Tag: bankruptcy proceedings

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

Post author By Brandon Smith
Post date July 29, 2024

Liquidating Assets: Introduction

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

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

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

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

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

Liquidating Assets: The Bankruptcy and Insolvency Act of Canada

Overview of the Bankruptcy and Insolvency Act Relating To Liquidating Assets

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

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

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

Purpose of liquidating assets in bankruptcy

The primary purpose of liquidating assets in bankruptcy is to:

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

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

Liquidating Assets: Role of a Trustee in Liquidation

Duties and Responsibilities of a Trustee

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

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

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

Trustee’s role in asset valuation and sale

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

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

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

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

Significance of ATB Financial as a Major Secured Creditor *Turned Un**secured Creditor*

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

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

Liquidating Assets: Key Details and Contention Points

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

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

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

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

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

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

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

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

Liquidating Assets: The Registrar’s Decision and Legal Interpretations

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

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

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

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

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

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

Liquidating Assets: Court Ruling and Implications

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

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

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

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

Liquidating Assets: Lessons Learned

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

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

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

Liquidating Assets: FAQ

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

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

How does financial restructuring differ from bankruptcy in Canada?

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

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

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

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

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

How does bankruptcy liquidation contribute to marketplace dynamics in Canada?

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

Liquidating Assets: Conclusion

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

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

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

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

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

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

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

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

Brandon Blog Post

LESSONS FROM THE AIDEN PLETERSKI BANKRUPTCY: OUR COMPREHENSIVE GUIDE ON A “CRYPTO KING” BANKRUPTCY DISCHARGE

Post author By Brandon Smith
Post date July 22, 2024

Background of Aiden Pleterski: The Rise and Fall of the ‘Crypto King’

Aiden Pleterski is embroiled in legal battles over alleged fraud and financial misconduct, shedding light on his extravagant lifestyle and controversial business dealings. We embark on a journey through the tumultuous life of Aiden Pleterski, a young entrepreneur who rose to fame as the self-proclaimed ‘Crypto King’ only to face allegations of fraud and deception. The details of his lavish lifestyle, questionable business practices, his legal troubles and his bankruptcy that have ensnared him have been widely reported.

On August 9, 2022, following an application by specific investors, the Ontario Superior Court of Justice (in Bankruptcy and Insolvency) issued a ruling declaring Aiden Pleterski and his company, AP Private Equity Limited, as bankrupt and naming Grant Thornton Limited, the accounting firm appointed as the licensed insolvency trustee to handle these bankruptcy cases. Subsequently, there have been instances where Mr. Pleterski has shown reluctance in cooperating with the licensed insolvency trustee responsible for overseeing the bankruptcy proceedings.

In every personal bankruptcy, the bankrupt is entitled ultimately to a discharge from bankruptcy. If there are no legal, compliance or other issues that have caused one or more of the Trustee, the Office of the Superintendent of Bankruptcy (OSB), or any of the unsecured creditors to oppose the bankrupt’s discharge, then the Trustee can issue an automatic discharge certificate. However, if there is opposition to a person’s discharge from bankruptcy, as is the case for Aiden Pleterski, then a bankruptcy discharge hearing must be held in bankruptcy court.

In this Brandon’s Blog, I look at the bankruptcy discharge process and the reasons for opposition to Aiden receiving an absolute discharge from bankruptcy.

The Allegations against Aiden Pleterski

As Ontario’s so-called ‘Crypto King’ Aiden Pleterski’s financial empire unravelled, a web of deceit, luxury, and legal battles came to light. The allegations against this once high-flying entrepreneur paint a picture of fraud, extravagant spending, and a lifestyle built on deception.

Accusations of Defrauding Investors

Between May 2020 and August 9, 2022, the bankrupt was involved in an investment scheme soliciting funds from thousands of people. One of the ways he solicited funds was by email to investors. He claimed to invest these funds in cryptocurrency and foreign exchange positions on behalf of the investors.

On July 7, 2022, a group of Aiden’s investors, with the help of a fraud recovery lawyer, obtained a worldwide Mareva injunction against both Pleterski and his company following allegations of fraudulent misrepresentation, civil fraud, misappropriation of funds, conversion, and unjust enrichment. The investors have been trying to track down what has happened to the $40-million Pleterski was given for investment by the investors. Subsequently, the bankruptcies were filed shortly after the injunction was granted.

One of the most damning accusations levelled against the ‘Crypto King’ is the defrauding of investors to the tune of millions. Through false promises of lucrative cryptocurrency investments, Aiden Pleterski allegedly lured unsuspecting individuals into entrusting him with their hard-earned money. Instead of using these funds for their intended purpose, he is said to have diverted a significant portion towards personal gain, leaving investors in financial ruin.

Revelations of Extravagant Spending and Running A Bit Of A Ponzi Scheme

While investors were led to believe their money was being wisely invested in the volatile world of cryptocurrency, revelations have emerged of Pleterski’s penchant for extravagant spending in the form of luxury purchases. Sports cars, houses for friends and family, and other high-end goods reportedly consumed a substantial portion of the funds he received. This painted a stark contrast to the promises made to investors. The reality was quite different since he surrounded himself with the trappings to look like a successful investor savvy in all financial matters.

The Trustee estimates that only 1.6% of the funds collected from the investors were invested. The Trustee’s analysis also demonstrated that Aiden Pleterski used money from new investors to pay out old investors. It further shows that for 2.5 + years, Pleterski spent approximately 38% of the total amount collected from investors to fund his expensive lifestyle, including renting a mansion in Burlington, expensive vacations, and an exotic car collection. The Trustee also confirmed that these findings were consistent with evidence Aiden Pleterski provided during an examination in bankruptcy proceedings under the Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) (BIA).

Charges of Fraud and Money Laundering

Law enforcement agencies have not turned a blind eye to these alleged financial misdeeds. Charges of fraud and money laundering have been brought against the ‘Crypto King,’ signalling the gravity of the situation. As legal battles unfold, Pleterski finds himself at the center of a storm of allegations, with the full weight of the law bearing down on him.

As reported on CP24 BREAKING NEWS in Toronto and other news outlets, Hannah Alberga of CTV News Toronto obtained Court documents showing that a warrant was issued for Aiden Pleterski on May 2, 2024. On May 14, 2024, Pleterski was arrested under an arrest warrant and charged with one count of fraud exceeding $5,000 and money laundering under the Criminal Code of Canada, R.S.C., 1985, c. C-46 following a 16-month investigation by the Durham Regional Police and the Ontario Securities Commission.

That same day, Pleterski was released on bail under this large-scale fraud prosecution. His bail conditions required him to surrender his passport, avoid contacting investors, abstain from making any social media posts related to financial matters such as investments, and refrain from purchasing or trading cryptocurrencies.

Aiden Pleterski

On May 16, 2024, Durham Regional Police and the Ontario Securities Commission held a news conference in Durham Region to advise of the investigation, arrest and charges laid against Aiden Pleterski and an associate of his, Colin Murphy.

The Lavish Lifestyle of Aiden Pleterski

Pleterski withdrew crypto currency totalling USD 2,734,506

One cannot ignore the allure of Aiden’s lifestyle, filled with sports cars gleaming under the sun, exotic vacations to far-flung destinations, and a collection of high-end goods that rival those of royalty. His penchant for the finer things in life is evident in every aspect of his existence, from the lavish parties he hosts to the exclusive brands he associates himself with.

Despite the shadow of fraud allegations hanging over him, Aiden’s social media presence paints a picture of a man unfazed by legal turmoil. His posts exude a confidence that belies the financial misconduct he is accused of, showcasing a life of excess and indulgence that seems untouched by the harsh realities of legal battles.

What sets Aiden apart is not just his extravagant personal lifestyle but also his involvement in high-end businesses and his relationships with luxury brands. He moves in circles where money flows like water, rubbing shoulders with the elite and forging partnerships that elevate his status even further.

It’s a world where the line between reality and illusion blurs, where the trappings of wealth mask the turmoil beneath the surface. Aiden’s story is a cautionary tale of how easily one can be seduced by the allure of luxury, only to find themselves entangled in a web of deceit and legal challenges.

Aiden Pleterski: Bankruptcy Discharge Options

There are different kinds of discharges from the bankruptcy process. This discussion is for educational purposes only, as I don’t think Aiden Pleterski is not receiving one any time soon.

For the honest but unfortunate debtor, the range of bankruptcy discharges available are:

Absolute discharge: you are entitled to an immediate discharge;
Conditional discharge: you can obtain a discharge after fulfilling one or more conditions;
Suspension of discharge from bankruptcy – a suspended discharge from bankruptcy means that the discharge will occur at a later date set by the court, and will be combined with either an absolute bankruptcy discharge or conditional bankruptcy discharge;
Refused discharge – the court can refuse the bankrupt’s discharge due to unsatisfactory fulfillment of duties and lack of response to the Trustee’s inquiries; or
“no order” – the Trustee has advised the court that, despite the passage of time, the bankrupt has not fulfilled all of his or her duties, has failed to respond to the Trustee’s requests, and the Trustee wishes to seek its discharge.

The bankrupt’s discharge occurs when the bankrupt person has fulfilled all of their duties and any conditions set by the court as a result of a successful opposition.

The duration of a person’s bankruptcy depends on all of the above factors. Now for a discussion on Aiden Pleterski’s application for discharge from bankruptcy.

Aiden Pleterski: Legal Battles and Ongoing Investigations

The ongoing investigations have revealed a web of deceit, uncooperative behaviour, and attempts to conceal assets that paint a troubling picture of financial misconduct.

*Bankruptcy Proceeding**s and Trustee Opposition to Discharge*

The heart of the legal saga lies in the bankruptcy proceedings against Aiden Pleterski. The Trustee and the OSB have both issued Notices of Intended Opposition to Discharge under section 168.2(1) of the BIA. They cited his lack of cooperation and failure to disclose crucial financial information. Pleterski’s refusal to comply with the requirements has raised red flags, leading to a contentious battle in the courtroom.

Uncooperative Behaviour and Attempts to Conceal Assets

Despite increasing pressure, Pleterski has maintained a non-cooperative stance, with the Trustee discovering his attempts to conceal assets through various methods. From utilizing loyalty points to virtual worlds, Pleterski’s elaborate deception has complicated the task of untangling his financial matters.

As per bankruptcy documents submitted in court on behalf of the Trustee, including the Trustee’s bankruptcy report, the Trustee advised the court:

The bankrupt’s persistent non-compliance and lack of cooperation with the Trustee throughout the bankruptcy proceedings have been extensively recorded. The Trustee has had to pursue a contempt order against Aiden Pleterski on two occasions due to his conduct, leading to unnecessary administrative costs for the bankruptcy estate.
Throughout the bankruptcy process, he has consistently neglected his statutory obligations under the BIA. This encompassed a failure to disclose assets and provide crucial information to the Trustee that would aid in the realization of the individual’s assets.
Throughout the bankruptcy proceedings, the bankrupt consistently neglected to meet his legal obligations as outlined in the BIA. These obligations encompassed the omission of disclosing assets and essential information to the Trustee, which are crucial for the proper realization of the individual’s assets.
As of the present time, the bankrupt has not furnished the Trustee with the following assets or satisfactory proof of their disposition:

- - A Jacob & Co Astronomia Casino watch bought by the individual for $361,158 and reportedly sold by them in early 2022 for $150,000 in cash;
  - Crypto currency from his Binance account on March 31, 2021, and December 28, 2021;
  - USD 280,000 or more that he transferred via their Paypal account
  - $207,000 used by Aiden Pleterski on various platforms with his Scotiabank credit card;
  - Scene+ points valued at a minimum of $13,000 utilized to cover expenses for hotels and flights; and
  - Steam account s containing game items are valued at around $430,312.

Challenges in Accessing Financial Accounts and Undisclosed Income Sources

The road to uncovering the truth has been riddled with obstacles, particularly in accessing Pleterski’s financial accounts and undisclosed income sources. The Trustee has faced an uphill battle in gaining full transparency, with Pleterski’s elusive maneuvers adding layers of complexity to the investigation.

Use of Scene points to pay for *luxury hotel**s and flights – Travel to the U.K., Los Angeles, and Miami while bankrupt*

The Trustee report filed in court indicates:

Aiden Pleterski has not provided the Trustee with accurate information regarding his current Scene+ points balance, balance at the time of bankruptcy, and the origin of funds used to sustain his luxurious lifestyle following the bankruptcy declaration. Additionally, there is a lack of disclosure regarding the financing of multiple extravagant international vacations undertaken post-bankruptcy.
On June 6, 2024, the Court issued an Order mandating Pleterski to furnish the Trustee with the login credentials for all accounts associated with online asset and trading platforms such as Steam and Binance. Concurrently, the Court directed Steam to disclose any information about potential Steam accounts and Steam Skins held by the bankrupt and advised Steam to freeze access to these accounts.
On June 10, 2024, the bankrupt’s lawyer sent an email answering questions to the Trustee with Mr. Pleterski’s login details, including the email address he used, for his Binance and Steam accounts. Despite efforts, the Trustee has encountered difficulty in accessing the Binance account with the login credentials that Mr. Pleterski’s legal counsel provided.
On June 25, 2024, Steam provided the Trustee with documentation and details about the bankrupt’s Steam accounts. The disclosed information indicates that after the bankruptcy filing, Pleterski engaged in more than 100 trades and divested at least 153 Steam Skins with an estimated value of approximately $430,312.
The bankrupt had previously informed the Trustee that he had not generated any substantial income during the bankruptcy period. He submitted income and expense statements for the period of August 2022 to March 2023, indicating zero income and expenses.
Upon reviewing Pletarski’s bank statements from April to June 2024, other financial documents and other information, it has been verified that undisclosed revenue was indeed being generated during that timeframe.

Ontario’s so-called ‘Crypto King ‘ was reported to have been seeking investments as of February. Discover how a 25-year-old managed to establish a crypto kingdom empire that eventually faced downfall. Aiden Pleterski, the self-proclaimed ‘Crypto King’, has been apprehended. During a live stream in July 2023, Pleterski showcased an assortment of Steam Skins, which are prized in-game assets.

Aiden Pleterski: Bankrupt’s Application For Discharge

As indicated above, both the Trustee and the OSB have opposed Aiden Pleterski’s application for discharge from bankruptcy. The court hearing was held on July 17, 2024.

The primary goal of the BIA is to facilitate the rehabilitation of debtors facing financial hardship, while also considering the rights of creditors to receive repayment and the public’s interest in upholding the BIA’s administration.

In adjudicating discharge applications, the court is responsible for safeguarding the integrity of the bankruptcy system. The Bankruptcy Courts play a crucial role in managing the liquidation of debts, taking into account various factors surrounding the financial situation of the individual. This involves considering the needs of creditors to receive their due payments, supporting the rehabilitation of the bankrupt party, and ensuring the overall integrity of the bankruptcy system.

In assessing a bankruptcy case, the Court examines whether the individual has understood the implications of bankruptcy and taken necessary steps to prevent a recurrence of similar financial issues. In cases where the bankrupt party displays dishonesty, indifference, or misleading behaviour, the focus shifts towards protecting the interests of society, maintaining the credibility of the bankruptcy system, and addressing inappropriate conduct.

Judges hold significant discretion in making decisions related to bankruptcy cases, and their judgments are typically upheld without interference in most instances.

Factors Considered By The Court In Discharge Applications

When considering an application for discharge from bankruptcy, the Court relies on reports filed by bankruptcy trustees. It takes into account various factors to determine if the bankrupt should be granted a discharge. Some of these factors include:

Compliance with the BIA and Duties as a Bankrupt: The court examines whether the bankrupt has fulfilled their obligations under the Bankruptcy and Insolvency Act (BIA), including providing accurate financial statements, attending meetings with the Trustee, cooperating in the administration of their bankruptcy, and disclosing all their assets and liabilities.
Conduct During the Bankruptcy Period: The court considers the bankrupt’s conduct during the bankruptcy period, including any fraudulent or dishonest activities. In the case of Aiden Pleterski, the court will likely examine his undisclosed revenue generation, solicitation of additional investments, and trading activities concerning Binance and Steam items and accounts. The bankruptcy trustee asserts that Pleterski engaged in transactions totalling hundreds of thousands of dollars on the online gaming platform Steam, which he failed to disclose.
Compliance with Income and Expense Statements: Bankrupts are required to submit accurate income and expense statements during the bankruptcy period. Any discrepancies or intentional misrepresentation of these statements can adversely affect the discharge application.
Cooperation with the Trustee and OSB: The court evaluates the bankrupt’s level of cooperation with the Trustee and the OSB. Failure to provide requested information or obstruction of the bankruptcy process may impact the discharge decision.
Payment of Surplus Income Obligations: If the bankrupt is required to make surplus income payments during the bankruptcy period, timely and consistent payments are crucial in assessing their eligibility for discharge.
Rehabilitation and Financial Recovery: The court considers whether the bankrupt has made efforts towards rehabilitation and financial recovery, such as obtaining gainful employment, reducing debts, and ensuring future financial stability.
Creditor Objections: Creditors also have the opportunity to present objections to the discharge application, indicating any concerns about the bankrupt’s conduct or repayment history.

The Impact of a Discharge and will Aiden Pleterski ever get one?

In general, when the court grants a discharge, it relieves the bankrupt from their debts, with some exceptions outlined in the BIA. It also signifies the end of the bankruptcy process and allows the individual to make a fresh start financially. However, if the discharge is not granted, the bankrupt remains liable for their debts and is subject to whatever sanctions the Court imposes.

In an opposed bankrupt’s application for discharge, such as the Aiden Pleterski case, bankruptcy trustees initially file a report on the bankrupt’s application for discharge. Then when it is close to the date the Court will hear the matter, bankruptcy trustees file a supplementary report on the bankrupt’s application for discharge.

Facts submitted by the Trustee against an absolute discharge

The Trustee raised the following points as facts the Court could rely upon in not granting a discharge from bankruptcy to Aiden Pleterski at this time:

the assets of the bankrupt are not valued at fifty cents on the dollar of the unsecured liabilities owed, due to circumstances for which the bankrupt can be justly held responsible as per section 173(1)(a) of the BIA;
the bankrupt did not effectively manage and provide detailed documentation of their personal and business financial records for the three years leading up to their bankruptcy filing according to section 173(1)(b) of the BIA;
the bankrupt did not provide a satisfactory explanation for the loss of assets or for any shortfall in assets to cover his liabilities, as required by BIA section 173(1)(d);
the bankruptcy was caused and worsened by excessive spending on luxurious items, such as owning over 10 high-end sports cars, maintaining a monthly living expense of around $45,000 for a mansion, frequent use of private jets, and engaging in risky and irresponsible business practices. These actions are considered unjustifiable and have significantly contributed to the financial downfall leading to bankruptcy (BIA section 173(1)(e)); and
the bankrupt did not fulfill several responsibilities required of him under the BIA. This includes a failure to cooperate and aid the Trustee in examining his financial matters as outlined in section 158 s.173(1)(o) of the BIA.

In the Aiden Pleterski bankruptcy case, the Trustee has recommended that the bankrupt’s application for discharge be refused. The Trustee further submitted to the Court that if it is not inclined to refuse the application for discharge, then both a suspension and conditions are appropriate in the circumstances.

The Trustee also advised the Court that if it was not inclined to refuse the bankrupt’s application for discharge, then it should both be suspended for two years and there should be the following conditions imposed:

Submit a payment of $4,539,803 to the Trustee, which includes the total value of a gaming platform account, Scotiabank funds, and PayPal funds.
Make a payment to the Trustee equivalent to 30% of proven claims in the estate. The unsecured claims filed in the estate to date total $30,473,879 and the Trustee has so far only recovered a total of $5,635,461.
File all income tax returns, both pre and post-bankruptcy and settle any income tax obligations resulting from post-bankruptcy filings.
Provide the Trustee with login credentials for all accounts on platforms such as Steam and Binance, as well as any other online asset and trading platforms.
Ensure completion of all outstanding income and expense statements.
Agree to a permanent prohibition on seeking or using unsecured credit, as well as soliciting investments in debt or equity from individuals, corporations, or non-institutional lenders.
Provide a written undertaking to abide by these restrictions.
Aiden Pleterski

Aiden Pleterski Application For Bankruptcy Discharge: The Court’s Decision

The judge hearing the bankrupt’s application for discharge reserved his decision. On July 18, 2024, the Court released the decision by Justice Black regarding the bankruptcy application for discharge filed by Aiden Pleterski, who has been in bankruptcy for nearly two years. Justice Black determined that Mr. Pleterski’s actions necessitate a focus on public protection and accountability.

Furthermore, Justice Black explained that denying the discharge at this juncture, while awaiting the outcome of the ongoing criminal prosecution, would enable the Court to consider the results of the criminal case in making an informed decision regarding Mr. Pleterski’s application for discharge from bankruptcy. So Aiden Pleterski remains an undischarged bankrupt and cannot bring back his application for discharge from bankruptcy until his criminal trial is completed.

Aiden Pleterski Conclusion

Aiden Pleterski’s bankruptcy case may be extreme, but it is not unusual in the world of opposed bankruptcy discharge hearings. It serves as a reminder of the importance of adherence to the rules and responsibilities outlined in the BIA. The Court will carefully evaluate his application for discharge, taking into account factors such as compliance, conduct, and cooperation during the bankruptcy period, as well as the concerns raised by the Trustee and creditors.

Regardless of the outcome, this case underscores the need for transparency, honesty, and good faith engagement in the bankruptcy process to achieve a successful discharge and pave the way for a brighter financial future.

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

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

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.

Tags $40-million Pleterski, 16-month investigation, aiden pleterski, bankrupt's application for discharge, bankruptcy proceedings, CP24 BREAKING NEWS, crypto currency, Crypto King, CTV News, Durham Regional Police, form of luxury purchases, large-scale fraud prosecution, lavish lifestyle, money laundering, Ontario Securities Commission, self-proclaimed 'Crypto King, Steam accounts, Steam Skins

Brandon Blog Post

PROOF OF CLAIM FORM 31: ESSENTIAL TIPS TO SUCCESSFULLY COMPLETE THE NEW CANADIAN BANKRUPTCY FORM 31

Post author By Brandon Smith
Post date June 24, 2024

Form 31 Proof of Claim Introduction

The Office of the Superintendent of Bankruptcy (OSB) published several amended Forms under the Bankruptcy and Insolvency Act (Canada) (BIA) to promote a more efficient and effective insolvency system, removing some outdated elements and ensuring better data integrity for all stakeholders. These amended Forms were originally set to come into force on July 15, 2024. One of those new forms is the Form 31 proof of claim. This morning, the OSB announced that the effective date has now been pushed back to September 16, 2024.

In this Brandon’s Blog, given the new proof of claim form coming into use effective July 15, I feel I need to update my October 2018 blog titled: FORM 31 PROOF OF CLAIM: HOW TO PROPERLY COMPLETE THE PROOF OF CLAIM. I will compare the new form to the old one as there are substantial changes and advise on how it should be properly completed as we walk through the new form.

Background Information on Form 31 Proof of Claim

Purpose of Form 31 Proof of Claim

Claims of creditors in bankruptcy or restructuring proposal cases are made on a very specific proof of claim form. The purpose of the form is to furnish information about the claim by the creditor against the debtor. It asks for such things as the contact details of the creditor and permission to represent it if it is a corporate body. Additionally, there are interrogatives on debt aspects like the amount due and supporting papers.

The types of claims section encompasses unsecured claims, lessor claims, secured claims, farm or wage earner claims, plan administrator’s claims, director’s liability claims and client claims against their bankrupt securities dealer.

It also inquires whether or not there has been any relationship between the debtor’s recent transactions with the creditor such as recent payments.

One can obtain information regarding an insolvent person’s financial condition and their application for discharge from bankruptcy. There is a caution at the end of this document concerning penalties for making fake claims or giving false statements. The creditor must sign it himself or through the representative. If an affidavit is attached thereto, then it must be sworn by a person who is authorized by law to administer oaths.

Importance of Properly Completing Form 31

The proper completion of Form 31, Proof of Claim, is crucial in the claims process for creditors with substantiated claims. This form serves as a critical document for creditors looking to assert and potentially recover owed debts. Providing accurate and thorough information on this form is essential for creditors to establish a strong foundation for their claims.

Failure to provide complete or accurate information on Form 31 can lead to delays, rejections, or the disqualification of the claim. Therefore, it is imperative for creditors to closely follow the instructions and guidelines stipulated in Form 31. By doing so, creditors can ensure that their claims are accurately documented and processed efficiently within the specified timelines.

Section 1: Understanding the Basics of Form 31 Proof of Claim

Definition of Provable Claim

Section 2 of the BIA contains the definitions. In that section, a provable claim is defined:

“includes any claim or liability provable in proceedings under this Act by a creditor“

What does this mean? it means that a provable claim refers to a debt or obligation owed by a debtor that can be verified and substantiated through documentary evidence. For a claim to be considered provable, it must meet certain criteria established by the Act, including an amount that can be determined, is due and payable at the time of the bankruptcy or within a reasonable period after that, and not be contingent on some other event or unliquidated.

Difference Between Provable and Unliquidated Claims

An unliquidated claim under the BIA refers to a claim for a specific amount of money that has not yet been determined or quantified. This type of claim typically arises when the exact amount owed to a creditor is uncertain or requires further investigation to establish.

In the context of bankruptcy proceedings, unliquidated claims present a challenge as they may complicate the distribution of assets to creditors. To address this issue, mechanisms for resolving unliquidated claims include negotiations, mediation, a disallowance of the claim by the licensed insolvency trustee (formerly known as a bankruptcy trustee) (the “Trustee”) or court proceedings to determine the appropriate amount owed.

Properly handling unliquidated claims is essential for ensuring fair and efficient bankruptcy proceedings under Canadian law.

Identifying False Claims

Ensuring the validity of claims in Canadian bankruptcy proceedings is a crucial element in safeguarding the integrity of the bankruptcy system. Baseless claims hinder the fair distribution of assets to rightful creditors and undermine confidence in the process. The proliferation of meritless claims can result in delays, increased expenses, and potential financial harm to creditors.

It is essential for Trustees to thoroughly evaluate the authenticity of claims to prevent manipulation and dishonesty. Implementing rigorous verification procedures and penalties for unsubstantiated claims are essential strategies for upholding the fairness and transparency of Canadian bankruptcy proceedings.

Section 2: Required Information for Completing Form 31 Proof of Claim

Completing and returning a Form 31 proof of claim is an important phase in the bankruptcy process. They are one of the documents included with the notice of bankruptcy documents sent out by the Trustee to formally notify the creditors of the bankruptcy.

Personal Details of the Creditor

For proof of claim to be properly completed, the creditor must furnish their contact information, encompassing their mailing address, fax number, and email address. Moreover, the creditor must substantiate their legitimacy as a creditor of the debtor and exhibit a thorough understanding of all pertinent details related to the claim. This takes you from the top of the new Form 31 proof of claim down to numbered paragraph #2.

Details of the Claim

It is incumbent upon the creditor to clearly outline the total sum of the outstanding debt owed by the debtor, in addition to any potential counterclaims, accompanied by relevant documentation or substantiating evidence. The new proof of claim form now requires a creditor to verify that the debt remains within the statutory limitations stipulated by the pertinent provincial laws and regulations. In other words, the claim is not statute-barred.

Those details are covered by paragraphs 3 through 5 of the form.

Priority of the Claim

Paragraph 6 is where, as an unsecured creditor, you need to insert the amount for what you believe to be your claim provable in the actual restructuring proposal to creditors or bankruptcy of the person or company. You must also declare whether you do or do not claim a right to a priority. If you do not, this means that you are an ordinary unsecured creditor.

If you are claiming a right to a priority claim as an unsecured creditor, you are stating that you are entitled to a priority of payment ahead of the ordinary unsecured creditors. The new Form 31 proof of claim requires you to identify what type of priority you are claiming.

The various types of unsecured claims that can have priority over ordinary unsecured claims, which are called preferred claims, are, in order of priority:

For a deceased bankrupt, reasonable funeral and testamentary costs.
The claims for wages by a wage earner employee for unpaid wage claims and certain other amounts treated like remuneration for services rendered during the period beginning on the day that is six months before the date of the initial bankruptcy event or the first day on which there was a receiver. This claim is limited to a maximum payment of $2,000, less any amounts paid for their services by the licensed insolvency trustee.
Any shortfall to a secured creditor as a result of the claim for employees’ priority above.
Any shortfall to a secured creditor as a result of the claim of employees paid out for unpaid amounts regarding prescribed pension plans.
Alimony or support payments payable by the bankrupt person under either a court order or an agreement made before the date of the initial bankruptcy event.
municipal taxes levied against a bankrupt’s real property within the two years immediately preceding the bankruptcy not registered as a lien against the property. This preferred claim cannot exceed the value of the bankrupt’s interest in the property.
A lessor for rent arrears for no more than 3 months before the date of bankruptcy and only if stipulated in the lease, a claim for accelerated rent for no more than an additional 3 months. This claim is limited to the amount realized by the Trustee from the property of the bankrupt on those premises. Further, any payment made by the licensed insolvency trustee for accelerated rent shall be credited against any amount the Trustee may owe the landlord for the Trustee’s occupation of those leased premises.
One bill of costs of a lawyer for a judgment creditor who is the first to have garnished or otherwise executed against the property of the bankrupt, but only to a maximum of the amount obtained by the Trustee from the realization of assets from the sale of such property.
Certain government debts.
Claims from injuries to employees of the bankrupt where workers’ compensation legislation does not apply, but only if there is an insurer or surety guaranteeing damages from injuries and up to the maximum guaranteed.

Section 3: Additional Considerations for Completing Form 31 Proof of Claim

There are also specialized claims that a creditor may qualify for.

A Claim of Lessor For Disclaimer of a Lease

In a corporate restructuring under the Proposal provisions of the BIA, the insolvent company can disclaim or resiliate a commercial lease. The insolvent debtor must be able to show that it cannot successfully restructure if it still has to be responsible for that commercial lease. Upon the disclaiming or resiliation of the commercial lease, the landlord is allowed to calculate its claim using the formula and provisions laid out in the BIA.

Valuing a Secured Claim

Secured creditors have the option, though not a mandatory requirement unless stipulated by the licensed insolvency trustee, to file their claim. This process involves the secured creditor completing the proof of claim form, where they estimate the value of the assets linked to their security. Any outstanding amount owed to the creditor beyond the assets’ value is also specified on the proof of claim, thereby converting it into an unsecured claim.

Secured creditors must exercise caution when determining the value of their secured claim. As per subsection 128(3) of the BIA, a Trustee may opt to redeem a security by reimbursing the secured creditor with the security’s assessed value, as indicated by the secured creditor in the proof of claim. A licensed insolvency trustee would only proceed with redemption if they ascertain that the actual value of the assets surpasses the value assigned by the secured creditor to its security.

Moreover, a Trustee must seek an independent legal opinion on the security documents. That is why a Trustee will always ask for proof of security.

*Claim by Farmer**, Fisherman or Aquaculturist*

Claims of farmers, fishermen, and aquaculturists are granted specific privileges for claims under the BIA legislation. This particular category of creditors is entitled to certain rights. In addition to the standard revindication rights, farmers, fishermen, and aquaculturists have a 30-day window following the initiation of bankruptcy proceedings or the appointment of a receiver to submit their claim for products supplied within 15 days before the bankruptcy event. Once the claim is successfully filed, these creditors are granted a primary lien on all the inventory of the insolvent debtor, excluding any inventory that may be subject to another party’s repossession rights.

Claim by Pension Plan for the unpaid amount

I alluded to claims in respect of an unpaid pension amount above. In 2008 the BIA was amended in reaction to several high-profile corporate restructurings and bankruptcies where there were pension payment amounts deducted from employee wages but not remitted to the pension plan. When the employer went bankrupt, the employees’ pension entitlement was negatively affected (think Sears Canada). Pension entitlement is an important component of the overall employees’ remuneration.

Therefore, Parliament mandated a reform where a super-priority is created for claims for unremitted pension contributions outstanding when an employer becomes bankrupt. The kinds of amounts given this super-priority are pension payments deducted from an employee’s wages but not remitted to the pension plan administrator, amounts owed by the employer for the cost of benefits paid by the pension plan and employer contributions to a defined benefit pension plan. What is excluded from this super-priority is any amount needed to reduce an unfunded pension liability.

Claims Against Directors

This kind of claim comes into play when a BIA corporate restructuring proposal provides for the compromise of claims against directors. The kind of claims against directors that a corporate proposal can compromise must have a very specific set of characteristics:

A claim against directors is being compromised in the corporate Proposal.
Arose before the filing of the Notice of Intention To Make A Proposal or the Proposal itself.
Relate to corporate obligations that are director liabilities by operation of law.

They do not include any corporate liabilities that one or more directors may have personally guaranteed as individuals.

Claim of a Customer of a Bankrupt Securities Firm

The BIA delineates precise protocols for the allocation and distribution of cash and securities within a securities firm customer pool fund. The intricacies of this process are highly technical and exceed the purview of this blog post on completing a Form 31 proof of claim. It is essential to understand that distinct provisions are in place for companies of this nature that have filed for bankruptcy.

Complicated or Contingent Claims

There are a variety of claims that by their very nature, produce complications. Just because a claim might be complicated, it does not mean the proof of claim should not be fully completed and filed with the Trustee. It also does not mean that the licensed insolvency trustee does not have to review it to determine if it is admissible or not.

Examples of complicated claims are unliquidated claims discussed above and contingent claims. In a Canadian insolvency case, a contingent claim is a claim that is not yet due and payable but may become due and payable in the future. Contingent claims are often referred to as “contingent debts” or “contingent liabilities.”

A contingent claim may arise in various situations, such as:

A lawsuit or legal action that has not yet been resolved, but may result in a payment or settlement in the future.
A contract or agreement that provides for payment or performance in the future, but only if certain conditions are met.
A guarantee or indemnity that may become payable in the future if a specific event occurs.

When a contingent claim is filed in a bankruptcy or proposal case, the licensed insolvency trustee must handle it in a specific manner. Here are the key steps:

Initial Review: The Trustee reviews the contingent claim to determine its validity and the likelihood of it becoming due and payable in the future.
Assessment of Likelihood of Payment: The Trustee assesses the likelihood of the contingent claim becoming due and payable, considering factors such as the strength of the underlying legal claim, the likelihood of a settlement or judgment, and the potential for future payments or performance.
Valuation of the Claim: The Trustee values the contingent claim, taking into account the likelihood of payment and the potential amount of the payment.
Inclusion in the Statement of Affairs: The Trustee should include a contingent claim in the sworn Statement of Affairs, which is the document that outlines the insolvent debtor’s assets, liabilities, and financial affairs. The creditor would be listed as a contingent creditor. Because at this stage the Trustee has not received a proof of claim to review, it is wise to list the amount of this contingent debt either as “unknown” or with a value of just $1.
Monitoring and Follow-up: The Trustee monitors the contingent claim and follows up with the creditor to ensure that any future payments or performance are made following the terms of the agreement or contract.
Distribution of Funds: If the contingent claim becomes due and payable in a specific amount and the creditor has filed the proof of claim properly, the Trustee needs to include the valued claim in calculating a distribution to the unsecured creditors.

Creditors are required to furnish the licensed insolvency trustee with all essential documentation and information to substantiate their contingent claim. Subsequently, the Trustee will work with the creditor to ensure the appropriate handling of the claim.

Section 4: Procedural Requirements for Submitting Form 31 Proof of Claim

As a creditor, it’s crucial to understand the procedural requirements for submitting a Form 31 Proof of Claim in a Canadian insolvency case. In this section, we’ll delve into the key issues that creditors should be aware of when submitting their Proof of Claim.

Deadline for Submitting Proof of Claim

The deadline for submitting a proof of claim is a critical aspect of the insolvency process. In Canada, creditors have a specific timeframe to file their proof of claim. Until a creditor files a proof of claim with the Trustee, the creditor cannot participate in the insolvency process. Creditors should ensure they submit their proof of claim well within the deadline to avoid any potential issues.

The First Meeting of Creditors in bankruptcy or the Meeting of Creditors in a restructuring proposal takes place 21 days after the date of filing. If a creditor who has a provable claim wishes to vote at the meeting of creditors, then it is important to have filed the fully completed proof of claim, with all supporting backup documentation, in time for the Trustee to be able to review it.

At the meeting of creditors, it is up to the meeting chair to admit or disallow any claim for voting purposes. In a bankruptcy, the creditors vote on several matters, including the appointment of Inspectors. The Meeting of Inspectors normally immediately follows the meeting of creditors. So if a creditor wishes to nominate an Inspector, it has to have filed its claim to be able to vote. To be able to vote for or against a consumer proposal or corporate restructuring proposal, the proof of claim must be filed.

The only other real deadline to file a proof of claim is before the Trustee is going to make a distribution. A Trustee must send each creditor listed on the Statement of Affairs who has not yet filed a proof of claim notice to file a claim before making a final distribution. That notice will have a deadline in it. If the creditor misses that deadline then they are not entitled to receive any dividend from the insolvency estate.

Properly Filing the Form 31

Properly filing the Form 31 proof of claim is a critical step. Creditors must ensure they complete the form accurately and thoroughly, providing all necessary information, including the amount of the debt, the date the debt was incurred, and any relevant documentation. It’s also essential to sign and date the form, as well as attach any supporting documentation. Creditors should also ensure they file the form with the correct office, as specified in the bankruptcy notice.

*Notice of Intention**To Make A Proposal*

In some cases, the insolvent individual or corporation may file a Notice of Intention To Make A Proposal, which provides creditors with advance notice of the impending restructuring proposal. At the Notice of Intention stage, there is not a specific deadline for submitting a proof of claim. A proof of claim is not sent out at this notice stage. After the Proposal is filed and the Trustee sends out the Proposal package to the known creditors, in that package the proof of claim form 31 is provided. Creditors should carefully review the Proposal package and ensure they submit their proof of claim by the specified deadline.

I was involved some time ago in a corporate restructuring case where a financial institution creditor filed a proof of claim and a voting letter using their form at the notice of intention stage. The form was improperly completed and I warned the creditor that its proof of claim was not being accepted and that they must file a new one, properly and fully completed, after they receive the Proposal package from our Firm.

They ignored my warnings and did not do so. I therefore disallowed their claim which meant their vote did not count. They appealed my decision to the Court. The Court agreed with the Trustee. Not only did their vote not count, but because they lost the appeal, they also had to pay our lawyer’s costs!

Notice of Bankruptcy Process

The bankruptcy notification is a crucial document that provides creditors with essential information about the bankruptcy proceedings, including the timeline for submitting a proof of claim. This notification is distributed by the licensed insolvency trustee managing the bankruptcy process and offers creditors a detailed overview of the procedures involved, including the deadline for submitting proof of claims.

To ensure the accurate and complete submission of the claim form, it is advisable to follow the guidelines outlined below in Section 5. Submitting a Form 31 proof of claim is a critical aspect of the bankruptcy process. Creditors must meet the submission deadline, correctly file the form, and provide all necessary information. Understanding the procedural requirements for submitting a proof of claim helps creditors protect their rights and ensure their interests are properly represented throughout the process.

Section 5: Ensuring Accuracy in Completing Form 31 Proof of Claim – A Step-by-Step Guide to Filing a Proof of Claim

As a creditor, it’s essential to know how to complete Form 31, also known as the Proof of Claim, when dealing with bankruptcy or proposal proceedings. The only way for creditor claims to be registered properly is through the filing of a properly and fully completed proof of claim form.

Let me walk you through the step-by-step process of filling out this crucial document.

Step 1: Gather Required Information

Before starting to fill out Form 31, make sure you have the following information readily available:

The name of the bankrupt individual or corporation
The amount of the debt owed to you
The date the debt was incurred
Any relevant documentation, such as invoices or contracts

Step 2: Complete the Header Information

Begin by filling out the header section of the form, which includes:

The name of the bankrupt individual or corporation
The file number assigned to the bankruptcy proceeding

Step 3: Furnish Creditor Details

In this step, kindly provide the following details as the creditor:

Your full name and mailing address
Your business name and registered address (if applicable)
Your contact information, including phone number and email address

Step 4: Specify the Debt

Specify the debt you’re claiming:

The amount of the debt owed to you
The date the debt was incurred
A brief description of the debt, including any relevant details
Completing whether or not you are a secured, claiming a priority or an ordinary unsecured creditor
Make sure that you include the entire claim

Step 5: Provide Supporting Documentation

Attach any relevant documentation to support your claim, such as:

Invoices or receipts
Contracts or agreements
Bank statements or other financial records

Step 6: Sign and Date the Form

Once you’ve completed the form, including completing the proxy form section if the creditor is a corporation, sign and date it in the designated areas.

Step 7: File the Form

Submit the completed Form 31 to the professional trustee administering the bankruptcy, along with any supporting documentation. You can submit the proof of claim by fax, email, snail mail or delivery. The most important reason of course is that if there is going to be a distribution to the creditors, you want to make sure that you have submitted your claim for dividend purposes.

Additional Tips and Reminders

Ensure to maintain a copy of the completed form for your records.
If you’re unsure about any part of the process, consider consulting with a bankruptcy lawyer or the Trustee handling the bankruptcy case . In case of any uncertainties regarding any aspect of the process, it is advisable to seek advice from a bankruptcy lawyer or the Trustee overseeing the bankruptcy case.
File your claim on time to safeguard your rights as a creditor.

By adhering to these guidelines and furnishing precise information, you will complete Form 31 and safeguard your creditor rights throughout the bankruptcy or restructuring proceedings.

Section 6: Common Mistakes to Avoid when Completing Form 31 Proof of Claim

When engaging in the intricate process of submitting a proof of claim to the Trustee, it is imperative to steer clear of common errors that may result in delays, rejections, or potential dismissal of your claim. This section will outline three crucial errors to avoid when completing Form 31 for the proof of claim.

Providing incomplete or inaccurate information on your proof of claim: This can significantly hinder the processing of your claim or result in its rejection. To mitigate this risk, it is crucial to take the following steps:

- Thoroughly review your claim amount to ensure it aligns with your records.
- Verify the accuracy of creditor information, including names, addresses, and account numbers
- Organize your documents coherently and logically to facilitate efficient processing and evaluation.

By paying close attention to these details, you can enhance the accuracy and efficiency of your claim submission process.

Failure to include supporting documentation: This is a significant oversight that can result in the rejection or delay of your claim. To mitigate this risk, it is imperative to adhere to the following guidelines:

- Attach all pertinent supporting documents, including invoices, receipts, and contracts.
- Ensure that all documents are clear, legible, and easily readable.
- Organize your documents in a clear and logical order

Missed Deadlines for Submission: Be sure to allocate extra time for any unforeseen delays or complications when submitting your proof of claim before the deadline. To minimize last-minute stress, make sure to submit your claim well ahead of the due date. By being proactive and avoiding these typical errors, you can streamline the filing process and increase your chances of a successful outcome. Remember to thoroughly review your details, attach all necessary documentation, and submit your claim with ample time to spare. Finally, missing deadlines for submitting your proof of claim can have severe consequences, including dismissal of your claim.

To ensure a successful filing process, it’s important to avoid these common mistakes. Make sure to thoroughly review your information, attach all necessary supporting documents, and submit your claim with ample time before the deadline.

Section 7: Form 31 Proof of Claim FAQs

In this section, we’ll address some frequently asked questions about completing Form 31 proof of claim.

Q1: What is Form 31 Proof of Claim?

A1: Form 31 Proof of Claim is a prescribed form that creditors use to indicate their claim against a bankrupt estate or in a formal restructuring under the BIA. It is a crucial step in the process, as it allows creditors to assert their rights and receive a portion of the available funds.

Q2: Where can I find Form 31 Proof of Claim?

A2: Form 31 Proof of Claim may be obtained from the office of the Trustee or downloaded from the official website of the Office of the Superintendent of Bankruptcy Canada. Make sure you get the most up-to-date version of the form as the new one goes into effect on July 15, 2024.

Q3: What information should I include in Form 31 Proof of Claim?

A3: When completing Form 31 Proof of Claim, you should provide accurate and detailed information, including your name and address, the debtor’s name, the amount of your claim, and any supporting documentation.

Q4: Are there any specific formatting guidelines for completing Form 31 Proof of Claim?

A4: While there are no strict formatting guidelines, it’s important to ensure that your form is neat, legible, and organized. Use clear and concise language, and avoid any unnecessary details. Attach supporting documents in a logical order and label them appropriately.

Q5: Can I submit multiple claims using Form 31 Proof of Claim?

A5: Yes, you can submit multiple claims using Form 31 Proof of Claim. However, you must separate each claim clearly and provide all the necessary information and supporting documentation for each claim.

Q6: Can I make changes to my submitted Form 31 Proof of Claim?

A6: Once you have submitted your Form 31 Proof of Claim, it depends on the change. If it is something very minor, like your phone number, the Trustee will make that change for you. If it is a major change, like the amount you are claiming, it is recommended that you file an amended claim. Therefore, reviewing your form carefully before submission and ensuring its accuracy is crucial. If you need to make corrections or updates, contact the Trustee’s office immediately.

Remember, completing Form 31 Proof of Claim accurately and on time is essential to assert your rights as a creditor and receive a fair distribution from the estate. By following these tips and guidelines, you can navigate the process successfully.

Conclusion

Completing Form 31 Proof of Claim is crucial for creditors seeking to assert their rights in a bankruptcy case. By avoiding common mistakes, including providing inaccurate information, failing to include supporting documentation, and missing submission deadlines, creditors can enhance their chances of a smooth filing process. Remember to double-check all information, attach relevant supporting documents, and submit your claim on time. By doing so, you can ensure that your claim is properly considered and increase your chances of a successful outcome.

Do you or your company have too much debt? Are you or your company in need of financial restructuring? The financial restructuring process is complex. The Ira Smith Team understands how to do a complex restructuring. However, more importantly, we understand the needs of the entrepreneur or the person who has too much personal debt.

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

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.

Brandon Blog Post

NAVIGATING BUSINESS INSOLVENCY IN CANADA: A LAWYER AND ACCOUNTANT’S COMPREHENSIVE GUIDE TO MASTERING INSOLVENCY LAW

Post author By Brandon Smith
Post date April 22, 2024

Introduction to Business Insolvency

Welcome to our Brandon’s Blog where we will explore the intricate world of insolvency and its profound impact on businesses in Canada from my perspective as a professional in the field. In this exploration of business insolvency, we will uncover the implications that insolvency brings for creditors, shareholders, their lawyers and accountants, and employees alike.

Understanding the complexities of financial distress is crucial for businesses to navigate through turbulent times successfully. Join me as we discuss effective strategies and best practices to mitigate the challenges of insolvency, ensuring a smoother transition toward financial stability.

Definition of Business Insolvency

Business insolvency in the Canadian context refers to the financial state of a business where it is unable to pay its debts as they become due. It is a financial condition, not a legal one. Do not confuse the business or company with the financial condition of being an insolvent person with the legal condition of being involved in bankruptcy proceedings. Corporate insolvency is not corporate bankruptcy.

Corporate insolvency results in the business being unable to pay its debts when due which may make it impossible for the business to continue its operations. Insolvent companies may very well end up in the legal state of bankruptcy or as an alternative to bankruptcy, in insolvency restructuring proceedings.

Business insolvency can force the business to choose one of the insolvency options for businesses, including bankruptcy filings or proposals for restructuring and repayment plans under the Bankruptcy and Insolvency Act (Canada) (BIA).

In Canada, the number of business insolvencies has been on the decline for many years, but the impact of the COVID-19 pandemic has seen a reversal of this trend. Business insolvency filings are on the rise again. However, there are many small businesses where a business bankruptcy process does not make any sense as there are either no or few assets to offset the large company debts. We get calls daily from entrepreneurs of such companies where we tell them it is in their best interests to merely close the business doors rather than spend money to put their company into bankruptcy.

Causes and Warning Signs of Business Insolvency

Economic Downturn and Market Volatility

One of the primary contributors to business insolvency in Canada is the unpredictable nature of economic fluctuations and market volatility. As businesses strive to adapt to shifting market trends and consumer demands, they are often met with unforeseen challenges that can strain financial resources. Economic downturns, changes in consumer behaviour, and global market dynamics all play a pivotal role in determining the financial health of businesses across various sectors.

Cash Flow Problems: Overleveraging and Excessive Debt Burden

Another significant factor that can precipitate business insolvency is overleveraging and an excessive debt burden. While leveraging can be a strategic tool for growth and expansion, it becomes problematic when businesses accumulate debt beyond their capacity to repay. High levels of debt, coupled with declining revenues or profitability, can create a precarious financial situation, ultimately leading to insolvency if left unaddressed.

Poor Financial Planning and Management

Effective financial management and planning are essential components of sustainable business operations. However, inadequate financial oversight and poor planning can leave businesses vulnerable to insolvency. From misaligned budgeting strategies to ineffective cash flow management, deficiencies in financial management practices can exacerbate existing challenges and hasten the onset of insolvency.

Regulatory Compliance and Legal Challenges

Navigating the complex regulatory landscape in Canada can pose significant challenges for businesses, especially concerning compliance and legal matters. Failure to adhere to regulatory requirements, such as tax obligations or industry-specific regulations, can result in legal disputes, penalties, and fines, placing additional strain on financial resources. Moreover, litigation and legal challenges can further impede business operations and contribute to business insolvency.

Technological Disruption and Industry Shifts

The rapid pace of technological innovation and industry shifts can disrupt traditional business models and market dynamics, presenting both opportunities and challenges for businesses in Canada. Failure to embrace technological advancements or adapt to changing industry trends can render businesses obsolete or inefficient, leading to a decline in competitiveness and financial viability. As such, businesses must remain agile and proactive in leveraging technology to stay ahead of the curve and mitigate the risk of insolvency.

External Shocks and Unforeseen Events

External shocks and unforeseen events, such as natural disasters, geopolitical instability, or pandemics, can have profound implications for business continuity and financial stability. The unprecedented disruptions caused by such events can severely impact supply chains, disrupt operations, and erode consumer confidence, thereby jeopardizing the financial health of businesses. While certain external shocks may be beyond the control of businesses, proactive risk management and contingency planning are essential to mitigate their adverse effects.

Remember, proactive planning, decisive action, and collaboration with knowledgeable professionals are the cornerstones of navigating business insolvency effectively.

Business Insolvency: Overview of Insolvency Law in Canada

In Canada, insolvency law plays a vital role in guiding businesses through financially distressed situations. As a professional knowledgeable in this field, I will delve into the types of insolvency proceedings and the key legislation and regulations that govern insolvency processes.

Types of Insolvency Proceedings: In Canada, businesses can navigate various types of insolvency proceedings:

- bankruptcy;
- proposal;
- corporate restructuring;
- receivership.

Bankruptcy involves the liquidation of assets to repay creditors, while a proposal allows for negotiating repayment plans to avoid bankruptcy. For larger corporations, corporate restructuring under different legislation than a proposal (discussed next) is available. Finally, when a secured creditor enforces its security to liquidate the business assets, that is receivership.

Understanding the nuances between these proceedings is essential for businesses facing financial challenges. All of these proceedings are described in detail in my previous blogs in the Lawyer and Accountant Series over the last few weeks.

Key Legislation and Regulations: The BIA applies to all business bankruptcy, proposal and receivership proceedings in Canada. The Companies’ Creditors Arrangement Act (CCAA) applies to corporations that owe more than $5 million to creditors who wish to avail themselves of Canadian bankruptcy protection to restructure their operations and finances.

These are the pivotal legislation for an insolvent person, be they a consumer, individual, proprietorship, partnership or corporation. They govern personal insolvency and business insolvency in Canada. The BIA will govern any personal bankruptcy or corporate bankruptcy.

Understanding these aspects of insolvency law is imperative for businesses as they navigate through financial difficulties. By recognizing the procedures and regulations outlined in the key legislation, businesses can protect their interests and work towards a successful resolution of insolvency issues.

As we continue to unravel the intricate landscape of insolvency law in Canada, I will now explore the specific roles of lawyers and accountants in business insolvency, shedding light on their invaluable contributions to navigating insolvency proceedings effectively.

Role of a Lawyer in Business Insolvency

Lawyers play a critical role in guiding businesses through the challenging landscape of insolvency. There are many complexities and responsibilities involved in representing clients during financial distress. Let’s explore the legal responsibilities and duties, as well as effective strategies for representing clients in insolvency proceedings.

Legal Responsibilities and Duties

A lawyer’s primary responsibility is to ensure that their clients navigate the legal proceedings smoothly, legally and ethically. Upholding the highest standards of professionalism and compliance with relevant laws is paramount in protecting the interests of all involved parties. From providing sound legal advice to negotiating on behalf of clients, every action must align with the legal framework outlined in insolvency law.

In insolvency proceedings, it’s essential to draft and review legal documents meticulously, such as restructuring plans and agreements, to safeguard the rights of creditors, shareholders, and employees. Transparency and adherence to the law are non-negotiable aspects that guide a lawyer’s responsibilities in representing clients effectively.

Strategies for Representing Clients

When representing clients in business insolvency cases, adopting a strategic approach is key to achieving successful outcomes. Clear communication with clients to understand their objectives and concerns forms the foundation of developing a tailored strategy. By conducting in-depth research, analyzing financial documents, and collaborating with other professionals like accountants and insolvency practitioners, lawyers can offer comprehensive legal services.

Each client’s situation is unique, requiring a personalized strategy that addresses their specific needs and goals. Through a combination of legal expertise, practical considerations, and proactive communication, lawyers strive to navigate the complexities of insolvency proceedings effectively. By working collaboratively with clients and other professionals, especially the insolvency professionals, they can secure the best possible resolutions for their clients’ insolvency challenges.

Role of an Accountant in Business Insolvency

Accountants also play a critical role in the realm of business insolvency. The CPA understands the importance of financial analysis and compliance with accounting standards in navigating through the complexities of insolvency. Let’s explore how accountants play a pivotal role in helping businesses facing financial distress.

Financial Analysis and Reporting

Financial analysis and reporting are fundamental aspects of dealing with business insolvency. The accountant’s role involves carefully assessing the financial health of a company experiencing insolvency issues. By analyzing crucial financial statements, cash flow projections, and other relevant data, CPAs can provide insights that help the business understand its current financial situation.

Through their expertise in financial analysis, CPAs identify key areas of concern and create accurate reports that are essential for stakeholders, including creditors, shareholders, and employees, to make informed decisions. Effective financial analysis enables businesses to develop strategies for managing financial distress, paving the way for a smoother resolution of insolvency issues.

Compliance with Accounting Standards

Compliance with accounting standards is a cornerstone for businesses navigating insolvency in Canada. The CPA will ensure that the financial statements are prepared in adherence to the relevant accounting principles and regulations. This commitment to compliance promotes transparency and upholds the integrity of financial reporting.

By maintaining strict compliance with accounting standards, businesses demonstrate their dedication to ethical practices and financial accuracy. This, in turn, fosters trust among creditors, shareholders, and other stakeholders during times of financial distress. Upholding accounting standards is crucial for businesses to mitigate legal and financial risks, emphasizing the need for meticulous attention to regulatory requirements.

CPAs recognize the significance of financial analysis and compliance with accounting standards in guiding businesses through the insolvency process. By providing invaluable financial expertise ensuring adherence to regulatory guidelines, and working with other professionals, especially the insolvency professionals, the external CPA supports businesses in making well-informed decisions and navigating the complexities of business insolvency successfully.

This is how both non-insolvency lawyers and accountants can still play a meaningful role in business insolvency, especially in a business restructuring process. A successful outcome of the business restructuring is the best way for the existing lawyer and accountant to maintain both the client but also a close meaningful business relationship for the long term.

Impact of Business Insolvency

Job Losses and Unemployment

The impact of Canadian business insolvency on job losses and unemployment can be significant. When a business becomes insolvent, it may be forced to lay off employees or shut down entirely, leading to job losses. This can result in a higher unemployment rate as workers find themselves without a job and struggle to secure new employment.

The COVID-19 pandemic has exacerbated these challenges, with many entrepreneurial businesses in Canada continuing to face financial difficulties and the continued risk of closure. Such businesses are still struggling to return to normal revenues, carry unpaid debt taken on during the pandemic, and face rising costs and a shortage of labour.

Targeted measures and support for small businesses are crucial to prevent closures and job losses. By assisting, such as financial aid, access to resources, and support for restructuring, the impact of business insolvency on job losses and unemployment can be mitigated. Additionally, policies like the recent amendments to prioritize creditor claims related to defined-benefit pension plans can help protect employees’ financial security in the event of insolvency.

Effects on Suppliers and Creditors

The effects of Canadian business insolvency on suppliers and creditors can be significant. When a business becomes insolvent, suppliers may face challenges in receiving payment for goods or services provided to the business. This can result in financial difficulties for the suppliers themselves, especially if they rely heavily on the insolvent business as a major customer.

Creditors, including financial institutions and other lenders, may also experience losses when a business files for bankruptcy or proposes a restructuring plan. In most cases, creditors will not receive the full amount owed to them, or they may have to wait a significant amount of time to receive any repayment.

Overall, Canadian business insolvency can have a ripple effect on suppliers and creditors, leading to financial challenges and losses for those involved in the business’s operations. Suppliers and creditors need to assess their credit risks before extending credit and take appropriate measures to protect their interests in the event of a business insolvency.

Potential Closure or Sale of the Business

In Canadian business insolvency, the potential closure or sale of the business can have significant implications for the business owner, employees, creditors, and the economy as a whole. If an entrepreneurial business is unable to meet its financial obligations and is forced to close its doors, it can result in job losses, financial losses for creditors, and a decrease in economic activity in the local community.

For the business owner, the closure or sale of the business can mean the end of their entrepreneurial venture, financial loss, and potential personal liability for both Director liabilities as well as any corporate debt personally guaranteed by the entrepreneur. Such liabilities can have a significant impact on their financial well-being and prospects.

For employees, the closure of a business can result in job loss, uncertainty, and financial hardship. They may struggle to find new employment, especially if the closure is due to broader economic challenges in the industry or region.

For creditors, the closure of a business can mean they probably will not recover the full amount owed to them. They may have to write off the debt as a loss, which can impact their financial stability and ability to extend credit to other businesses.

In terms of the economy, the closure or sale of a business can contribute to a decrease in economic activity, reduced consumer confidence, and a negative impact on the overall business environment. It can also lead to a loss of tax revenue for the government, further impacting public services and infrastructure.

Overall, the potential closure or sale of a business in a Canadian business insolvency is a complex and challenging situation that requires careful consideration of the implications for all stakeholders involved. It underscores the importance of effective financial management, planning, and risk mitigation strategies for entrepreneurial businesses to avoid insolvency and closure in the first place.

Reputation Damage

Reputation damage arising from a Canadian business insolvency can have long-lasting effects on a company. When a business becomes insolvent, it is unable to fulfill its financial obligations, leading to creditors and suppliers losing trust in the company. This can result in difficulty in securing credit, partnerships, and contracts in the future.

Moreover, news of a business insolvency can spread quickly, damaging the company’s reputation among customers and stakeholders. Customers may lose faith in the company’s ability to deliver products or services, leading to a loss of business and revenue. Employees may also become concerned about job security and employee wages. Morale suffers and the most qualified employees can find new jobs quickly. All of this leads to morale suffering which makes the business insolvency closer to a self-fulfilling prophecy.

Reputation damage from a business insolvency can be difficult to overcome. Rebuilding trust with creditors, suppliers, customers, and employees may take time and effort. Companies trying to implement a restructuring insolvency plan need to implement strong communication strategies to address concerns and demonstrate a commitment to financial stability and responsibility.

Overall, reputation damage arising from Canadian business insolvency can have significant consequences for a company’s long-term success and viability. Businesses need to address insolvency issues promptly and transparently to mitigate potential reputational harm.

Navigating Business Insolvency Proceedings

Initiating the Insolvency Process

In Canada, the process of initiating insolvency proceedings is a critical step for businesses facing financial distress. There are two kinds of processes; 1. voluntary and 2. involuntary.

The voluntary process normally begins with the insolvent business formally declaring insolvency by filing for bankruptcy protection under either the BIA or CCAA to begin the restructuring process. Alternatively, the insolvent business can file corporate bankruptcy if liquidation is the only answer for a business that is no longer viable.

The involuntary process would normally begin with either a secured creditor privately appointing or making an application to the Court for the appointment of a receiver. Alternatively, one or more unsecured creditors owed in total at least $1,000 can launch a Bankruptcy Application against the insolvent company.

Seeking professional guidance from experts like insolvency lawyers and licensed insolvency trustees is essential to navigate this complex process effectively. Businesses can begin addressing their financial challenges by initiating insolvency proceedings and working toward a resolution.

Managing Stakeholder Relationships

Managing stakeholder relationships is paramount during times of business insolvency in Canada. Creditors, shareholders, and employees all have vested interests in the outcome of insolvency proceedings. Effective communication and transparency are essential to build trust and mitigate potential conflicts. By keeping stakeholders informed, addressing their concerns, and involving them in decision-making processes, businesses can navigate insolvency proceedings with clarity and confidence.

Business insolvency is a complex issue that requires careful navigation. By understanding the implications for all stakeholders and seeking professional advice, businesses can better prepare for financial challenges.

Resolving Legal issues Within a Business Insolvency

There are two main avenues for addressing legal issues within insolvency cases: 1. Negotiation and Mediation Techniques, as well as 2. Litigation and Court Proceedings. I will now delve into the strategies and approaches essential for navigating through challenging financial times successfully.

Negotiation and Mediation Techniques

When faced with legal issues within insolvency cases, negotiation and mediation techniques can be powerful tools for finding amicable solutions. Insolvency trustees find that engaging in constructive dialogue with stakeholders can often lead to mutually beneficial outcomes. By exploring innovative and collaborative approaches, businesses can avoid unnecessary conflicts and costly legal battles.

Effective negotiation involves understanding the concerns and needs of all parties involved.
Mediation offers a platform for open communication, ensuring that diverse perspectives are heard and respected.
Skilled mediators facilitate the process, guiding toward agreements that protect the interests of creditors, shareholders, and employees.

By adopting a strategic and empathetic approach to negotiation and mediation, businesses can navigate the complexities of insolvency issues with resilience and integrity. The ability to find common ground and explore creative solutions is essential in any business restructuring.

Litigation and Court Proceedings

While negotiation and mediation are preferred methods for resolving legal issues within the insolvency case, there are instances where litigation and court proceedings become inevitable. This is more so within a liquidating bankruptcy proceedings rather than in a business reorganization. Licensed insolvency trustees understand the importance of legal recourse in protecting the rights and interests of all stakeholders involved.

Litigation provides a formal platform for resolving disputes and making legally binding decisions.
Court proceedings ensure that insolvency matters are adjudicated fairly and by the law.
Legal experts specializing in insolvency law offer invaluable guidance throughout the litigation process.

By preparing meticulously and engaging competent legal representation, businesses can navigate the complexities of court proceedings with confidence. While litigation may signify a more adversarial approach, it can also lead to definitive resolutions that provide clarity and direction in times of financial turmoil.

4 Common Business Insolvency FAQs

What is the difference between company insolvency and personal bankruptcy?

Company insolvency refers to a company that is unable to pay its bills and debts owed, while personal bankruptcy is a legal process for individuals who cannot pay their bills to eliminate debt.

When should a company consider filing for bankruptcy?

A company should consider filing for bankruptcy or bankruptcy protection to restructure when they are facing overwhelming financial difficulties, such as a loss of income, high levels of debt, inadequate cash flow, and reliance on personal credit to meet obligations. This only makes sense if action is taken relatively early in the insolvency when there are still assets that can be used in perhaps a different corporate form to continue to run the viable part of the insolvent business.

How much debt does a business need to owe to file for bankruptcy in Canada?

In Canada, an insolvent person or insolvent business needs to owe $1,000 or more to unsecured creditors to be eligible to file for bankruptcy.

Can sole proprietorships and partnerships file for business bankruptcy?

Yes, sole proprietorships and partnerships can file for business bankruptcy, and they would need to work with a Licensed Insolvency Trustee to do so. In these forms of business, it is the sole proprietor or partners who would be filing bankruptcy. As this would be a consumer insolvency, the bankruptcy rules dealing with the insolvency of individuals would guide this kind of bankruptcy process.

Business Insolvency Conclusion

Navigating business insolvency in Canada is a multifaceted challenge that requires careful consideration and strategic planning. As a licensed insolvency trustee, I have explored the intricacies of insolvency law and its impact on businesses, creditors, shareholders, and employees. Understanding the complexities of insolvency is pivotal for businesses to weather financial storms successfully for a brighter financial future.

The role of corporate lawyers and accountants in helping to guide businesses through insolvency proceedings is an important one. By recognizing the significance of legal responsibilities, financial analysis, and compliance with accounting standards, businesses, with the help of a Licensed Insolvency Trustee and insolvency legal counsel can tackle insolvency issues with confidence and resilience.

I hope you enjoyed this business insolvency Brandon’s Blog. Individuals and business owners must take proactive measures to address financial difficulties, consumer debt and company debt and promptly seek assistance when necessary. It is crucial to recognize that financial stress is a prevalent concern and seeking help is a demonstration of fortitude, rather than vulnerability. Should you encounter challenges in managing your finances and find yourself burdened by stress, do not delay in pursuing aid.

Revenue and cash flow shortages are critical issues facing people, entrepreneurs and their companies and businesses with debt problems that are in financial distress. Are you now worried about just how you or your business are going to survive? Are you worried about what your fiduciary obligations are and not sure if the decisions you are about to make are the correct ones to avoid personal liability? Those concerns and more associated with your company debt are obviously on your mind.

The Ira Smith Team understands these overwhelming debt financial health concerns. More significantly, we know the requirements of the business owner or the individual who has way too much financial debt. You are trying to manage these difficult financial problems and you are understandably anxious. It is not your fault you can’t fix this problem on your own and it does not mean that you are a bad person. The pandemic has thrown everyone a curveball. We have not been trained to deal with this. You have only been taught the old ways. The old ways do not work anymore.

The Ira Smith Team uses innovative and cutting-edge methodologies, to adeptly navigate you through the intricacies of your financial challenges ensuring a resolution to your debt-related predicaments without resorting to the rigours of the bankruptcy process. We can get you debt relief now! We have helped many entrepreneurs and their insolvent companies who thought that consulting with a Trustee and receiver meant their company would go bankrupt.

On the contrary. We helped turn their companies around through financial restructuring. We look at your whole circumstance and design a strategy that is as distinct as you are. We take the load off of your shoulders as part of the debt settlement strategy we will draft just for you.

The Ira Smith Trustee & Receiver Inc. team understands that people facing money problems require a lifeline. That is why we can establish a restructuring procedure for you and end the discomfort you feel. Call us now for a no-cost consultation. We will listen to the unique issues facing you and provide you with practical and actionable ideas you can implement right away to end the pain points in your life, to begin your debt-free life, Starting Over, Starting Now.

Tags bankruptcy proceedings, benefit of creditors, business bankruptcy, business insolvency filings, canadian businesses, company debts, consumer insolvency, Corporate Bankruptcy, corporate insolvency, employee wages, financial distress, insolvency of individuals, insolvency options, insolvency process, insolvency professionals, insolvency trustee, insolvency trustees, legal proceedings, secured creditor

Brandon Blog Post

BANKRUPTCY LAWYER: IS ONE ESSENTIAL TO FILE FOR BANKRUPTCY IN ONTARIO?

Post author By Brandon Smith
Post date August 7, 2023

bankruptcy lawyer

Bankruptcy lawyer: Introduction

Step right into this week’s edition of Brandon’s Blog, where we’re embarking on a profound exploration. Our focus today delves into a crucial theme that carries substantial weight within the psyche of a myriad of Canadian consumers grappling with financial adversity, as well as Canadian business owners navigating their enterprises with too many business debts through fiscal quandaries. The question at the forefront: do the circumstances warrant enlisting the expertise of a bankruptcy lawyer when contemplations of insolvency filings in Canada take center stage?

Venturing through the intricate landscape of insolvency and the realms of personal or corporate bankruptcy has the potential to stir feelings of frustration and helplessness. This sentiment amplifies mainly when the trajectory of your personal or corporate fiscal destiny hangs in a precarious balance, swaying like a delicate pendulum. The gravity of making prudent choices during this trying juncture cannot be overstated. At its core, lies the quintessential need to not only identify the right course but also to discern the adept professional from whose wellspring of wisdom guidance should be sought.

In this Brandon’s Blog, I will outline the scenarios in which consulting with a bankruptcy lawyer is highly advised, but as you will see, it is not essential in every circumstance. Whether you are taking into consideration submitting a restructuring proposal or seeking bankruptcy protection, recognizing who to turn to for specialist assistance for legal and financial advice can substantially affect the result of your financial journey.

I will discuss the intricate details surrounding insolvency as well as bankruptcy law in Canada. By diving into the significance of professional assistance and support, I intend to equip you with the understanding needed to make enlightened decisions during this difficult phase. Join me as we decipher the secrets of insolvency and bankruptcy and empower ourselves to safeguard a better financial future.

Bankruptcy lawyer: Overview of the insolvency and bankruptcy process in Canada

The bankruptcy procedure in Canada is governed by the Bankruptcy and Insolvency Act (BIA). It is a legal statute developed to supply relief to people and companies that are unable to pay their financial obligations. The process always includes the services of a Licensed Insolvency Trustee that is responsible for administering the insolvency process.

The Licensed Insolvency Trustee is first required to assess the debtor’s entire financial situation, including the causes of the insolvency, the current financial position and the nature of the assets and liabilities of the debtor. The Licensed Insolvency Trustee then needs to make recommendations to the debtor to solve their current financial crisis. Once agreed on, what insolvency or bankruptcy process will be implemented, the BIA and the restructuring consumer proposal, Division I proposal or the bankruptcy, is put into operation to offer a fresh start for the debtor while making certain there is fair treatment for the creditors.

A Licensed Insolvency Trustee is the only professional licensed in Canada by the federal government to administer the Canadian insolvency process chosen. In many cases, the process can be carried out without the advice of a bankruptcy lawyer.

bankruptcy lawyer

Bankruptcy lawyer: Formal insolvency options in Canada

Navigating the intricate labyrinth of bankruptcy within Canada unfurls as a legal undertaking of profound significance, extending its benevolent embrace to both individuals and enterprises ensnared within the inescapable clutches of their fiscal commitments. This orchestrated progression finds its regulatory compass in the venerable BIA, its vigilant guardianship entrusted to a duly licensed sentinel of fiscal adversity, recognized as a Trustee.

Commencing this odyssey, the debtor sets forth to formally lodge their supplication for bankruptcy, an entreaty promptly received by the Licensed Insolvency Trustee, who, in turn, undertakes the judicious scrutiny of the debtor’s economic constellations. From this intricate appraisal blooms a stratagem, a masterwork designed to navigate the undulating terrain of debt repayment, fostering equilibrium amid the ranks of creditors.

Through the procession of this intricate ballet, the debtor finds sanctuary from the clamorous onslaught of creditor collections, an ephemeral respite nestled within the folds of the overarching process. This respite, however, is not a sojourn of idle reprieve; it entails the debtor’s obligatory participation in the convocations of credit counsel, a didactic interlude intended to illuminate the labyrinthine corridors of fiscal wisdom.

Once the intricacies of this design garner the seal of approval, the gears of asset liquidation are set into motion, unfurling a cascade of transactions wherein the debtor’s holdings metamorphose into liquid currency, a tribute disseminated among the consortium of creditors who await their apportioned spoils.

The culmination of this voyage heralds the debtor’s liberation from the shackles of residual indebtedness, a phoenix rising from the embers of fiscal duress, reborn into a realm unburdened by the obligations that once ensnared them.

The formal insolvency options in Canada are described below.

Insolvency and debt relief solutions for individuals –

Restructuring by making monthly payments under a consumer proposal for those who owe $250,000 or less (not including any debts secured by and registered against a person’s residence).
Financial restructuring under a Division I proposal, for those who owe more than $250,000.
Personal bankruptcy.

Insolvency and debt relief options for companies –

Financial restructuring under a Division I proposal as an alternative to bankruptcy.
Sale of assets through a receivership enforcement process initiated by a secured creditor.
Restructuring for companies that owe $5 million or more under the Companies’ Creditors Arrangement Act (CCAA).
corporate/business bankruptcies..

How a bankruptcy lawyer can assist you: Importance of seeking legal advice in certain situations

In certain situations, looking for the advice of a Canadian bankruptcy lawyer is of utmost significance. An insolvency or bankruptcy filing is an intricate legal process that needs careful consideration of an individual’s financial scenario. A bankruptcy legal representative can assist with whether corporate or personal bankruptcy, as the case may be, is the best option, the kinds of insolvency processes readily available, and the connected lawful obligations and effects.

Furthermore, individuals can seek assistance from a bankruptcy lawyer to guide them through the legal procedures. It is highly recommended that consumer debtors seek advice from both a licensed insolvency trustee and a bankruptcy lawyer in certain circumstances. Some typical scenarios that warrant additional counsel from a bankruptcy lawyer well-versed in insolvency law include:

They are involved in complex family law proceedings.
There are one or more legal actions against you that allege unlawful behaviour, such as fraud or fraudulent misrepresentation or the conversion of someone else’s property, such as funds held in trust.
The bankrupt’s application for discharge from bankruptcy is being opposed and therefore there will be a court hearing.
Their financial situation is intertwined with other issues where confidential consultation with legal advice is required and that advice must be protected by solicitor-client privilege.
There are special asset considerations where a privileged discussion with a bankruptcy lawyer is essential before seeking advice and assistance from a Licensed Insolvency Trustee.

In corporate insolvency situations, we always recommend that the Directors obtain legal advice from a bankruptcy lawyer in addition to the corporation obtaining legal assistance.

A bankruptcy lawyer can provide customized guidance in such touchy situations as well as representation to guarantee the most effective feasible outcome for their clients.

bankruptcy lawyer

Can I file for bankruptcy without a bankruptcy lawyer in Canada?

While it is possible to declare bankruptcy without a bankruptcy lawyer in Canada, it is recommended to seek legal counsel for complex corporate and personal filings. Hiring a bankruptcy attorney supplies several advantages, including knowledge of insolvency legislation, assistance in more complex proceedings and guidance on unusual issues, specific unique creditor issues or claims and personal liability under any personal guarantees.

In addition, a bankruptcy lawyer can represent you in court proceedings such as with litigants who have obtained approval of the court to continue litigation against the debtor and on a personal bankruptcy discharge hearing. This will guarantee that your legal rights are safeguarded throughout the process. Therefore, in these kinds of consumer and corporate insolvency matters, it is smart to talk to a qualified bankruptcy lawyer to ensure a smoother and much more successful bankruptcy process in Canada.

Determining the necessity of enlisting the services of both a bankruptcy lawyer and a Licensed Insolvency Trustee: Is a bankruptcy lawyer required to initiate bankruptcy proceedings in Canada?

Filing for bankruptcy in Canada can be a complex as well as stressful process, however, as defined above, it is feasible to do it without the help of a bankruptcy lawyer. A bankruptcy lawyer cannot launch the bankruptcy process in Canada. In Canada, bankruptcy, as well as any other insolvency process, is launched and administered by Licensed Insolvency Trustees that are qualified and also supervised by the Office of the Superintendent of Bankruptcy (OSB). So when someone files for bankruptcy, it is done with a trustee in bankruptcy (this is the old name for a Licensed Insolvency Trustee).

Trustees are accountable for overseeing and handling the Canadian bankruptcy and insolvency procedures, including the liquidation of assets and the distribution of proceeds to creditors for unsecured debts. They additionally offer debtors financial counselling, therapy and support on how to handle their financial resources in the future. To end up being a Trustee, people need to satisfy particular educational and professional requirements, consisting of completing specialized training, courses and examinations. Thus, Canadians can trust that their insolvency, as well as personal bankruptcy procedures, are being managed by qualified and also experienced professionals.

Regardless of the guidance and aid regarding your financial affairs from a Licensed Insolvency Trustee before and also after the initiation of a financial restructuring or personal bankruptcy process, a Licensed Insolvency Trustee practically acts on behalf of the unsecured creditors. So, for circumstances like those described above, if any debtor has an extra complicated scenario, is associated with sticky scenarios or is concerned about the director or personal responsibility as a result of a business restructuring or bankruptcy, then the recommendations of a bankruptcy lawyer should be acquired before entering into any insolvency procedure.

bankruptcy lawyer

Bankruptcy lawyer and a Licensed Insolvency Trustee: Determining the necessity of enlisting the services of both a bankruptcy lawyer and a Licensed Insolvency Trustee

There arise certain junctures where the imperative of engaging a proficient bankruptcy lawyer to adroitly navigate the intricate labyrinth of the Canadian bankruptcy process becomes unequivocal. As expounded upon earlier, should your fiscal panorama manifest intricacies reminiscent of a Byzantine tapestry, replete with an entanglement of debts and creditors, the tutelage and expertise proffered by a bankruptcy lawyer morph into an invaluable compass.

The determination of the exigency to enlist the services not only of a bankruptcy lawyer but also of a bankruptcy trustee constitutes a pivotal crossroads for both individuals and enterprises ensnared in the throes of financial quandaries. While a bankruptcy lawyer adroitly dispenses legal counsel and advocates in the corridors of justice, a bankruptcy trustee’s role expands to encompass the labyrinthine realm of debt reorganization, proposal filings, and the art of debt alchemy. Their convergence encapsulates a holistic stratagem in the pursuit of resolving the monetary labyrinth.

Grasping the complexity inherent in bankruptcy law is tantamount, and a seasoned bankruptcy lawyer deftly steers through the legal firmament, charting a course that aligns with the best nexus of legal tenets. Conversely, a Licensed Insolvency Trustee proffers a detached analysis of the financial constellation, endowing clients with an array of options extending beyond the binary realm of bankruptcy and answering any questions about bankruptcy you may have.

At its essence, the verdict to summon forth both the prowess of a bankruptcy lawyer and the sagacity of a Trustee should hinge upon the unique tapestry woven by individual circumstances and the crystalline aspirations of the client. Ultimately, it comes down to the complexity and sensitivity of the person’s or company’s overall situation.

How to find a qualified bankruptcy lawyer or Licensed Insolvency Trustee in Ontario

When confronted with financial troubles in Canada, it’s important to make informed choices. If you’re thinking about bankruptcy, it’s smart to seek guidance from a Licensed Insolvency Trustee. These professionals can assist you through the intricate procedure and also give important understanding.

For those with especially complicated financial circumstances, or who is a corporate director of an insolvency company, it might be essential to employ the help of a seasoned bankruptcy lawyer.

Starting your search for trustworthy professionals can be frustrating. Nonetheless, a calculated strategy can aid. Begin by discovering the Law Society of Ontario’s website, where you’ll discover a comprehensive list of competent legal experts that concentrate on bankruptcy and insolvency.

To locate a bankruptcy trustee near you, explore the computerized database of the OSB. This will certainly give a list of bankruptcy trustees in your locale to seek insight, advice and assistance. For both a bankruptcy lawyer as well as a Trustee, it is essential to engage in a comprehensive conversation with any prospective advisor, delving into their specialist background, navigational technique, and cost structure.

Efficiency is not the only aspect to think about; reliability and also the personal vibe you get from that person to see if you make a connection are likewise essential elements that need to inform your decision. By locating an ally who can give adept support throughout this challenging period, you can navigate this hard juncture with greater ease as well as confidence.

Finally, check out Google and other online reviews. There is nothing better than reviews from people who were in your shoes before and sought assistance from a Licensed Trustee, bankruptcy lawyer or both. Their experience and insight into specific professionals will help you immensely. Things to look for include:

What service did they perform for the person?
Does the reviewer live in your general area?
Did the professional do a good job?
What were some of the reviewer’s favourite things in working with that professional?
Did they work with any specific people in the firm that they highly recommend?
How did the Licensed Insolvency Trustee or bankruptcy lawyer they chose to compare to others they may have consulted with?
Are there any tips the reviewer offers to others?

Bankruptcy lawyer: Conclusion

Looking for legal advice when considering bankruptcy is not needed in every scenario. However, it is necessary when it concerns complicated plans. Hiring a qualified bankruptcy lawyer can provide countless benefits. They have the proficiency as well as knowledge to advise you before embarking on a bankruptcy process and afterwards to assist you with the whole procedure.

When considering filing an assignment in bankruptcy in Canada, it is crucial to comprehend the complexities of the process and also the potential effects. While it may be possible to navigate through it without an insolvency lawyer, talking to one will supply the specialist expertise necessary to guarantee a smooth and efficient process when you have complex or unique issues in your situation.

From evaluating your financial situation to exploring alternatives such as a restructuring proposal, a bankruptcy lawyer can direct you through the legal puzzle and also suggest the most ideal strategy. When it concerns matters as substantial as bankruptcy, seeking expert help is a sensible choice to secure your best interests and also secure a fresh financial start.

I hope you enjoyed this bankruptcy lawyer Brandon’s Blog. Problems with making ends meet are a growing concern in Canada, affecting individuals of all ages and income levels.

Creating a solid financial plan can be the key to unlocking a brighter and more prosperous future. By taking control of your finances, you can prioritize your expenses, set clear financial goals, and build a strong foundation for your dreams to come true. With the right mindset and approach, financial planning can empower you to regain control, eliminate this issue as a source of stress in your life and find peace of mind.

Individuals must take proactive measures to address financial difficulties and promptly seek assistance when necessary. It is crucial to recognize that financial stress is a prevalent concern and seeking help is a demonstration of fortitude, rather than vulnerability. Should you encounter challenges in managing your finances and find yourself burdened by stress, do not delay in pursuing aid.

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

It is not your fault you can’t fix this problem on your own and it does not mean that you are a bad person. The pandemic has thrown everyone a curveball. We have not been trained to deal with this. You have only been taught the old ways. The old ways do not work anymore. The Ira Smith Team uses innovative and cutting-edge methodologies, to adeptly navigate you through the intricacies of your financial challenges, ensuring a resolution to your debt-related predicaments without resorting to the rigours of the bankruptcy process. We can get you debt relief now!

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

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

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

Brandon Blog Post

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

Post author By Brandon Smith
Post date April 24, 2023

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

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

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

Overview of BIA Section 215

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

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

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

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

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

BIA: The Motion Judge’s Decision

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

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

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

The BIA case background

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

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

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

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

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

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

As Mr. Flight states in his affidavit:

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

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

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

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

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

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

The Court of Appeal for Ontario’s analysis

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

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

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

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

The Court of Appeal for Ontario’s decision

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

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

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

BIA: Conclusion

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

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

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

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

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

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

Tags bankrupt person, Bankruptcy and Insolvency Act, bankruptcy proceedings, BIA, bia section 215, civil action, Consumer Proposal, corporate trustee, current spouse, interim receiver, Ira Smith Trustee, legal counsel, licensed trustee, official receiver, trustee in bankruptcy, trustee in respect, trustee with respect, undischarged bankrupt

Brandon Blog Post

OFFICERS AND DIRECTORS: NAVIGATING THEIR RESPONSIBILITIES IN AN INSOLVENT CANADIAN CORPORATION

Post author By Brandon Smith
Post date February 6, 2023

officers and directors

officers and directors

Officers and Directors: Introduction

In Canada, it is essential that the individual orchestrating any criminal activity must have the necessary competency to commit the offence before any corporate responsibility can be assumed. The executives and board members of the enterprise are viewed as the ultimate custodians of the company’s ethical obligations.

Welcome to Brandon’s Blog! Here I’ll be discussing the court’s ruling on fraudulent intent by officers and directors, and how it affects the transfer of assets at undervalue in insolvent corporations. I’ll be focusing on the 2022 Court of Appeal for Ontario decision in the Bondfield Construction Company Limited (“Bondfield”) and Forma-Con Construction (“Forma-Con”) case as creating new law.

After two court decisions over nearly two years, the Supreme Court of Canada has delivered their decision on the Court of Appeal’s decision upholding the lower court decision, granting the application for leave to appeal to the Supreme Court.

Officers and Directors: What is the “directing mind”?

The term “directing mind” in the context of Canadian corporations refers to a natural person who holds a high level of authority within theand can be considered the “alter ego or soul” of the corporation. The term “alter e organization go” or “soul” of a corporation refers to a person who holds significant authority within the organization. According to the web search results, this person can be considered the embodiment or representation of the corporation.

Federal legislation uses a more familiar expression for the directing mind “senior officer”. This includes individuals who have an important role in setting policy or making important decisions within the corporation. A “senior officer” is a person in a position of authority or seniority over others. They are responsible for leading and overseeing a group or organization.

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The duties of Officers and Directors

Fiduciary Duty

In Canada, the phrase “directing mind” is used to refer to a top-tier individual, an officer or someone on the board of directors in a company who can be thought of as its “alter ego” or “soul”. This individual holds a great degree of influence and power within the corporation, making them its symbolic heart and soul.

Duty of Care

Officers and directors are expected to exercise the same degree of prudence, attention to detail, and knowledgeability that any reasonable individual would in similar scenarios. This means that they must stay abreast of the corporation’s financial well-being and make informed decisions using that information. Beyond the necessity of performing their fiduciary duty, they also have a duty of care to the company and its stakeholders.

Insolvency and the Obligations of Officers and Directors in Canadian Corporations

As a corporation’s liabilities come due and it finds itself unable to pay, insolvency looms large. This can be a stressful period for corporate officers and directors, as they are tasked with making crucial decisions that will affect the company and its stakeholders in the long run. It is paramount that they keep the corporation’s best interests in mind as they navigate these difficult waters.

Officers and directors of Canadian corporations have two significant legal obligations to fulfill: a fiduciary duty and a duty of care. Failure to uphold either of these duties could result in personal liability for them.

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Navigating Responsibilities in an Insolvent Corporation: Do officers and directors owe a duty to creditors

When an enterprise finds itself insolvent or close to it, the officers and directors of the company accept a nerve-wracking assignment. These decision-makers are required to make authoritative choices that will determine the fate of the corporation and of all those involved.

Officers and directors of an insolvent company must jump into action to protect as best as possible the corporation and its stakeholders from added losses. This could include negotiations with creditors, liquidating redundant assets, and reorganizing the firm’s procedures. It’s not a simple task, but it’s a necessary one.

It’s necessary to protect the corporation and its stakeholders by focusing on the company’s important resources and operations. Decisions must be made to stave the loss of assets needed to operate and make sure that all of its transactions are in the corporation’s best interests.

Aside from their approved responsibilities, officers and directors need to be alert to their obligations and the repercussions that may arise from negligence. They need to be very careful to ensure that their fiduciary responsibility and duty of care are not abandoned and must correct any missteps.

With this perfect segway, I now wish to describe a very important recent decision from the Court of Appeal for Ontario upholding the lower court decision on the duties and responsibilities of officers and directors of an insolvency company. This decision has been appealed to the Supreme Court of Canada. It is such an important decision for officers and directors, corporations and especially insolvent ones for the entire country, that the Supreme Court of Canada has agreed to hear the appeal.

Officers and directors: Ernst & Young Inc. v. Aquino, 2022 ONCA 202 (CanLII)

On March 10, 2022, the Court of Appeal made a landmark decision in Ernst & Young Inc. v. Aquino, which delved into the corporate attribution doctrine – the idea that the actions of a corporation’s controlling figure can be attributed to the firm itself. The ruling was especially pertinent in the bankruptcy and insolvency context.

John Aquino was the directing mind of Bondfield Construction Company Limited (“Bondfield”) and its affiliate Forma-Con Construction (“Forma-Con”). He and his associates carried out a false invoicing scheme over a number of years by which they siphoned off tens of millions of dollars from both companies.

The monitor and the trustee challenged the false invoicing scheme and sought to recover some of the money. The participants argue that they did not intend to defeat any actual creditors and that John Aquino’s intent cannot be imputed to either Bondfield or Forma-Con.

Bondfield was a full-service group of construction companies that operated in the Greater Toronto Area and Southern Ontario starting in the mid-1980s. Bondfield was in financial trouble in 2018 and started proceedings under the CCAA on April 3, 2019.

After a careful investigation, the monitor and the licensed insolvency trustee administering the bankruptcy (formerly called a trustee in bankruptcy) uncovered a shocking discovery: Bondfield and Forma-Con had deceitfully dispersed a staggering sum of money to or for the benefit of John Aquino and others via a fraudulent invoicing system!

In cross-examination, Mr. Aquino admitted that the suppliers who falsely invoiced Bondfield provided no value for the transfers, but denied intent to defraud, defeat, or delay Bondfield’s actual creditors.

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Can section 96 of the Bankruptcy and Insolvency Act (“BIA”) be used by the monitor and the trustee to recover the money officers and directors took from Bondfield and Forma-Con?

Section 96 of the BIA allows trustees to seek a court order “voiding transfers at undervalue” which are a transfer by the debtor to another party at no or undervalued consideration, which is an improvident transaction from the debtor’s perspective. The policy of the BIA goes beyond the modest origin of the law, which prohibits insolvent debtors from giving away assets to third parties instead of using those assets to repay their debts.

This section of the BIA is a remedy to reverse an improvident transfer that strips value from the debtor’s estate, but the trustee must nevertheless meet the requirements of the specific words used.
The monitor and the trustee had to prove two elements to require John Aquino and the other beneficiaries of the false invoicing scheme to repay the money they took under s. 96(1)(b)(ii)(B) of the BIA. The application judge bridged the gap by imputing John Aquino’s fraudulent intention to the debtors, Bondfield and Forma-Con.

The legal analysis of the false invoicing scheme was no longer in active dispute. John Aquino and his associates dispute liability under s. 96 on the basis that their fraudulent acts were not carried out at a time when Bondfield and Forma-Con were financially precarious.

John Aquino and his associates asserted that Bondfield and Forma-Con were financially healthy, so they did not intend to defraud any actual creditors. When assessing the intention of a debtor, a court must look at the information known at the time of the transfer or transaction, and the reasonableness of the debtor’s belief in light of the circumstances then existing.

In order to require John Aquino and the other beneficiaries of the false invoicing scheme to repay the money they took under s. 96(1)(b)(ii)(B) of the BIA, the monitor and the trustee had to prove two elements: first, John Aquino and the other participants were not dealing with Bondfield and Forma-Con at arm’s length; and second, at the time they took the money (during the statutory review period), they “intended to defraud, defeat or delay a creditor” of Bondfield or Forma-Con. The first element is amply established by the evidence. This case turns on the second element.

The lower court judge’s reasons for the timing of the transfers

The Court of Appeal found that the lower court judge decided correctly based on the legal principles that were presented. John Aquino and his associates presented their case of Bondfield and Forma-Con’s solvency when they received the funds. However, the judge decided that the affirmation of fraud provided an abundant base for deciding that Bondfield and Forma-Con had the purpose of deceiving, obstructing, or delaying their creditors.

The judge concluded that the presence of badges of fraud creates a presumption of fraudulent intent and that John Aquino had not rebutted the presumption. The judge also concluded that the true financial condition of Bondfield and Forma-Con at the time of each impugned transaction cannot be determined on the record before the court.

Based on the totality of the evidence, documents and information, the judge held that at the time of the fraudulent transactions, Bondfield and Forma-Con were already experiencing mounting financial difficulties, and their creditors were imperilled by the transfers. John Aquino continued on nonetheless, and the court found that the transfers were intended to defeat those creditors. The application judge took a pragmatic view of the evidence, found that John Aquino carried on with the false invoicing scheme knowing that Bondfield and Forma-Con were experiencing increasing financial difficulties, and inferred that he did this with the intent to defeat creditors.

John Aquino didn’t care if his scheme had the potential to defraud, defeat or delay creditors according to section 96 of the BIA. His recklessness was enough to show the intent needed to make the fraudulent transfers stand. It’s clear that he wasn’t concerned about the interests of the companies’ creditors.

Forma-Con paid over $11 million to certain purported suppliers under the false invoicing scheme during the time period of review allowed under s.96 of the BIA. For the Bondfield 5-year review period, the court found that the total amount of $21,807,693, are transfers at undervalue. The court ordered Mr. Aquino and associates, to repay this amount on a joint and several basis.

officers and directors

Officers and Directors: Uncovering the Impact of Fraudulent Intent on Transfers and Undervalue in Bankrupt Corporations

The application judge was able to uncover John Aquino’s scam involving false invoicing by Bondfield and Forma-Con, giving the trustee the green light under the BIA to reclaim the funds stolen by the fraudsters.

The appellants argue that the lower court judge erred legally because John Aquino’s fraudulent intent cannot be imputed to Bondfield or Forma-Con as a matter of law, even though he was one of their directing minds. They assert that the binding principles of the common law doctrine of corporate attribution set out in Canadian Dredge & Dock Co. v. The Queen,[55] do not permit the imputation of his intention to either defrauded the company. Accordingly, s. 96(1)(b)(ii)(B) of the BIA cannot be used to require John Aquino, or his associates as “privies” to the impugned transactions, to repay the money they took.

This intriguing argument brings up a difficult issue concerning the relationship between the stipulations of the BIA and common law doctrine. When can a court use common law in interpreting and putting the BIA into effect? I will start by presenting the judge’s rationale for the application. After that, I will tackle this legal inquiry and then consider its effects regarding the implementation of the corporate attribution doctrine in this appeal.

The lower court judge reasoned that common law doctrine can be enlisted by a court to interpret and supplement the BIA where necessary to better achieve its purposes, one of which is to protect the interests of the bankrupt’s creditors. She believed that common law can add content to the terms of the bankruptcy law not otherwise defined. In particular, the common law doctrine known as the anti-deprivation rule and its purpose of preventing fraud on the bankruptcy is especially pertinent in this case. The use of common law doctrine must respect the policy of the BIA.

The BIA is no stranger to the use of common law doctrines- though it has yet to officially codify ‘good faith’, the Supreme Court has nonetheless held that Parliament is expected to remain true to the traditional understanding of the common law unless there is some explicit and unmistakable indication of deviation. Consequently, when it comes to interpreting the BIA, the concept of good faith unquestionably plays a role, but it is not codified.

The fraud on bankruptcy law principle exists to protect creditors from unscrupulous parties who might otherwise try to remove value from an insolvent debtor’s assets. Corporations, being distinct from natural persons, necessitate the corporate attribution doctrine, which provides a link between the entity and the individual whose “guiding hand” propelled the corporation into action.

This kind of insolvency officers and directors case was novel in Canada

The corporate attribution doctrine has been applied in the fields of criminal and civil liability. Before this case, courts in Canada had yet to consider the doctrine in the bankruptcy and insolvency context under s. 96 of the BIA. The court recognized that the attribution exercise is grounded in public policy. These principles provide a sufficient basis to find that the actions of a directing mind be attributed to a corporation, not a necessary one.

Accordingly, as a principle that is grounded in policy, and which only serves as a means to hold a corporation criminally responsible or to deny civil liability, courts retain the discretion to refrain from applying it where, in the circumstances of the case, it would not be in the public interest to do so.

After thorough deliberation, the Court of Appeal sided with the lower court to declare that this case had implications for the public interest. It was determined that the invoicing scheme had been used as a way to fraudulently, obstructively, and detrimentally transfer funds to avoid payment to Bondfield’s and Forma Con’s creditors. The Court seeks to reverse these transactions and recover a total of $11,366,890 on behalf of Forma-Con’s creditors. For Bondfield’s creditors, the amount of $21,807,693,

officers and directors

The bottom line of Ernst & Young Inc. v Aquino

The lower court found and the Court of Appeal affirmed that decision that under s. 96 of the BIA, the payments by Bondfield and Forma-Con made in respect of the false invoices during the 12-month review period totalling for Bondfield, $21,807,693, and for Forma-Con, CDN$13,985,743 CAD and US$35,030 Are transfers at undervalue. Those that received these funds were ordered to repay them on a joint and several basis.

The Court of Appeal delved into some critical legal matters in their ruling, exploring the responsibilities insolvency practitioners must uphold, how much creditors should be able to expect, as well as the rights of everyone involved in bankruptcy proceedings. They also delved into the interpretation of the BIA and the reality of its application.

The Court decided that the BIA has to be implemented in a way that meets the expectations of the Act, and that insolvency professionals are to be held to a high standard of both expertise and responsibility.

At the beginning of this Brandon’s Blog, I mentioned this monumental case will be heard in the Supreme Court of Canada. As you can imagine, it will be a highly anticipated event in the insolvency world. And it won’t disappoint!

The ruling so far has had major implications for the insolvency industry, including the rights of creditors, officers and directors and insolvency practitioners. All in all, it was a groundbreaking decision that will shape the industry for years to come – and will no doubt be further shaped once the Supreme Court of the land hears the case and issues its decision.

Obligations and Responsibilities of the Board of Directors and Officers: Conclusion

The Ernst & Young Inc. v Aquino case was an important one for the insolvency industry and had far-reaching implications for the obligations of insolvency practitioners and the rights of creditors and other stakeholders. The Court of Appeal’s decision in the case was a clear and definitive ruling on a number of key legal issues, and it will likely have a lasting impact on the insolvency industry for many years to come.

I hope you enjoyed this officers and directors Brandon’s Blog.

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

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.

Tags bankrupt corporation, bankruptcy law, bankruptcy proceedings, Board of Directors, Bondfield Construction Company Limited, corporate attribution doctrine, corporation directors, court of appeal, duties of officers, Ernst & Young Inc. v Aquino, Forma-Con Construction, Ira Smith Trustee, liabilities of directors, personal liability, section 96 of the Bankruptcy and Insolvency Act, time period, trustee in bankruptcy, voiding transfers at undervalue

Brandon Blog Post

THE COMPLETE CORPORATE BANKRUPTCY IN CANADA GUIDE: WHAT EVERY BUSINESS OWNER NEEDS TO KNOW

Post author By Brandon Smith
Post date January 30, 2023

business bankruptcy in canada

Corporate bankruptcy in Canada: Introduction

Are you a business owner with company financial difficulties and apprehensive about the possibility of corporate bankruptcy and is it something that you will have to seriously consider? Corporate bankruptcy in Canada process can be complex and overwhelming, but understanding it is necessary for making authoritative decisions about your business.

In this Brandon’s Blog, I will analyze the ins and outs of corporate bankruptcy in Canada, including the different types, the steps in filing for corporate bankruptcy, the impact on creditors and shareholders, and alternatives to consider. By the end of this Brandon’s Blog, you will have a better understanding of corporate bankruptcy in Canada and be able to understand how to make the best decision for your business.

Explanation of what corporate bankruptcy in Canada is

The corporate bankruptcy process in Canada – otherwise known as commercial bankruptcy or incorporate business bankruptcy – is a legal means by which an incorporated business that is unable to pay its debts can be liquidated, and its liabilities discharged. This process allows the business to liquidate its assets and redistribute the value among its creditors. The process is intended to give an honest, but unfortunate corporate debtor a discharge from most debts while ending the business of that corporation.

It is important to note that corporate bankruptcy is different from personal bankruptcy which is a legal process through which an insolvent individual can substantially reduce debt and hopefully restructure. Unlike an individual who files for personal bankruptcy, it is not intended that the bankrupt corporation will come out of bankruptcy through a discharge process.

If single individuals are operating businesses and are considering business bankruptcy, then we are talking about the bankruptcies of sole proprietorships. If more than one person is operating a business partnership, then we need to think of the issues in a partnership bankruptcy. Either way, we have insolvent persons, which means personal bankruptcy, which is not the subject of this Brandon’s Blog.

It’s important to note that the process of corporate bankruptcy in Canada is complex and can only be handled by a licensed insolvency trustee. The Trustee will help you understand the process and the options available to your corporation and then prepare the documents required to submit the bankruptcy filing.

In Canada, if a corporation is bankrupt, it is subject to both the federal Bankruptcy and Insolvency Act (Canada) (“BIA”) and relevant provincial regulations. The BIA outlines the procedure for managing a corporate bankruptcy, while provincial law governs other aspects of the business such as labour laws.

corporate bankruptcy in canada

A brief overview of how the process of corporate bankruptcy in Canada begins

Navigating corporate bankruptcy in Canada can be complicated, as there are numerous steps that need to be taken. To begin, it is important to consult with a licensed insolvency trustee to review the financial details of the company, including income, profits, liabilities, and any personal guarantees. From there, the next step is to determine the misogynist options.

The board of directors needs to hold a meeting, in order to pass a resolution permitting the corporation to file for bankruptcy. This process is initiated by a director, or the single director, who will then execute the necessary bankruptcy paperwork.

Types of corporate bankruptcy in Canada

There are two types of corporate bankruptcy in Canada: liquidations and reorganizations. Although a reorganization is not an actual bankruptcy, the phrase “bankruptcy protection” is used to describe a formal reorganization. So for the purposes of this Brandon’s Blog, we will consider both as types of bamkruptcy.

The type of corporate bankruptcy in Canada proceedings can often provide a good indication as to whether the unsecured creditors will get all, a portion, or none of what they are owed.

corporate bankruptcy in canada

An overview of the 2 types of bankruptcy proceedings available to Canadian businesses

Liquidation

The process of corporate bankruptcy involves a business ceasing operations as it is unable to fulfill its financial obligations and the demand for its goods and services has become obsolete. This form of corporate bankruptcy is commonly referred to as liquidation.

Canadian bankruptcy proceedings must adhere to Canadian bankruptcy law under the BIA. This law contains similar liquidations to Chapter 7 of the U.S. Bankruptcy Code. Commencing the process of bankruptcy liquidation in Canada is the initial step.

It all starts with the board of directors of the corporation getting together and deciding to file for bankruptcy. One of the directors, or a single director, will then have to sign the official documents for the bankruptcy process.

Once the liquidation process has been initiated, the corporation’s assets, subject to the rights of any creditor having security over all or some of the assets, are taken over by the Trustee. The Trustee will sell the corporate assets and the proceeds will be distributed among the creditors according to the priority established by law. The corporation will then be laid to rest, as it will no longer operate as a legal entity.

Reorganization

Corporate reorganization is one of the alternatives to bankruptcy. It is a process in which a process for a company that is facing financial difficulties is able to restructure its outstanding debt and its operations in order to improve its financial situation. In Canada, the primary statutes for corporate reorganization are the Companies’ Creditors Arrangement Act (CCAA) and the BIA. These laws are similar reorganizations under Chapter 11 of the U.S. Bankruptcy Code.

The CCAA provides a thoroughfare of debt reorganization for corporations on a larger scale, as the amount owed by the company must exceed $5 million. Through this federal legislation, the debtor corporation can still operate while reaching an approved plan of arrangement with its creditors.

For corporations that do not reach this $5 million threshold, the Division I Proposal under the BIA can be utilized. The BIA provides for the restructuring of insolvent corporations and individuals.

The CCAA is a federal statute that allows for the sale of an insolvent business, with a reach that transcends the wideness of the whole Canadian nation and even extends beyond its borders.

The process of corporate reorganization under either the CCAA or BIA begins with the corporation filing for protection under the appropriate Act. In the case of the CCAA, the filing is with the court. Under the BIA, the filing is with the Office of the Superintendent of Bankruptcy Canada.

The debtor will then be safeguarded with all its possessions. Then, the corporation will be allotted a specified value of time – typically 30 to 45 days – to present a plan of arrangement. This plan must be approved by the creditors and the court in order to move forward. When the plan of arrangement is given the thumbs up, it can be set into motion.

So corporate reorganization in Canada is a process in which a company that is viable but is facing financial difficulties is allowed to restructure its business debts and operations in order to modernize its financial situation. The CCAA is mainly used for larger corporations and the BIA for smaller ones. Both legislations provide a process to restructure a company while under the protection of the court and it’s intended to be a way to save a company while protecting the rights of the creditors.

Advantages and disadvantages of corporate bankruptcy in Canada

Liquidation

Advantages of corporate liquidation using corporate bankruptcy in Canada:

Allows an incorporated entity that is unable to pay its debts to file for bankruptcy, as per the BIA.
Allows for the liquidation of resources and redistribution of that value among creditors, which can provide relief for the corporation and its creditors.

Disadvantages to bankruptcy and corporate liquidation using corporate bankruptcy in Canada:

The Canada Business Corporations Act (CBCA) prevents a company in bankruptcy from seeking dissolution under the CBCA.
Unfortunately, specific liabilities or obligations of the corporation are passed to its directors. This would put personal assets at risk.
The process is time-consuming and may also be expensive.
Unfortunately, the director’s reputation may moreover be tarnished in the process.

Reorganization

Advantages of reorganization under corporate bankruptcy in Canada:

Can uplift profits and increase efficiency.
Can extend the life of the business.
Can modernize strategy and financial arrangements.
Could be done informally without a court process by agreement between the debtor and its creditors or formally under either a proposal as outlined in part III of the BIA or a plan of arrangement under the CCAA.

Disadvantages of reorganization under corporate bankruptcy in Canada:

It may not work.
Decreased employee morale and concern among customers.
Can be a significant time investment with potential setbacks in cash flow
If the financial matters are so dire that a reorganization is not viable, the remaining option is full bankruptcy, which results in the liquidation of resources to pay creditors.
corporate bankruptcy in canada

Filing a voluntary assignment into bankruptcy for corporate bankruptcy in Canada

Overview of steps involved in filing for Corporate Bankruptcy in Canada

Finding a Licensed Insolvency Trustee (formerly called a trustee in bankruptcy) (LIT) and retaining the LIT to make an informed decision about proceeding with bankruptcy.
One of the directors (or sole director) will be required to execute corporate bankruptcy papers
Upon bankruptcy assignment, the LIT will notify business creditors of the bankruptcy proceeding.
Hold a meeting of creditors.
Conduct a sale of assets.
Carry out its other duties in accordance with the BIA.

Note: The above steps are a general outline and the specific process may vary depending on the case. It’s advisable to seek guidance from a licensed insolvency trustee and a legal professional to ensure compliance with the laws and regulations.

Essential paperwork and information

In order to file a voluntary assignment for corporate bankruptcy in Canada, and get to the point of holding the First Meeting of Creditors, the following documentation and information are typically required:

Provide the LIT with the corporate minute book, seal and accounting records.
Fully signed minutes of a validly held meeting of directors resolving that the corporation file an assignment in bankruptcy and appointing either a director or senior management person to be the Designated Officer to sign all bankruptcy documents and attend the First Meeting of Creditors.
A completed Voluntary Assignment of the corporate debtor, prepared by the LIT and signed by the Designated Officer.
The LIT prepared statement of affairs, reviewed, approved and sworn/confirmed by the Designated Officer, which includes information about the debtor’s assets and the names and addresses of all known creditors and the amounts owing to each of them.
The LIT will take the necessary steps to lodge the paperwork with the Office of the Superintendent of Bankruptcy, who in turn will give the Certificate of Bankruptcy – marking the very beginning of bankruptcy proceedings in Canada. The moment the Certificate is issued will be the exact time the corporate bankruptcy in Canada is activated.
The LIT then prepares the statutory notice to creditors which is mailed to all known creditors with a notice of the time and place of the First Meeting of Creditors will be held and also includes a proof of claim form for the creditors to complete fully and file with the LIT.
The LIT will also prepare the bankruptcy notice to be placed in a local newspaper to advertise for creditors to contact the Trustee.
The LIT prepares its Report on Preliminary Administration to provide necessary information to the creditors about the causes of the corporate bankruptcy in Canada, the available assets to be sold, if any and other important information. The LIT’s report is distributed at the First Meeting of Creditors.

In a voluntary assignment, the LIT is picked by the debtor. In an involuntary assignment, the LIt is suggested to and chosen by the court. In issuing the Certificate, the LIT choice is confirmed by the Office of the Superintendent of Bankruptcy. However, it is ultimately up to the creditors attending and voting at the First Meeting of Creditors to either confirm the appointment of the LIT or substitute the LIT with another one (don’t worry about the mechanics for now!). The LIT will be responsible for overseeing the administration of the debtor’s estate and distributing the proceeds to creditors.

It’s important to note that the above list is not exhaustive and additional documentation and information may be required by the Office of the Superintendent of Bankruptcy(OSB) or the appointed Trustee. It’s recommended to seek professional advice from a LIT, a lawyer or both, before filing for a voluntary assignment in bankruptcy.

The OSB plays an important part in the area of insolvency

The OSB is tasked with keeping orderly standards for the supervisory oversight of stakeholders within the insolvency process, creating an accessible archive of public records, compiling and analyzing data, and enforcing the BIA and CCAA regulations. Furthermore, the OSB is devoted to facilitating an effective and efficient insolvency framework in Canada.

The OSB in Canada is responsible for the supervision and regulation of the Canadian insolvency system, and overseeing the administration of all insolvency proceedings described as bankruptcies, commercial reorganizations, Division I commercial proposals, consumer proposals and receiverships.

The effects of corporate bankruptcy in Canada on creditors and stockholders

How corporate bankruptcy affects the distribution of assets among creditors

Divvying up resources among those owed money in a corporate bankruptcy in Canada can be quite intricate and can be affected by various elements, such as the kind of bankruptcy declared and the company’s ownership and organizational setup.

When a company files for bankruptcy, its day-to-day operations will typically come to a halt. All of the corporation’s assets will be sold off and the proceeds will be divided among its creditors. In Canada, this process can have a major impact on how the assets are divided up among those who are owed money.

The BIA requires the LIT to take control of all the unencumbered assets, sell them and assigns orders of importance to the many claims against the debtor. The net sale proceeds are then doled out to creditors depending on the priority of the claims.

In a nutshell, the types of creditors and the order of priority is:

Trust claims, including unremitted employee payroll withholdings.
Secured lenders.
Preference is given to certain kinds of unsecured debt.
Ordinary unsecured creditors are last.

In Canada, though the assets of a company are distinct from the owners’ individual wealth, banks will always take security on the company’s assets when loaning funds and anticipate the entrepreneur to provide some kind of collateral. It bears mentioning that this is a standard requirement.

Should the proceeds of the company assets fail to cover the bank debt in the event of a Canadian bankruptcy, the owners will be called upon to make good on their personal liability and may be faced with the liquidation of some or all of their personal belongings to make up the difference.

What sort of ramifications does corporate bankruptcy in Canada have on the equity holders and their privileges?

Generally, when it comes to bankruptcy proceedings, it’s usually shareholders who are left holding the shorter end of the stick. Most often, they don’t get anything back after all other creditors have been taken care of– leaving them with nothing but the realization that their investments have gone down the drain. Furthermore, they forfeit any rights they once held with the company.

If any of the shareholders are also in a director position, then they will have the added worry about whether there are any debts that are also a director liability. Legal advice is always required by directors of an insolvent company. In next week’s Bradon’s Blog, I will talk about recent developents arising from an Ontario court decision about the directing mind of a bankrupt corporation.

The one small solace they may have is that Canada Revenue Agency will acknowledge the corporate bankruptcy in Canada as a legitimate means of allowing shareholders to deduct the value of their shares as a loss on their tax return.

corporate bankruptcy in canada

Alternatives to Corporate Bankruptcy in Canada

For a business that is viable yet unable to pay off its debts, there are 5 alternatives to corporate bankruptcy in Canada that must be explored:

Implement tighter controls over spending and create a cash-flow budget to see if costs can be cut or eliminated, freeing up funds to pay off debts.
Refinance existing debt in order to consolidate it into more manageable payments.
The shareholders provide a fresh injection of funds.
Informal out-of-court debt settlement through direct negotiation with creditors.
Selling redundant or no longer-needed assets to raise cash for debt repayment.

Rather than going through the effort of reorganizing debt under the CCAA or BIA, a corporate workout is an amicable arrangement between the company and its creditors that allows them to come to a mutually-satisfactory resolution without resorting to legal proceedings and a reorganization court case. This is seen as an advantageous alternative to a formal filing.

If all other solutions fail to prevent a company in Canada from going bankrupt, then the CCAA or BIA’s restructuring provisions should be carefully considered to potentially save the company, its jobs and business assets.

If the company is not viable or profitable and is in a state of financial distress, then a secured lender can exercise their rights through a receivership process. This could be used in conjunction with a corporate bankruptcy in Canada if the situation calls for that.
The reasons why bankruptcy and receivership may be needed to work in tandem are complex and are best left as a topic for another day.

Corporate bankruptcy in Canada: Conclusion

I hope you enjoyed this corporate bankruptcy in Canada Brandon’s Blog.

Revenue and cash flow shortages are critical issues facing entrepreneurs and their companies and businesses. Are you now worried about just how you or your business are going to survive? Those concerns are obviously on your mind. Coming out of the pandemic, we are now worried about its economic effects of inflation and a potential recession.

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.

corporate bankruptcy in canada — *business bankruptcy in canada*

Brandon Blog Post

BILL C-228: WILL HUGE PENSION PRIORITY IN CANADIAN INSOLVENCY BE REAL FINALLY?

Post author By Brandon Smith
Post date December 5, 2022

Bill C-228 An Act to amend the Bankruptcy and Insolvency Act, the Companies' Creditors Arrangement Act and the Pension Benefits Standards Act, 1985

Bill C-228: Are pensions protected in Canadian insolvency proceedings?

The long-awaited Bill C-228, an Act to amend the Bankruptcy and Insolvency Act, the Companies’ Creditors Arrangement Act and the Pension Benefits Standards Act, 1985 proposes to give priority and therefore some financial security to pensions of workers in the event of a Canadian insolvency of their employer, may finally soon become law. This is a significant victory for pensioners and unions across the country who have been advocating for this change for many years.

This new law will provide much-needed protection for pensioners in case of the insolvency of pension plan sponsors. It is a major step forward in ensuring that pensioners are able to retire with dignity, security and frankly, what they bargained for.

Bill C-228: Right now pensions in bankruptcy can be taken away

The Canadian insolvency system has come under heavy analysis and criticism for years for its treatment of pensioners when the employer goes bankrupt or files for bankruptcy creditor protection. Bill C-228 comes from a long line of private members’ bills presented in the House of Commons of Canada that never went anywhere – until now. It makes every effort to make previous employees getting a pension, and those who someday expect to get payments from their pension plan, a priority in the insolvency process.

In this Brandon’s Blog, I discuss the current status of Bill C-228 and its implications in making pensioners a priority in bankruptcy if it becomes law as presently composed.

Bill C-228 An Act to amend the Bankruptcy and Insolvency Act, the Companies’ Creditors Arrangement Act and the Pension Benefits Standards Act, 1985

Bill C-228: What can cause you to lose your pension?

Underfunding is a major concern for traditional, defined-benefit pension plans (DB Pension Plans). In other words, do they have enough pension assets and therefore enough money to meet their projected future pension obligations of insolvent pension funds? Inadequate actuarial assumptions, poor investment returns, and mismanagement can lead to pension plan underfunding. In the case of corporate insolvency of a large employer with a DB Pension Plan, this issue always arises. Underfunded pensions in bankruptcy wind up hurting retirees.

The Sears Canada court-supervised liquidation forced us to again focus on the treatment of pensioners in corporate bankruptcies under the Bankruptcy and Insolvency Act (Canada) (BIA) or restructurings and liquidations under the Companies’ Creditors Arrangement Act (CCAA). It was widely reported that representative for 17,000 Sears Canada retirees says insolvency laws are unjust when it comes to underfunded pensions.

When a company is insolvent and its DB Pension Plan is underfunded, pensioners suffer pension losses and ultimately income losses. In practice, pensioners’ rights are weak and highly inadequate, especially when pension plans are underfunded.

Although pension legislation at the provincial and federal level purports to offer some protection for amounts owing to an underfunded pension plan, insolvency legislation does not preserve that protection for the majority of those amounts. The insolvency protection of pensioners and pensions in bankruptcy proceedings is therefore limited.

Dr. Janis Sarra is the founder and director of the National Centre for Business Law and a professor at the Peter A. Allard School of Law. In her opinion, Canadian pensioners and employees are among the worst-protected pensions in bankruptcy and/or insolvency among 60 countries.

The history leading to Bill C-228

Let’s look at some history of attempts to protect pensions in bankruptcy. The Canadian Association for Retired Persons (CARP), a nationwide advocacy organization for Canadian seniors and retirees, lobbied politicians on Parliament Hill about legislation changes. According to CARP, the unfunded pension liability should be given priority so that it is handled first.

There is no priority for retirees when it comes to dividing up assets in bankruptcy, and CARP wanted to protect underfunded DB Pension Plans when the employer company goes through restructuring or bankruptcy.

CARP estimated that roughly 1.3 million Canadians, aside from the retired Sears employees, may be at risk due to underfunded DB Pension Plans. The closure of Sears Canada stores made the plight of retirees a top priority for CARP.

Marilène Gill, Bloc Québécois MP, introduced a member’s BILL C-372, on Oct. 17, 2017. It was intended to change the BIA and the CCAA. The change sought to correct the injustice faced by retired workers whose pension and health insurance policy benefits are not secured when their company declares bankruptcy or undergoes restructuring.

On October 17, 2017, Bill C-372 passed its first reading. The House rarely passes private member’s bills like this one. The Liberal Party did not support taking it further and allowed it to die.

Hamilton Mountain NDP MP Scott Duvall asked for leave to introduce Bill C-384 in the House of Commons on November 6, 2017. He proposed amending Canada’s insolvency laws so that companies must bring any pension fund to 100% before paying any other secured creditors. Additionally, it required companies to pay termination or severance pay owing before paying secured creditors. Similarly, this bill passed the first reading and then died.

Then, Senator Art Eggleton, P.C., proposed BILL S-253 shortly before his retirement to amend the insolvency legislation to deal with a pension deficit in Canada. After the first reading passed on September 18, 2018, the second reading followed on September 25. By introducing this bill, the BIA and CCAA would be amended. The plan proposed to give priority to claims for unfunded obligations or solvency deficiencies of pensions. This was applicable to both solvent companies as well as companies that might become insolvent if certain shareholder payments were made. That bill never went any further.

Bill C-228 An Act to amend the Bankruptcy and Insolvency Act, the Companies’ Creditors Arrangement Act and the Pension Benefits Standards Act, 1985

The current Bill C-228: Pension Protection Act

Then, Conservative MP Marilyn Gladu put forward her pension reform private member Bill C-228: An Act to amend the BIA, the CCAA and the Pension Benefits Standards Act, 1985. It passed 2nd reading on June 22, 2022.

According to the Hansard transcripts, she noted that the proposed legislation would ensure that pension funds would be paid before secured and unsecured claims. Unremitted source deductions for the Canada Pension Plan, Quebec Pension Plan, Employment insurance, and taxes would be taken first. Suppliers who take back goods delivered within a month of bankruptcy or receivership and unpaid wages or salaries would be paid next. Then payment for insolvent pensions would come next before the claims of secured and unsecured creditors.

It then got a referral to committee, the Standing Committee on Finance. Once the referral to the Finance Committee happened, it did not take long to get through the committee. The committee held three meetings between October 17 and 31. It passed through the committee and on November 23, 2022, it passed 3rd reading and Bill C-228 was adopted.

A cross-party collaboration of New Democrat, Bloc and Conservative MPs was now finally achieved in order to move forward with key legislation to protect workers’ pensions in commercial bankruptcy or insolvency proceedings. The Liberal government which previously did not have this on its radar also voted in favour. In fact, PM Trudeau has tried to take some credit for this private member’s bill in the House of Commons.

The bill has now moved on to the Senate of Canada for review and amendment before returning to the House for final approval. It passed its first reading in the Senate on November 24. It now seems to have sufficient support and momentum to ultimately become law.

The current Bill C-228: What will the Pension Protection Act do?

The purpose of the private member’s Bill C-228, which will be known as the Pension Protection Act. is to deal with the insolvency of an employer where there is an unfunded liability or solvency deficiency in an employee pension plan or the employer ceases to fund a group insurance plan. It will prioritize the pension payments for such pensioners and employee claims for pension entitlements.

The proposed legislation would also amend the Pension Benefits Standards Act, 1985 to require the annual tabling of a report on the solvency of pension plans.

The current wording of the proposed legislation proposes to accomplish pension security for retirees by amending existing legislation to deal with deficiencies of pension plans as follows:

BIA section 60(1.‍5)‍(a)‍, is the section that deals with employers trying to restructure through a BIA restructuring proposal. It already states that any pension amounts deducted from employees that were not paid into the pension fund must be in order for the court to consider approving the proposal.
It will be amended such that the court cannot approve any employer restructuring proposal unless it stipulates that any amount required to make all special payments, as determined by section 9 of the Pension Benefits Standards Regulations, 1985, that should have been paid to correct any unfunded liability or solvency deficiency will be funded by the employer.
It will also be amended so that any amount required to liquidate any other unfunded liability or solvency deficiency of the fund as determined at the time of the filing of the notice of intention or of the proposal if no notice of intention was filed, will be included.
BIA sections 81.5 and 81.6, are the sections that deal with the event of bankruptcy proceedings and receivership proceedings. They will similarly be amended.
CCAA section 5, which deals with the employer company with a pension plan, will be amended the same as the proposed amendments to the BIA. This will state that if the company participates in a prescribed pension plan for the benefit of its employees, the court may not sanction a compromise or arrangement unless there are the same provisions stated above to protect the interests of the employees.
The Pension Benefits Standards Act, 1985 will be amended to require greater annual report requirements on the solvency of pension funds and their success in meeting funding requirements, and the corrective measures taken or directed to be taken by the Superintendent of Financial Institutions to deal with any pension plan not meeting the funding requirements.

As indicated above, there appears to be enough momentum for Bill C-228 to get through the Senate and ultimately receive Royal Assent to become an Act of Parliament. This will no doubt be a major change to bankruptcy protection insolvency proceedings in Canada relating to benefit plans if it becomes the new law dealing with pension plan deficits.

We will have to see if this Bill becomes law, once implemented and if there will be any unintended consequences. Time will tell if these changes will not have negative consequences on corporate restructuring and advisory, preventing what previously would have been successful restructurings of Canadian businesses, albeit on the backs of hard-working Canadians being the employees and retirees.

No doubt the insolvency community and the lending community will have to adjust to the new business environment. I will provide you with updates as they occur.

Bill C-228 An Act to amend the Bankruptcy and Insolvency Act, the Companies’ Creditors Arrangement Act and the Pension Benefits Standards Act, 1985

Bill C-228 transition period

The Bill, if passed, would introduce a four-year transition period between its implementation and the implementation of the proposed amendments. My guess is that such a long transition period has been established for two main reasons:

to allow companies who currently are behind in their defined pension benefit payments to catch up; and
to allow the lending community to try to figure out how they are going to adjust their commercial lending practices in this new reality.

Bill C-228: Pension reform to insolvency

I hope you enjoyed this Bill C-228 An Act to amend the Bankruptcy and Insolvency Act, the Companies’ Creditors Arrangement Act and the Pension Benefits Standards Act, 1985, Brandon’s Blog.

Revenue and cash flow shortages are critical issues facing entrepreneurs and their companies and businesses. Are you now worried about just how you or your business are going to survive? Those concerns are obviously on your mind. Coming out of the pandemic, we are now worried about its economic effects of inflation and a potential recession.

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

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.

*Bill C-228 An Act to amend the Bankruptcy and Insolvency Act, the Companies’ Creditors Arrangement Act and the Pension Benefits Standards Act, 1985*

Brandon Blog Post

RECEIVERSHIP IN CANADA: THE COMPLETE STORY OF WHOSE HAPPY RECEIVER IS IT ANYWAY?

Post author By Brandon Smith
Post date November 21, 2022

receivership in canada

Receivership in Canada: What does receivership mean?

I have just read a decision of the Ontario Superior Court of Justice Commerical List dealing with an important aspect of receivership in Canada. The case is concerned with what happens when two equally applicable provincial laws appear to be working at cross purposes in the context of the receivership in Canada process.

I will explain the case and the process of company receivership in Canada. By understanding the process, the case will make more sense.

Secured lenders may enforce their security to recover loans from borrowers who have defaulted. This remedy available to secured creditors when a borrower, usually a company defaults, is known as receivership.

What does going into receivership in Canada mean?

A receivership is a legal process available to secured creditors, whereby a company’s affairs, business and property are entrusted to a receiver to manage and eventually sell the assets. Secured lenders may enforce their security to recover loans from borrowers who have defaulted. This remedy available to secured creditors is known as receivership.

If a business debtor does not make payments or otherwise defaults on a secured loan, the secured creditor would have the right to appoint a receiver to collect the money owed. Before appointing a receiver, a secured creditor must first issue a “Section 244” notice of intention to enforce security. This is a notification that secured creditors must send to defaulting debtors before appointing a receiver. Section 244 refers to that section number in the Bankruptcy and Insolvency Act (Canada) (BIA).

The notice states that the security covers certain assets, that the company in default owes a specified amount to the secured creditor, and that the creditor may enforce the security after 10 days. The company in default may waive the notice period and consent to the appointment of the receiver.

Under the BIA, only a licensed insolvency trustee (formerly called a trustee in bankruptcy) can be a receiver. No other party is licensed to administer a receivership in Canada.

receivership in canada

Receivership in Canada: What is the difference between a court-appointed receiver and a privately appointed receiver?

A privately-appointed receiver is a licensed trustee who is appointed by a contract between the insolvency trustee and the secured creditor. A private receiver is typically used when there is no dispute to ranking among secured creditors or various claims to ownership of the company’s assets. The powers of a receiver listed in the security document give the privately appointed receiver more limited powers than a court-appointed receiver gets under a court order.

A receiver is court-appointed when the secured creditor makes an application to the court for the appointment of a receiver with more expanded powers. Like a privately-appointed receiver, a court-appointed receiver takes control of a company’s property because of financial distress and when there is a dispute among secured creditors and others as to the ranking of secured claims and ownership of property.

Both kinds of receivers are tasked with protecting and preserving the value of the company or property and are certainly given broader powers by the court to do so.

How is receivership in Canada different from bankruptcy proceedings?

Many people mistakenly use the terms “receivership” and “bankruptcy” interchangeably. However, bankruptcy and receivership are two distinct legal proceedings with different implications.

Bankruptcy vs. receivership can be confusing, but once you understand the key differences between the two, it is fairly straightforward. Whether it is a private appointment or a court-appointed receiver, the differences between bankruptcy and receivership in Canada are the same.

A receivership is a legal remedy available to secured creditors to enforce their security rights against a defaulting debtor. A receiver is appointed to manage the debtor’s property and assets and sell them under a properly run and fair sales process.

The Canadian bankruptcy process is a distinct legal process. An insolvency trustee does not represent secured creditors in bankruptcy proceedings. Instead, under the bankruptcy regime, they represent the unsecured creditors of the bankrupt estate. A corporate debtor may be subject to both bankruptcy and receivership proceedings simultaneously.

One of the major differences has to do with the creditors. In a bankruptcy administration, the bankruptcy trustee must call a meeting of creditors. This is where the insolvency trustee provides its report on the affairs and conduct of the bankrupt debtor and unsecured creditors get to vote on any matters of importance. In receivership, there is no such requirement to hold a meeting of creditors.

receivership in canada

What are the key distinctions between receivership in Canada and liquidation?

So you know what receivership is by now. The federal BIA doesn’t govern liquidation, that’s done under the provincial Business Corporations Act or Wind-Up Act.

A liquidation is for a solvent company where the shareholders, Officers and directors decide to cease business operations. The company puts up its assets for sale and uses the proceeds to pay off its creditors with cash. Any funds left over are then distributed to the shareholders.

A liquidator can be appointed either privately by the company’s directors or by a court order. Liquidation is therefore different from both bankruptcy and receivership in Canada.

Can individuals be placed into receivership in Canada?

The answer is yes. When a secured creditor wishes to take enforcement action upon the security agreement they have against a debtor’s property, as indicated above, they have the remedy of receivership in Canada. This remedy allows them to collect as much of their secured debt as possible.

There are no restrictions as to who can go into receivership in Canada. One of our more famous (infamous?) receivership cases over the years has been the receivership of the assets, property and undertaking of Norma and Ronauld Walton.

receivership in canada

Receivership in Canada: Whose receiver is it anyway?

Now for the court case where two different provincial laws caused a fight amongst secured creditors over the appointment of a receiver. The case is Canadian Equipment Finance and Leasing Inc. v. The Hypoint Company Limited, 2618905 Ontario Limited, 2618909 Ontario Limited, Beverley Rockliffe and Chantal Bock, 2022 ONSC 6186. The two competing provincial statutes are the Mortgages Act and the Personal Property Security Act.

The business is conducted through two affiliated entities. One owns the property and the other operates the business. This is quite a typical arrangement.

One creditor funded the purchase of equipment and took PPSA security over it. Another creditor funded the acquisition of the real property and has a traditional mortgage security. The security agreements extend over different assets, and the outcome is usually uncomplicated.

However, when equipment that has been purchased is attached to real property, there is disagreement about whether and how it can be removed, and whether such removal will negatively affect the value of both the equipment and the real property. The question is now more complicated: which creditor’s rights should take priority over this matter?

Both the equipment lender and the mortgagee are seeking to enforce their security. The equipment lender has filed a motion with the court to appoint a receiver over both the operating company (Opco) that owns the pledged equipment and the holding company (Holdco) that owns the real estate. This would allow the receiver to manage and sell the assets of both companies in order to repay the outstanding debt.

In this case, Opco was a commercial marijuana operation that was unable to get off the ground due to its heavy debt load and startup problems.

Although the mortgagee began power of sale enforcement proceedings, they do not object to a receiver being appointed over the equipment only. The mortgagee wishes to continue its power of sale proceedings and opposes the receiver being appointed over the building. The mortgagee in possession is of the opinion that the equipment is attached to the building and cannot be removed.

The mortgagee concurred that the court has the power to assign a receiver over the property of both Opco and Holdco according to section 101 of the Ontario Courts of Justice Act. They stated that, if a receiver is appointed, the receiver needs to be a firm chosen by them.

Both the licensed insolvency trustee firm preferred by the mortgagee and the firm nominated by the equipment lender filed a consent to act with the court.

What are the conditions under which a receiver may be appointed?

The court looked at numerous factors in order to make a decision on whether or not to appoint a receiver, and if so, which one, including those that have historically in receivership in Canada cases been taken into account in such determinations:

Although it is not essential for a creditor to establish irreparable harm if a receiver is not appointed where the appointment is authorized by the security documentation, the court considered if no order is made, will irreparable harm be caused?
The size of the debtor company’s equity in the assets and the need for protection or safeguarding of assets during litigation are important factors to consider when assessing the risk to the security holder.
The kind of property it is.
The potential for the assets to be wasted or dissipated.
The need to safeguard the property until a legal ruling is made.
The parties’ respective balance of convenience needs to be considered when making the decision.
Pursuant to the loan documentation, the creditor has the right to an appointment.
Enforcing the security instrument when the security holder experiences or anticipates difficulties with the debtor.
The principle of appointing a receiver should be approached with caution.
The court will determine whether appointing a receiver is necessary to enable the receiver to carry out its duties efficiently.
The effect a receivership order will have on the parties.
The parties’ conduct.
How long a receivership may last.
The financial impact on the parties.
The likelihood of maximizing return to the parties is increased.
The goal of ensuring the smooth running of the receiver’s duties.

As everyone agreed that all assets of both Opco and Holdco should be sold to maximize recovery for all creditors, but cannot agree on the process by which that should be undertaken, resulting in the entire process being stalled, the judge was satisfied that it is just and convenient to appoint a receiver.

The court found that either proposed receiver was acceptable and decided that the receiver nominated by the mortgagee would be appointed by the court to administer all assets. The receiver would eventually come back to court with a sales plan to maximize the value of all the assets subject to the security of all stakeholders.

receivership in canada

How the entrepreneur can avoid receivership in Canada

As a business owner, the way to avoid the receivership process is long before financial difficulties ever become serious financial problems. Here are a few tips on how to do just that:

Keep a close eye on your finances. This means regularly reviewing your income and expenses, and making sure you have a good handle on your cash flow.
Stay current on your bills. This includes not only making timely payments but also staying on top of any changes in your billing terms or amounts.
Keep good records. This means having up-to-date financial statements and documentation for all of your income and expenses.
Make a plan. If you do find yourself in a financial bind, have a plan in place for how you’ll get out of it. This may include negotiating with creditors, seeking new financing, or making cuts to your expenses.
Seek professional help from a licensed insolvency trustee with commercial insolvency experience. If your business is viable and you seek help early enough, there may be many options. The most common ones are refinancing with or without financial restructuring. Reviewing your business allows us to make restructuring recommendations allowing your viable company to become healthy and profitable once again.

Receivership in Canada summary & speak with a licensed insolvency trustee

I hope you enjoyed this receivership in Canada Brandon’s Blog.

Revenue and cash flow shortages are critical issues facing entrepreneurs and their companies and businesses. Are you now worried about just how you or your business are going to survive? Those concerns are obviously on your mind. Coming out of the pandemic, we are now worried about its economic effects of inflation and a potential recession.

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.

Tags assets for sale, assets subject, bankrupt estate, bankruptcy and receivership, bankruptcy proceedings, bankruptcy process, bankruptcy regime, bankruptcy trustee, Bankruptcy vs. receivership, business operations, business owners, Canadian bankruptcy, commercial insolvency experience, company defaults, company in default, company receivership, court appointed receiver, creditors in bankruptcy, debtor company, differences between bankruptcy, financial difficulties, insolvency trustee, insolvent companies, legal proceedings, legal process, licensed trustee, meeting of creditors, notice of intention, outstanding debt, private appointments, private receiver, real estate, receivership in Canada, receivership proceedings, receivership process, sales process, secured creditors, secured debt, secured lender, security agreement, security instrument, security rights, solvent company, Trustee and Receiver, trustee in bankruptcy, unsecured creditors

Liquidating Assets: Introduction

Liquidating Assets: The Bankruptcy and Insolvency Act of Canada

Overview of the Bankruptcy and Insolvency Act Relating To Liquidating Assets

Purpose of liquidating assets in bankruptcy

Liquidating Assets: Role of a Trustee in Liquidation

Duties and Responsibilities of a Trustee

Trustee’s role in asset valuation and sale

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

Liquidating Assets: Key Details and Contention Points

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

Liquidating Assets: The Registrar’s Decision and Legal Interpretations

Liquidating Assets: Court Ruling and Implications

Liquidating Assets: Lessons Learned

Liquidating Assets: FAQ

Liquidating Assets: Conclusion

Background of Aiden Pleterski: The Rise and Fall of the ‘Crypto King’

The Allegations against Aiden Pleterski

Accusations of Defrauding Investors

Revelations of Extravagant Spending and Running A Bit Of A Ponzi Scheme

Charges of Fraud and Money Laundering

The Lavish Lifestyle of Aiden Pleterski

Aiden Pleterski: Bankruptcy Discharge Options

Aiden Pleterski: Legal Battles and Ongoing Investigations

Bankruptcy Proceedings and Trustee Opposition to Discharge

Uncooperative Behaviour and Attempts to Conceal Assets

Challenges in Accessing Financial Accounts and Undisclosed Income Sources

Use of Scene points to pay for luxury hotels and flights – Travel to the U.K., Los Angeles, and Miami while bankrupt

Aiden Pleterski: Bankrupt’s Application For Discharge

Factors Considered By The Court In Discharge Applications

The Impact of a Discharge and will Aiden Pleterski ever get one?

Facts submitted by the Trustee against an absolute discharge

Aiden Pleterski Application For Bankruptcy Discharge: The Court’s Decision

Aiden Pleterski Conclusion

Form 31 Proof of Claim Introduction

Background Information on Form 31 Proof of Claim

Purpose of Form 31 Proof of Claim

Importance of Properly Completing Form 31

Section 1: Understanding the Basics of Form 31 Proof of Claim

Definition of Provable Claim

Difference Between Provable and Unliquidated Claims

Identifying False Claims

Section 2: Required Information for Completing Form 31 Proof of Claim

Personal Details of the Creditor

Details of the Claim

Priority of the Claim

Section 3: Additional Considerations for Completing Form 31 Proof of Claim

A Claim of Lessor For Disclaimer of a Lease

Valuing a Secured Claim

Claim by Farmer, Fisherman or Aquaculturist

Claim by Pension Plan for the unpaid amount

Claims Against Directors

Claim of a Customer of a Bankrupt Securities Firm

Complicated or Contingent Claims

Section 4: Procedural Requirements for Submitting Form 31 Proof of Claim

Deadline for Submitting Proof of Claim

Properly Filing the Form 31

Notice of IntentionTo Make A Proposal

Notice of Bankruptcy Process

Section 5: Ensuring Accuracy in Completing Form 31 Proof of Claim – A Step-by-Step Guide to Filing a Proof of Claim

Step 1: Gather Required Information

Step 2: Complete the Header Information

Step 3: Furnish Creditor Details

Step 4: Specify the Debt

Step 5: Provide Supporting Documentation

Step 6: Sign and Date the Form

Step 7: File the Form

Additional Tips and Reminders

Section 6: Common Mistakes to Avoid when Completing Form 31 Proof of Claim

Section 7: Form 31 Proof of Claim FAQs

Conclusion

Introduction to Business Insolvency

Definition of Business Insolvency

Causes and Warning Signs of Business Insolvency

Economic Downturn and Market Volatility

Cash Flow Problems: Overleveraging and Excessive Debt Burden

Poor Financial Planning and Management

Regulatory Compliance and Legal Challenges

Technological Disruption and Industry Shifts

External Shocks and Unforeseen Events

Business Insolvency: Overview of Insolvency Law in Canada

Significance of ATB Financial as a Major Secured Creditor *Turned Un**secured Creditor*

*Bankruptcy Proceeding**s and Trustee Opposition to Discharge*

Use of Scene points to pay for *luxury hotel**s and flights – Travel to the U.K., Los Angeles, and Miami while bankrupt*

*Claim by Farmer**, Fisherman or Aquaculturist*

*Notice of Intention**To Make A Proposal*