Tag: Bankruptcy and Insolvency Act

CONSUMER PROPOSALS: HOW MANY ARE REJECTED?

Post author By Brandon Smith
Post date July 3, 2019

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Introduction

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

What are consumer proposals?

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

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

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

The benefits

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

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

The process

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

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

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

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

Acceptance and performance

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

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

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

Full performance

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

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

Summary

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

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

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

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

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

Tags assignment in bankruptcy, Bankruptcy, Bankruptcy and Insolvency Act, bankruptcy trustee, BIA, Consumer Proposal, consumer proposals, Debt, debt management, debt management plan, debt settlement, debt settlement plan, informal debt, insolvent, Ira Smith Trustee, licensed insolvency trustee, OSB, Superintendent of Bankruptcy

Brandon Blog Post

CONSUMER PROPOSAL CALCULATOR REVIEW FOR YOU

Post author By Brandon Smith
Post date July 1, 2019

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

Introduction

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

Shelly Gail Corriveau bankruptcy

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

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

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

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

Ms. Corriveau files a consumer proposal

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

The proposal in paragraph 4 states:

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

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

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

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

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

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

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

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

Have you “Noted” the problem yet?

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

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

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

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

The Court’s analysis

Section 66.4(2) of the BIA states:

“Where consumer debtor is bankrupt

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

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

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

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

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

There is a similar provision for Division I Proposals.

The Court looked at the:

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

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

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

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

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

Consumer proposal calculator summary

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

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

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

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

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

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Tags annul, assignment in bankruptcy, Bankruptcy, Bankruptcy and Insolvency Act, BIA, canlii, Consumer Proposal, consumer proposal calculator, consumer proposal canada, consumer proposal ontario, debt settlement, debt settlement plan, Ira Smith Trustee, licensed insolvency trustee, Superintendent of Bankruptcy, trustee in bankruptcy

Brandon Blog Post

INSOLVENT MEANING RESTORED IN COURT OF APPEAL FOR ONTARIO

Post author By Brandon Smith
Post date June 17, 2019

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

Introduction

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

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

The lower court ruling

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

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

The appeal

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

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

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

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

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

The Court’s power for bankruptcy annullment

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

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

What is an insolvent person?

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

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

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

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

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

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

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

Out and out lies

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

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

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

Are you insolvent?

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

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

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

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

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

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Tags annul, assignment in bankruptcy, Bankruptcy, Bankruptcy and Insolvency Act, bankruptcy order, bankruptcy trustee, BIA, Consumer Proposal, income and expense statement, insolvency definition, insolvency proceeding, insolvent, insolvent definition, insolvent meaning, insolvent person, Ira Smith Trustee, licensed insolvency trustee

Brandon Blog Post

RESP CONTRIBUTION NOT PROTECTED IN BANKRUPTCY

Post author By Brandon Smith
Post date June 10, 2019

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

Introduction

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

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

resp contribution

RRSP or RRIF exemption

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

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

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

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

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

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

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

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

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

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

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

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

resp contribution

RDSP and Budget 2019

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

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

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

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

resp contribution

RESPs are not exempt

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

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

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

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

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

resp contribution

What about you?

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

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

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

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

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

[monkeytools msnip=”http://monkeyplayr.com/playr.php?u=5173&p=20894″]

resp contribution

Tags Bankruptcy, Bankruptcy and Insolvency Act, bankruptcy trustee, BIA, disability tax credit, Ira Smith Trustee, licensed insolvency trustee, rdsp, rdsp withdrawal, registered education savings plan, Registered Retirement Income Fund, registered retirement savings plan, resp, resp contribution, RESPs, RRIF, RRSP, RRSPs

Brandon Blog Post

WILL CRA CONTACT ME IF I DO NOT PAY?

Post author By Brandon Smith
Post date June 3, 2019

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

Introduction

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

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

Types of CRA debt

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

personal income tax
unremitted source deductions or HST of an unincorporated business
Director liability for corporate unremitted source deductions or HST

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

corporate income tax
unremitted source deductions or HST

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

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

Ways you and the taxman can communicate

Notice of Assessment or Reassessment

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

Be proactive

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

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

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

Telephone or letter

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

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

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

Garnishment by a Requirement To Pay

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

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

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

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

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

Seizing your assets

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

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

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

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

Payment arrangement

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

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

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

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

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

Insolvency proceeding

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

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

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

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

Do you have too much debt?

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

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

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

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

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Tags Bankruptcy, Bankruptcy and Insolvency Act, Canada Revenue Agency, CRA, cra contact, cra payment arrangements, director liability, financial restructuring, Ira Smith Trustee, notice of assessment, onsumer proposal, payment arrangement, requirement to pay, Revenue Canada, tax debt, unremitted hst, unremitted source deductions, wage garnishment

Brandon Blog Post

OSAP BANKRUPTCY IS NOT AS SIMPLE AS YOU MIGHT THINK

Post author By Brandon Smith
Post date May 29, 2019

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OSAP bankruptcy Introduction

I have written before on the issue of the difficulty in discharging student loans through bankruptcy. Bankruptcy will certainly not release your student loans debt until you’ve been out of full or part-time studies for 7 years. It is also question and answer #8 in our TOP 20 PERSONAL BANKRUPTCY FAQS found on our main website. In Brandon’s Blog, I want to drill down into the issue of an OSAP bankruptcy.

What is OSAP?

The Ontario Student Assistance Program (OSAP) is a financial assistance program that can assist students in spending for college or university.

OSAP provides money via:

Grant: cash you do not need to repay
Loan: a loan you are required to pay off when you’re done college or university

OSAP can assist your spending for:

tuition
books and supplies/equipment
student fees billed by an institution
living expenditures
childcare

Amongst the various categories of people who are not eligible for OSAP, one is those people who have filed for either personal bankruptcy or a consumer proposal. As you might imagine, the rules surrounding OSAP bankruptcy are not simple. Let’s do some drilling down now!

Students that did not get student loans before the day they declared bankruptcy or filed a consumer proposal

If the student has been discharged from bankruptcy or fully completed a consumer proposal, she or he does not require to offer any type of supporting paperwork in order for their OSAP application to be reviewed.

If the student is an undischarged bankrupt or has not completed the consumer proposal, the student must supply a letter from their licensed insolvency trustee (formerly called a bankruptcy trustee) or consumer proposal administrator. The document must show the day the student filed for either bankruptcy or the consumer proposal and that these 2 matters have actually been or will be satisfied:

Ontario and Canada is not a creditor in the bankruptcy or consumer proposal as an outcome of monetary help provided via OSAP; and
no monetary help offered to the student via OSAP during the current OSAP year will be taken in the insolvency proceedings to pay back the creditors

Discharged and the student is not presently enrolled in studies

If the student is discharged from bankruptcy or has successfully completed a consumer proposal, his/her OSAP application will not be decided upon until the student gives evidence that they have no amount owing on any student loans.

Alternatively, if applicable, the student can show that he/she received relief in their bankruptcy by way of a court order stating that section 178(1)(g) of the Bankruptcy and Insolvency Act (Canada) (BIA) no longer applies to the student loans.

In this situation, the student needs to supply:

evidence that an order of discharge or full completion of the consumer proposal has been achieved and that 3 years have expired since that date
a copy of the notice of bankruptcy/consumer proposal
letter from the student’s bank and/or the National Student Loans Service Centre confirming there is no outstanding balance
any relevant court order

Discharged and continuing a program of study

Alternatively, if applicable, the student can show that he/she received relief in their bankruptcy by way of a court order stating that section 178(1)(g) of the BIA no longer applies to the student loans.

In this situation, the student needs to prove that he/she meets all of the following criteria:

at the time the student declared bankruptcy or filed the consumer proposal, they were enrolled in an accepted program of study at an accepted school and taking the minimum called for course load
the student remains in the same accepted program they were in on the date of bankruptcy/consumer proposal filing date
the student has not had a break in studies longer than 6 months since the date of bankruptcy/consumer proposal filing date
it has not been greater than 3 fiscal years since the date of bankruptcy/consumer proposal filing date

In this situation, the student needs to supply:

evidence that an order of discharge or full completion of the consumer proposal has been achieved and that 3 years have expired since that date
a copy of the notice of bankruptcy/consumer proposal
letter from the student’s bank and/or the National Student Loans Service Centre confirming there is no outstanding balance
any relevant court order
letter from the student’s Financial Aid Office verifying that the program of study in which the student was registered at the time of the bankruptcy/consumer proposal filing, is the same as the program the student is now applying for

Undischarged bankrupt or has not yet fully completed the consumer proposal

If the student is an undischarged bankrupt or has not successfully completed a consumer proposal, the processing of the student’s OSAP application will not be completed until the student gives evidence that they have no amount owing on any student loans.

In this situation, the student needs to prove that he/she meets all of the following criteria:

at the time the student declared bankruptcy or filed the consumer proposal, they were enrolled in an accepted program of study at an accepted school and taking the minimum called for course load
the student remains in the same accepted program the were in on the date of bankruptcy/consumer proposal filing date
the student has not had a break in studies longer than 6 months since the date of bankruptcy/consumer proposal filing date
it has not been greater than 3 fiscal years since the date of bankruptcy/consumer proposal filing date

In this situation, the student needs to supply a letter from their licensed insolvency trustee or consumer proposal administrator. The document must show the day the student filed for either bankruptcy or the consumer proposal and that these 2 matters have actually been or will be satisfied:

Ontario and Canada is not a creditor in the bankruptcy or consumer proposal as an outcome of monetary help provided via OSAP; and
no monetary help offered to the student via OSAP during the current OSAP year will be taken in the insolvency proceedings to pay back the creditors

The student will also need to supply a:

letter from the student’s bank and/or the National Student Loans Service Centre confirming there is no outstanding balance
any relevant court order
letter from the student’s Financial Aid Office verifying that the program of study in which the student was registered at the time of the bankruptcy/consumer proposal filing, is the same as the program the student is now applying for

Summary

I hope you now understand that the whole area of OSAP bankruptcy and student loans in either a bankruptcy or consumer proposal is not as simple as you might have originally thought. This is especially the case if the student is continuing his or her studies.

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

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

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.

Tags bankrupt, Bankruptcy and Insolvency Act, bankruptcy trustee, BIA, Consumer Proposal, consumer proposal administrator, date of bankruptcy, discharged from bankruptcy, filing date, Ira Smith Trustee, licensed insolvency trustee, national student loans service centre, osap, osap bankruptcy, student loan, student loan debt, student loans, student loans debt, undischarged bankrupt

Brandon Blog Post

CONSUMER PROPOSAL CANADA: A BLUEPRINT TO STOP BILL COLLECTORS

Post author By Brandon Smith
Post date May 27, 2019

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

Introduction

I have written before on the concept of how a bankruptcy filing puts into place a stay of proceedings. A section of the Bankruptcy and Insolvency Act (Canada) (BIA) states that creditors are not allowed to take or continue any collection or enforcement activity against a bankrupt person or company. But what about a consumer proposal Canada? I will discuss this concept for a consumer proposal and highlight a recent case on this issue.

The federal law

Under section 69.2 (1) of the BIA, with certain limited exceptions, when a consumer proposal is filed, “…no creditor has any remedy against the debtor or the debtor’s property, or shall commence or continue any action, execution or other proceedings, for the recovery of a claim provable in bankruptcy…”.

So if the claim is one that is provable in a bankruptcy, and therefore in a consumer proposal Canada, then the creditor cannot begin or continue a lawsuit or try to enforce a judgment for the amount owed.

A recent decision from the Ontario Court confirms this law where a consumer proposal Canada will stop creditors and bill collectors from starting or continuing legal action against you.

The facts of this case

The case is Yigzaw v. Ashagrie, 2019 ONSC 2474. It is about a motion to lift the stay of proceedings to permit enforcement of an order issued against the debtors who have filed a consumer proposal.

The applicants, Philipos Yigzaw and Aster Abraham, seek to appeal an order issued by the Court on February 21, 2017 (the 2017 order). The 2017 order was gotten on the basis of summary judgment on an application started by the applicants. In their application, they sought repayment of $102,500 that they had advanced to the respondents Anaketch Ashagrie and Yilma Gari to fund a business operating under the name “Telling Roses”. They also seek an accounting of how the funds had actually been spent.

The 2017 order required Ashagrie and Gari to pay $102,500 to Yigzaw and Abraham in addition to costs of $6,250. The respondents were likewise required to provide an accounting. The Court declined to issue a certificate of pending litigation against the respondents’ residence, although a writ of execution was issued. The respondents submitted a consumer proposal the very next day.

In this enforcement motion, the applicants state that the respondents have failed to adhere to the 2017 order. They look for relief that would require Ashagrie and Gari to be examined and to pay the amount of the judgment. They also want a finding that the respondents are in contempt.

The issues for the Court to consider

The Court first considered section 69.2 (1) of the BIA I spoke about above. The Court then looked at the exception I alluded to, being Section 69.4 of the BIA.

That section says that a Court may, in certain circumstances, raise the stay to allow a creditor to pursue its rights against a debtor who has filed consumer proposal. To obtain a lifting of the stay, the creditor must persuade the Court that it is most likely to be materially prejudiced by the ongoing stay, or that lifting the stay is equitable on other grounds.

Canadian courts have held that the criteria in s. 69.4 might be fulfilled where the creditor’s debt will not be released as an outcome of the insolvency process. The types of financial obligations that are not discharged are provided in s. 178( 1) of the BIA.

They consist of a debt or obligation arising out of fraud, embezzlement, misappropriation or defalcation while acting in a fiduciary capacity as well as a debt or obligation resulting from obtaining property or services by false pretenses or fraudulent misrepresentation. Lifting of a stay is not a routine matter.

To succeed, the applicants have to show how they are most likely to be materially prejudiced by the stay, or that there are various other equitable grounds to raise it.

In a typical motion under s. 69.4, the applicant looking to lift the stay says that it needs to have the opportunity to prove that its accusations come from an activity provided in s. 178( 1) to ensure that it may obtain a judgment against the bankrupt or insolvent person. If successful, then that claim would survive the insolvency process.

In that normal case, the Court examines the creditor’s claims to identify if the debt, if confirmed, would be released as an outcome of the bankruptcy or proposal. Sometimes, the Court may also consider evidence submitted by the creditor.

This case is uncommon because the applicants have already gotten a judgment on their claim. They are not seeking to show their claim. They are looking to enforce the Order. So the concern the Court must think about is whether that Order was made according to a cause of action listed in s. 178( 1 ). The Judge did this by reviewing the claims and evidence before the Judge who gave judgment, his analysis, and the evidence filed in this motion.

The Court’s analysis

The Court quite properly pointed out that in order to be successful for the lifting of the stay, the applicants had to show that their debt was more than just one of a contract to lend money that was not repaid.

The Court said that looking at the application in the most charitable method possible, the claims could not support a finding that the respondents obtained property from the applicants by false pretenses or fraudulent misrepresentation. The applicants state that their loan was conditional on the money being used for “Telling Roses”. They do not declare that they were induced to loan money to “Telling Roses” as an outcome of any type of illegal misstatement by the respondents. Likewise, the applicants do not allege that the respondents took part in any kind of deceitful acts that induced them to loan the funds. Therefore, the exception from the discharge of the debt in s. 178( 1 )( e) of the BIA was not advanced in the applicants’ claim.

The allegations in the application also do not support a finding that the participants engaged in fraudulence, embezzlement, misappropriation or defalcation while acting in a fiduciary capacity. To meet that standard it is not nearly enough for a debt to have actually been brought on by fraud, embezzlement, misappropriation or defalcation. That form of criminal activity had to have occurred in the context of a fiduciary relationship.

The applicants do not declare that the respondents had a fiduciary obligation towards them. The relationship they explain with the respondents would not follow such a claim. Fiduciary relationships are unusual in arms’ length business transaction. The applicants additionally do not clearly affirm that the respondents participated in any type of scam at any point.

In reviewing the reasons given by the Judge who made the 2017 order, and in looking at all the other evidence in this motion, the Court found that it was anything more than one party loaning funds to another to start a business. The business never made a profit, it failed and therefore, could not repay the money.

The decision

Given these facts and the Court’s analysis, the Court found that the applicants could not succeed on their motion to lift the stay. Rather, the Court confirmed that the 2017 judgment could only be used as the basis for the applicants to file a proof of claim in the consumer proposal filed.

The basis for the 2017 order was a finding that the applicants lent the respondents the amount of $102,500. There is absolutely nothing in the underlying decision, or in the accusations in the application on which judgment was obtained, or in any evidence submitted in this motion, that puts the applicants’ claim in the classification of financial debts that are not released under s. 178( 1) of the BIA.

Therefore, the applicants’ motion to lift the stay under s. 69.4 of the BIA was rejected. They failed to show that they are likely to be materially prejudiced by the ongoing operation of the stay or that there are various other equitable factors that would lead to a conclusion to lift the stay.

Do you have too much debt?

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

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

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

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

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Tags Bankruptcy, Bankruptcy and Insolvency Act, bankruptcy and insolvency act canada section 178, bankruptcy filing, bankruptcy trustee, BIA, bill collectors, claim provable, Consumer Proposal, consumer proposal canada, consumer proposal vs bankruptcy, fraud, insolvency process, Ira Smith Trustee, licensed insolvency trustee, stay of proceedings

Brandon Blog Post

ONTARIO COMMERCIAL LEASE AGREEMENT: INSOLVENT COMMERCIAL TENANT

Post author By Brandon Smith
Post date May 15, 2019

[monkeytools msnip=”http://monkeyplayr.com/playr.php?u=5173&p=20782″]

Introduction

I reviewed a Court decision out of Alberta that was rendered on April 4, 2019. The case is Royal Bank of Canada v. Parkland Properties Ltd., [2019] A.J. No. 412, from the Alberta Court of Queen’s Bench. In reviewing this case about an insolvent tenant, who later became a bankrupt commercial tenant, the same would hold true in Ontario. I thought it would be helpful to review the principles in this decision, and how it would relate to an Ontario Commercial Lease Agreement.

Background

Unlike Ontario, there is no commercial tenancy act in Alberta. However, there are various other provincial statutes and a Supreme Court of Canada decision, that provides guidance for commercial landlords and tenants in Alberta.

If a commercial lessee breaches a business lease in Alberta, similar to Ontario law, a landlord has various alternatives. For a properly worded commercial tenancy agreement, the main alternatives include distraining on the tenant’s assets located on the leased commercial premises or terminating the commercial tenant’s lease. Suing for any damages, including rent arrears and for the unexpired duration of the lease, may also be part of the landlord’s rights.

Distraint or distress is the seizure of the commercial tenant’s property in order to acquire the repayment of rent arrears and various other amounts owed. Distraint normally includes the seizure of goods belonging to the lessee on the premises by the landlord to market them for the settlement of the amount owing at that point in time under the lease.

In a properly conducted distraint, no Court order is required. The landlord must also be careful when advising the tenant of the distraint, to also notify the lessee that the lease is not being ended. This way, the landlord may recoup further unpaid amounts or other damages in the future. On a practical basis, if the tenant does not bring the lease into good standing and allows the distraint to be completed, the business is probably over anyway.

Under the Alberta Civil Enforcement Regulation, the landlord would hire a bailiff to carry out the distraint and sale of the assets. This is what happened in the Royal Bank of Canada v. Parkland Properties Ltd. case I recently reviewed.

The facts and decision of the case

The facts are pretty simple. The landlord began and completed distraint proceedings against its tenant. At the time of the seizure, the insolvent tenant was $79,586 behind in rent. The landlord’s bailiff completed the sale of the assets. After taking its fee, the bailiff paid over to the landlord the amount of $223,990. The tenant became a bankrupt company after the funds were paid to the landlord.

Royal Bank of Canada (RBC) was a secured creditor of the tenant. At the date of bankruptcy, RBC was owed $498,799. RBC took an action that originally was an action that could be taken by the licensed insolvency trustee (formerly known as a bankruptcy trustee). It did so under section 38 of the Bankruptcy and Insolvency Act (Canada) (BIA). The Trustee was either unwilling or unable to launch the action. The action RBC launched was for the repayment of the amount realized by the landlord as a preferential payment under section 95 of the BIA.

The Court ruled partly in favour of RBC. It ordered that the landlord could retain the amount of $79,586. The balance of $144,404 could not be kept by the landlord and had to be paid over to RBC.

Ontario commercial lease agreement: The same decision would be reached in Ontario

I am satisfied that the same decision would be reached in Ontario. As I mentioned above, distraint is not a termination of the lease. Although the practical effect would be to end the tenant’s business, the lease continues and so does the tenant’s obligations to the landlord. The commercial tenant’s rights under its Ontario commercial lease agreement also remain. Distraint is a mutually exclusive remedy from termination of the lease.

The Court determined that Section 95 of the BIA does not apply to set aside distraint proceedings by a landlord under a commercial tenancy agreement in arrears. That section just included payments made by an insolvent party. The Court also stated that Section 70 of the BIA protects the landlord’s distraint because the distraint was fully completed by payment to the landlord.

However, the Court did find that the payment to the landlord was extreme. As you will recall, the distraint is based on the arrears at the time of effecting the distraint. In this case, the amount outstanding at that time was $79,586. However, the amount paid to the landlord, after the costs of distraint, was $223,990. Commercial lease landlord responsibilities include providing proper accounting. Therefore, the Court ordered that the excess over what the landlord was owed, $144,404, had to be paid to the plaintiff, RBC.

If there were no secured creditors and the Trustee launched the application, the result would have been the same. The only difference would be that the excess funds would have to be paid over to the Trustee. The result in Ontario would be the same as in this Alberta case.

Is your company insolvent?

Is your company behind in its rent payments under its Ontario commercial lease agreement? Does it not have enough cash to continue its operations?

Call the Ira Smith Team today so you can cut the stress, anxiousness and pain from your life that your financial issues have caused. With the special roadmap, we establish just for you, we will immediately return you right into a healthy and hassle-free life.

You can have a no-cost analysis so we can help you fix your company’s debt 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.

Tags bankrupt commercial tenant, Bankruptcy and Insolvency Act, bankruptcy trustee, BIA, commercial lease, commercial lease landlord responsibilities, commercial lessee, commercial tenancy act Alberta, commercial tenancy agreement, commercial tenant, distraint, distress, insolvent commercial tenant, Ira Smith Trustee, licensed insolvency trustee, ontario commercial lease agreement

Brandon Blog Post

BANKRUPTCY CANADA NEW EVENTS (2019)

Post author By Brandon Smith
Post date May 8, 2019

[monkeytools msnip=”http://monkeyplayr.com/playr.php?u=5173&p=20756″]

Introduction

There has been two recent bankruptcy Canada new events that I believe are important to discuss. I believe you will hear more about it over the next few months. The two are unrelated.

One deals with the insolvency of oil and gas companies. The other with the rights of retired people and their company pensions and health benefits when their former employer goes into insolvency proceedings.

Bankruptcy Canada – The Redwater decision fallout

I have previously written about the Supreme Court of Canada decision in the Redwater Energy Corporation matter. On January 31, 2019, the top Federal Court released its decision in the case of Orphan Well Association v. Grant Thornton Ltd. The Supreme Court reversed 2 Alberta lower Court decisions. It is now the law of the land that, prior to lenders or creditors getting any type of repayment, the receiver or trustee will need to invest the funds from the sale of assets on the environmental remediation costs on all orphaned wells, that provincial legislation may need.

The decision made it clear that the receiver or trustee does not need to spend cash it does not have from the sale of assets or other recoveries. However, whatever amount it recoups from the sale of assets, on a net basis, will initially need to go to provincially mandated clean-up costs of the financially troubled company’s wells. This is before secured or unsecured creditors see a penny.

Trident Exploration Corp.

Now for the fallout. Natural gas producer Trident Exploration Corp. (Trident) ceased operations on April 30, 2019. On May 3 on application to the Court by the Alberta Energy Regulator’s Orphan Well Association, Trident was placed in receivership.

Its staff and contractors have been terminated and its 3,600+ wells are being transitioned to the Alberta regulator.

The company claimed it had functioned openly and collaboratively with its lenders and the regulator since February. It further reported that it was unable to see that a successful restructuring could be accomplished in a timely fashion. Therefore, Trident’s lender stopped supporting the business. Due to this, Trident does not have the funds to run its infrastructure or enter into insolvency proceedings. Consequently, they have determined to walk away, leaving greater than 3,600 sites, a number of them active, without an operator.

The regulator then issued its order for the sites to be properly decommissioned and capped off. On April 30, Trident, without replying to the regulator’s order or addressing their environmental obligations, the Directors ceased operations, terminated its staff and contractors. The Board then resigned. Trident’s wells will soon be transferred to the Orphan Well Association.

The Redwater effect

Trident blamed the recent Redwater Supreme Court decision which ruled that capping of orphan oil and gas wells and environmental remediation should take priority over lenders when a business goes bankrupt and leaves behind orphan wells.

Trident also said that the Redwater decision, regulatory uncertainty and current low pricing has developed a treacherous setting for energy companies that dare to risk their capital in Canada.

Trident estimates that its total abandonment and improvement obligations are about $329 million. They estimate that with those costs, any recovery by secured lenders is unsure and there would be no funds for either unsecured creditors or shareholders.

The Redwater effect is that the Court’s decision has had the unintended result of increasing Trident’s financial distress and accelerating the abandonment of its wells, has it had no funds to live up to its obligations.

Only time will tell if other insolvent energy producers take the route of Trident by just shutting down and abandoning its business and leaving its wells for the regulator to deal with.

Bankruptcy Canada – Retiree pension and health benefit rights protection in insolvency proceedings

Another topic I have previously written about is the lack of protection for retirees for pension and health benefit payments when the former employer enters insolvency proceedings. Rank-and-file members of the United Steelworkers (USW) from across Canada were on Parliament Hill to consult with MPs and requesting a commitment to legislate protection for retired workers. The USW very much want to make this a 2019 federal election issue.

The 2019 federal budget plan was very quiet on any type of commitment to shield workers and retirees by treating them as protected or priority creditors in our insolvency laws.

As a result of high-profile cases such as Nortel in Ottawa, Stelco in Hamilton and Sears, the USW is committed to campaigning for retirees to have a safe future.

Retirees understand just how unsecure their pension plans and benefits might be if a firm gets into restructuring under the Companies’ Creditors Arrangement Act (CCAA) or any proceeding under the Bankruptcy and Insolvency Act (Canada) (BIA).

Pensions are delayed earnings and, by the time financial institutions as well as various other creditors are paid, there is nothing left for workers for any shortfall or benefit payments. The USW feels that all Canadians ought to be outraged by the treatment of retired Canadians in corporate insolvency matters.

This is why they met with MPs Senators. They want to focus on a collection of recent Bills presently before the House of Commons and the Senate. Two are before the House of Commons but they have not progressed. One is sponsored by the New Democratic Party, and the other by the Bloc Québecois. They are focused on reforming the CCAA and the BIA to offer top priority to claims by workers arising out of an underfunded pension plan and the removal of benefits.

An additional Bill, presented in the Senate late last year by now-retired Senator Art Eggleton, likewise aims to grant secured standing for pension claims.

It will be interesting to see if the Conservative Party picks up on this important debate and turns it into an election issue. The Liberal Party had promised to deal with this issue in the last four years, but alas, they have not delivered.

Bankruptcy Canada – Summary

Corporations that cannot afford to properly shut down their business and retirees losing out on benefits they worked their whole life for are important issues in insolvency. Does your company not have enough cash to continue its operations? Did you not receive all amounts you are entitled to and now are facing personal financial problems?

If so, call the Ira Smith Team today. We have decades and generations of experience assisting people and companies trying to find financial restructuring or a financial debt negotiation strategy. As a licensed insolvency trustee, we are the only professionals licensed, recognized and supervised by the federal government to supply insolvency advice and carry out strategies to aid you to stay clear of personal bankruptcy.

Call the Ira Smith Team today so you can cut the stress, anxiousness and pain from your life that your financial issues have caused. With the special roadmap, we establish just for you, we will immediately return you right into a healthy and hassle-free life.

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

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Brandon Blog Post

FINANCIAL SECURITY REPORT: HALF OF CANADIANS CAN’T MAKE ENDS MEET

Post author By Brandon Smith
Post date May 1, 2019

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Financial security Introduction

Brand-New Ipsos study findings were released on April 22, 2019, simply 2 days prior to the next Bank of Canada interest rate announcement. This brand-new survey shows exactly how Canadians really feel about their financial security or its absence. Ipsos claims almost fifty percent of Canadians cannot make ends meet on a monthly basis.

Fifty percent of Canada is worried about the effect of increasing rates of interest on their financial resources. They feel even worse about their debt load from just a couple of months back.

Canadians maxed out on debt

Canadians are maxed out on debt with 48% of Canadians on the edge of bankruptcy. They claim that they go by the end of every month to within $200 or less far from financial insolvency.

In regards to Canadians and their beliefs, people are worried about their debt levels and financial security. Forty-eight percent of those questioned claim they cannot make ends meet. They understand that they are most likely to take on even more debt at the end of each month to pay all of their expenditures. So practically fifty percent of all Canadians need to handle even more debt to satisfy their current expenses, which in part includes existing debt repayments!

It’s no longer about purchases – that ship has already sailed!

It ends up from the survey that this isn’t about the fact that we’re in a low-interest-rate atmosphere any longer. It also isn’t about people making high-end or lifestyle new purchases that are considered unnecessary.

They have actually already done all that. Especially people in Toronto and Vancouver that have stretched to buy costly houses, home furnishings and appliances. They used the low-interest rate mortgages and home equity credit lines to do it.

New debt on top of old debt

So now they understand that they better not take on even more debt. However, guess what? It is currently far too late for almost half of Canada. People are claiming they currently just cannot make ends meet. Therefore, they have no choice but to take on even more debt.

Brand-new debt to make old debt repayments! Undoubtedly, these individuals stay in a hazardous downward spiral. People are questioning whether can continue in this way and are thinking about personal bankruptcy.

It is true that the survey has a small sample size. This Ipsos survey reveals growing tension and grief. Nevertheless, personal bankruptcies remain historically low in this nation. Undoubtedly, there are local distinctions. Albertans are experiencing far more personal insolvencies as a result of the slowness in the energy market.

I think there are 2 really basic reasons for almost half of Canadians dealing with financial insolvency yet personally bankruptcy levels are down. First, financially troubled Canadians are utilizing the consumer proposal arrangements section of the Bankruptcy and Insolvency Act (Canada) (BIA). This is a good thing because they are avoiding bankruptcy.

Second, people still have adequate equity in their houses. So, they are still able to borrow for brand-new debt to satisfy old debt payments other living costs. This is not a good thing. The thing Canadians do not seem to be doing yet is tightening their belts and lowering month-to-month expenses.

Bank of Canada

The Bank of Canada (BOC) increased its overnight interest rate 5 times since mid-2017. At the end of 2018, everyone, including the BOC assumed that fad was most likely to continue. Nevertheless, in its first 2019 interest rate announcement, the Bank altered its signals and currently appears completely satisfied to hold steady on the interest rate for what might be for the rest of 2019.

On April 24, 2019, the BOC announced that it was maintaining the overnight bank rate target at 1 ¾ percent. The BOC did so based on its observations of the Canadian and global economies.

Their statement included, that in Canada:

economic development throughout the very first half of 2019 is anticipated to be slower than was forecast for in January 2019.
The oil price decrease and recurring transport restrictions have actually suppressed financial investment and exports in the oil industry.
Financial investment and exports outside the oil market, at the same time, have been adversely impacted by unpredictability and the global downturn.
Beyond the oil and gas market, the financial investment will be sustained by high prices of other commodities and exports will broaden with reinforcing international need.

As far as the global market, the BOC stated:

The global economy reduced by greater than the Bank projected in its January Monetary Policy Report.
Continuous unpredictability connected to trade disputes has weakened business views.
Stagnation throughout many countries has resulted.
In reaction, several reserve banks have reported a slower speed of monetary plan normalization.

As a result, the BOC kept its target for the overnight rate at 1 3/4 percent.

Financial questions for Canadians

Virtually fifty percent of Canadians currently are sorry for the debt they have. I believe what this does is brings recognition for you to have a serious discussion in your home. The discussion requires to be about:

Exactly how near the margin are you living?
What household costs could you drop?
Could you survive if one of you were to lose your job?
If not, what can you do now to prepare for that if it were to one day happen?
Have you filed all your income tax returns and paid all your tax obligations?
Did you get a tax refund and what are you most likely to do with that cash to help with your situation?
Are your Christmas gifts expenses all paid or are you still rolling those costs on your credit card bill every month?

Despite that the job market has seen wage strength, the Canadian economic situation has not produced great financial signals. There are spots that seem to be a little murkier. Our rising cost of living is nearing 2% on an annualized basis and we’re paying much more for gas at the pump. We’re paying a lot more for produce. So there are things that are costing us even more simple to manage. So if income is increasing a bit, costs are climbing much more.

So Canadians are currently really feeling a little sweaty. They aren’t certain what is most likely to take place. Currently, there appears to be a little bit of a rest on the interest rates.

Canadians need to set up a proper household budget

I would certainly suggest that not everybody has taken a hard look at their financial situation. There’s plenty of presumptions that can take place due to the fact that you just do not understand your numbers. I see that occurring all the time.

So perhaps people really feel a little even worse off than they actually are due to the fact that they do not understand their numbers. They understand they stay in difficulty, however, do not have the capability to assemble a roadmap for saving themselves.

A truth check is needed instantly. Most likely fifty percent of those that claim they cannot make ends meet can save themselves without turning to an insolvency process. If they just recognized their realities about their very own money situation. The other half of the half, or 25% of Canadians, probably do meet the financial insolvency definition and need professional help.

The trick might just be that Canadians need to promptly get a good handle on what their month-to-month income and expenses truly are. Share that info with the entire household and make and follow a household budget that has everybody’s agreement. Your financial security in retirement may depend upon it.

Readers of my Brandon’s Blog will know that I always state the advantages of correct budgeting. To check out this budgeting topic you can look as far back as my collection of blogs that began late in 2014 with A BALANCED BUDGET IS TO FINANCIAL HEALTH WHAT A BALANCED DIET IS TO PHYSICAL HEALTH. You can additionally check my more recent 2019 blogs, USEFUL TIPS FOR SAVING MONEY CANADA: THIS PRO ATHLETE TEACHES US and also MY BILLS ARE HIGH: 6 THINGS TO IMMEDIATELY DO.

What about you or your company?

Do you have way too much debt? Are you having difficulty making your month-to-month expenses? Is your company having a hard time handling its economic difficulties that you cannot figure how to get out of?

If so, call the Ira Smith Team today. We have decades and generations of experience assisting people and companies looking for financial restructuring or a debt settlement plan. As a licensed insolvency trustee, we are the only experts recognized, accredited and supervised by the federal government to provide insolvency advice and carry out alternatives to aid you to stay clear of bankruptcy.

Call the Ira Smith Team today so you can end your tension, stress and anxiety that your financial problems have triggered. With the special roadmap, we develop unique for you, we will right away return you right into a healthy and well-balanced hassle-free life.

You can have a no-cost evaluation so we can help you repair your debt difficulties. Call the Ira Smith Team today. This will most certainly permit you to return to a brand new healthy life, Starting Over Starting Now. financial security

Tags bank of canada, Bankruptcy, Bankruptcy and Insolvency Act, BIA, budget, Consumer Proposal, cost of living, credit card, Debt, financial insolvency, financial security, household budget, household debt, Ipsos, Ira Smith Trustee, make ends meet, personal bankruptcy