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What is a consumer proposal?
I have written Brandon’s Blogs before on the topic of consumer proposals. Recently, I have heard some people refer to them as “consumers proposal”. Placing the “s” on the wrong word. So, I thought it would be good for me to write a refresher blog on the most asked questions when it comes to a consumer proposal. A consumer proposal Canada faq Brandon’s Blog.
In summary, a consumer proposal is a structured process under the Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) (BIA). This procedure allows insolvent individuals to make an official deal with the people and companies they owe money to. This government accepted debt negotiation plan allows you to pay back only a portion of what you owe. You can take as long as 5 years of regular month-to-month repayments to do so.
When is a consumer proposal appropriate?
To be able to take advantage of this government-sanctioned debt settlement plan, you need to be insolvent and owe $250,000 or less to all your creditors. This dollar limit is apart from any financial debts secured by registration against your personal residence.
It is appropriate for anyone who:
has full-time employment;
can make their household budget allow them to make the required monthly payment you promised to make towards your debts; and
wants to avoid bankruptcy
What happens when you file a consumer proposal?
Under the BIA, a licensed insolvency trustee (formerly called a bankruptcy trustee) (LIT) administers the consumers’ proposal.
The LIT will submit the necessary documents with the Office of the Superintendent of Bankruptcy (OSB). As soon as it is filed, you stop paying your unsecured creditors as of the date of your filing. You also will have stopped paying any secured creditors where you decided that you couldn’t afford to keep the secured asset(s) that you already returned.
On top of that, if your creditors are suing you, then your filing stops those legal actions If certain creditors already have a judgment against you and are garnisheeing your assets or your income, those actions are also stopped. This is called a stay of proceedings.
The LIT will send the proposal to your creditors. The proposal will include a listing of your assets and liabilities. It will also tell the creditors the reasons for your money difficulties.
Creditors then have 45 days to either accept or decline the proposal. They can do this either before or at the meeting of creditors if one is held.
When is a meeting of creditors held?
In order for consumers proposal to be approved, a simple majority of your creditors by dollar value that has actually filed a proof of claim need to authorize it. If creditors that have actually filed a proof of claim pick not to vote, that is considered a vote in favour.
You may not require to have a meeting of creditors. Unless creditors holding 25% in the dollar amount of the claims submitted ask for one, or the OSB requests it, there is no requirement to hold one. If a meeting is not requested, the proposal is deemed to be accepted by the creditors.
There is not a whole lot to understand. As I mentioned, a simple majority by dollar value tells the tale. There is either a majority to accept or refuse your consumers proposal.
If your proposal is accepted, the OSB, or any other interested party, has 15 days to ask the LIT to put it on the Court list to have the proposal examined by the Court. If no such demand is made, the proposal will be considered to have been approved by the Court.
If your consumer proposal is accepted
An accepted proposal is a contract between you and your creditors. You have promised to make monthly payments to the LIT for a period of up to 60 months. You carry out your end of the deal by making all the required payments.
You also need to attend two mandatory credit counselling courses run by the LIT. If you complete all the payments and the two counselling sessions, you have discharged the balance of your debt. You have also been successful in avoiding bankruptcy.
consider various other choices for addressing your financial problems; or
file for personal bankruptcy
As mentioned above, if you complete all the payments and the two counselling sessions, you have discharged the balance of your debt. You have also been successful in avoiding bankruptcy.
How will a consumer proposal affect my credit rating?
Normally, a person who submits a consumer proposal is given the lowest credit rating.
Information that affects your credit report is typically removed from after a certain period of time. In Ontario, the notation of your consumer proposal insolvency proceeding stays on your credit record for 3 years after you complete all your payments and receive your certificate of full performance.
You will start rebuilding your credit. Through making a conscientious effort to show you can now handle credit, your credit score will start rising.
Is a consumer proposal worth it?
I think so. You had financial problems and maybe your assets and employment income were being garnisheed. You needed a solution. You chose the only government-sanctioned debt settlement plan in Canada. You successfully completed it. You shed a lot of debt. You also avoided bankruptcy.
I would say, that for sure, makes it worth it.
Is a consumer proposal bad?
A consumer proposal in itself is not bad. It has saved thousands of Canadians from their financial problems. It has made sure that the bankruptcy numbers in Canada are not as high as otherwise might have been.
The bad part was the financial trouble the person got into. Thankfully, in a country like Canada with a mature economy, there is a legal means to help the honest but unfortunate person shed their debt without going into bankruptcy.
What happens after a consumer proposal?
After you have successfully completed a consumer proposal, you have hopefully learned proper budgeting skills through credit counselling sessions. You are also now better equipped to make sure that you use credit more wisely. You also now know better that you cannot spend more than you earn, on an after-tax basis.
You can now start rebuilding your credit. Ways of doing that are:
Obtain a secured credit card. This is one where you put up a certain amount of money and you get a credit limit in line with your deposit. Every month that you pay your credit card balance in full, that is reported to the credit reporting agencies. When you show responsible use of the credit card, your credit score improves. If you do not handle that credit well, that is also reported. Hopefully, that will not be the case.
Take out a small RRSP loan your first year after getting your certificate of full performance. Pay that loan off within the next 12 month period. Making your loan payments on time is reported and helps increase your credit score.
Be careful with credit. You don’t want to fall back into the trap of taking on too much debt and having financial problems again.
Consumers proposal summary
Are you in financial distress? Do you not have enough funds to pay your bills as they come due?
As a Trustee, we are the only professionals acknowledged, accredited and also managed by the federal government to provide insolvency advice and services. A consumer proposal is a federal government licensed debt settlement approach to eliminate your debt. We will certainly help you to pick what is best for you to clear your own debt issues.
Call the Ira Smith Team today so we can eliminate the stress, anxiety, discomfort and pain from your life that your cash problems have produced. With the distinct roadmap, we develop just for you, we will swiftly return you right into a healthy and balanced problem-free life.
We have years and generations of experience assisting people and companies looking for debt restructuring to PREVENT bankruptcy. You can have a no-cost analysis so we can help you to fix your financial troubles. Call the Ira Smith Team today. This will certainly allow you to go back to a new healthy and balanced life, Starting Over Starting Now.
In Brandon’s Blog, I will be talking about both the advantages and disadvantages of debt consolidation in Canada. Generally, when we hear the words “debt consolidation”, we recognize that we are talking about a loan. We are taking on a new loan, in order to repay several or many smaller outstanding balances.
What is the smartest way to consolidate debt?
People have several choices when it comes to consolidating debt. It always involves borrowing. The theory is that either:
your credit score is good enough so that you can get an unsecured loan; or
you are choosing to offer security for the loan.
The primary objective of settling your debt through this kind of borrowing is to decrease the rate of interest you are currently paying. It is very common for people to have debts spread among various credit cards.
For example, you may have amounts outstanding on 5 credit cards. You are pushing the upper limits of your approved credit. The average annual interest rate you are being charged among those credit cards is 19.9%. If you can get a home equity line of credit at say, an annual interest rate of 5.5%, the benefit is obvious. So it would be a smart choice to offer security to get a consolidation loan.
If you didn’t want to or didn’t have security to offer, you may have a good enough credit score to get an unsecured personal loan. Let’s say you could get this kind of loan at an annual interest rate of 8%. The rate may sound high in today’s interest rate environment, but it is a lot better than 19.9%. So this too would be a smart way to go.
But as I will discuss below, there is a difference between being smart about debt consolidation and settling for what makes sense!
Is it a good idea to get a debt consolidation loan?
If you can get this kind of loan and you are wise about it (more on that in a little bit), I say yes. In the example of the 5 different credit cards I gave, you are juggling multiple debts carrying a high rate of interest and are running out of credit room. The debt consolidation loan will lower the interest you are paying dramatically and will term out your payments.
You will stop being a juggler. That is an advantage.
Should I get a loan to pay off my credit cards?
In a typical debt consolidation funding, you need to get a fixed, not variable, interest rate. You also need to have a fixed repayment schedule which offers you a set time to pay it off. You do not want a variable rate of interest or a revolving line of credit. You want the loan to be automatically reduced with every payment you make, with no chance of increasing the loan for any reason.
That is the kind of loan you need to pay off your credit cards. It is that predictability and certainty that you need to work into your life. If you can get that kind of loan to pay off your credit cards, then that is an advantage and you should.
What happens when you consolidate your debt?
What happens depends on the type of loan you get to consolidate your debt. The various types of loans I have seen people get are:
A credit card balance transfer at a promotional interest rate of either a 0% or a special introductory very low rate
in more recent times, a peer to peer loan
I already spoke about the benefits of either a home equity line of credit or an unsecured personal loan. When it comes to a balance transfer, you can obtain introduction rates that are as low as 0% or 1.99% for a specific period of time, such as 12 or 18 months. You need to have sufficient credit available on such a new balance transfer credit card to assume the total debt spread among the 5 credit cards. With banks competing for your business, it may be possible.
What happens when you are able to consolidate your debts into one loan is that you achieve simplification in your life. You now have just one settlement to make. It’s much less to keep an eye on.
Simply put, simplicity is an advantage. As long as you stay current in your new loan payment, you are working towards paying off your total debt.
How does debt consolidation affect your credit score?
Initially, debt consolidation could improve or at least maintain your credit score. Falling behind on credit card balances hurts your credit score. Paying off those loans and being current on your new debt consolidation loan can improve your credit score. However, there are some traps that you cannot fall into. If you do, then you will not have ended up fixing anything and will end up worse off.
So a debt consolidation loan in itself does not hurt your credit score and could improve it as long as you meet the repayment terms of your new loan. A discussion of the traps leads us into a discussion of the disadvantages of this kind of loan. It is important to recognize that it is not a loan that is the problem, it is the person’s behaviour.
Does a debt consolidation loan look bad?
I would rather have a new loan showing up on my credit report, than have my 5 credit card loans going bad on my credit report. A debt consolidation loan is only a loan. Debt consolidation in itself is not bad, it doesn’t look bad. An experienced financial or credit person looking at your credit report will know what you have done. However, it will also show them that you have been able to get a new loan. So it shows that a lender feels you are a good credit risk. None of that is bad.
What is bad, are the traps that you could fall into. If you fall into one of them, it could be bad for you. This is all about your behaviour, not the consolidation loan.
The disadvantages of debt consolidation in Canada
I will discuss the disadvantages of the type of loan and by behaviour.
Home equity line of credit
If you get a home equity line of credit (HELOC) that is anything other than a fixed interest rate loan that is not a revolving line of credit, you could fall into a trap. You are looking for simplicity and certainty. If your interest rate can rise if the prime rate charged by your bank rises, then you are not getting the full benefits.
Granted a 5.5% loan isn’t going to rise to a 19.9% interest rate, but your room for interest rate increases may be small. If a 1% or 2% increase in the interest rate would make the difference between you being able to afford the repayment and not being able to make them, you will constantly be worried about it in an increasing interest rate environment.
You also want to make sure that the HELOC is not a revolving line of credit. Once you make a payment, you want the principal portion of a paydown by each payment to be permanent. You cannot be enticed about the ability to borrow more on the line. Remember, you took on this loan to pay off debt, not to either remain at the same debt level or to increase it.
So having to pay more interest or being able to go deeper into debt are two traps to avoid with this kind of loan.
A credit card balance transfer at a promotional interest rate
As I mentioned earlier, normally these zero or very low-interest promotional rate is for a fixed period of time. So if you can repay the whole amount, in the monthly payments required, within the time period given, it is a great thing. However, if you can’t, then your promotional interest rate goes up to probably at least the average 19.9% rate in our example. Now you are back to where you started.
Maybe you missed a payment; either because something got in your way or inadvertently. Normally when this happens, you immediately lose your promotional interest rate and a fee is charged. That is a disadvantage.
You may have used this method because you were being chased by a bank for your business, but could have used one of the other methods at the time. If that is the case, and you plan for replacing the promotional interest rate loan balance before it reprices, with one of the other methods, then great. However, if you don’t, then you are back to where you started. Maybe not worse off (see more below), but certainly no better, other than for the principal you were able to pay down.
An unsecured loan
Just like a HELOC, if the unsecured loan cannot revolve and has a fixed rate of interest, that is a good thing. If it does revolve and you have not paid down any principal, and/or your interest rate rose, that is a trap. That is a disadvantage.
Do consolidation loans work?
This is where we talk about the biggest trap or the greatest benefit. It all comes down to answering this one question. Has your behaviour changed?
Debt consolidation in Canada is a terrific device when your behaviour changes. The first step to changing your spending behaviour is to budget. I have written several of Brandon’s Blogs on the topic of the need to have a proper household budget and stick to it.
But what if your behaviour doesn’t change? Did you close out the 5 other credit card accounts when you did the debt consolidation loan? Or, did you keep them open and keep running up the balances for spending greater than your income, while paying down your debt consolidation loan?
They were paid down to zero when you consolidated them. Now you have run them back up and have only made the minimal necessary payments. So, once more, you have overspent and are now back to the same stress-filled life as before. There is only one thing different now – you owe even more money, so your life has worsened. Your credit score is probably worse now too.
So if you change your financial behaviour, debt consolidation works well. If you don’t, then it doesn’t either.
What can you do now that a debt consolidation is no longer an option?
There are various options available. Most will negatively impact your credit score and provide a worse credit report. However, when you have run out of options, perhaps a lower credit score stopping you from taking on more debt might be a good thing. Maybe the fact that no one will loan you more money is what you needed as a wake-up call to once and for all get back on track.
Often times as soon as this assistance is received, people can continue by themselves with no more troubles.
A consumer proposal or Division I Proposal
A consumer proposal and also a Division 1 proposal are alternatives to bankruptcy. Although equivalent in numerous facets, there are some substantial differences. Consumer proposals are used by people whose debts aren’t greater than $250,000, not consisting of any kind of financial debts registered against your home. Division 1 proposals are for both companies, and for people debts exceed $250,000 (again leaving out home mortgages).
pay your creditors a portion of what you owe them over a certain period of time not greater than 5 years.
prolong the time you have to pay what you promise to pay in your accepted proposal.
a mix of both
Payments are made to the Trustee. That cash pays the administration fees of your proposal and distributes money to your creditors. When you have made all the required payments, the balance of your debt that you did not pay is written off and discharged forever (with certain exceptions outlined in the BIA).
These are your realistic options, once a debt consolidation in Canada option is no longer viable.
Summary
I hope this Brandon’s Blog has provided you with some insight into when debt consolidation is a useful tool and its advantages. I also hope you can see where it could also be a trap for some people. If debt consolidation relieves the pressure on you because of the state of your finances AND motivates you to budget and bring your spending in line, then it is a good thing.
If it does not change the necessary behaviour pattern that got you into financial trouble in the first place, then things will only get worse. Is it now time for you to take a positive step in the right direction to free yourself from your debts?
Are you in financial distress? Do you not have enough money to pay your creditors as your bills come due?
If so, call the Ira Smith Team today. We have decades and generations of experience assisting people looking for financial restructuring, a debt settlement plan and to AVOID bankruptcy.
A restructuring proposal is a government-approved debt settlement plan to do that. We will help you decide on what is best for you between a restructuring proposal vs bankruptcy.
Call the Ira Smith Team today so you can eliminate the stress, anxiety, and pain from your life that your financial problems have caused. With the one-of-a-kind roadmap, we develop just for you, we will immediately return you right into a healthy and balanced problem-free life.
You can have a no-cost analysis so we can help you fix your troubles. Call the Ira Smith Team today. This will allow you to go back to a new healthy and balanced life, Starting Over Starting Now.
Small and medium-sized businesses play a vital role in all worldwide economies. Bankruptcy experts in the USA identified problems. The Chapter 11 bankruptcy protection process for these companies was not working. It is pricey, usually ineffective and impractical. So, many businesses in the USA in need of restructuring could not have access to the US insolvency system.
On July 23, 2019, the US Congress passed the Small Business Reorganization Act (SBRA). On August 1, 2019, the Senate passed the Bill. On August 23, 2019, President Donald Trump signed it to enact it.
The purpose of the SBRA is to make business bankruptcy protection much less troublesome for small and medium-size ventures. The result is Chapter 11, subchapter V of the US Bankruptcy Code (Titled: Small Business Debtor Reorganization). The aim is to make it more affordable and will serve to save otherwise viable owner-managed businesses.
The purpose of this Brandon’s Blog is to discuss the new US legislation. I will also comment on an approach for the Canadian insolvency system. Can we streamline restructuring under the Bankruptcy and Insolvency Act (Canada) (BIA) for small business?
Changes made by the SBRA
A small company is defined in the SBRA as a person or company whose non-contingent debts (leaving out financial obligations to affiliates or people not dealing at arms’-length) are $2,725,625 or less and which chooses to be dealt with under the SBRA. The Act includes a new subchapter V to Chapter 11 of the US Bankruptcy Code. The purpose of this new approach is to make it simpler and more economical for small companies to efficiently restructure.
The main thrust of the Act is:
A creditor cannot lodge a Chapter 11 restructuring plan that it is prepared to support. Just the business can. The company’s plan must be filed within 90 days of the day it filed its bankruptcy protection application, other than in specific conditions.
A trustee comparable to those selected in a personal restructuring (Chapter 13) situations will be selected to manage each case.
A creditors committee will not be developed.
The Chapter 11 plan can change the legal rights of a lender registered against an individual’s primary home if the mortgage/funding secured by the home was used in the person’s business and was not financing used to purchase the property.
The Court can approve a small business’ restructuring plan without the approval of any class of creditors. The Court must be satisfied that the restructuring plan treats all creditors fairly and does not prejudice any creditor class.
To be fair and equitable, the restructuring plan must offer that all earnings received throughout the term of the restructuring plan will available to fund the restructuring for a duration of 3 to 5 years.
So the onus is on the creditors to carefully review all cases filed under the SBRA. Creditors will need to retain bankruptcy experts to advise them. Their role will be to make certain that Courts appropriately examine restructuring cases for fairness and that they treat all creditors equitably. This will be especially true for those that do not have the support of the creditors.
It will be very interesting to see if this new legislation accomplishes its goal of making it simpler and less costly for small businesses to restructure and continue.
To qualify for restructuring under the CCAA, the insolvent corporation must owe at least $5 million. The CCAA is only for insolvent companies or income trusts to restructure. It is not for:
proprietors or partnerships
banks
telegraph companies (do people still send telegrams?)
insurance companies
companies to which the Trust and Loan Companies Act applies
Proceedings under the CCAA are a very heavily Court-driven process.
Restructurings under the Part III Division I proposal provisions of the BIA are available to both companies, proprietors and partnerships. It is also available to people who owe $250,000 or more, not including any mortgages or loans secured by the person’s principal residence.
For people who owe less than $250,000, a more streamlined restructuring process is available under Part III Division II of the BIA. These are called consumer proposals.
Restructuring under the proposal provisions of the BIA is not a heavily Court-driven process like the CCAA. Under consumer proposals, if all goes smoothly there is never a Court application.
So we have a simpler and streamlined version for people who have a smaller debt level but are still in need of restructuring their financial affairs. The same is also true for people with fewer or no assets that need to start over through the bankruptcy process. However, there is no equivalent streamlined version in Canada for small to medium-size businesses.
Could such a streamlined business restructuring model be developed? Not only do I think it could be, as one of the bankruptcy experts in Canada holding the designation of licensed insolvency trustee, I think it must be.
The statute for a streamlined Canadian business restructuring model
The CCAA is designed for large corporations. As I already stated, it is a heavily Court-driven process. Therefore, I think this eliminates the CCAA from developing a more streamlined version. It is not the case that it could not be done. It is just that a new section designed for simpler and more cost-effective CCAA proceedings goes somewhat against the purpose of the CCAA.
Therefore, I propose that CCAA legislation should remain available only to larger companies. Especially because the BIA, another federal statute, already includes restructuring provisions. It already has a streamlined version for bankruptcy and restructuring to avoid bankruptcy. So, why not a streamlined business restructuring section?
What would BIA streamlined business restructuring look like?
You might ask, why is this even necessary? Many small and medium-sized businesses are family-owned. There are even very large family-owned businesses. The Financial Post reports that “Family businesses own a bigger chunk of Canada’s economy than you think — way bigger”. They report it is a significant business sector contributing 35 percent of Canada’s real gross domestic product.
So with such an important business sector, it would make sense to allow those businesses on the smaller scale to qualify to have a simpler and more cost-effective way to restructure when they hit a financial bump in the road. If the viable parts of the business can be saved, it will continue to employ people, allow families to have a good quality of life and contribute to Canada’s GDP. It does not make sense to essentially kill off these smaller businesses because the cost of the restructuring will use up all the resources necessary to run the business.
I am not talking about family-owned businesses Bombardier Inc. and Loblaw Cos. Ltd. Rather, I am talking about the majority of Canadian entrepreneurial companies in the mid to small size range.
So here is what I propose for a streamlined restructuring process for small and medium-sized businesses. I will call it a new Part III Division III of the BIA. I will call it the General Scheme for Small Business Proposals (SBP) section of the BIA.
Size matters
The new SBP should be available to corporations, proprietorships and partnerships that are set up to conduct business. Their total debt should not be more than $1.5 million. There is nothing scientific about this number.
Statistics Canada could do an analysis as to the average debt load of Canadian businesses and an appropriate debt level could be picked based on it. For purposes of this Brandon’s Blog, I will use the $1.5 million amount.
I would not exclude loans from affiliates or people not dealing at arms’-length such as in the US legislation. In Canada, it is normal for the first funding of a company to come from the owners. Our chartered banks want to see a commitment from the owners before they will lend. Owners have sacrificed their own money to get the company off the ground. Just because that is how they had to finance the company, I would not preclude that debt from counting in the calculation.
The Canadian business landscape is different from that in the USA. Our numbers are generally smaller. In order to exclude non-arms’-length debt, you would probably have to lower the debt threshold I have mentioned. So, let us keep that debt threshold for discussion purposes and include all debt; secured or unsecured, arms’-length or related parties and owners.
If a person is not conducting business in his or her name, then this new SBP would not be for them. They would fall under either Division I or Divison II restructuring proposals.
Administration of restructurings under the SBP
Currently, only a licensed insolvency trustee (formerly called a bankruptcy trustee) (LIT) can administer restructuring proposals. Under Division I Proposals, the LIT is called the Proposal Trustee. Under consumer proposals, Division II personal restructurings, the LIT is called the Administrator.
So, for the new SBP, I will call the LIT the Small Business Administrator. It makes it obvious that it is the restructuring of a business qualifying under the new Division III. The use of the word “administrator” ties nicely into the word chosen already by Parliament for consumer proposals. So again, it makes it obvious that the LIT is administering a small business streamlined restructuring.
Since we are not talking about personal restructuring that falls under the consumer proposal provisions in this Brandon’s Blog, my suggestions for a streamlined business restructuring applies only to Part III Division I of the BIA Proposal restructurings to avoid bankruptcy.
Time to restructure
Under a Division I Proposal restructuring, the company or person can begin the restructuring process by filing either a Notice of Intention To Make A Proposal (NOI) or the Proposal itself. Under either filing, the debtor then has 10 days to file its cash-flow statement reviewed and approved by both the company or person and the LIT. Under an NOI filing, the company or person then has an additional 20 days (30 days after the NOI filing date) to file a Proposal (unless the time is extended by Court Order).
Most times with small to medium-sized businesses, the debtor is not current in all of its filings with the Canada Revenue Agency (CRA). This includes payroll remittances, HST and perhaps even income tax returns. In any restructuring where CRA is a creditor, they need to have the most current information from the debtor’s business filings, to be able to know the full amount owing by the business. They will not be able to properly assess the Proposal until they know the proper amount owing to them.
Also in any Proposal restructuring, we want to have a provisional income tax return prepared by the external accountant for the business. The provisional return is to show if any further tax liability exists for the fiscal year up to and including the date of filing of the Proposal.
Books and records will first have to be brought up to date. Then the accountant will need time to prepare and file the income tax return. There is a reason for this. We want CRA to know if there is a further liability.
Although there is no statutory provision allowing for this, CRA so far on an administrative level will allow for a split tax year in a restructuring. The liability for the fiscal year up to and including the Proposal date will be included as a debt in the restructuring. This is to the company’s or person’s advantage in the business.
Once the Proposal is filed, the meeting of creditors has to take place within 21 days of the Proposal date. In my experience, there is never enough time for the business to do all the necessary filings for CRA that I just mentioned. So, CRA always requests an adjournment of the meeting until such time as all the filings are up to date.
So, in my proposed streamlined version, I would propose to extend the filing of a Proposal after the filing of an NOI from 30 days to 90 days, without the need for the expense of going to Court seeking an extension. This should give enough time for the business to get all of its filings up to date and hopefully avoid the need for an adjournment of the meeting of creditors.
Creditors
There really is nothing that needs to be changed on how creditors file their claims. The same is true for the rules of how the LIT must assess all claims. I do like the idea in the new Chapter 11 subchapter V. That is the ability to change the legal rights of a lender registered against an individual’s primary home if the mortgage/funding secured by the home was used in the person’s business and was not financing used to purchase the property.
In Canada, it is very rare, if not unheard of, for an entrepreneurial business to get a bank loan without the owner giving a personal guarantee. Many times the personal guarantee has to be backed by a hard asset, such as a pledge of the personal residence. If the secured debt can be restructured, shouldn’t the pledge agreement on a personal asset also be part of that restructuring?
So, I propose that in the new SBP, there should be the ability to change the legal rights of a lender registered against an individual’s primary home if the funds were used for the business or if the pledge was in support of a personal guarantee for funds borrowed by the business.
The types of changes to the security pledge will be unique to the individual restructuring. It has to make business sense and common sense. It is always up to the secured lender to vote against the plan if they don’t like it. In that case, the restructuring will fail. There will be great pressure on the business to bring forward the best possible restructuring plan and not go crazy on what changes the owner wants to make to the pledge of security.
Deemed acceptance and approval
Without going into all the rules, under the current consumer proposal legislation, there is the concept of deemed creditor approval and deemed Court approval. Unless creditors holding 25% in value of the proven claims request it, there is no need to hold a meeting of creditors. Creditors are asked to vote by way of voting letters when they file their proof of claim. If no obligation to call a meeting arises, then the consumer proposal is deemed accepted.
If a consumer proposal is either accepted or deemed accepted by the creditors, then there is probably never going to be a need for the LIT administrator to formally seek approval by the Court. The BIA reads that after the acceptance or deemed acceptance, the consumer proposal is deemed accepted by the Court unless the Official Receiver or “other interest party” requests it within 15 days after the date of (deemed) acceptance.
Currently, under a Division I Part III restructuring Proposal there are no deeming provisions for either creditor acceptance or Court approval. I would like to see in the new SBP section, that similar deeming provisions for both creditor acceptance and Court approval be implemented. This will save time and cost thereby being much more efficient.
No deemed bankruptcy
In a Division I Proposal, if the creditors do not accept the restructuring, or the Court does not approve it, then the debtor is automatically deemed to have filed an assignment in bankruptcy. There is not a similar provision for consumer proposals.
If the creditors do not accept a consumer proposal, then it just dies then and there and the debtor goes back to their normal unprotected state.
My proposal for the new SBP is that if the creditors do not accept or the Court will not approve the restructuring plan, that does not produce a corporate or personal bankruptcy. Rather, the debtor just goes back to their normal unprotected insolvent state and they have to fend off their creditors as best as possible.
It may lead to bankruptcy, but that will not be automatic. In some corporate situations, the cost of a bankruptcy proceeding just does not make sense. This is especially true if a chartered bank has security over all of the assets and will be enforcing its security through a receivership.
Directors/Owners
Right now a corporate restructuring Proposal allows for Directors to be released from debts that arise prior to the date of filing the Proposal. The kinds of debts that a Director can be released from are those solely resulting from their role as a Director. In other words, generally statutory claims they would be legally liable for.
As I already mentioned, more often than not, the only way a small or medium-sized company can get a bank loan is if the entrepreneur personally guarantees the debt. There are times where a corporate restructuring can be done, but the secured debt arrangements will have to be amended. If the lender is not willing to amend the personal guarantee security arrangements in place, then, the corporate restructuring does not make sense.
So in my dream of the SBP, if a secured lender agrees to a restructuring of their debt, then the Director(s) who may be personally liable will now be responsible for the revised secured lending arrangement. This would also go hand in hand with my proposed change to the ability to change the legal rights of a lender registered against an individual’s primary home if the mortgage/funding secured by the home was used in the person’s business and was not financing used to purchase the property.
Bankruptcy experts summary
So there you have it. The US government saw fit to add to its Chapter 11 bankruptcy protection statute to allow smaller companies to restructure. My vision for a Canadian version is the SBP section to form a new Part I Division III for the BIA.
To summarize, the changes to allow for a more efficient and less costly way to restructure smaller businesses would include:
The brand-new SBP will be offered to companies, proprietorships and partnerships that are established to run a business. It will be available to businesses with any kind of debt not greater than $1.5 million.
A LIT who will be called a Small Business Administrator, will oversee and be responsible for the business restructuring.
The time for the filing of a Proposal after the filing of an NOI will be extended from the current 30 days to 90 days. This will be without the need and cost of a Court application.
There ought to be the capability to transform the rights of a lending institution who has taken an entrepreneur’s home as security for a business loan or personal guarantee of such financing and the funds were put into the business.
Deeming provisions for both creditor acceptance and Court approval be implemented. It is already done in consumer proposals, so why not in streamlined business proposals? This will result in more efficient and less costly restructuring.
If the creditors’ decline or the Court will not approve the restructuring, that will not generate a corporate or personal bankruptcy. Instead, the debtor simply returns to their vulnerable financially troubled state and they will need to deal with their creditors as best as possible. In some cases it may lead to either bankruptcy or just a closing down of the business. Where there is a secured creditor, it will lead to the enforcement of their security. Either way, it won’t be an automatic bankruptcy.
A Director of a corporation can be released not only from statutory obligations arising from their office of Director. That person, or any other person, can have their guarantee of a debt to a lender be amended if the related business debt is amended in the restructuring.
There no doubt will be other areas that would need amending once all the relevant sections of the BIA were looked at. These are my ideas of the major amendments that could be made to the BIA, to allow for a more streamlined and cost-efficient restructuring for small and mid-sized businesses.
What about your business?
The financial restructuring process for either a large or small business is complex. The Ira Smith Team understands how to do a complex corporate restructuring. However, more importantly, we understand the needs of the entrepreneur. You are worried because your company is facing significant financial challenges. Your business provides income not only for your family. Many other families rely on you and your company for their well-being.
The stress placed upon you due to your company’s financial challenges is enormous. We understand your pain points. We look at your entire situation and devise a strategy that is as unique as you and your company’s problems; financial and emotional. The way we dealt with this problem and devised a corporate restructuring plan, we know that we can help you and your company too.
We know that companies facing financial problems need realistic lifeline. There is no “one solution fits all” approach with the Ira Smith Team. That is why we can develop a company restructuring process as unique as the financial problems and pain it is facing. If any of this sounds familiar to you and you are serious in finding a solution, contact the Ira Smith Trustee & Receiver Inc. team today.
Call us now for a free consultation. We will get your company back on the road to healthy stress-free operations and recover from the pain points in your life, Starting Over, Starting Now.
If you would like to listen to the audio version of this Canada insolvency Brandon’s Blog, scroll to the bottom and click on the podcast
Introduction
On September 4, 2019, the Government of Canada department of Innovation, Science and Economic Development, issued a press release. They announced that there would be changes coming to the Canada insolvency legislation.
I have previously written about the fallout from the Sears Canada insolvency. Specifically, about the plight of retired employees seeing their medical benefits eliminated and their pension entitlement slashed. After that, there have been several private member bills trying to fix the Canada insolvency laws.
Budget 2019
As I have written in previous Brandon’s Blogs, the concern is for retired people (and present employees) when a company enters into an insolvency proceeding. Like in the Sears case, the worry is associated with the staff member’s health benefits plan which could be gutted for retirees. An equally important concern, are underfunded pension plans when a firm enters into bankruptcy protection.
Insolvent employers have placed a moratorium on reimbursements to workers and especially retirees on valid medical claims. Also, the staff member pension plan payments can be cut for retirees because the insolvent firm has not made the called for contributions. The retirees are in the weakest position as they can never make up for what they are now losing.
Pension payments are postponed income. In an insolvency filing, there is generally absolutely nothing left for current (other than perhaps their WEPPA claim in bankruptcy or receivership) and retired employees.
The reality is that all politicians currently acknowledge simply exactly how unsecure pension plans and health plans may be in the case of insolvency, restructuring or bankruptcy.
The Liberals acknowledge that this is a significant issue. Nonetheless, in this budget, they chose to ignore the problem.
What the press release said
The Government of Canada said that it is dedicated to far better safeguarding the rights of pensioners, employees and others during insolvency procedures. They say they can guarantee all Canadians can have satisfaction when it pertains to retirement. They say they can do this while maintaining laws that continue to support growth, advancement and also great jobs in Canada.
The Honourable Navdeep Bains, Minister of Innovation, Science and Economic Development Canada said, that beginning November 1, 2019, reforms to the Bankruptcy and Insolvency Act (BIA) and the Companies’ Creditors Arrangement Act (CCAA) announced in Budget 2019 will be enacted. He said that this will be done to enhance retired life security by making the insolvency procedure fairer, much more clear and also easily accessible.
So what is being planned?
The press release was consistent with the wording in Budget 2019. The press release went on to say that the BIA and CCAA modifications pertaining to boosting retirement protection will:
call for participants in an insolvency process to act in good faith (isn’t that already enshrined in our legislation and enforced by our Courts?);
offer the possibility of court-ordered disclosure of a creditor’s real financial interest in an insolvent business (how does this help retirees?);
enforce director obligations in suitable cases for senior management compensation settlements in the lead-up to an insolvency proceeding (whatever appropriate means);
limit the choices that can be taken initially in a CCAA administration to measures necessary to avoid the immediate liquidation of an insolvent company, thus boosting participation of all players (does this mean the government plans to outlaw a liquidating CCAA?);
exclude assets held in registered disability savings plans from creditors’ claims in bankruptcy;
reforms to the BIA and CCAA to guarantee the safeguarding of intellectual property user rights in insolvency, announced in Budget 2018, will also be enacted for November 1.
The devil is in the details
The Minister stated:
“It is unacceptable that some pensioners face hardship because of their employer’s insolvency and underfunded pension plans. Our government believes that after a lifetime of hard work, Canadians deserve a secure and dignified retirement. With these reforms, we are protecting Canadians’ retirement security and the ability of businesses to invest, grow and create more good jobs.”
This sounds great, but what does it mean? I don’t see anything in Budget 2019 or this recent press release that actually provides specifics on how retirees will be helped. There are no words talking about the super-priority of the amount of underfunding of pension plans. There is also no language on directors’ liability for such underfunding when the company continues to pay dividends to shareholders or bonuses to executives while the pension plan is underfunded.
We will have to wait to see how the proposed legislation actually reads. The other issue is our upcoming Federal election. Insolvency legislation is not a hot topic that gets votes. Perhaps real protection for retirees does. The government had a chance to really lay out how they will protect retirees, but they failed to do so. They talk about many issues in the press release. However, I don’t see anything directly related to retiree protection.
So I hope that the current federal government will follow through with legislation that has real teeth to protect retirees. But the 2019 Canadian federal election is scheduled to happen on or before October 21, 2019. That means that campaigning will have to begin very soon. So when will there be time to introduce the required legislation to be effective on November 1?
The federal government must have a plan otherwise they would not have put out the November 1 date in the press release. So let us wait and see and cross our fingers that retiree protection will be for real.
Canada insolvency summary
Are you nearing retirement with too much debt? Is your employer’s employee pension plan underfunded? Are you worried about how you will make ends meet in retirement?
The stress you are under because of your money challenges is huge. I understand your pain. At no cost to you, I will look at your whole set of circumstances and develop a plan that is as special as your issues. I know that I can help you through this.
There is no “one solution fits all” approach with the Ira Smith Team. That is why I can develop a debt settlement plan for you as unique as the financial problems and pain you are facing. If any of this sounds familiar to you and you are serious in finding a solution, contact the Ira Smith Trustee & Receiver Inc. team today.
Call us now for a free consultation. We will get your company back on the road to healthy stress-free operations and recover from the pain points in your life, Starting Over, Starting Now.
UPDATE OCTOBER 30, 2019: On September 27, 2019, the Court of Queen’s Bench of Alberta issued its decision on the appeal of this case. The decision described in this Brandon’s Blog was reversed. You can read about it in our new blog:
“Forgiveness does not change the past, but it does enlarge the future.” Paul Boose
Introduction
In my last Brandon’s Blog, I talked about the balance between a debtor and the creditors the Canadian insolvency system strives for. I just read today a decision of the Registrar in Bankruptcy sitting in the Court of Queen’s Bench of Alberta in Edmonton. In this case, Morrison (Re), 2019 ABQB 521, highlights this balance in this case dealing with Canada student loan forgiveness.
Can Canada student loans be forgiven in bankruptcy?
This is an application according to s. 178( 1.1) of the Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) (BIA). As I have previously written in several of my Brandon’s Blogs, in general, student loans cannot be discharged by a bankruptcy where the date of bankruptcy occurred within seven years after the date on which the bankrupt discontinued to be a full-time or part-time student.
Section 178(1.1) of the BIA, allows for after five years after the day on which a bankrupt with student loan debt ceases to be a full-time or part-time student, the Court may, on an application, order that the financial debt will be discharged. For such Canada student loan forgiveness, the Court has to be satisfied that:
the bankrupt person has actually acted in good faith about their obligations under the student loan debt; and also
the bankrupt has and will continue to experience economic trouble to such an extent that the bankrupt will certainly be not able to pay that financial debt.
So it is possible for student loans to be forgiven in bankruptcy. In this case, if the bankrupt’s application for student loan forgiveness succeeds, the student loan debt will not survive after her discharge. The application was opposed by both Canada Student Loans and the Ontario Student Assistance Program (the government).
Is the forgiveness all or none?
Before getting into the unusual details of this case, the Registrar’s decision dealt with one of the issues that came up over the course of the application. The issue was whether the choice to forgive student loans is all or none. That is, whether it is open to a Registrar hearing this application to find that only a part of the financial obligation needs to survive, in contrast to releasing all of it.
Based on the case law, the Registrar was satisfied that this was an all or none proposition. The Registrar stated that he was somewhat let down that it had to be that way. If the decision is that these financial debts are extinguished by the bankrupt’s discharge, the government could object to the bankrupt receiving an absolute discharge.
Like any other creditor, they could ask that a financial condition be enforced as a condition of discharge. In other words, the bankrupt would have to pay a portion of the student loan amount into the estate to be distributed by the licensed insolvency trustee (formerly called a bankruptcy trustee) (Trustee) as a condition of getting a discharge. This frequently occurs with high tax obligation debtors.
As it turns out, the government did not oppose the discharge application that was heard following this student loan application. They also did not ask that a monetary condition be applied to the terms of the conditional Order that was given.
So, it had to be all or none.
The vital facts
In 2015 Ms. Morrison was in financial hardship. At the time, she estimated her overall unsecured financial obligations were $71,501.00. Of that amount, about $50,000.00 was student loan debt. She sought the guidance of a Trustee and then assigned herself into bankruptcy. Ms. Morrison’s stated intent was to have all her unsecured debt on an equal footing to make sure that she can take care of everything via the insolvency process. She told her Trustee that she wanted her student loan debt to be included in her unsecured debt that would be eliminated by her discharge from bankruptcy. She clearly wanted Canada student loan forgiveness.
Ms. Morrison was last a full-time student in April 2008. Her last day of classes was on April 18, 2008. She had been a full-time student up until that day. So, arguably, she discontinued being either a full-time or part-time student on April 19, 2008. Unfortunately for her, she assigned herself to bankruptcy on February 27, 2015. Her personal bankruptcy in February 2015 was just a bit too early.
This somewhat defeated her stated reason for going bankrupt. So this is why she made this application to try to have her student loan debt forgiven by her discharge from bankruptcy. Depending on how you do the calculation, Ms. Morrison’s date of bankruptcy was about 60 days or so too soon.
If she had actually waited until April 19, 2015, to become bankrupt, rather than February 27, 2015, as she did, her student loan debt would be eliminated by her bankruptcy discharge.
The government tried to argue that under the student loan legislation, you calculate the time that she ceased being a full-time or part-time student begins on the 1st day of the month following the month she finished her studies. The Registrar was not having any of that.
He said that the student loan treatment he was asked to consider was based on the terms of the BIA. Therefore, he was going to use the more practical conclusion that for BIA purposes, the day you ceased being the student is the day after classes ended. I guess you could quibble that the day after you finish writing your last exam was really the date you ceased being a student, but nobody raised that issue.
The considerations
The Registrar considered cases from both Alberta and other provinces laying out the factors that relate to the discretion the Court had in such a forgiveness application. As I stated above, the Registrar had to determine if:
the bankrupt person has actually acted in good faith about their obligations under the student loan debt; and also
the bankrupt has and will continue to experience economic trouble to such an extent that the bankrupt will certainly be not able to pay that financial debt.
The Registrar laid out his understanding of the factors he needed to consider based on previous decisions. His list was:
Whether the student loan funds were utilized for the purpose it was loaned for.
If the person finished their education.
Did the applicant obtain financial gain from education?
Whether the applicant has actually made reasonable initiatives to repay the financial debts.
If the applicant has made use of the option of applying for interest rate relief.
The timing of the bankruptcy.
Do the student loans form a significant percentage of the total debt?
Whether the applicant had an adequate job and therefore income to be expected to make payments against the student debt.
The applicant’s lifestyle.
Did the applicant had sufficient earnings for there to be surplus income in bankruptcy under the Superintendent’s Directive.
What approaches the applicant made to the government for debt relief and what the government’s response was.
Whether the applicant went to at any time was unable to work due to medical issues or disability.
The Registrar’s findings
Registrar’s findings reveal the following:
The student loans were used for the purpose the funds were loaned.
Ms. Morrison completed her education.
She acquired a financial advantage from her education as she currently works in the area she studied for, or a related one.
She made some effort to settle the student loan debt. She entered into a contract with the government but her financial condition prevented her from making good on that plan. She apparently made some repayment.
The bankrupt’s initiatives at getting to a practical arrangement were not trivial. However, it appears that she required the framework of an insolvency process for her to come to terms with all her debts.
The applicant got interest-free standing for a period of time.
The student loans developed by far and away made up the best part of the bankrupt’s general indebtedness.
The applicant is (and was) for the most part a single parent of one. She committed a significant percentage of her income to her child (now a teen).
She lived a modest way of life.
She now has full-time employment and surplus income.
The decision
The Registrar found that the timing in connection with the seven-year cut-off was extremely close. The bankrupt’s primary interest and her shared intent at the time of meeting with the Trustee were to deal with all of her creditors on equal ground. Ms. Morrison did not look for bankruptcy to avoid her student loan debt but rather to deal with all of her financial problems.
There was obviously miscommunication between Ms. Morrison and her Trustee. The trouble was that the miscommunication aggravated her stated goal, which was the entire point of her insolvency proceeding.
When the matter was heard, it was approximately eleven years after her education was finished. The Registrar stated that in these extremely uncommon conditions he is completely satisfied that it remains in the interest of justice that an order goes pursuant to s. 178(1.1).
The government did not otherwise oppose the discharge. The Registrar made a conditional order of discharge taking all circumstances, including her surplus income, into consideration.
In this way, the Registrar balanced the right of this honest but unfortunate debtor to get her fresh start, with the rights of her creditors.
“True forgiveness is when you can say Thank You for that experience.” Oprah Winfrey
Canada student loan forgiveness summary
Are you or your company in need of debt forgiveness. Have you tried your best to balance your financial survival with those of your creditors but you just cannot keep up?
The stress you are under because of your money challenges is huge. I understand your pain. At no cost to you, I will look at your whole set of circumstances and develop a plan that is as special as your issues. I know that I can help you through this.
There is no “one solution fits all” approach with the Ira Smith Team. That is why I can develop a debt settlement plan for you as unique as the financial problems and pain you are facing. If any of this sounds familiar to you and you are serious in finding a solution, contact the Ira Smith Trustee & Receiver Inc. team today.
Call us now for a free consultation. We will get your company back on the road to healthy stress-free operations and recover from the pain points in your life, Starting Over, Starting Now.
If you would prefer to listen to the audio version of this Brandon’s Blog, please scroll to the bottom and click on the podcast
Bankruptcy small businesses introduction
The press has reported that certain Big Pharma have considered bankruptcy as part of negotiations to reach a settlement over their liability in the opioid crisis. Bankruptcy, or bankruptcy restructuring is not just for big companies. There are bankruptcy small businesses too.
Earlier this year, Insys Therapeutics Inc. in the United States ended up being the first opioid drugmaker to use the bankruptcy statute. It followed its US$225 million settlement with the Federal government. In recent months, there’s been a supposition that drugmakers might utilize insolvency laws as a means to run away from accountability.
Bankruptcy small businesses: That is not how bankruptcy protection works
Thankfully, that’s not how bankruptcy works. Instead, as I’ve learned in my experience in the Canadian bankruptcy space, insolvency procedures are developed to not only help debtors. It likewise assists creditors too.
Bankruptcy and restructuring proceedings are not best for every stakeholder every time. The end result always appears unreasonable to creditors because they are not being paid in full. However, it’s most definitely not the free ride for the company filing under the bankruptcy laws that many people think it will be. This is especially true in the area of bankruptcy small businesses.
Bankruptcy small businesses: What happens when a small business files for bankruptcy?
To many people, the thought of bankruptcy creates an adverse reaction. The reason is simple: a bankruptcy filing means there is not enough money to pay everyone 100 cents on the dollar.
But the system makes the best of a grim situation by imposing an organized and open process that preserves value and urges negotiation. Bankruptcy reorganizations by well-known brand names such as General Motors revealed that it can bring parties to the table to reach agreements that could not be made absent the structured reorganization laws. It also resurrects sick businesses.
value and account for every one of the debtor’s assets into one proceeding;
recognize and classify creditor claims against the debtor;
in bankruptcy liquidation, sell the assets and distribute the money in priority of the claims of the creditors; and
for a bankruptcy restructuring, to take a hard look at productive assets and those no longer needed, value them, allow for selling off redundant assets to allow the company to continue in its healthy business side and offer the creditors a better deal than they would get in a liquidation.
Specifically how those essential parts of the bankruptcy and insolvency legislation play out in a specific bankruptcy small businesses situation will differ depending upon what kind of insolvency filing the borrower makes and the specific truths regarding the conduct of the debtor.
Bankruptcy small businesses: What types of bankruptcy can small businesses file?
When we hear about bankruptcy small businesses we normally think of a liquidation. However, debtors have two choices under the BIA: liquidation or reorganization.
Pure bankruptcy liquidation is designed to sell off the assets either as a whole to one buyer to allow for someone else to carry on the company’s business, or just sell pieces to many individual buyers. In the latter case, it means that business will not exist anymore.
The value obtained from the asset sale(s) will be distributed to the creditors in priority. First to statutory trust claimants, then to secured creditors, if any. If anything is left after that, it will then be distributed to unsecured creditors: first preferred unsecured and then ordinary unsecured.
On the other hand, a filing under the proposal provisions of Part III of the BIA allows for the company to attempt to reorganize. All aspects of the business will be looked at. The debtor can sell some of its assets that are underperforming or no longer fit into the restructured business plan. The cash raised can be used in the reorganization strategy that aims to resolve the current business problems and allow the company to come out of bankruptcy protection as a new and profitable viable business.
The BIA restructuring provisions are what would be used for bankruptcy small businesses. Large businesses (defined in this case as companies that owe more than $5 million) could use the same BIA proposal provisions. Alternatively, those large companies could also use the CCAA statute to reorganize. The specific situation will dictate what legislation is used for a reorganization.
Bankruptcy small businesses: A restructuring attempt could go wrong
It is possible that companies that originally file under the BIA restructuring provisions ultimately become bankrupt. The reasons can vary.
The company may find that the financing it thought it had was no longer available, so they could not put forth a successful restructuring plan. So it will have no choice but to liquidate.
The company’s creditors may not believe that the restructuring plan pays them enough, is not a viable plan or there is too long to wait for too little money. In this case, the creditors when voting on the restructuring plan will vote in sufficient numbers to tank the restructuring. Any company that tries to restructure under the BIA and receives a sufficiently negative vote, is deemed to have filed an assignment in bankruptcy. In such a case, the only remaining option will be a liquidation, probably through a bankruptcy small businessses.
For a business wanting to make it through a restructuring, a successful plan needs lender assistance or a sufficiently strong cash flow so that the restructuring will be funded properly. If there is insufficient cash to fund the restructuring, the Trustee will have to report that to the creditors. The Trustee will also have to recommend against the restructuring plan if the Trustee believes the company does not have enough cash to provide the staying power to carry out the plan.
In that case, there will certainly be a negative vote and the company will go into bankruptcy liquidation. On the other hand, in a successful bankruptcy small businesses restructuring, as soon as a BIA proposal plan of arrangement is fully performed, a company emerges from bankruptcy protection and continues operating, generally in a more powerful position than previously.
Bankruptcy small businesses: Advantages of an insolvency process for debtors
Bankruptcy provides at the very least two valuable advantages to all debtors: time and room to maneuver.
The minute a debtor files, an automatic stay is in play for the debtor. It operates as a time out button on any litigation, collection or enforcement activities. Creditors can ask the Court to lift the stay under specific conditions, however, the standard for doing so is typically tough to satisfy.
The Bankruptcy Court has broad authority to regulate all issues involving the debtor’s estate, including adjudicating any disputed claims. By uniting all those with a stake in the business’s assets in one place, a debtor can effectively handle all claims against it.
While the stay is in place, debtors use the insolvency process to review their troubles and make the essential adjustments to prosper after reorganizing. Decisions are made about which contracts they want to carry forward and which to abandon.
To stay clear of a disputed process, smart debtors use the insolvency restructuring process to reach a total overall negotiation and agreement with all stakeholders. If necessary, smart debtors will also offer a benefit to top up its restructuring plan to make sure that it gets the number of creditors necessary for the plan to succeed.
Bankruptcy small businesses: Benefits of the insolvency process for creditors
Clearly, bankruptcy supplies debtors with substantial power to reposition their business affairs.
What lots of people misunderstand, nonetheless, is that this power is balanced by solid creditor benefits too. The BIA calls for debtors to disclose considerable information about their operations and imposes stringent checks on their actions.
As an example, the company wishing to reorganize must openly disclose financial and other information concerning every one of its assets. Much fo the disclosure is under oath in the sworn statement of affairs. There is also if necessary, the ability to examine company officials under oath. In many cases, the debtor must seek the court’s approval before taking action beyond running the business operations in the normal course.
Under the bankruptcy small businesses BIA provisions, the company is allowed to stay in possession of its property. Management also remains in control to continue running the business. The Trustee must report any material adverse change. The Trustee will also report to the creditors as part of the restructuring process.
Creditors that are worried concerning the debtor’s capacity to maintain the estate’s worth might ask the Court to expand the Trustee’s powers. It is possible to have the Trustee also appointed as an interim receiver to control the receipts and disbursements of the company. Creditors can also ask the Court to end the restructuring and place the company into bankruptcy. Creditors would need to show that either a key secured creditor or a large enough group of unsecured creditors, will under no circumstances vote in favour of any restructuring.
The insolvency laws allow for the creation of a board of unsecured creditors to oversee the restructuring. The Court might also form a unique board standing for a major group of litigants in situations where the debtor faces lawsuits or claimants whose damages are not yet quantified.
These and various other attributes include a degree of justness to an inherently unfair situation. The debtor might think that it is driving the bus, however, countless other stakeholders have the power to make sure that the business complies with the rules of the road.
With such safeguards in place, creditors and the general public need not be afraid of the most awful possible outcome if bankruptcy provisions are used to try to restructure companies involved in bitter disputes. The playing field will never be even, but the Canadian insolvency statutes try to bring as much fairness into the bankruptcy small businesses system as possible.
Bankruptcy small businesses conclusion
I hope that you found this bankruptcy small businesses Brandon’s Blog informative. The financial restructuring process is complex. The Ira Smith Team understands how to do a complex corporate restructuring. However, more importantly, we understand the needs of the entrepreneur. You are worried because your company is facing significant financial challenges. Your business provides income not only for your family. Many other families rely on you and your company for their well-being.
The stress placed upon you due to your company’s financial challenges is enormous. We understand your pain points. We look at your entire situation and devise a strategy that is as unique as you and your company’s problems; financial and emotional. The way we dealt with this problem and devised a corporate restructuring plan, we know that we can help you and your company too.
We know that companies facing financial problems need realistic lifeline. There is no “one solution fits all” approach with the Ira Smith Team. That is why we can develop a company restructuring process as unique as the financial problems and pain it is facing. If any of this sounds familiar to you and you are serious in finding a solution, contact the Ira Smith Trustee & Receiver Inc. team today.
Call us now for a free consultation. We will get your company back on the road to healthy stress-free operations and recover from the pain points in your life, Starting Over, Starting Now.
When I was in high school, I was very fortunate. I thankfully took two accounting courses, in addition to the normal reading, writing and arithmetic. It was in accounting, that I received some financial literacy education. Anyone who did not take accounting did not get any exposure to basic financial education.
When Ontario grade 10 students go back to school next week, their course curriculum is now amended so that a financial literacy course is mandatory. The purpose of this Brandon’s Blog is to discuss why financial literacy is important and what the new course will offer these students.
What is financial literacy and why is it important?
Financial literacy is the education, learning and understanding of different financial subjects related to handling personal money, budgeting and investing. This topic focuses on the capability to manage individual finance matters in a reliable way.
With such education, people gain an understanding of making suitable decisions about their personal money. Without a basic financial understanding, how can people develop their financial skills? Where will you learn about things such as investing, insurance, budgeting, saving, retired life and income tax concepts?
Why is financial literacy important for students?
The typical high school curriculum of education and learning is extremely important. People generally do not get specialist education until they are in a career program. To become a medical professional, an auto mechanic or a web developer requires specialist education for career success. The one area of education that is generally missing to equip our youth to be able to make smart economic decisions in their lives is proper financial education.
Our society values money and entrepreneurship, yet for some reason, our institutions appear to assume you will somehow just know or pick up the proper financial skills to succeed. Perhaps if there was a mandatory financial education system in place we would see the gap between the rich and poor lessen. Teaching basic financial concepts and skills can go a long way to make sure that people can learn good financial habits and keep their heads above water.
How do you get financial literacy?
The Ontario curriculum for Grade 10 career studies for the first time this school year will include a section on financial literacy. The provincial government believes that it is important for students to understand budgeting and financial management. I applaud this effort.
The education system’s overall expectation is that students will get an understanding of responsible monitoring of financial resources and of services readily available to support their financial proficiency as they prepare for post-secondary life. This is an excellent thing.
I remember my first day at university. Day one all the banks have tables to entice students to sign up for a new credit card. Young adults who have student loans and have never been exposed to financial management courses will now have the ability to take on more debt. Not a good thing.
The specific expectations are that students will:
Learn the principles of financial responsibility
Evaluate the advantages of a variety of financial savings options
Explore financial planning tools available with banks and other sources
What are the three main components of financial literacy?
The three main components that the new financial literacy piece to career studies program will cover are:
Financial responsibility
setup and follow a budget
sensibly handling bill payments and using credit wisely understanding the difference between
knowing the difference between a bank and a credit union
types of interest-bearing accounts and their associated rate of interest
tax-free savings accounts (TFSAs)
registered retirement savings plans (RRSPs)
Different kinds of borrowing and their advantages and disadvantages
federal government student loans
provincial government student financings, such as those available with the Ontario Student Assistance Program (OSAP)
loans or bursaries from their local cities and towns
personal (unsecured) loans from a financial institution, be it a chartered bank or a credit union
lines of credit, credit card and overdraft products
recognizing the benefits and disadvantages of the numerous kinds of credit products
how the responsible use of a credit card can boost an individual’s credit score ranking
how improper use of the same credit card can hamper a person’s credit score ranking
that the proper use of bank loans can allow a person to pay for a costly item, such as a car or home
how the improper use of loans and excessive debt can lead to a poor credit rating, money troubles and even insolvency and bankruptcy
How borrowing from family or close friends can be advantageous, but how defaulting on repayment can negatively impact personal relationships
The teacher’s role
The teacher’s role will be to provide illustrations to drive home these points. In the context of spending and personal finance, the students will learn the difference between “needs” and “wants”. Teachers will ask the students to reflect on exactly how a person’s values will influence their wants or the ways in which they satisfy their needs. Students will learn what “living within your means” really means.
The teacher will lead a discussion on exactly how a person can do this successfully. Students will consider what the impact on a person will be from not paying expenses promptly and from using numerous credit cards.
Students will learn the benefits of beginning to save at a young age. They will be exposed to the advantages of then having a formal financial savings plan. All this will naturally lead to a realization that budgeting for both short-term objectives, such as purchasing clothes, differs from budgeting for long-term goals, such as buying and maintaining a car. Students will also learn about the different types of savings vehicles as well as debt products. They will also learn the proper use of debt.
In my view, the students will learn about the three most important parts of any financial literacy program: 1. proper budgeting techniques; 2. the importance of saving from an early age and the various savings vehicles available; and 3. debt and how to use it properly.
Summary
Hopefully, by exposing grade 10 students to these concepts, they will be motivated to keep learning and using proper financial management techniques. My hope is that more students will come out of high school and begin their post-secondary career, whatever that may be, by having better financial management skills and therefore fewer people will be able to stay clear of insolvency.
Prior to the new mandatory curriculum, the first exposure many people had to financial literacy education was as part of insolvency counselling, which means they already made mistakes before having a chance to learn the basics.
Are you on the edge of insolvency? Are bill collectors hounding you? Are you ducking all your phone calls to the point where your voicemail box is always full?
If so, you need to call me today. As a licensed insolvency trustee (formerly called a trustee in bankruptcy) we are the only professionals licensed, recognized as well as supervised by the federal government to give insolvency assistance. We are also the only authorized party in Canada to apply remedies under the Bankruptcy and Insolvency Act (Canada). I can definitely help you to choose what is best for you to free you from your financial debt issues.
Call the Ira Smith Team today so we can get free you from the stress, anxiety, and discomfort that your cash issues have created. With the distinct roadmap, we establish simply for you, we will without delay return you right into a healthy and balanced problem-free life, Starting Over Starting Now.
If you would prefer to listen to the audio version of this collection agency Ontario Brandon’s Blog, please scroll to the bottom of this page and click on the podcast
Introduction
In many of the free consultations I provide, the issue of collection agency Ontario arises. More often than not, people and companies that are insolvent, experience harassing phone calls from debt collectors.
In fact, in certain corporate bankruptcy or receivership matters that I handle, there are certain situations where I hire a collection agency. They can be very effective in collecting amounts owing to the insolvent company.
The purpose of this collection agency Ontario Brandon’s Blog is to answer the top 4 questions that I am asked about collection agencies.
1 – How do collection agencies work in Ontario
In Ontario, debt collectors need to be signed up and should adhere to the guidelines outlined in the Collection and Debt Settlement Services Act, R.S.O. 1990, c. C.14 and its regulations.
The Ontario Ministry of Government and Consumer Services registers and controls these firms.
Ontario registered collection agencies must first send you a personal letter by mail or email. Their letter should include:
details on just how much you owe as well as the kind of product and services that put you in debt
the name of the business/individual you owe money to
the amount of the debt on the day it was initially due and payable and, if different, the level of debt presently owing
advice that a breakdown of the present amount owing will be offered upon demand
the name of the collection agency and also the individual collector that is requiring payment of the financial debt
that the debt collector is registered in and as a collection agency Ontario
the contact details of the debt collection agency, including the complete mailing address, phone number and, if applicable for communication, their email address
a disclosure statement, which discusses your legal rights and the steps you can take if you believe the debt collection company has broken the law
After the agency sends out the letter they need to wait six days prior to their next effort to get the payment of the financial debt.
Collection agencies work on a commission basis. They get to keep a percentage of the debts collected on behalf of their respective clients.
2 – Can a collection agency sue you in Ontario?
The short answer is yes.
A collection agency, once it gets approval from its client, the party that feels you owe them money, can sue you. If it is a large amount of money, they will definitely hire a lawyer to do it. If it is a smaller amount that can be handled by Small Claims Court, they might hire a lawyer, a paralegal, or just have one of the collectors do it him or herself in Court.
The rules of the Court will apply. The collection agency will issue a Statement of Claim against you. You will then have the time the Court allows to file your defence. The Court will look at all the evidence before it and render its judgment. If you are found liable for the debt, then the collection agency can attempt to enforce the judgment against you. They will try to garnishee your bank account and/or a portion of your wages.
Keep in mind that in Ontario, the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B has a fundamental restriction of 2 years. Anyone has specifically two years, starting from the day you first recognized or should have known, that a loss occurred, to file a claim and sue. The two year period would start running the day the person trying to collect a debt from you first contacted you about your being in default.
For example, a credit card company writes to you telling you that you are in default and asks that you pay up in full or else they will take further action against you. You don’t reply or pay, and they write to you again threatening legal action. Again you don’t respond or pay, and then you get a letter from a collection agency. The collection agency then sues you.
The collection agency is only the agent of the credit card company. The debt they are collecting is not their own, it is the debt of the credit card company. So, the first date the credit card company knew of a loss is not the first time you are contacted by the collection agency. It is the first time you are contacted by the credit card company. That is the day you start counting the two years from.
If the collection agency begins its lawsuit against you more than 2 years after the date the credit card company first advised you that you are in default, it is too late.
3 – How long can a collection agency collect on a debt in Ontario?
This is always a fascinating question for me. Even if the 2-year statute of limitations kicks in, all that means is that you cannot be sued any longer. It does not mean that you no longer owe the money. Most normal people, if they know they can’t be sued, will not pay. However, since the collection agency works on commission, it does not mean that they will necessarily stop calling you to ask for the money, even though they can no longer sue you.
You will always owe that debt. The Ontario Court of Appeal confirmed this in the case of Grant v. Equifax Canada Co., 2016 ONCA 500 (CanLII). In that case, the Court ruled that if you owe money, even if it is too late for you to be sued, it can still show up on your credit report in Ontario. The Court of Appeal went on to say just because a creditor misses the deadline or chooses not to sue within the two-year period it doesn’t mean that the debt still isn’t owed.
The only way in Ontario short of paying off the debt, or a lesser settlement amount, is to file either a consumer proposal or assignment in bankruptcy. Once you successfully complete your consumer proposal or get your discharge from bankruptcy, that debt and all other unsecured debts are wiped out. They are discharged. However, if the only debt you are not paying is the one the collection agency is trying to collect, an insolvency filing may be a very drastic and unnecessary step.
To find out for sure, you would have to consult with either a lawyer or a licensed insolvency trustee (formerly called a bankruptcy trustee).
4 – How do I stop a collection agency?
The only real way to stop a collection agency in Ontario is to either pay off the debt in full or arrange for a debt settlement and pay it. The settlement can be an immediate payment for less than the total amount owed, or paying off some amount over time.
If you cannot make a settlement with them that you can afford to pay and live up to, then you the only other way is to do an insolvency filing. As I mentioned above, in the case of an individual person, that would be either a consumer proposal or filing for bankruptcy. In the case of a company, it would be either a restructuring proposal or bankruptcy.
Are you on the edge of insolvency? Are bill collectors hounding you? Are you ducking all your phone calls to the point where your voicemail box is always full?
If so, you need to call me today. As a licensed insolvency trustee we are the only professionals licensed, recognized as well as supervised by the federal government to give insolvency assistance. We are also the only authorized party in Canada to apply remedies under the Bankruptcy and Insolvency Act (Canada). I can definitely help you to choose what is best for you to free you from your financial debt issues.
Call the Ira Smith Team today so we can get free you from the stress, anxiety, and discomfort that your cash issues have created. With the distinct roadmap, we establish simply for you, we will without delay return you right into a healthy and balanced problem-free life, Starting Over Starting Now.
You may have read or heard about a recent survey. The headline was “Ipsos poll finds half of Canadians don’t trust professional help with debt”. The survey provided some interesting views but did not shed any light on why Canadians do not trust debt helpers.
I regularly speak with people who attend my office for a free initial consultation to try to solve their personal or company debt problems. From those experiences, I have compiled a list of the 10 most common reasons I believe why almost half of those surveyed do not trust debt professionals.
#1 What is a debt professional?
Confusion exists in the marketplace as to what you mean when you say the phrase “debt professional”. Depending on who is doing the talking, and the listening, you could mean:
Debt counsellor who has no real qualifications and just acts as an agent for bad credit personal loan companies or worse charges fees just to then take the person to a specifically licensed insolvency trustee (formerly known as a bankruptcy trustee) (Trustee)
Unfortunately, the survey does not define what the term “debt professional” really means.
#2 I don’t have a debt problem because I am making all my payments
People believe that if they can keep up all their minimum payments, then they are making all of their payments. So if the person says they are making all payments, they can’t have a debt problem. Therefore, they don’t trust anyone who tells them that they do.
However, especially with credit cards, there is a difference between making all the monthly minimum payments and paying the entire debt off every month. What they don’t recognize is that all they are doing is paying the credit card company interest and never actually paying down any debt. Eventually, it will catch up with them when they have no more credit.
#3 You will ruin my credit score
People with debt problems always tell me that they have a great credit score and either a consumer proposal or bankruptcy will ruin that. So with the belief that if they see a debt professional, all that person will do is ruin their credit score, distrust is born.
Even people who have recently been turned down for debt consolidation loans tell me that. What I tell them is that it is true that an insolvency filing will remain on their credit report for some time after they successfully complete their consumer proposal or get their bankruptcy discharge.
However, I also point out that in return, they will have their debt problems fixed. By fixing their debt problems, they will no longer suffer from pain, stress, anxiety, depression and sleepless nights. Some people then choose to take responsibility, fix their debt problems and rehabilitate themselves. Others choose discomfort, stress and anxiety, and sleep deprivation.
#4 Talking won’t do any good. What I need is a loan
Many people feel that talk is cheap. What they really need is money. The gambler with a gambling addiction thinks the next roll of the dice or the next hand of cards will produce all the winnings they need. In the same way, the debt addict believes that one more personal loan will solve all their debt problems. All it will really do is give them a bit more cash, which will never be enough to repay all of their debt.
Increasing debt is not a good strategy for getting out of debt. That extra bit of cash may feel good in the short term, but eventually, all it really is is more debt. What these people don’t realize is that by talking to a Trustee, when they find the right one for them, a relationship begins. The functioning partnership you create with your Trustee is a connection. As you create that connection, long-term modifications in your financial behaviour start to happen to produce good long term results.
#5 It would be weird speaking about such a personal thing with a stranger
In my experience, this may be an initial feeling but does not in fact happen. The majority of Trustees are competent at making you really feel comfy rapidly. They are neither impersonal nor judgmental.
As I mentioned above, once you find the right Trustee for you, a relationship begins. I have found that many of the people that I have helped, consider me a resource to call upon, even long after our professional relationship ends.
#6 I would rather speak to a friend or family member
I have heard this many times. This is really an excuse for not dealing with their debt problems. It is not a reason why people don’t trust debt professionals.
In fact, a recent Angus Reid poll titled The Awkward Silences Survey 2019 found that 17% of the Canadians surveyed do not like to talk about finances. Of those, the least favourite topics they like to talk about are:
Personal debt or bankruptcy – 34%
Assets, liabilities and net worth – 22%
Their income – 16%
How they spend their money – 12%
Savings and investments – 11%
Their mortgage – 5%
I get it. The topic is not pleasant. Speaking with a debt professional is an admission that you have a problem with debt. However, it is also the first positive step to take to solve your debt problems.
#7 Debt professionals do not truly respect you; they do it for the cash
Yes, there are unscrupulous people in the world who advertise themselves to be debt consultants. They make outlandish promises such as they will eliminate your debt without bankruptcy. I cannot speak for them, but I do know myself and many of my Trustee colleagues across Canada.
The Trustee and staff do earn money from helping people with their debt. Just like you earn money from your job or career. However, there is a common bond amongst all Trustees in Canada. That common bond is that they all enjoy helping people. They enjoy seeing your success from their assistance. If they did not, they would be doing something else.
#8 Everyone will know if I go to see a debt professional
This is a common feeling. Again I can only speak about Trustees. Although there is not the same confidentiality with a Trustee as there is with a lawyer, a Trustee does not blab. As big a country as Canada is and as big a city where I practice is, the Trustee community is small. If a Trustee broke confidences, word would get around quickly and that Trustee would not get any referrals.
Keep in mind that the word “trust” is found in “Trustee”. People trust us with some of their deepest problems and we help solve them. I don’t talk to others about your issues.
It is true that the Office of the Superintendent of Bankruptcy runs a database of all insolvency filings. This is a public database that anyone can search for $8. Also, the two Canadian credit reporting agencies, Equifax Canada and TransUnion Canada, purchase that information for their own databases. I have never had anyone tell me that their brother-in-law searched the government database and found out about their insolvency filing.
So at the end of the day, the only people who will know that you filed are yourself, your Trustee, your spouse and anyone that you have told.
#9 The professional fee is too expensive
That depends on who you go to see. If you go to a community credit counselling agency, it is probably no charge. If you go to a debt settlement company scammer, then every one cent is too expensive because they do not do anything useful for you. If you go to see a Trustee, the entire process may end up being free.
Let me explain. The initial consultation with any Trustee will be free. You should get that confirmed upfront when you make the appointment. Other than for situation where you have no assets and no income, a consumer proposal filing or a bankruptcy administration will probably end up not costing you any money specifically for professional fees. Here is why.
The Trustee will advise you what will happen to you and what your responsibilities are in a bankruptcy or consumer proposal. In a bankruptcy, other than for exempt assets, you have to turn over your assets to the Trustee. If you earn income, you may also have a surplus income obligation to pay. The Trustee, under the statute, will be entitled to a fee for services out of those proceeds. So, you will pay nothing for the Trustee’s approved fee.
In a consumer proposal, the Trustee has to first do the bankruptcy calculation. Under the Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) (BIA), a consumer proposal must produce a better result for your creditors than your bankruptcy. The Trustee will discuss with you his or her best estimate of how much you need to offer to your creditors in your consumer proposal in order to be successful. That calculation has nothing to do with the fee the Trustee is entitled to under the BIA. The statute says that the Trustee is entitled to a statutory fee from the consumer proposal fund.
So, in this way, the Trustee’s fee for a bankruptcy or consumer proposal administration costs you nothing.
#10 I don’t have time
I believe this also is more of an excuse, not a real reason for not trusting a debt professional. It is uncomfortable to face your debt problems head-on. It is more comfortable to ignore them.
A Trustee will provide a 1-hour consultation for free. In that hour, you will gain better insight to your debt issues and the realistic options available to you to fix them. I always have people tell me at the end of the free consultation, that I have helped them feel much better than they did when they first walked in.
So think of all the things that you do in a day or week, and I am sure that you can find 1 hour to help yourself. If you have a job that makes it impossible to see a Trustee during normal business hours, a Trustee will accommodate you. I have held many early morning or evening appointments.
Debt helpers summary
I hope this debt helpers Brandon’s Blog helps you. As previously stated, there is a good reason not to trust certain debt helpers. You don’t need to feel that way about seeing a Trustee. Are you on the verge of bankruptcy? Do not let any misconceptions about being able to trust a Trustee stop you from understanding how you can restructure your financial affairs and avoid bankruptcy. You do not need to be one more person or company declaring bankruptcy in Canada.
As a licensed insolvency trustee (formerly called a bankruptcy trustee), we are the only specialists certified, accredited and overseen by the federal government to provide insolvency guidance and to apply remedies under the BIA. We will certainly help you to choose what is best for you to release you from your debt problems.
Call the Ira Smith Team today so we can get rid you for you the stress, anxiety, pain and discomfort that your money issues have created. With the distinct roadmap, we establish simply for you, we will without delay return you right into a healthy and balanced problem-free life, Starting Over Starting Now. Call the Ira Smith Team today.
If you would prefer to listen to an audio version of this bankruptcy trustee in Ontario Brandon’s Blog, please scroll to the bottom and click on the podcast.
Bankruptcy trustee in Ontario: Introduction
As a bankruptcy trustee in Ontario (now called a licensed insolvency trustee ), there are many times where our investigation indicates that the bankrupt (usually a bankrupt corporation) has a claim against another party. The claim may very well be a good one worthy of pursuing. However, like with any potential litigation, there could be not enough funds to pay for pursuing that claim in the Court, or it may be unwise for a bankruptcy trustee in Ontario (Trustee) to assume the litigation risk.
In cases like this, the licensed insolvency trustee can offer up the opportunity to the creditors to take on the action in their own name. One or more creditors can get an order under s. 38 of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (BIA) from the Registrar in Bankruptcy, authorizing the assignment to them by the licensed insolvency trustee of the bankrupt company‘s right to advance that claim and if necessary, sue.
Without going into all the finer details and circumstances, any creditor or group of creditors who obtain that right can keep any amount collected under that claim up to the total of their claim against the bankrupt company plus the costs they spent in obtaining that award. Any surplus must be paid over to the bankruptcy trustee in Ontario.
A recent decision of the Court of Appeal for Ontario highlights an interesting issue regarding the interplay between advancing such a claim by a creditor and the limitation period in Ontario.
Bankruptcy trustee in Ontario case background information
The Ridel family used an investment and stock brokerage company called e3m Investments Inc. (e3m). In December 2006, the Ridels issued a Statement of Claim versus their account representative, as well as his employer, e3m. The action was for negligence, breach of contract and violation of fiduciary obligation in the monitoring of their financial investment accounts.
After a ten-day court hearing, judgment was issued against e3m as well as the account representative in Ridel v. Cassin, 2013 ONSC 2279. The judgment was especially scathing of both the account rep and e3m. The judgement, in the amount of $1,036,245.85, was upheld on appeal. As a result, the account representative needed to make an insolvency filing. My Firm administered the successfully completed Division I restructuring Proposal of the account representative. Given the judgement, he needed to do an insolvency filing and it was in his best interests to attempt to restructure to avoid bankruptcy. The Ridel family controlled the voting in his successful Proposal. e3m filed for bankruptcy on January 20, 2015.
The bankruptcy trustee in Ontario case before the Court of Appeal
On July 31, 2019, the Court of Appeal for Ontario released its decision in Ridel v. Goldberg, 2019 ONCA 636. The underlying claim was one the bankrupt company may have had against its Director and majority shareholder.
On October 25, 2016, the Ridels, as an unsecured creditor of e3m, got an order under s. 38 of the BIA. They obtained an assignment of the claim of e3m against its sole Director, a Mr. Goldberg. Since e3m was found liable under the Ridel judgement, e3m could have a claim and institute proceedings against its Director, Mr. Goldberg.
The s. 38 order supplied the Ridels with the legal authority to assert e3m’s claim against Mr. Goldberg “to recover the damages for which e3m became liable pursuant to [the 2013 Judgment, as amended] in their own name and at their own expense and risk, based on Mr. Goldberg’s failure to fulfil his obligations as a director and officer of e3m by abdicating his responsibility to supervise the Ridels’ accounts at e3m”.
The Ridels launched their lawsuit proceedings in the lower Court against Mr. Goldberg the day they obtained the s. 38 order, October 25, 2016. The Ridels were trying to get a summary judgement. Mr. Goldberg raised several defences, including, the Ridels’ claim was statute-barred under the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B (Limitations Act).
The lower court judge dismissed the Ridels’ action on two fronts. First, the judge found that there were concerns about needing a trial. Second, the lower court judge agreed that the claim should be dismissed because of the expiration of a two-year limitation period The Ridels appealed the lower court’s decision to the Court of Appeal for Ontario.
bankruptcy trustee in ontario
The fascinating part (for me anyway) of the Court of Appeal’s decision
The unanimous Court of Appeal ruling agreed with the lower court judge’s decision that the action the Ridels took by way of an assignment document from e3m’s licensed insolvency trustee was statute-barred under the Limitations Act. However, the appeal court review of the lower court decision disagreed with the reasons given by the lower court. Upon agreeing that the Ridel’s action should be dismissed based on it being barred by the Limitations Act, the appeal court did not wade into whether or not the lower court judge’s decision was correct that summary judgement should not be granted as there was a triable issue.
The arguments given for the limitation period are somewhat complex. I will attempt to summarize them here so as not to be confusing. The lower court judge held that the Ridels as applicants knew of the existence of the potential claim of e3m against its Director as early as in July 2006. Since they did not launch the e3m claim in a court action until October 2016. Hence, the limitation period of 2 years made that claim statute-barred.
The Ridels state that the limitation period cannot have actually begun up until after e3m was bankrupt. Before then, they could not take an assignment of any claim from e3m’s licensed insolvency trustee, especially a potential claim by the company against its Director (and Officer).
They also stated it is impossible to get an s. 38 order before the company actually is bankrupt.
The lawyer for the Ridels did not argue the testing of the timing of their very own understanding of the Director’s misdeed in regard to e3m. Rather, he focussed on the fact that the Ridels were not in a place to do anything concerning it, at a minimum, until the bankruptcy of e3m.
The appeal court went through a detailed analysis of the relevant statutes and case law. The Court of Appeal confirmed that the action launched was not a claim by the Ridels personally, but rather the company’s claim of which they took a court-approved assignment. So the appeal court agreed substantially with the Ridels that they could not have started their action until they took the assignment from the e3m licensed insolvency trustee.
When was e3m’s knowledge of its claim?
So the appeal court said what is important, since it is e3m’s claim and not the claim of the Ridels, when did e3m first become aware of the potential claim against its Director? The appeal court stated it fully understood why the Director would not have had e3m sue him or otherwise enjoin him in the original claim against the account rep and e3m. However, when did e3m first become aware of the potential of its claim?
On the proof in this matter, regardless of the Ridels’ or Goldbergs’ understanding of the case or his aversion to act against himself in support of e3m, at the very least, by April 2013, every one of the other e3m investors/shareholders had received a copy of the Reasons for Decision and Judgment against the account rep and e3m. It included different referrals to the Director’s misbehaviour. Those investors had the capacity to make e3m file a claim against the Director.
The Court of Appeal for Ontario judges determined that e3m recognized that: 1. an injury had actually happened; 2. its loss was brought on by an act or omission; 3. the act or omission was purportedly that of the Director, and 4. an action against the Director was a proper way to treat it. Regardless of the Director’s control to protect against such a lawsuit, the investors might have taken control of e3m’s board of directors and cause e3m to make such a case versus Goldberg.
So the appeal court decided that e3m first recognized that it may have a claim against the Director in April 2013, but the action was not commenced until October 2016. Accordingly, it was outside of the 2 year limitation period and the action was statute-barred.
So what does this mean for a bankruptcy trustee in Ontario?
As the bankruptcy trustee in Ontario in either a corporate bankruptcy or personal bankruptcy, many times we find as a result of our investigation that the bankrupt may have a claim against another party. More often than not, we either do not have sufficient funds or are not prepared to risk the funds in the Estate to the litigation risk. So, what we do is communicate with all known creditors to advise of the potential claim and that the licensed insolvency trustee is either unwilling or unable to act upon it. Accordingly, we are giving the creditors a chance to apply to the Court to take an assignment of such action under s.38 of the BIA.
Creditors seriously considering taking over the bankrupt’s claim must seriously consider the issue of whether or not launching a court action will be met with a defence that the claim is statute-barred, amongst other defences that may be available to the defendant(s). The Court of Appeal for Ontario has clearly communicated that the creditor taking an assignment of the bankrupt’s claim, cannot be in a better position than the bankrupt itself. The first knowledge that a claim exists will be when the bankrupt first had the knowledge, not the date that the creditor obtained the right to sue or any other date.
Bankruptcy trustee in Ontario Canada conclusion
The business world contains normal daily risks. This case clearly shows that. Are your company’s viability and solvency being threatened by claims against it, or for any other reason?
Is your company experiencing financial problems and requires debt relief? Are you on the brink of filing for bankruptcy just like e3m was because of your debts? Or are you an individual that has too much debt and you are looking at personal bankruptcy as your solution? Don’t wait until it is too late to properly restructure your company’s financial affairs. You don’t have to be another one filing bankruptcy in Canada. We can show you the various alternatives to bankruptcy.
As a licensed insolvency trustee, we are the only professionals who have met the requirements of the Office of the Superintendent of Bankruptcy Canada to obtain a trustee licence. One of those requirements to be trustees in bankruptcy is to pass an oral board of examination.
Insolvency trustee’s operations are licensed, authorized and their duties supervised by the federal government to offer insolvency advice and to implement solutions under the Bankruptcy and Insolvency Act (Canada). We are a licensed insolvency trustee operating in Ontario Canada and we will help you to select what is best for you to free you from your debt issues.
Contact the Ira Smith Team today so we can use our qualifications to get you or your company the debt relief that you deserve. We will eliminate the anxiousness, tension, discomfort and pain from your life that your bills and your cash problems have caused. With the unique roadmap, we develop just for you, you can eliminate your debts and we will promptly return you right into a healthy and balanced problem-free life.
If you would prefer to listen to an audio version of this Brandon’s Blog, please scroll to the bottom and click on the podcast
If you would prefer to listen to the audio version of this financial literacy Brandon’s Blog, please scroll to the bottom and click on the podcast
