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FORM 80 NOTICE OF OPPOSITION TO DISCHARGE OF BANKRUPT: OUR COMPREHENSIVE GUIDE FOR CREDITORS AND TRUSTEES

What Is The Notice of Opposition?

When an insolvent person files a bankruptcy insolvency process in Canada, the ultimate goal is to receive a discharge from their debts. However, this process isn’t always automatic. Sometimes, creditors or trustees may have valid reasons to oppose a bankrupt person’s discharge. This is where the Form 80 Notice of Opposition To Discharge Of Bankrupt becomes crucial.

Understanding how Form 80, the prescribed form, works can make a significant difference in protecting your interests as a creditor or ensuring proper administration of the bankruptcy estate as a trustee. This comprehensive guide will walk you through everything you need to know about Form 80, from who can file it to the specific grounds for opposition.

Whether you’re a creditor concerned about a consumer debtor’s conduct during bankruptcy or a trustee identifying issues with compliance, knowing when and how to use Form 80 is essential. The bankruptcy system relies on honest disclosure and cooperation from all parties, and the Notice of Opposition serves as an important safeguard to ensure these principles are upheld.

Introduction: Understanding the Discharge Process and the Role of Opposition

The bankruptcy discharge process in Canada is designed to give honest but unfortunate debtors a fresh start while protecting the rights of creditors and maintaining the integrity of the system. However, this balance requires careful oversight, and sometimes formal opposition is necessary to address concerns about a bankrupt’s conduct or compliance.

What is Bankruptcy Discharge?

A bankruptcy discharge is the legal release of a bankrupt person from either all or most of their debts and obligations that existed at the time of filing for the bankruptcy insolvency process. When someone receives their discharge, they are no longer legally required to pay the pre-bankruptcy debts released by their bankruptcy discharge. There are some exceptions, like student loans less than seven years old, court fines, and support payments.

The discharge represents the end goal of the bankruptcy insolvency process. It allows individuals to move forward without the burden of overwhelming debt, provided they have met their obligations during the bankruptcy period. For most first-time bankrupts who comply with their duties, discharge happens automatically after nine months for individuals without or 21 months for those with surplus income requirements.

However, not all bankrupts are entitled to an automatic discharge. When there are concerns about the bankrupt’s conduct, honesty, or compliance with bankruptcy requirements, interested parties can file a Form 80 Notice of Opposition To Discharge Of Bankrupt to bring these issues before the court.

Why is Discharge Important for a Bankrupt?

The discharge is the light at the end of the tunnel for most people going through bankruptcy. Without discharge, a person remains legally obligated to pay their pre-bankruptcy debts, even though they may have already lost their assets and gone through the bankruptcy process.

Discharge also restores many civil rights and privileges that may be suspended during bankruptcy. It allows the former bankrupt to obtain credit more easily, serve as a director of a corporation, and engage in business activities without the restrictions that apply during active bankruptcy status.

For these reasons, most bankrupts are highly motivated to comply with their obligations and obtain their discharge as quickly as possible. When problems arise that might delay or prevent discharge, they create significant consequences for the bankrupt person.

Form 80 Notice of Opposition To Discharge Of Bankrupt guide showing a split image of a depressed woman with too much debt and the other image is the same happy woman after receiving her discharge from bankruptcy
notice of opposition

Types of Bankruptcy Discharge: Understanding Your Options and Outcomes

When facing a Form 80 Notice of Opposition To Discharge Of Bankrupt, it’s important to understand that not all discharge outcomes are the same. The court has several options available when dealing with opposition cases, each with different implications for the bankrupt person, their trustee, and unsecured creditors. The bankruptcy discharge is a very important part of the bankruptcy administration. The discharge completely releases the bankrupt from all debts that existed at the date of bankruptcy, with limited exceptions such as student loans less than seven years old, court fines, and support payments.

Absolute Discharge: The Best Possible Outcome

An absolute discharge is the most favourable outcome for any bankrupt person. Normally, the absolute discharge is given as an automatic discharge by the trustee. However, there are occasions where a bankrupt’s application for discharge must be heard by the court. One option the court has, if the evidence shows that the consumer bankrupt did not commit any offences or other inappropriate behaviour, is to grant an absolute discharge.

When an absolute discharge is given or granted, it means the bankrupt has met all their obligations satisfactorily and there are no grounds to impose additional conditions or delays. The discharge takes effect immediately upon the court order being granted.

For the bankrupt person, an absolute discharge represents the complete fresh start that bankruptcy is designed to provide. They can immediately begin rebuilding their credit, engaging in business activities, and moving forward without the burden of pre-bankruptcy debts.

From the trustee’s perspective, an absolute discharge indicates successful administration of the bankruptcy estate. All required duties have been completed, and there are no outstanding issues requiring ongoing supervision or intervention.

Unsecured creditors must accept that their claims are extinguished upon absolute discharge. While they may not recover the full amount owed, the discharge provides certainty and finality to the bankruptcy process.

Conditional Discharge: Meeting Specific Requirements

A conditional discharge requires the bankrupt to fulfill specific conditions before the discharge becomes effective. These conditions are tailored to address particular concerns raised during the opposition process or identified by the court.

Common conditions include paying a lump sum to the estate, making monthly payments for a specified period, completing financial counselling or education programs, or providing additional disclosure about assets or transactions.

The court sets conditions based on the bankrupt’s ability to comply and the seriousness of the issues that led to the opposition. Conditions must be reasonable and achievable, considering the bankrupt’s financial circumstances.

For bankrupt individuals, conditional discharge means either fulfilling some of the normal duties of the bankrupt yet to be completed, or additional obligations beyond the normal bankruptcy requirements. However, once conditions are met, they receive the same debt relief as an absolute discharge.

Trustees play a crucial role in monitoring compliance with discharge conditions. They must verify that conditions have been satisfied before the discharge becomes effective and report to the court if the bankrupt fails to comply.

Unsecured creditors may benefit from conditional discharge orders, particularly if the conditions involve payments to the estate. These additional recoveries can increase dividend distributions to creditors.

Suspended Discharge: Waiting for the Right Time

A suspended discharge delays the effective date of discharge for a specified period. During the suspension period, the bankrupt remains in bankruptcy status and is subject to all associated restrictions and obligations.

Courts typically order suspended discharge when they want to monitor the bankrupt’s conduct for a longer period or when circumstances suggest that immediate discharge would be inappropriate.

The suspension period can range from one day to a few months to several years, depending on the severity of the issues and the court’s assessment of how long monitoring is necessary.

During the suspension period, the bankrupt must continue complying with all bankruptcy obligations. They cannot obtain certain types of credit, serve as a corporate director, or engage in other activities restricted during bankruptcy.

For trustees, suspended discharge means continued involvement in monitoring the bankrupt’s compliance. The trustee remains responsible for supervising the bankrupt throughout the suspension period.

Unsecured creditors gain additional protection through suspended discharge, as it extends the period during which the bankrupt’s activities are subject to oversight and restriction.

Refused Discharge: The Most Serious Consequence

In the most serious cases, courts may refuse to grant discharge altogether. This outcome is reserved for situations involving significant misconduct, fraud, or complete failure to comply with bankruptcy obligations.

When discharge is refused, the bankrupt remains permanently subject to bankruptcy restrictions unless they successfully apply for discharge in the future after addressing the court’s concerns.

Refused discharge is rare but serves as an important deterrent against abuse of the bankruptcy system. It ensures that those who act dishonestly or refuse to cooperate cannot simply walk away from their obligations.

For bankrupt persons, a refused discharge means they cannot achieve the fresh start that bankruptcy typically provides. They remain liable for their pre-bankruptcy debts and are subject to bankruptcy restrictions indefinitely.

Trustees have an obligation to bring on the bankrupt’s first application for discharge. When a discharge is refused by the court, the trustee normally then will go through the final steps to obtain the trustee’s discharge. If one day the bankrupt wishes to get their discharge from bankruptcy, the person must retain insolvency legal counsel to apply to the court for their application to be heard. The undischarged bankrupt will also need to pay a fee to the trustee for the trustee to review its records and participate in the bankrupt’s application hearing.

Unsecured creditors retain their rights to pursue collection against a bankrupt whose discharge has been refused, though the practical ability to collect may still be limited by the bankrupt’s financial circumstances. Once the trustee obtains its discharge, the stay of proceedings which prevented unsecured creditors from taking legal action against the bankrupt evaporates.

Factors Courts Consider When Determining Discharge Type

Courts consider numerous factors when deciding what type of discharge to grant in opposition cases. The bankrupt’s conduct before, during and after bankruptcy is paramount, including their honesty, cooperation with the trustee, and compliance with statutory obligations.

The nature and extent of any misconduct also influence the court’s decision. Technical violations may result in minor conditions, while fraudulent conduct could lead to suspended or refused discharge.

The bankrupt’s ability to comply with potential conditions is another important consideration. Courts won’t impose conditions that are impossible to meet, as this would effectively amount to refusing discharge.

The impact on creditors and the integrity of the bankruptcy system are also weighed. Courts must balance the bankrupt’s right to a fresh start with the need to maintain public confidence in the bankruptcy process.

The Official Receiver’s Role in the Discharge Process

The Official Receiver plays a central role in overseeing bankruptcy discharges in Canada. This government official reviews each bankruptcy file to ensure the bankrupt has complied with their obligations under the Bankruptcy and Insolvency Act.

When there are concerns about the bankrupt’s conduct, the Official Receiver has the authority to oppose the discharge by filing the prescribed Form 80.

The Official Receiver’s opposition typically focuses on ensuring the bankrupt has fully disclosed their assets, cooperated with the trustee, and met all statutory requirements. This oversight helps maintain public confidence in the bankruptcy system by ensuring dishonest consumer debtors cannot abuse it.

The Purpose of a Notice of Opposition

The Form 80 Notice of Opposition To Discharge Of Bankrupt serves several important purposes within the bankruptcy system. First, it provides a formal mechanism for raising concerns about a bankrupt’s conduct or compliance with their obligations.

Second, it ensures that discharge decisions receive proper judicial review when there are legitimate concerns. Rather than allowing potentially problematic discharges to proceed automatically, the opposition process brings these matters before a judge who can examine the evidence and make an appropriate ruling.

Third, the opposition process serves as a deterrent against abuse of the bankruptcy system. Knowing that creditors, trustees, and the Official Receiver can oppose discharge encourages bankrupts to be honest and cooperative throughout the process.

Finally, the opposition process protects the rights of creditors who may have been harmed by fraudulent or dishonest conduct. It ensures these concerns can be formally addressed before the bankrupt receives the benefit of discharge.

Who Can File a Notice of Opposition (Form 80)?

Understanding who has the legal authority to file a prescribed Form 80 Notice of Opposition To Discharge Of Bankrupt is crucial for anyone involved in the bankruptcy process. The Bankruptcy and Insolvency Act sets out specific rules about who can raise objections to a bankrupt’s discharge.

Understanding the Parties Involved: Creditors and the Trustee

In any bankruptcy proceeding, there are several key parties who may have an interest in the bankrupt’s discharge. Creditors are individuals or companies who were owed money by the bankrupt at the time of filing. These parties have a direct financial interest in ensuring the bankruptcy process is conducted properly and honestly.

The licensed insolvency trustee (formerly called a bankruptcy trustee) (LIT) is the licensed insolvency professional appointed to administer the bankruptcy estate. Trustees have a duty to creditors and the court to ensure the bankrupt complies with all obligations and that the estate is properly administered. This fiduciary responsibility gives trustees both the authority and obligation to oppose discharge when appropriate.

The Official Receiver, as mentioned earlier, represents the public interest in ensuring the proper administration of the bankruptcy insolvency process. As a government official, the Official Receiver has broad authority to oppose discharges that may undermine public confidence in the system.

Each of these parties brings different perspectives and concerns to the discharge process. Creditors focus primarily on protecting their financial interests and ensuring they haven’t been harmed by fraudulent conduct. Trustees consider broader compliance issues and proper estate administration. The Official Receiver looks at systemic concerns and adherence to statutory requirements.

Eligibility Criteria for Filing an Opposition

The Bankruptcy and Insolvency Act sets out specific criteria for who may file a Form 80 Notice of Opposition To Discharge Of Bankrupt. Generally, any creditor who has proven their claim in the bankruptcy is entitled to file an opposition. This includes both secured and unsecured creditors, provided they have followed proper procedures to establish their claim against the estate.

The LIT always has the authority to file an opposition when they identify concerns about the bankrupt’s conduct or compliance. This authority stems from the trustee’s statutory duties and fiduciary obligations to the estate and its creditors.

The Official Receiver also has broad authority to oppose discharge in appropriate circumstances. This authority is not limited to specific types of concerns but encompasses any situation where the Official Receiver believes opposition serves the public interest.

It’s important to note that the right to file an opposition is not unlimited. The party filing must have legitimate grounds based on the bankrupt’s conduct or non-compliance with statutory obligations. Frivolous or vexatious oppositions may be dismissed by the court and could result in cost awards against the opposing party.

The Bankrupt’s Own Position: Can a Bankrupt Oppose Their Own Discharge?

While it might seem counterintuitive, there are rare circumstances where a bankrupt person might want to delay their own discharge. For example, if the bankrupt discovers additional assets or income that should be disclosed to their LIT, they might prefer to address these issues properly before seeking discharge.

However, the more common situation is that bankrupts strongly desire to obtain their discharge as quickly as possible. From the bankrupt’s perspective, the Form 80 Notice of Opposition To Discharge Of Bankrupt represents a significant obstacle that could delay their fresh start and continue the restrictions of bankruptcy status.

When facing an opposition, bankrupts have the right to respond and defend against the allegations. They can present evidence, call witnesses, and make legal arguments about why the opposition should be dismissed or why any conditions imposed should be minimal.

The court will consider all evidence from both sides before deciding on the discharge. This adversarial process helps ensure that discharge decisions are fair and based on complete information about the bankrupt’s conduct and circumstances.

Form 80 Notice of Opposition To Discharge Of Bankrupt guide showing a split image of a depressed woman with too much debt and the other image is the same happy woman after receiving her discharge from bankruptcy
notice of opposition

Form 80: The Notice of Opposition Prescribed Form Document

The Form 80 Notice of Opposition To Discharge Of Bankrupt is a specific legal document prescribed under the Bankruptcy and Insolvency Act. Understanding its requirements and proper completion is essential for anyone considering filing an opposition.

What is Form 80?

Form 80 is the prescribed form document used across Canada to formally oppose a bankrupt person’s discharge. It serves as the initiating document that brings the matter before the court and sets out the specific grounds for opposition.

The form is designed to provide a clear notice to all parties about the nature of the opposition. It must contain sufficient detail about the grounds for opposition to allow the bankrupt and their counsel to understand the case they need to meet.

Form 80 also serves an important administrative function by ensuring that opposition matters are properly tracked within the court system. The standardized format helps court staff process these matters efficiently and ensures nothing falls through the cracks.

The form must be filed within specific time limits set out in the Bankruptcy and Insolvency Act. Missing these deadlines can result in the loss of the right to oppose discharge, making timely and accurate completion crucial.

Essential Information Required in Form 80

Completing Form 80 properly requires careful attention to detail and accuracy. The form contains several sections that must be completed fully and correctly to ensure the opposition is valid and effective.

Bankrupt’s Name and Details

This prescribed form must include the full legal name of the bankrupt person exactly as it appears in the bankruptcy documents. This includes any aliases or business names used by the bankrupt. Accuracy is critical because errors in the bankrupt’s identification could invalidate the entire opposition.

The bankrupt’s address and other identifying information must also be included. This ensures proper service of documents and helps the court identify the correct bankruptcy proceeding.

Filing Party’s Name and Contact Information (Creditor or Trustee)

The party filing the Form 80 Notice of Opposition To Discharge Of Bankrupt must provide complete and accurate contact information. This includes their full legal name, address, telephone number, and email address if available.

If the filing party is represented by counsel, the lawyer’s information must also be included. This ensures that all future correspondence and court notices are properly directed.

For corporate creditors, the form must indicate the proper corporate name and the authority of the person signing on behalf of the corporation. This might require providing evidence of signing authority through corporate resolutions or other documentation.

Court and Division Information

The opposition must be filed in the proper court division where the bankruptcy proceeding is taking place. Form 80 requires specific information about the court location and the bankruptcy file number.

Getting this information correct is essential because filing in the wrong court division can cause significant delays and may invalidate the opposition. The trustee’s office can provide the correct court information if there is any uncertainty.

Specific Grounds for Opposition (Detailed Explanation)

This is perhaps the most critical section of Form 80. The filing party must clearly set out the specific grounds for opposing the bankrupt’s discharge. Vague or general allegations are not sufficient; the form must contain specific facts and legal grounds.

Each ground for opposition should be described in detail, including relevant dates, amounts, and circumstances. The more specific and detailed the grounds, the stronger the opposition will be and the better the court can understand the issues.

The grounds must relate to recognized legal bases for opposition under the Bankruptcy and Insolvency Act. Personal disputes or grievances that don’t relate to the bankrupt’s conduct during bankruptcy are not appropriate grounds for opposition.

Supporting Evidence or Statements

Form 80 must be supported by evidence that substantiates the grounds for opposition. This might include financial documents, correspondence, witness statements, or other relevant materials.

The evidence should be organized and clearly referenced in the form. Each piece of evidence should directly support one or more of the stated grounds for opposition.

Affidavit evidence may be required to support certain allegations, particularly those involving the bankrupt’s conduct or statements. These affidavits must be sworn before an authorized person and follow proper legal format requirements.

Prescribed Fees and Payment

Filing Form 80 Notice of Opposition To Discharge Of Bankrupt requires payment of the prescribed court fees. These fees vary by jurisdiction and are subject to change, so it’s important to confirm the current fee schedule with the court registry.

Payment methods accepted by the court vary by location but typically include certified cheques, money orders, or cash. Some courts may accept credit card payments or electronic transfers.

The opposition cannot proceed without proper payment of fees, so ensuring payment is included with the filing is essential. Fee waivers may be available in cases of financial hardship, but these require a separate application and approval.

The Importance of Accuracy and Completeness in Form 80

Accuracy and completeness in Form 80 cannot be overstated. Errors or omissions can result in the opposition being dismissed, delays in processing, or the loss of the right to oppose discharge altogether.

Courts take a strict approach to procedural requirements in bankruptcy matters. This means that technical errors, even if seemingly minor, can have serious consequences for the filing party’s case.

Before filing, it’s essential to carefully review every section of the form for accuracy. Having another person review the form can help catch errors that might be missed by the person who prepared it.

If errors are discovered after filing, it may be possible to amend the form, but this typically requires court approval and may cause delays. Prevention through careful initial preparation is far preferable to attempting corrections later.

Obtaining and Preparing Prescribed Form 80

Form 80 Notice of Opposition To Discharge Of Bankrupt can be obtained from several sources. Court registries typically have copies available, and many courts provide forms on their websites for downloading and printing.

The Office of the Superintendent of Bankruptcy also provides standardized forms that can be used across Canada. These forms are regularly updated to reflect changes in legislation and court requirements.

Legal stationers and trustee offices may also have copies of Form 80 available. However, it’s important to ensure that any form obtained is the current version, as outdated forms may not be accepted by the court.

When preparing the form, consider using legal assistance if the case is complex or if you’re unfamiliar with bankruptcy procedures. LITs and lawyers specializing in bankruptcy law can provide valuable guidance on proper completion and filing procedures.

Grounds for Opposing Discharge: Why a Creditor Might Object

Understanding the legal grounds for opposing a bankrupt’s discharge is crucial for creditors considering filing Form 80 Notice of Opposition To Discharge Of Bankrupt. The Bankruptcy and Insolvency Act sets out specific circumstances where opposition may be appropriate and successful.

The Bankruptcy and Insolvency Act provides the legal framework for opposing discharge applications. Section 173 specifically addresses circumstances where discharge may be refused, suspended, or granted subject to conditions.

The Act recognizes that discharge is not an absolute right but rather a privilege that must be earned through honest conduct and compliance with bankruptcy obligations. When a bankrupt fails to meet these standards, creditors and other interested parties have the right to bring these failures to the court’s attention.

The legal standard for opposition is not merely dissatisfaction with the bankruptcy outcome. Instead, there must be specific conduct or circumstances that justify court intervention in the discharge process.

Courts have developed extensive case law interpreting these statutory provisions, guiding what constitutes sufficient grounds for opposition and what remedies may be appropriate in different circumstances.

Common Grounds for Opposition:

Failure to Disclose Property

One of the fundamental obligations of any bankrupt person is to fully disclose all assets and property to their trustee. This includes not only obvious assets like bank accounts and real estate but also more complex items like pending legal claims, intellectual property, crypto or interests in trusts or estates.

When a bankrupt fails to disclose assets, it deprives creditors of recoveries they might otherwise receive. This conduct undermines the entire bankruptcy system and provides strong grounds for opposing discharge.

Common examples of non-disclosure include hidden bank accounts, undisclosed business interests, transferred assets, or failure to mention inheritance expectations. Even assets that might seem minimal can be significant in the context of a bankruptcy estate.

The key issue is not necessarily the value of the undisclosed property but the fact that the bankrupt attempted to hide it from creditors and the trustee. This dishonest conduct justifies court intervention in the discharge process.

Non-Compliance with Duties of the Bankrupt (e.g., providing information, books)

The Bankruptcy and Insolvency Act imposes specific duties on bankrupt persons throughout the bankruptcy process. These duties include attending meetings with the trustee, providing requested information, delivering books and records, and generally cooperating with the administration of the estate.

When a bankrupt fails to comply with these duties, it can significantly impair the trustee’s ability to properly administer the estate and investigate the bankrupt’s affairs. This non-compliance provides grounds for opposing discharge.

Common examples include failure to attend required meetings, refusing to provide financial records, failing to complete required forms or questionnaires, or generally being uncooperative with the trustee’s requests.

The extent and nature of the non-compliance matters. Minor delays or technical failures may not justify opposition, but systematic non-cooperation or refusal to comply with major obligations certainly would.

Fraudulent Transactions or Intent to Defraud

Fraudulent conduct represents one of the most serious grounds for opposing discharge. This can include transactions designed to defeat creditors, false statements about financial affairs, or other dishonest conduct related to the bankruptcy.

Fraudulent transactions might include transferring assets to family members for inadequate consideration, creating false debts to preferred parties, or disposing of assets without proper disclosure to the trustee.

Intent to defraud can be proven through the bankrupt’s actions and the circumstances surrounding them. Courts look at factors like the timing of transactions, the relationship between parties, the consideration paid, and the bankrupt’s knowledge of their financial difficulties.

Even unsuccessful attempts at fraud can provide grounds for opposition. The key is the bankrupt’s intent and conduct, not necessarily whether the fraudulent scheme succeeded.

Prior Bankruptcy or Insolvency Proceedings

A bankrupt’s history of previous insolvency proceedings can be relevant to their current discharge application. Multiple bankruptcies may suggest a pattern of financial irresponsibility or an abuse of the bankruptcy system.

The mere fact of previous bankruptcy is not automatically grounds for opposition, but it becomes relevant when combined with other factors like non-compliance or dishonest conduct.

Courts consider factors like the time between bankruptcies, the reasons for the repeat insolvency, and whether the bankrupt has learned from previous experiences and modified their behaviour accordingly.

Repeat bankruptcies may result in longer waiting periods before discharge or conditions being imposed to address underlying financial management issues.

Obtaining Credit Under False Pretenses

When a bankrupt has obtained credit through false or misleading statements, this provides strong grounds for opposing discharge. This is particularly relevant for credit obtained shortly before filing for bankruptcy.

False pretenses might include overstating income, understating debts, providing false employment information, or failing to disclose material changes in financial circumstances.

The creditor who provided credit based on false information may think that since they have a particularly strong position to oppose discharge, as the bankrupt’s dishonest conduct directly harmed them, they should. However, if they can prove the fraud in court, then that judgment they get will follow the person around for life, as certain debts arising from fraudulent conduct cannot be eliminated through a bankruptcy discharge.

So in that case, the creditor should obtain their fraud judgment and then hope the person gets their discharge from bankruptcy so that all or most other debts are discharged. The creditor whose judgment is based on fraud can then go after the person when they have amassed more assets and have less debt.

Courts take this ground seriously because it directly involves dishonesty toward creditors and undermines the trust that credit relationships require.

When considering whether to file Form 80 Notice of Opposition To Discharge Of Bankrupt, it’s important to evaluate whether the circumstances fit within these recognized legal grounds. Having legitimate grounds supported by evidence is essential for a successful opposition.

The consequences of filing an unfounded opposition can include cost awards against the filing party, so careful consideration of the merits is essential before proceeding.

Strategic Considerations for All Parties

Understanding the different types of discharge available helps all parties make informed decisions about opposition proceedings. Creditors can assess whether the potential outcomes justify the time and expense of filing Form 80 Notice of Opposition To Discharge Of Bankrupt.

Bankrupt persons can better understand the potential consequences of their actions and make informed decisions about how to respond to opposition proceedings.

Trustees can provide better advice to all parties by explaining the likely outcomes based on the specific circumstances of each case.

The discharge type ultimately determines how effectively the bankruptcy process achieves its goals of providing debt relief to honest debtors while protecting creditor interests and maintaining system integrity.

Form 80 Notice of Opposition To Discharge Of Bankrupt guide showing a split image of a depressed woman with too much debt and the other image is the same happy woman after receiving her discharge from bankruptcy
notice of opposition

Frequently Asked Questions About Form 80 Notice of Opposition To Discharge Of Bankrupt

What is Form 80 Notice of Opposition To Discharge Of Bankrupt?

Form 80 Notice of Opposition To Discharge Of Bankrupt is the official legal document used in Canada to formally oppose a bankrupt person’s application for discharge from bankruptcy. This form allows creditors, trustees, or the Official Receiver to bring concerns about the bankrupt’s conduct or compliance before the court.

The form serves as the starting point for court proceedings that can delay, condition, or even prevent a bankrupt’s discharge. It must contain specific information about the grounds for opposition and be filed within strict time limits.

How much does it cost to file Form 80 Notice of Opposition To Discharge Of Bankrupt?

The cost to file Form 80 Notice of Opposition To Discharge Of Bankrupt varies by court jurisdiction as court filing fees. Additional costs may include legal representation, which can range from $2,000 to $10,000 depending on the complexity of the case.

Some courts may waive fees in cases of financial hardship, but this requires a separate application. It’s important to confirm current fee schedules with your local court registry before filing.

Who can file Form 80 Notice of Opposition To Discharge Of Bankrupt?

Several parties have the legal right to file Form 80 Notice of Opposition To Discharge Of Bankrupt. Proven creditors who have filed claims in the bankruptcy can file an opposition if they have valid grounds. The LIT administering the bankruptcy estate also has the authority to file opposition when they identify compliance issues.

The Official Receiver, representing the public interest, can file an opposition in appropriate circumstances. However, not everyone can file – the party must have standing and legitimate grounds based on the bankrupt’s conduct or non-compliance with statutory obligations.

What are the time limits for filing Form 80 Notice of Opposition To Discharge Of Bankrupt?

Time limits for filing Form 80 Notice of Opposition To Discharge Of Bankrupt are strictly enforced under the Bankruptcy and Insolvency Act. Generally, opposition must be filed no later than one month before the automatic discharge date or within the time specified in discharge application notices.

For first-time bankrupts, this typically means filing within eight months of the bankruptcy date. Missing these deadlines usually results in losing the right to oppose discharge, making timely action crucial.

Can a bankrupt person defend against Form 80 Notice of Opposition To Discharge Of Bankrupt?

Yes, bankrupt persons have the right to defend against Form 80 Notice of Opposition To Discharge Of Bankrupt. They can file responding materials, present evidence, call witnesses, and make legal arguments about why the opposition should be dismissed.

The court process is adversarial, meaning both sides present their case before a judge makes a decision. Bankrupts often benefit from legal representation when defending against opposition, especially in complex cases involving allegations of fraud or serious misconduct.

What happens after the the Form 80 Notice of Opposition To Discharge Of Bankrupt is filed?

After Form 80 Notice of Opposition To Discharge Of Bankrupt is filed, the court schedules a hearing where all parties can present evidence and arguments. The bankrupt person receives notice of the opposition and has the right to respond.

The hearing process can take several months to complete, during which the bankrupt remains in bankruptcy status. The judge will review all evidence before deciding whether to grant absolute discharge, conditional discharge, suspended discharge, or refuse discharge altogether.

How long does the Form 80 Notice of Opposition To Discharge Of Bankrupt process take?

The Form 80 Notice of Opposition To Discharge Of Bankrupt process typically takes three to twelve months from filing to final court decision. Simple cases with straightforward issues may resolve more quickly, while complex cases involving extensive evidence or multiple parties can take longer.

Factors affecting the timeline include court scheduling, the complexity of issues raised, the amount of evidence to review, and whether the parties reach any settlement agreements before the hearing.

What evidence is needed for Form 80 Notice of Opposition To Discharge Of Bankrupt?

Evidence for Form 80 Notice of Opposition To Discharge Of Bankrupt must directly support the specific grounds for opposition stated in the form. This might include financial documents showing undisclosed assets, correspondence demonstrating non-cooperation with the trustee, or records proving fraudulent transactions.

Witness statements, expert reports, and documentary evidence should be organized clearly and referenced specifically in the opposition form. Affidavit evidence may be required for certain types of allegations, particularly those involving the bankrupt’s conduct or statements.

Can Form 80 Notice of Opposition To Discharge Of Bankrupt be withdrawn?

Yes, Form 80 Notice of Opposition To Discharge Of Bankrupt can be withdrawn by the filing party at any time before the court makes its final decision. Withdrawal typically requires filing a formal notice with the court and serving it on all parties.

Parties might withdraw opposition if the bankrupt addresses their concerns, new evidence emerges that undermines their case, or they reach a settlement agreement. However, withdrawal doesn’t guarantee the court won’t consider the issues raised if other parties maintain their opposition.

What are the most common grounds for filing Form 80 Notice of Opposition To Discharge Of Bankrupt?

The most common grounds for filing Form 80 Notice of Opposition To Discharge Of Bankrupt include failure to disclose assets or property to the trustee, non-compliance with statutory duties like attending meetings or providing information, and fraudulent transactions designed to defeat creditors.

Other frequent grounds include obtaining credit under false pretenses before bankruptcy, having previous bankruptcy or insolvency proceedings, and general lack of cooperation with the trustee’s administration of the estate.

How does Form 80 Notice of Opposition To Discharge Of Bankrupt affect credit rebuilding?

Form 80 Notice of Opposition To Discharge Of Bankrupt significantly delays credit rebuilding because it prevents or delays the bankrupt’s discharge. Without discharge, the person remains in bankruptcy status and cannot begin the credit rebuilding process.

Even after resolving opposition proceedings, the bankruptcy remains on credit reports for six to seven years from the discharge date. Conditional or suspended discharges may create additional reporting that further impacts credit scores and lending decisions.

Can multiple parties file Form 80 Notice of Opposition To Discharge Of Bankrupt for the same bankrupt?

Yes, multiple parties can file separate Form 80 Notice of Opposition To Discharge Of Bankrupt documents against the same bankrupt person. Each opposition is treated as a separate proceeding, though courts often consolidate hearings for efficiency.

Multiple oppositions can strengthen the overall case against discharge, especially if different parties raise complementary concerns about the bankrupt’s conduct. However, each filing party must have their own valid grounds and standing to oppose.

What role does the LIT play in Form 80 Notice of Opposition To Discharge Of Bankrupt cases?

Licensed insolvency trustees play multiple roles in Form 80 Notice of Opposition To Discharge Of Bankrupt cases. They may file opposition themselves when they identify compliance issues or misconduct during estate administration.

When other parties file opposition, trustees often provide evidence about the bankrupt’s compliance with statutory duties, cooperation levels, and any issues discovered during estate administration. Trustees must remain neutral and focus on factual evidence rather than advocacy for any particular outcome.

How much can a conditional discharge cost under Form 80 Notice of Opposition To Discharge Of Bankrupt proceedings?

Conditional discharge costs resulting from Form 80 Notice of Opposition To Discharge Of Bankrupt proceedings vary widely based on the bankrupt’s circumstances and the severity of issues raised. Payments to the estate can range from a few thousand dollars to tens of thousands of dollars.

Courts consider the bankrupt’s ability to pay when setting conditions, but also weigh the seriousness of misconduct and the benefit to creditors. Monthly payment plans over several years are common when lump sum payments aren’t feasible.

What happens if a bankrupt violates conditions set after Form 80 Notice of Opposition To Discharge Of Bankrupt proceedings?

If a bankrupt violates conditions set after Form 80 Notice of Opposition To Discharge Of Bankrupt proceedings, the trustee must report the violation to the court. This can result in the discharge being revoked or additional conditions being imposed.

Notice of Opposition Conclusion

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 options.

Free consultation available:

  • No obligation to proceed
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  • Clear explanation of how debt solutions 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.

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.

Form 80 Notice of Opposition To Discharge Of Bankrupt guide showing a split image of a depressed woman with too much debt and the other image is the same happy woman after receiving her discharge from bankruptcy
notice of opposition
Categories
Brandon Blog Post

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

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.Magnifying glass scrutinizing financial documents showing complex related party transaction lines and numbers.

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.Infographic showing related party relationships including owners, family members, and connected companies

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.Magnifying glass scrutinizing financial documents showing complex related party transaction lines and numbers.

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.Magnifying glass scrutinizing financial documents showing complex related party transaction lines and numbers.

Key Takeaways for GTA Businesses:

  1. Document related party loans professionally – no internet forms or handshake deals
  2. Register security immediately – don’t wait for financial trouble
  3. Act while financially healthy – late efforts rarely work
  4. 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:

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.Magnifying glass scrutinizing financial documents showing complex related party transaction lines and numbers.

Categories
Brandon Blog Post

BANKRUPTCY AND INSOLVENCY ACT FORMS: YOUR COMPLETE GUIDE

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.

Licensed Insolvency Trustee helps transform financial stress into relief through proper Bankruptcy and Insolvency Act forms completion in Toronto GTA
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
Licensed Insolvency Trustee helps transform financial stress into relief through proper Bankruptcy and Insolvency Act forms completion in Toronto GTA
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.

a schematic describing the bankruptcy and insolvency act forms process for a Canadian consumer proposal or 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”?

Licensed Insolvency Trustee helps transform financial stress into relief through proper Bankruptcy and Insolvency Act forms completion in Toronto GTA
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:

  1. Book a free consultationCall me and we’ll discuss your specific situation and options
  2. Bring your financial documents – The more complete your information, the better I can help
  3. Ask about alternatives – Bankruptcy isn’t always the best solution
  4. 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.

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 options.

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.

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.

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.

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.

Licensed Insolvency Trustee helps transform financial stress into relief through proper Bankruptcy and Insolvency Act forms completion in Toronto GTA
Bankruptcy and Insolvency Act Forms

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.

Categories
Brandon Blog Post

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

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 proposalGTA homeowner with eviction notice and judge gavel illustrating bankruptcy stay of proceedings tenant protection

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:

  1. Eviction orders aren’t debt collection: The tenancy was already terminated before bankruptcy
  2. Post-bankruptcy rent must be paid: New rent after filing isn’t discharged in bankruptcy
  3. 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.GTA homeowner with eviction notice and judge gavel illustrating bankruptcy stay of proceedings tenant protection

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:

  1. Act early: File for bankruptcy or a consumer proposal before eviction proceedings start
  2. Keep paying current rent: Post-filing rent isn’t protected by the stay
  3. 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.GTA homeowner with eviction notice and judge gavel illustrating bankruptcy stay of proceedings tenant protection

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

Expert Navigation of Stay Rules

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 debtsGTA homeowner with eviction notice and judge gavel illustrating bankruptcy stay of proceedings tenant protection

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.

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 options.

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

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.

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.GTA homeowner with eviction notice and judge gavel illustrating bankruptcy stay of proceedings tenant protection

Categories
Brandon Blog Post

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

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.A red "VOID" stamp dramatically covers a stack of Canadian $400,000, representing a legal invalidation of previous financial arrangements.

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:

  1. No solid plan: Specialty had no clear plan showing how this payment would help the company and all stakeholders
  2. Poor financial position: After the payment, they had only $35,000 left but owed $11 million
  3. Low profit margins: Their profit margins were only 2-10%, not enough to dig out of debt
  4. No testimony: No company director testified to explain their plan
  5. 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.

A red "VOID" stamp dramatically covers a stack of Canadian $400,000, representing a legal invalidation of previous financial arrangements.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

  1. All unsecureds rank equally under bankruptcy law
  2. Payments made shortly before bankruptcy are carefully scrutinized
  3. Commercial pressure doesn’t justify preferring one over another
  4. 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.A red "VOID" stamp dramatically covers a stack of Canadian $400,000, representing a legal invalidation of previous financial arrangements.

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?A red "VOID" stamp dramatically covers a stack of Canadian $400,000, representing a legal invalidation of previous financial arrangements.

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.

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.

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.A red "VOID" stamp dramatically covers a stack of Canadian $400,000, representing a legal invalidation of previous financial arrangements.

Categories
Brandon Blog Post

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

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 purpose of the image is to show a business person who company has entered insolvency in need of financial restructuring

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:

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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.the purpose of the image is to show a business person who company has entered insolvency in need of financial restructuring

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:

  1. The conversion of the liquidation proceedings from voluntary to court-supervised, happened almost a year after the liquidation proceedings began.
  2. 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.
  3. 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.
  4. 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 purpose of the image is to show a business person who company has entered insolvency in need of financial restructuring

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.the purpose of the image is to show a business person who company has entered insolvency in need of financial restructuring

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FRAUD AND MISREPRESENTATION AND BANKRUPTCY: SUPREME COURT OF CANADA’S REVOLUTIONARY RULING ON ADMINISTRATIVE FINES AND BANKRUPTCY

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
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.
  • 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

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.

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

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.

I hope you enjoyed this fraud and misrepresentation 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 bankruptcy. We can get you debt relief freedom.

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

fraud and misrepresentation
fraud and misrepresentation
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ESSENTIAL DUTIES OF BANKRUPTS AND TRUSTEES IN LIQUIDATING ASSETS: THE ULTIMATE COMPREHENSIVE GUIDE

Liquidating Assets: Introduction

Today I am writing about an exciting recent court decision from the Court of King’s Bench of Alberta released on July 23, 2024. This case is an appeal to the Court decided by The Honourable Justice Douglas R. Mah from the decision of the Registrar in Bankruptcy in the bankruptcy discharge hearing of Dr. Omar Ahmad Nsair. The case citation is Nsair (Re), 2024 ABKB 450.

Regular readers of my Brandon’s Blog will recall that last week I wrote about the bankruptcy discharge hearing of Ontario’s self-proclaimed Crypto King in LESSONS FROM THE AIDEN PLETERSKI BANKRUPTCY: OUR COMPREHENSIVE GUIDE ON A “CRYPTO KING” BANKRUPTCY DISCHARGE.

That blog dealt with Aiden Pleterski’s failed application for discharge from bankruptcy. One of the various reasons his discharge application failed was, amongst other things, his total lack of cooperation with their licensed insolvency trustee for the identification and liquidation of his non-exempt assets.

Dr. Omar Ahmad Nsair’s case answers the following question: How much assistance does the bankrupt need to give the licensed insolvency trustee? Dr. Nsair filed a voluntary assignment in bankruptcy. His case underscores the challenges of balancing statutory duties with practical limitations in asset realization, offering valuable insights into the intricacies of bankruptcy proceedings.

First I will provide an overview of the role and responsibilities of a receiver or bankruptcy trustee in liquidating assets. Then I will delve into the details of Dr. Nsair’s personal bankruptcy, where a compelling narrative unfolds, shedding light on the complexities of asset realization and statutory duties in the face of economic uncertainties. Join me on this legal journey as we dissect the nuances of bankruptcy proceedings and the implications for all parties involved.

Liquidating Assets: The Bankruptcy and Insolvency Act of Canada

Overview of the Bankruptcy and Insolvency Act Relating To Liquidating Assets

The Canadian Bankruptcy and Insolvency Act (BIA) is a federal statute that plays a crucial role in liquidating assets in both receivership and bankruptcy scenarios. Here are some key aspects of the BIA’s importance in this context:

  1. Priorities: The BIA sets out the order of priority for the distribution of assets in receivership or bankruptcy. This ensures that certain creditors, such as secured creditors, are paid first, followed by unsecured creditors.
  2. Stay of Proceedings: The BIA provides for a stay of proceedings, which prevents creditors from taking legal action against the debtor or its assets during the receivership or bankruptcy process. This stay allows for a more orderly way of liquidating assets.
  3. Powers of the Receiver or Trustee: The BIA grants the receiver or trustee extensive powers to manage and liquidate the insolvent debtor’s assets. This includes the power to sell assets, collect debts, and manage the debtor’s business.
  4. Asset Protection: The BIA provides for the protection of certain assets, such as exempt property, which are not available to creditors. This ensures that debtors have some protection for essential assets, such as their primary residence.
  5. Notice and Disclosure: The BIA requires the receiver or trustee to provide notice to creditors and other interested parties of the liquidation process. This ensures that all parties are aware of the process and have an opportunity to participate.
  6. Liquidating Assets Process: The BIA sets out the procedures for liquidating assets, including the requirement for a public auction or sale of assets. This ensures that assets are sold fairly and transparently.
  7. Distribution of Proceeds: The BIA sets out the rules for distributing the proceeds of liquidating assets, including the priority of payments to creditors. This ensures that creditors are paid in the correct order.
  8. Avoidance Powers: The BIA grants the licensed insolvency trustee acting as receiver or bankruptcy trustee avoidance powers, which allow them to recover assets that were transferred or sold by the insolvent debtor for less than their fair value. This ensures that creditors receive a fair return on their investment.
  9. Reporting Requirements: The BIA requires the receiver or trustee to provide regular reports to the court and creditors, which ensures transparency and accountability in liquidating assets.
  10. Court Supervision: The BIA provides for court supervision of the liquidation process, which ensures that the receiver or trustee is following the law and that the process is fair and orderly.

In summary, the Canadian Bankruptcy and Insolvency Act plays a critical role in liquidating assets in both receivership and bankruptcy scenarios by providing a framework for the process, protecting creditors’ interests, and ensuring transparency and accountability.

Purpose of liquidating assets in bankruptcy

The primary purpose of liquidating assets in bankruptcy is to:

  1. Distribute the proceeds to creditors: The goal is to collect as much money as possible from the sale of assets and distribute it among creditors, including secured and unsecured creditors, under the priority of claims.
  2. Pay off debts: Liquidating assets helps to pay off the debts of the bankrupt individual or business, allowing them to discharge their obligations and start fresh.
  3. Provide a fresh start: By liquidating assets and paying off debts, the bankrupt individual or business can obtain a fresh start, free from the burden of debt and the stigma of bankruptcy.
  4. Prevent asset stripping: Liquidating assets helps to prevent asset stripping, where creditors or other parties attempt to remove or sell assets for personal gain, leaving the bankrupt individual or business with little or no assets.
  5. Ensure Equity: Liquidating assets guarantees that all creditors receive fair and equitable treatment, as the proceeds are allocated following the established priority of claims.
  6. Provide a mechanism for debt forgiveness: In some cases, liquidating assets can provide a mechanism for debt forgiveness, where debts are written off or reduced due to the lack of assets or the inability to recover them.
  7. Facilitate business restructuring: In the case of a business bankruptcy, liquidating assets can facilitate restructuring and reorganization, allowing the business to continue operating and creating jobs.
  8. Protect the public interest: Liquidating assets helps to protect the public interest by ensuring that the assets of the bankrupt individual or business are not used to perpetuate fraud or other illegal activities.
  9. Provide a mechanism for asset recovery: Liquidating assets provides a mechanism for asset recovery, where assets that were transferred or hidden by the bankrupt individual or business can be recovered and distributed among creditors.
  10. Ensure compliance with bankruptcy laws: Liquidating assets ensures compliance with bankruptcy laws and regulations, which helps to maintain public confidence in the bankruptcy system.

Overall, the purpose of liquidating assets in bankruptcy is to achieve a fair and orderly distribution of assets among creditors, while providing a fresh start for the bankrupt individual or business.liquidating assets

Liquidating Assets: Role of a Trustee in Liquidation

Duties and Responsibilities of a Trustee

As a licensed insolvency trustee, my duties and responsibilities include:

  1. To act as a fiduciary: The licensed trustee must act in the best interests of the bankrupt individual or business, and not in their interests.
  2. To take possession of assets: The trustee must take possession of the assets of the bankrupt individual or business, including real estate, inventory, equipment, and other assets.
  3. To inventory and value assets: The trustee must conduct an inventory of the assets and determine their value.
  4. To determine the priority of claims: The trustee must determine the priority of claims against the assets, including secured and unsecured creditors.
  5. To sell or dispose of assets: The trustee must sell or dispose of assets in a fair and orderly manner, often through public auction or private sale.
  6. To distribute proceeds: The trustee must distribute the proceeds from the sale of assets among creditors, following the priority of claims.
  7. To manage the liquidation process: The trustee must manage the liquidation process, including hiring professionals, such as appraisers and auctioneers, and negotiating with creditors.
  8. Regular reporting: The licensed trustee is required to furnish regular reports and updates to the court, creditors, and other stakeholders regarding the progress of the liquidation process.
  9. To ensure compliance with laws and regulations: The trustee must ensure compliance with bankruptcy laws and regulations, as well as any applicable provincial or territorial laws.
  10. To represent the bankrupt: The trustee represents the bankrupt individual or business when liquidating assets, including negotiating with creditors and making decisions about the sale of assets. The Trustee must do so as a prudent person, but at the same time, is representing and looking out for the rights of the unsecured creditors.
  11. To provide a fresh start: The trustee’s role is to help the bankrupt individual or business obtain a fresh start, by liquidating assets and distributing the proceeds fairly and equitably among creditors.
  12. To maintain confidentiality: The trustee must maintain confidentiality regarding the affairs of the bankrupt individual or business.
  13. To act impartially: The licensed trustee must act impartially and without bias in the process of liquidating assets.
  14. To provide a fair and orderly liquidation: The trustee must provide a fair and orderly process when liquidating assets, taking into account the interests of all stakeholders.
  15. To ensure transparency: The trustee must ensure transparency in the liquidation process, providing regular updates and reports to stakeholders.

These duties and responsibilities are outlined in the BIA and the Bankruptcy Rules and are subject to the supervision of the court.

Trustee’s role in asset valuation and sale

The LIT plays a crucial role in the valuation and sale of assets in receivership or bankruptcy. Here are some key responsibilities:

  1. Asset Identification: The licensed trustee is responsible for identifying all assets of the bankrupt or receiver, including real estate, inventory, equipment, vehicles, and other tangible and intangible assets.
  2. Asset Valuation: The LIT must determine the fair market value of each asset, which may involve hiring appraisers, conducting auctions, or negotiating sales with potential buyers. The goal is to ensure that the assets are valued accurately and fairly.
  3. Asset Classification: The licensed trustee must categorize assets into different classes, such as:
    • Preserved assets: Those that are essential to the business or have significant value and should be preserved for the benefit of creditors.
    • Realizable assets: Those that can be sold or liquidated to generate cash for creditors.
    • Non-realizable assets: Those that have little or no value and may be abandoned or written off.
  4. Asset Sale and Liquidation of assets: The Trustee is tasked with the responsibility of conducting asset sales for liquidating assets in a timely and efficient manner, to maximize returns for creditors. This process may include:
    • Auctions: The LIT may conduct public or private auctions to sell assets to the highest bidder.
    • Negotiated sales: The LIT may negotiate sales with potential buyers, taking into account the asset’s value, market conditions, and the needs of creditors.
    • Private sales: The LIT may sell assets privately, often to a specific buyer or group of buyers.
  5. Asset Disposition: The LIT must ensure that assets are disposed of under the BIA and for large debtor companies, the Companies’ Creditors Arrangement Act (CCAA), as well as any applicable provincial or territorial laws.
  6. Reporting and Disclosure: The LIT must provide regular reports to the court, creditors, and other stakeholders on the valuation, sale, and disposition of assets, as well as any issues or challenges that arise during the process.
  7. Compliance with Court Orders: The LIT must comply with any court orders or directions regarding the valuation and sale of assets, including any restrictions or limitations imposed by the court.

Throughout the process, the licensed trusteeNsair’s must maintain transparency, accountability, and fairness, ensuring that the valuation and sale of assets are conducted in a manner that is in the best interests of all stakeholders, including creditors, the bankrupt or receiver, and other parties involved.

Now that we have gone over the basics of the liquidation of assets in a receivership or bankruptcy context, it is time to focus on the specifics of Dr. Nsair’s personal bankruptcy case.

Significance of ATB Financial as a Major Secured Creditor Turned Unsecured Creditor

ATB Financial’s role as a major creditor in Dr. Nsair’s bankruptcy proceedings cannot be understated. With substantial sums at stake and implications for the overall outcome of the proceedings, the actions and decisions of ATB Financial carry significant weight in determining the resolution of the case.

In reading the Judge’s Decision, it is obvious that ATB was fuming at their loss and that the Registrar decided that Dr. Nsair fully cooperated with the Trustee and deserved an absolute discharge. It is ATB Financial that appealed the Registrar’s ruling.

Liquidating Assets: Key Details and Contention Points

The valuation disagreements surrounding these condominium units added a layer of complexity to the situation, with various parties presenting differing estimates of their worth. Marketability challenges further compounded the issue, as the aftermath of the 2020 Beirut explosion cast a shadow of uncertainty over the realizable value of these properties.

Exploring the stalemate in asset realization, it became evident that the conflicting perspectives on the condos’ marketability hindered progress in the bankruptcy process. Despite efforts to assess their sale feasibility, the uncertainty surrounding their actual value created a deadlock, impeding any meaningful progress toward creditor benefit.

As a result, the Trustee decided that it could not take the risk of attempting to sell the condominium units. The Trustee wrote to all the creditors advising them of the situation and that it was not going to take any action concerning the condominium assets. The Trustee further advised the creditors that if they wished to, they could seek the Court’s permission under section 38(1) of the BIA to take on the action of selling the condos in their name. No creditors, including ATB Financial, moved on this option.liquidating assets

Liquidating Assets: Introduction to Dr. Nsair’s Bankruptcy Case

As I delve into the intricate details of Dr. Nsair’s bankruptcy case, it’s essential to provide a comprehensive overview of the background and the key players involved. The case of Dr. Nsair, a dentist facing challenging financial circumstances, unfolds with significant legal implications and complexities.

Dr. Nsair’s bankruptcy situation is a focal point of this case, highlighting the struggles and obligations under the BIA of an insolvent person. The involvement of ATB Financial as a major secured creditor suffering a shortfall, adds a layer of significance to the proceedings. Approximately $1.9 million was still owed after a receivership related to dental clinics operated by Dr. Nsair and his brother. Dr. Nsair’s financial difficulties continued as he guaranteed the ATB Financial debt.

However, the argument that ATB Financial put forward for their opposition to Dr. Nsair’s bankruptcy discharge leading to the appeal of the Registrar’s ruling was they felt the bankrupt did not cooperate with the Trustee enough. ATB Financial could not articulate what else the bankrupt should have done. Just that he should have done not only more, but more than what the Trustee or ATB Financial had done.

The result of all this would be that if Dr. Nsair’s discharge from bankruptcy was upheld, then the Trustee would finish the file and obtain its discharge. The BIA states that if there is unrealized property when the Trustee gets its discharge, then subject to any further directive from the Court, the unrealized property goes back to the discharged bankrupt. That got ATB Financial’s juices flowing!

Upon assessing Dr. Nsair’s obligations and actions in the context of his bankruptcy case, it became evident that he faced many challenges. From the looming shadow of ATB Financial, a significant now unsecured creditor seeking approximately $1.9 million, to the uncertainties surrounding the commercial condominium units in Beirut, Lebanon, owned by Dr. Nsair, the stakes were undeniably high.

The Court of King’s Bench of Alberta, in its scrutiny of Dr. Nsair’s case, highlighted the delicate balance between statutory duties and the financial condition of the parties involved. It underscored the need for a nuanced approach that considers the economic uncertainties and practical limitations inherent in such proceedings.

Section 158(k) of the BIA reads as follows:

(k) aid to the utmost of his power in the realization of his property and the distribution of the proceeds among his creditors;

Despite the challenges faced by the Trustee and creditors, the Registrar’s decision shed light on the complexities of the situation. By delving into the legal interpretations surrounding section 158(k) of the BIA and Dr. Nsair’s obligations, the decision provided clarity on the expectations placed on individuals in bankruptcy scenarios. It emphasized the importance of aligning actions with the objectives of the Bankruptcy and Insolvency Act while acknowledging the constraints faced by all parties.

Through this lens, the Registrar’s decision not only addressed the immediate concerns raised by ATB Financial but also set a precedent for future cases involving asset realization and creditors’ benefits. It highlighted the need for a pragmatic approach that considers the practicalities of the situation while upholding the principles of fairness and justice.liquidating assets

Liquidating Assets: Court Ruling and Implications

One of the pivotal aspects under scrutiny was Dr. Nsair’s obligation, as outlined in section 158(k) of the BIA, to facilitate the realization of his assets for the benefit of creditors. The focal point emerged around three commercial condominium units in Beirut, Lebanon, owned by Dr. Nsair. These properties, impacted by the 2020 Beirut explosion, sparked valuation disputes, with estimates varying widely. Dr. Nsair declared the asset on his sworn Statement of Affairs and provided the Trustee with complete information about them and their legal status.

The Registrar’s ruling centred on interpreting section 158(k) and assessing Dr. Nsair’s compliance with aiding in asset realization. While ATB Financial advocated for stringent measures due to perceived inaction on Dr. Nsair’s part, they could not state what else Dr. Nsair should have done. The Registrar’s decision favoured a nuanced approach. It emphasized the practical limitations and reasonable expectations aligned with the BIA’s objectives, highlighting the complexities of balancing statutory duties with economic uncertainties.

Ultimately, the Court upheld the Registrar’s decision, emphasizing that Dr. Nsair did not breach section 158(k) by refraining from actions beyond his or the Trustee’s capacity. The directive the Court can give when the Trustee seeks its discharge, if any before condos were to revert to Dr. Nsair underscores the importance of a fair evaluation of asset realization potential for the benefit of creditors.

This case underscores the intricate dynamics of bankruptcy proceedings, showcasing the delicate balance between legal obligations, practical constraints, and economic realities. It serves as a testament to the challenges inherent in navigating asset realization in bankruptcy cases, emphasizing the need for a judicious approach that considers all stakeholders’ interests.

Liquidating Assets: Lessons Learned

As I reflect on the intricate details of the bankruptcy legal process, one key aspect that stands out is the delicate balance between statutory duties and practical limitations. The case of Dr. Nsair’s bankruptcy journey shed light on the complexities involved in asset realization and the legal interpretations surrounding it.

Throughout Dr. Nsair’s legal battle, it became evident that navigating the intricacies of the BIA requires a deep understanding of one’s statutory duties while also acknowledging the practical constraints that may hinder swift resolutions. The case exemplified the challenges faced by individuals like Dr. Nsair in fulfilling their obligations to aid in asset realization for creditors’ benefits.

One of the key takeaways from Dr. Nsair’s legal ordeal is the importance of maintaining a clear line of communication and collaboration between all parties involved, including creditors, trustees, and the Court. By aligning expectations and working towards a common goal, the process of asset realization can be streamlined, ensuring a fair and equitable outcome for all stakeholders.

Liquidating Assets: FAQ

  1. What is the role of a receiver in a receivership case?

A receiver is appointed either privately or by the court to take possession of and liquidate the assets under receivership to satisfy the obligations owed to secured creditors.

  1. How does financial restructuring differ from bankruptcy in Canada?

Financial restructuring involves negotiating more sustainable debt terms with creditors and taking steps towards financial sustainability under court supervision, to preserve the business as a going concern. Bankruptcy, on the other hand, involves liquidating assets of the insolvent business and distributing the proceeds to unsecured creditors.

  1. What are the key functions of insolvency laws like the BIA in Canada?

Insolvency laws like the BIA provide frameworks and processes to help minimize the impact of business insolvency on stakeholders, make the best of a bad situation, and ensure that assets of failed businesses are returned to the economy for productive purposes.

  1. What options does an insolvent firm have under the BIA in Canada?

An insolvent firm in Canada can opt for bankruptcy to liquidate its assets and distribute proceeds to creditors, or work with creditors to restructure their debt and continue as a going concern through commercial proposal proceedings. If the firm requires an immediate stay of proceedings, it can first file a Notice of Intention To Make a Proposal. The firm may also require interim financing otherwise called DIP financing to work through the proposal process.

  1. How does bankruptcy liquidation contribute to marketplace dynamics in Canada?

Bankruptcy liquidation helps ensure that assets of failed businesses are returned to the economy for productive purposes, contributing to marketplace dynamics and minimizing the impact of business insolvency on stakeholders.liquidating assets

Liquidating Assets: Conclusion

Dr. Nsair’s bankruptcy case underscores the challenges of balancing statutory duties with practical limitations in asset realization, offering valuable insights into the intricacies of bankruptcy proceedings.

I hope you enjoyed this liquidating assets 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 bankruptcy. We can get you debt relief freedom.

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

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BIA: 2 PEOPLE’S CHALLENGE SUING A CANADIAN LICENSED INSOLVENCY TRUSTEE

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Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) (BIA): Introduction

On April 13, 2023, the Supreme Court of Canada (SCC) dismissed the application by the legal counsel of a former bankrupt and his wife for leave to appeal the costs awarded against them in a decision of the Court of Appeal for Ontario. As is the usual case, the SCC did not give any reasons for the dismissal. The Court of Appeal for Ontario’s decision dealt with what is required under section 215 of the Bankruptcy and Insolvency Act (Canada) (BIA) to sue a licensed insolvency trustee.

In this Brandon’s Blog, I provide a comprehensive guide to the Court of Appeal for Ontario decision and everything you need to know about section 215 of the BIA. Using this real court decision as an example, we’ll explore the ins and outs of Section 215 of the BIA to give you a clear understanding of its purpose, how it applies, and the potential consequences of non-compliance.

Overview of BIA Section 215

Section 215 of the BIA requires that permission of the court be obtained to bring an action against the Office of the Superintendent of Bankruptcy Canada, an official receiver, an interim receiver or a licensed insolvency trustee with respect to any report made under, or any action taken, under the BIA.

The purpose of this section is to ensure that the court must first decide if a proposed action has on its surface a legitimate purpose relating to the administration of insolvency matters in Canada and to avoid frivolous actions that have no chance of success.

Regular readers of Brandon’s Blog know that I have been following and writing about the case of the former bankrupt, Mr. Wayne Flight and his wife, Amber Nicole Flight. In my November 2021 blog titled: TRUSTEE IN BANKRUPTCY: CERTAIN ACTIONS AGAINST TRUSTEE CAN BE UNLEASHED WITHOUT FIRST REQUIRING COURT PERMISSION, I detailed a decision of the Ontario court where the motion judge decided that notwithstanding section 215 of the BIA, the Flights did not need to first obtain authorization from the Court in order to initiate their legal proceeding.

Then in July 2022, I wrote that the licensed insolvency trustee (formerly called a bankruptcy trustee) had appealed this lower court decision and gave an overview of the appeal and other related issues in my blog titled: INSOLVENCY TRUSTEE: TURNS OUT CERTAIN ACTIONS AGAINST THE TRUSTEE CANNOT BE UNLEASHED WITHOUT COURT PERMISSION.

As stated above, this Brandon’s Blog will provide a comprehensive guide to the Court of Appeal for Ontario decision and everything you need to know about section 215 of the BIA.bia

BIA: The Motion Judge’s Decision

The motion judge decided that the Flights did not require the permission of the court, under s. 215 of the BIA, to bring an action against the Trustee, relating to the administration of four bankruptcies of Brian Wayne Flight! The same corporate trustee was the Trustee in each of his bankruptcy proceedings. The lower court judge rendered a decision that negates the applicability of the clause in dispute, deeming the action to be levied against the individual Trustee in a personal capacity, and further alleging omissions as a mitigating factor. She did not assess whether section 215 of the BIA did apply and if it did, should permission to proceed with the action be granted.

Upon due consideration of the arguments presented, the Court of Appeal for Ontario has granted the Trustee in Bankruptcy leave to appeal and has subsequently set aside the order of the motion judge. In rendering its decision, the appellate court has determined that pursuant to section 215 of the BIA, permission to bring the civil action must be obtained and has thus directed the matter back to the bankruptcy court to assess whether such permission should be granted.

It is noteworthy that, despite the Flights’ appeal of this ruling to the SCC, said appeal has been dismissed. Consequently, the matter will now be remanded to the bankruptcy court for further deliberations.

The BIA case background

Mr. Flight filed for bankruptcy on four separate occasions – specifically in the years 2004, 2006, 2011, and 2016. The same corporate trustee was the Trustee in respect of each of these bankruptcies. The same individual licensed insolvency trustee was the individual at the corporate trustee with carriage of Mr. Flight’s bankruptcies.

The total of the proven claims in the first three bankruptcies was $324,800. The total amount distributed to creditors of those bankruptcies was about $3,200. Proven claims in the fourth bankruptcy were $127,870.

In the year 2018, amidst his fourth bankruptcy, Mr. Flight uncovered the fact that substantial amounts had been unlawfully appropriated from his business operations between 2003 and 2018. The perpetrator of this offence was none other than Julie LeBlanc, his former spouse, his bookkeeper, and authorized agent. Ultimately, Mr. Flight determined that the amount of the misappropriations was approximately $206,000.

Mr. Flight successfully retrieved a sum of approximately $30,300 from Ms. LeBlanc, however, it was not submitted to the Trustee. Subsequently, in April 2018, Mr. Flight lodged a complaint with the Office of the Superintendent of Bankruptcy regarding the Trustee’s inability to identify Ms. LeBlanc’s actions. Following the formal complaint, the Trustee was made aware of Ms. LeBlanc’s illicit activities and the funds secured by Mr. Flight.

Disputes then arose between the Trustee and Mr.Flight concerning whether and on what terms he would be discharged from bankruptcy and how the payments from Ms. LeBlanc should be treated. In August 2019, Mr. Flight was granted a conditional discharge on terms that, if complied with, allowed him to receive an absolute discharge after twelve months. The Trustee and Mr. Flight did not agree as to whether those conditions were met.

In September 2019, Mr. Flight and his current spouse, Amber Nicole Flight, commenced an action against the individual licensed trustee, seeking relief (the “Action”). The Action does not name, or refer to, the corporate trustee, but it treats the individual trustee as though he were the Trustee. The central allegation in the Action is that the individual trustee, as the“Licensed Insolvency Trustee” for each of the bankruptcies, ought to have detected Ms. LeBlanc’s misappropriations and, once told about them, ought to have taken steps including suing Ms. LeBlanc.

As Mr. Flight states in his affidavit:

“At the heart of this action is the Trustee’s failure to detect, prevent, and once he became aware of it, to litigate, the theft and fraud committed by my former Accountant, Bookkeeper, and Power of Attorney, JulieLeBlanc”.bia

Did the undischarged bankrupt have the right to launch the Action under the BIA?

Both the individual trustee and the corporate trustee objected to the Action on the basis that at the time of its commencement, (i) Mr. Flight was an undischarged bankrupt person, and (ii) no permission was obtained under s. 215 of the BIA to bring the Action.

Mr. Flight brought a motion, in his bankruptcy proceeding, seeking directions with respect to whether he had the right to commence the Action as an undischarged bankrupt and, if required, seeking leave to do so under section 215 of the BIA.

In September 2020, and before the motion for directions was heard, Mr. Flight launched but did not proceed with, a motion for an absolute discharge. In October 2020, working with a different insolvency professional, he filed a consumer proposal under the BIA. It was accepted by Mr. Flight’s sole significant creditor in February 2021. The acceptance of the consumer proposal resulted in his bankruptcy being deemed annulled.

Following acceptance of the consumer proposal the motion judge heard the motion for directions with respect to the Action.

The Court of Appeal for Ontario’s analysis

The motion judge, sitting in the bankruptcy court, determined that permission was not required under section 215 of the BIA to commence the Action. She expressly did not determine whether, if permission were required, should it be granted. She did not address whether Mr. Flight’s status as an undischarged bankrupt at the time the Action was started prevented him from bringing it.

The motion judge described the Action as one seeking “a declaration that the defendant engaged in misfeasance, negligence, fraud and breach of fiduciary duty in his personal capacity and that the defendant was unjustly enriched.” She described the claims in the Action as alleging a theft (by Ms. LeBlanc) that caused Mr. Flight’s repeated bankruptcies, and as alleging that the individual trustee was liable since the“defendant trustee ought to have detected this fraud in the administration of the four bankruptcies”.

The motion judge described the Action as claiming damages flowing from the individual trustee’s alleged failure to: “take any meaningful action to address the alleged fraud and its impact on the fourth bankruptcy after its discovery”; “diligently commence an action against the former bookkeeper”; “investigate the fraud”; “adjust the plaintiff’s surplus income”; “recommend a consumer proposal in alternative to bankruptcy”; and “have the plaintiff promptly discharged from his fourth bankruptcy”.

The motion judge gave two reasons for finding that the Action did not require permission under section 215 of the BIA. According to her perspective, seeking recourse against trustees in their individual capacity does not necessitate prior authorization. Furthermore, it is noteworthy that the pursuit of legal recourse pertaining to omissions does not necessitate getting prior authorization.bia

The Court of Appeal for Ontario’s decision

The Court of Appeal for Ontario found that the motion judge erred in concluding that the capacity in which the Trustee was sued made section 215 of the BIA inapplicable. An action does not fall outside of section 215 of the BIA because it names an individual rather than the corporate trustee as the defendant, where the action alleges that the individual owed the duties of a Trustee and is liable as if he were the Trustee. Nor does an action fall outside of section 215 of the BIA because the claim asserts that it is brought against the Trustee in a personal capacity, where the gist of the claim is wrongdoing in the performance of the Trustee’s role.

The appellate court stated that the motion judge also erred in holding that an action that makes any allegation of an omission falls outside of section 215 of the BIA. Although section 215 does not apply to an action premised on the failure of a Trustee to do an act specifically and expressly mandated by the BIA, that is not the core allegation in the Flight’s claim. Section 215 applies to the Action, which alleges common law wrongdoing in the performance of the Trustee’s role, even if an aspect of that wrongdoing is described as an omission to act.

The Court of Appeal for Ontario granted the Trustee’s leave to appeal, allowed the appeal, and returned the matter to the bankruptcy court to determine whether the Flights should be granted permission to sue the individual trustee. The individual and corporate trustees were entitled to the costs of the appeal, fixed in the amount of $13,000, inclusive of disbursements and applicable taxes. Now that the SCC appeal is dismissed, the lower court will have to decide the real issues as determined by the Court of Appeal for Ontario

BIA: Conclusion

I hope you enjoyed this section 215 BIA Brandon’s Blog.

Revenue and cash flow shortages are critical issues facing people, entrepreneurs and their companies and businesses. Are you now worried about just how you or your business are going to survive? Are you worried about what your fiduciary obligations are and not sure if the decisions you are about to make are the correct ones to avoid personal liability? Those concerns are obviously on your mind. Coming out of the pandemic, we are also now worried about the economic effects of inflation and a potential recession.

The Ira Smith Team understands these concerns. More significantly, we know the requirements of the business owner or the individual that has way too much financial debt. You are trying to manage these difficult financial problems and you are understandably anxious.

It is not your fault you can’t fix this problem on your own. The pandemic has thrown everyone a curveball. We have not been trained to deal with this. You have only been taught the old ways. The old ways do not work anymore. The Ira Smith Team makes use of new contemporary ways to get you out of your debt problems while avoiding bankruptcy proceedings. We can get you debt relief now.

We have helped many entrepreneurs and their insolvent companies who thought that consulting with a trustee and receiver meant their company would go bankrupt. On the contrary. We helped turn their companies around through financial restructuring.

We look at your whole circumstance and design a strategy that is as distinct as you are. We take the load off of your shoulders as part of the debt settlement strategy we will draft just for you.

The Ira Smith Trustee & Receiver Inc. team understands that people facing money problems require a lifeline. That is why we can establish a restructuring procedure for you and end the discomfort you feel.

Call us now for a no-cost consultation. We will listen to the unique issues facing you and provide you with practical and actionable ideas you can implement right away to end the pain points in your life, Starting Over, Starting Now.bia

 

 

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FRAUDULENT MISREPRESENTATION: OUR AUTHORITATIVE GUIDE ON WHAT (REALLY) GOES INTO FRAUDULENT MISREPRESENTATION

An overview of fraudulent misrepresentation

Fraudulent misrepresentation can be incredibly damaging for the victim, both emotionally and financially. It occurs when someone makes a false statement about a material fact with the intention of inducing another person to rely on that statement, and the reliance causes damages.

Fraudulent misrepresentation is a civil wrong (tort) that can be the basis for a lawsuit. It can also be a crime, depending on the circumstances.
Anyone accused of fraudulent misrepresentation must speak to an experienced lawyer to discuss their case and the possible defences they may have.

Last week’s Brandon’s Blog, “MORTGAGE FRAUD IN CANADA: CANADIAN BANKRUPTCY CAN’T RELEASE YOU FROM A CORRUPT DEBT YOU CREATED“, I wrote about what mortgage fraud is and how it is perpetrated. I also described a recent decision of the Court of Appeal for Ontario on how anyone found guilty of mortgage fraud and had damages awarded against them will not be able to remove that debt by filing an assignment in bankruptcy.

I described how that kind of debt will not be discharged in bankruptcy because it is one of the exceptions outlined in section 178(1) of the Bankruptcy and Insolvency Act (Canada).

In this week’s Brandon’s Blog, I describe a recent decision of the Ontario Superior Court of Justice, Bank of Montreal v. 1886758 Ontario Inc., 2022 ONSC 4642. This case is about fraudulent misrepresentation, why that kind of debt will also not be released by the guilty individual’s discharge from bankruptcy and the court’s attitude to that issue.

What are the three types of misrepresentation?

Over the years, misrepresentation legal issues have been tried in court and the law has developed such that misrepresentation can be divided into 3 types; innocent, negligent and fraudulent. If there are no consequences for lying or omitting important information when entering into a contract, then agreements between parties to conduct business would become meaningless. The concept of misrepresentation is important in contract law.

The differences between the 3 types of false misrepresentation are as follows:

  1. Innocent misrepresentation is when someone makes a false claim or untrue statement but honestly believes that the representation is true.
  2. Negligent misrepresentation: this is when someone makes a false claim without realizing that it is not true. They did not fulfill their duty of care when making statements to make sure they were not true.
  3. Fraudulent misrepresentation: this is when someone makes a false claim deliberately to deceive others.

    fraudulent misrepresentation
    fraudulent misrepresentation

When you make a false statement, you may face civil or criminal consequences. Common examples of making a false statement are:

  • to obtain or deny benefits arising from a contract, you may be guilty of fraud;
  • making a false statement under oath in court, you may be charged with perjury;
  • a false statement made that harms another person, you may be sued for defamation; and
  • to commit or help someone who committed a crime, may be obstruction of justice or criminal conspiracy

In civil case matters, the party who has suffered damages as a result of the misrepresentation will be awarded a monetary award by the court.

The court case: What’s the process for suing someone for fraudulent misrepresentation?

The process used by the Plaintiff, Bank of Montreal (“BMO”) was a legal claim by starting a claim for misrepresentation and recovery of the debt owing by way of a Statement of Claim for a default judgment and related relief against 1886758 Ontario Inc. operating as Rejuv Medical (“Rejuv Medical”) and its Director, who was a guarantor of the loans to Rejuv Medical, in a debt collection and fraud action by BMO.

The aggrieved party, BMO, filed its motion seeking:

  • An Order granting the Plaintiff default judgment against the Defendants is issued under Plaintiff’s Statement of Claim. This includes a judgment in the aggregate sum of $442,723.36 as of June 29, 2021, plus accruing pre- and post-judgment interest from that date.
  • Claims for damages seeking an award for punitive damages of $150,000.
  • Substantial indemnification for all related costs, charges, expenses, and fees, including legal fees.
  • Sole possession of the assets of Rejuv Medical.
  • A declaration attesting that any amounts awarded by the court are debts resulting from obtaining property by false pretenses or fraudulent misrepresentation.

    fraudulent misrepresentation
    fraudulent misrepresentation

The evidence of fraudulent misrepresentation

BMO and Rejuv Medical entered into a letter agreement on November 16, 2020, under which BMO will provide three credit facilities:

  • The first loan was for $350,000 under the Canada Small Business Financing Act, with interest at BMO’s prime rate plus 3.00% per annum.
  • BMO provided a $120,000 operating loan to Rejuv Medical, payable on demand with interest at the bank’s prime rate plus 2.15% per annum. This loan is in addition to the existing business account and will help with short-term operating expenses.
  • The third facility was a $30,000 commercial credit card agreement with an interest rate of 21.00% per annum.

BMO will only advance loan proceeds to eligible businesses for prescribed purposes, in accordance with the Canada Small Business Financing Act and its regulations. Accordingly, a loan applicant must specify and confirm how it will satisfy one of these prescribed purposes.

The principal of Rejuv Medical and guarantor of the proposed BMO credit facilities signed a Declaration on its behalf. The Declaration stated that the Borrower understands that, under the Canada Small Business Financing Regulations, loans cannot be made for certain purposes and under certain circumstances. To assist in the determination of whether a loan to the Borrower would be permitted under these regulations, the Borrower provided information to show that the first facility loan did qualify.

BMO learned later that the representations made were false and that the invoice provided as proof of purchase of qualifying equipment was a fabricated document.

At the time BMO determined that there were materially inaccurate and false representations made by Rejuv Medical and its Director the guarantor, Rejuv Medical defaulted on its obligations to BMO for the loans.

What are the potential damages that could be claimed for fraudulent misrepresentation in this case?

The motion judge stated that the Borrower and guarantor being noted in default and not defending the action are taken to be an admission that Rejuv Medical and its Director:

  • Never intended for the funds advanced to be used to purchase the equipment specified in the government loan program application process or the produced invoice.
  • Had no record of purchasing the equipment specified in the invoice, or any comparable property or asset.
  • Never intended to purchase the equipment in the manner represented, or at all.
  • Did not establish the small business with the intention of operating it for an extended period of time or making a profit.
  • Made false representations and declarations, knowing that they were false, without belief in their truth, or recklessly indifferent to whether the representations and declarations were true or false.
  • Making this fraudulent misrepresentation caused damages as BMO suffered losses and damages, including the amounts owing for the loans.

Concerning the debt collection aspect of this case, the evidence established that the loans in question have gone into default and have not been repaid. Thus there was a breach of contract.

Based on this evidence, it is clear that Rejuv Medical owes and is liable to pay BMO $442,723.36 as of June 29, 2021, plus accruing pre-and post-judgment interest. As a fraud case, in addition to the amount of the loans and accrued interest to be paid, the court also awarded BMO $150,000 in punitive damages.

fraudulent misrepresentation
fraudulent misrepresentation

What are the 5 elements of a fraudulent misrepresentation claim?

The court emphasized that the five elements of a fraudulent misrepresentation claim are:

  1. a defendant made a false statement;
  2. with full knowledge that the statement was false, or with complete indifference to its truthfulness, the statement was made;
  3. the intent to deceive;
  4. the false statement being material and inducing the Plaintiff to act; and
  5. the plaintiff has suffered damages.

BMO did not seek a direction that its claim would survive a bankruptcy discharge, as the debt would fall within s. 178 of the Bankruptcy and Insolvency Act (Canada) (“BIA”). BMO made it clear that in the event the Defendants declare bankruptcy, it intends to rely on section 178 of the BIA.

You will recall from last week’s Brandon’s Blog, that section 178(1) of the BIA is the listing of the types of debts that are not released by a personal bankruptcy discharge. So if the guarantor ever declares bankruptcy, BMO’s debt will survive his discharge.

Section 178(1)(e) of the BIA specifically states that any debts or liabilities resulting from obtaining property or services through false pretenses or fraudulent misrepresentation will not be discharged through bankruptcy.

If the guarantor files for bankruptcy, BMO will seek an amendment to its judgment to declare that the debt still needs to be paid, and based on section 178(1) of the BIA, the debt will survive a discharge from bankruptcy. From my Brandon’s Blog of last week, it is evident that should the time come, BMO will get that further declaration.

You are not alone in this – get help from a Licensed Insolvency Trustee

I hope you enjoyed this Brandon’s Blog on fraudulent misrepresentation and how bankruptcy will not help the guilty defendant. Are you or your company in need of financial restructuring? Have you suffered damages because of reliance on false or misleading statements in business contract terms? The financial restructuring process is complex. The Ira Smith Team understands how to do a complex restructuring. However, more importantly, we understand the needs of the entrepreneur or the person who has too much personal debt. You are worried because you are facing significant financial challenges.

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

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

We realize that people and businesses in financial difficulty need practical advice and a workable solution in an easy-to-understand financial plan. The Ira Smith Team knows that not everyone has to file for bankruptcy in Canada. Most of our clients never do, as we are familiar with alternatives to bankruptcy. We assist many people in finding the relief they need.

Call or email us. We can tailor a new debt restructuring procedure specifically for you, based on your unique economic situation and needs. If any of this sounds familiar to you and you’re serious about finding a solution, let us know.

Call us now for a no-cost initial consultation.

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