Tag: bankruptcy protection

BANKRUPTCY PROTECTION: THE UNDENIABLE BEST THING YOU NEED TO KNOW TO CASH YOUR INSOLVENT CUSTOMER’S CHEQUE SAFELY

Post author By Brandon Smith
Post date November 12, 2021

We hope that you and your family are safe, healthy and secure during this COVID-19 pandemic. Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

Bankruptcy protection: What happens if a company gets into financial trouble?

A Canadian company seeking bankruptcy protection has two choices when it is financially troubled and wants to reorganize. By hiring insolvency legal counsel and a licensed insolvency trustee to get both insolvency and bankruptcy law advice and financial advice, they can protect themselves from their creditors, either by:

using the Companies’ Creditors Arrangement Act (CCAA) to file for bankruptcy protection; or
working with an insolvency trustee and filing a Notice of Intention to Make a Proposal under the Bankruptcy and Insolvency Act (BIA) you can obtain bankruptcy protection.

In order to reorganize in Canada, an insolvent company files for bankruptcy protection. If you are insolvent in Canada, then you must file for bankruptcy protection, which is equivalent to Chapter 11 in the United States. The process is called financial restructuring or financial reorganization. By doing this, the company will try to restructure while it continues to operate to come up with a restructuring plan that allows the company to survive while satisfying the needs of the creditors to some degree.a

This Brandon Blog discusses a recent court decision that demonstrates that there is a risk to creditors who receive payments from the insolvent company under bankruptcy protection for goods or services supplied if the restructuring fails.

What happens to the company that files for bankruptcy protection?

An organization that files for bankruptcy protection, or as it is sometimes called, creditor protection, differs from an organization that files for bankruptcy. A pure bankruptcy procedure consists of a liquidation. The company ceases to operate unless the Trustee sees value in continuing to operate the company for a limited period of time.

The trustee in bankruptcy takes possession of all assets that are either not subject to valid claims by secured creditors (typically financial institutions) or that belong to third parties (for example, equipment under lease or goods undergoing repair that are in the company’s possession). A licensed insolvency trustee then formulates a plan for selling the unencumbered assets of the company to maximize the proceeds. Afterwards, the Trustee distributes the funds in accordance with the BIA.

In the case of a company filing for bankruptcy protection, this is one of the alternatives to bankruptcy. The intention is to continue operating while it tries to restructure. Most of the time, this entails downsizing. A plan will be devised to repay some of the remaining debt in exchange for the creditors writing off the balance that is owed. With success, the company can retain employees and continue to operate. Creditors will be able to earn money by supplying the reorganized company in the future.

The CCAA allows companies that owe at least $5 million to their creditors to file for bankruptcy protection. Either the business will be restructured and continue to exist on new financial terms or a wind-down will be supervised to pay back anyone owed money by selling assets. BIA restructuring provisions can be used by companies that owe less than $5 million.

In other words, a company that goes bankrupt will shut down. Those who file for bankruptcy protection want to keep operating. As disruptive as bankruptcy and restructuring are, they can be beneficial for businesses, individuals and the economy since they preserve value and prevent assets from being wasted.

As soon as the company enters bankruptcy protection (or bankruptcy), proceedings against it are stayed. As a result, all collection rights for creditors are suspended. A “time-out” gives the company a chance to restructure, or the Trustee can handle its duties in bankruptcy without interference from creditors. Additionally, it “freezes” all creditors at the time of the filing, so that one cannot gain an advantage over another.

bankruptcy protection

A record number of companies have sought creditor protection under COVID-19 and more are on the way?

The list of large Canadian companies with outstanding debts looking for bankruptcy protection from creditors got to a decade high in May and June 2020. Numerous financial commentators believed there would be a full-blown financial crisis and that a lot more would certainly file as a result of COVID-19 caused the economic downturn. Despite this, the number of corporate insolvency filings appears to have stabilized and also slowed down in 2021. One main reason is the number of government programs supporting Canadian business. In the same way as the virus itself, COVID-19 has actually taken a hefty financial toll on companies with pre-existing conditions.

Some familiar Canadian corporations in the list of companies that filed in that time due to their financial situation were:

Reitmans
Frank & Oak
Aldo
DavidsTea
Cirque Du Soleil
Mendocino
Bow River Energy
FlightHub
Christian charity, Gospel for Asia
Cequence Energy
Delphi Energy
Sail

Twenty-two major Canadian companies sought creditor protection in May and June 2020, almost four times the usual rate. The list obviously does not include major U.S. names such as Chesapeake Energy, J Crew, Neiman Marcus, Brooks Brothers, Pier 1 and Boy Scouts of America.

**The bankruptcy protection court case facts**

I want to tell you about Schendel Mechanical Contracting Ltd (Re), 2021 ABQB 893. On November 9, 2021, the Honourable Mr. Justice Douglas R. Mah released his decision.

Schendel Mechanical Contracting Ltd. (Schendel) was one of three associated companies that at one time collectively formed a major construction concern in Alberta under the Schendel name. As a result of financial difficulties, it was an insolvent entity and it filed a Notice of Intention to Make A Proposal under the BIA on March 22, 2019. Schendel continued operations as part of its restructuring effort. On various Schendel projects, Schendel bought HVAC equipment from the supplier between April 2018 and May 2019.

Ultimately, Schendel’s debt restructuring plan failed. Schendel was deemed to have filed for bankruptcy when it failed to implement a successful BIA Proposal restructuring. Schendel went bankrupt immediately. Its secured creditor applied to the Court for the appointment of a Receiver, which was granted.

As a result of reviewing the company’s books and records, the Receiver found and disputed the legality of a $40,000 payment from Schendel, an insolvent company, to one of its suppliers. According to the Applicant Receiver, the payment was prohibited for a number of reasons and the funds should be returned. The recipient supplier asserted that the payment was both innocent and validly received and that it was entitled to retain it.

In this case, a cheque dated July 8, 2019, to make the payment. Due to an unknown reason, the supplier did not negotiate the cheque until 11:48 AM on July 19, 2019. Schendel was also deemed to have filed for bankruptcy and the Court made the Receivership Appointment Order all on the same day, July 19, 2019. The Court had, however, no evidence regarding the exact moment the receivership and bankruptcy decision was made on that same day.

bankruptcy protection

**The bankruptcy protection case: The Receiver’s position**

It is noteworthy that the action to recover the $40,000 was brought by the Court-appointed Receiver and not the insolvency trustee of the bankruptcy estate. According to the Receiver, the funds should be returned on the following grounds:

the automatic stay under section 69(1) of the BIA was in effect at the time of filing and throughout the extension of the proposal period, so the supplier was without recourse against Schendel;
the Court-ordered stay contained in the Receivership Appointment Order of July 19, 2019, as well as the concurrent stay imposed by a deemed bankruptcy under the BIA, deprived the supplier of all collection remedies as of that date;
as an alternative, the payment may be prohibited under the Fraudulent Preferences Act; or
it may be in violation of the Statute of Elizabeth (see note below).

NOTE: The English Parliament passed this statute in 1571 with the purpose of prohibiting transfers that would defraud creditors or hinder their collection efforts. As a result of widespread fraudulent transactions designed to defraud creditors, the 13 Elizabeth Statute was passed. It is still in effect in Alberta today.

**The bankruptcy protection case: The supplier’s position**

The recipient supplier said that it received the payment both innocently and legally and that it is entitled to retain it. In addition, the recipient supplier said:

besides some routine questions about payment, the supplier had not engaged in any activity to try to collect the debt;
the relationship with Schendel was arm’s-length;
both of the last two extension orders for the NOI define a process by which Schendel may pay, and the Receiver has fallen short to prove that the procedure was not followed when it comes to the subject payment; and
for either the Fraudulent Preferences Act or the Statute of Elizabeth, the required intent cannot be shown.

Since the bankruptcy trustee was not involved in this case, nobody was claiming that the payment was a preference or transfer under value under the BIA.

bankruptcy protection

**The bankruptcy protection case: The Judge’s decision**

The Court was not presented with evidence on whether the $40,000 payment in question was approved within the proposal extension process or whether it was not approved. There was evidence to support Schendel’s compliance with approved procedures. In the post-NOI period, the supplier was found to have provided goods to various Schendel projects worth $34,476.75.

There was evidence that the payment was not just a payment on account of a pre-filing debt without further transactions post-filing. According to the Judge, the stay would not apply to indebtedness arising from goods or services supplied to Schendel after the filing of the NOI. This is because such indebtedness would not be a claim that could be a proven claim in the bankruptcy.

The Judge further stated that it is the Receiver’s responsibility to prove that the payment violated the stay. Schendel and the supplier did continue to do business together after the NOI was filed, according to the evidence. During the hearing, the Judge said that he should not simply assume facts in the Receiver’s favour. Additionally, the evidence indicated that some of the $40,000 payment was applied to the post-NOI supply of goods. A total of $34,476.75 worth of product was supplied to Schendel after the NOI was filed.

As a result, the Judge rejected all of the Receiver’s arguments and dismissed his Application in its entirety. Consequently, the supplier kept the $40,000.

Bankruptcy protection: How to cash your insolvent customer’s cheque safely

Companies filing for bankruptcy protection, whether under the CCAA or BIA, are reorganizing to stay in business. Businesses require purchasing goods and services and paying for them. It’s possible that some pre-filing debts will be paid after the filing date even though the debts are frozen from a collection perspective.

The stay does not necessarily prohibit every post-NOI payment by an insolvent company to a creditor. Such payments are valid when they are necessary to enable the company to move forward with restructuring. For example, a creditor may require payment of all or a portion of its pre-filing debt in order to supply post-filing.

Parties can agree to repay past debts in order to secure future supplies. First and foremost, the BIA process aims to encourage a debtor to reorganize as a going concern. Both creditors and debtors benefit from the debtor’s continued operation during this critical time. The BIA’s stay provisions and preference provisions give debtors breathing room to reorganize their finances. Setting up legitimate agreements with key suppliers is an integral part of that process.

In the end, it is critical to determine whether the payment of past indebtedness is a valid condition of post-NOI supply, which is required for restructuring to proceed. In that case, the post-filing payment of the pre-filing amount will be valid. If not, the insolvency trustee can recover it from the supplier.

Creditors seeking to recover pre-filing debts must make the payment as a condition of a post-filing supply arrangement. Additionally, because all of this is playing out in real-time in higher-risk settings, a supplier is free to amend the pricing post-filing. Similarly, if the supplier can secure it, there is no reason for them to not try to go from an unsecured creditor to a secured creditor on the post-filing supply by taking security or requesting a letter of credit. This would all be done out of an abundance of caution because as stated above, unpaid post-filing debts are not a claim provable in the company’s bankruptcy if the restructuring is unsuccessful.

bankruptcy protection

Bankruptcy protection summary

I hope you found this bankruptcy protection Brandon Blog post informative. Are you worried because you personally or as business owners are dealing with substantial debt challenges and you assume bankruptcy is your only option? If it is too much debt for any reason, call me. It is not your fault that you remain in this way. You have actually been only shown the old ways to try to deal with financial issues. These old ways do not work anymore.

The Ira Smith Team utilizes new modern-day ways to get you out of your debt difficulties while avoiding bankruptcy. We can get you the relief you need and so deserve.

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

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

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

Call us now for a no-cost consultation. We will get you or your business back up driving to healthy and balanced trouble-free operations and get rid of the discomfort factors in your life, Starting Over, Starting Now.

We hope that you and your family are safe, healthy and secure during this COVID-19 pandemic. Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

Brandon Blog Post

WHAT DOES RECEIVERSHIP MEAN FOR 1 BETTER GUARANTOR BANKRUPTCY DISCHARGE

Post author By Brandon Smith
Post date August 18, 2021

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

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

what does receivership mean

What does receivership mean: Receivership is for secured claims

What does receivership mean? A receivership is an enforcement proceeding that helps secured creditors recover secured debts on debtor defaults on loan payments from troubled companies. There are two types of receivers and receiverships: Privately-appointed receivers and court-appointed receivers.

As you can tell from the title of this Brandon Blog, I am not going to be writing about receiverships. You can take a look at my April 14, 2021, Brandon Blog titled “WHAT IS A RECEIVERSHIP? OUR COMPLETE GUIDE TO RECEIVERSHIP SOLUTIONS” to read all about what receiverships are.

What does receivership mean? It is a remedy for secured creditors.

I want to go through two more concepts quickly, and then I will get to what I really want to talk to you about today.

What does receivership mean: Bankruptcy vs. receivership

Despite the fact that receivership and bankruptcy sometimes get used interchangeably, they are not the same thing. A bankruptcy proceeding and a receivership proceeding are both legal actions conducted under the Bankruptcy and Insolvency Act (Canada) (BIA) and governed by the Office of the Superintendent of Bankruptcy (OSB). According to the BIA, either a receiver or a bankruptcy trustee in Canada needs to be a licensed insolvency trustee, whose license is granted and whose actions are supervised by the federal government’s OSB.

Here is where the similarities end. In a receivership, a secured creditor would either hire a receiver privately or ask a court to place a company into receivership and appoint one to liquidate the collateral they have against the debtor. According to the Canadian bankruptcy process, either the person or company voluntary files for bankruptcy with a licensed insolvency practitioner, or one or more unsecured creditors apply to the Court for the appointment of an insolvency trustee to administer the bankruptcy Estate.

Licensed insolvency trustees are needed in both cases. The receivership procedure is a secured creditor’s remedy and bankruptcy is an unsecured creditor‘s remedy. To read up more on the bankruptcy process, look at my September 30, 2020, Brandon Blog “DECLARE BANKRUPTCY: A COMPLETE GUIDE ON WHAT IS IT LIKE TO DECLARE BANKRUPTCY“.

What does receivership mean? Not the same as bankruptcy.

Employee Rights in Bankruptcy Protection and Bankruptcy⁄Receivership

Bankruptcy protection can be gained to try to make a troubled company stable and then return the company to profitability by filing pursuant to either the BIA or the Companies’ Creditors Arrangement Act (CCAA), employees retain their right to unpaid wages, vacation pay, and severance or termination pay. There is no difference between filing and not filing. They are unsecured creditors of a troubled company, and the company directors are personally responsible for amounts owed to employees.

For the company in receivership or bankruptcy, the employees do have greater rights. The receiver of a company in receivership must register with Service Canada under the Wage Earner Protection Program Act (WEPPA) for the Wage Earner Protection Program. This program provides some compensation to eligible employees who are owed money by a bankrupt or receivership company.

To read more about WEPPA, take a look at my February 10, 2020 Brandon Blog, “SEVERANCE PAY ONTARIO & BANKRUPTCY-BARRYMORE FURNITURE UNPAID WORKERS ANGRY“.

So what does receivership mean to an employee with unpaid wages? It means they can claim a priority and get paid by Service Canada.

***What does receivership mean: Receivership – a typical appointment***

Now I will get to what this Brandon Blog is actually about. In Canada, it is the norm for secured creditors advancing loans secured against company assets, to also take a personal guarantee on the same debt from the principals of the company. In all entrepreneurial companies in Canada, that is at least the president running company affairs. If the lender-secured creditor suffers a shortfall from the liquidation of the company assets, the lender then looks to the guarantor(s) of the company debt to make good on the lender’s loss. Many times the company president/guarantor has no choice but to file consumer bankruptcy.

I was involved in a bankruptcy discharge hearing for one of our personal bankrupts in April 2021. He caused his company, being its sole Director, to file for bankruptcy with another Trustee. That same Trustee was also appointed as the company’s private receiver by the secured creditor. The company president provided the secured creditor with a personal guarantee.

Realizing that they would suffer a shortfall from the company situation, rather than suing on their personal guarantee, they approached us to consent to act as the Trustee in a Bankruptcy Application against the company president. We consented and the company president ultimately consented to a Bankruptcy Order being made to put him into bankruptcy with my Firm as the Trustee.

What does receivership mean: The bankruptcy of the guarantor

We administered the consumer bankruptcy. There were some assets to realize upon which we did. One realization required court approval as we were selling seat licenses and the right to purchase tickets for the Toronto Maple Leafs to a related party. The bankrupt person’s largest single consumer creditor was Canada Revenue Agency for unpaid income tax. The company in receivership was also a creditor as the president owed the company money. The secured creditor of the company was also an unsecured creditor of his in his personal bankruptcy for the personal guarantee on the shortfall.

The known creditors each filed their respective proof of claim in his bankruptcy, including the company by its privately-appointed receiver. We believed that the company by its receiver was a creditor for the amount of the shareholder loan owing to the company. The proof of claim they filed was for a much larger amount. As Trustee, we neither admitted nor disallowed any proofs of claim filed in this bankruptcy estate. The Trustee would have to take a cold hard look at the receiver’s proof of claim at some future date it is determined that a dividend will be paid to the creditors in this bankruptcy estate, which is highly unlikely.

What does receivership mean: The receiver opposes a bankruptcy discharge

Only one unsecured creditor opposed the bankrupt’s discharge. That was the receiver, or more correctly, the company in receivership by its privately-appointed receiver. The Trustee had not opposed. The lender, as an unsecured creditor, did not oppose either along with the other consumer creditors.

As I mentioned, in April 2021, the discharge hearing was held before the Master sitting as Registrar in Bankruptcy Court. The court raised a novel issue. Does the receiver have the standing to oppose the bankrupt’s discharge? The court allowed the hearing to be completed and allowed the parties to file further submissions, subsequent to the hearing, on this issue. Submissions were received from us, the
Trustee and from the Receiver in mid-May, 2021. The bankrupt took no position on the issue.

Does the Receiver have standing to oppose the bankrupt’s discharge?

Here is what I wrote to the court.

The security documents under which a privately-appointed receiver is appointed will determine if an unsecured amount owing by a bankrupt debtor is an asset secured by security held by a creditor over the assets of another party. If so, then the privately-appointed receiver has the right to file a proof of claim in the debtor’s bankruptcy as part of attempting to realize upon that asset forming part of the secured creditor’s collateral.

In doing so, the privately-appointed receiver is acting as Agent for the secured creditor. If the privately-appointed receiver files a proof of claim in the bankruptcy that is not disallowed by the licensed insolvency trustee administering the bankruptcy estate, then, in order to oppose the discharge of the bankrupt, the privately-appointed receiver must also be able to be the Agent for the debtor in receivership.

If the security under which the privately-appointed receiver is appointed allows for that receiver to operate the business of the debtor in receivership, then that receiver has the ability to be an Agent of the debtor in receivership and bring a claim in the name of that debtor.

In this matter, of the various pieces of security held by the secured creditor, only the General Security Agreement (the “GSA”), allows a receiver appointed in writing under it to operate the business of the debtor company. Under the GSA, the privately-appointed receiver has the ability to act as both Agent of the secured creditor and Agent of the company. The appointment letter appointing the receiver confirms that the appointment is under all security held, including the GSA.

Therefore, my opinion was that although we have concerns about the amount being claimed, the receiver has the ability to both file a proof of claim in this bankruptcy and oppose the discharge of the bankrupt as an Agent of the company. I believed it aided the administration of this bankruptcy to allow the receiver to oppose because it is able to draw the attention of the court to conduct of the bankrupt of which the court otherwise might not be aware of.

Finally, I advised the court that if there still was concern that it is formal defect or irregularity section 187(9) of the BIA, the court can determine that such formal defect or irregularity will not invalidate the opposition to the discharge of the bankrupt.

What the bankruptcy court decided

The court accepted our submission and agreed with it. The court continued to be skeptical of the amount of the company’s proof of claim filed by the receiver. The court noted that as Trustee, I reported that the bankrupt has fulfilled all statutory duties. Income and expense statements were provided and there was no surplus income payable.

On a general perusal of the Trustee’s s. 170 report, the Trustee does not report any significant misconduct or concerns but reserved its rights as to its position on the discharge pending the hearing and matters disclosed therein. In the court’s view, the Trustee’s non-opposition to discharge is a factor favouring the bankrupt’s discharge. After considering all facts, the court gave the bankrupt an absolute discharge from bankruptcy.

What does receivership mean summary

I hope that you found this what does receivership mean Brandon Blog helpful in describing the role of a privately appointed receiver especially in opposing the discharge of the bankrupt guarantor of the company’s secured debt. Problems will arise when you are cash-starved and in debt. There are several insolvency processes available to a person or company with too much debt. You may not need to file for bankruptcy.

If you are concerned because you or your business are dealing with substantial debt challenges, you need debt help and you assume bankruptcy is your only option, call me.

It is not your fault that you remain in this way. You have actually been only shown the old ways to try to deal with financial issues. These old ways do not work anymore.

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

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

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

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

Call us now for a no-cost consultation.

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

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

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Brandon Blog Post

WHAT DOES THE BANKRUPTCY TRUSTEE INVESTIGATE? SIMPLE RULES EXPLAINED BY A TORONTO TRUSTEE

Post author By Brandon Smith
Post date July 14, 2021

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

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

What does the bankruptcy trustee investigate – What is a bankruptcy trustee?

The new name for a bankruptcy trustee is a licensed insolvency trustee. I will use the terms interchangeably in this Brandon Blog. In this blog, I discuss what does the bankruptcy trustee investigate? But first, I want to go through a few basics.

The process of a bankruptcy trustee’s role in the Canadian insolvency system is a delicate one. The licensed insolvency trustee starts out by reviewing the debtor’s financial information and advises the debtor on whether a restructuring is possible to avoid bankruptcy or if filing for bankruptcy is their only realistic option.

The Trustee’s job is to help a debtor restructure his or her financial affairs and to do that, he or she must know what the debtor’s assets and liabilities are, the bigger picture of the debtor’s life and what transactions the debtor may have recently entered into. It is not just what he or she claims his or her debts are.

The Trustee collects all this information in order to advise the debtor on whether a bankruptcy protection financial restructuring filing is possible or if bankruptcy is their best option and why. The debtor then must choose what sort of insolvency process they wish to enter. Once filed, the Trustee also acts for the creditors and is required to perform an investigation.

Today I discuss what does the bankruptcy trustee investigate? Anyone contemplating a bankruptcy filing should know what they are in for before it is too late.

What does the bankruptcy trustee investigate – Tell your bankruptcy trustee everything

I thought of writing this blog topic because just yesterday, a lawyer friend called up with a question. The lawyer is a family law lawyer, representing a spouse who completed a consumer proposal. The lawyer, on behalf of his client, is making a claim as having a trust claim over his spouse’s home.

The judge asked if the client declared this claim as a potential asset in his sworn statement of affairs in the consumer proposal bankruptcy paperwork? The answer is no. Now the judge says, correctly, that the client had a duty to disclose that information at the time. The judge is correct. The judge then went on to ask how he can rely on the credibility of the client’s assertions now? What a jackpot they are now in!

That is why I say tell your bankruptcy trustee everything. If there is full disclosure in the initial interview before the period of time the bankruptcy process begins, I can then consider any troublesome issues and advise on the best course of action. Then you don’t need to worry about what does the bankruptcy trustee investigate. Nobody wants to have a nasty surprise like my lawyer friend’s client.

What does the bankruptcy trustee investigate? What if I fail to remember to divulge something?

It is fairly possible that you will accidentally neglect to divulge something in your bankruptcy documents or inform your Trustee about it. You do not want anyone thinking you are conducting the concealment of assets.

What does the bankruptcy trustee investigate? What can I do?

As quickly as you learn of your error, call your trustee right away and correct this mistake. You want to make sure the Trustee understands it was a simple error and not a case of you making a false claim.

What does the bankruptcy trustee investigate? What if I have outstanding tax returns?

If as an example, you forget to inform your insolvency trustee that you have unfiled tax returns, CRA can oppose your discharge and request that all outstanding returns be filed before you get to a discharge hearing. This will extend the time you remain in bankruptcy and puts your discharge into a court hearing.

It may turn out that the amount owing from those unfiled returns is not that large, and if you had filed the returns before going bankrupt and declared that additional liability, there would not have been a problem at all. Your Trustee actually should have caught that before you filed and got you to bring your tax filings current.

What does the bankruptcy trustee investigate? What happens If I overreported income?

Reporting earnings greater than you actually earn might set off a surplus income payment requirement that is either higher than it should be or where there would not have been one at all if you had properly reported your monthly income. Make sure you have documents to back up everything you are advising your trustee about so that such an error is not made.

The same holds true for underreporting. You may have a surplus income obligation that will not be caught and finding out at the end will hold up your discharge. Again, your Trustee should have asked for backup during your initial meeting and should have caught your error before filing for bankruptcy.

What does the bankruptcy trustee investigate? Suppose I am not divulging certain information?

If you fail to divulge particular information about your assets or give information that at some point complicates your insolvency, it is certain that this will complicate your discharge at the very least. It may also open you up to having committed a bankruptcy offence which will create worse penalties and headaches for you.

Recall that I mentioned at the beginning of this Brandon Blog that the reason I wrote on this topic today was because of a phone call received from a divorce lawyer friend of ours. The lack of disclosure was not caught in the consumer proposal administration. However, it may totally ruin the client’s chances for any meaningful recovery in his family law proceedings.

If the client had divulged the asset, which at the time was contingent, to the bankruptcy trustee acting as an administrator in the consumer proposal, the Trustee could have worked that into a successful outcome for the client AND the client would not now have his legal problems which could very well cost him big time!

What does the bankruptcy trustee investigate? – Collection of information by bankruptcy trustee also allowed under PIPEDA

A person filed a complaint after a bank, where she as well as her husband had gotten a mortgage from, revealed her personal information, especially regarding her financial situation, to the Trustee of the Bankrupt Estate of her spouse. There was no disagreement that this disclosure happened without the complainant’s understanding or permission.

However, the federal government ruled that it was allowable under the Personal Information Protection and Electronic Documents Act (PIPEDA) given that the financial institution was required to provide the information under another law, namely, the Bankruptcy and Insolvency Act (BIA).

PIPEDA paragraph 7(3)(b) specifies that a party may disclose personal information without the knowledge or consent of that party if the disclosure is for the purpose of collecting on a financial obligation owed by the person to that party.

Paragraph 7(3)(i) of PIPEDA specifies that an organization might disclose personal information without the knowledge or permission of the person if the disclosure is required by law. Trustees are licensed by the Office of the Superintendent of Bankruptcy (Canada) (OSB) under the BIA and also are held to requirements of practices or solutions established by the BIA.

The designated Trustee for her hubby’s insolvent estate wrote to the financial institution, requesting the complete financial institution file connected to the mortgage on the residence jointly had by the complainant wife and the bankrupt husband be disclosed, according to the provisions of S. 164(2) of the BIA.

The bank stated that it revealed the wife’s personal details without her understanding or permission, based on the PIPEDA sections I referenced above. The complainant thought that the Trustee did not have the right to access her individual info from the financial institution without her understanding or consent. The Privacy Commission ruled against her.

As long as the Trustee is asking for information from a 3rd party that will assist in the bankruptcy administration, that 3rd party can provide the information without worrying about what does the bankruptcy trustee investigate or a PIPEDA violation.

On the flip side, for every insolvency administration we perform, as part of the initial sign-up documents, we provide a PIPEDA disclosure statement to the debtor or designated officer of the company. Our PIPEDA disclosure says that in performing our duties we collect and store personal information which we may have to divulge to 3rd parties in performing our duties under the BIA, to the court or in assisting the debtor in reaching arrangements with their creditors.

What does the bankruptcy trustee investigate? – Can I sell my stuff before filing bankruptcy?

Bankruptcy is a fair and well-balanced treatment that considers the interests of all stakeholders. I always tell potential clients that any sale or transfer of property has to be done as if your creditors are evaluating your every move while you do it.

In Ontario, the Execution Act provides for certain personal exemptions, which also apply to anyone who does a bankruptcy filing in Ontario, up to a stated value. The exempt property consists of:

household furnishings and appliances – $14,180;
tools and other personal property used to earn an income:
- in the case of a debtor engaged solely in the tillage of the soil or farming, $31,379 for livestock, fowl, bees, books, tools and implements and other chattels ordinarily used by the debtor in the debtor’s occupation, or
- in any other case, $14,405;
motor vehicle – $7,117; and
principal residence – $10,783.

You might be liquidating assets that you don’t need to because they would be exempt. If you are thinking about liquidating nonexempt property to make financial settlements with certain of your creditors, this will be problematic. You could end up preferring some over others which will cause both you and them problems in your bankruptcy.

This is another factor to think about. My best advice is that you raise these issues with a Trustee before you do anything if you are contemplating bankruptcy. The Trustee will explain to you the ramifications of what you are thinking of doing so that you will have the smoothest time possible in your bankruptcy estate. The Trustee will also explain what does the bankruptcy trustee investigate so you will be informed.

What does the bankruptcy trustee investigate and look for in bank statements?

The personal bankruptcy trustee uses bank statements and other documents to discover errors or irregularities in your pre-filing personal bankruptcy paperwork. To start, you’ll list your creditors and the amounts you owe each of them; your assets, their values, and whether you can keep any of them as exempt property; your earnings for the last 12 months; as well your regular monthly expenditures. Not only will you disclose your income in several spots in the bankruptcy documents, but you’ll also give confirmation in the form of paycheque stubs and income tax returns, as well

The Trustee then goes over these anomalies with you to permit you to give better paperwork in support of your list of assets and liabilities. You’ll likewise have to send duplicates of your bank statements and also other documents that the Trustee asks for after you file for bankruptcy. Your licensed insolvency trustee makes use of the bank statements to validate your reported info.

If for some reason your historical financial institution deposits are dramatically different than your claimed earnings, you’ll need to be prepared to describe the disparity. If you approximated your bank accounts having a total of $100, yet it was, in fact, your deposit accounts had $1,500 on the day you filed, it will be nonexempt, and the Trustee will take it.

If you paid any type of huge expenses or transferred a large sum or an asset to someone right before you filed personal bankruptcy, the Trustee will have an obligation to report those transactions to your creditors, the OSB and the court and bring that cash back right into the personal bankruptcy estate for all creditors to share. If the cash is not recoverable from a third party, the Trustee will oppose your discharge and will look for payment of a minimum of that cash from YOU as a condition of your bankruptcy discharge.

If nevertheless, the Trustee thinks that you either lied or deliberately omitted details, the Trustee has to report that. The Trustee will certainly oppose your discharge and you will have a substantial issue on your hands needing you to retain a personal bankruptcy attorney.

What does the bankruptcy trustee investigate? All of that.

Red flags the bankruptcy trustee looks for at the meeting of creditors

Communicating with creditors and the meeting of creditors are very useful tools for the trustee in bankruptcy. The creditors have a much longer relationship with the bankrupt than the Trustee. They may very well have information that would be helpful to the Trustee in gaining a better understanding of the assets and liabilities of the bankrupt and of the bankrupt’s financial affairs not clear from the financial documents already reviewed by the Trustee.

At the First Meeting of Creditors in bankruptcy or the Meeting of Creditors in a Division I Proposal (or if required in a consumer proposal), the Trustee and creditor representatives can ask the debtor questions about their financial affairs. This is especially so for any type of discrepancies raised by your filing documents or financial records that indicates that you may be misstating assets or worse, the concealment of assets.

In any financial restructuring, including corporate reorganization plans, the value of the debtor’s nonexempt property really matters mainly because of the rule that entitles unsecured creditors to get a better outcome from such a repayment plan than would be the case in the debtor’s bankruptcy.

If your earnings don’t match your reported numbers, or if you improperly report side hustle business revenues, you can anticipate some sharp concerns and also possibly trouble getting your restructuring authorized or your discharge from bankruptcy.

What does the bankruptcy trustee investigate – When the bankruptcy trustee suspects fraud?

When allegations of bankruptcy fraud enter into bankruptcy administration, the next step normally includes obtaining information via an examination under oath. The BIA enables either the Trustee or the OSB to examine a bankrupt under oath. The BIA additionally permits the Trustee to put questions under oath to anyone that might have information, knowledge or documents concerning the affairs of the bankrupt. One of the key functions of the bankruptcy trustee is to protect the interests of unsecured creditors and to do so at every stage of the bankruptcy process.

As soon as the Trustee has gathered sufficient proof to support a case, the Trustee has 2 options, depending on the circumstances. If it is criminal activities or bankruptcy offences that the bankrupt person or the Directors of the bankrupt company have done, the Trustee can ask the OSB to review the proof. If they concur with the Trustee’s analysis, they can then call in the RCMP to check out.

If the RCMP has adequate evidence of a crime having been committed, or of bankruptcy offences, they will have the Crown lay bankruptcy fraud charges and then there will be a criminal trial. The result can be a fine, jail time or both. This will also give cause for the Trustee to have no choice but to oppose the person’s bankruptcy discharge.

If it is only about the recovery of money for creditors, the Trustee, if it has sufficient evidence and also funds, can launch a legal action against the appropriate party. The point of this kind of adversary case is to obtain cash for creditors (rather than prosecuting a criminal offence).

Such a proceeding resembles legal actions in various other courts yet generally, the matter in a bankruptcy administration will be heard in a shorter period of time in bankruptcy court than proceedings in various other courts. The obvious goal is for the Trustee to enter into settlement agreements with the offending parties. The goal of settlement agreements is to get cash for the creditors.

What does the bankruptcy trustee investigate summary

I hope that you found what does the bankruptcy trustee investigate Brandon Blog interesting and that you now have a better appreciation for the investigation aspect of an insolvency proceeding. Problems will arise when you are cash-starved and in debt. There are several insolvency processes available to a person or company with too much debt.

If you are concerned because you or your business are dealing with substantial debt challenges, you need debt help and you assume bankruptcy is your only option, call me.

It is not your fault that you remain in this way. You have actually been only shown the old ways to try to deal with financial issues. These old ways do not work anymore.

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

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

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

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

Call us now for a no-cost bankruptcy consultation.

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

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

Tags allegations of bankruptcy fraud, Bankruptcy, bankruptcy fraud, bankruptcy offence, bankruptcy protection, bankruptcy trustee, BIA, collection of information by bankruptcy trustee also allowed under PIPEDA, concealment of assets, Consumer Proposal, financial restructuring, financial situation, First Meeting of Creditors, I am not divulging certain information, insolvency, Ira Smith Trustee, jail time, licensed insolvency trustee, meeting of creditors, nonexempt property, Office of the Superintendent of Bankruptcy Canada, personal bankruptcy, PIPEDA, questions under oath, red flags the bankruptcy trustee looks for at the meeting of creditors, repayment plan, tell your bankruptcy trustee everything, trustee, trustee in bankruptcy, unsecured creditors, what does the bankruptcy trustee investigate, what does the bankruptcy trustee investigate and look for in bank statements, what happens If I overreported income, what if I fail to remember to divulge something, what if I have outstanding tax returns, what is a bankruptcy trustee, when the bankruptcy trustee suspects fraud

Brandon Blog Post

BANKRUPTCY DISCHARGE ORDER: OBSESSED CREDITOR LOSES APPEAL OF THE DISCHARGE ORDER

Post author By Brandon Smith
Post date July 12, 2021

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

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

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

What does bankruptcy discharge mean in Canada?

A bankruptcy filing is a form of insolvency process under Canadian bankruptcy law available to individuals and businesses. Bankruptcy deals with a person’s or company’s debt load and assets. After performing a detailed initial assessment, the licensed insolvency trustee will be in a position to advise the debtor if they will be better serviced through a restructuring process as an alternative to bankruptcy (consumer proposal or Division I Proposal for individuals, Division I Proposal or Companies’ Creditors Arrangement Act bankruptcy protection for companies) with creditors, or whether the debtor will be better served filing for bankruptcy.

The final piece of any bankruptcy process for an individual is the bankruptcy discharge. Individuals who go bankrupt are entitled to a discharge from bankruptcy. Companies are only entitled to one if every bankruptcy claim filed is paid in full, with interest. Because this never happens, companies do not receive a bankruptcy discharge. It is not impossible, but for this reason, it really does not happen.

If you are thinking about filing an assignment in bankruptcy, then you may be wondering about the bankruptcy discharge process and how it will affect you. Many people think their debts are eliminated at the moment of their bankruptcy filing.

This is incorrect. It is the bankruptcy discharge that will remove all (with certain limited exceptions) of your unsecured debts from your life and will result in letting you move forward with a clean slate. In this Brandon Blog, I discuss the bankruptcy discharge process and a recent decision of the Supreme Court of British Columbia hearing an appeal to the decision of the Master sitting as bankruptcy registrar on a bankrupt’s application for discharge.

Bankruptcy discharge and its consequences for the bankrupt

When you are granted a bankruptcy discharge, this means that those debts caught by your bankruptcy are no longer your responsibility. This means that every action from creditors or the collection agencies they have retained stops trying to collect the debt obligations.

As I previously mentioned, most almost all debts are wiped off your slate when you receive your discharge from bankruptcy. The kinds of debts that remain even after a bankruptcy discharge are:

spousal or child support payments;
fines or penalties mandated by the court;
claims arising from fraud or fraudulent breach of trust;
student loan debt if less than 7 years have passed since the bankrupt stopped being a part-time or full-time student.
any kind of financial debts that are secured against your assets, such as a home mortgage or automobile financing, are not discharged as a result of your bankruptcy discharge.

These sorts of financial debts endure after bankruptcy as they are not released. The individual will be required to continue paying those financial obligations according to their terms. All various other financial obligations are discharged and do not have to be paid.

What are the types of bankruptcy discharge?

If there is no Trustee opposition or creditor opposition to a bankrupt’s application for discharge, and the bankrupt has fulfilled all of their duties of a bankrupt, in most situations, the licensed insolvency trustee can issue an automatic discharge which provides the bankrupt with an absolute discharge from bankruptcy.

If there is an opposition or the bankrupt meets one of the criteria that does not allow for an automatic discharge (such as the bankruptcy process finding the bankrupt a high income tax debt situation), there must be a discharge hearing in court which is heard by a Master of the court sitting as the registrar in bankruptcy. There are 4 types of bankruptcy discharge and a 5th bankruptcy outcome is also possible. They are:

absolute – an absolute discharge means the bankrupt is entitled to an immediate discharge. This can be given by the licensed insolvency trustee in the bankruptcy estate handling the bankruptcy administration if the bankrupt has fulfilled all of their duties and there is no trustee or creditor opposition;
conditional discharge – can get a discharge after meeting one or more conditions. The most common type of condition of discharge involves paying a sum of money to the licensed insolvency trustee;
suspended – the bankrupt’s discharge will take place at a later date and may very well be combined with either an absolute bankruptcy discharge or conditional bankruptcy discharge;
refused– the court refused to grant a bankruptcy discharge probably because the bankrupt has failed to provide full disclosure or perform other bankruptcy duties; or
“no order”– the Trustee advises the court that regardless of the time period that has passed, the bankrupt has actually not satisfied every one of his or her obligations and the bankrupt has actually failed to reply to the Trustee’s demands for information. In this situation, when the “no order” order is provided, the licensed insolvency trustee is at liberty to seek its discharge. Once the bankrupt person has actually fulfilled the requirements set by the court, the bankrupt can re-apply for a discharge hearing by the court.

Bankruptcy is a roughly 9-month legal process to eliminate debt

For a first-time bankrupt with no surplus income who fulfills of their duties, including attending the 2 mandatory credit counselling sessions, they are entitled to their bankruptcy discharge after a bankruptcy period of 9 months from the date of bankruptcy.

If this is your second bankruptcy a discharge will not be available after 9 months. A 2nd bankruptcy lasts for a minimum of 24 months if you do not have any surplus income payments to make to the Trustee. If you have surplus income, a second-time bankrupt must make those monthly payments for 36 months before they are entitled to a bankruptcy discharge.

For a 3rd or subsequent bankruptcy, the timeline is the same as the 2nd time bankrupt. However, it is much more possible that there will certainly be resistance to the discharge by the Trustee or the creditors. The court can also impose whatever conditions it sees fit.

Creditor objects to the decision of the Master on bankrupt’s application for discharge

On July 9, 2021, the decision in Hanlon (Re), 2021 BCSC 1348 in the Supreme Court of British Columbia was released. This was an appeal from an order by the bankruptcy registrar of the Supreme Court of British Columbia dated April 28, 2021 in Hanlon (Re), 2021 BCSC 800, VA B190492. This is an appeal under s. 192(4) of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (BIA), from an order of a master of that Court, sitting as a registrar in bankruptcy, granting the bankrupt, Mr. Hanlon, a bankruptcy discharge that was made conditional on his paying $7,500 to the Trustee.

The appellant, Ms. Johnson, is one of Mr. Hanlon’s creditors. She states that the registrar erred in approving the discharge on those terms. If the appeal is allowed, she looks for an order refusing Mr. Hanlon’s application for a discharge, with leave to apply again in two years, or alternatively, giving a discharge conditional on his paying $50,000. The appeal is opposed by both Mr. Hanlon the bankrupt, and the Trustee. The appeal was heard by Judge Milman, Canada’s bankruptcy legislation, the BIA states that a person dissatisfied with an order or decision of a registrar can appeal that decision to a judge of that court who in that capacity is sitting as a bankruptcy judge.

The alleged errors made by the registrar in the making of the order of conditional discharge

Ms. Johnson argued that the registrar made certain errors in granting the conditional bankruptcy discharge order. Ms. Johnson says that in granting the bankruptcy discharge on those terms, the registrar erred as follows:

in concluding that Mr. Hanlon had complied with the injunction resulting from Ms. Johnson’s original successful litigation against Mr. Hanlon when he had not;
in falling short to take into account Mr. Hanlon’s refusal to agree with the accuracy of the trial judge; and
in failing to consider Mr. Hanlon’s real income earning potential.

The standard of review on such an appeal

There is a standard of review on such an appeal from an order of a bankruptcy discharge hearing. S. 192(1) of the BIA gives the bankruptcy registrar the authority to, amongst other things, grant orders of discharge. S. 192(4) of the BIA allows a party dissatisfied with an order or decision of a
registrar may appeal it to a judge.

In granting an order of discharge in the bankruptcy process, the registrar is exercising judicial discretion. If the registrar has acted reasonably, the judge should not set it aside or ignore it. Further, if an appeal from a bankruptcy discharge order is based on alleged errors in findings of fact, the court will not interfere if there is no overriding error in the findings of fact and there is evidence from which the findings of fact could be made. Discretionary decisions may, naturally, be overturned if the registrar has materially misinterpreted the law or made an error in respect of the facts underlying the use of that discretion.

When a registrar’s decision in a bankruptcy discharge hearing imposes conditions, those conditions must be realistic for the bankrupt to perform in a reasonable period of time. Where the amount ordered was unrealistic and the bankrupt’s discharge is conditional on making additional payments, the appeal court did hold that results in an error of law and the appellate judge can either substitute the conditions or refer the matter back to the registrar for reconsideration.

**The judge’s decision on the appeal from the registrar’s bankruptcy discharge order**

The judge dismissed the appeal finding there were no overriding errors made by the registrar. With respect to the amount of $7,500 ordered as a condition of discharge from bankruptcy, the judge found as follows:

Ms. Johnson says that the registrar did not consider Mr. Hanlon’s untapped earning capacity and instead concentrated practically completely on her arguments of his potential inheritance. She suggests that Mr. Hanlon could be earning more than he is. In her opinion, he could earn more to enable him to make a settlement of $50,000 rather than the $7,500 that was ordered.

Mr. Hanlon’s real historic earnings offered adequate assistance for the registrar’s verdict that he was incapable of paying any more than the $7,500 that she ordered for him, did not have the financial prospects himself to do so and without getting personal loans from family members to help him with that. That was properly decided by the registrar based on the evidence before her.

The judge found that there is no merit in this or any other of the grounds of appeal. He found no error in the registrar’s decision, and having found the discharge condition that she imposed to have been reasonable in the circumstances, he dismissed the appeal.

Bankruptcy discharge summary

I hope that you found this bankruptcy discharge Brandon Blog interesting and that you now have a good appreciation for the process at the end of the administration for a person who files for bankruptcy and the considerations of the court if someone appeals a bankruptcy discharge order. Problems will arise when you are cash-starved and in debt. There are several insolvency processes available to a person or company with too much debt.

If you are concerned because you or your business are dealing with substantial debt challenges, you need debt help and you assume bankruptcy is your only option, call me.

It is not your fault that you remain in this way. You have actually been only shown the old ways to try to deal with financial issues. These old ways do not work anymore.

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

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

Call us now for a no-cost bankruptcy consultation.

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

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

Tags action from creditors, alternative to bankruptcy, application for discharge, assignment in bankruptcy, automatic discharge, bankruptcy deals, bankruptcy discharge, bankruptcy duties, bankruptcy estate, bankruptcy filing, Bankruptcy Judge, bankruptcy law, bankruptcy legislation, bankruptcy outcome, bankruptcy period, bankruptcy process, bankruptcy protection, Companies’ Creditors Arrangement Act, condition of discharge, condition of discharge from bankruptcy, conditional discharge, Consumer Proposal, creditor opposition, date of bankruptcy, debt load, debt obligations, discharge hearing, Division I Proposal, duties of a bankrupt, files for bankruptcy, filing for bankruptcy, income tax debt, Ira Smith Trustee, licensed insolvency trustee, mandatory credit counselling sessions, surplus income, Trustee opposition, unsecured debts

Brandon Blog Post

NRA IN THE NEWS UPDATE: MY CANADIAN VIEW OF THE DECEPTIVE NRA BANKRUPTCY CASE DISMISSAL

Post author By Brandon Smith
Post date May 19, 2021

NRA In The News: Why did the NRA file for bankruptcy?

The National Rifle Association (NRA) is America’s gun advocacy organization being the gun rights champion of Second Amendment rights. This independent organization promotes the right to bear arms. Last January 15 it filed for bankruptcy. The bankruptcy declaration did not expose that it was in a financial mess. The NRA, which is known for its aggressive efforts to lobby against gun control laws, filed not because of its financial condition, but for a different reason.

In my January 20, 2021 blog titled: NATIONAL RIFLE ASSOCIATION FILES FOR BANKRUPTCY ANNOUNCES PLAN TO MOVE TO TEXAS FOR FREEDOM, I described why it made its voluntary petition bankruptcy filing under Chapter 11 of the United States Federal Bankruptcy Code in the United States Bankruptcy Court for the Northern District of Texas in Dallas.

In that Brandon Blog, I described why New York Attorney General Letitia James filed a lawsuit looking to dissolve the National Rifle Association, the largest most significant pro-gun organization in the USA. Attorney General James claims the organization with financial misconduct and unlawful conduct including financial abuses, spending millions of dollars on things like personal expenses, personal trips and other questionable expenditures. The purpose of the NRA bankruptcy filing was to dissolve itself in New York State while evading prosecution. It then planned to reincorporate in the State of Texas.

Recently, NRA in the news arose again. This time it was because a federal Bankruptcy Judge dismissed the NRA bankruptcy case. This permits New York to proceed in its initiative to dissolve the gun-rights group for alleged fraud and abuse.

In this Brandon Blog, I describe the NRA in the news bankruptcy filing case and its dismissal and what would happen in a similar Canadian insolvency case.

NRA in the news: How might bankruptcy help the NRA reincorporate?

When a person or company makes insolvency filing, that generally stops actual or pending litigation while giving more time to analyze exactly how to manage the financial difficulties. In Canada, the stoppage of lawsuits is called a “stay of proceedings”. However, in Canada, the stay of proceedings just relates to lawsuits for the collection of a debt.

Litigation, such as the pending lawsuit of the New York attorney general against the NRA, has nothing to do with proving or collecting on a debt. Rather, it is to prove that laws have been broken. My view is that in Canada, if the insolvency filing was not thrown out entirely, such as it was in this case, for sure the government would be able to get leave of the court to either begin or continue its litigation.

So the powerful gun-rights group thought that if it filed its voluntary Chapter 11 bankruptcy petition for bankruptcy protection, it could buy itself the time it needed to dissolve, stop the New York State legal action and then reincorporate in the gun-friendly state of Texas.

NRA in the news: Is bankruptcy justified?

Concurrent with its bankruptcy filing, the NRA stupidly made a public statement that it isn’t insolvent or bankrupt saying it is in “its strongest financial condition in years.” This was not a very smart thing to do, as the US Bankruptcy Code is to help insolvent people and companies. That is just begging for a bankruptcy dismissal.

In Canada, in order to do a traditional bankruptcy filing under the Bankruptcy and Insolvency Act (Canada) (BIA), the debtor must be insolvent. The BIA defines an insolvent person as an individual or company who:

is not bankrupt;
who lives, carries on business or has assets in Canada;
whose debts owing to creditors that are provable claims total at least one thousand dollars, and also:
- for any type of reason unable to pay their debts when due;
- has stopped paying liabilities in the regular course as they usually come due; or
- the aggregate of the property is not, at a fair assessment, enough, if sold at a properly conducted sale, to pay off all debts currently or about to become due.

A licensed insolvency trustee should not accept an assignment in bankruptcy from anyone filing bankruptcy from a party whose Statement of Affairs shows they are not insolvent and if accepted, should not be allowed by the Office of the Superintendent of Bankruptcy. A court would certainly not make a Bankruptcy Order in such a situation.

Since the NRA stated that it was not insolvent, which is a condition precedent to file under the US Bankruptcy Code, you can see why NRA in the news for its voluntary bankruptcy petition in the face of the New York Attorney General litigation was very controversial. That is what US bankruptcy experts thought as they predicted that under US bankruptcy law, the court would agree with the opposition by the Justice Department to the NRA bankruptcy plan.

However, there are times when bankruptcy proceedings are appropriate. First, you need to start with the basic premise that the individual, business or company is insolvent. Bankruptcy is one of the more drastic ways people can address their financial problems. It’s a complex topic, and you need to know that there are options other than bankruptcy that can address your situation.

A licensed insolvency trustee can advise you of your options. Some of the factors that may influence whether you should file for bankruptcy or one of the debt settlement options available under the BIA include:

How much you owe;
How long you owe;
The terms of your loan and other debts;
Your ability to repay;
The presence of co-signers;
What are your assets and liabilities;
Steady employment or self-employment income;
How you’ve previously handled your debts;
Your age and employment situation; and
Your future plans.

This list is by no means exhaustive, but it is a good start. The Canadian insolvency system is designed to give the honest but unfortunate debtor a fresh start in life.

NRA in the news: Judge Dismisses NRA Bankruptcy Case, Heightening Risk For Dissolution Of Group

Given the Justice Department’s legal challenge to the NRA filing, there needed to be a bankruptcy trial. The controversial NRA has had a rough few years in the media, with everything from their pro-guns stance to their lack of concern about the deaths of American schoolchildren being brought up. However, it seems their woes are not over yet.

NRA in the news arose yet again. Federal Judge Harlin Hale dismisses the NRA Chapter 11 bankruptcy case due to the fact that he viewed the bankruptcy as not filed in good faith. Judge Harlin stated that he believed the NRA’s objective in filing bankruptcy is much less like a typical bankruptcy case in which a debtor is faced with financial problems, such as a judgment that it cannot pay off. Rather, it was filed in bad faith like instances in which courts have discovered bankruptcy was filed for gaining an unfair advantage in litigation or to avoid a regulatory scheme.

The ruling followed a lengthy 12-day bankruptcy trial in Dallas, Texas. NRA president, Wayne LaPierre, acknowledged keeping the NRA into Chapter 11 bankruptcy filing secret without the understanding or acceptance of the majority of the group’s 76-member board of directors as well as various other top officers.

Could this happen in Canada? Definitely. When a filing is made or a Bankruptcy Order made under the BIA either by/against a person or company and it is shown that the filing/Bankruptcy Order ought not to have been made, the court has the authority to either annul the bankruptcy, set aside a Bankruptcy Order or otherwise terminate the proceedings.

Each situation will rest on its own unique set of factors. In general, if it can be shown that the debtor was not insolvent but the filing was done for some other purpose, such as in the NRA Chapter 11 bankruptcy, the court can annul the bankruptcy filing. The same is true if it is shown that the filing was not made in good faith or that the debtor was attempting to commit fraud on the creditors.

NRA in the news: NRA Bankruptcy Case Is Dismissed. What Happens Next?

With the bankruptcy case of the NRA dismissed, the NRA says it plans to re-file the case in September. The NRA says that the documents filed in court do not reflect the true financials of the association and that the organization has fallen victim to an anti-gun group that is bent on destroying it. The NRA now claims the Chapter 11 filing was to get out from under its debts that it could not pay.

We shall see what transpires next. In the meantime, New York Attorney General Letitia James is free to pursue the NRA. No doubt we will see NRA in the news soon again.

NRA in the news summary

I hope you enjoyed the NRA in the news Brandon Blog post. A bad faith insolvency filing is luckily rare in Canada. However, something like the NRA filing could happen. Canadian courts have the ability to either annul or set aside a filing by a non-insolvent debtor filed for a fraudulent purpose or to misuse the Canadian insolvency system.

Are you worried because you just lost your job through no fault of your own? Is your business dealing with substantial debt challenges and financial problems due to your largest customer failing to perform and pay your company? Do you assume bankruptcy is your only option? Call me. It is not your fault that you remain in this way. You have actually been only shown the old ways to try to deal with financial issues. These old ways do not work anymore.

The Ira Smith Team utilizes new modern-day ways to get you out of your debt difficulties while avoiding bankruptcy. We can get you the relief you need and so deserve.

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

Call us now for a no-cost consultation.

We will get you or your business back up driving to healthy and balanced trouble-free operations and get rid of the discomfort factors in your life, Starting Over, Starting Now.

Brandon Blog Post

LAURENTIAN UNIVERSITY FACING INSOLVENCY MAKES STARTLING CCAA NEWS FILING FOR CREDITOR PROTECTION

Post author By Brandon Smith
Post date February 8, 2021

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

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

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

UPDATE MAY 5, 2021: SEE OUR UPDATED BLOG PUBLISHED TODAY ON THE LAURENTIAN UNIVERSITY INSOLVENCY CREDITOR PROTECTION PROCEEDINGS STATUS – CLICK HERE FOR THE UPDATE

Laurentian University introduction

Laurentian University is facing a cash crisis and has filed for creditor protection. The Ontario university states that the application under the federal Companies’ Creditors Arrangement Act (CCAA) is intended to permit the university to continue running day-to-day operations during restructuring.

The Sudbury, Ontario school is not shutting down and will continue to provide services for students. It states it will keep normal operations and keep classes running. In this Brandon Blog, I talk about what creditor protection in the Canadian context is and why Laurentian University did so.

***Laurentian University: What is creditor protection***?

In its simplest terms, creditor protection is the protection you get when you start a proceeding with a filing under either the Bankruptcy and Insolvency Act (Canada) (BIA) or the CCAA. Under the BIA, an individual or company gets that protection in either a consumer or corporate bankruptcy. This safeguard is also obtained by filing under the restructuring proposal provisions of the BIA. A company safeguards itself when it files for restructuring under the CCAA.

Once a filing is done, without getting special permission from the court, none of your creditors can start or continue legal action against the person or the company for the repayment of a debt or for any enforcement action against its assets.

Laurentian University, therefore, received its sheltering once it made its filing under the CCAA. When using this statute, it can also be called CCAA protection.

Below is the section titled “How the Laurentian University restructuring story begins”. I discuss its particular issues leading up to the need to file.

Laurentian University: What is a stay period?

The “time out” that a person or business gets from its creditors is called a stay period (Stay of Proceedings). Upon the agreement of the court to the initial filing, the result is that the court will issue an Order giving the company an initial 30 days of protection from creditors to allow for the preparation of the restructuring proposal called a Plan of Arrangement.

This initial stay can be extended by the court, as long as the judge is convinced that the company is acting in good faith and working expeditiously in sorting through the myriad of issues stopping it from putting together its Plan of Arrangement.

Laurentian University: What does CCAA mean

The CCAA is a Canadian federal law that helps companies in financial difficulties emerge from its difficulties. The company begins its reorganization proceeding with its application to the court and files for creditor protection to avail itself of the process for a company and its creditors to come to an agreement on how to reorganize the company’s debt, while the company continues to operate normally and pay amongst other things, wages to its employees.

One of the biggest advantages of the CCAA is that it allows a business to “hold the fort” while the creditors and the company work out an agreement that will hopefully get the company back on its feet. While operating in this fashion, company management remains in control of running the business. The company does not hand over its assets to a licensed insolvency trustee (Trustee). Rather, the Trustee is appointed by the court to act as Monitor.

As the title sounds, the role of the Monitor is that of the neutral court officer working with the company. The duties of the Monitor include:

overseeing and providing supervision of the company’s affairs;
assisting in the negotiations with creditors;
helping with the drafting of the Plan of Arrangement for describing what the restructuring process will be;
report regularly to the court on the progress and details of the restructuring administration, and ultimately,
conducting the meetings of the various classes of creditors where voting on the Plan of Arrangement takes place.

Although the CCAA is unique to the country of Canada, other countries have similar restructuring legislation. The most famous is probably Chapter 11 of the US Bankruptcy Code. This is when you normally hear the term “bankruptcy protection“.

Laurentian University files to reorganize university finances

Last Fall, Laurentian University recognized it was in financial trouble. On October 1, 2020, it issued a press release advising that it has financial challenges brought on by the global COVID-19 pandemic and its pre-existing structural deficit. It also announced at that time that it hired Ernst & Young as financial advisors to assist in a further review of its detailed financial results, budgets, and our various initiatives to help identify and analyze any additional opportunities for cost savings or improvement.

On February 1, 2021, facing insolvency, Laurentian University took the step to begin its insolvency proceeding under the CCAA in order to come up with a formal restructuring plan. Since it is in the early stages of the insolvency administration, the actual plan has not yet been developed as Laurentian University needs time to come up with the proper plan. It will be one of many future events I will keep my eye on for you.

From my review of the filing documents, I can tell you what the story is so far.

How the Laurentian University restructuring story begins

“We are working with all stakeholders to ensure a smooth process for students,” said Peter Baxter, the university’s provost and vice-president, academic.”

Who would’ve thought that universities, which are supposed to be institutions of higher learning, would actually run into financial problems and put their stakeholders at risk? But that’s exactly what happened and is the current situation with the Laurentian University insolvency in Sudbury, Ontario. I guess the place was not run by any of the finance profs! It is obviously a stressful time for all students, staff, faculty, and creditors.

Dr. Robert Haché, the President and Vice-Chancellor of the Laurentian University of Sudbury, swore the necessary affidavit on January 30, 2021, in support of Laurentian’s court application for an Initial Order to commence CCAA proceedings. In his affidavit, Dr. Haché stated:

Laurentian’s financial issues were first determined as early as 2008-09 when a prior administration gave a budget to the Board that would not be balanced for the 2008-2009 academic year and showed little to no improvement for the future financial prospects of the university absent any revised processes. The budget was approved, but the Board expected the financial situation to be fixed as a top priority item.
A Plan for Regaining Sustainability at Laurentian was presented to the school’s Board on December 18, 2008, and again on February 20, 2009. The Board approved the implementation of the plan, expecting to regain financial health over a three-year period.
Starting in 2014, Laurentian undertook a $64 million Campus Modernization Project for the construction of approximately 250,000 sq. ft. of classrooms, research, study as well as a public area.
The Campus Modernization Project involved Laurentian incurring a substantial amount of long-term debt (approximately $40 million) to pay for the construction of buildings and facilities to modernize the campus in order to accommodate its historical growth and fuel the projected enrolment growth. The university elected to defer repayment of the principal amounts borrowed until after construction was completed, leading to the accrual of further interest.
When the Board approved the 2016-17 operating budget, LU forecasted operational deficits continuing through 2021-22 leading to an accumulated operational deficit of greater than $43 million.
With the exception of the modest growth experienced in 2020, enrolment has declined each year from 2015 to 2018 and tuition fees remain low, while labour and debt servicing costs have grown substantially.
The 10% tuition reduction and tuition freeze ordered by the Province of Ontario beginning in 2019.
Laurentian’s academic costs are generally higher as a percentage of total costs than other Ontario universities.
Not re-evaluating over the last decade its programs to make sure it is focusing on those the marketplace of students deem relevant and required.
The COVID-19 pandemic has made all these issues worse.

From reading his sworn affidavit, I would use one simple word to describe what has led to the Laurentian University insolvency – MISMANAGEMENT! Dr. Haché joined Laurentian University in July 2019. So he has only been involved in this mess for the last 19 months.

What Laurentian University reports its immediate plans are by making this CCAA filing

Laurentian University reported that as at April 30, 2020, it had $358.5 million in assets based on generally accepted accounting principles. Of that total, only $33.2 million is either liquid or near-liquid. As at the same date, its liabilities are:

Line of credit $14.4 million
Short-term loan $1.4 million
Accounts payable and accrued liabilities $22.4 million
Accrued vacation pay $1.8 million
Deferred revenue $1.0 million
Current portion of long-term debt $2.7 million
Long-term debt $89 million
Employee future benefits liabilities $20.8 million
Deferred contributions $38.6 million
Deferred capital contributions $129.9 million

This adds up to $322 million. The balance sheet balances because the remainder represents either restricted capital or special purpose endowments.

Laurentian University advised the court that it intends to come back requesting an Amended and Restated Initial Order. Right now, Laurentian has the benefit of the Stay of Proceedings and will not be making any payments on any outstanding amounts owing as of February 1, 2021.

Among other things, the motion in respect of the Amended and Restated Initial Order will seek the following additional relief:

extending the Stay of Proceedings to April 30, 2021;
suspending Laurentian’s requirement to make certain special payments in respect of its defined benefit pension plan, pending further Order of the Court;
suspending Laurentian’s need to reply to requests for information received under the Freedom of Information and Protection of Privacy Act (Ontario) during the Stay of Proceedings, nunc pro tunc to February 1, 2021;
the appointment of a mediator, as an officer of the Court and a neutral third party to undertake a mediation of various issues under the supervision of this Court, on an urgent basis;
approving Laurentian’s request for a debtor-in-possession credit facility (the “DIP Facility”) borrowing authority up to the principal amount of $25 million to finance its working capital requirements and other general corporate purposes, post-filing expenses and costs during the Stay of Proceedings.

The court has now declared that Laurentian University is insolvent. I will be following this CCAA administration and will write more blogs on material points of special interest as this restructuring winds its way through the court.

Laurentian University summary

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

The Ira Smith Team utilizes new modern-day ways to get you out of your debt difficulties while avoiding bankruptcy. We can get you the relief you need and so deserve.

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

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

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

Call us now for a no-cost consultation.

We will get you or your business back up driving to healthy and balanced trouble-free operations and get rid of the discomfort factors in your life, Starting Over, Starting Now.

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

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

Tags bankruptcy and insolvency act canada, bankruptcy protection, CCAA, classes of creditors, Companies’ Creditors Arrangement Act, covid-19 pandemic, Dr. Robert Haché, Ernst & Young, initial order, Laurentian University, licensed insolvency trustee, plan of arrangement, protection from creditors, restructuring proposal, stay of proceedings, what does ccaa mean, what is a stay period, what is creditor protection

Brandon Blog Post

CCAA CANADA: OUR EXTRAORDINARY GUIDE TO 2020 TROUBLED CANADIAN COMPANIES SEEKING BANKRUPTCY PROTECTION

Post author By Brandon Smith
Post date August 10, 2020

The Ira Smith Team is totally operational and both Ira and Brandon Smith are here for a telephone consultation, conference calls and virtual meetings.

Keep healthy and safe everybody.

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

CCAA Canada introduction

We are now about 5 months into this COVID-19 pandemic since the state of emergency was announced in Canada. There has also been a lot of media coverage of the many negative effects it has had on Canadians and the Canadian economy. I thought it might be interesting at this point to do some review on CCAA Canada. Now I am not talking about the Canadian Collegiate Athletic Association. Rather, I am going to look at the companies that have so far filed for creditor protection under one of Canada’s insolvency statutes. The Companies’ Creditors Arrangement Act.

When a company tries to reorganize under CCAA Canada – What does CCAA mean?

When Canadian companies who owe more than $5 million experience financial problems, they might go to court to seek creditor protection, filing under the CCAA Canada. That’s federal legislation that primarily offers a company time to try to work out its financial troubles with those to which it owes money.

As I have written before in various Brandon’s Blogs, if the company owes less than $5 million it can file under the Part III Division I reorganization section of the Bankruptcy and Insolvency Act (Canada). Although it is the other Canadian federal insolvency statute and some procedures are more streamlined and handled slightly differently, the net effect is the same as the matters I explain below about the CCAA Canada.

What does CCAA Canada protection mean? CCAA vs Chapter 11

“Bankruptcy protection” is a term closely associated with a US company filing under Chapter 11 of the US Bankruptcy Code. That term has been adopted into the Canadian insolvency dialogue. In Canada, it most likely means that the Canadian company has applied to a Canadian court to look for protection from their creditors by filing under CCAA Canada.

A firm files under CCAA Canada for consent to come up with a restructuring plan strategy that would certainly provide it time to rearrange its financial affairs to make sure that it can keep operating.

As long as a CCAA order continues to be in place, creditors are not allowed to start or continue any kind of action to recover money owed to them. They can’t try to confiscate the firm’s property or try to petition it into bankruptcy, without the prior approval of the court. This is called the CCAA stay of proceedings.

Considering that a CCAA Canada filing is made because a business is deeply in the red, the initial order of business is to strike some kind of satisfactory arrangement with its creditors. That includes secured creditors, unsecured creditors and shareholders.

Can CCAA Canada protection be extended?

Yes, under CCAA Canada, court-ordered protection can be extended. After Algoma Steel filed under CCAA Canada in April 2001, the firm had gotten eight extensions prior to emerging with a new ownership framework.

Who gets priority under a CCAA Canada filing?

Not all creditors are treated equally. There is a priority generally established for the ranking of creditors and the order in which they might be paid by a debtor.

First in a CCAA Canada restructuring, will be any government claims that rank as a priority deemed trust claim. Next will be any new charges ordered by the court as part of the restructuring. Examples of such court-ordered security charges are Key Employee Retention Plans, financing the company needs in order to survive during the restructuring period and the costs of the professionals involved in the restructuring for the company.

Secured creditors, including lenders and bondholders, usually head the list next when it concerns getting back their money. Secured creditors might hold security such as a general security agreement and/or a mortgage as security for their debt held.

Unsecured creditors follow next on the list of creditors. Unsecured creditors have supplied goods or services on credit to the company without being given any security. In the many retailer filings that have been in the news recently, even customers who have paid deposits for items not yet picked up or who have gift cards are also unsecured creditors. Last on the list are the shareholders.

What happens if the court doesn’t approve a CCAA Canada application or the sides can’t agree on how to restructure debt?

If a restructuring effort is not successful, or if the court does not approve it, a company can be placed right into receivership or bankruptcy. The main difference between a CCAA Canada filing and the options of receivership or bankruptcy, suggests that the company can no longer be a going concern and will be liquidated.

The choice between receivership or bankruptcy depends on the nature and extent of the creditors. If there is a major secured creditor who is owed more than the assets are worth, on a failed restructuring, the court will allow that secured creditor to appoint a receiver (or the court will appoint the receiver). The receiver will then liquidate the company’s assets and repay the secured creditor as much as possible. If there are no secured creditors (which is highly unusual), or there will be money left over from the liquidation after full repayment of the secured creditors, then there will be bankruptcy. The licensed insolvency trustee acting as the bankruptcy trustee will make a distribution to the unsecured creditors.

Sometimes the type of company or industry will require both receivership and bankruptcy. Retail liquidations are a good example. The reasons are outside the main topic of discussion for this CCAA Canada Brandon’s Blog, but, one day, I will do one on that topic.

What happens to shareholders in a CCAA Canada restructuring?

Holders of common stock generally come last. On a regular basis in a CCAA Canada restructuring, they tend to get wiped out. Their old shares come to be worthless. Usually, brand-new shares are issued in the restructured company.

Holders of preferred shares rank ahead of common shareholders (for this reason the title “preferred”) yet more often than not do not get back the full value of their shares.

Public company shares in a company if it enters CCAA Canada protection and all trading is halted

When a public company announces that it has filed under CCAA Canada, a trading halt is applied. The listing exchange notifies the marketplace that trading is not taking place. While the stop is in effect, brokers are forbidden from publishing quotations or signs of interest in trading. The listing exchange will end the trading stop by taking the actions called for by its rules. Generally, the marketplace is alerted that a trading halt is about to end either at the same time the halt finishes or a few minutes before.

When a company gets on the edge of bankruptcy, its stock value mirrors the danger of a CCAA Canada administration becoming liquidation. Purely as an example, a business that used to trade at $50 might trade at $2 per share as a result of the bankruptcy environment. After entering into a CCAA Canada filing, the company’s stock price might be up to $2.10. This value is composed of the potential amount that shareholders might get after liquidation and also the possibility that the firm might restructure and run effectively in the future. Investors can buy and sell these $2.10 shares in the market. The actual value does not reach zero unless the likelihood of restructuring is so low that liquidation becomes a certainty.

While the company is in a CCAA Canada restructuring, its stock will certainly still have some value, though it will likely plummet. The regulatory authorities will watch it very closely and shut down trading if any anomalies are encountered where investors could get hurt. This was recently seen in the United States in the Hertz Chapter 11 bankruptcy protection administration.

Nonetheless, if the business restructures and emerges from CCAA Canada reorganization as a solvent going-concern, its share price might start to rise again. How much will depend on the unique restructuring issues. If a business rises from its restructuring stronger than ever, investors can take advantage of the turnaround, as old stock may get cancelled during the insolvency process, and new shares issued.

List of CCAA filings under CCAA Canada during the COVID-19 pandemic so far?

There have been many media reports about companies filing under CCAA Canada during this coronavirus pandemic. I thought it would be useful to look at which companies have filed and what industries seem to be most affected between the calling for the state of emergency and the last date for which these statistics have been published, July 31, 2020. All of this information comes from statistics published by the Office of the Superintendent of Bankruptcy Canada.

The number of companies and the industries that these companies engage in is allocated as follows:

Cannabis	6
Charity	1
Construction	4
Energy	4
Entertainment	1
Hospitality	1
Manufacturing	1
Media	1
Mining	2
Pulp and Paper	1
Real Estate	2
Retail	8
Technology	1
Travel	1

	34

The following chart shows the filings by the province in this same time frame:

ccaa canada graph

CCAA Canada summary

I hope you enjoyed this CCAA Canada Brandon’s Blog. The Ira Smith Team family hopes you and your family are staying safe, healthy and well-balanced. Our hearts go out to every person who has been affected either through inconvenience or personal family tragedy.

We are all citizens of Canada and we have to coordinate our efforts to stop the spread of the coronavirus. Social distancing and self-quarantining are sacrifices that are not optional. Family members are literally separated from each other. We look forward to the time when things can return to something close to normal and we can all be together again physically.

Ira Smith Trustee & Receiver Inc. has always employed clean and safe habits in our professional practice and continues to do so.

Revenue and cash flow shortages are critical issues facing entrepreneurs and their companies and businesses. Should you take advantage of the CEBA? I say a resounding YES!. I just wanted to highlight all of the issues that you should consider.

If anyone needs our assistance, feel confident that Ira or Brandon can still assist you. Telephone consultations and/or virtual conferences are readily available for anyone feeling the need to discuss their personal or company situation.

Are you now worried just how you or your business are going to survive? Those concerns are obviously on your mind. This pandemic situation has made everyone scared.

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. We can get you debt relief now.

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

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

Call us now for a no-cost consultation. We will 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.

The Ira Smith Team is totally operational and both Ira and Brandon Smith are here for a telephone consultation, conference calls and virtual meetings.

Keep healthy and safe everybody.

Brandon Blog Post

EASY COMMERCIAL RENT RELIEF CANADA: THE SECRET TO CREATING A CORPORATE RESTRUCTURING

Post author By Brandon Smith
Post date August 5, 2020

The Ira Smith Team is totally operational and both Ira and Brandon Smith are here for a telephone consultation, conference calls and virtual meetings.

Keep healthy and safe everybody.

Commercial rent relief Canada introduction

Commercial rent relief Canada is one of the biggest needs of Canadian businesses. This is a result of the COVID-19 induced economic shutdown. I have written before on this problem and about the Canadian government Canada Emergency Commercial Rent Assistance (CECRA) Program.

This program is part of Canada’s COVID-19 Economic Response Plan. The CECRA has been updated from its original version which I also wrote about. You can view the updated discussion in my blog – COMMERCIAL TENANCIES ACT ONTARIO: NEW FIX FOR YOUR UNRULY LANDLORD’S COVID-19 COMMERCIAL LEASE TERMINATION.

The purpose of this Brandon’s Blog is to discuss how “unused” leased premises have been treated differently so far under both US and Canadian corporate restructuring. I will also fill you in on the secret to get commercial rent relief Canada for Canadian bankruptcy protection and financial restructuring. Unfortunately, as you will see, it isn’t much of a secret!

Commercial rent relief Canada – The US version

The US bankruptcy courts have been generous and pragmatic in cutting companies who filed under Chapter 11 some slack in relation to leased premises that were unused due to the economic shutdown. There were two cases in particular that I previously wrote about.

Modell’s Sporting Goods, Inc. et al Chapter 11 bankruptcy proceedings

On March 12, 2020, the U.S. Bankruptcy Court District of New Jersey issued the Order authorizing the Chapter 11 bankruptcy application of Modell’s Sporting Goods, Inc. et al (Modell’s) submitted on March 11. Modell’s is America’s earliest, family-owned ran store of sporting items, sports footwear, clothing and equipment. It was founded in 1889.

On March 27, 2020, the court granted Modell’s court application making an order attending to both a bankruptcy suspension and an operational suspension. The bankruptcy suspension maintained the bankruptcy protection proceedings until April 30, 2020 (the Suspension Period). The operational suspension enables Modell’s to shut down all shops and also not operate. The judge additionally gave Modell’s the right to apply on brief notice to the court to extend the Suspension Period. The order went on to state the stay of proceedings holds throughout the suspension.

As part of their application, Modell’s submitted a modified budget to show what sources of cash it would have and also what expenditures it would pay during the Suspension Period. It likewise showed what expenditures were being incurred, but not paid. Commercial rent on every one of its shops was among the expenditures being accumulated but left unpaid.

Modell did not put any of the commercial lease payments in its amended spending plan. They needed to shut down every one of their stores as a result of the coronavirus pandemic. Shops shut suggests no sales. They were not going to pay rent at the same time the stores were not generating cash.

The court order accepted the modified budget plan. It also verified that the only payments that Modell’s would make were those indicated as most important. The business considered payments to every one of its landlords as non-essential. The court order did indicate that the accumulated and overdue commercial rent payments were not and also were not deemed to be waived or not payable.

Pier 1 Imports took a page from the Modell playbook

In February 2020, Pier 1 Imports, Inc. (Pier 1) declared Chapter 11 bankruptcy protection as part of trying to find a purchaser of its operations. It then closed all of its shops in Canada and most in the United States.

On Tuesday, March 31, 2020, following the Modell’s precedent, Pier 1 applied to the court to stop paying commercial rent on its US retail locations on a temporary basis. Pier 1 had to shutter all of its shops as a result of the COVID-19.

Following the Modell’s model, the court provided its approval. It is interesting to note that no commercial rent relief Canada was sought from the Canadian court.

commercial rent relief canada

Could this commercial rent relief Canada occur under Canadian bankruptcy protection?

So the concern is, could a business get this new Modell’s/ Pier 1 precedent to take place in a Canadian bankruptcy protection restructuring? Put another way, could Canadian companies being formally restructured get commercial rent relief Canada?

Under the CECRA program, landlords and tenants need to cooperate and agree with each other to apply for that commercial rent relief Canada. However, what if the landlord plays hardball? Can a Canadian firm declare bankruptcy protection in Canada and be successful in having the court order commercial rent relief Canada?

The two corporate restructuring statutes in Canada are the Part III Division I section of the Bankruptcy and Insolvency Act (Canada) (BIA) and the Companies’ Creditors Arrangement Act (CCAA).

There are no express arrangements in either statute to conjure up commercial rent relief Canada. Actually, the reverse is true. In either a restructuring or liquidation, the case law says that if a leased premise is being used then rent must be paid to the landlord. Fairness is part of the Canadian bankruptcy landscape. There are years of cases on this problem and they all wind up the very same. You don’t even have to be open for business. If you are tying up the location and preventing the landlord from the right of reentry, the rent needs to be paid.

However, there are two comparable sections in each of the BIA and CCAA. Section 183( 1) of the BIA says:

“183 (1) The following courts are invested with such jurisdiction at law and in equity, as will enable them to exercise original, auxiliary and ancillary jurisdiction in bankruptcy and in other proceedings authorized by this Act…”.

The wording has been interpreted by the courts to imply that the bankruptcy court in each province has the sole responsibility to supervise and approve all acts needed to be done for the correct administration of the Canadian insolvency system. This holds whether it is bankruptcy protection restructuring or straight-out bankruptcy liquidation.

The CCAA offers more adaptability in an insolvency business restructuring than the BIA does. Generally, the court will reach its decisions in a CCAA restructuring on the basis of fairness and also reasonableness. The court is required to be worried that what is being recommended is not prohibited and there are cogent reasons regarding why what is being proposed serves to benefit all or most of the creditors affected by the restructuring.

Until recently, a Canadian court has not published a decision in response to an application for commercial rent relief Canada due to the coronavirus pandemic shutdown in a BIA or CCAA restructuring.

We now have a commercial rent relief Canada answer from British Columbia

The case is Quest University Canada (Re), 2020 BCSC 921. Quest University Canada (Quest) filed for CCAA bankruptcy protection in January 2020. It had several motions between January and May to extend the restructuring proceedings.

Also in May, Quest premised its request for a boost in its restructuring interim loan facility, somewhat, on it deferring lease payments on four of its university residences from June-August 2020. Southern Star Developments Ltd. (Southern Star) is the owner of the residences and also Quest’s landlord. Southern Star and its mortgagee Bank of Montreal (BMO), objected to any lease deferment. The court had to figure out whether it is appropriate to allow Quest to delay rent payments to its landlord, Southern Star.

Quest mandated that as part of the educational experience, all students going to Quest were required to reside on campus in the residences. A significant percentage of Quest’s students (some 75%) were international students. In addition, some faculty members resided in the residences.

Effects developing from the COVID-19 pandemic, as experienced in BC, across Canada and all over the world, are well known. On March 12, 2020, Quest’s board of governors declared the closure of Quest to the general public. Students had to leave the campus and finish the springtime and summertime semesters online. All occupants vacated the residences. Only a small number of personnel stayed behind for security purposes.

Then the BC government issued a Ministerial Order whereby it declared a state of emergency. The federal government prohibited the entry of foreign nationals into Canada, initially except the United States under the Quarantine Act. The Canadian government then extended the ban to most travellers from the USA also.

The timing of the pandemic as well as its extreme repercussions couldn’t be worse for Quest in regards to its restructuring efforts.

Quest’s commercial rent relief Canada application like Modell’s and Pier 1

Without referencing the US bankruptcy protection court orders I discussed above, Quest made a similar application to the court. Quest was looking for commercial rent relief Canada just like was given to the US companies in the Chapter 11 cases.

On May 18, 2020, Quest advised Southern Star that it would not be making rent payments for the residences starting in June 2020. Quest said it needed to conserve cash due to the fact that the residences could not be used (the same argument as the Modell’s and Pier 1 cases). Quest mentioned the continuous restructuring process, the closure of on-campus learning and the unpredictability of what academic instruction it would be able to offer in fall 2020 as reasons for the deferral.

The court had so far accepted and approved interim financing to permit the restructuring to continue. Quest told Southern Star that it wished to discuss a rent deferral arrangement over the following numerous months. Quest hoped that Southern Star would be accommodating given their history of working together and the COVID-19 pandemic.

Unfortunately, Southern Star right away showed its unwillingness to do so. Southern Star stated that, without receipt of lease payments from Quest, Southern Star will certainly not have the ability to make its mortgage loan payments to BMO. For apparent reasons, that is not an enviable situation for Southern Star, nor obviously, BMO, to be in.

In late May 2020, Quest sought and obtained an increase in the approved interim financing by $3 million. The cash-flow forecast that supported that application, included the Monitor‘s Second Report, did not reference any kind of rent payments by Quest to Southern Star until October 2020. Accordingly, the accepted interim funding is not adequate to fund Quest’s lease payments over the summer season.

Quest contended that it is critical to preserve the use of the residences and its relationship with Southern Star. Quest says that its ability to restructure and continue as a university depends on it. They also content that Southern Star and BMO will not suffer any prejudice if the rent deferral is allowed. Quest believed that it would be able to make up the deferred payments sometime in the future.

Southern Star and BMO opposed the court granting that relief. They contend that they will be prejudiced if Quest does not have to make the rent payments.

The court’s decision in Quest’s commercial rent relief Canada application

The court’s analysis was very detailed. The BC court reviewed precedent decisions from various provinces, including Ontario. For Quest, an important question that it wanted the court to answer was were the residences being used?

Quest suggested that it left the residences because of safety issues and provincial health and wellness orders relating to the COVID-19 pandemic. It stated that it is only allowed to make use of the residences for student housing. The court did not equate this absence of physical use of the leased facilities by students with a total absence of “use”.

The court concluded that Quest is “using” the residences within the CCAA restructuring because:

Quest is allowing some staff members to live there.
It is insisting, as against Southern Star as landlord of the residences, according to its right to quiet enjoyment of the residences. Simply put, Quest is exercising its right to “use” the residences, as usual, notwithstanding they are mostly vacant.
Certainly, since June 2020, Quest was able to populate the residences with students or other persons safely. This would be consistent with what they have done every past summer season.
The court did not see the use over the summertime as being irregular with the specified and allowed use of the residences.
As of June and proceeding right into July and August 2020, the principal reason the residences are vacant is no different than from previous summers. In previous summers, Quest had to pay rent to Southern Star because it was still “making use of” the residences.
Quest has actually not chosen to disclaim the (Sub)leases. On the contrary, Quest’s evidence is that the residences are essential and it must maintain them to advance the possible restructuring options available to them. The existence of the residences, and Quest’s legal rights to their use, remain a crucial marketing factor in relation to possible financial partners.

Fairness is a typical touchstone in CCAA and all insolvency proceedings. In the court’s view, substantial indicia of unfairness arise by permitting the rental fee deferment. The court stated that it had the option to allow Quest to choose to pay the rent. The court stated however that it did not have the right to prevent Southern Star from requiring payment and taking action in the face of any kind of default.

The court found that it was not appropriate to grant the rent deferment sought and dismissed Quest’s application. In doing so, the court followed the long line of cases in both CCAA and BIA restructuring cases as well as bankruptcy liquidation cases. By not granting the commercial rent relief Canada requested, it differentiated the Canadian insolvency system from the US system as seen in the Modell’s and Pier 1 cases.

A word of caution:

There is no discussion in the decision that Quest attempted to claim or rely upon a force majeure argument.
Notwithstanding how detailed the court’s analysis is, this BC court decision is not binding on courts in other provinces.

So as I said at the beginning, the secret to getting commercial rent relief Canada in a formal restructuring simply based on this court decision is either reach a deal with the landlord on your own or just hand the premises back to the landlord. Those are the only ways!

Commercial rent relief Canada summary

I hope you enjoyed this commercial rent relief Canada Brandon’s Blog. The Ira Smith Team family hopes you and your family are staying safe, healthy and well-balanced. Our hearts go out to every person who has been affected either through inconvenience or personal family tragedy.

Ira Smith Trustee & Receiver Inc. has always employed clean and safe habits in our professional practice and continues to do so.

Are you now worried just how you or your business are going to survive? Those concerns are obviously on your mind. This pandemic situation has made everyone scared.

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.

The Ira Smith Team is totally operational and both Ira and Brandon Smith are here for a telephone consultation, conference calls and virtual meetings.

Keep healthy and safe everybody.

Tags bankruptcy court, bankruptcy liquidation, bankruptcy protection, BIA, canada emergency commercial rent assistance, CCAA, CECRA, chapter 11 bankruptcy protection, commercial rent relief, commercial rent relief canada, coronavirus, corporate restructuring, covid-19, COVID-19 Economic Response Plan, financial restructuring, force majeure, Ira Smith Trustee, Modell’s Sporting Goods, Pier 1 Imports

Brandon Blog Post

COMPANY BANKRUPTCIES: A USEFUL TOOL TO SHOWER EXECS WITH BONUSES?

Post author By Brandon Smith
Post date July 27, 2020

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

If you would rather listen to the audio version of this company bankruptcies Brandon’s Blog, please scroll to the bottom and click on the podcast.

Company bankruptcies introduction

Company bankruptcies have been in the news during 2020. The ones that got the most attention were large US retailers filing for Chapter 11 bankruptcy protection, their Canadian subsidiaries filing for restructuring or pure Canadian retailers who needed to file.

In the United States, almost one-third of 40 big firms seeking U.S. bankruptcy protection during the coronavirus pandemic awarded bonuses to execs within a month prior to filing their cases, according to a Reuters evaluation. Eight companies, consisting of J.C. Penney and Hertz, approved the bonuses as few as five days before seeking bankruptcy protection.

In this Brandon’s Blog, I discuss why this happened and look at could it happen in Canadian bankruptcies cases.

The role of a Key Employee Retention Plan (***KERP) in company bankruptcies***

A KERP is not a new concept in company bankruptcies. KERP refers to an advantage strategy utilized by a debtor company in a bankruptcy situation as incentives to upper management to stay working for the business throughout the bankruptcy. The purpose of this KERP is to help in the retention of particular essential qualified and competent executives of the company and its subsidiaries, by providing a retention bonus offer for such employees in return for their continued employment during the restructuring of the business in bankruptcy protection.

The KERP intends to maintain qualified officers, employees, and directors of the company and its subsidiaries upon whose judgment and effort the company depends upon for the successful conduct of its business. It is expected that providing such persons with a direct stake in the firm’s successful restructuring will assure a more direct alignment of their interests with those of the business and have them working on the company’s behalf throughout the entire financial restructuring. In this way, senior management and key personnel are incentivized to keep their employment with the company throughout its restructuring and not leave for a new opportunity.

So if KERP is normal, why pay out big bonuses ahead of time?

This phenomenon is unique to company bankruptcies restructurings in the United States. So far, it has not been applied directly to Canadian insolvency filings. The main reasons are the legislation and because of the supervisory role and practices of the courts.

KERPs have long caused objections that companies are enriching execs while cutting jobs, stiffing creditors and wiping out shareholders. In March, creditors filed a claim against previous Toys R’ US executives and directors, accusing them of misdeeds that consisted of paying out such rewards days before its 2017 bankruptcy filing. The company liquidated in 2018, terminating 31,000+ workers.

An attorney for the execs and directors stated the benefits were warranted, given the added work and stress on senior executives, as Toys R’ US had wanted to remain in business after its restructuring. As we all know, the restructuring failed and the company was liquidated.

United States legislation in 2005 needed execs and other company insiders to have a competing job offer in hand before getting retention bonus offers through a bankruptcy protection administration. That forced companies to design new means to pay the bonuses.

After the 2008 financial crisis, firms frequently proposed bonuses in bankruptcy court, casting them as incentive plans with goals execs have to satisfy. Courts mostly accepted the plans, ruling that the performance benchmarks placed the payment past the purview of the limitations on retention incentives. The plans, nonetheless, sparked objections from creditors calling them KERPs in disguise.

At some point, companies discovered they could avoid analysis entirely by approving benefits before insolvency filings. US Bankruptcy Trustees have no power to stop bonuses paid even days prior to company bankruptcies.

Why big bonuses are not paid out on the eve of company bankruptcies in Canada

As I mentioned earlier, the treatment of KERPs is really directed by the supervision of the court. A large Canadian bankruptcy protection filing that might involve a KERP is done under the Companies’ Creditors Arrangement Act (Canada) (CCAA). The Canadian legislation and therefore the decisions of the courts in Canada are different than in the United States.

A financial restructuring under the CCAA is a collaborative effort in Canada. It is not as adversarial as in the USA. In a Canadian CCAA restructuring, a Monitor is appointed by the court. The Monitor to a large extent is the “eyes and ears” of the court. The process is that the Monitor acts as a supervisor over the company’s affairs in restructuring and also acts as a mediator between the various stakeholders. The court places a high degree of reliance on the Monitor’s recommendations. The court also expects its Monitor to be in the middle of all important matters and make thoughtful and pragmatic recommendations.

In Canada, the legislation does not directly address the issue of a KERP. Rather, the court will review the terms of a KERP put before it for approval. The court expects that:

Hard evidence will be put before it to show why the KERP is required and will aid in the company restructuring.
Why the employees for whom it is being recommended qualify.
The court will want to see that the KERP was negotiated, that key stakeholders had input, and there is not a “one size fits all” plan for all the employees.
Rather, individual employee characteristics have been taken into account.
The Monitor has been involved in the discussions and is recommending it to the court with reasons.

The proper use of an appropriately-calibrated reward plan is evident:

Company bankruptcies cause staff members now in an insecure position to be prey to competitors able to provide the possibility of a stable and solvent workplace to people whose natural very first top priority is caring for their households.
There is a danger that the top and mobile employees will certainly be cherry-picked while the company in a restructuring might discover itself significantly handicapped in attempting to attract competent senior staff.
Sometimes a restructuring can result in a court-supervised sales process. Employees might commonly find themselves being asked to bring all of their skills and devotion to the task of making themselves unemployed.
Considering that many employers use a mix of base pay and profit-based motivations, company bankruptcies causing a restructuring may put greater demands on key staff including covering for associates who have been laid off or who have actually left for greener fields.

The main factors considered by the court being asked in company bankruptcies to approve a KERP

The main factors a court considers during company bankruptcies are:

Whether the Monitor recommends the KERP agreement and the cost.
For the senior staff to which the KERP is being recommended, how realistic is it that they would seriously consider various other work choices if the KERP was not approved?
Is the continued employment of the senior staff members for which the KERP is being recommended is essential for the security of the business and to boost the performance of the overall restructuring?
Each employee’s background with and expertise in connection with the debtor.
Any problems in replacing each of the senior staff for the employees to which the KERP would apply.
Were the KERP agreement and its cost authorized by the board of directors, including the independent Monitor, as the business judgment of the board needs to not be disregarded?
Is the KERP agreement and charge approved or consented to by secured creditors of the borrower (who might very likely end up paying for it)?
Are payments under the KERP payable upon the conclusion of the restructuring process or are milestones built in that may or may not be realistic.

These are the major issues that the court needs to consider when determining whether or not to approve a KERP. As you can see, in company bankruptcies in Canada resulting in a CCAA restructuring, the issues the court must consider are many. So far, business sense has prevailed in Canada not requiring the shenanigans now taking place in US bankruptcy restructuring cases.

Company bankruptcies summary

I hope you have found this company bankruptcies Brandon’s Blog interesting and helpful. The Ira Smith Team family hopes that you and your family members are remaining secure, healthy and well-balanced. Our hearts go out to every person that has been affected either via misfortune or inconvenience.

We all must help each other to stop the spread of the coronavirus. Social distancing and self-quarantining are sacrifices that are not optional. Families are literally separated from each other. We look forward to the time when life can return to something near to typical and we can all be together once again.

Ira Smith Trustee & Receiver Inc. has constantly used clean, safe and secure ways in our professional firm and we continue to do so.

Income, revenue and cash flow shortages are critical issues facing entrepreneurs, their companies and individual Canadians. This is especially true these days.

If anyone needs our assistance for debt relief Canada COVID-19, or you just need some answers for questions that are bothering you, feel confident that Ira or Brandon can still assist you. Telephone consultations and/or virtual conferences are readily available for anyone feeling the need to discuss their personal or company situation.

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

Tags Bankruptcy, bankruptcy protection, CCAA, chapter 11, chapter 11 bankruptcy, chapter 11 bankruptcy protection, Companies’ Creditors Arrangement Act, company bankruptcies, coronavirus pandemic, Ira Smith Trustee, kerp, Key Employee Retention Plan, toys r us

Brandon Blog Post

CANADIAN BUSINESS: WHAT WILL BE THE ULTIMATE BUSINESS IN ONTARIO RECOVERY PROGRAM?

Post author By Brandon Smith
Post date July 8, 2020

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

Canadian business introduction

In April 2020, a survey of entrepreneurs who own what could be called a small Canadian business across the GTA was conducted. It found that almost two-thirds of them might have to shut down for good as they struggle to stay on top of rent and other bills throughout the COVID-19 pandemic.

In this Brandon’s Blog, I look at entrepreneurs in Canadian business, both small and large, and talk about the one essential ingredient that will determine Canadian business success or failure. This one necessary item may turn out to be the only Canadian business recovery program that will ultimately work.

Canadian business opening-up again

Many are progressively opening up under local, provincial and federal government guidance. They need to navigate a host of constraints, including restrictions on the number of customers at any one time. I have read that many say the restrictions with their added layer of costs may stop them from being profitable. Even though COVID-19 cases appear to be under control in Ontario, companies have actually reopened to dramatically smaller sized groups, imperilling their survival.

To save local Canadian businesses, and the millions they employ, the federal government developed Canada’s COVID-19 Economic Response Plan. The federal assistance programs for Canadian business include:

Canada Emergency Wage Subsidy (CEWS )
Temporary 10% Wage Subsidy
More time to pay income taxes
Canada Emergency Business Account interest-free loans
Loan Guarantee for Small and Medium-Sized Enterprises
Canada Emergency Response Benefit (CERB) for the self-employed business people and Canadian workers.
Canada Emergency Commercial Rent Assistance (CECRA)

I have already written about most of these support programs. I have attached relevant links above so that you can read up on the various support programs for Canadian business.

Provincial governments have also stepped up. For example, in Ontario, the Doug Ford Conservative government has implemented:

Interest/penalty relief – Canadian business in Ontario will get five months of interest and fine relief to make payments for taxes administered by the Province. From April 1, 2020 – August 31, 2020, Ontario will not apply any penalty interest on any late-filed returns or incomplete or late tax obligation payments under the Employer Health Tax, Tobacco Tax and Gas Tax obligations. This enhances relief from the federal government on interest and other charges from not remitting the amount owing for corporate income tax.
WSIB payment deferments – Employers can delay WSIB payments for 6 months.
Rent support for local Canadian business – Ontario has partnered with the Government of Canada on the Ontario-Canada emergency commercial rent assistance for small businesses and landlords experiencing financial problems throughout the COVID-19 pandemic.

But there are still Canadian business problems

Despite all these support programs, the Canadian business world still has to figure out how to pay the balance of their rent, utility, insurance as well as a host of various other recurring expenses. While some have had the ability to delay these expenses, they can’t do so for life. Companies will become required to take care of their unmet commitments. They will also have to figure out how they are going to go back to paying all their expenses in full once the support programs end and business has not yet come back to the pre-coronavirus pandemic level.

Some companies may have enough cash savings to ride out the pandemic or can access fresh cash resources from owners. That is both good and bad. Entrepreneurs will take from their retirement savings, and in some cases deplete them, in the hopes of keeping their business alive long enough to survive and once again be profitable. It is highly doubtful that Canadian business will be able to borrow from the Banks as a source of fresh capital under these circumstances.

For a lot of others, the crush of past-due costs will certainly limit and maybe even end their business.

What happens when the government support programs end?

That is a big question that I get asked always. The answer is somewhat obvious: Everyone will have to stand on their own two feet just like they had to before the COVID-19 pandemic. Right now all the Canadian business support programs are all scheduled to end August 31. What will happen then?

My personal belief is that the federal and provincial governments will not be able to end the economic response support programs that soon. Rather, I think they will have to extend all the programs again. They may tweak them to begin the process of weaning Canadian business off of government support. Nevertheless, I feel they will have to be extended.

I think the extension will come with stark warnings. I believe the government would not want to extend for more than 90 days, but Christmas will still come in December. Pandemic or no pandemic. Nobody will want to shut off the tap before Christmas. So, that means an extension until the end of the calendar year 2020. With it, the governments will have to warn everyone to get their houses in order now because for certain there will be no more support programs after December 31.

I don’t have any inside information. I am just guessing. But to me, that seems the most realistic to still help Canadian business because entrepreneurs and workers are still all scared. At the same time, the governments’ exit strategy time clock begins ticking. Everyone will have a fair warning.

There is one precious commodity Canadian business will need when the support programs stop

Please humour me. Let us just say you find my prediction to be a reasonable one. On January 1, 2021, Canadian business is not all of a sudden flush with cash. They have survived. Entrepreneurs will still be scared. They certainly will not hire everyone back with an uncertain economic climate. All of the creditors of the businesses will start demanding payment in full. They have been patient and understanding. But now, all business debts will be demanded.

What is the one commodity Canadian business will desperately need? Cash is an obvious one but, no more is coming. Not from the government, the Banks or investors. Entrepreneurs are already tapped out having used personal savings to keep their businesses afloat. The most precious commodity Canadian business will need is TIME. Time to gear up again. Time to get back on their feet and bring in some cash. The Courts will have reopened. Creditors will begin to sue. There will be no more “time-outs” built into our Canadian economic system.

How will businesses get the time they need?

Bankruptcy protection will very likely be the answer

Breathing time that briefly ices up the need to pay off old debt while letting Canadian business function and have the time to find a strategy to keep going. In most cases, that will only be able to happen with a bankruptcy protection insolvency filing.

While bankruptcy is only thought of with going out of business, there are two Canadian federal statutes that allow viable businesses to develop a restructuring plan to lead them back to success. The trouble is that bankruptcy laws don’t give sufficient time to do this while there is still a pandemic. Ongoing COVID-19 health problems will likely suppress the Canadian economy in 2021.

Some out-of-the-box thinking and creativity are going to have to go into bankruptcy restructuring. It will be incumbent on licensed insolvency trustees (formerly called bankruptcy trustees), insolvency lawyers and the courts to recognize viable businesses that deserve to survive. This will be the case even if the processes being recommended are a bit unorthodox. These times are unorthodox and the solutions will have to fit the realities of our time.

I have previously written many blogs on how the two Canadian insolvency statutes can be used to allow Canadian business to restructure. The two statutes are:

Bankruptcy and Insolvency Act (BIA)

Companies’ Creditors Arrangement Act (CCAA)

For the purpose of this blog, I won’t repeat what I have previously written about corporate restructuring under either the BIA or CCAA. For this blog, what you need to know is that CCAA proceedings are for companies with $5 million or more of debt. BIA proceedings are for those companies with $4,999,999 of debt or less. Both statutes allow for bankruptcy protection filing. They are the Canadian equivalent to Chapter 11 bankruptcy protection in the United States.

How will bankruptcy protections help Canadian business?

For numerous companies battling the consequences of COVID-19, the main issue will not be a massive backlog of debt. It will be the inability to pay off the debt fast due to an absence of immediate profits. Cash will be needed to carry on business and make commitments on a go-forward basis. Given enough time, Canadian business will be able to repay its debts which accrued during the coronavirus shutdown. Unfortunately, the time Canadian business will need will be much longer than how much longer creditors will be willing to wait.

This is where bankruptcy protection filing, under either the BIA or CCAA comes in. First, under a bankruptcy protection filing, there is an automatic stay of proceedings. Creditors will not be able to start or continue collection efforts. This includes repossession by secured creditors or beginning or continuing legal proceedings.

Other benefits of a bankruptcy protection filing for Canadian business will be:

Buying some time to come up with a restructuring plan to keep viable businesses in operation.
Saving jobs through restructuring rather than liquidating the assets of many companies.
Allowing for the sale of entire business units to be integrated into other healthier companies in order for businesses to survive, albeit in a different legal format.
To allow for the sale of redundant assets to raise much-needed cash.
Get out of onerous equipment, IP or premises leases/contracts that need to be jettisoned or else a restructuring is not possible.
Stopping secured lenders from calling a default on loan facilities due to either cash or non-cash impairment charges leading to going concern worries.
Obtain operating capital by way of a new debtor-in-possession loan credit facility for restructuring. Most companies outside of a formal restructuring will be unable to borrow any more money as I have already mentioned. However, in a BIA or CCAA Canadian business restructuring, the court can approve emergency funding and raise that operating loan to the top of the pile by giving it a priority secured loan position.
Stopping Canada Revenue Agency (CRA) from starting or continuing garnishee tactics, general collection efforts and especially placing liens on business property for unpaid taxes.
To allow companies to restructure their debt and clean up their balance sheets in a post lockdown economy.

The biggest resource Canadian business will need is also going to be its largest enemy

So as you can see, I believe that the most important resource that Canadian business will need to survive will not be cash. It will be time. Creditors will no longer want to give businesses more time to repay. Companies will need more time to get back on their feet when the COVID-19 Economic Response Plan support programs end.

The only way I can see that truly happening while allowing for proper restructuring of viable businesses will be under bankruptcy protection filings. Those businesses that are not viable, by definition, will fall by the wayside causing more harm to many good people.

So this why I say formal bankruptcy protection proceedings to allow viable businesses to restructure will be the ultimate business recovery program in a post-lockdown Canada.

Canadian business summary

I hope you have found this Canadian business Brandon’s Blog interesting and helpful. The Ira Smith Team family hopes that you and your family members are remaining secure, healthy and well-balanced. Our hearts go out to every person that has been affected either via misfortune or inconvenience.

Ira Smith Trustee & Receiver Inc. has constantly used clean, safe and secure ways in our professional firm and we continue to do so.

Income, revenue and cash flow shortages are critical issues facing entrepreneurs, their companies and individual Canadians. This is especially true these days.

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

Bankruptcy protection: What happens if a company gets into financial trouble?

What happens to the company that files for bankruptcy protection?

A record number of companies have sought creditor protection under COVID-19 and more are on the way?

The bankruptcy protection court case facts

The bankruptcy protection case: The Receiver’s position

The bankruptcy protection case: The supplier’s position

The bankruptcy protection case: The Judge’s decision

Bankruptcy protection: How to cash your insolvent customer’s cheque safely

Bankruptcy protection summary

What does receivership mean: Receivership is for secured claims

What does receivership mean: Bankruptcy vs. receivership

Employee Rights in Bankruptcy Protection and Bankruptcy⁄Receivership

What does receivership mean: Receivership – a typical appointment

What does receivership mean: The bankruptcy of the guarantor

What does receivership mean: The receiver opposes a bankruptcy discharge

Does the Receiver have standing to oppose the bankrupt’s discharge?

What the bankruptcy court decided

What does receivership mean summary

What does the bankruptcy trustee investigate – What is a bankruptcy trustee?

What does the bankruptcy trustee investigate – Tell your bankruptcy trustee everything

What does the bankruptcy trustee investigate? What if I fail to remember to divulge something?

What does the bankruptcy trustee investigate? What can I do?

What does the bankruptcy trustee investigate? What if I have outstanding tax returns?

What does the bankruptcy trustee investigate? What happens If I overreported income?

What does the bankruptcy trustee investigate? Suppose I am not divulging certain information?

What does the bankruptcy trustee investigate? – Collection of information by bankruptcy trustee also allowed under PIPEDA

What does the bankruptcy trustee investigate? – Can I sell my stuff before filing bankruptcy?

What does the bankruptcy trustee investigate and look for in bank statements?

Red flags the bankruptcy trustee looks for at the meeting of creditors

What does the bankruptcy trustee investigate – When the bankruptcy trustee suspects fraud?

What does the bankruptcy trustee investigate summary

What does bankruptcy discharge mean in Canada?

Bankruptcy discharge and its consequences for the bankrupt

What are the types of bankruptcy discharge?

Bankruptcy is a roughly 9-month legal process to eliminate debt

Creditor objects to the decision of the Master on bankrupt’s application for discharge

The alleged errors made by the registrar in the making of the order of conditional discharge

The standard of review on such an appeal

The judge’s decision on the appeal from the registrar’s bankruptcy discharge order

Bankruptcy discharge summary

NRA In The News: Why did the NRA file for bankruptcy?

NRA in the news: How might bankruptcy help the NRA reincorporate?

NRA in the news: Is bankruptcy justified?

NRA in the news: Judge Dismisses NRA Bankruptcy Case, Heightening Risk For Dissolution Of Group

NRA in the news: NRA Bankruptcy Case Is Dismissed. What Happens Next?

NRA in the news summary

Laurentian University introduction

Laurentian University: What is creditor protection?

Laurentian University: What is a stay period?

Laurentian University: What does CCAA mean

Laurentian University files to reorganize university finances

How the Laurentian University restructuring story begins

What Laurentian University reports its immediate plans are by making this CCAA filing

Laurentian University summary

CCAA Canada introduction

When a company tries to reorganize under CCAA Canada – What does CCAA mean?

What does CCAA Canada protection mean? CCAA vs Chapter 11

Can CCAA Canada protection be extended?

Who gets priority under a CCAA Canada filing?

What happens if the court doesn’t approve a CCAA Canada application or the sides can’t agree on how to restructure debt?

What happens to shareholders in a CCAA Canada restructuring?

Public company shares in a company if it enters CCAA Canada protection and all trading is halted

List of CCAA filings under CCAA Canada during the COVID-19 pandemic so far?

CCAA Canada summary

Commercial rent relief Canada introduction

Commercial rent relief Canada – The US version

Modell’s Sporting Goods, Inc. et al Chapter 11 bankruptcy proceedings

Pier 1 Imports took a page from the Modell playbook

Could this commercial rent relief Canada occur under Canadian bankruptcy protection?

We now have a commercial rent relief Canada answer from British Columbia

Quest’s commercial rent relief Canada application like Modell’s and Pier 1

The court’s decision in Quest’s commercial rent relief Canada application

Commercial rent relief Canada summary

Company bankruptcies introduction

The role of a Key Employee Retention Plan (KERP) in company bankruptcies

So if KERP is normal, why pay out big bonuses ahead of time?

Why big bonuses are not paid out on the eve of company bankruptcies in Canada

The main factors considered by the court being asked in company bankruptcies to approve a KERP

Company bankruptcies summary

Canadian business introduction

**The bankruptcy protection court case facts**

**The bankruptcy protection case: The Receiver’s position**

**The bankruptcy protection case: The supplier’s position**

**The bankruptcy protection case: The Judge’s decision**

***What does receivership mean: Receivership – a typical appointment***

**The judge’s decision on the appeal from the registrar’s bankruptcy discharge order**

***Laurentian University: What is creditor protection***?

The role of a Key Employee Retention Plan (***KERP) in company bankruptcies***