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TO CALCULATE HST IS EASY: PAYING IT AND SOLVING OTHER GIGANTIC COVID-19 BUSINESS DEBT PROBLEMS ARE NOT

calculate hst
calculate hst

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 of the page and click play on the podcast.

Calculate HST and Canadian small business

I read two business reports this week, one from the Canadian Federation of Independent Businesses (CFIB) and one from the Canada Revenue Agency (CRA). They both contain troubling information. The combined effect is bad news.

CRA reports that businesses owe $14.3-billion in unpaid sales tax. CFIB estimates that small businesses in Canada owe a collective $139 billion in debt due to the COVID-19 pandemic as of August 2021.

Almost three-quarters of small businesses that took on debt expect it to take more than a year to repay. For businesses in the hospitality sector, the number jumps to 87 percent, with most saying it will take longer than two years to pay it off. Nearly a quarter worried about ever being able to pay off their debts.

These two reports clearly illustrate that one of the debts Canadian business owners have amassed is collected but unremitted Harmonized Sales Tax (HST). This Brandon Blog will not only describe how to calculate HST but also explain what will happen if you do not pay it over to CRA.

Calculate HST Amounts in Sales and Purchase Documents

You must register for GST/HST if you bill more than $30,000 per year. You do not need to register if you don’t exceed this amount. The HST calculation varies according to the province or territory you operate in. Several provinces have harmonized their provincial sales tax with the Goods and Services Tax (GST) and charge HST on taxable goods and services. GST and provincial sales tax have to be charged in provinces with PST; GST is calculated on the price of each taxable sale of goods or services before PST is added.

HST is calculated on the revenue from each taxable sale that is collectible or collected. The HST on each taxable supply produces an input tax credit that can then be deducted from the HST owing. HST on taxable sales less input tax credits from taxable supplies is the net amount of HST due or refund for the period. Your HST return may need to be filed annually, quarterly, or monthly, depending on how large your business is as measured by total sales and therefore sales taxes also.

CRA has created an HST calculator to help you calculate HST.

calculate hst
calculate hst

Calculate HST is just one part of small business debt and the COVID-19 impact

In their August 2021 research study, the CFIB uncovered a variety of issues that show the Canadian small business sector is struggling. They found:

  1. It is estimated that 71% of Canadian small business owners have taken on new debt loads to deal with the effects of the COVID-19 pandemic.
  2. CFIB estimates that total Canadian small business debt loads related to the coronavirus is around $139 billion, and 76% of businesses that took on debt said it would take them more than one year to repay it.
  3. Governments should continue business relief measures as government support is winding down since Canadian small businesses are carrying such a burden and are having difficulty regaining their footing. Rent assistance is one such support program.
  4. Only 39% of small businesses in Canada are currently making sales they consider to be normal for this time of year, despite recent improvements. Most continue to experience declines in revenue.
  5. About 17% of small businesses in Canada have sales that are half or less of what they should be.
  6. Four in five businesses are using one or more sources of funding to cope with COVID-19.
  7. In the arts, recreation & information, and hospitality sectors, 9 of 10 businesses are using some federal, provincial, or other funding to cope with COVID-19.
  8. In three out of five cases, government relief programs replace less than 30 percent of the COVID-19 shortfall.
  9. Scaling back federal relief programs comes too quickly for most business owners.
  10. According to half of the entrepreneurs, repaying their debt is the biggest challenge their business faces on the road to recovery.

Now for the CRA news release that has to do not only with how to calculate HST, but who is and is not paying their HST.

How to calculate HST is only the first part: Businesses owe $14.3-billion in unpaid sales tax, Canada Revenue Agency says

The number of companies falling behind on federal sales tax remittance indicates financial distress, as companies battle the pandemic and supply chain issues. In March 2020, when pandemic restrictions began, the nation owed $11.5 billion in GST and HST to the government. By September 2021, it owed $14.3 billion, an increase of 24 percent over that amount.

As of 2020-21, the CRA has received about 500,000 fewer sales tax returns than the year prior. There were approximately 105,000 fewer sales tax filers, the agency reports. Despite the fact that so many businesses are still operating at some level, they are not even bothering to file their tax returns.

Most businesses file their HST returns on either a once-a-year reporting period or on a quarterly reporting period. Some larger companies report and remit monthly. Quarterly remitters with annual taxable income between $1.5 million and $6 million showed the largest drop in returns by reporting period.

Therefore, it is clear that Canadian businesses are using the tax amounts collected as another source of financing since the pandemic hit. There is no mention of HST in the CFIB study. HST collected but not remitted was not even considered as a source of financing, which it is.

calculate hst
calculate hst

Calculate HST but if you don’t pay, it is a deemed trust

Regardless of the business legal structure, the GST/HST amounts you collect from your customers are considered a deemed trust in favour of the federal government. In an operating business, it takes precedence over whatever debts you owe to other creditors, including secured creditors. The CRA can still get payment from your bank even if the bank does not lend money to you. They can go to the bank where you keep your business funds and get payment there. All that is explained in my blog post about Canada v. Toronto-Dominion Bank.

However, the CRA has the following options:

  • garnish bank accounts, accounts receivable, and all other sources of income;
  • confiscate and sell assets; and
  • pursue other legal remedies.

In my experience, CRA does not typically seize and sell assets. Instead, they pursue garnishments. As in the TD Bank case, they can also just go to whichever of the financial institutions the business banks with and demand the HST funds that have been deposited. When a company owns real property, they may get a judgment from a federal court without notifying the owner, and register that judgment against the title to the real property. Upon refinancing or selling the property, the business owner is required to repay the judgment, plus interest.

Calculate HST: Are HST and COVID debt crushing the life out of your business?

In an environment hamstrung by manufacturing and shipping backlogs, businesses may experience supply shortages and higher delivery costs. Even though paying your bills may be the most emotionally satisfying course of action, it may not be the most practical.

It’s better for your business and your employees if you seek professional advice if you believe that you cannot make next month’s payroll. The following issues cannot be ignored: lenders demanding loan repayment, landlords threatening to end your lease or seize your assets as payment, suppliers cutting off credit or halting deliveries.

The first thing I do as a licensed insolvency trustee is to determine what stage of the business the company is at. The stage the business is at is crucial for me to understand. The choices are:

  1. Solvent and viable.
  2. Solvent but not viable.
  3. Insolvent and viable.
  4. Insolvent and not viable.

The business can probably restructure with some simple changes to its operations if it is solvent and viable. Insolvent companies that are still viable may be restructured under the provisions of the Bankruptcy and Insolvency Act or the Companies’ Creditors Arrangement Act.

The business can be liquidated or sold if it is not viable, but it is solvent. If it is insolvent and not viable, we are probably looking at bankruptcy or receivership.

A deep dive is required to find out what the correct answer is. For sure I would need to calculate HST collected but unremitted, as that is a deemed trust claim, apart from one exception I describe below.

calculate hst
calculate hst

Calculate HST: What happens to the deemed trust claim in a bankruptcy?

The Excise Tax Act (ETA) defines GST/HST as a deemed trust claim. Under the ETA, a deemed trust claim will include amounts for GST/HST that was collected by the business but not paid to the CRA. There is only one exception. A bankruptcy of the business will rearrange the priorities. In a bankruptcy, the deemed trust GST/HST claim becomes an ordinary unsecured claim. There is no statutory authority for this same outcome in a BIA restructuring Proposal. However, sometimes, as an administrative issue, CRA will allow this treatment also.

According to one school of thought, unremitted amounts included in deposits or loan repayments to a financial institution before bankruptcy continue to be deemed trust claims. Nonetheless, the Supreme Court of Canada clarified GST/HST deemed trusts and secured creditors’ responsibilities for funds received.

The Callidus Capital Corporation v Her Majesty the Queen decision was reversed by the Supreme Court of Canada in 2018. For secured creditors, the decision that the deemed trust provisions of the ETA become inoperative on bankruptcy, and therefore secured creditors are not liable to account for proceeds received from a debtor pre-bankruptcy, is significant.

Calculate HST: GST/HST liability For directors

ETA section 323 increases the CRA‘s power to collect unremitted GST/HST when efforts to collect against corporations prove futile. As a result of the failure of the corporation to remit GST/HST, its directors will be liable for any tax the corporation should have remitted. The directors are jointly and severally liable for the corporation’s unremitted GST/HST.

CRA has the right to look to the directors whether the corporation is in bankruptcy or not. When we calculate HST and discover a company owes net HST, there is another downside to bankruptcy. CRA may now want to claim on the directors sooner because of the HST liability becoming unsecured.

calculate hst
calculate hst

Calculate HST summary

I hope you now see why I feel the combination of the CFIB survey results and the announcement from CRA spells upcoming trouble for Canadian businesses. I also hope you found this calculate HST Brandon Blog post informative. Are you worried because you or your business 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.

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Brandon Blog Post

WHAT DOES BANKRUPTCY DISCHARGED MEAN FOR 1 BANKRUPTCY TRUSTEE AND SOMEONE WHO IS SERIOUSLY BANKRUPT?

 

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 bankruptcy discharged mean: Restrictions placed on undischarged bankrupts

By enabling debtors to file an assignment in bankruptcy or consumer proposal, the Bankruptcy and Insolvency Act (BIA) provides relief to an honest but unfortunate debtor. Garnishment of wages (other than marital support) ceases, legal actions and collection calls cease, and the debtor receives some breathing space. If a bankrupt fails to fulfill his or her obligations, what happens? Can they receive a discharge from bankruptcy?

This Brandon Blog examines a recent case from Nova Scotia dealing with what does bankruptcy discharged mean for both a bankrupt person and for the licensed insolvency trustee. I also describe what does it mean for an undischarged bankrupt if the bankruptcy trustee gets its discharge when the bankrupt person does not have their bankruptcy discharge.

I will eventually get to the Court case, but there is first some background information that I will provide which sets the stage for a better understanding of the Court decision.

What does it mean to be an undischarged bankrupt?

In the event, you were unable to fulfill your obligations under your personal bankruptcy proceedings, your Trustee, and maybe a creditor or two would have opposed your discharge from bankruptcy. A bankrupt who has not been discharged poses many potential problems. Therefore, if you are an undischarged bankrupt, it is because you have failed to fulfill one or more of your obligations as a bankrupt.

what does bankruptcy discharged mean
what does bankruptcy discharged mean

What does bankruptcy discharged mean: Debts eliminated by bankruptcy discharge

A bankruptcy discharge means that you have completed your personal bankruptcy process and are no longer legally liable for any outstanding debt you included in the bankruptcy filing (with the exception of a few which I will describe soon). Upon receiving an absolute discharge from bankruptcy (we’ll get to that shortly), you are no longer responsible for any discharged debts.

The discharge in bankruptcy eliminates most of your debts, including unsecured debts such as credit card bills, medical bills, and payday loans. When you are discharged from bankruptcy, not the fact that you filed for bankruptcy, is what eliminates your debts. You need your discharge to get rid of your debts, which explains why it’s so important. That is what does bankruptcy discharged mean, really means.

What does bankruptcy discharged mean: Bankruptcy law can resolve tax debts

As well as the usual unsecured debts mentioned above, if you owe Canada Revenue Agency (CRA) money because you were not able to pay your whole personal income tax obligation when you filed your taxes, then a payment arrangement makes sense.

Collections officers from the CRA contact taxpayers regarding outstanding income tax debt arising from their tax filings and notices of assessment. They attempt to collect from delinquent taxpayers. When you say that you cannot pay the full amount at that time, they will offer you the option of a payment arrangement. The interviewer will ask you about your financial situation and may ask you to submit documents to support your income and expense claims.

They recommend a settlement plan after evaluating the information. Only if all attempts at collection have failed will legal action be taken. You must send the CRA postdated cheques to cover the agreed-upon monthly payment to participate in such a plan. Additional payments can be made if you have money to spare. The interest clock does not stop with a CRA payment plan. Be certain that all your cheques clear the bank as well. The entire payment plan can be cancelled if only one is returned NSF.

Should you enter into a payment plan? Yes. You should demonstrate to CRA that you want to work with them, and avoid tax debt collection activities that will disrupt your life. The most common enforcement activity involves freezing and taking money from your bank accounts, as well as garnishing your salary or wages if you’re employed. If you are a proprietor, they can notify your customers and claim your receivables. Furthermore, a federal judgment can be obtained without your knowledge to place a lien on your home.

You do not need to experience CRA’s more drastic collection methods. Be sure to pay your obligations on time. A tax garnishment, third-party assessment, or an asset lien is never pleasant. The consequences are severe and disruptive. In most cases, CRA only takes this step if you fail to comply with their efforts to enter into and maintain a CRA payment arrangement.

CRA tax debts can be discharged under bankruptcy law if no payment plan can be arranged. If bankruptcy is successfully discharged or a consumer proposal is fully completed, the income tax debt can be eliminated. We assume that CRA hasn’t already obtained a judgment against your interest in your home and registered it against it. Upon doing so, the CRA has successfully turned an unsecured debt into secured debt, and bankruptcy law no longer applies.

Several other things to keep in mind are:

  • A bankrupt who owes more than $200,000 in personal income taxes and whose personal income tax debt represents at least 75% of their total unsecured proven claims is considered a high-tax debtor. In this situation, you cannot be automatically discharged. It is unavoidable that the Trustee will object to your discharge and there will be a discharge hearing before the Bankruptcy Registrar in the Bankruptcy Courts. Additionally, the CRA will oppose your discharge and will make submissions at your hearing. I am certain you will receive a conditional discharge, at least with the condition that you pay a portion of your income tax debt to the Trustee for distribution among your creditors.
  • Unremitted employee source deductions owed by a proprietor or partner of an unincorporated business will not be helped by bankruptcy law. Generally, bankruptcy will eliminate HST obligations. For now, CRA ranks the debt as unsecured in a consumer proposal, but as CRA provides the accommodation, it is not a part of bankruptcy law. If the outstanding HST is extremely large, the CRA may argue that since you held the HST in trust for them, it still remains a claim even if you declare bankruptcy. Under Canadian bankruptcy law, they can do this, but I have not seen them do it yet.
  • Director liability for unremitted employee source deductions or HST is an unsecured claim against you for your personal liability as a Director. Bankruptcy and a properly worded Proposal will both eliminate that debt.

    what does bankruptcy discharged mean
    what does bankruptcy discharged mean

What does bankruptcy discharged mean: Debts never discharged in bankruptcy

In personal bankruptcy, there are certain types of debts that are not discharged. Section 178(1) of the BIA outlines the following debts that are nondischargeable debt:

  • Any type of fine, penalty, restitution order, or other order similar to a fine, penalty or restitution order, imposed by a court for an offence, or any kind of debt arising from a recognizance or bond;
  • Damages awarded by a court in a civil case for:
    • bodily injury intentionally caused, or sexual assault, or
    • wrongful death as a result of these acts;
  • the payment of spousal support or an alimentary pension;
  • any financial obligation or liability arising under a judgment establishing an association or regarding support, maintenance, or an agreement for maintenance and support of a spouse, former spouse, previous common-law partner, or child who is not living with the bankrupt;
  • a financial obligation or liability that results from fraud, embezzlement, misappropriation or defalcation in a fiduciary capacity or, in the Province of Quebec, while acting as a trustee or administrator;
  • apart from debts and responsibilities arising from equity claims, any debt or liability resulting from getting property or services by false pretenses or fraudulent misrepresentation;
  • unless a creditor had notification or understanding of the bankruptcy and didn’t take reasonable action to prove a claim, the liability for the dividend that a creditor would have received on any provable claim not disclosed to the trustee; or
  • student loans if the bankruptcy occurred before the bankrupt stopped being a full- or part-time student or within seven years of the date the bankrupt stopped being a full- or part-time student.

What does bankruptcy discharged mean: Absolute discharge vs. conditional discharge and so on and so forth

In order to obtain a discharge, a bankrupt person must have fulfilled all of their bankruptcy duties. These personal bankruptcy duties include:

  • providing all books, records or documents to the Trustee that identify the assets and liabilities of the debtor;
  • prepare and submit to the Trustee within 5 days after filing for personal bankruptcy, unless the Office of the Superintendent of Bankruptcy Canada extends the time, a sworn statement of affairs detailing the person’s assets and liabilities, and for each of the bankrupt’s creditors, their respective names, addresses and the amount owing;
  • disclose to the Trustee complete details of all dispositions of property within 1 year before the date of the bankruptcy;
  • make a disclosure to the Trustee of all the details of property disposed of by gift or settlement without adequate valuable consideration within a 5 year time period before the date of bankruptcy;
  • if a creditors’ meeting is called, attending it;
  • making any required surplus income payments to the Trustee;
  • participating in two mandatory financial counselling sessions; and
  • offering whatever assistance is requested by the Trustee.

If the bankrupt fulfill all of their duties, then the Trustee will not have a reason to oppose the discharge. If no creditor opposes, then the bankrupt is entitled to an absolute discharge. As already stated, the discharge is what eliminates unsecured debts.

In addition to an absolute discharge, there are other types of discharge under bankruptcy law available to a bankrupt person upon having a discharge hearing:

  • conditional discharge;
  • suspended discharge; and
  • refused discharge.

To read more on the different kinds of discharges available to be applied to a bankrupt person, and for what does bankruptcy discharged mean, take a look at my August 2021 Brandon Blog “A BANKRUPTCY DISCHARGED IS THE KEY TO HEARTWARMING DEBT ELIMINAT1ON“.

what does bankruptcy discharged mean
what does bankruptcy discharged mean

What does bankruptcy discharged mean: At long last, the Nova Scotia case

The Nova Scotia bankruptcy case deals with the discharge of the Trustee in a personal bankruptcy matter. Once the Trustee brings on the bankrupt’s application for discharge and a discharge Order is made by the Court, and the Trustee completes the rest of the administration of the bankruptcy estate, the Trustee is entitled to a discharge. If the bankrupt did not receive an absolute discharge and has not completed his or her duties, including complying with a conditional discharge order, eventually, the Trustee can still apply for its discharge. Upon the Trustee’s discharge two things occur:

The bankrupt goes into bankruptcy purgatory. No discharge occurs. The Trustee has fulfilled its obligation to present the bankrupt’s discharge request to the court and the court has issued an Order. Whenever the bankrupt wants to prove they have fulfilled all their obligations, obeyed the discharge order, and now deserve an absolute discharge, he or she will need to retain a bankruptcy lawyer and apply to the Bankruptcy Courts.

On the day the Trustee is discharged, the stay of proceedings that had protected the bankrupt from any enforcement action by creditors whose debts were owed at the date of bankruptcy no longer applies. As a result, creditors can now pursue the bankrupt person since the debts have not been eliminated and the stay of proceedings is no longer in place.

It is interesting to examine how far the Registrar in Bankruptcy directed the Trustee in this Nova Scotia bankruptcy case to ensure that all creditors understood that they still had the right to pursue the bankrupt.

The decision in Frost (Re), 2021 NSSC 296 can be boiled down to the following facts:

  • Mr. Frost went bankrupt.
  • He failed to fulfill his duties and moved to the UK permanently.
  • He didn’t inform the Trustee of his new address and telephone number.
  • His actions left his Trustee and other stakeholders to fend for themselves, explicitly telling the Trustee he wasn’t going to fulfill those duties and didn’t intend to do so.
  • A hearing was held for the bankrupt’s discharge and Mr. Frost was refused discharge.
  • The Court previously directed the Trustee to appear before it to be heard on the Trustee’s application for discharge.

The Court concluded that the Trustee completed the administration of the bankruptcy estate and gave the Trustee its discharge. However, the reason why the Registrar in Bankruptcy wanted the Trustee to attend such a hearing was so the Registrar could take things one step further. In the normal course, the Trustee sends out a notice to all those whose proof of claim was admitted of the results of the bankruptcy administration and of the Trustee’s discharge. However, the Registrar wanted to make sure that it was crystal clear to all creditors.

The Registrar wrote a cover letter for the Trustee and directed the Trustee to send it along with the normal statutory notice to creditors (or their debt collectors of record). Here is a copy of that letter:

what does bankruptcy discharged mean
what does bankruptcy discharged mean

What does bankruptcy discharged mean summary

I hope you found this what does bankruptcy discharged mean Brandon Blog post informative. Are you worried because you or your business 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. 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.

what does bankruptcy discharged mean
what does bankruptcy discharged mean
Categories
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THE CANADIAN RECEIVERSHIP EASY BEGINNERS GUIDE

receivership

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 wish to listen to an audio version of this Brandon Blog, please scroll to the very bottom of the page and click play on the podcast.

What is Receivership?

Last week I wrote an easy beginner’s guide on bankruptcy. This Brandon Blog is for anybody interested in finding out what type of insolvency process receivership is and how it differs from some other insolvency processes. I will explain the receivership process, provide an overview of what happens in a receivership, explaining what is sought to achieve, and the consequences of receivership.

Receiverships occur when a secured lender enforces its security to recover loans that have been defaulted on by a borrower. Secured creditors appoint an insolvency trustee to serve as receiver or receiver-manager depending on the terms of their security documents when the corporate debtor defaults.

Receivers and secured lenders can enter into a private contract appointing a receiver. Alternatively, the secured lender may seek an order from the court appointing a receiver. I’ll talk more about that shortly.

What Does Going into Receivership Mean?

If the corporate debtor defaults on a secured loan, the creditor may be entitled to appoint a receiver to collect their money. In Canada, “Section 244” notices are specific forms of notification that secured creditors must send to defaulting companies.

The notice specifies the assets covered by the security, the amount owed by the company in default, and that the secured creditor has the right to enforce the security after 10 days. The debtor company in default can consent to the appointment of the receiver before the expiration of the 10 day notice period.

A Section 244 notice is prescribed under the Bankruptcy and Insolvency Act (Canada) (BIA), and it is usually the last notice a creditor receives before the receiver takes possession of the debtor’s assets, properties, and undertakings.

Receivers then liquidate the assets of a business in order to pay secured creditors.

receivership

How Receivership Works

Parliament amended the BIA insolvency legislation in 1992 by enacting Part XI. BIA sections 243 through 252 to deal with secured creditors and receivers. Prior to that time, there was no federal statute insolvency legislation dealing with receivership matters. These provisions provide information about the court that hears bankruptcy and insolvency cases control over receivership matters that involve all or substantially all of the inventory, the accounts receivable, or the other property of a debtor. There are also restrictions imposed on the duties of secured creditors and receivers. It also stipulates that only a licensed insolvency trustee can act as a receiver. Part XI applies to both privately-appointed and court-appointed receivers.

These sections do not confer any powers available to a trustee of a bankrupt estate on secured creditors or receivers. Only those powers conferred upon the receiver in the appointment letter are granted to private receivers, and those are the powers specified in the security instrument. However, the receiver may also exercise certain statutory powers. If certain powers are required to administer the estate but are omitted under the security instrument, a receiver cannot act. Receivers are generally appointed by the secured creditor pursuant to security that at least states:

  • the collateral secured under the security; and
  • the receiver has the right to dispose of the collateral, including operating the insolvent debtor‘s business.

In a court-appointed receivership, the powers of the receiver come from the receivership appointment court order appointing the court-appointed receiver.

Receivership: Notice and Statement of the Receiver

From the 1992 amendments to the BIA, a receiver is required to provide notice to all known creditors of an insolvent debtor in receivership. Previously, creditors were not required to be notified.

When the receiver has become the receiver of an insolvent debtor‘s property, the receiver must provide notice of receivership as soon as reasonably possible but within 10 days of its appointment. Notice of the receivership must be sent to all creditors, the Office of the Superintendent of Bankruptcy and the insolvent debtor.

If the debtor is also bankrupt, rather than sending the notice to all creditors, the receiver sends the notice to the bankruptcy trustee. Since the creditors are already represented in corporate bankruptcy by the Trustee, the bankruptcy process will deal with them.

A receivership notice states, among other things, that the receiver has been appointed, whether it is a private appointment or a court appointment, and what the receiver’s plan of action is. Additionally, it contains a list of all known creditors.

As part of the receivership process, the receiver must provide interim reports every six months as well as a final report when the receivership is concluded. A copy of the receiver’s final receipts and disbursements statement must also be included in the final notice.receivership

What’s The Difference Between a Court-Appointed Receiver and a Privately Appointed Receiver?

A court-appointed receiver vs. a privately appointed receiver is something people always want to know the answer to. I will explain the difference to you. It is pretty simple. Based on what I have already written, you have probably guessed it by now.

In a Court-appointed receivership, when the Court appoints a receiver, it does so through an Order on the application of the secured creditor. As between a secured creditor and a debtor, a privately appointed receiver is a receiver who is appointed by the secured creditor as provided in the Security Agreement. The Court-appointed receiver’s administration is supervised by the Court.

How is Receivership Different from Bankruptcy? Bankruptcy / receivership

Bankruptcy vs. receivership is also something people want to know. Many times, people confuse the two and use the terms receivership and bankruptcy, mistakenly, interchangeably. Often, receiverships and bankruptcy are confused, but the differences between the two are fairly straightforward. Whether it is a private appointment or a Court-appointed receivership, it is still different.

There are several main differences between bankruptcy and receivership. A receivership is a remedy available to secured creditors, as stated above. In order to enforce the secured creditor’s security rights against a defaulting debtor, a receiver is appointed.

Bankruptcy is a separate legal process. Trustees do not represent secured creditors in bankruptcy. Instead, they represent unsecured creditors. Corporate bankruptcy can occur simultaneously with a receivership of the same corporate debtor. The process of a corporate bankruptcy would be the subject of another Brandon Blog. To find other Brandon Blogs about corporate bankruptcy, use the search function at the top of this page.receivership

What’s the Difference Between Receivership and Liquidation?

By now you know what the definition of receivership is. So I won’t repeat it because I do not want to sound like a broken record (younger people may not catch that reference!)!

Liquidation is not governed by the federal BIA. Rather, it is done under the provincial Business Corporations Act or Wind-Up Act. A liquidation is for a solvent company where the shareholders, Officers and Directors decide to cease business operations by running off any existing contracts and selling off the assets. The cash obtained is then used first to pay off the creditors. Any funds leftover is then distributed to the shareholders.

Just like a receiver, a liquidator can be appointed either privately by resolution of the Directors or by Court order. Liquidation is not a receivership or bankruptcy.

Employee Rights in Bankruptcy Protection and Bankruptcy⁄Receivership

A device was created by the BIA for employees of a company that went bankrupt or into receivership. It does not apply to employees of a company trying to rightsize itself through reorganization; either a BIA Proposal or a Plan of Arrangement under the CCAA. The Wage Earner Protection Program Act (WEPPA) protects wages or benefits, including termination and severance pay, accumulated in the 6 months prior to a business going bankrupt or going into receivership.

The WEPPA ended up being enacted due to the federal government’s concern that when a company went bankrupt and employees were not paid their wages, there was rarely an opportunity for them to recoup any of their income. There are limits or caps on what employees can receive.

In the period in which amounts are past due to you, you will not qualify for WEPPA if:

  • you are a Director or Officer of the business;
  • or you have worked as a manager for the company
  • you are part of the management responsible for negotiating or refusing to pay amounts owed.

You may qualify if:

  • the previous employer has gone bankrupt or into receivership.
  • The firm owes you wages, salaries, vacation pay, or unreimbursed costs throughout the six months prior to the date of bankruptcy or receivership.

When an employer enters bankruptcy or receivership, the WEPPA provides funds to employees owed money. Those employees who qualify are paid as soon as possible. An employee’s qualifying earnings are equal to seven times their maximum regular insurance earnings under the Employment Insurance Act. According to Service Canada, the maximum amount of $56,300 a year is the limit for insurable earnings as of January 1, 2021. Thus, in 2021 the maximum amount a former employee can claim under WEPPA is $7,578.83.

Trustees and receivers are required to inform employees about the WEPPA program and provide information about amounts due. In the event of bankruptcy or receivership, trustees, as well as receivers, have 45 days to submit to Service Canada the Trustee Information Forms showing the amounts owed to each employee.

In other words, WEPPA‘s payment for former employees is something, but it may not be enough to fully compensate each. As a result of the amount paid by Service Canada, which administers the employment insurance system, $2,000 per employee is a super-priority against the company’s current assets. All remaining amounts paid to each employee, up to the maximum, are unsecured claims.receivership

Receivership summary

I hope you found this receivership Brandon Blog informative and that the differences between receivership, bankruptcy, restructuring and liquidation legal proceedings are now clearer. Because it all has to do with corporate insolvency, the provincial Bankruptcy Courts also deal with receivership matters to adjudicate under the applicable insolvency law.

With too high debt levels and not enough wealth, you are insolvent. You can choose from several insolvency processes to get the debt relief that you need and deserve. It may not be necessary for you to file for bankruptcy.

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

If you’re thinking about bankruptcy, you’re probably in a situation where you’re overwhelmed, frightened, and feel like you’re alone. That’s natural and it is not your fault.

It’s good that you’ve come to this site, where you’ll find answers to your questions, sort through your options, and discover that you can get help. You’re not alone, and the professionals at Ira Smith Trustee & Receiver Inc. are committed to helping you find a debt solution that’s best for you.

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.

You are under a lot of pressure. Our team knows how you feel. You and your financial and emotional problems will be the focus of a new approach designed specifically for you. With our help, you will be able to blow away the dark cloud over your head. 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.

Because of this, we can develop a new method for paying down your debt that will be built specifically for you. It will be as unique as the economic problems and discomfort you are experiencing. 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

PENSIONS IN BANKRUPTCY: FEDERAL CONSERVATIVE PARTY PROMISE MASSIVE CANADIAN WORKER PENSION PROTECT1ON

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.

 

Pension & Bankruptcy in Canada

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

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

PM Justin Trudeau is the only person who wants this election right now. Erin O’Toole, leader of the Conservative Party, promised to prioritize pensioners ahead of companies and creditors during bankruptcy and restructuring proceedings if he were elected.

This Brandon Blog discusses the issue of pensions in bankruptcy and how the Liberals had several opportunities to fix it but did not.

Pensions in bankruptcy: Pension and benefits issues in bankruptcy and restructuring

Pensioners suffer pension losses and ultimately pension income losses when a company is insolvent and its defined benefit pension fund plan is underfunded. In practice, the pensioners’ rights are weak and highly inadequate, especially when pension plans are underfunded. Although provincial and federal government pension legislation purports to offer some protection for amounts owing to an underfunded pension plan, insolvency legislation does not preserve that protection for the majority of those amounts. The insolvency protection of pensioners and pensions in bankruptcy is thus largely illusory.

Founder and Director of the National Centre for Business Law, Dr. Janis Sarra teaches law at Peter A. Allard School of Law. Canadian pensioners and employees, she believes, are among the worst protected pensions in bankruptcy and/or in insolvency among 60 countries.

In every Canadian province and territory, pensioners are protected by law in connection with pension deficits and pension payments. Specifically, every jurisdiction grants a deemed trust to protect employee pensions earned on employer assets owed to pension plans. The Pension Benefits Standards Act, which governs federally regulated pension plans, specifies the amounts that must be held separately from the employer’s funds, for example. Funds held in trust for active and retired pension plan members are not considered a part of the employer’s estate in liquidation or bankruptcy.

Under the Pension Benefits Act in Ontario, employers are required to hold all amounts owing to the pension plan in trust on behalf of their employees. According to the Supreme Court of Canada, the Ontario Pension Benefits Act creates a deemed trust over the entire wind-up deficit, subject only to the doctrine of paramountcy. Therefore, Ontario’s pension legislation expressly recognizes that the deemed trust is covered by all amounts of the employer owing to the pension plan.

The pension legislation in Quebec confers a deemed trust on special payments due in the year of insolvency. The special payments already due are deemed to be in trust, and the amount owing to the pension plan for unpaid special payments is deemed to be in trust based on Quebec’s pension law.

Due to other judicial decisions not giving effect to these deemed trusts in BIA and CCAA proceedings, the federal and provincial pension legislation has been hindered. In the meantime, to the extent that the BIA and CCAA protect pensions, the protection is negligible in practice. In Ontario (and every other province), provincial law protections are subject to the doctrine of paramountcy.

Paramountcy says that in the conflict between federal and provincial laws, federal law takes precedence. Both the BIA and CCAA are federal laws. The Supreme Court of Canada has held that provincial deemed trusts are not applicable to bankruptcy cases unless the BIA expressly permits them. There have even been successful attacks on federal pension law.

In accordance with existing regulations, the secured creditors may receive funds that would otherwise go to employees’ pension plans. Therefore, there really isn’t much protection for pensions in bankruptcy.

pensions in bankruptcy
pensions in bankruptcy

Pensions in bankruptcy: PM Justin Trudeau had his chance to fix this problem

Erin O’Toole doesn’t seem to be bringing up a new subject. The Liberal federal government had at least three chances to fix this pension issue for Canadian workers whose employers become financially troubled and have to liquidate or file for bankruptcy. A brief look at the recent history follows.

Let’s look at some history of attempts to protect pensions in bankruptcy. The Canadian Association for Retired Persons, a nationwide not-for-profit group, lobbied politicians on Parliament Hill about legislation changes. According to Wanda Morris, vice-president of CARP, the unfunded pension liability should be given priority so that it is handled first.

There is no priority for retirees when it comes to dividing up assets in bankruptcy, and Morris wants to protect underfunded defined benefit pensions when the company goes through restructuring or bankruptcy.

CARP estimates that roughly 1.3 million Canadians, aside from the retired Sears employees, may be at risk due to defined benefit pension plans. The closure of Sears Canada stores made the plight of retirees a top priority for CARP.

Marilène Gill, Bloc Québécois MP, introduced a member’s BILL C-372, on Oct. 17, 2017. It was intended to change the BIA and the CCAA. The change seeks to correct the injustice faced by retired workers whose pension and insurance policy benefits are not secured when their company declares bankruptcy or undergoes restructuring. As a result of Sears Canada closing locations, the changes were related to the employees’ and retirees’ treatment.

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

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

Lastly, Senator Art Eggleton, P.C., proposed BILL S-253 shortly before his retirement to amend the insolvency legislation in Canada. After First Reading passed on September 18, 2018, Second Reading followed on September 25. By introducing this bill, the BIA and CCAA would be amended. The plan proposed to give priority to claims for unfunded obligations or solvency deficiencies of pensions. This is applicable to both solvent companies as well as companies that might become insolvent if certain shareholder payments were made.

The proposed legislation would also amend the Pension Benefits Standards Act as well as the Pension Benefits Standards Regulations in order to enable the Superintendent of Financial Institutions to identify when a pension plan’s funding is impaired and to recommend to the employer the necessary steps to fix it. It is not surprising that the Liberal federal government did not carry forward this bill.

Pensions in bankruptcy: Erin O’Toole vows to force bankrupt firms to pay pensions over executive bonuses

The Hon. Erin O’Toole announced on August 24, 2021, that if he wins the election he plans to protect workers’ pensions. In bankruptcy and restructuring proceedings, he pledges to give priority to pensioners over the corporations and most other creditors.

According to him, as part of Canada’s Recovery Plan, a Conservative government will change the law to ensure that workers come first in cases of bankruptcy and reorganization.

The Conservative Party of Canada will also improve pension security by:

  • Preventing executives from receiving bonuses during a time of restructuring unless the pension plan is fully funded.
  • Unlike in the past, underfunded pension plans will no longer be forced to convert to annuities, a practice that involves financial assets being disposed of and replaced with an insurance contract to reduce risks, as well as offer pensioners, fixed payments. The practice of companies failing during a recession when markets are depressed usually locks in losses and means workers receive less money.
  • By mandating that companies report the funding status of their pension plans to their employees, they can provide their employees with greater transparency.

No further details were given. At least the Conservative Party is focused on this issue of when an employer is insolvent and there are pensions in bankruptcy.

pensions in bankruptcy
pensions in bankruptcy

Pensions in bankruptcy: Summary

We will have to wait to see the results of this election to know if anything might change when it comes to pensions in bankruptcy of the employer.

I hope that you found this pensions in bankruptcy Brandon Blog informative. An unexpected situation, such as your employer having financial trouble and entering liquidation or bankruptcy proceedings, by their very nature, are not pleasant and could have the effect of making your debt load now impossible to service. 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.

pensions in bankruptcy
pensions in bankruptcy
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WHAT DOES RECEIVERSHIP MEAN FOR 1 BETTER GUARANTOR BANKRUPTCY DISCHARGE

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.

what does receivership mean
what does receivership mean

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
what does receivership mean

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.

what does receivership mean
what does receivership mean

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
what does receivership mean

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.

what does receivership mean
what does receivership mean
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Brandon Blog Post

REVERSE VESTING ORDER: 1 REMARKABLE CREATIVE WAY TO DO FINANCIAL RESTRUCTURING

reverse vesting order

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 of the page and click play on the podcast.

Vesting order and reverse vesting order

In a corporate insolvency case, a court may grant a vesting order, which authorizes the sale of a company’s assets to the buyer once the purchase price is paid. A vesting order vests ownership in the purchaser as a result of this court order. This is proof that the purchaser is entitled to transfer the assets into its name. No matter what insolvency process is used, this is the use of a vesting order.

In the past year or so, a new trend has emerged regarding the sale of the assets of insolvent companies as part of a restructuring under the Companies’ Creditors Arrangement Act (CCAA). That new trend is the use of a reverse vesting order.

In this Brandon Blog, I explain what a reverse vesting order is and why I believe its use will be a significant feature of Canadian firm restructurings in 2021 and beyond.

Reverse vesting order – A powerful tool for maximizing recovery in complex insolvencies

A reverse vesting order can be very useful in complex insolvencies. A timely recovery can benefit creditors, and the process can maximize recoveries for all parties. Reverse vesting orders are a good solution for an insolvent debtor corporation when:

  • there are a large number of secured creditors, unsecured creditors and assets;
  • all of the assets do not have an immediate buyer;
  • the company is insolvent; and
  • the company must deal with unwanted assets and a group of creditors in a particular way.

It is best used in a large-scale CCAA corporate restructuring but is not limited to that.

reverse vesting order

Reverse vesting order as a third restructuring tool

There have traditionally been two insolvency processes available to licensed insolvency trustees, insolvency lawyers, and company stakeholders. The two are (i) liquidating assets; and (ii) reorganizing companies. In general, assets are liquidated through either receivership or bankruptcy. Incorporated companies can restructure either under the provisions of the Bankruptcy and Insolvency Act (Canada) (BIA) or, for larger and more complex restructurings, under the CCAA. It is obvious that assets must be sold in order to liquidate them.

Sometimes, as part of a corporate restructuring, there are redundant and unwanted assets that can be sold to raise cash. The question is, what if the real value, especially a going-concern value of a company in a commercial insolvency case is not in its tangible assets. Rather, its real value lies in:

  • the ability to operate in a specific industry and such licenses cannot be sold by their very nature and wording – think of the cannabis and nursing home industries as two examples;
  • tax losses and tax attributes that can be monetized if the licensed insolvency trustee is also able to take over the shares; or
  • being listed on the stock exchange and thus as a public company having a greater market value than a private corporation.

As a result, it is extremely difficult to realize any value from such assets.

What is the importance of the reverse vesting order? How a reverse vesting order works will tell you all you need to know about why it is important as a third restructuring tool. Under a reverse vesting order, a newly incorporated residual corporation is added as a party to the CCAA proceedings.

As part of the CCAA restructuring, the operating debtor company transfers undesirable assets and liabilities to the newly incorporated non-operating company. With its assets and liabilities selected by the purchaser, the debtor company holds only the desirable assets and liabilities, which means its common shares can be sold rather than the company’s assets. As a result, valuable permits, contracts, tax losses, and statutory authority are preserved, which can otherwise be lost in a disposition of assets.

Why is reverse vesting order important?

A reverse vesting order is an alternative to the traditional CCAA plans of arrangement, particularly for companies operating in highly regulated environments or when there is no value remaining after the realization of secured debt and the parties intend to continue the running of the debtor company.

A reverse vesting order is an alternative to the traditional CCAA plans of arrangement, particularly for companies operating in highly regulated environments or when there is no value remaining after the realization of secured debt and the parties plan to continue operating the debtor company.

By using a reverse vesting order, existing corporations, which have been streamlined to become solvent through an innovative solution, are transferred to new investors instead of desirable assets being sold through a court-approved sale. The debtor corporation that initially filed for bankruptcy protection under the CCAA can now be removed from the restructuring proceedings. There are certain unwanted assets and unwanted liabilities that are transferred to the newly incorporated residual corporation. There can then be asset sales allowing for some sort of distribution to creditors (either in a plan of arrangement or in bankruptcy) in order to allow some creditor recovery.

A reverse vesting order may prove to be the most efficient approach to facilitate a going concern operation transfer through restructuring proceedings, letting businesses emerge from CCAA proceedings quickly without having filed a plan of arrangement, while preserving key attributes of the corporate entity and its existing corporate structure.

Legal challenges to the use of reverse vesting orders have been unsuccessful. I would like to discuss the case of Nemaska Lithium Inc.reverse vesting order

Reverse vesting order issued by Québec Superior Court after first contested hearing

In December 2019, Nemaska Lithium Inc. and related companies (Nemaska Lithium or the Nemaska entities) commenced CCAA proceedings. A lithium mining project was developed in Quebec by them. A CCAA judge approved an uncontested sale or investment solicitation process (SISP) in January 2020 that led to the acceptance of a bid that was subject to the condition that a reverse vesting order is issued.

A proposed reverse vesting order provides that Nemaska entities will be acquired by the bidder free of the claims of the unsecured creditors, which will be transferred as part of a pre-closing reorganization to a newly incorporated non-operating company.

The reverse vesting order will allow the purchaser to continue to operate the Nemaska entities in a highly regulated environment by maintaining their existing permits, licences, authorizations, essential contracts, and fiscal attributes. In essence, it is a credit bid in which the shares of the Nemaska entities are acquired in exchange for the assumption of the secured debt.

A shareholder (who was also an alleged creditor) filed motions opposing the reverse vesting order issuance on multiple grounds, including:

  • a vesting order cannot be granted for anything other than a sale or disposition of assets through a vesting order for sales of assets;
  • the reverse vesting order is not permissible under the CCAA because it allows the Nemaska entities to exit CCAA protection outside of a plan of arrangement or plan of compromise;
  • this reverse vesting order contemplated a corporate reorganization that is not permitted by securities laws; and
  • in light of the proposed transaction, the directors and officers of Nemaska Lithium Inc. should not be released.

The Honourable Justice Gouin, J.S.C., reviewed and assessed:

  • the SISP process which led to the offer;
  • the lack of alternatives to the offer;
  • the potential harm to Nemaska Lithium‘s stakeholders, including its employees, creditors, suppliers, and the Cree community;
  • stopping the restructuring process to relaunch a SISP in the future following what was already a thorough examination of the market or, alternatively,
  • bankrupting the Nemaska entities.

In light of all these factors, the judge approved the reverse vesting order on October 15, 2020. Limiting the remedies available under the CCAA would unnecessarily hinder the development of innovative solutions for more complex commercial and social issues in Canadian insolvency matters.

The decision and formal recognition of reverse vesting order by the Court of Appeal

Leave to appeal the CCAA judge‘s decision was sought by the parties who objected to the reverse vesting order being made. The Appellate Court carefully considered the judge’s decision-making process and particularly that the Québec Superior Court judge relied extensively on the principles set out by the Supreme Court of Canada in the matter of 9354-9186 Quebec inc. c. Callidus Capital Corp., namely the:

  • development of CCAA proceedings and the role of the CCAA supervising judge;
  • remedial objectives of Canadian insolvency laws to provide timely, efficient, and impartial resolution of a debtor’s insolvency, secure fair and equitable treatment of creditors’ claims against a debtor, protect the public interest, and balance the costs and benefits of restructuring or liquidating the debtor company’s assets;
  • CCAA‘s goal of preventing social and economic losses from liquidating insolvent companies by facilitating their reorganization and survival as a going concern; and
  • CCAA judge‘s broad discretion under s. 11 of the CCAA in an effort to advance the CCAA’s remedial objectives while taking into account three fundamental factors that the debtor company application must prove: (1) the requested order is appropriate in the circumstances, and (2) good faith on the part of the applicant, and (3) the applicant has been acting with due diligence.

It was determined by the Court of Appeal judge that the risk of potential harm to stakeholders outweighed any legal merits of any arguments raised by the opposing parties. Therefore, the Quebec Court of Appeal denied the leave to appeal the decision of the CCAA judge.

Canada’s Supreme Court has denied leave to appeal. Having now established reverse vesting as an option for CCAA restructurings, the law is now set in stone.

The Nemaska case is the first reverse vesting order transaction to withstand judicial scrutiny in Canada and reaffirms the flexibility of CCAA proceedings for distressed M&A transactions of distressed businesses.reverse vesting order

Reverse vesting order and distressed M&A opportunities

I hope that you found this reverse vesting order Brandon Blog interesting. Problems will arise when you or your company are in business distress, cash-starved and cannot repay debts. There are several insolvency processes available to a company or a person 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 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.

Categories
Brandon Blog Post

DIFFERENCE BETWEEN CONSUMER PROPOSAL AND BANKRUPTCY: THE PROVEN CANADIAN WAY TO GET DEBT FREE

difference between consumer proposal and bankruptcy
difference between consumer proposal and bankruptcy

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 of the page and click play on the podcast.

Difference between consumer proposal and bankruptcy: Know your options

Regular readers of my Brandon Blog know that there are a lot of steps you need to go through to financially reorganize your life. I have written before different blogs on various aspects of both consumer proposals and bankruptcy. The purpose of this Brandon blog is to discuss in one place, the difference between consumer proposal and bankruptcy.

Many people opt for one of these options because life has thrown them a curveball, they no longer have the cash flow to pay off their debts and want to start fresh. There are some great benefits to filing bankruptcy. They include eliminating creditors and debts, getting control over your personal finances, and having a stress-free life, Starting Over, Starting Now. But if you’re considering a first-time bankruptcy, or the bankruptcy option even if you are familiar with the Canadian bankruptcy process from a prior time, you should consider the pros and cons of a consumer proposal, the only government-approved debt settlement plan in Canada. It will be good for you to know the options that I explain below.

Consolidation loans vs consumer proposals

What’s the distinction between a consumer proposal and a debt consolidation loan? The consumer proposal process is an insolvency procedure that allows you to resolve all the amounts you owe to your unsecured creditors via an arrangement with your creditors. It does this without needing you to file bankruptcy. A consumer proposal can only be carried out by a licensed insolvency trustee. A consumer proposal allows you to get rid of all the amount owed by repaying only a part of your financial obligations over time.

A consolidation loan means that you still have sufficient assets and income and a good enough credit score, in order to borrow the total amount you owe. The loan must carry an interest rate lower, and hopefully much lower, than the average interest rate of your combined total debt. You use the loan proceeds to repay 100% of your debts. You now have only one loan with a monthly payment you can afford. Taking out a consolidation loan is not an insolvency process.

difference between consumer proposal and bankruptcy
difference between consumer proposal and bankruptcy

The main difference between consumer proposal and bankruptcy

The consumer proposal is a fundamental part of our personal insolvency system. It is an insolvency procedure controlled by the Bankruptcy and Insolvency Act (Canada) (BIA) that allows individuals who owe $250,000 or less (not including any financial debts secured against their principal home). It permits you to pay a portion of your financial debts with time, yet eliminate all of them if fully executed. It is an alternative to declaring bankruptcy. It is an alternative to bankruptcy.

Bankruptcy is also a fundamental part of our insolvency system under the BIA. However, rather than restructuring, in personal bankruptcy, the person surrenders all of their non-exempt assets to the licensed insolvency trustee for the benefit of the person’s creditors. Once the bankrupt person has fulfilled all of their duties, they are entitled to receive a discharge from bankruptcy, subject to the Trustee or a creditor opposing it.

Personal bankruptcy involves the liquidation of the bankrupt’s assets in return for the eventual elimination of their unsecured debts. It is not considered a restructuring like a consumer proposal is.

Difference between consumer proposal and bankruptcy: The process of filing a consumer proposal vs bankruptcy

You start by talking to a Trustee who will provide you basic guidance on both a consumer proposal and also bankruptcy. The Trustee will likewise inform you specifically just how each process functions. If at the end of that discussion you inform the licensed bankruptcy trustee that you really feel good in wanting to take the next steps with them, the Trustee will provide you with their intake form. When the form is completed, you send it to the Trustee, including supplying any kind of backup documents asked for, the Trustee can then provide you advice for your unique financial difficulties.

If you choose a consumer proposal, the licensed insolvency trustee will prepare the necessary filing documents for you to sign. This includes assisting you with preparing the best possible proposal that works for both you and your creditors. You then meet with the Trustee to sign the documents. The Trustee then files the documents electronically with the Office of the Superintendent of Bankruptcy (OSB). The OSB then issues the Certificate evidencing the filing and the formal process begins.

After seeing your completed intake sheet, the Trustee will advise on whether or not a consumer proposal would work for you, or if your best or only option is filing for bankruptcy. Similarly, in bankruptcy filings, the Trustee prepares all the required filing documents for your signature. The Trustee explains all of them to you, you sign them and the Trustee then electronically files the filing documents with the OSB. The OSB then issues its Certificate evidencing the bankruptcy and that formal process begins.

You initially meet with the licensed bankruptcy trustee, in-person, by video or phone, to share details of your personal situation, and working together, you determine whether a consumer proposal, an alternative to filing bankruptcy, or personal bankruptcy is the best option for you. With COVID-19, we have been holding all of our no-cost consultations and meetings by phone and video. We can do the sign-up process by video and email. We have found this is very convenient for our clients as they are not required to take the time to attend our office in person.

As you can see, the process of filing a consumer proposal vs bankruptcy is not that different. For filing, there is not really a difference between consumer proposal and bankruptcy.

difference between consumer proposal and bankruptcy
difference between consumer proposal and bankruptcy

Major difference between consumer proposal and bankruptcy

Is there a major difference between consumer proposals and bankruptcy? Yes. So far in this discussion, there have not really been major differences. But there really are as the consumer proposal is akin to filing for bankruptcy protection while the other is bankruptcy. Both provide legal protection from creditors. But a consumer proposal gives a person what the media calls filing for bankruptcy protection. When you file for bankruptcy, that calls for the liquidation of non-exempt assets.

Both bankruptcy and a consumer proposal can be excellent options for somebody who is experiencing a challenging financial position. A consumer proposal is an excellent choice for individuals who have the ability to make monthly payments to their creditors totalling less than the amount they owe, yet eliminating all their debts, while keeping the equity they have in assets they wish to keep. Bankruptcy is an excellent choice for those who are bewildered by their financial obligations, and who don’t have a consistent income, making it actually hard or impossible to manage making payments at any level to their creditors.

While both bankruptcy, as well as a consumer proposal, can supply a financial clean slate, there are a few vital distinctions.

In a consumer proposal, you normally get to keep all of your assets. In a bankruptcy, if you have equity in assets that you want to keep, you or someone friendly to you has to pay that equity to your Trustee for the benefit of your creditors. Otherwise, you need to surrender all non-exempt assets to the Trustee for the Trustee to sell them and then put the cash towards the claims of your creditors. The assets covered by your bankruptcy exemptions do not need to be surrendered.

In bankruptcy, you also have the issue of needing to obtain your bankruptcy discharge. If either the Trustee or one or more creditors object to your discharge, then you will not get your automatic bankruptcy discharge and you will have a discharge hearing in Court. You may also be subject to surplus income payments in a bankruptcy, which you will need to make to your Trustee (21 months for a first time bankrupt, 36 months for a second time or more bankruptcy).

The amount to offer your creditors in a consumer proposal has to be a better amount than they would receive from your bankruptcy. After doing the calculations I spoke about above, including any surplus income obligation, you will better understand what amount needs to be offered to your creditors.

Another difference between consumer proposal and bankruptcy is that there is a benefit of a consumer proposal in that you can spread the monthly payments for the amount determined over a term of up to 60 months, interest-free. In a bankruptcy, you are typically required to make any required payments over the term of your bankruptcy, which is much shorter than in a proposal. Therefore the consumer proposal allows you to term out a slightly higher settlement over a longer period of time. This makes the monthly repayment less complicated on your cash flow as well as your budget plan.

Once your consumer proposal is (deemed) accepted by the creditors and (deemed) approved by the Court, you just need to make your promised monthly payments to the Trustee. The Trustee handles making payments at regular intervals to your creditors. Once you have completed the payment promised under the consumer proposal, you receive your Certificate from the Trustee showing that you completed the consumer proposal. That is it. No discharge hearing can be opposed and no extra surplus income payments. It is already accounted for in the amount offered to your creditors in your consumer proposal.

The cost difference between consumer proposal and bankruptcy

When doing a consumer proposal, the fee of the licensed insolvency trustee is included in the payment you negotiate with your creditors. As I mentioned above, the calculation of what to offer in a consumer proposal does not include what the fee and costs are. Rather, it is compared to what the unsecured creditors can expect in bankruptcy.

However, if you were to file bankruptcy, the fee is based on the surplus income you may have to pay (based upon a criterion that includes income and family size) and also any assets that you are required to assign over to the Trustee. You might also have to make month-to-month contributions to cover the fee and costs if your income and non-exempt assets are insufficient to pay for the bankruptcy proceedings.

If there is no surplus income or assets, you, or someone on your behalf, will need to pay the bankruptcy fee which will be approximately $1,800 plus HST.

difference between consumer proposal and bankruptcy
difference between consumer proposal and bankruptcy

Difference between consumer proposal and bankruptcy: What’s worse? Credit rating impact of a bankruptcy vs consumer proposal

Both a consumer proposal and bankruptcy are insolvency proceedings under the BIA. Therefore both will negatively affect your credit rating. In a consumer proposal, your credit rating will show as an R9 on your credit report while you are making payments. Once you have completed your consumer proposal, your credit rating will be an R7 for 3 years after completion.

For a first-time bankrupt, if you were to file for bankruptcy, your credit report will show an R9 rating for 6-7 years after being discharged.

The difference between consumer proposal and bankruptcy summary

I hope that you found this difference between consumer proposal and bankruptcy Brandon Blog interesting. 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 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.

Categories
Brandon Blog Post

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

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 does the bankruptcy trustee investigate

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
what does the bankruptcy trustee investigate

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
what does the bankruptcy trustee investigate

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
what does the bankruptcy trustee investigate

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.

what does the bankruptcy trustee investigate
what does the bankruptcy trustee investigate
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GAMBLING DEBT HELP: OUR PLAN TO CONQUER YOUR DEBT AND YOUR GAMBLING ADDICTION RECOVERY

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.

gambling debt help

Gambling debt help: What is compulsive gambling?

There are various provincial-run casino games, horse racing and the sale of lottery tickets. Yesterday, the Canadian Senate passed Bill C-218, the Safe and Regulated Sports Betting Act, An Act to amend the Criminal Code (sports betting). Betting will now be allowed on single games in professional sports.

Gambling is certainly not going away. Some people will be able to control their gambling habits and do it in moderation. Others will not be able to and ultimately will need gambling debt help. The compulsive gambler will be the person who will truly be hurt.

The term “compulsive gambling” is often used to describe individuals with gambling disorders. Many compulsive gamblers have a history of severe gambling problems which began in childhood and have continued through adulthood with occasional periods of remission. Like many problems, compulsive gambling results from a combination of biological, genetic and environmental factors.

Today I explain how our program has helped many people in need of gambling debt help, to overcome both their gambling addiction and gambling debt.

Gambling debt help: What are the signs of gambling addiction?

For many people gambling can be just a form of entertainment—as long as they’re winning. But for some people, the thrill of winning can become an addiction. Gambling addiction is a powerful force that can have negative consequences for those who are afflicted.

Gambling behaviour that is symptoms and signs of gambling addiction that gambling addicts engage in include:

  • Pathological gambling. Always thinking about placing bets, including regularly scheming precisely how to get more cash for wagering.
  • Requiring to wager with boosted amounts of money to obtain the same thrill.
  • Attempting to manage, lower or stop wagering, without success.
  • Feeling flustered or cranky when attempting to reduce betting.
  • Betting to forget about difficulties or relieve feelings of vulnerability, regret, anxiety and anxiousness or anxiety.
  • Attempting to make up lost money by wagering even more (chasing losses).
  • Lying to family members or others to conceal the seriousness of the situation.
  • Preoccupation with gambling. Jeopardizing or giving up on crucial relationships, family life or work as a result of betting.
  • Resorting to stealing or other criminal activity to get money for gambling after access to credit has been exhausted.
  • Asking others to bail you out of the debt, including maxed-out credit cards, you have incurred as a result of gambling losses.
  • Unlike a lot of casual gamblers that really only engage in what one might call social gambling, which stops after a certain amount of losses or winnings, people with addiction to gambling are compelled to keep playing to recover their money, a pattern that ends up being significantly hazardous over time.

If you can relate to one or more of these symptoms, then you may have a gambling disorder.

gambling debt help
gambling debt help

Gambling debt help: Gambling and betting debts?

There are two types of wagering financial debts:

  1. Debts for loans obtained, either direct borrowing from personal loans, lines of credit or a cash advance resulting in credit card debt; and also
  2. Credit granted by a casino to higher net worth people through markers for casino gambling.

In the first case, the cash from personal loans or credit card debts can either be used for gambling or, for necessary living expenses because the money earned from work that could buy those things was lost betting. Making use of markers at a casino is clearly a straight betting debt.

In the context of this discussion, it does not matter how the debt from gambling was incurred. Betting debts in bankruptcy (or a debt settlement proposal/consumer proposal) are claims provable under the Bankruptcy and Insolvency Act (Canada) (BIA).

Gambling debt help: Gambling debt bankruptcy

Let’s assume that you are dealing with only personal loans, lines of credit and credit card debt. We won’t touch on the topic of whether or not loan sharks recognize Canadian insolvency law as a reason why you can’t repay and ultimately do not have to repay your debts in full.

You can file an assignment in bankruptcy on gambling debts. But it is not going to be that straightforward when gambling debts are involved. There are different concerns that people with gambling dependency and also financial obligations as a result of gambling must initially take into consideration with the bankruptcy trustee (now called a licensed insolvency trustee) (Trustee) during your initial no-cost consultation.

The significant issues are:

  1. Your assets.
  2. What is your annual revenue?
  3. Have you ever before been bankrupt?
  4. Full disclosure of all your liabilities, not just direct losses from gambling activities.
  5. Have you not been paying your tax obligations as a result of gambling money so that the Canada Revenue Agency is a creditor, and perhaps a major creditor?
  6. Getting compulsive gambling addiction advice and entering into long-term therapy for the gambling issue. Gamblers Anonymous is the most renowned program.
  7. Getting a discharge from bankruptcy. Rehabilitation is a vital part of the BIA. To obtain a discharge from bankruptcy, a bankrupt will need to reveal that they have constantly gone to therapy sessions as well as have actually stopped their addictive behaviour. They will have to prove that they are not continuing in the same behaviour as an addicted gambler.
  8. Is a consumer proposal available for you to avoid bankruptcy?

    gambling debt help
    gambling debt help

Gambling debt help: There are many issues in addition to just getting gambling addiction debt help

If you are insolvent and pick the bankruptcy route, you will encounter several issues:

  • If you have non-exempt assets or equity in non-exempt possessions, your share of those assets belongs to your Trustee. For instance, if you are a co-owner of your marital residence, that would come to the Trustee and now your partner, or a buddy or loved one would have to buy your interest back.
  • If your regular income is more than the poverty line you will have surplus income to pay to the Trustee. If you have never been bankrupt before, with surplus income, you will have to make a regular monthly payment for 21 months. You cannot look for bankruptcy discharge till after that. If you have been previously bankrupt, the 21 months stretches to 36 months.
  • When it is revealed that your financial obligations are because of your gambling issue, you can anticipate your creditors to oppose your discharge from bankruptcy. At the discharge hearing, you will not only have to show your financial rehabilitation, but also addiction rehab. It is irrelevant what types of gambling activities you engaged in: dice, horses, lotteries, cards, in person or online gambling. I have seen it all and the where, how and when is irrelevant.

Gambling debt help: Gambling debt bankruptcy, your discharge from bankruptcy and your gambling addiction

If you owe a huge amount of unpaid income tax to Canada Revenue Agency, you can expect them to strongly oppose your discharge from bankruptcy. Your Trustee needs to oppose your discharge from bankruptcy when your bankruptcy is an outcome of gambling. The reason is under the BIA, there are different facts, if shown, it is impossible to get an absolute discharge from bankruptcy.

Section 172 of the BIA allows the Court to make an order of discharge which is either absolute, conditional, suspended or even refused. Where a fact under s. 173 of the BIA is proven, an absolute discharge is precluded.

Gambling addiction which brings on or contributes to bankruptcy is an acknowledged s. 173 fact. (BIA, s. 173(e)). That is why your Trustee would certainly need to oppose your discharge from bankruptcy. Within any decision on your discharge, the Court and the Trustee demand to keep the integrity of the Canadian insolvency system. You can think that your discharge will certainly at the very least be conditional upon you paying a certain amount of cash to your Trustee. A bankruptcy discharge suspension for a certain time after you pay the condition is likewise feasible. If your behaviour was especially egregious, your discharge from bankruptcy might be straight-out refused.

At the discharge hearing, you will have to show that you are taking concrete steps to end your addiction and are receiving gambling addiction advice and therapy. You will also need to show that your financial situation is improving.

gambling debt help
gambling debt help

Gambling debt help: Going bankrupt doesn’t seem to be an easy fix

You are right about that. As if the above concerns weren’t enough, depending on certain scenarios, there could be more issues facing you in your quest for gambling debt help.

Therefore, I always recommend to debtors that if there is the possibility to get gambling debt help through a financial restructuring with a debt solution process of either a consumer proposal or Division I Proposal, they must seriously take a look at that with the Trustee to see if it is better to declaring bankruptcy.

Gambling debt help: What must you do if you have gambling debts and are considering a gambling debt bankruptcy?

I hope that you found this gambling debt help Brandon Blog interesting. Among the countless problems that can arise if you have gambling debts, you may also find yourself in a situation where you have gambling debts, need gambling debt help and are considering a gambling debt bankruptcy. The same is true for debts arising from any other type of addiction.

If you are concerned because you or your business are dealing with substantial debt challenges, whether you need gambling debt help or just plain old 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.

gambling debt help
gambling debt help
Categories
Brandon Blog Post

INSOLVENCY DEF: SHE HAS $100,000 IN DEBT AFTER A FAMILY EMERGENCY

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

insolvency def
insolvency def

What is insolvency def?

The insolvency definition (insolvency def) is a state of financial distress in which a person or company is unable to pay its debts. The definition of insolvency can be displayed in an insolvent person or the insolvent debtor company which arises from:

  • poor cash management;
  • a reduction in cash inflow;
  • an increase in expenses;
  • inadequate accounting controls and reporting;
  • a lack of proper human resources management; or
  • all of the above.

The purpose of this insolvency def Brandon Blog is twofold. First I will give a simple primer on what insolvency def is. Next, I will explain how a person can analyze their situation to determine if an insolvency process is for them and if so, which one.

I will use a real-life example that appeared earlier this week in the Toronto Star.

Factors contributing to insolvency

The above reasons can lead to different types of insolvency. The insolvency def can be looked at in a few different ways when considering factors and symptoms.

Balance Sheet insolvency def –

Balance sheet insolvency is when a person or company does not have enough assets, if fully collected or liquidated to pay off all of their debts.

Cash flow insolvency def –

Cash-flow insolvency is when an individual or company has enough assets, if fully collected or liquidated, to pay what is owed. Nevertheless, they do not have enough cash to pay their creditors in full.

What is the difference between technical insolvency and actual insolvency def?

While insolvency def in the technical sense is a basic synonym for balance sheet insolvency, cash-flow insolvency is not the same as insolvency under the Bankruptcy and Insolvency Act (Canada) (BIA).

insolvency def
insolvency def

What Is an insolvent person according to the BIA?

“Insolvent person” according to the BIA insolvency def is a person or company that is not bankrupt and is resident, carries on business or has property in Canada, whose liabilities to creditors provable as claims under the BIA amount to $1,000 or more and which for any reason they are not able to pay those obligations as they typically come to be due.

Further, if the insolvent person or the insolvent company liquidated all of their assets, there would still not be enough money to pay off all of the amounts owing to creditors; both secured creditors and unsecured creditors.

What does the insolvent def mean financially?

Now that I have given you the textbook insolvency def, let us look at a real-life example. Every Monday in the Toronto Star there is a column called Millenial Money. This past Monday, Evelyn Kwong wrote about a 34-year-old named Chele. Chele earns $45,000 per year gross.

As I understand it, she borrowed $100,000 to pay for medical expenses back home in the Philippines for a family member. Also, her ex-husband racked up an amount of debt that she is also responsible for. It is unclear from the article if the two sets of debt obligations total $100,000 or something greater.

They presented Chele’s situation to a financial expert to give advice. After looking at Chele’s debt situation, he advised that she speak with a licensed insolvency trustee to determine if a consumer proposal or a bankruptcy proceeding would be best to alleviate Chele of her outstanding debts.

insolvency def
insolvency def

What If I Am Insolvent?

What is Chele’s situation? First, let us look at her monthly statement of income and expenses:

Monthly take-home pay$2,200
Recurring monthly expenses:
Rent 700
Transportation810
Food250
Sports and hobbies 50
Cell and internet100
Personal300
Monthly total expenses $2,210

So Chele is able to essentially balance her cash-flow budget. Her take-home pay is presumably after income tax and other deductions. We can assume that she either receives a small refund on her tax return or at least does not owe any income tax.

As she rents, she does not own a home. Her transportation costs are for her car which is financed. Let us assume that the equity she has in her car fits into her provincial exemption so that a licensed insolvency trustee would have no interest in her car.

So Chele has no assets other than her car and she owes at least $100,000. Now we can look at the consumer proposal as an alternative to bankruptcy vs her doing an assignment in bankruptcy filing.

Consumer proposal vs bankruptcy proceeding

As I have written before, a consumer proposal is an insolvency process under the BIA for any person who owes $250,000 or less, not including any debts secured by their personal residence. It is a debt settlement arrangement to pay your unsecured creditors less than the total you owe in order to relieve yourself of all of your debt obligations.

A person can take up to 5 years to make the regular monthly payments to the licensed insolvency trustee acting as the Administrator in the consumer proposal. The insolvency trustee then distributes the total amount agreed to by the creditors and paid by the insolvent debtor as a dividend distribution. Once the insolvent debtor fully completes the consumer proposal, they are relieved of all of their unsecured debt balances (other than a few minor exceptions laid out in the BIA).

Canadian bankruptcy law says that any offer to the creditors in a consumer proposal has to be a better alternative for the creditors than they would get from the person’s bankruptcy estate. So first we need to calculate what the creditors could expect from Chele’s bankruptcy.

Chele has no assets available to her creditors. Her equity in her only asset, her car, is protected by her personal exemption for a vehicle in Ontario. There are no other known assets. All bankruptcy trustees are required to perform a surplus income calculation. In Chele’s case, she earns $2,200 per month net of tax, and she is allowed to earn as a single person in 2021 $2,400 per month before she is subject to any surplus income. So she also does not need to contribute any surplus income.

Assuming Chele has never been bankrupt before if she performs all of her duties in bankruptcy, she is entitled to a discharge from bankruptcy 9 months after the date of bankruptcy, unless a creditor opposes it. All she will be required to pay is the fee to the licensed insolvency trustee to administer her bankruptcy.

In a consumer proposal, in this case, she could offer anything because that would meet the requirement of being a better alternative than her bankruptcy. However, creditors generally expect to receive no less than 20% to 25% on their outstanding debt. So if Chele owes $100,000, at the midpoint of 22.5%, she would have to offer to pay her creditors $22,500 payable in monthly payments over no more than 5 years or 60 months. That works out to a monthly payment of $375. Chele does not have room in her budget right now to afford that monthly payment.

So in her case, unless she can figure out how to reduce her spending so that she can afford a monthly payment for the next 60 months, my advice to her would be to choose the bankruptcy option and file an assignment in bankruptcy. If all goes well, she can start to rebuild her life, free from all her unsecured debt, in 9 months’ time.

insolvency def
insolvency def

Insolvency def summary

I hope that you found this insolvency def Brandon Blog interesting. If you are concerned because you or your business are dealing with substantial debt challenges and you assume bankruptcy is your only option, call me.

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

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

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

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

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

Call us now for a no-cost consultation.

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.

Call a Trustee Now!