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WHEN ARE 2019 TAXES DUE CANADA: 4 AMAZING WAYS TO CRA PERSONAL DEBT RELIEF

The Ira Smith Trustee Team Is Absolutely Operational And Ira, In Addition To Brandon Smith, Is Readily Available For A Telephone Consultation Or Video Meeting.

When are 2019 taxes due Canada introduction

I have noticed recently that Canadians are searching online the question “when are 2019 taxes due Canada“. That leads me to believe that many people are unclear about the changes this year. Some people are searching because they don’t want to miss the payment deadline. Others may be searching because they want to know when the deadline is that they are going to miss because of the COVID-19 pandemic has hit them right in the wallet or purse.

The purpose of this Brandon’s Blog is to go over for individuals:

  • the important tax filing and payment dates for 2019 taxes;
  • what needs to happen on those dates and what if you can’t make it on time; and
  • ways you can deal with Canada Revenue Agency (CRA) to eliminate your tax debt

I remind you that I and my Firm are not personal or corporate tax advisors. We are licensed insolvency trustees. This Brandon’s Blog is not meant to be income tax advice or to replace professional income tax advice. To learn when are 2019 taxes due Canada for your personal situation, contact your own professional income tax advisor.

Is the Tax Deadline Delayed for 2019 Tax Returns?

You may have wondered how COVID-19 influences the filing of your 2019 tax return, repayment of any income tax owing and your tax obligations generally in terms of deadlines, or payments or refunds and tax credits. Apart from those that are self-employed, the income tax return filing date is usually April 30 of every year.

Identifying the turmoil brought on by COVID-19, the CRA provided most Canadians extra time to submit a 2019 tax return. CRA provided us till June 1, 2020, aside from self-employed people operating as a proprietorship or partnership. For those self-employed people, the filing day remained June 15, 2020, for a 2019 tax return.

So since that due date has passed, nevertheless, this year there might be a technicality as I describe below. The government wants every cent they are owed and they want it in a good time. Thus, there are fines for filing a late income tax return if you have an unpaid tax amount. If you are entitled to a refund or your tax balance is nil, there will be no charges for sending in your return after the deadline date.

Charges for filing your income tax return late when you owe the CRA are levied. The CRA will charge you a late-filing penalty if you file your 2019 income tax return after September 30, 2020 (notwithstanding the actual filing date was June 1), and you owe tax obligation that continues to be unpaid. The fine is 5% of your 2019 tax owing, plus 1% of your income tax owing for each complete month your return was filed after September 30, 2020, to a maximum of twelve months.

So without making you any guarantees, there is a real possibility that if you missed out on the June 1 due date, if you submit and pay on or prior to September 30, 2020, and you do not have any kind of prior years’ late-filing penalty, one may not be levied for 2019.

If the CRA charged a late-filing penalty on your return for 2016, 2017, or 2018 your late-filing fine for 2019 may be 10% of your 2019 balance owing, plus 2% of your 2019 balance owing for each and every complete month your return was submitted after September 30, 2020, to a maximum of 20 months.

So it seems the CRA will forgo arrears interest on 2019 tax obligations related to the specific income tax returns from April 1, 2020, to September 30, 2020. This procedure for your 2019 tax obligation does not terminate penalties and interest on a taxpayer’s account prior to April 1, 2020, to September 30, 2020. It does make it less complicated on a taxpayer’s 2019 tax debt that it will certainly not rise via interest charges throughout this challenging coronavirus pandemic time.

Why file by the June 1 deadline if no payment is due until September 30?

Filing your income tax return on time lessen any negative results on your tax credits and benefits payments. If your 2019 return has actually not been assessed by the CRA, details from your 2018 return will be used to compute benefits as well as credits payments up until September 2020. That will guarantee you continue to obtain vital payments. Nevertheless, without filing your 2019 tax return, you may not be getting exactly the correct amounts you are entitled to.

I doubt you desire any kind of disturbance to benefit payments you get for government programs such as the Canada Child Benefit (CCB) and GST/HST tax credits, as well as amounts from provincial programs that are carried out by the CRA.

By filing a return by the due date, you will lessen this impact. Also, if you are owed a refund, the earlier you file, the earlier it will show up in your pocket. By registering for direct payment, you’ll get your refund quicker.

If you are expecting a tax refund for sure you would certainly want to submit on time. CRA may not chase you for it if you don’t owe them for 2019. Submitting your tax return is the only way to get that refund. Remember, a refund means that you gave too much of your money to CRA during the year. For sure you want it back!

However, registering for a direct deposit could lead to other problems. For more information on that, read my Brandon’s Blog CANADA REVENUE AGENCY LOGIN: MASSIVE CREDENTIAL STUFFING CAUSES MANY PROBLEMS.

When are 2019 taxes due Canada: Are there new deadlines for GST/HST returns and payments as well?

Excellent information for the self-employed as well as entrepreneur small-business owners: while the CRA is not changing the filing target dates for GST/HST returns, it is forgoing late filing charges for returns submitted by the end of June. As for payments, any type of GST/HST installments that are due March 27 through June 2020 can be deferred up until June 30, interest-free.

When are 2019 taxes due Canada: What is the payment date?

The target date to pay amounts owed was initially extended to September 1, 2020. On July 27, the CRA revealed that the payment deadline for a person’s 2019 income tax obligation was additionally extended to September 30, 2020.

There are a few other concerns surrounding the declaring of your 2019 income tax return and the payment of any balance owing that you must understand:

  • Some taxpayers may have received a Notification of Assessment that says the date for settlement is April 30, 2020, or September 1, 2020. If you did get such a notice giving those dates for when are 2019 taxes due Canada, it is now incorrect.
  • On May 15, it was revealed that qualified Canadians who are currently obtaining the GST/HST credit and/or CCB payments will continue to get them up until the end of September 2020. Benefits starting in July 2020 and those arranged for August and September won’t be disrupted.
  • If CRA is unable to evaluate your 2019 return by early September 2020, your estimated benefits and/or credits will certainly stop in October 2020 and you’ll have to repay the approximated amounts that were released to you starting in July 2020.
  • By prolonging the due dates for federal returns and instalments, the CRA is additionally expanding the due dates for provincial/territorial individual returns and instalments. Note that the CRA does not administer the tax system for the province of Quebec.

When are 2019 taxes due Canada: What if I owe CRA and cannot pay it?

If you find yourself to be in a financially challenging situation then you need to take proactive activity. The COVID-19 pandemic has hit Canadians hard. I envision there will be many individuals that do not have the needed cash to pay their 2019 income tax debt by September 30. It is necessary to be proactive and positive since the CRA has special powers.

The CRA does have the capacity to take collection procedures without having to go via the court system. The federal government can garnishee your wages or salary, get the money you have on deposit at a bank as well as freeze your bank accounts. They can also make demand on anyone they think owes you money.

There are 4 ways to CRA personal debt relief:

  • If you are able to, borrow the money you owe and pay it to CRA on or before September 30. I don’t think this option needs any further explanation.
  • Contact a CRA collection officer and make a payment arrangement repayment plan. A payment arrangement is an agreement you make with the CRA. This allows you to agree on a monthly amount to pay that you can afford and then provide CRA with a series of post-dated cheques.
  • Consider filing a consumer proposal to consolidate your income tax and other debts so you can make one manageable monthly payment. Through a consumer proposal, you will pay much less than the total of all your debts.
  • If you cannot see your way to being able to do any of the three options listed above, the final one is to use personal bankruptcy to eliminate your income tax and other debts.

If you are able to make a settlement arrangement you have to maintain the payment plan by making certain your regular monthly post-dated cheques clear the financial institution every single time. Also, ensure that all your returns are filed promptly. If you fail to do any of these things, they can terminate the payment arrangement and begin collection action to recoup the tax debt.

September 30, the date when are 2019 taxes due Canada is coming up fast. If you know that you will not be able to pay that liability, don’t fret and don’t waste time. Give us a call. We will help you put together the best strategy that meets your overall needs.

When are 2019 taxes due Canada: A consumer proposal

A consumer proposal is a government-regulated debt negotiation program submitted with a Licensed Insolvency Trustee (Trustee). The purpose of submitting one is to eliminate problem financial debts to make sure that you can start the process of resuming life debt-free.

It can just be filed with a Trustee. When you sign your papers, they are filed with the federal government. It is a legal process under the Bankruptcy and Insolvency (Canada) (BIA).

This procedure is a lawful arrangement between you and you’re unsecured creditors to eliminate all of your debt by repaying only a part of the debt that you owe. If a simple majority by dollar amount accept the terms you have offered, then your consumer proposal is binding on all your unsecured creditors.

This court-sanctioned procedure enables you to bargain negotiation with your creditors. When you are carrying out your consumer proposal by making your required payments, you must also file your income tax returns as normal. CRA manages your refunds in the normal course. If you owe tax for any time period after the filing date of your consumer proposal, you additionally pay that amount as regular.

In a consumer proposal, you maintain your assets and as long as you make all the required payments you promised to make, nobody can garnishee your salary or earnings. If you have filed a consumer proposal, personal income tax obligations arising before your filing is an unsecured debt. When you have filed CRA can’t take any type of additional action against you, like wage garnishment, or freezing your bank accounts. As the Trustee, we alert CRA once you file as well as advise it to stop any additional action against you.

For further information on how a consumer proposal could work for you, please get in touch with me. If you know that when are 2019 taxes due Canada you will not be able to pay them, give us a shout so we can help put together a plan of attack for you.

When are 2019 taxes due Canada: Personal bankruptcy in Canada

If none of the above ways can work for you, then you will have to consider personal bankruptcy in Canada. Personal bankruptcy should be considered by anyone who:

  • is insolvent;
  • has seen a Trustee who has assessed you and determined that you will not be able to complete a consumer proposal; and
  • owes more than $1,000.

As soon as you become bankrupt you will be required to surrender most assets to the Trustee, other than those that are exempt under provincial law or are fully encumbered. These assets will then be sold and the money gained from the sale of the properties will be dispersed according to the BIA. You may additionally have to pay a part of your earnings to the Trustee for the benefit of your creditors.

Personal tax obligations can be discharged when you receive your discharge from personal bankruptcy. Many various other financial debts will also be released. If you have liability to CRA from being a director of a company, those financial obligations can also be discharged.

If you have actually declared personal bankruptcy, personal income tax debt is an ordinary unsecured financial debt. As soon as you’ve applied for bankruptcy CRA can’t take any kind of additional action versus you, consisting of a wage garnishment or freezing your accounts. We will inform CRA when you file as well as instruct it to quit any additional activity against you to try to collect their debt.

Your spouse will not be affected by your bankruptcy unless your spouse:

  • co-signed a debt;
  • owns assets with you jointly; or
  • has received a transfer of property from you at a time when you owed CRA money.

A creditor can go after your spouse for payment in these circumstances and also he/she will be called to account and pay.

You may also wish to check out our Top 20 personal bankruptcy FAQs. So if you know now that when are 2019 taxes due Canada you will not be able to pay it, consider giving us a call and we can run through your various options and tailor a plan to fit your unique circumstances.

When are 2019 taxes due Canada: Summary

I hope you found this is Canada when are 2019 taxes due Canada Brandon’s Blog informative. The Ira Smith Team family hopes that you and your family members are remaining secure, healthy, and well-balanced. Our hearts go out to every person that has been affected either via misfortune or inconvenience.

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

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

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

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

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

when are 2019 taxes due Canada
when are 2019 taxes due Canada
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Brandon Blog Post

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

ccaa canada
ccaa canada

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

Keep healthy and safe everybody.

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

CCAA Canada introduction

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

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

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

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

What does CCAA Canada protection mean? CCAA vs Chapter 11

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

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

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

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

Can CCAA Canada protection be extended?

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

Who gets priority under a CCAA Canada filing?

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

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

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

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

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

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

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

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

What happens to shareholders in a CCAA Canada restructuring?

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

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

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

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

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

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

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

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

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

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

Cannabis6
Charity1
Construction4
Energy4
Entertainment1
Hospitality1
Manufacturing1
Media1
Mining2
Pulp and Paper1
Real Estate2
Retail8
Technology1
Travel1
34

 

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

ccaa canada
ccaa canada graph

CCAA Canada summary

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

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

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

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

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

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

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

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

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

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

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

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

Keep healthy and safe everybody.

 

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

company bankruptcies
company bankruptcies

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

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

Company bankruptcies introduction

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The main factors a court considers during company bankruptcies are:

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

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

Company bankruptcies summary

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

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

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

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

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

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

Categories
Brandon Blog Post

THE CONTROVERSIAL QUEBEC PLAN TO REDUCE CREDIT CARD DEBT IN CANADA

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

Stay healthy, well balanced and safe and secure everyone.

Credit card debt in Canada introduction

Yesterday I received my current credit card statement in the mail. I scanned the pages and something on the page titled “Important Changes To Your Credit Card Agreement” caught my eye. The province of Quebec is trying to reduce credit card debt in Canada for its residents. I will explain it in this Brandon’s Blog.

Average Canadian household debt 2020

Credit rating agency Equifax Canada says typical consumer debt boosted 2.7% to get to $72,950 on average per household at the end of 2019. At the end of 2019, TransUnion reported that Canadians charged $100 billion in bank card financial obligations for the first time ever and they’re not done contributing to it. So credit card debt in Canada was certainly out of control then.

I won’t bother quoting what both the Equifax and TransUnion projected as to what would happen to average Canadian household debt in 2020, or about credit card debt in Canada. Suffice to say that in late 2019, an Ipsos poll carried out for Manulife Canada found that 45% of Canadians report spending more than they take home, and also 40% question if they will ever get rid of all of their debt. Nearly half of Canadians are afraid of being indebted for life, and 67% assume everyone is in the very same situation.

In the first quarter of 2020, unemployment was low and the Canadian economy felt like it was in decent shape. Then came the coronavirus pandemic. The fallout from COVID-19 and the shutdown of the Canadian economy have yet to be fully felt. My crystal ball is definitely broken because of it.

Average line of credit debt in Canada

Suffice to say from everything that I have read so far, average Canadian household debt is going up, due mainly to job losses and falling incomes. The Canadian government statistics about Canadians receiving the Canada Emergency Response Benefit (CERB) are staggering. As of June 4, 2020, the government has processed applications from 8.4 million Canadians. Overall as of that date, the federal government has paid out $43.5 billion of CERB benefits.

So with close to 9 million people getting CERB payments up until now, lots of Canadians are making a great deal less money than they did two months back. According to Statistics Canada, Canadians earned monthly, on average, $4,383; those on CERB make $2,000 a month. While it’s great to have some cash coming in, that gap (as well as it will certainly be a lot more for some) is likely to be a significant problem for out-of-work Canadians.

The Quebec plan to slow down credit card usage in Canada did not start out being controversial

To understand what additional pressure there will be on Quebeckers come August 1, 2020, we first have to understand the history of the issue. Quebec’s intentions started out being very good, especially for the time it was developed. But, that was then and now is now!

On November 15, 2017, Quebec’s Bill number 134, “An Act mainly to modernize rules relating to consumer credit and to regulate debt settlement service contracts, high-cost credit contracts and loyalty programs”, was enacted. On August 1, 2019, particular elements of this legislation, aimed at trying to suppress charge card financial obligations in Quebec, began. So everyone had advance warning to change their spending ways.

Starting then, new credit card accounts opened required the minimal monthly payment to be upped to 5% of the outstanding balance on those brand-new charge cards. For cards provided prior to August 1, 2019, cardholders could continue to pay a minimum of 2% of the monthly balance. They had until 2025 to start paying the brand-new minimum of 5%. Nonetheless, the minimum monthly payment was gradually being boosted by half a percentage point annually. This starts on August 1, 2020, up till it gets to the five percent level.

At the time, consumer advocates felt that other provinces will be watching carefully what Quebec is doing. The Quebec government certainly thought that credit card debt in Canada was a problem. It wanted to be proactive in dealing with this problem for Quebeckers. If you had to pay more every month on your old debt, hopefully, people would start feeling the pinch and adjust their budgets to spend less using credit cards. That was the theory.

So that was what was printed on my credit card statement. A reminder that if you lived in Quebec and were responsible for repaying the debt on the credit card, the minimum monthly payment was about to increase.

Given the current state of the Canadian economy and people’s personal financial affairs, this requirement in Quebec to pay more every month on your credit card debt cannot be good news.

Total credit card debt in Canada, not monthly payments, is the real problem

This leads to what or who is the real culprit. Quebeckers having to pay more each month as a minimum monthly payment is not the problem. I don’t mean to single out Quebec residents. I only mention them because it is Quebec that enacted the legislation. The real problem is that Canadians’ total credit card debt in Canada is too high and people cannot pay off the balance they charged each month on the due date. So, they are only making minimum monthly payments, while continuing to charge more, to stay alive until the next month.

Increasing minimum monthly payments is not making a plan to be debt-free

High charge card debt is clearly jamming a lot of people. Time will tell just how effective a technique it is to elevate the minimum monthly payment to 5% to tackle outstanding credit card debt. Due to the current situation, it is pointless to start looking at data for the rest of 2020. Hopefully, this year is not indicative of what future years will look like.

In my opinion, it would have been a lot more impressive for Quebec to at the very same time develop online financial education modules for its people. What is truly required is to show people that paying just the minimum monthly balance doesn’t solve their total debt problem.

As I have stated in many of my blogs, to create a real plan to be debt-free, people need to:

Unpaid credit card debt consequences Canada and how to avoid them

Right now, there is an unofficial moratorium on the banks and collection agencies calling people who are delinquent in their credit card payments. All the lenders are treading lightly, given the many problems currently in the Canadian economy. Given all the problems, now may be the best time to try to resolve long outstanding credit card debt issues.

Once things get back to whatever normal is going to look like, lenders and collection agencies will be calling everyone again. If a satisfactory payment plan is not entered into, lenders may sue once the courts open up again. Once a lender gets a judgment against you, they can garnishee your wages or your bank account.

Under the Ontario Wages Act, R.S.O. 1990, c. W.1, a financial institution that has a judgment against you (like a bank or bank card business) can garnishee up to 20% of your net wages (after statutory deductions for taxes, CPP, and EI). Try living with that kind of wage garnishee and/or your bank account frozen.

So anyone with debt problems needs to realistically look at the various solutions that may be available. I have already talked above about how to start tackling debt problems, especially credit card debt in Canada.

Once you have redone your budget, have family buy-in so everyone is onside helping the household and you are following it, there are extra actions that you can take in dealing with your creditors. These steps include:

Negotiating yourself with the credit card company – Right now is the perfect time to negotiate. Lenders are not receiving payments and many have deferral programs set up. If you have cash on hand, now is the perfect time to approach a lender and offer a discounted amount that you can afford to pay if they agree. Make sure you have properly budgeted so that if you pay that cash out now, you can still survive until your work and income returns back to what it was pre-pandemic.

Non-profit credit counselling agency help – If you don’t feel you can negotiate on your own, go to a community non-profit credit counselling agency. They can review your budget to make sure that it is realistic and give you additional help. They can also try to strike a deal with your creditors for you to either pay the full balance out over time without additional interest or penalties or, a reduced payout now.

Consolidation loan – If you are working from home and still have all your income, a decent credit rating and you can get a loan to consolidate your debts to pay them out, that has many benefits. The issue is that the annual interest rate charged on the consolidation loan must be significantly less than the average interest rate you are paying on your debts. Now you can pay off either your total debt, or the lower negotiated balance, and then just have the lower interest rate one loan to repay.

This can be done under either the self-negotiating method or if you are using a not for profit local credit counselling agency to help you. Either way, stay away from payday loan lenders.

Consult with a licensed insolvency trustee (formerly called a bankruptcy trustee) – Whether things are too far gone to use any of the above methods, or you just want to know what all of your options are, consult with a licensed insolvency trustee to determine how best to deal with your credit card debt in Canada.

Most licensed insolvency trustees, including my Firm, provide a no-cost initial consultation. I can go over with you all of your options. We will discuss all that I have already mentioned, plus the concepts of a consumer proposal, Division I Proposal and bankruptcy. I will give you the pros and cons of each, give you my best recommendation and then you will have all the information you need to decide.

Credit card debt in Canada summary

The Ira Smith Team family hopes that you and your family members are remaining secure, healthy and well-balanced. Our hearts go out to every person that has been affected either via misfortune or inconvenience.

I hope you have found this credit card debt in Canada Brandon’s Blog helpful. Quebec’s original plan for helping its residents reduce credit card debt in Canada did not start out to be controversial. It was designed to get Quebeckers to think about how they were getting into credit card debt and to force them to work into their budget a larger monthly minimum payment. The aim was to curb out of control spiralling credit card debt. The COVID-19 pandemic and the resulting economic shutdown combined with the upcoming August 1 changes will no doubt make things harder for Quebeckers only able to make minimum monthly payments on their credit card balances.

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

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

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

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

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

credit card debt in canada
credit card debt in canada

Stay healthy, well balanced and safe and secure everyone.

 

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Brandon Blog Post

HOW HERTZ TEACHES US MODERN AND RISKY RULES OF BUSINESS BANKRUPTCY IN CANADA AND THE USA

business bankruptcy in canada
business bankruptcy in canada

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

Stay healthy, well balanced and safe and secure everyone.

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

Business bankruptcy in Canada Introduction

Late in the day on Friday, May 22, 2020, Hertz Global Holdings Inc. (Hertz) filed for Chapter 11 bankruptcy in Delaware. The filing gives Hertz some breathing room to operate its business. During this time, Hertz also needs to come up with a business turnaround plan and a debt restructuring plan that creditors can support. The movement of Hertz stock last week teaches us some modern and risky rules of business bankruptcy in Canada and the United States.

Corporate bankruptcies and the Hertz investors

Hertz stock closed on the NASDAQ exchange on May 22 at US$2.84. It dipped to a low of US$0.40 on May 26. Legendary investor Carl Icahn sold all of his Hertz shares at an average price of $0.72. He dumped his 39% stake in Hertz at a loss of nearly $2 billion. Last Friday Hertz shares closed at US$2.57 per share. This morning, the trading touched US$3.40 per share.

So Hertz is up handsomely since May 26. Hertz has filed for bankruptcy protection. It doesn’t make sense that investors should be pushing the stock up. Hertz is selling off its fleet and further depressing the used car market. So far there is no indication that a business plan and debt reduction plan has been developed, let alone accepted by the creditors.

As far as assets, they have locations and a database of customers. But every major rental car company also has locations and a database. Whenever business and leisure travel resumes to pre-COVID-19 levels, if you can’t rent a car from Hertz you will rent it from a different company. So what are the non-fleet assets worth?

So on the surface, the investor money finding a home in Hertz stock and pushing up the stock price doesn’t make sense. So, are there savvy investors getting into Hertz or are they all just following the herd and will all end up losers?

Why Hertz filed for Chapter 11 bankruptcy protection

Since 2014, Hertz has had four different CEOs. It is difficult to develop and implement a cohesive business strategy with such turmoil in the senior management ranks. As the coronavirus pandemic brought travelling to a sudden halt, Hertz suffered dramatically as a mass of its revenue depended on business travellers and vacationers renting vehicles when arriving at their destination airport. Nobody knows how long it will take until travel gets back to where it was and what Hertz needs it to be.

Hertz’s debt has been increasing as it invested heavily in its vehicle fleet. They may have also missed the mark in the mix of vehicles consumers want, requiring it to take on even more debt to make further fleet purchases. Hertz could no longer afford to make the interest payments on its debt load. At the time of its bankruptcy filing, Hertz had US$1 billion of cash and US$13 billion of debt.

The $13 billion in financing Hertz made use of to acquire its fleet of 500,000 automobiles. The financing was done via what is known as asset-backed securities. These are connected straight to the value of the vehicles. When the value of the cars drops, Hertz must make up the difference in cash within about three months, unless values rebound before that time.

However, with the coronavirus pounding the brakes on the economy and eliminating employment for so many, the drop in the value of used vehicles is expected to remain that way for a long time. Hertz knew that it could not make up the difference to its lenders when they made a demand, which was their right. Hence the bankruptcy filing.

The modern risky rules of investing in business bankruptcy in Canada and the USA

Normally, in a public company restructuring, it is not only the creditors that take a hit. Shareholders usually get a good drubbing. Share values fall and new shares are issued to raise capital. This further dilutes the holdings and value of those holdings for shareholders. But investors must believe that Hertz will come back. How else can you explain the surge in the share price?

Before this year, the company had ten consecutive quarters of positive growth. They were still losing money, just not as much. Investors must believe that Hertz will be able to survive. They must believe that the company although leaner and smaller, this is the time to jump on an opportunity to make money.

I am not a financial advisor, I am not saying whether this is a good or bad investment. It certainly is a very risky one. All I am saying is that as a licensed insolvency trustee (formerly called a trustee in bankruptcy) administering business bankruptcy in Canada, this does not make any sense to me.

I guess only time will tell if these investors pushing up the stock price are insightful risk-takers or losers. Carl Icahn doesn’t believe it.

Business bankruptcy in Canada and the USA summary

I hope you have found this business bankruptcy in Canada and the USA Brandon’s Blog helpful.

The Ira Smith Team family hopes that you and your family members are remaining secure, healthy and well-balanced. Our hearts go out to every person that has been affected either via misfortune or inconvenience.

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

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

Revenue and cash flow shortages are critical issues facing entrepreneurs and their companies and businesses. This is especially true these days.

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

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

Stay healthy, well balanced and safe and secure everyone.

Categories
Brandon Blog Post

THE TORONTO CORONAVIRUS EXTRAORDINARY PLAN TO BUSINESS RECOVERY

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

Stay healthy, well balanced and safe and secure everyone.

Introduction

For businesses having a hard time enduring the Toronto coronavirus pandemic, insolvency may very well be the outcome. General insolvency filings were down in April, this is mainly because everyone has a built-in stay of proceedings right now.

Banks, credit card companies and collection agencies are not making a name for themselves right now during the Toronto coronavirus lockdown by harassing people who cannot afford to pay their regular monthly payment. However, that will not last too long.

In this Brandon’s Blog, I discuss options available to the entrepreneur if the Toronto coronavirus lockdown and quarantine wreaks havoc on your business.

Telltale signs from the United States

We have already seen the variety of companies that submitted to Chapter 11 insolvency. They did so in order to attempt to reorganize their financial obligations while trying to stay in business. This has been especially true for the large retail business sector. Their business problems were not caused by COVID-19. However, the pandemic merely accelerated where they were heading anyway.

The American Bankruptcy Institute reported that Chapter 11 filings in April 2020 represent a 26% boost from April 2019.

I have previously written about Modell’s Sporting Goods and Pier 1. Now we can add Neiman Marcus, JCPenney and J.Crew. Outside of the retail sector, Hertz Car Rental, Gold’s Gym, Foodora and Virgin Australia are also recent restructuring filings. I also really believe that it won’t be long before the floodgates open up to subject an excess of small firms looking for relief from their financial problems, in North America and the rest of the world. That is probably obvious to you, it really can’t be called a Toronto coronavirus news update!

Entrepreneurs are doing whatever they can

I have definitely noticed an uptick in telephone calls from people scared about their personal situation and from worried business owners in the past 4 weeks. They aren’t all set to throw in the towel right now. They are attempting to do whatever they can through the shutdown to stabilize their company. So for now, they are trying to take advantage of various federal government programs to help them stay afloat. The programs include:

However, the people I am talking to are also realists. They all understand that if what they are doing now doesn’t work, they will either have to try to restructure the company or have it go bankrupt. So for now, there is somewhat of a pause in remedies such as distraints, repossessions, terminations of leases and financial institution collections.

The moratorium won’t last forever

Right now the Canadian federal government is taking the lead. They have extended timelines for filing income tax and HST returns and paying amounts owing. They have also extended certain relief programs from their original expiration date of June 30. Right now, subject to a further extension, of course, it looks like the feds are shooting for September 30 to end the COVID-19 assistance programs.

Ultimately, the patience for non-payment being shown right now by landlords and creditors won’t last permanently. I expect business bankruptcy protection and bankruptcy filings to climb after the “all clear” is sounded on this Toronto coronavirus state of emergency and the government assistance ends. The pent up collection activity will go into full flight.

The floodgates will open. I expect one of the worst offenders to be the Canada Revenue Agency (CRA). There will be so many companies in default of their tax payment obligations. The government is spending trillions of dollars to prop up the Canadian economy. Those programs will have to be paid for and all the IOU’s will be called in.

It seems that everybody I have spoken with is simply waiting until this Toronto coronavirus period quiets down. The pool of business problems is overflowing right now.

Corporate bankruptcy is not the only option for a company battling its financial demons. There are going to be three categories of insolvent companies:

  1. Those who are too small and it just does not make sense for them to do anything other than paying the employees their final salary, wages and vacation pay. Then file their final corporate and income tax files. Then, turn the key in the door and walk away.
  2. A company that has just a few creditors and all or some of the business operations remains viable. They can negotiate with their creditors for a reduction in each amount owing on a creditor by creditor basis. The reason this does not work if there is a large group of creditors is because of human nature. Everyone is worried that the next person is getting a better deal. By the time you get the last person to say yes, the first person may have changed their mind. There is no way to independently satisfy all the creditors that nobody is getting a better deal. In reality, some are getting a better arrangement than others. It will be based on the negotiation ability of the creditor and how essential maintaining the supply of their product or service from them is.
  3. Businesses where all or some of their operations remain viable. However, the company can only survive if it can chop off the sick parts and eliminate however much debt they need to so that the newly restructured company is solvent.
  4. Companies with complex issues needing to assign their assets to a licensed insolvency trustee through a bankruptcy or whose secured creditor will enforce on their security by appointing a receiver, either a private receiver or court-appointed receiver.

Toronto coronavirus induced restructuring

If you anticipate your entire business or certain business units will remain viable but require relief from its creditors and debts, the first look at restructuring. This route enables a company to stay functioning while renegotiating its financial obligations. This process includes looking critically at all business units and determining how operations can be made more efficient in order to improve profitability. Many hard decisions will have to be made.

Companies have two choices in Canada for restructuring. For the larger restructurings, the kind that you read in the newspaper, the restructuring statute is the Companies’ Creditors Arrangement Act (Canada) (CCAA). In order to qualify for restructuring under the CCAA, the company has to owe its creditors at least $5 million.

All other companies restructure under the Bankruptcy and Insolvency Act (Canada) (BIA) restructuring provisions. It is called Part III Division I of the BIA. Regular readers of Brandon’s Blog will know that I have written several blogs before on aspects of both the CCAA and restructuring under the BIA.

In my blog, BANKRUPTCY EXPERTS WEIGH IN ON US & CDN SMALL BIZ RESTRUCTURING, I lamented the fact that the Canadian insolvency system does not have a streamlined restructuring process for smaller companies. We have the consumer proposal restructuring under the BIA for smaller personal insolvent debtors trying to restructure.

The United States has the Small Company Reorganization Act (SBRA) of 2019, also known as “Subchapter 5”. The SBRA is aimed at simplifying restructuring procedures for small companies by boosting efficiency, lowering costs, and easing the restructuring plan confirmation process. I believe this would be a great addition to the Canadian insolvency system. It may very well move some companies from my #1 category listed above into #3.

There is no sense dwelling any longer on what we don’t have. The Toronto coronavirus news today has affected so many companies. Many will just not survive. Others will be able to come out of the other side of this Toronto coronavirus pandemic but will need major surgery to stay alive.

The first step for any entrepreneur is to get professional advice in order to strategize and make a decision on what plan to put into place. You should speak either to a licensed insolvency trustee (formerly called a bankruptcy trustee) (Trustee) or a lawyer who has experience in insolvency matters.

Most licensed insolvency trustees will provide a one-hour no-cost strategy session.

You need to understand whether or not you have a viable business and company. Then, you need to have a sensible plan to increase your chances of success based on the viability analysis.

Both Ira and I have been doing many such strategy sessions over the telephone and video meeting since the Toronto coronavirus self-quarantine lockdown came into effect. I know that we will be doing many more as the city and the province begin to open up.

The goals of the entrepreneur have to be the driving force. For example, if the entrepreneur is adamant about staying in business, then you have to hope that business viability can be proven so that the likelihood of a successful restructuring is enhanced. On the other hand, if you can prove business viability but the entrepreneur has had enough and wants out, then you look at the restructuring and sale of the viable business parts.

Once viability is established, then a restructuring plan can be developed. The restructuring will take place either under the BIA or CCAA. Depending on the circumstances and the goals of the entrepreneur, either a refinancing of the restructured company of a sale of the business is part of any restructuring plan.

Business not viable

If the business is not viable, then pure restructuring is not possible. However, that does not mean that the assets that form the business unit cannot be used by someone else to efficiently run the business. I am not just talking about hard assets. Things such as patents, trademarks, processes, experienced workforce and the customer base before they go off to find a new supplier are all valuable parts of a business.

Perhaps the tangible and intangible assets can be sold to someone that can bring them into their existing operation and run the business profitably. Jobs can be saved also if this were to happen.

When this is the case, then you are into some form of liquidation. A secured creditor will move for the appointment of a receiver. As I have written before on this topic, the appointment can either be by way of a private appointment or an application to the court for a court-appointed receiver.

If there are no secured creditors, the security taken is invalid, or there are other factors that make a bankruptcy necessary, then the company can assign itself to bankruptcy. It isn’t every day you find this, but in a recent corporate bankruptcy filing that I am administering, I found that the security of the purported secured creditor was invalid as against us as Trustee.

Then either the receiver or Trustee can take possession of the assets, run a well-advertised and managed sales process and hopefully find a buyer for the assets to comprise all or many parts of the operating business. If such a buyer does not exist, then it will be a straight liquidation of individual assets. Obviously, higher values can be achieved when selling what amounts to a business rather than just individual assets in a liquidation.

Personal guarantees and director liabilities

In any corporate or business insolvency, the exposure of the directors has to be taken into consideration. This is not Toronto coronavirus news. It is normal for entrepreneurs to have to give a personal guarantee to a lender in addition to the security taken. Such a guarantee can be backed up by specific personal assets as collateral, or be an unsecured guarantee. Or, an entrepreneur has to indemnify the landlord as part of the corporation leasing premises.

Directors also have certain liabilities under provincial or federal law. Generally, directors will have personal liability for:

The exposure of directors must be recognized and taken into account in any restructuring attempt.

Toronto Coronavirus Summary

Businesses all over will look different due to the Toronto coronavirus pandemic and lockdown. The current environment is unprecedented and is teaching all of us things we have never seen before.

The Ira Smith Team family hopes that you and your family members are remaining secure, healthy and well-balanced. Our hearts go out to every person that has been affected either via misfortune or inconvenience.

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

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

Revenue and cash flow shortages are critical issues facing entrepreneurs and their companies and businesses. This is especially true these days.

If anyone needs our assistance, or you just need some answers for questions that are bothering you, feel confident that Ira or Brandon can still assist you. During this Toronto coronavirus state of emergency, we are doing telephone consultations and/or virtual conferences that are readily available for anyone feeling the need to discuss their personal or company situation.

 

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

Stay healthy, well balanced and safe and secure everyone.

toronto coronavirus

 

 

Categories
Brandon Blog Post

HOW TO USE DEBT RELIEF CANADA COVID TO ACHIEVE THE BENEFIT OF MORE TIME

debt relief canada covidThe Ira Smith Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

Stay healthy, well balanced and safe and secure everyone.

If you wish to listen to the audio version of this debt relief Canada COVID Brandon’s Blog, please scroll to the bottom and click play on the podcast

Debt relief Canada COVID introduction

I have written before many blogs about debt relief in Canada and debt relief Canada COVID. I have written about:

Personal insolvency –

Corporate insolvency

  • Bankruptcy protection restructuring, both under the Companies’ Creditors Arrangement Act (Canada) and the Bankruptcy and Insolvency Act (Canada)
  • Receivership
  • Liquidation
  • Bankruptcy

Debt relief Canada COVID specific:

Now the federal government has drafted legislation to guarantee that Canadians, as well as Canadian companies, have the ability to meet governing time frames and target dates found in federal statutes. Some key target dates for debt relief Canada COVID found in the BIA and other statutes, such as the Canada Labour Code, given the COVID-19 pandemic and the courts essentially being shut down and only hearing emergency matters.

In this Brandon’s Blog, I discuss the proposed Time Limits and Other Periods Act (COVID-19). The purpose of this proposed statute will aid debt relief Canada COVID.

Canadian Department of Justice concerns

On May 19, 2020, the Canadian Department of Justice unveiled draft legislation. The government has posted it online and is allowing 10 days for any comments to be submitted on the proposed Time Limits and Other Periods Act (COVID-19). The federal government is concerned about debt relief Canada COVID and all other issues federal legislation deals with.

As I previously wrote, the OSB, went to court in each province to get certain deadlines suspended so that debt relief in Canada would not suffer. The OSB ensured that the system would work for debt relief Canada COVID. The federal government believes that so many Canadians, as well as Canadian companies, could be impacted in other federal statutes not designed for financial restructuring or debt settlement. The government is concerned that they may encounter possible legal jeopardy if, due to the COVID-19 pandemic, they fall short to meet target dates.

Consequently, the Government of Canada published draft legislation, which outlines prospective remedies that the Federal government might apply to deal with these essential problems. The draft legislative proposal for dealing with debt relief Canada COVID is online for 10 days. Interested stakeholders are invited to share their comments by May 29.

What the draft legislation is designed to do

The draft legal proposal is designed to suspend specific time frames as well as enable government ministers to prolong or put on hold other time limits consisted of in government regulations to:

  • Ensure that Canadians, as well as Canadian companies, are able to satisfy governing time frames and deadlines found in federal statutes, such as some key due dates found in the BIA for debt relief Canada COVID and under the Canada Labour Code during the coronavirus pandemic.
  • Protect Canadians’ rights and access to justice in the context of civil proceedings before the courts, by making sure that people and companies are protected to assert their rights and not miss a time limit or deadline during the COVID-19 pandemic.

The draft legislation includes stipulations to make certain that short-term extensions or suspensions cannot be made after September 30, 2020, and could be retroactive to March 13, 2020 when the COVID-19 pandemic officially began.

What the draft legislation says

As already mentioned, the draft relief is designed to protect Canadians under federal statutes designed for debt relief Canada COVID and other federal laws. So here are the highlights of what the draft Time Limits and Other Periods Act (COVID-19) currently proposes.

Section 3 defines a time frame. It says such time periods that are either suspended or prolonged under this Act, then, during the period that the suspension or extension holds, every mention in any Act of Parliament to that time restriction or duration is to be read as referring to the time limit or period as it is suspended or expanded.

Section 4 states that the Act does not refer to any time frame or any other duration related to the investigation of an offence or a proceeding arising from an offence.

Sections 6 and 7 deal with time limits related to proceedings. The proposed legislation purports to:

  • Put on hold, as of March 13, 2020 as well as until September 13, 2020, or an earlier day set by the Governor in Council, certain time frame certain proceedings, aside from proceedings from offences, before the courts.
  • Allow courts to adjust the suspension within particular limits and take measures regarding the results of a failure to satisfy a put on a hold time limit.
  • Allow the Governor in Council to waive such suspensions in particular scenarios.
  • Permit ministers, in respect of defined regulations, to put on hold or prolong time limits and also prolong other durations for no greater than six months, as well as to offer such suspensions or extensions retroactive to March 13, 2020.
  • A time frame might be put on hold or extended and also a time duration might be expanded for a total maximum period of 6 months.
  • permit ministers in the case defined in the previous point to give specified persons, bodies or tribunals some adaptability in applying these suspensions or expansions.
  • Prevent these powers from being exercised after September 30, 2020.

This draft Act would certainly permit the Governor in Council to restrict or enforce conditions on the powers provided to ministers. Having a federally mandated “time out” will certainly aid debt relief Canada COVID.

Summary

It appears that the federal government realizes that there are many federal laws where time periods must be met. During the coronavirus emergency shutdown of the courts, it may not be possible to meet all the deadlines. So, this omnibus proposed legislation aims to suspend or expand time frames to September 13, 2020. The hope is that it will allow for more orderly conduct for debt relief Canada COVID under the BIA and for other purposes different federal legislation allows.

The Ira Smith Team family hopes that you and your family members are remaining secure, healthy and well-balanced. Our hearts go out to every person that has been affected either via misfortune or inconvenience.

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

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

Revenue and cash flow shortages are critical issues facing entrepreneurs and their companies and businesses. This is especially true these days.

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

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

Stay healthy, well balanced and safe and secure everyone.

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Brandon Blog Post

OFFICE SUPERINTENDENT BANKRUPTCY CANADA – COVID-19 AND “THROWBACK THURSDAY”

office superintendent bankruptcy canadaThe Ira Smith Team is absolutely operational and both Ira, as well as Brandon Smith, are right here for a telephone appointment, conference calls and also virtual meetings.

Stay healthy and safe everybody.

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

Introduction

As issues about COVID-19 in Canada grows, insolvency practitioners are doing their part by having determined it is needed to take steps to reduce in-person contact. The Office Superintendent Bankruptcy Canada has helped Licensed Insolvency Trustees (formerly called bankruptcy trustees) (Trustee) in these initiatives while keeping all aspects of Canada’s insolvency system running.

In my April 29 Brandon’s Blog, CONSUMER PROPOSALS IN ONTARIO TEST POSITIVE FOR COVID-19, I described how the Superintendent of Bankruptcy went to Court in Ontario. They made a motion to have the Court direct how certain procedures would change during the state of emergency lockdown. Part of that will be how the government wants to have Trustees resurrect an old methodology in personal debt settlement plans and corporate restructuring plans not really been used in the last 25 years.

Since then the government has come out with additional information and clarifications on how they see the bankruptcy Canada process continuing to work during the coronavirus shutdown. In Brandon’s Blog, I talk about these issues.

Office Superintendent Bankruptcy Canada approves social distancing

There are many ways that the Office Superintendent Bankruptcy Canada has approved social distancing for Trustees.

Initial free strategy session – Most if not all Trustees will provide a no-cost consultation for a personal or corporate insolvency discussion. In the pre-coronavirus era, most of these were done in a face to face meeting. Trustees can and do use methods aside from in-person assessments. These methods were always reserved for extraordinary circumstances. Boy, are we in one now!

So, the Office Superintendent Bankruptcy Canada has reminded Trustees that the COVID-19 pandemic is such a phenomenal circumstance and Trustees can conduct assessments making use of approaches other than face to face. Where video-conferencing is not viable, assessments may be done using a mix of telephone conversations and e-mail.

Credit counselling in personal debt settlement or bankruptcy cases – Trustees can offer counselling through telephone conversations or videoconference. The government is updating its software to allow for Trustees to file confirmation of credit counselling done this way as before it was not available. I am finding that our “customers” like this way of being able to deal with credit counselling. They don’t need to travel to our office and appreciate that we are still checking in with them.

Meetings of Creditors – The Office Superintendent Bankruptcy Canada is encouraging Trustees as the Chair of the creditors’ meeting to hold the meetings on time using either telephone conference call or video methods. Trustees can rely on the oral representation from everyone on the call as proof of attendance. The notice and legal ad calling the meeting of creditors looks a bit different than we are normally used to seeing because of this change. At the top of this Brandon’s Blog is an image of the legal notice I ran in a local newspaper.

Signatures/Oaths – I am now circulating papers that call for signature by means of e-mail. I then supply debtors the necessary support to explain the papers via videoconference. I then ask the debtor over the Zoom meeting if they swear or affirm that what is in the document is true. When they respond affirmatively, I then ask them to sign in the space provided. I then commission the document on my end, ask them to email me a copy of the signed document and put the original signed paper in the mail to me. So far it has been working smoothly.

Closure of non-essential businesses

The provinces have ordered the closure of non-essential businesses. So far, the businesses of lawyers and accountants have been deemed essential. The Office Superintendent Bankruptcy Canada has confirmed to Trustees that it wants the Canadian insolvency system to continue operating smoothly. So, the Trustee business is considered to fall under these same categories as being essential.

As you are aware, creditors right now seem to be choosing to either explicitly or implicitly forbear on amounts owing to them. They are trying to be supportive of people by recognizing that with reduced or no income, they need some breathing room. Although there are media reports to the contrary, as of now, debtors seem to be getting a break. Trustees are also encouraged to do the same if someone is having trouble making a surplus income payment in their bankruptcy right now. In fact, Trustees will probably be held to a very high standard when their conduct is reviewed by the Court.

In my April 29 Brandon’s Blog, I spoke about the whole issue of a debtor in a consumer proposal who misses three payments. If that happens, the consumer proposal is considered annulled. In this case, the Order the Ontario Court issued essentially gives debtors up to the end of 2020, and in some cases, beyond that date, to make up the missed payments.

COVID-19 insolvency frequently asked questions

There are some frequently asked questions that are coming up. So, I want to give the questions and answers to help people better understand what is going on right now in the Canadian insolvency system.

Q: Do consumer proposal debtors need to make up all missed payments by December 2020?

Response: This was not previously well explained. The answer is No. As much as an extra three monthly payments can be missed between March 13, 2020, and December 31, 2020, before a consumer proposal is considered annulled. Missed payments will need to be made up by the end of the proposal or a modified proposal will certainly need to be authorized by creditors. I am advising debtors to carefully think about whether it is necessary to miss making payments. There is no guarantee that later on, debtors will be able to make up the missed payments. So I am telling debtors that if they can still afford to make the payments, they should. Don’t choose to miss payments you otherwise can afford to. What if you can’t catch up? Do you really want your consumer proposal to be annulled later on after potentially you have paid everything except a few payments? That would be terrible..

Q: If a proposal was deemed annulled before April 27, 2020, when does it need to be revitalized to be covered by the order?

Response: A proposal that is revived by the steps taken under the Bankruptcy and Insolvency Act (BIA) on or prior to June 30, 2020, will certainly be covered by the order.

Q: If three payments were missed on or before April 27, 2020, but the Trustee did not send notices of deemed annulment, does anything require to be done to be covered by the order?

Response: Yes. When three payments prior to April 27, 2020, are missed out on the BIA states that a consumer proposal is regarded annulled despite administrative actions that may or might not have been taken. Thus, where the equivalent of three or even more payments has been missed out on, the consumer proposal will certainly need to be revived according to the BIA on or before June 30, 2020, in order to be active under the order.

Q: Is the duration under which a consumer proposal can be automatically revived likewise extended?

Response: No. The order allows the equivalent of as much as three extra payment defaults or an added three months time during the March 13 to December 31, 2020 timeline, prior to a deemed annulment of a consumer proposal. After this happens, a notice of revival has to still be filed within 30 days of the deemed annulment.

Q: Will the five-year restriction on consumer proposals be lengthened in order to offer debtors the time required to make up the missed out on payments?

Response: The BIA says that a consumer proposal needs to say that it will be completed within 5 years. Consequently, all payments, including missed repayments, have to be made during this same timeline. The only thing that will change that is if an amended proposal is filed and approved. After saying that, the BIA does not offer instant repercussions for defaults that lead to non-performance during this 5 year time period. If a consumer proposal has exceeded the five-year period but has actually not been annulled, it remains in force and therefore, in my view, can be completed.

This assumes no interested party goes to Court to ask for a court-ordered annulment. The Office Superintendent Bankruptcy Canada has formally stated that where hold-up in completion is due to COVID-19 reasons, they will not be seeking an annulment.

Everything old is new again or “Throwback Thursday”

There is one area that has not yet been covered off by the Order obtained by the Office Superintendent Bankruptcy Canada. When a person who does not fit under the $250,000 debt limit of consumer proposals, and for all companies, debt settlement restructuring plans under the BIA are done under Part III Division I Proposal section.

If a restructuring proposal cannot be filed straight away, the BIA allows for the filing of a Notice of Intention To Make A Proposal (NOI). The BIA statute says that unless extended by the Court, a Proposal needs to be filed within 30 days after the filing of the NOI. The Court can extend the timeline for a period not exceeding 45 days for any individual extension. In total, extensions cannot be more than 5 months. So in total, a debtor who has filed an NOI can be operating under the NOI for a maximum of 5 months and 30 days.

The Court has to order the extension prior to the expiry of the earlier time period trying to be extended. But the Courts are currently closed. They are only hearing emergency applications via telephone conference call or videoconference. Are a bunch of businesspeople fighting over money with the debtor asking for more time to file a Proposal an emergency? I can’t answer that right now. So if they can’t get into Court, what is the answer?

The Office Superintendent Bankruptcy Canada has recommended an old method. In the “old days”, before 1992, there was no NOI provision. So what did a person or company who needed more time to formulate and file a Part III Division I Proposal debt settlement plan, but needed to hold off creditors right now, do? They filed what was called a “holding proposal”. A holding proposal is no more than a proposal that says I promise to file a debt settlement plan that will clearly say how I plan to settle my debts either by a certain date or when a specific set of events happen.

The benefit was that the debtor got help from the immediate stay of proceedings. If the debtor could, he, she or it filed an amended proposal at the meeting of creditors which really said how the debts would be settled and then paid. If not, the creditors could consider the issues holding up the filing of the real proposal. If they felt it was in their best interests, they voted in favour to give the debtor the necessary time. If not, they voted it down and the debtor was immediately deemed to have filed an assignment in bankruptcy.

Where the creditors gave the debtor more time under the holding proposal, the Court approved them as long as the requirements the Court had to review were met. It was ultimately the creation of the NOI that was made to make it easier for debtors who were not ready to file a definitive proposal but needed relief from creditors to get it.

So now, the Office Superintendent Bankruptcy Canada is recommending for those cases where you just can’t get into Court, file a holding proposal. I am glad that Ira has kept a copy of a holding proposal in our document template file!!

Summary

I hope you found this case review helpful. It should be of particular interest to contractors, developers and builders in Ontario.

The Ira Smith Team family hopes that you and your family members are remaining secure, healthy and well-balanced. Our hearts go out to every person that has been affected either via misfortune or inconvenience.

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

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

Revenue and cash flow shortages are critical issues facing entrepreneurs and their companies and businesses. This is especially true these days.

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

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

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

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

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

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

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

The Ira Smith Team is absolutely operational and both Ira, as well as Brandon Smith, are right here for a telephone appointment, conference calls and also virtual meetings.

Stay healthy and safe everybody.

 

Categories
Brandon Blog Post

CONSUMER PROPOSALS IN ONTARIO UNFORTUNATELY TEST POSITIVE SADLY FOR COVID-19

The Ira Smith Team is absolutely operational and both Ira, as well as Brandon Smith, are right here for a telephone appointment, conference calls and also virtual meetings.

Stay healthy and safe everybody.

<h2

Consumer proposal in Ontario: Introduction

The Superintendent of Bankruptcy (OSB) went to Court in Toronto on April 24, 2020, to see if consumer proposals in Ontario tested positive for the coronavirus. The Honourable Chief Justice Morawetz issued his decision on Monday, April 27. He put it to the test and it came out testing positive. The OSB is making similar applications in all the different provinces to obtain the same relief. In this Brandon’s Blog, I explain everything.

Consumer proposals in Ontario: The issue

In Ontario, an emergency was proclaimed on March 17, 2020, and the Courts were closed, except for proven emergency situations. This emergency status was extended from April 14 until May 12, 2020, subject to further review. The clock on any provincial limitation period for any proceeding in Ontario was stopped, retroactive to March 16, 2020 (Suspension Period). Ontario is not unique in this. All other provinces have taken similar action.

The closure of the Courts was to assist in slowing the spread of COVID-19. Emergency applications are being held only by conference calls either by telephone or online video. This unprecedented action has created delays in every Court hearing that is not an emergency. This included most insolvency or bankruptcy court cases.

All licensed insolvency trustees (formerly called bankruptcy trustees) (Trustee) started to review all of their cases to see which files were affected. It was not just what cases were scheduled for a court hearing. It actually had more to do with stipulated timelines in the Bankruptcy and Insolvency Act (Canada) (BIA). Various sections of the BIA layout time frames by which certain actions need to be taken.

The emergency situation created by COVID-19 and its containment procedures is impeding the ability of insolvency specialists, borrowers, financial institutions and other stakeholders to meet the timelines of the BIA. This is especially true of all the people in Ontario who chose to avoid bankruptcy by filing consumer proposals in Ontario.

The most important thing that allows someone to perform a successful personal debt restructuring plan is the fact that they are employed. They put their best foot forward and file for personal bankruptcy protection by making a personal debt settlement offer to their creditors. The creditors accept it and the person is making his or her monthly payments on time. Now because of COVID-19 they are laid off and don’t have their salary or wages they have been relying upon both to live and to fund their consumer proposal.

Although there are many timelines in the BIA, such as when a meeting of creditors needs to be held after bankruptcy or debt restructuring filing. However, the OSB helped alleviate certain of the impediments caused by the coronavirus pandemic by allowing Trustees to hold meetings by either telephone or online video meetings.

One timeline that could not be fixed by a telephone call or video chat is an insolvent debtor, either a person or company, making the debt restructuring payments on time. With no job, no income or not much corporate revenue for a business that had to shut down, those debtors were at serious risk of defaulting on its debt restructuring plan caused by these never before experienced issues facing all of us.

Trustees across Canada, both individually and through the two professional organizations, brought the issues forward to the OSB to seek clarification and a solution. That led to the OSB’s Court application. Of particular concern is the section of the BIA that states that a consumer proposal goes into default once three payments are missed.

consumer proposals in ontario
consumer proposals in ontario

Although the Court was asked to consider various issues, I am focussing on the necessity to keep up the monthly payments under a consumer proposal (or a Division I proposal).

Effect of COVID-19 on consumer proposals in Ontario

The OSB’s position was that COVID-19 associated interruptions have both increased economic pressures on consumer debtors and made adhering to legal demands for creditor protection more difficult. When consumer debtors fail to pay in accordance with their consumer proposal, it can be considered annulled under the BIA.

In that case, the consumer debtor then loses the bankruptcy protection from his or her creditors. Upon default and annullment, the legal rights of creditors get revived. While the Courts are closed, this may only result in harassing phone calls from collection agencies. However, when the Courts inevitably reopen, then the lawsuits can either continue or start flying. Remember, the Suspension Period halted the time clock, so, no one loses their rights because of the passage of time.

More importantly, because of the default, the consumer debtor is banned from filing another consumer proposal without court approval. If the person is bankrupt and is trying their best to annul their bankruptcy through a BIA debt settlement proposal, the default causing the debt restructuring plan to be eliminated as if it never happened, keeps the person in bankruptcy.

The OSB also submitted evidence to the Court that lots of people who filed consumer proposals in Ontario were already in arrears in their payments before COVID-19. It further stated that it expects that the defaults in payments are set to rise significantly because of this unique situation..

Consumer proposals in Ontario: The Court’s analysis and decision

Mr. Justice Morawetz went through a very detailed analysis of both the submissions and the law. He noted that what he was being asked to approve was “extraordinary”. He agreed with the OSB that these are unusual times.

The Court first defined two specific terms:

  1. The “Period of the Emergency” starts on March 13, 2020, and ends on June 30, 2020.
  2. The “Suspension Period” begins on the date of the Court’s Order, being April 27, 2020, and ends on June 30, 2020.

The Court then went on to say that its Order applies to:

  1. All active Division I Proposals are those filed with the OSB up to the end of the Period of the Emergency.
  2. All active consumer proposals in Ontario (Division II proposals) are the ones filed with the OSB or revived by the BIA up to the end of the Period of the Emergency. They exclude all those that were already deemed annulled, annulled or that were completely performed on or prior to April 27, 2020.
  3. All active bankruptcies are defined as all bankruptcies filed with the OSB up to the end of the Period of the Emergency. For further clarification, all bankruptcies where the bankrupt received his or her discharge before April 27, 2020, are not included. This makes sense because a discharged bankrupt is no longer subject to laws for undischarged bankrupts. The only party left to abide by timelines is the Trustee.

The Court then ordered the following concerning Commercial Proposals, consumer proposals and bankruptcies:

  • Division I or Commercial Proposals – the time for holding the meeting of creditors that is to take place during the Period of the Emergency, is expanded by the time of the Suspension Duration.
  • Consumer proposals in Ontario –
    • the time for holding the meeting of creditors that needs to be held during the Period of the Emergency is extended by the time of the Suspension Period.
    • an active consumer proposal will not be regarded as annulled unless the consumer debtor remains in default of:
      • When payments are to be made on a regular monthly basis or faster, the day on which the consumer debtor is equal to more than the amount of three payments and an extra amount equal to up to another three payments for defaults that occurred during the period of March 13, 2020, to December 31, 2020.
      • For payments are to be earned less often than on a regular monthly basis, the day that is 3 months after the day on which the consumer debtor is in default in regard of any type of payment except for those due between March 13, 2020, to December 31, 2020, will be the day that is 6 months after the day on which the consumer debtor defaulted.
  • Active bankruptcy matters –
    • The Trustee’s commitment to applying for a court hearing in the Period of the Emergency is to be extended by the time of the Suspension Period.
    • The time for the holding of the meeting of creditors scheduled to take place during the Period of the Emergency is expanded by the time of the Suspension Period.
    • The period fo time for setting up a mediation appointment that needs to happen during the Period of the Emergency is lengthened by the time of the Suspension Period.

      consumer proposals in ontario
      consumer proposals in ontario

Consumer proposals in Ontario: What about the major creditors in an insolvency filing?

In most personal insolvency filings, Canada Revenue Agency (CRA) is a creditor. In fact, it is quite normal for CRA to be the majority creditor. In order for consumer proposals in Ontario to be successful, the first step is to get the support of your major creditor.

Debtors have suffered a loss of employment or a reduction of earnings as a result of the COVID-19 outbreak. People are scared that they will default on their proposals. So the CRA is taking an approach consistent with the position of the OSB. It wishes to make sure that all Canadians are supported if they are experiencing economic challenges due to the COVID-19 pandemic.

So where the CRA is the majority creditor and the debtor is suffering financial hardship, CRA has advised that:

  • For Commercial Proposals, the CRA is providing a waiver of the default and providing a deferment of payments to September 1, 2020. The waiver and extension also apply to amounts owing to unremitted source deductions.
  • For consumer proposals in Ontario, the CRA supports the approval of an amended proposal that requires a deferment of settlements up to September 1, 2020.

Ideally, this will offer debtors the time to concentrate on other facets of their lives and wellbeing without having to go bankrupt. The September 1, 2020 date ties into other COVID-19 programs the government is running to help Canadian taxpayers during this crisis. For example, HST and income tax payments which would otherwise come due between March and July 2020 also have an extended payment program to this same September date.

Consumer proposals in Ontario: Summary

The Ira Smith Team family hopes that you and your family members are remaining secure, healthy and well-balanced. Our hearts go out to every person that has been affected either via misfortune or inconvenience.

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

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

Revenue and cash flow shortages are critical issues facing entrepreneurs and their companies and businesses.

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

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

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

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

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

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

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

The Ira Smith Team is absolutely operational and both Ira, as well as Brandon Smith, are right here for a telephone appointment, conference calls and also virtual meetings.

consumer proposals in ontario
consumer proposals in ontario

Stay healthy and safe everybody.

Categories
Brandon Blog Post

INSOLVENCY TRUSTEE TORONTO NEWFANGLED COVID-19 BUSINESS RESTRUCTURING PLAN

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

Keep healthy and safe everybody.

Introduction

The COVID-19 pandemic has upended our world. Everyone is scared, has many questions and there is a lot of misinformation out there. So many businesses have shut down and do not know if they will ever be able to start up. As a licensed insolvency trustee Toronto, I fully understand the fear and panic that has set in.

First, I hope you and your family are safe and healthy. The purpose of this Brandon’s Blog is to show a newfangled business restructuring approach that recently occurred in the United States. As far as I can tell, there is no reason why this kind of restructuring plan could not work in Canada also.

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

On March 12, 2020, U.S. Bankruptcy Court District of New Jersey Judge Victor Papalia issued the Order approving the Chapter 11 bankruptcy protection application of Modell’s Sporting Goods, Inc. and related companies (Modell’s) filed on March 11.

Modell’s is America’s oldest, family-owned ran store of sporting products, athletic footwear, active clothing and fan gear. It was founded in 1889 by Morris A. Model. The initial Modell’s store was located on Cortlandt Road in lower Manhattan, New York City. Four generations of the Modell household have run and grown the family company into a chain of over 150 stores throughout the Northeast.

Mitchell Modell, the company’s CEO and President said the company’s poor financial performance resulting in the Chapter 11 bankruptcy protection filing was because of many reasons, including:

  • unseasonably warm winter season;
  • six fewer days in the shopping season this year between Thanksgiving and Christmas;
  • competition from Amazon;
  • the futility of NYC’s sports franchises business like the Knicks, Jets and Giants has not helped either; and
  • the coronavirus pandemic

I personally doubt the losing records of the local sports franchises was a reason for Modell’s failure. How many years were the Toronto Maple Leafs awful but you always saw lots of Leaf fans with jerseys, caps and flags?

The novel court Order

On March 27, 2020, the Honourable Justice Papalia granted Modell’s court application making an order providing for both a bankruptcy suspension and an operational suspension. The bankruptcy suspension froze the bankruptcy protection proceedings until April 30, 2020 (the Suspension Period). The operational suspension, allows Modell’s to shut down all stores and not operate. The judge also gave Modell’s the right to apply on short notice to the court to extend the Suspension Period. The order went on to state the stay of proceedings is in effect during the suspension.

Novel times call for novel solutions. As part of their application, Modell’s filed a modified budget to indicate what sources of cash it would have and what expenditures it would pay during the Suspension Period. It also indicated what expenditures were being incurred, but not paid. Commercial rent on all of its stores was one of the items being accrued, but not paid.

The reason Modell did not include any commercial rent payments in its modified budget was simple. They had to close down all of their stores as a result of the coronavirus pandemic. Stores closed means no sales. They were not going to pay rent on stores that were not generating cash.

The court order approved the modified budget. It also confirmed that the only payments that Modell’s would make were those indicated as essential. The company deemed payments to all of its landlords as non-essential. The court order did indicate that the accrued but unpaid expenditures were not and were not deemed to be waived or not payable at some time.

Pier 1 Imports took a page from the Modell playbook

In February 2020, Pier 1 Imports, Inc. (Pier 1) filed for Chapter 11 bankruptcy protection as part of looking for a buyer of its operations. It then closed all of its stores in Canada and many in the United States.

On Tuesday, March 31, 2020, following the Modell’s precedent, sent a request to the U.S. Bankruptcy Court for the Eastern District of Virginia to temporarily stop paying commercial rent on its retail locations along with certain payments to suppliers, shippers, and distributors.” Pier 1 has now had to shutter all of its shops as a result of the COVID-19 outbreak.

Judge Kevin Huennekens throughout the hearing provided approval of these activities while allowing for it to be reassessed each month. Judge Huennekens additionally provided authorization to hold off on any motions anyone other than Pier 1 may wish to file up until at the very least 45 days after Pier 1 returns to normal operations and payments.

Could this happen in Canada?

So the question is, could an insolvency trustee Toronto help a company get this newfangled Modell’s/Pier 1 precedent happen in a Canadian bankruptcy protection restructuring? Right now landlords are reeling from their commercial tenants telling them that rent for April is not going to be paid due to the business closures. No doubt this will be the same story for every month that the closures continue.

Most landlords should be willing to work with their tenants. The reason behind the non-payment is from forces outside of everyone’s control. But what if a commercial landlord plays hardball. Can a Canadian company file for bankruptcy protection in Canada and obtain a Court order approving the non-payment of rent?

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

There are no express provisions in either statute to invoke a bankruptcy or operational suspension. In fact, the opposite is true. In either a restructuring or liquidation, rent is calculated on a per diem basis for as long as the company in a restructuring or the insolvency trustee Toronto in a corporate bankruptcy, is using the premises. Fairness is part of the Canadian insolvency landscape. There are years of cases on this issue and they all end up the same. If you are in occupation, the rent must be calculated and ultimately paid.

However, there are two similar sections in each of the BIA and CCAA. Section 183(1) of the BIA reads as follows:

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

The words “auxiliary and ancillary” has been interpreted by the courts to mean that the bankruptcy court in each province has the jurisdiction to sanction and authorize all acts required to be done for the proper administration of the Canadian insolvency system. This holds whether it is a bankruptcy protection filing or outright bankruptcy.

The CCAA offers more flexibility in a bankruptcy protection corporate restructuring than the BIA does. In general, the Court will reach its decisions in a CCAA restructuring on the basis of fairness and reasonableness. The court needs to be concerned that what is being proposed is not illegal and there are cogent reasons as to why what is being proposed serves to benefit all or the majority of creditors affected by the restructuring.

The CCAA, therefore, offers more judicial discretion than the BIA. Courts err on the side of giving the CCAA statue a large and liberal interpretation. The court supervising a CCAA restructuring will exercise its equitable jurisdiction. The application of equitable jurisdiction can be interpreted to mean equity considers done what ought to be done.

The judge in a CCAA bankruptcy protection case overseeing the CCAA proceeding is in a unique position. He or she is in the best position to determine whether or not an agreement should be suspended in the face of overly aggressive creditors who if allowed to act, would upend the entire CCAA process. Finally, Section 11 of the CCAA allows a judge to “…make any order that it considers appropriate in the circumstances.”.

So, to answer the question as to whether a Modell’s or Pier 1 type order could be made under a BIA or CCAA corporate restructuring in Canada, my answer would have to be yes. It is possible. I don’t believe it could be gotten on a regular basis, but, in this COVID-19 pandemic world, I can see it being obtained in the face of an aggressive and uncooperative commercial landlord. It would, of course, be uncommon, but these are unique times.

So the answer for a large Canadian retailer facing an unreasonable and aggressive landlord when the commercial rent is not being paid may be to file for bankruptcy protection under either the BIA or CCAA, as appropriate.

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The Ira Smith Team family hopes you and your family are staying safe, healthy and well-balanced. Our hearts go out to every person who has been affected either through inconvenience or personal family tragedy.

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

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

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

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

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

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

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

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

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

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

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

Keep healthy and safe everybody.

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