Tag: bankruptcy application

Categories
Brandon Blog Post

BECOMING BANKRUPT IN CANADA: OUR COMPLETE GUIDE FROM FILING TO FINANCIAL RECOVERY

becoming bankrupt
becoming bankrupt

Becoming Bankrupt: Introduction

Are you struggling with overwhelming debt and considering becoming bankrupt? If so, you are not alone. Many people and businesses continue to struggle from the COVID-19 pandemic and are only now hitting the wall.

This Brandon’s Blog is a comprehensive guide exploring the intricacies of bankruptcy in Canada. I provide essential insights into the process, consequences, and alternatives. Understanding bankruptcy is crucial for any insolvent person facing financial hardship.

Becoming Bankrupt: Understanding Bankruptcy

Definition of Bankruptcy

Bankruptcy is a legal process under the Canadian Bankruptcy and Insolvency Act, where an insolvent person or business declares their inability to repay their debts. This declaration provides legal protection from creditors while allowing individuals to work towards a fresh financial start.

Types of Bankruptcy

Bankruptcy can be categorized into different types. The most common categories include:

  • Personal Bankruptcy: This type pertains to individuals who are unable to manage their debts and are overwhelmed by financial obligations.
  • Business Bankruptcy: This category is relevant to businesses that cannot fulfill their financial commitments and seek legal relief from creditors.

    becoming bankrupt
    becoming bankrupt

Becoming Bankrupt: Reasons for Filing for Bankruptcy

Common Causes of Personal Bankruptcy

Individuals and businesses often file for bankruptcy due to a variety of factors, such as:

  • Job loss: Unexpected unemployment can significantly impact an individual’s ability to manage their finances.
  • Medical expenses: High medical bills can lead to substantial debt, especially in countries without universal healthcare.
  • Business failure: Economic downturns or poor management decisions can result in business bankruptcy.
  • Divorce: Legal fees and the division of assets can contribute to financial strain.

Beyond the general reasons mentioned above, common causes of personal bankruptcy can include:

  • Overspending and accumulating high-interest debt: Excessive credit card debt, loans like lines of credit while failing to manage debt can quickly lead to a financial crisis.
  • Unexpected life events: Unforeseen circumstances like illness or accidents can lead to significant financial burdens.
  • Lack of financial literacy: Without a proper understanding of budgeting and debt management, individuals might struggle to stay financially afloat.

Business Bankruptcy Considerations

Business bankruptcy considerations extend beyond personal factors. Some key aspects include:

  • Economic conditions: Recessions and market fluctuations can severely impact business revenue.
  • Competition: The inability to compete effectively in the market can lead to declining sales and profits.
  • Poor financial management: Inadequate accounting practices and financial planning can contribute to business failure.

Becoming Bankrupt: The Bankruptcy Process in Canada

Initial Steps to Take

Facing the possibility of voluntary bankruptcy can be overwhelming. If you are an insolvent person and find yourself in this situation, consider these initial steps:

  • Assess your financial situation: Analyze your income, expenses, assets, and liabilities to understand the extent of your financial difficulties.
  • Seek professional advice: Consult with a Licensed Insolvency Trustee. They can provide guidance on your options and help you understand the bankruptcy process.
  • Explore alternatives to bankruptcy: Depending on your circumstances, options like debt consolidation, consumer proposal, or credit counselling might be viable alternatives.

Role of a Licensed Insolvency Trustee

Licensed Insolvency Trustees play a crucial role in the bankruptcy process. They are licensed professionals regulated by the Office of the Superintendent of Bankruptcy. Their responsibilities include:

  • Providing information and advice: Explaining the bankruptcy process and implications to individuals and businesses.
  • Administering the bankruptcy estate: Collecting assets, resolving disputes, selling assets, reviewing and admitting claims for the unsecured debts and ultimately, distributing available funds to the unsecured creditors of the bankrupt individual or business.
  • Ensuring compliance with bankruptcy laws: Upholding legal requirements and addressing potential misconduct.

Filing the Bankruptcy Application

The bankruptcy process formally begins with the Trustee filing the necessary bankruptcy documents with the Official Receiver, who is the local representative of the Office of the Superintendent of Bankruptcy. The application includes:

  • Assignment in Bankruptcy: This is the document where the insolvent person, business or company declares bankruptcy.
  • Statement of Affairs: This document details the insolvent person’s or business’s financial situation, listing assets, debts, income, and expenses.
  • Statement of monthly income and expenses: Documentation verifying the insolvent person’s current income.
  • Filing fee: A payment is ultimately required, although it is not necessary to be paid to initiate the bankruptcy process.

    becoming bankrupt
    becoming bankrupt

Becoming Bankrupt: Obligations of the Bankrupt Individual

Financial Disclosure Requirements

Transparency is crucial during bankruptcy. Individuals must:

  • Disclose all assets and liabilities: Provide a complete and accurate account of their financial situation.
  • Surrender assets: Non-exempt assets are turned over to the Licensed Insolvency Trustee for sale to distribute the net proceeds to creditors.
  • Report any changes in financial status: Inform the Trustee of any income changes, asset acquisitions, or new debts incurred.

Responsibilities During the Bankruptcy Process

Maintaining compliance with bankruptcy regulations is essential. The bankrupt insolvent person must:

  • Attend the meeting of creditors: The insolvent person must meet with the trustee and creditors as required.
  • Cooperate with the trustee: Provide necessary information and follow the Trustee’s instructions throughout the process.
  • Not incur new debt without disclosing that they are an undischarged bankrupt: This prevents further financial strain and ensures responsible financial behaviour.
  • Attend credit counselling sessions: These sessions guide budgeting, debt management, and responsible credit use.

Becoming Bankrupt: Potential Misconduct in Bankruptcy

Types of Misconduct

Engaging in dishonest or irresponsible behaviour during bankruptcy can have severe consequences. Examples of misconduct include:

  • Concealing assets: Hiding assets from the Trustee to avoid their distribution to creditors.
  • Providing false information: Submitting inaccurate financial information during the bankruptcy process.
  • Making fraudulent transfers: Transferring assets to family members or friends to avoid their inclusion in the bankruptcy estate.

Bankruptcy misconduct can be categorized into various types:

  • Fraudulent activities: Intentional deception to gain an unfair advantage during the bankruptcy process.
  • Non-compliance with bankruptcy laws: Failing to fulfill legal obligations outlined in bankruptcy regulations.
  • Breaching fiduciary duties: Violating the trust placed in the bankrupt individual by the trustee or creditors.

Reporting Misconduct

If you suspect any misconduct during a bankruptcy case, reporting it to the relevant authorities is crucial. These authorities include:

  • The Licensed Insolvency Trustee: The Trustee is responsible for investigating and addressing any potential misconduct.
  • The Office of the Superintendent of Bankruptcy: The regulatory body overseeing bankruptcy proceedings in Canada.

Consequences of Misconduct

Engaging in misconduct during bankruptcy can lead to serious consequences:

  • Extension of bankruptcy: The bankruptcy period might be prolonged as a penalty for misconduct.
  • Denial of discharge: The court might refuse to grant a discharge, meaning debts are not eliminated, and creditors can continue pursuing repayment.
  • Criminal charges: In fraud or other illegal activities, criminal charges might be filed against the individual.

    becoming bankrupt
    becoming bankrupt

Becoming Bankrupt: Exploring Case Summaries

Real-Life Examples of Opposition to Discharges

Examining real-life cases where creditors opposed the discharge of bankrupt individuals can provide valuable insights into the consequences of misconduct:

  • Case Study 1: A bankrupt individual concealed assets, carried out some disposition of property before filing bankruptcy and provided false information to the trustee. This resulted in the creditor’s opposition to discharge, leading to an extended bankruptcy period and the requirement to repay a portion of the debt.
  • Case Study 2: A business owner engaged in fraudulent transfers of assets before filing for bankruptcy. This action led to a denial of discharge and potential criminal charges for financial fraud.

Key Insights from Case Studies

The following points emphasize critical lessons learned from various case studies:

  • Transparency and honesty: It is essential to provide complete and accurate financial information throughout the bankruptcy process to ensure clarity and integrity..
  • Compliance with bankruptcy laws: Adhering to all legal requirements and cooperating with the trustee is vital for a smooth bankruptcy process.
  • Seeking professional guidance: Consulting with a Licensed Insolvency Trustee can assist individuals in understanding their obligations and in avoiding potential issues related to misconduct.

Becoming Bankrupt: Common Misconceptions About Bankruptcy

Debunking Myths

Several misconceptions surrounding bankruptcy often create unnecessary fear and anxiety. Some common myths include:

  • Myth 1: Bankruptcy ruins your credit forever.
  • Reality: While bankruptcy negatively impacts your credit score, it is not a permanent mark. With responsible financial behaviour, you can rebuild your credit over time.
  • Myth 2: You lose everything you own in bankruptcy.
  • Reality: Certain assets are exempt from seizure in bankruptcy, such as essential household items and a certain amount of equity in your primary residence or motor vehicle.
  • Myth 3: Bankruptcy is a sign of personal failure.
  • Reality: Bankruptcy is often a result of unforeseen circumstances, economic hardship, or poor financial decisions. It is a legal process designed to provide a fresh start and should not be viewed as a personal failing.

    becoming bankrupt
    becoming bankrupt

Becoming Bankrupt: Strategies for Avoiding Bankruptcy

While bankruptcy might be unavoidable in some situations, the insolvent person can take proactive measures can help reduce the risk:

Financial Planning and Budgeting

  • Create a realistic budget: Track your income and expenses to identify areas where you can cut back and save.
  • Set financial goals: Establish short-term and long-term goals to stay motivated and focused on your financial well-being.
  • Seek financial education: Improve your financial literacy by attending workshops, reading books, or consulting with financial advisors.

Debt Management Options

  • Debt consolidation: Combining multiple debts into a single loan with a lower interest rate can simplify payments and reduce overall interest costs.
  • Credit counselling: Non-profit organizations offer credit counselling services to help individuals develop a debt management plan and negotiate with creditors.
  • Consumer proposal: This legally binding agreement allows individuals to repay a portion of their debt over a specific period, avoiding bankruptcy.

Becoming Bankrupt: Rebuilding Credit After Bankruptcy

Steps to Rebuild Credit Rating

While bankruptcy negatively impacts your credit score, it is possible to rebuild it over time:

  • Obtain a secured credit card: This type of credit card requires a security deposit, helping you establish a positive credit history.
  • Make all payments on time: Consistently paying your bills on time demonstrates responsible financial behaviour to lenders.
  • Monitor your credit report: Regularly check your credit report for errors and ensure accurate information is being reported.

Using Credit Responsibly

  • Avoid excessive credit card use: Limit your credit card spending and focus on using cash or debit cards whenever possible.
  • Maintain a low credit utilization ratio: Keep your credit card balances low compared to your available credit limit.

    becoming bankrupt
    becoming bankrupt

Becoming Bankrupt FAQ

1. What is bankruptcy in Canada?

Bankruptcy is a legal process where individuals or businesses that are unable to repay their debts can seek relief from their financial obligations. It is a formal declaration of insolvency, signifying that an individual or business cannot meet their financial commitments.

2. What are the different types of bankruptcy?

There are several types of bankruptcy, each with its own specific rules and implications. The most common types include:

  • Bankruptcy (Liquidation): This involves the sale of a debtor’s non-exempt assets to repay creditors.
  • Consumer Proposal Financial Restructuring (Reorganization): This allows individuals with a regular income to propose a plan to repay debts over three to five years.
  • Proposal Financial Restructuring (Reorganization): This is typically used by businesses to restructure their debts and operations while continuing to operate.

3. What Drives Individuals to Pursue An Assignment In Bankruptcy?

Individuals may seek bankruptcy protection for a variety of reasons, including:

  • Loss of Employment: Sudden job loss can significantly reduce income, hindering one’s ability to fulfill financial commitments.
  • Medical Costs: Escalating healthcare expenses can quickly destabilize a person’s financial situation.
  • Separation or Divorce: The financial burden that often accompanies divorce can result in bankruptcy for one or both partners.
  • Business Collapse: Economic challenges or ineffective management can lead businesses to declare bankruptcy.
  • Excessive Debt: The accumulation of substantial debt through credit cards, loans, and other financial instruments can create an overwhelming repayment burden. Student loans also carry a burden for many, but they are more difficult to discharge in a bankruptcy.

4. What is the role of a Licensed Insolvency Trustee?

A Licensed Insolvency Trustee (LIT) is a regulated professional authorized to administer bankruptcies and proposals in Canada. Their role includes:

  • Assessing the debtor’s financial situation.
  • Advising debtors on their options.
  • Filing the necessary paperwork with the court.
  • Administering the bankrupt estate.
  • Distributing funds to creditors.
  • Providing guidance and support to the bankrupt individual.

5. What are the obligations of someone who has filed for bankruptcy?

A bankrupt individual has several obligations, including:

  • Disclosing all assets and liabilities to the LIT.
  • Cooperating with the LIT throughout the bankruptcy process.
  • Attending all required meetings and hearings.
  • Surrendering non-exempt assets for sale.
  • Making payments to the LIT as required.
  • Reporting any changes in financial situation.

6. What are some common misconceptions about bankruptcy?

  • You will lose everything: While some assets may be sold to repay creditors, you are allowed to keep certain exempt assets, such as basic household goods and tools of the trade.
  • You can never get credit again: While bankruptcy will negatively impact your credit rating, you can take steps to rebuild your credit after discharge.
  • Bankruptcy is a shameful secret: Bankruptcy is a legal process designed to provide relief from overwhelming debt. It is not a reflection of your character or worth.

7. How can I rebuild my credit after becoming bankrupt?

Rebuilding credit after bankruptcy takes time and effort, but it is possible. Here are some steps you can take:

  • Obtain a secured credit card.
  • Become an authorized user on a responsible friend or family member’s credit card.
  • Make all payments on time and in full.
  • Avoid taking on new debt unless necessary.
  • Monitor your credit report regularly and dispute any errors.

8. Where can I find more information and support?

There are several resources available to individuals considering or going through bankruptcy:

  • Licensed Insolvency Trustees: LITs can provide personalized advice and guidance.
  • Government of Canada website: The Government of Canada website provides information about bankruptcy laws and procedures.
  • Credit counselling agencies: Non-profit credit counselling agencies can offer financial education and debt management advice.
  • Support groups: Online and in-person support groups can provide emotional support and practical tips from others who have experienced bankruptcy.

8. Can a deceased person file an assignment into bankruptcyan ?

A deceased person cannot do anything. However, if the Executor of the Estate determines that the Estate is insolvent, the Executor can make an the application to the court for the authority to put the deceased Estate into bankruptcy.

Becoming Bankrupt: Available Resources and Support Services

Various resources are available to assist individuals and businesses dealing with financial difficulties and considering bankruptcy:

  • Licensed Insolvency Trustees: These professionals provide guidance, support, and expertise throughout the bankruptcy process.
  • Credit counselling agencies: Non-profit organizations offer financial counselling, debt management plans, and educational resources.
  • Government websites: Websites like the Office of the Superintendent of Bankruptcy provide valuable information on bankruptcy laws and regulations in Canada.

Remember, seeking help and taking proactive steps toward financial recovery are crucial for navigating difficult situations and rebuilding your financial well-being.

Becoming Bankrupt: Conclusion

Becoming bankrupt can be a challenging experience, but it’s crucial to remember that it’s not the end of the road. By understanding the process, obligations, and potential consequences, individuals can navigate this difficult period more effectively.

It’s important to seek guidance from a Licensed Insolvency Trustee and explore resources and support services available to help rebuild financial stability and creditworthiness. Remember, becoming bankrupt offers a fresh start and an opportunity to learn from past mistakes and make informed financial decisions for a brighter future.

I hope you enjoyed this becoming bankrupt Brandon’s Blog. Do you or your company have too much debt? Are you or your company in need of financial restructuring due to distressed real estate or other reasons? The financial restructuring process is complex. The Ira Smith Team understands how to do a complex restructuring. However, more importantly, we understand the needs of the entrepreneur or someone with too much personal debt.

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

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

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

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

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

The information provided in this Brandon’s Blog is intended for educational purposes only. It is not intended to constitute legal, financial, or professional advice. Readers are encouraged to seek professional advice regarding their specific situations. The content of this Brandon’s Blog should not be relied upon as a substitute for professional guidance or consultation. The author, Ira Smith Trustee & Receiver Inc. as well as any contributors to this Brandon’s Blog, do not assume any liability for any loss or damage resulting from reliance on the information provided herein.

becoming bankrupt
becoming bankrupt
Categories
Brandon Blog Post

HOW TO FILE BANKRUPTCY ONLINE: OUR KNOCKOUT STEP-BY-STEP GUIDE

file bankruptcy online
file bankruptcy online

File bankruptcy online: You can file bankruptcy online in Canada!

Can I file bankruptcy online in Canada? This is a question we’ve been getting a lot lately. And the answer is yes, you can file bankruptcy online in Canada; just not by yourself.

The only ones the federal government authorizes in Canada to do bankruptcy filings are licensed insolvency trustees. Since March 2020, the process for meeting with a bankruptcy trustee to discuss bankruptcy has changed and can be done online. This may be helpful if you’re considering bankruptcy for your individual situation.

In this Brandon’s Blog, I explain how, with the help of a licensed insolvency trustee, you can meet all the legal requirements and file bankruptcy online for the Canadian bankruptcy process.

Why you can file bankruptcy online in Canada

There’s virtually nothing you can’t do online these days. The lockdowns increased our reliance on online shopping for things like groceries, clothes, office supplies, and even toilet paper.

The internet also includes a wealth of knowledge on any subject you can think of, including financial topics. I find that anyone contacting me who is struggling with their, or their company’s financial problems, has already looked into the various options available to them in dealing with debts like income taxes and credit cards.

Although people may not be familiar from their online research with all the ins and outs of insolvency and bankruptcy, this is to be expected. However, callers are generally well-informed about different options for dealing with secured creditors and unsecured creditors.

Nowadays, people expect to be able to do everything online – including filing for bankruptcy in Canada. Those who think bankruptcy might be a solution for them, are curious to understand if they can declare bankruptcy online. Thanks to the COVID-19 pandemic, online everything is a way of life.

file bankruptcy online
file bankruptcy online

Why you should file bankruptcy online

The Canadian government oversees the administration of the insolvency process in Canada through the Office of the Superintendent of Bankruptcy Canada (OSB). The OSB is part of Innovation, Science and Economic Development Canada (Industry Canada). They ensure that consumer proposals, corporate financial restructuring and bankruptcies are handled in accordance with federal law. This process protects the rights of both debtors and creditors and helps to ensure a fair and orderly resolution to financial difficulties.

The OSB is responsible for administering Canadian bankruptcy law under the Bankruptcy and Insolvency Act (BIA), as well as certain duties under the Companies’ Creditors Arrangement Act (CCAA). They license and regulate the insolvency profession, ensure an efficient and effective regulatory framework, and supervise stakeholders. The OSB is independent of the Government of Canada in carrying out its regulatory, administrative, and supervisory duties.

As a result of the outbreak of COVID-19, the OSB issued guidance to Trustees on how certain aspects of the Canadian bankruptcy and insolvency process have changed. This document, entitled Temporary Guidance for LITS During the COVID-19 Pandemic, provides direction on how to navigate these changes.

As concerns about COVID-19 grew in Canada, licensed insolvency trustees took action to reduce in-person meetings. The OSB supported the Trustee community in these initiatives while maintaining the stability of Canada’s insolvency system.

Many of the same temporary measures remain in place today. Most clients find it more convenient and less stressful to continue filing for bankruptcy online. So how do we file bankruptcy online in Canada?

Assessing your financial situation and considering bankruptcy alternatives

No matter what form of insolvency process we are discussing to deal with a specific debt situation calling for either financial restructuring with a debt settlement payment plan through a consumer proposal or Division I Proposal, or personal bankruptcy, the process always starts in the same way. It’s not important what type of bankruptcy or insolvency process we’re talking about if we are dealing with a limited liability company or with someone considering bankruptcy for individuals.

When it comes to corporate insolvency, it’s important to have a clear understanding of the company’s current financial position and what its chances are for a successful financial restructuring. In consumer insolvency cases, the first step is to assess the debtor’s individual situation.

When a person contacts me to discuss their personal financial situation, we would have our initial chat. If the person wished to explore their available options in more detail, I would need to collect additional information from them to enable a proper assessment. Before we discuss which actual filing may be appropriate, it is important for me to know things like their assets and liabilities, their monthly income, and their household size.

If they would like me to continue our no-cost consultation and provide them with a proper assessment, I email them our standard intake form called the Debt Relief Worksheet. I ask them to please make sure to fully complete it and include any backup documents that are requested.

The backup documents we typically request are quite standard – a copy of their most recent bank statement, their last filed tax return, and the notice of assessment. Once I have a chance to review everything and ask any follow-up questions, I’ll be able to provide tailored advice based on their unique situation.

The counseling before filing bankruptcy that we give is perhaps even more important than any counselling sessions after filing. So far, we’ve been able to do everything over the telephone and online.

file bankruptcy online
file bankruptcy online

Is filing bankruptcy online an option for getting rid of debt?

Now that I have all the necessary information, I can perform the rest of the initial assessment. There could be several options available for those struggling with debt, and filing for bankruptcy may be an option for some. However, it’s important to understand the process and what it entails before making a decision.

Continuing with the online model, I meet with the person and do the rest of the assessment by phone or video meeting. I explain what I see as the realistic debt relief options for the person, explain why and discuss what is involved with each option and answer any questions they may have.

At the end of the meeting, I provide the person with a list of resources that can help them make their decision. I’m always available to answer any questions they may have throughout the process. Filing for online bankruptcy may very well be an option for getting rid of debt, but it should be the last option.

Something else to remember is that an insolvency proceeding will lower your credit score as it appears on your credit report. Declaring bankruptcy will have a worse effect than a debt management plan through a BIA-approved financial debt restructuring program repayment plan.

What documents do you need in order to file bankruptcy online?

To discuss what documents you need for a bankruptcy application in order to file bankruptcy online in Canada, we will assume that the person chose the bankruptcy option. By now, I have enough financial information to prepare all the necessary bankruptcy documents.

Examples of statutory bankruptcy forms which are part of the bankruptcy paperwork include the:

  • statement of affairs, indicating both the person’s eligible assets and those exempt from seizure under provincial law with related bankruptcy schedules;
  • list of creditors that is used for the creditor mailing list to send out the notice to creditors;
  • person’s statement of monthly income and expenses;
  • bankruptcy assignment
  • notice to bankrupt of their bankruptcy duties; and
  • estate information summary.

We schedule a video meeting with the debtor once all the statutory and financial documents are ready for signing. We can either email the documents or upload them to our secure signing portal and provide the debtor with a private, secure link. We’re happy to use online technology to have our meeting and explain all the documents, witness their signing, and get the signed documents from them.

We take the signed documents and file them in the Industry Canada OSB electronic online filing system. The OSB issues the bankruptcy certificate once the electronic filing is accepted. The day and time of the certificate is the exact moment the person is officially bankrupt.

file bankruptcy online
file bankruptcy online

Duties during bankruptcy include credit counselling sessions

The duties of a bankrupt person are set out in section 158 of the BIA. They include:

  • to identify all of their property and allow the Trustee or anyone authorized by the Trustee to take possession of all the debtor’s property;
  • to give the Trustee all books, records, documents and papers related to their property or affairs, including, but not limited to, title papers, insurance policies, and tax records and returns;
  • providing full disclosure of all assets and liabilities;
  • helping the trustee when required with assistance from time to time;
  • if one or more creditor meetings are required, you must attend; and
  • attending the two mandatory bankruptcy credit counseling sessions run by the Trustee.

We can meet with the bankrupt person over video meetings to provide counselling sessions and help them to fulfil their online bankruptcy duties.

Is it always going to be possible to file bankruptcy online in Canada?

The OSB has extended the option to conduct online service delivery of the Canadian insolvency options available under the BIA. Licensed insolvency trustees can continue to use online methods. It has provided some peace of mind for many people.

The OSB has been consulting with the insolvency community on potential amendments to relevant directives, with the goal of implementing an online alternative to meeting in person. While allowing flexibility, the changes they are contemplating would emphasize that while trying to be flexible, the changes being contemplated would emphasize that debtors will have the choice to either meet in person or online.

It looks like the OSB is warming up to the idea that remote filing through online resources, whether we are talking about BIA-approved debt repayment plans or bankruptcy may very well be here to stay. The OSB is trying to balance the benefit to debtors as well as the bankruptcy process continuing to be for the benefit of creditors. Can it all continue to be accomplished by online resources and technology? So far the average person, be they Canadian debtors or Canadian creditors, seem to want to continue with the choice of having insolvency administration online.

file bankruptcy online
file bankruptcy online

Are you deep in debt? We can help!

I hope you enjoyed this Brandon’s Blog on how to file bankruptcy online. Are you or your company in need of financial restructuring? Are you or your company unable to survive the COVID pandemic and its aftermath? The financial restructuring process is complex. The Ira Smith Team understands how to do a complex restructuring. However, more importantly, we understand the needs of the entrepreneur or the person who has too much personal debt. You are worried because you are facing significant financial challenges.

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

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

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

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

Call us now for a no-cost initial consultation.

file bankruptcy online
file bankruptcy online

 

 

Categories
Brandon Blog Post

DECLARING BANKRUPTCY: REAL ESTATE COMPANY LOSES CHALLENGE ON CORPORATE BANKRUPTCY APPEAL

Declaring bankruptcy: Business insolvency

When the corporate finances are such that the business has an insufficient cash flow to cover its operating expenses and pay its debts when they come due, these financial difficulties create the financial condition of insolvency for the business. Another indicator of insolvency often exists at the same time: if you were to sell all of the company’s assets, you would not be able to raise enough money to pay off its outstanding debt.

Medcap Real Estate Holdings Inc. (Medcap) is an Ontario corporation that owns certain commercial real estate. Medcap’s principal, through other companies which he owns or controls, operates various fitness facilities.

Several creditors made a bankruptcy application to the Court to wind up Medcap’s business through a corporate bankruptcy. In December 2021, the Judge released his decision to issue a bankruptcy order and place the company in the legal position of bankruptcy. Medcap appealed the decision to the Court of Appeal for Ontario.

In this Brandon’s Blog, I discuss the two ways there are for declaring bankruptcy and highlight the reasoning of the Court of Appeal for Ontario in dismissing this company’s appeal for its corporate bankruptcy.

Declaring bankruptcy: An overview of corporate bankruptcy

In Canada, a company is a separate legal entity from its shareholders or Directors and Officers. So a company can go into corporate bankruptcy, as opposed to a person entering personal bankruptcy, also known as consumer bankruptcy. There are two ways a company (or a person) can go bankrupt.

The first way is that a company (or person) files for bankruptcy by filing an assignment in bankruptcy with a licensed insolvency trustee. This is called a voluntary assignment into bankruptcy. The second way, which is what happened to Medcap, is that they are pushed into bankruptcy.

To push a limited company (person) into bankruptcy, one or more creditors, each owed at least $1,000, make a bankruptcy application to the court. The application will include a sworn affidavit from the people with knowledge of the situation providing evidence as to why the company (the person) is insolvent, what acts of bankruptcy the business (person) committed within 6 months preceding the date of the application and requesting that a bankruptcy order be made against the debtor.

Regardless of the types of bankruptcy proceedings that may be involved, these are the only two ways for companies with crippling debt to become bankrupt. It is either voluntary or an involuntary one.

declaring bankruptcy
declaring bankruptcy

Declaring bankruptcy: Types of Corporate Bankruptcy

A company that ends up declaring bankruptcy may be doing so for a variety of reasons, all of which relate to significant financial losses. In Canada, there are two primary types of bankruptcy filings under the Bankruptcy and Insolvency Act (Canada) (BIA).

Once the company is insolvent and no longer viable, declaring bankruptcy in order to have liquidation of assets and end the business in that legal entity is the next step. In this situation, there may be certain business debts that are also a personal liability of the corporate Directors. Unremitted source deductions and HST and unpaid wages and vacation pay fall into this category.

Bankruptcy is a tricky topic. Many people tend to fear it, thinking of it as the end of the road. Given my description above of bankruptcy being for liquidating the company assets, that is understandable.

But what about the company that is insolvent but the business is very viable if the bad parts are cut out? In this kind of situation, filing under the BIA using the restructuring provisions of this federal statute, or for larger companies, the Companies’ Creditors Arrangement Act (CCAA), is a legal way for the company to restructure its debts to get its finances back in order. In a successful restructuring, the good parts of the business are restructured and preserved, the company’s finances are right-sized and most if not all jobs are saved. This form of declaring bankruptcy is what is referred to in the media as bankruptcy protection.

So in Canada, declaring bankruptcy is one type, but declaring bankruptcy protection is also possible. That is why I suggest in Canada, there are 2 types of business-specific options in corporate bankruptcy filings.

Declaring bankruptcy: Does corporate bankruptcy affect personal assets?

The legal separation of personal and corporate assets is clear. However, a company declaring bankruptcy may have an impact on the personal assets of certain people. There are situations where personal assets may be at risk. If you are concerned about your personal assets, you should consult with a legal professional to assess your individual case.

Before making any business or investment decisions, is when you should get that professional advice. Once a corporate bankruptcy filing has been made, it will be too late to properly plan for that situation. Personal assets could be at risk if it is a bankruptcy liquidation and not a successful restructuring.

Examples of when personal assets may be at risk because of business bankruptcies include:

  • the entrepreneur who had to give a personal guarantee of certain corporate debt financial obligations to the company’s primary secured creditor lender and in a liquidation of the company’s assets, the lender suffers a shortfall;
  • there is not enough money left over from the liquidation after any trust claims and secured creditor claims to pay the outstanding wages and vacation pay so the Directors’ personal assets may be at risk;
  • the liquidation value of the assets is essentially zero so the Directors are called upon by Canada Revenue Agency to repay any unremitted employee source deductions or HST amounts;
  • in bankruptcy liquidation, there is generally nothing available to repay investors or shareholders so the money an individual investor or shareholder loses certainly affects their personal assets and personal property. The stock of companies that liquidated their assets after declaring bankruptcy is worthless; and
  • any creditors that are unincorporated, being either a proprietorship or partnership who lose some or all of the amounts owed to them as ordinary unsecured creditors clearly affect the personal assets of those business owners.

Declaring bankruptcy: The Medcap case

With this discussion of corporations declaring bankruptcy, there are some interesting points to be learned from the Medcap appeal case and the bankruptcy process. The application judge dismissed the bankruptcy applications of all but one of the applicants. He issued the bankruptcy order and appointed the licensed insolvency trustee (formerly called a trustee in bankruptcy or bankruptcy trustee) which began Medcap’s administration of bankruptcy.

The Medcap company appealed the bankruptcy order on only one ground; the judge who made the original order failed to exercise his discretion on whether or not to dismiss the application. Medcap did not appeal the application judge’s finding that the prerequisites to the making of a bankruptcy order – a debt owing to an applicant of at least $1,000 and the commission of an act of bankruptcy within six months of the commencement of the application – had been met!

The most interesting part of the Court of Appeal’s decision is the discussion of the two factors that a court could look at where a judge could exercise discretion to justify refusing an otherwise proven bankruptcy application.

declaring bankruptcy
declaring bankruptcy

Declaring bankruptcy: Appealing a bankruptcy order

As mentioned previously, Medcap did not contest the judge’s conclusion that the creditor whose bankruptcy application was allowed had met the requirements under s. 43(1) of the BIA. This is that Medcap owed them a debt exceeding $1,000 and that Medcap committed an act of bankruptcy within 6 months before the filing of that bankruptcy application.

The application judge found that Medcap had failed to pay that creditor’s debt, for which a judgment was issued, despite demands. This is defined as an act of bankruptcy in s. 42(1)(j) of the BIA. In its appeal, the Medcap company argued that, even though the debt and the act of bankruptcy were proven, the application judge made a mistake by not using his discretionary power under s. 43(7) of the BIA to dismiss the application.

Medcap made three arguments to support its appeal: (i) that the trial judge erred in finding that Medcap was unable to pay its debts; (ii) that he erred in finding that the application was brought for an improper motive; and (iii) that he erred in finding that the bankruptcy order would serve no purpose.

Let’s see what the Court of Appeal for Ontario said about this.

Declaring bankruptcy: Unable to pay its debts

This is the first of the three bankruptcy issues that the Court of Appeal looked at. Medcap argued that the application judge dismissed the applications of all applicants but one because there was potential that they were not creditors. Medcap also stated that the application judge had not taken into account that Medcap had reached a settlement with the one creditor whose application was allowed to be heard. Medcap submitted that the application judge erred in not taking this into account as there was no debt owing because of the settlement and the payment of that settlement.

The appellate court found that the lower court judge did not err in rejecting Medcap’s argument. An application for bankruptcy is not solely for the benefit of the applicant creditor, but for the rights of creditors, ALL creditors. Further, the arrangements between the applicant creditor and the debtor will not be able to justify the withdrawal or dismissal of a bankruptcy application, unless the court is satisfied that the debtor is solvent and that other creditors will not be prejudiced by the withdrawal or dismissal.

To be able to pay debts as set out in the BIA, the evidence must be provided for all debts owed, as well as the debtor’s ability to pay them. In other words, the debtor must prove that they are solvent. Medcap did not provide such evidence. Therefore this ground of appeal was dismissed.

Declaring bankruptcy: Bankruptcy application for improper motives

Medcap argued that in cases where a creditor has an ulterior motive for filing a bankruptcy application, this can be sufficient cause for dismissal of the application. The Court of Appeal said that the existence of a motive is a question of fact, and the application judge considered and rejected the suggestion that there was such a motive in this case.

The Court of Appeal found that the application judge was within his rights to reject the argument based on the record. Therefore, the Court of Appeal for Ontario found no justification to interfere and dismissed the appeal on that ground.declaring bankruptcy

Declaring bankruptcy: There is no purpose for this bankruptcy

Medcap argued that the application judge erred in failing to find that no purpose would be served by bankruptcy. He ought to have dismissed the application on the basis that there was nothing to be gained by making a bankruptcy order.

The Court of Appeal emphasized that safeguarding creditors is crucial to insolvency proceedings. A debtor who has (a) committed an act of bankruptcy by not paying debts when they come due, and (b) failed to provide evidence to the court demonstrating the ability to do so, carries the burden of proving that bankruptcy would be pointless. The judge was correct in finding that Medcap had not met that burden.

The three-panel judge went on to say that, in order to demonstrate that there is no purpose for the Medcap bankruptcy, they would need to show that a better result would be achieved for creditors if it were allowed time to restructure under the commercial proposal provisions of the BIA or the provisions of the CCAA.

Medcap did not argue that doing either would have the requisite creditor support but rather suggested that leaving it up to them would be best.

The three appellate court judges hearing this case unanimously rejected Medcap’s appeal, upholding the lower court’s ruling and allowing the bankruptcy process legal proceedings to continue. At this point, the licensed trustee named in the bankruptcy order begins administering the bankruptcy legal process.

Declaring bankruptcy: The final word

What fascinated me most about this case was the nerve of Medcap to argue that the application judge should have declined to make the bankruptcy order, regardless of all the evidence against it.

The Court of Appeal for Ontario soundly rejected the appeal of the bankruptcy order being issued after analyzing the bankruptcy application process in Canada. It concluded that only a real possibility of a successful restructuring under either the BIA or CCAA to avoid bankruptcy liquidation would be a reason to do so.

I hope this Brandon’s Blog on the Medcap case was helpful to you in understanding more about declaring bankruptcy, corporate bankruptcy and how the Ontario court would decide if it was appropriate to issue a bankruptcy order. Hopefully, you have also gained insight into how a corporate bankruptcy decision is made and how a successful corporate bankruptcy protection filing and restructuring can be beneficial.

We understand how you feel. You’re stressed out and anxious because you can’t fix your or your company’s financial situation on your own. But don’t worry. As a government-licensed insolvency professional firm, we can help you get your personal or corporate finances back on track.

If you’re struggling with money problems, call the Ira Smith Team today. We’ll work with you to develop a personalized plan to get you back on track and stress-free, all while avoiding the bankruptcy process if at all possible.

Call us today and get back on the path to a healthy stress-free life.

declaring bankruptcy
declaring bankruptcy
Categories
Brandon Blog Post

STATUTE OF LIMITATIONS IN ONTARIO: THE UNCERTAINTY BEHIND ONTARIO’S LIMITATION PERIOD IN BANKRUPTCY NOW ABSOLUTELY SETTLED

statute of limitations in ontario
statute of limitations in ontario

We hope that you and your family are safe, healthy and secure during this COVID-19 pandemic.

Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

If you would prefer to listen to the audio version, please scroll to the very bottom and click play on the podcast.

Statute of limitations in Ontario: The uncertainty behind Ontario’s limitation period for debt collection

Many individuals have a problem determining the statute of limitations in Ontario for financial debt collection under the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B. This confusion is all-natural because the time duration is computed based upon the moment when a creditor knew, or ought to have actually recognized that it had a claim to get legal advice on and initiate legal action for recovery.

The unpredictability emerges because the point you need to begin determining from is not necessarily a certain date you can indicate on the calendar. Rather, it may need to be presumed from the realities in any specific situation.

Why does the limitation period matter? It matters because if a creditor does not initiate legal action within the allowed period of time in Ontario within 2 years of knowing, or having out to have known, that it had a claim to litigate, the claim is then statute-barred. What this means is that the claim can no longer be pursued as a valid debt.

In this Brandon Blog, I describe what seems to be the final word now on the statute of limitations in Ontario and proving your claim in bankruptcy.

Statute of limitations in Ontario: Time limits, collections and bankruptcy

If you think it was confusing for only the average Ontario citizen, think again. It was also confusing for lawyers and licensed insolvency trustees. In my March 15, 2021, Brandon Blog titled “STATUTE OF LIMITATIONS: IS STATUTE BARRED DEBT A BASIC PROPER BANKRUPTCY CLAIM IN ONTARIO?“, I described the decision of Master Mills (as she then was) who has since been elevated to the position of a Judge.

Her decision released on March 8, 2021, in. the legal proceeding of In re: John Trevor Eyton, 2021 ONSC 1719 (CanLII), has changed the way we look at creditors who file a proof of claim in either a consumer proposal, restructuring proposal or a bankruptcy. Just to refresh your memory, she decided that if a claim was past the two-year limit under the statute of limitations in Ontario, then the creditor could not even file a proof of claim in bankruptcy on that debt.

In that blog, I also described what the statute means for debt collectors. I also said that the Eyton decision was going to be appealed. Well, it was and we now have the ruling from a Judge of the Ontario Superior Court of Justice (In Bankruptcy and Insolvency).

statute of limitations in ontario
statute of limitations in ontario

Statute of limitations in Ontario and bankruptcy

The appeal raises a rarely-considered and narrow issue: is a claim which is statute-barred under the statute of limitations in Ontario able to be included by a creditor in filing a Form 31 proof of claim in the bankruptcy of the debtor?

On May 19, 2021, Justice S.F. Dunphy released his decision regarding the appeal of the Eyton decision. I won’t repeat the original decision here because I discussed it in detail in my above-noted blog.

Suffice to say that the basis of this litigation is that the Trustee disallowed the creditor’s filed proof of claim because the last payment made on the debt was in April 2016. The creditor did not take legal action against the debtor.

This made the claim now more than two years old before the date of bankruptcy. Therefore the Trustee said since the claim is statute-barred, it cannot be a debt to be proved in this bankruptcy.

Statute of limitations inForm 79 Ontario: When it is too late to sue?

As previously mentioned, the creditor appealed the Trustee’s decision to Master Mills and lost. Now the creditor was appealing the Master’s decision to the Judge.

The issue to be decided was when:

  • it is far too late to take legal action to try to collect on the debt;
  • the debtor has actually submitted either for a restructuring proposal or for bankruptcy under the Bankruptcy and Insolvency Act (Canada) (BIA);
  • the debtor has actually included the amount of that creditor’s claim in the sworn Statement of Affairs; and
  • under the statute of limitations in Ontario, the financial debt is statute-barred yet is not extinguished,

can the creditor file a claim for that financial obligation in the insolvency proceeding?

statute of limitations in ontario
statute of limitations in ontario

Statute of limitations in Ontario and the Effect of Form 79 Statement of Affairs

The creditor’s first point in the appeal was that its debt was listed in the debtor’s sworn Statement of Affairs. Since the debtor recognized the debt, and the debt is not extinguished, then a proof of claim for the amount should be admitted by the Trustee.

The Judge did not think much of this argument. He stated that just because an amount is listed as a liability on the Statement of Affairs, each creditor is still required to prove their claim. The distinction is that a debtor may think that the debt is a provable claim, but a creditor still has to prove their claim. Stated another way, every claim is a potential claim until proven in accordance with the BIA.

In most restructuring proposals or bankruptcy administrations, the debtor’s listing of claims for at least the unsecured debt will never exactly match the final list of proven claims. That is just the way it is.

Can statutes of limitation barred claims be proved in bankruptcy?

As the BIA is federal law, then all provincial limitations laws in Canada are in play. Not just the two-year limitation period in the statute of limitations in Ontario. The creditor’s legal counsel advanced the following arguments regarding civil claims in bankruptcy:

  • The BIA does not define provable claims with any reference or qualification relating to any provincial applicable limitation periods.
  • The Supreme Court of Canada in Schreyer v. Schreyer, 2011 SCC 35 (CanLII), [2011] 2 SCR 605 decided that the meaning of the term provable claims in the BIA is that if the debt exists and can be liquidated and if the underlying obligation exists as of the date of bankruptcy and if no provincial exemption rule applies, the claim will be deemed to be provable.
  • The two-year limitation period in the statute of limitations in Ontario is procedural in nature because it does not extinguish the debt, it just says that a proceeding, such as the issuance of a statement of claim, cannot begin.
  • In one of the Ontario cases I mentioned in my earlier blog (Re: Temple), the Judge, in that case, found that a claim that was older than the basic limitation period in Ontario could be used as a debt owing for the purpose of launching a Bankruptcy Application seeking a Bankruptcy Order being made against a debtor.

The Judge was not persuaded by any of these arguments. He shot them down one by one. I can summarize all of his comments as follows. The purpose of the BIA is to have an equitable distribution of the bankrupt’s assets amongst the creditors, in the priority laid out in the BIA. The claims of all unsecured creditors are to be treated equally and each unsecured creditor is to receive their pro-rata share.

If a creditor who cannot enforce its claim in respect of payment can receive the same share as a creditor who still can enforce its claim for payment, then the claims of all unsecured creditors are not being treated equally.

So Judge Dunphy of the Ontario Superior Court of Justice (In Bankruptcy and Insolvency) dismissed the appeal. I have been told by the lawyer for the creditor who appealed the Master’s decision to the Judge that he does not feel he has a chance to win an appeal to the Court of Appeal for Ontario. So the law on claims barred by the statute of limitations in Ontario in an insolvency proceeding is now settled. Such a claim is not a claim provable and probably cannot even be used as the basis of a claim in a Bankruptcy Application.

statute of limitations in ontario
statute of limitations in ontario

What does this mean for proceedings and intended proceedings in Ontario?

As far as what this means for debt collectors trying to collect a claim in respect of any statute barred debt and for a debt collection agency, whether they are trying to collect on personal debts such as a credit card debt or on commercial debts, look at my previous blog where I discuss what it means for a debt collection agency.

As far as what it means for an insolvency process, there are several takeaways for me on this. First, whenever a creditor files a completed Form 31 proof of claim, there needs to be a schedule attached to the form that clearly shows how the debt is calculated. If there is not going to be any distribution to the unsecured creditors then there is no need to vet every claim to the nth degree.

However, where there will be a distribution to the unsecured creditors, then the Trustee is going to have to take great care in reviewing and vetting each claim. The Trustee will have to make a determination in each case if the claim is barred by the statute of limitations in Ontario or not. If there is insufficient detail in the schedule attached to the Form 31 proof of claim, the Trustee will have to go to each such creditor and get more details. I suspect there will be a whole lot more claims being disallowed than in the past.

Of course, each creditor whose claim has been disallowed by the Trustee because it is barred by the statute of limitations in Ontario has the right to appeal the Trustee’s decision to the Master sitting in the Ontario Superior Court of Justice in Bankruptcy and Insolvency).

Statute of limitations in Ontario: Get a personalized debt free plan today

I hope that you found this statute of limitations in Ontario Brandon Blog interesting. If you are concerned because you or your business are dealing with substantial debt challenges and you assume bankruptcy is your only option, call me. It is not your fault that you remain in this way. You have actually been only shown the old ways to try to deal with financial issues. These old ways do not work anymore.

The Ira Smith Team utilizes new modern-day ways to get you out of your debt difficulties while avoiding bankruptcy. We can get you the relief you need and so deserve. Our professional advice will create for you a personalized debt-free plan for you or your company during our no-cost initial consultation.

The tension put upon you is big. We know your discomfort factors. We will check out your entire situation and design a new approach that is as unique as you and your problems; financial and emotional. We will take the weight off of your shoulders and blow away the dark cloud hanging over you. We will design a debt settlement strategy for you. We know that we can help you now.

We understand that people and businesses facing financial issues need a realistic lifeline. There is no “one solution fits all” method with the Ira Smith Team. Not everyone has to file bankruptcy in Canada. The majority of our clients never do. We help many people and companies stay clear of bankruptcy.

That is why we can establish a new restructuring procedure for paying down debt that will be built just for you. It will be as one-of-a-kind as the economic issues and discomfort you are encountering. If any one of these seems familiar to you and you are serious about getting the solution you need to become debt free, contact the Ira Smith Trustee & Receiver Inc. group today.

Call us now for a no-cost consultation.

statute of limitations in ontario
statute of limitations in ontario

We hope that you and your family are safe, healthy and secure during this COVID-19 pandemic.

Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

 

Categories
Brandon Blog Post

3 TYPES OF BANKRUPTCIES: DO WE REALLY NEED IT?

3 Types of bankruptcies introduction

Two weeks ago I described the personal bankruptcy process Canada. Last week I described the Canadian corporate bankruptcy process. This week I want to start talking about the 3 types of bankruptcies in Canada.

3 types of bankruptcies: Voluntary and involuntary bankruptcy

In the last two weeks, I talked about both the personal and corporate bankruptcy processes. The way I described the bankruptcies it was all about the voluntary process of entering bankruptcy by filing an assignment in bankruptcy. That’s the 1st type of bankruptcy out of the 3 types of bankruptcies.

The second type which I will be speaking about today is the involuntary process of being pushed into bankruptcy. So how does one get placed into bankruptcy on an involuntary basis? It’s by a bankruptcy application.

3 types of bankruptcies: The bankruptcy application – the involuntary method

In order to file a bankruptcy application, one or more creditors must file the application to place the debtor, corporate or personal into bankruptcy. The creditor or group of creditors

must have unsecured debt of at least $1000 and the debtor must have committed at least 1 act of bankruptcy in the six months preceding the date of the bankruptcy application the acts of bankruptcy are laid out in the Bankruptcy and Insolvency Act (Canada).

3 types of bankruptcies: Acts of bankruptcy

So what are they? A debtor commits an act of bankruptcy in each of the following cases:

  • If in Canada or elsewhere the debtor makes an assignment of its property to a trustee for the benefit of its creditors.
  • A debtor makes a fraudulent gift delivery or transfer of all or part of its property.
  • The debtor makes any transfer of its property or any part of it that creates a charge on it that would be void as against a trustee and bankruptcy.
  • If with the intent to defeat or delay creditors the debtor departs out of Canada and absence itself.
  • If the debtor permits any execution or another process to be levied against it where it’s property is seized in order to be sold and the debtor does not redeem its property.
  • If the debtor exhibits to any meeting of creditors a statement of assets and liabilities that shows the debtor is insolvent if the debtor removes disposes of property or attempts to do so intending to defraud defeat or delay creditors.
  • If the debtor gives notice to any creditor that payments are being suspended or if the debtor ceases to meet its liabilities generally as they become do a bankruptcy application must be accompanied by an affidavit attesting to the debt and the alleged acts of bankruptcy3 types of bankruptcies

3 types of bankruptcies: What a bankruptcy application must look like

The affidavit must be deposed by a creditor or a representative of a creditor especially a corporate creditor and that representative must have personal knowledge of the facts. The bankruptcy application must be filed with the court having jurisdiction based on the location of the debtor. A bankruptcy application cannot be withdrawn without the permission of the court.

If there is a concern that the debtor’s assets might dissipate between the date of filing the bankruptcy application and the date of the court hearing the application the court can appoint the proposed licensed insolvency trustee to preserve and protect the assets but not too otherwise interfere in the running of the debtor’s business.

A notice of the time and place of the court hearing and all the motion material being used by the creditor or group of creditors must be served on the debtor.

3 types of bankruptcies: The bankruptcy order

A bankruptcy order could be issued 10 days after the service on the debtor of the bankruptcy application if it is not opposed or otherwise defended by the debtor. If it is defended then there will have to be a trial for the court to determine if a bankruptcy order should be issued and whatever the court decides. It is, of course, subject to the parties’ rights of appeal.

The debtor is bankrupt once the bankruptcy order is issued. The bankruptcy order puts on hold the enforcement rights of the creditors except for secured creditors holding valid security as soon as a bankruptcy order has been made the debtor’s property vests in the bankruptcy trustee and the bankruptcy administration begins.

To refresh yourself about personal bankruptcy administration check out my blog from two weeks ago. For a review again of the administration of a corporate bankruptcy check out my blog from last week.

Now the title of this blog is three types of bankruptcy. In the last two weeks, I have described voluntary bankruptcy for both an individual and a corporation by the filing of an assignment of bankruptcy. This week I talked about the involuntary bankruptcy process of the bankruptcy application for a bankruptcy order.

Next week I will discuss the third out of the 3 types of bankruptcies in Canada.

3 types of bankruptcies summary

I hope you enjoyed this 3 types of bankruptcies blog. The Ira Smith team is available to help you at any time.

We offer sound advice and a solid plan for Starting Over Starting Now so that you’ll be well on your way to a debt-free life in no time. For more information on a no-cost basis please visit our website or call us.

Do you or your company have excessive debt and looking for debt restructuring? Would not it be great if you could do a turn-around?

The Ira Smith Team understands how to do a debt restructuring. More notably, we comprehend the requirements of the business owner or the person who has too much individual debt. Because you are dealing with these stressful financial issues, you are anxious.

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

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

We understand that people facing money problems require a lifeline. That is why we can establish a restructuring procedure for you and end the discomfort you feel.

Call us now for a no-cost consultation. We will get you or your business back on the roadway to healthy and balanced worry-free operations and end the pain points in your life, Starting Over, Starting Now.3 types of bankruptcies

Categories
Brandon Blog Post

THE HONEST TO GOODNESS TRUTH ON BANKRUPTING A CORPORATION

bankrupting a corporation

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

Bankrupting a corporation: Introduction

I have blogged on personal and corporate insolvency matters for just over 6 years now. I have covered many topics. During a recent corporate bankruptcy consultation, I realized that I have never written about what the steps are for bankrupting a corporation. An important issue arising from this topic would be what the Directors of a corporation going into bankruptcy should know.

There are 3 ways for a company to be bankrupt

Like in all bankruptcy matters, there are three methods that result in bankrupting a corporation in Canada. The first way is being pushed, and the second way is jumping in with both feet voluntarily (I know, corporations don’t have feet!). The third way is to have the company’s creditors vote down a corporation’s attempt to restructure under a Proposal under the Bankruptcy and Insolvency Act (Canada) (BIA). In this Brandon’s Blog, I will focus on describing the first two methods.

Bankruptcy application – an involuntary bankruptcy

Being pushed means that one or more unsecured creditors, owed in total at least $1,000, has made a motion before the Court asking that a Bankruptcy Order be made against the company. The motion is called a Bankruptcy Application.

In order to do so, the unsecured creditor(s) have to:

  • retain a bankruptcy lawyer.
  • gotten the consent of a licensed insolvency trustee (formerly called a bankruptcy trustee) (Trustee) to administer the corporate bankruptcy.
  • In addition to proving the debt owing, the applicant(s) also have to prove that at least one act of bankruptcy was committed by the company within the 6 months before the filing of the bankruptcy application.

There are various acts of bankruptcy listed in Section 42(1) of the BIA. Commonly seen acts of bankruptcy are fraudulent transfers of property, allowing a lawful seizure of some or all of their property by a creditor under a lawful process, and the catch-all ceasing to meet many liabilities as they come due.

Jumping in with both feet – a voluntary bankruptcy

By this term, I mean filing an Assignment in Bankruptcy. In this case, rather than someone going to Court, the Directors call a Directors’ meeting. At the meeting, the Directors resolve that the company is experiencing financial difficulty and cannot continue to run. The Directors also reserve that the company should file an assignment in bankruptcy and it gives authority to one Director to sign all the necessary documents.

The Director who has the authority to sign the bankruptcy documents is called the Designated Officer. Before the documents are ready for signing, the Trustee who is selected must get enough information to prepare the documentation.

Whether bankrupting a corporation in Ontario or elsewhere in Canada and regardless if it is a result of a Bankruptcy Order or an Assignment in Bankruptcy, the information the Trustee requires is the same.

Information and documents a Trustee needs

The Trustee requires a great deal of information before being able to properly administer a voluntary or involuntary corporate bankruptcy. Sometimes company officials can provide it and in other cases, the Trustee has to dig through the books and records of the company.

Here is the lengthy list of what is needed:

  • Exact corporate name and address of head office, details of any other locations, copy of any premises leases.
  • Minute book and corporate seal.
  • Bankruptcy Order or the resolution of the Directors.
  • Full description of the nature of the business.
  • Names of Officers and Directors and their addresses.
  • Date of incorporation of the company.
  • The date the company ceased operations, if prior to the date of bankruptcy.
  • The greatest number of employees employed in the last 12 months.
  • All employees – listing of names, addresses, social insurance number, amounts owing for each of severance, termination, wages, vacation pay, commissions and expenses.
  • Employee T4’s & ROE’s for current year employees (employer should issue to all employees for the year of bankruptcy and earlier if unissued).
  • Creditors’ listing (accounts payable) – details consisting of name, address, account number(s), and respective amounts owing classified as follows:
    • Secured – banks, leasing company, source deductions, etc.
    • Preferred – wages owing, rent to landlords, government remittances outstanding:
    • Workers Compensation Board, if applicable.
    • Municipal authorities: e.g. business taxes and realty taxes.
    • Employer’s health tax.
    • Unsecured – trade suppliers; Hydro; Bell Canada (quote telephone number(s); gas, etc.
    • Details of any unsecured private party loans, shareholder loans or advances due to the company.
  • Details of any unions, if applicable, including name, address, account number.
  • Details of contingent liabilities and pending legal action, if any.
  • Accounts receivable – aged trial balance and detailed backup documentation (invoices, delivery slips, purchase orders, etc.) to support collection efforts. From the aged trial balance, classify the accounts as good, doubtful, bad to equal the total balance.
  • Inventory – detailed information on inventory cost and the company’s assessment of estimated realizable values.
  • Machinery, equipment and plant – detailed listing providing original cost, if possible and estimated realizable value.
  • Office furniture & fixtures – detailed listing providing original cost, if possible and estimated realizable value.
  • Real estate – all details of real estate owned, including deeds, legal descriptions, original costs, appraisals (if any), an estimated fair market value.
  • Vehicles – provide descriptions including year, model, VIN, kilometres, original costs and estimated realizable value. Note if any vehicles are leased/financed and provide copies of the lease/finance documentation.
  • Other assets – details of other assets such as prepaid expenses, deposits, goodwill, intangibles, shares or any investments, patents, trademarks.
  • Bank accounts – details of all bank accounts, including name, address, account number and approximate balance in the accounts.
  • Last 12 months of accounting records, bank statements and cancelled cheques (for all accounts maintained).
  • Financial statements – most recent.
  • Corporate solicitor – name and address.
  • Listing of leased equipment (copy of leases) – vehicles, office and any other equipment.
  • Insurance policy(ies).
  • A brief narrative of management’s opinion as to cause(s) of insolvency.
  • Disclosure of any sale or disposition of assets, outside of the ordinary course of business, in the last year.

The Trustee’s job

In a corporate bankruptcy, the Trustee, with certain exceptions, takes possession of the assets of the company. If the Trustee is aware that there are deemed trust claims against the assets, or there is a secured creditor, like a Chartered Bank, the Trustee must be careful. If there are, the Trustee should have already had a conversation with those parties prior to the bankruptcy, to decide what rights, if any, the Trustee may have against such property.

Assuming there are assets not subject to the valid claim of third parties, the Trustee must at least:

  1. Establish whether the value of the assets will be enhanced if the Trustee operates the company’s business.
  2. Take into account what obstacles exist in running the business and how to reduce risk if it is beneficial or necessary to run the business.
  3. Decide what are the very best means to sell the properties? En bloc as one parcel or individually or at least several parcels?
  4. Determine if there are any 3rd party owned assets on the company’s premises?
  5. Identify if there are any company assets on the property of 3rd parties?
  6. Prepare the required reporting to Service Canada so that the former employees will be able to make their Wage Earner Protection Plan Act claims.
  7. See if there are proper insurance coverage and proper physical security over the assets?
  8. Identify any inventory been delivered in the 30 days prior to the date of bankruptcy? What rights of revindication might exist?
  9. Circularize the creditors requesting claims to be filed to understand what the depth and breadth of claims against the company are. This way, the Trustee can formulate a distribution to creditors, in priority, with the net funds available from the sale of assets.

What the Directors should be concerned about

Directors should have two concerns when contemplating bankrupting a corporation. First, they should be concerned about any decisions they have made or senior management actions they have ratified.

For example, Sears in the United States recently lodged a claim versus its previous CEO Eddie Lampert and a string of its top-level previous Directors. This includes Eddie Lampert’s previous Yale roomie Treasury Secretary Steven Mnuchin. The allegation is that the Directors condoned and approved Eddie Lampert’s actions for presumably swiping billions of dollars from the once-storied merchant.

Second, there are various types of claims against the corporation that are also personal claims against Directors. The list includes Director liability for unpaid:

  • Wages
  • HST
  • Source deductions
  • Certain environmental offences
  • Cybersecurity risks

In general, there is a relatively short list of things Directors can be personally liable for. In many cases, there will be Director and Officer Insurance to be relied upon. Directors may also have a due diligence defence.

A Director resigning their position will not protect them against any liability that would be a personal Director liability prior to their resignation.

Are you a Corporate Director?

Are you a Director of a corporation that has too much debt? Is your company’s capital insufficient to fulfill every one of its economic responsibilities and may be insolvent? Are you worried that your firm’s major secured lender will soon pull its financing completely and demand repayment in full which the company will not be able to do?

If you responded yes to any of these questions, call the Ira Smith Team today so we can kill off the stress and anxiety that these financial troubles have activated. We will create a strategy for the Directors unique for your company’s problems so that it can avoid bankruptcy and become profitable and continue to employ many people.

Call the Ira Smith Team today. We have decades and generations of experience restructuring and turning around companies seeking financial restructuring or a debt negotiation strategy. As a licensed insolvency trustee, we are the only specialists recognized, certified and monitored by the federal government to offer insolvency guidance to save businesses.

You can have a no-cost assessment so we can fix your company’s debt problems. Call the Ira Smith Team today. This will absolutely allow you to return to being efficient, healthy and balanced, Starting Over Starting Now.

Categories
Brandon Blog Post

RECEIVERSHIP BANKRUPTCY DIFFERENCE CANADA: WHAT A TRUSTEE SAYS ABOUT IT

Introduction

The purpose of this blog is to discuss the corporate receivership bankruptcy difference Canada. Every general security agreement defines exactly how the secured lender will certainly deal with obtaining his/her cash when it comes to default. One means to do this is by selecting a receiver.

A receiver or receiver/manager is an individual/company licensed by the Federal Government to act as a licensed insolvency trustee. The receiver can be appointed either by an instrument in writing or by a court order. A receivership administration falls under the Bankruptcy and Insolvency Act (Canada) (BIA), where the receiver takes possession and control over the assets to of the insolvent business.

The receiver or receiver/manager will certainly seize the properties covered under the lender’s security or covered by the court order. The receiver will also develop a plan to market the assets for sale. After paying any type of priority claims as well as the receivership administration costs, the net funds are paid to the first secured creditor.

receivership bankruptcy difference canada

Can you have both at the very same time?

Sometimes there is both a bankruptcy plus a receivership. Receivership is a treatment for secured creditors, such as financial institutions. Bankruptcy is a treatment for unsecured creditors.

Receivership bankruptcy difference Canada: Bankruptcy

A business could be placed right into bankruptcy by any one of the following methods:

  1. a creditor could apply for a bankruptcy order putting the business right into bankruptcy through the courts;
  2. the directors could assign the corporation right into bankruptcy;
  3. a restructuring proposal could be voted down at the meeting of creditors; or
  4. a restructuring proposal could be annulled by the trustee or creditor for non-compliance.

There are many reasons that a corporation could go into bankruptcy. These consist of the following:

  1. The firm has defaulted under its premises lease, the landlord distrains against the firm’s possessions. A bankruptcy or a notice to make a proposal filed before the property owner finishes the sale of assets defeats the lease distraint.
  2. The firm has unsecured assets (i.e., possessions without a lender’s security registered against it) that are available to be realized upon. Also, the firm cannot carry on business any longer.
  3. If a restructuring proposal is submitted, but the company could not get adequate funding to continue its business and complete the proposal.
  4. To reorganize the statutory priorities.
  5. To officially bring the business to an end as well as give a complete report to the creditors so they will not believe the principals engaged in any kind of misbehaviour.

Receivership bankruptcy difference Canada: Corporate Bankruptcy

In a company bankruptcy, the licensed insolvency trustee seizes all the business’s properties plus deals with all the creditors. The directors and management of the company accept the authority of the trustee; if requested by the trustee, they can as well as aid the trustee in his/her tasks. This eliminates them from all the stress of dealing with the creditors as well as running the cash-starved business.

Receivership bankruptcy difference Canada: Making the Application to Put a Debtor Into Bankruptcy

If a creditor is incapable of recovering the amount owed to it with any one of the readily available techniques which can be done, they may look to a bankruptcy application. This is especially so having actually acquired a judgment for the quantum owing which has not been satisfied. The BIA allows for the licensed insolvency trustee, once appointed, to take possession in an organized way, the assets of an insolvent debtor, to realize upon those assets and to then distribute the funds according to the scheme of priority in the BIA.

The BIA allows for the benefit of both bankrupts and their creditors. While the Act is not planned for usage as a device for the collection of private financial obligations, this may be the case in specific situations.

Receivership bankruptcy difference Canada: When is a Creditor Allowed making a Bankruptcy Application?

An unsecured creditor could apply for a bankruptcy order where:

  1. the lender is owed $1,000 or even more on an unsecured basis, and
  2. there has actually been an act of bankruptcy by the borrower within the 6 months that come before the filing of the application. Keep in mind that a secured lender can value its security at less than the overall amount owing to develop a partly unsecured debt.

The BIA states that acts of bankruptcy consist of the following:

  1. if in Canada or elsewhere he makes an assignment of his property to a trustee for the benefit of his creditors generally, whether it is an assignment authorized by this Act or not;
  2. if in Canada or elsewhere the debtor makes a fraudulent gift, delivery or transfer of the debtor’s property or of any part of it;
  3. if in Canada or elsewhere the debtor makes any transfer of the debtor’s property or any part of it, or creates any charge on it, that would under this Act be void or, in the Province of Quebec, null as a fraudulent preference;
  4. if, with intent to defeat or delay his creditors, he departs out of Canada, or, being out of Canada, remains out of Canada, or departs from his dwelling house or otherwise absents himself;
  5. if the debtor permits any execution or other process issued against the debtor under which any of the debtor’s property is seized, levied on or taken in execution to remain unsatisfied until within five days after the time fixed by the executing officer for the sale of the property or for fifteen days after the seizure, levy or taking in execution, or if any of the debtor’s property has been sold by the executing officer, or if the execution or other process has been held by the executing officer for a period of fifteen days after written demand for payment without seizure, levy or taking in execution or satisfaction by payment, or if it is returned endorsed to the effect that the executing officer can find no property on which to levy or to seize or take, but if interpleader or opposition proceedings have been instituted with respect to the property seized, the time elapsing between the date at which the proceedings were instituted and the date at which the proceedings are finally disposed of, settled or abandoned shall not be taken into account in calculating the period of fifteen days;
  6. if he exhibits to any meeting of his creditors any statement of his assets and liabilities that shows that he is insolvent, or presents or causes to be presented to any such meeting a written admission of his inability to pay his debts;
  7. if he assigns, removes, secretes or disposes of or attempts or is about to assign, remove, secrete or dispose of any of his property with the intent to defraud, defeat or delay his creditors or any of them;
  8. if he gives notice to any of his creditors that he has suspended or that he is about to suspend the payment of his debts;
  9. if he defaults in any proposal made under this Act; and if he ceases to meet his liabilities generally as they become due.
  10. if he ceases to meet his liabilities generally as they become due.

Keep in mind that in most of the situations above, the creditor does not need to show that the borrower cannot pay various other creditors. In the last situation, the creditor should show that more than just its own debt is not being paid. Unique situations would differentiate matters though.

Unique scenarios can consist of allegations of fraud, near-fraud or those other transactions which fall under the types that would seem to be attackable by a trustee. At least on a prima facie basis.

It should, nonetheless, be remembered that stringent evidence of both your unsecured debt and an act of bankruptcy is required to have an individual or business judged bankrupt.

 

Receivership bankruptcy difference Canada: Under What Circumstances Should a Creditor Make An Application For A Bankruptcy Order?

Making an application for a bankruptcy order to put a debtor into bankruptcy is no little job. Prior to choosing this option, consider the following:

  1. the presence and amounts of claims that could take priority over your unsecured creditor status;
  2. the dollar measure of unsecured debt ranking on the same level with your financial debt (i.e., each unsecured creditor is paid according to the calculated share based on the measure of his/her debt);
  3. the existence of questionable transactions or transfers undervalue within the three-month to five-year evaluation period before the declaration of bankruptcy;
  4. your very own history of repayments from the debtor/borrower in addition to the normal payment patterns in the 3 months before the date of bankruptcy; as well as
  5. the legitimacy of any kind of security you might hold.

Receivership bankruptcy difference Canada: The Bankruptcy Application Can Be Very Useful

Think about:

  1. has the debtor actually moved the residential property to a related party for inadequate or no consideration;
  2. where the debtor does not want to lose a specific part of its property (e.g. a private yacht, unique cars and truck or shares in a firm) or does not want its transactions and events to be inspected by a trustee and/or creditors;
  3. the debtor (being an individual) expects an inheritance;
  4. where the debtor (being an individual) needs to be an officer, director and/or shareholder of several businesses;
  5. the debtor (being an individual) might have his/her expert certification or licence from which he/she derives income compromised or lost as an outcome of being ruled a bankrupt;
  6. when the bankruptcy of the debtor would cause him/her to lose the ability to generally conduct business, such as required to use a trust account or employment requires the need to be bonded; or
  7. being a bankrupt would cause the company or individual to lose the advantage of a specific useful agreement, lease, or company.

Receivership bankruptcy difference Canada: How Does a Creditor Make The Application For A Bankruptcy Order?

The creditor desiring to file the application will certainly need a lawyer to prepare the needed documents to make the bankruptcy application. The lawyer will serve the motion material and attend for the bankruptcy order. For an uncontested motion, the lawyer appears before the Bankruptcy Registrar who is a Master of the Court. If opposed, the matter can only be heard by a Judge.

The creditor has to additionally make arrangements with a licensed insolvency trustee to act will need to guarantee the trustee’s fee and costs incurred by the trustee where there are not enough proceeds from the sale of assets. A lot of times it is likewise needed to give the trustee a cash retainer.

When the Bankruptcy Order is made, the licensed insolvency trustee starts the bankruptcy administration. All actions against the insolvent are stayed.

Receivership bankruptcy difference Canada: What If You’re Company Has Too Much Debt?

Is your company insolvent? Are you looking for solutions? The Ira Smith Team is here to offer alternatives to restructuring and turnaround services however, if required, we also act as a licensed insolvency trustee in bankruptcy matters. We offer help in Vaughan as well as throughout the GTA.

Are you an individual or company who feels your situation is hopeless? Ira Smith Trustee & Receiver Inc. can prepare and put in place the plan MADE JUST FOR YOU. The plan will free you from the burden of your financial challenges. With our help, you will go on to live a productive, stress-free, financially sound life.

Our motto is Starting Over, Starting Now! Ira Smith Trustee & Receiver Inc. can help you overcome your financial difficulties. Contact us today.

Call a Trustee Now!