the creditor relied on it and suffered a loss as a result.

Passing of Property or Provision of Services:

- The second requirement involves a loss in the form of a transfer of property or delivery of services, resulting in a corresponding debt or liability.
- The bankrupt need not be the direct recipient of the property. It can pass indirectly from the person to a third party at the bankrupt’s direction.
- The property need not be obtained or retained by the bankrupt, but the fraudulent misrepresentation must induce a person to give the property to the bankrupt or someone associated with the bankrupt.

Link between Debt or Liability and Fraud:

The debt or liability must have been created as a direct result of false pretences or fraudulent misrepresentation.
The court must ensure a clear and cogent link between the deceitful conduct and the resulting debt or liability.
Even if findings of fraud have been made by an administrative decision-maker, the court must make its determination based on a review of the evidence.

In summary, the legal background of bankruptcy and fraud/misrepresentation involves stringent requirements to establish that debts or liabilities were obtained through deceitful actions, resulting in a loss of property or services, and directly linked to the fraudulent conduct. These elements are essential for determining whether a debt or liability can survive bankruptcy under the BIA.

Fraud and Misrepresentation: The Appeal To The Supreme Court

The Supreme Court’s Decision

The Supreme Court’s majority opinion dismissing this appeal by the Poonians written by Justice Côté now provides clarity on the matter. The SCC affirmed that the disgorgement orders are monetary sanctions imposed because of, and thus resulting from, deceitful conduct or dishonest conduct that Parliament specifically sought to address. They are debts that originate from the Poonians having obtained property by false pretences or fraudulent misrepresentations. Accordingly, the disgorgement order falls within the narrow scope of s. 178(1)(e) and should not be released by any order of discharge from bankruptcy. The Supreme Court majority decision decided that the administrative penalties do not fall under any of the section 178(1) exemptions, be it section 178(1)(a) or (e).

This decision illuminates the understanding that the BCSC’s disgorgement order was closely tied to the fraudulent actions of the Poonians, which had directly inflicted financial harm on investors, but the administrative penalties were not. In essence, the court recognized that allowing the disgorgement order to be discharged would go against the spirit of the law designed to root out fraudulent behaviour.

The dissenting opinion from Justices Karakatsanis and Martin also adds an intriguing layer to this narrative. They concurred with the majority opinion for the survival of the disgorgement order under BIA sections 178(1)(e), but they would have given the administrative penalties the same treatment. The dissenting Justices advocated for the idea that all the underlying actions constituted fraud. However, their dissenting opinion did not alienate them from the majority opinion on the disgorgement order.

The Poonian case highlights the critical tension between providing pathways for honest debtors and preventing those engaged in deceit from reaping financial rewards for their actions. It is a reminder that while bankruptcy law aims to provide relief, it should not create loopholes that enable fraudsters to escape accountability. The dissonance between the aims of the BIA and the realities of financial misconduct presents a significant challenge but also an opportunity to fortify legal structures that prioritize the trustworthiness of our financial systems.

The Supreme Court’s Detailed Analysis of Section 178(1) of the BIA

To fully grasp the nuances of bankruptcy discharges, understanding Section 178(1) is crucial. This section explicitly lists categories of debts that a bankruptcy discharge does not cover. Specifically, it sets out parameters that determine if a debt may survive the bankruptcy process.

Subsection (a) targets amounts that are deemed penalties specifically imposed by a court for offences.
Subsection (e), on the other hand, relates to non-dischargeable debts that arise from unlawful acquisition of property through fraudulent misrepresentation.

Through the context of Poonian’s case, we begin to see the implications of these distinctions. The Supreme Court directly confronted whether the administrative penalties levied against the Poonians did not fall under the non-dischargeable categories, notwithstanding these penalties had been registered with the BC court.

Differences Between Court-Imposed Penalties and Administrative Fines

One of the critical distinctions I’ve noticed is how court-imposed penalties differ fundamentally from administrative fines. Administrative penalties are typically issued by regulatory agencies for violations of regulation rather than for conduct termed by law. In the case at hand, the penalties were administered by the BCSC, which is an administrative body. It was not a decision of the Court.

The Supreme Court highlighted that for the context of subsection (a), penalties need to originate from a court ruling to classify as “court-imposed.” The Justices affirmed neither the administrative penalties nor the disgorgement orders stemming from the BCSC fell under subsection 178(1)(a). Conversely, it recognized that only the disgorgement order debt could indeed be assessed under subsection 178(1)(e) because they arose from the fraudulent actions committed by the Poonians, aligning such misconduct directly with fraudulent misrepresentation.

fraud and misrepresentation

Fraud and Misrepresentation: Real-Life Implications for Those Facing Bankruptcy

While exploring this judicial decision, let’s not overlook the real-world implications for individuals grappling with the aftermath of bankruptcy. Bankruptcy proceedings are not simply academic exercises; they represent often hard-fought battles for individuals and families seeking finality and relief from oppressive debt. However, as this case illustrates, an individual’s past actions in the realm of fraud can significantly affect their future financial recovery.

The situation faced by Thalbinder and Shailu Poonian serves as a cautionary tale. After executing a fraudulent market manipulation scheme that inflicted massive financial losses on investors, they found themselves facing not only civil penalties but also the complexities of bankruptcy law that would determine if certain of their debts could not be discharged through the bankruptcy process. Their case spotlighted how, even while seeking refuge under the BIA, the weight of their actions continued to haunt them—shaping their financial reality moving forward.

In the context of fraud and misrepresentation, the legal system takes a firm stance. The Supreme Court underscored that despite bankruptcy serving as a fresh start for many, there remains a clear societal interest in holding those who engage in fraudulent conduct accountable. As one legal expert succinctly articulated,

“It’s essential to maintain the balance between allowing recovery and punishing fraudulent behaviour.”

Upon reviewing the rulings, it becomes evident that the relationship between administrative penalties and bankruptcy discharges presents significant complexities. The evolving nature of jurisprudence underscores the importance of seeking experienced legal counsel for individuals navigating these circumstances. Cases such as that of the Poonians highlight the enduring repercussions of dishonesty in business transactions and the stringent scrutiny that follows in the legal arena.

Moreover, Section 178(1) serves as an essential protective measure against unscrupulous debtors, holding accountable those who exploit the bankruptcy system for personal gain. It is imperative to emphasize that not all debts are treated equitably in bankruptcy proceedings, particularly for individuals who have acquired property through fraud and misrepresentation.

Fraud and Misrepresentation: The Broader Legal Implications of the Ruling

In reflecting on the Supreme Court ruling in this case, I am struck by the potential ramifications for future cases involving a fraudulent scheme and bankruptcy. The ruling not only clarifies certain provisions under the BIA but also highlights that the majority opinion shapes the legal discourse for years to come.

The core issue at stake was whether administrative penalties and disgorgement orders could withstand bankruptcy discharges. The Poonians, who engaged in a significant market manipulation scheme causing notable losses to investors, faced substantial sanctions totalling over $17 million. What caught my attention was the legal reasoning applied by the judges concerning subsections of the BIA — particularly around the distinction of what constitutes a “penalty imposed by a court.” The majority decision concluded that the disgorgement orders could indeed be non-dischargeable, while they dismissed the administrative penalties under section 178(1).

fraud and misrepresentation

Fraud and Misrepresentation: Impact on Future Cases

The implications of this ruling extend far beyond the immediate case. The way future fraud cases are adjudicated may fundamentally change as a consequence of this decision. From my perspective, the judicial reasoning employed could pave the way for stricter enforcement of certain penalties against those engaging in fraudulent activity. At the same time, the reasoning, in this case, can be extended to all administrative tribunals charged with maintaining the trust the public can place in the industry they regulate.

I can envision that future court rulings will be influenced by the emphasis placed on the fraudulent behaviour of the individuals involved. If future courts lean towards the rationale demonstrated here, it might deter would-be fraudsters from riskier financial behaviour due to the heightened likelihood of facing non-dischargeable debts post-bankruptcy.

Furthermore, this case might serve as a benchmark for evaluating the legitimacy and scope of financial penalties imposed not only by commissions like the BCSC but also by regulatory bodies across Canada. When I think about the potential for greater clarity in judicial interpretation, I am both hopeful and curious about its influence on how we perceive financial accountability in society at large.

Fraud and Misrepresentation: Conclusion

As I sift through the implications of this Supreme Court decision, I can’t help but reflect on how the outcomes resonate far beyond the courtroom. The repercussions of this case reach every corner of the investment community, sending ripples into regulatory frameworks that must adapt to this reality.

The Poonians were found guilty of orchestrating fraud and misrepresentation through their stock manipulation activities that significantly harmed countless investors. The Supreme Court’s ruling, emphasizes a crucial principle: while bankruptcy laws may offer a fresh start, they should not protect those who engage in unethical conduct.

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