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PERSONAL BANKRUPTCY CANADA FAQ: VIDEO – PERSONAL BANKRUPTCY FAQ CANADA

Personal bankruptcy Canada FAQpersonal bankruptcy canada faq: Introduction

Last week I provided you with my infographic, video and blog to give you information on the Canadian corporate bankruptcy Canada process. I focussed on how an incorporated business files for a voluntary bankruptcy in Canada. This week, I want to describe how an individual files for voluntary bankruptcy. I also want to answer what I have found to be the personal bankruptcy Canada faq. So look at the infographic and watch the video below. Feel free to read in more detail below the video.

Personal bankruptcy Canada faq: Personal bankruptcy process in Canada

One of the most asked questions is “What is the bankruptcy process in Canada?”. Last week our infographic and video described the corporate bankruptcy process in Canada. This week’s video describes the personal bankruptcy process in Canada.

VIDEO – Personal bankruptcy Canada faq

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Personal bankruptcy Canada faq # 1 – How do I recognize if I am in financial trouble?

If you are having difficulty paying your debts or have actually quit paying them altogether then you are in financial difficulty. Call an expert, a government qualified trustee to check your choices for reducing your debt and eliminating your stress and pain.

Personal bankruptcy Canada faq # 2 – Is bankruptcy my only alternative to get relief from debt?

The short answer is no; there are other options. You should always start first with a free consultation with a licensed insolvency trustee (LIT or Trustee). A LIT is a private party licensed by Industry Canada to carry out the restructuring and liquidation rules under the Canadian Bankruptcy and Insolvency Act (BIA). The LIT will discuss options with you to first avoid bankruptcy. These options include:

  1. credit counselling;
  2. debt settlement;
  3. restructuring; and as a last resort
  4. bankruptcy

Bankruptcy does not deal with debts such as home mortgages, vehicle loan, spousal support or child support. Debt settlement firms try to bargain with your lenders to lower the amount owing. They also prepare a payment plan for you to settle the debt; they do not “erase your debt”.

The Canadian government is in the process of implementing new rules to curb the activities of some debt settlement companies. Some of them charge you for reviews that a licensed insolvency trustee performs for free. They also sell you products you don’t need, under the guise of helping you improve your credit score.

Personal bankruptcy Canada faq # 3 – I have actually seen advertisements from Debt Settlement firms stating they could erase my debt without making use of a Trustee in bankruptcy. Just how does that work?

They don’t and their ads are misleading. If you first have a free consultation with a LIT, you will learn that a number of choices available to you that include yet are not restricted to debt reduction including a consumer proposal.

Understand that these debt settlement firms are not licensed trustees. Eventually, they stop charging you for things a LIT would do for free. Then they ultimately hand you over to a LIT for either a consumer proposal or bankruptcy. You could have just gone to see a professionally licensed Trustee to start with!

Personal bankruptcy Canada faq # 4 – Do I get approved for bankruptcy?

You qualify for individual bankruptcy in Canada if you are financially troubled, insolvent and owe greater than $1,000.

Personal bankruptcy Canada faq # 5 – Should I file bankruptcy?

Without the detailed information of your unique circumstance, that decision cannot be made. Get In touch With Ira Smith Trustee & Receiver Inc. for a complimentary no commitment session so you will understand your options for ending your debt pains, Starting Over, Starting Now.

Personal bankruptcy Canada faq # 6 – If I declare bankruptcy, will I lose my house and car?

There are certain claims that are not released by your discharge from bankruptcy. Examples are home mortgages and car loans, if you choose to keep them. It comes down to what is your equity in those assets. The answer to that question and your ability to cash-flow those debts will be the determining factor. There is a list of items that are exempt from seizure. Call Ira Smith Trustee & Receiver Inc. to find out more.

Personal bankruptcy Canada faq # 7 – Once I file bankruptcy, exactly what occurs to the money I owe?

Once you declare bankruptcy you will be required to surrender certain non-exempt assets to the Trustee. These assets will then be sold and the money earned from the sale of the assets distributed among your creditors.

Personal bankruptcy Canada faq # 8 – Even though I have not located work in my field, I still owe on my student loans. Will my bankruptcy get rid of that debt?

Is your date of bankruptcy within 7 years of when you discontinued to be a full or part-time student? If so, your student loan debt will not be released by your discharge from bankruptcy. In particular instances, you could be able to apply to the court for a discharge of your student debt obligations under the “hardship provision”.

Personal bankruptcy Canada faq # 9 – What takes place to my salary or wages throughout a bankruptcy?

Salaries and wages are not influenced by bankruptcy. However you will need to complete an Income and Expense Form noting your household earnings as well as costs. This becomes part of your budgeting procedure. If your earnings goes beyond specific requirements developed by the Office of the Superintendent of Bankruptcy (OSB) (“surplus income”), you will be required to pay part of the surplus income into the bankruptcy estate through the trustee.

Personal bankruptcy Canada faq # 10 – Canada Revenue Agency has actually frozen my bank accounts and has a garnishee with my employer on my earnings. Just how can I stop all that?

If you have filed personal bankruptcy, personal income tax debt is an unsecured debt. As soon as you’ve declared bankruptcy or made a consumer proposal, Canada Revenue Agency (CRA) cannot start or continue taking any kind of enforcement activity versus you, consisting of wage garnishment or freezing your assets. Your Trustee will alert CRA once you file. The LIT will also advise both CRA and your bank and employer that any enforcement activity against you for your debt cannot continue.

Personal bankruptcy Canada faq # 11 – Will I still owe loan after I state bankruptcy?

Maybe, due to the fact that bankruptcy does not cover secured lenders – home mortgages, auto loan, student loans (if it is less than 7 years given that you discontinued to be a full or part-time student). It also does not cover certain other debts:

  • penalties or fines enforced by the court;
  • spousal support;
  • child support; or
  • debts arising from fraud.

Personal bankruptcy Canada faq # 12 – How long will I be bankrupt?

The time you spend in bankruptcy will depend on whether this is a first or 2nd bankruptcy and if you have surplus income. Get In touch with Ira Smith Trustee & Receiver Inc. to find out more.

Personal bankruptcy Canada faq # 13 – Who will know that I have declared bankruptcy?

As soon as you declare bankruptcy your Trustee will tell your creditors, CRA, and the Superintendent of Bankruptcy. The two Canadian credit bureaus, Equifax and TransUnion, obtain filing records from the Superintendent of Bankruptcy, so it will be on your credit report.

Bankruptcy filings are a public document. On top of that particular personal bankruptcies, those with non-exempt assets estimated to realize more than $15,000, need an ad in the “legal” section of a local newspaper.

Personal bankruptcy Canada faq # 14 – How will bankruptcy influence my credit score ranking?

An individual that files bankruptcy gets the lowest credit score ranking. Details of your bankruptcy that influences your credit report is inevitably eliminated many years after your discharge from bankruptcy.

Personal bankruptcy Canada faq # 15 – What does a LIT/Trustee do?

A Trustee is an individual or company licensed by the OSB to carry out mandates under the BIA such as bankruptcy, proposal, consumer proposal, summary administration bankruptcy and business reorganizations. A LIT is an officer of the Court. The Trustee has a duty of care for the rights of both the debtor and the creditors.

The LIT also makes certain that the legal rights of the insolvent/bankrupt are not abused.

Here is a listing of standard steps taken by a Trustee:

  • Reviews and counsels debtors on available alternatives
  • Prepares official documentation that is both filed with the OSB and used to tell creditors
  • Ensures the validity of creditors’ claims
  • Ensures that debtors are provided with mandatory counselling and access to mediation services if there is a dispute about any income they are required to contribute
  • Sells the debtor’s assets, except those exempt from seizure by provincial and federal laws, and hold the proceeds in trust for distribution to creditors
  • Administers the bankrupt estate from beginning to end
  • Assesses the debtor’s conduct both before and during a bankruptcy, as well as the cause(s) of the bankruptcy; and
  • Arranges for (and if necessary reports all the above to the Court) for the bankrupt’s application for a discharge (in the case of personal debtors)

Personal bankruptcy Canada faq # 16 – How do I pick the ideal Trustee?

Make an appointment for your free consultation. Meet with the Trustee and ask any questions you might have about alternatives to bankruptcy, consumer proposal, debt settlement/restructuring, bankruptcy and/or the bankruptcy procedure. Get a feel for not only the answers you receive, but how interested does the Trustee seem in you as a person. Can you see yourself relating well to that person. Does the Trustee make you feel comfortable and the type of person you want to work with.

If not, consult with a different Trustee firm and repeat the procedure until you find a Trustee that you really feel comfy working with.

Personal bankruptcy Canada faq # 17 – Is my spouse/partner impacted by my bankruptcy?

Your partner/spouse will not be financially affected by your bankruptcy unless they have co-signed a debt or own assets jointly with you. A creditor could pursue your spouse/partner for any debt that they have co-signed for. This includes a mortgage on your jointly owned home.

Personal bankruptcy Canada faq # 18 – How will my bankruptcy impact my present divorce case?

In Canada, the bankruptcy process does not interfere with the majority of the divorce proceeding. The Trustee will stand in the shoes of the bankrupt spouse when it comes to the rights for either the equalization payment or the division of property. All issues about spouse and child support and child custody issues carry on as if there was no bankruptcy at all.

Personal bankruptcy Canada faq # 19 – What is Chapter 7?

Chapter 7 is not applicable in Canada. It is the liquidation section of the U.S. Bankruptcy Code, the federal law governing bankruptcy in America.

Personal bankruptcy Canada faq # 20 – What is Chapter 11?

Chapter 11 is not applicable in Canada. It is the corporate restructuring section of the U.S. Bankruptcy Code, the federal law governing bankruptcy protection in America.

Personal bankruptcy Canada faq – What Now?

I hope that you have found this information helpful. Bankruptcy is the last thing we try to do for a person in financial difficulty. If caught early enough, we can get involved in a debt settlement restructuring program for you.

The Ira Smith Team knows that you are worried because you are facing significant financial challenges. The stress placed upon you is enormous. We understand your pain points.

Contact the Ira Smith Team today. We know how to solve your financial challenges, remove your pain and put things back on a healthy path. Contact us today for your free consultation so that we can save your life, Starting Over Starting Now.

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PAY BANKRUPTCY FEES ONLINE? BE LIKE NIKKI HALEY AND DON’T GET CONFUSED

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Introduction

A ruling in a proposed class action against a defunct Orlando Florida attorney firm, claimed a lawyer goes against government law “if he instructs a client to pay his bankruptcy related legal costs making use of a credit card.” That would also include using a credit card, either directly or through a third-party site, to pay bankruptcy fees online with a credit card.

Note to professionals encouraging clients considering bankruptcy: tell them to keep that plastic in their pocketbooks.

United States Court of Appeals for the Eleventh Circuit ruling

In a judgment likely to resonate with bankruptcy and debt settlement legal representatives, the United States Court of Appeals for the Eleventh Circuit ruled a lawyer violates government regulation “if he advises a customer to pay his bankruptcy-related legal charges using a credit card.” This of course would include an instruction to pay bankruptcy fees online.

The opinion released March 30, 2018 reversed a lower court decision and renewed a Florida class action against shut down Kaufman, Englett & Lynd filed by a previous client. The Orlando Sentinel reported the firm dissolved in April 2016 after the suit was filed.

The panel found a lawyer who advised his client to “sustain more debt” by billing his lawful fees on a credit card contravenes of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.

Yes, it is fraud

That individual would certainly be committing fraud, and so would the attorney. This is because they’re making a charge knowing they never ever plan to pay that credit card.

The problem was that Kaufman Englett violated the Bankruptcy Code that does not permit a debt relief firm– consisting of a law practice– to “advise an assisted person or prospective assisted person to incur more debt in contemplation of such person filing a case under this title or to pay an attorney or bankruptcy petition preparer a fee or charge for services performed as part of preparing for or representing a debtor in a case under this title.”

My Canadian view

I would suggest that the outcome in Canada would be as disastrous for both the bankrupt and the licensed insolvency trustee (bankruptcy trustee or trustee). However, that does not mean that a bankruptcy trustee cannot encourage online payments; just not those using a credit card. Before getting into my reasons why, let’s first explore the issue of online payments.

Online payment choices

I think it is important to first understand what the various online payment choices are. The report “Canadian Payment Methods and Trends: 2017” by Michael Tompkins, Research Lead, Research Unit, and Viktoria Galociova, Research Associate, Research Unit, Payments Canada. In their report, they review the various online payments:

  • credit cards;
  • Interac® online debits;
  • online transfers include online e-wallet and electronic P2P transactions initiated through online services and providers, which are either prefunded or linked to deposit accounts at financial institutions (e.g., Interac e-Transfers, PayPal and Tilt); and
  • prepaid app store cards (or virtual cards)

Credit cards are the most used for online payments. But as you can see, there are ways of making online payments using cash.

You can but not by credit card

I submit that you can use an online payment method to pay for Canadian bankruptcy costs, just not by credit card. What this means is that you can transfer cash to your bankruptcy trustee (or consumer proposal administrator) using an online system.

Why not by credit card?

My view is that it would be unlawful to use a credit card for paying a bankruptcy fee in installments or in one payment. The more likely scenario would be paying it all at once just before filing.

My reasons are as follows:

  1. Using a credit card to charge expenses or take cash advances against knowing that you are about to file for bankruptcy and will not repay it is fraud. Fraud of course is illegal. So the insolvent debtor, about to become a bankrupt, will be in trouble. Just like in the USA as cited by the Court that I mentioned at the start of this blog.
  2. Likewise, any bankruptcy trustee who accepts payment by a credit card in the name of and from the insolvent debtor would be in trouble. The same trouble would befall the professional if he or she encouraged the insolvent debtor to take a cash advance against the credit card to pay bankruptcy fee online.

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    pay bankruptcy fees online

Here’s why:

  • It is against the rules of professional conduct of the Canadian Association of Insolvency and Restructuring Professionals (CAIRP). The rules need a member to maintain the good reputation of the profession and perform professional services with integrity.
  • The General Rules of the Bankruptcy and Insolvency Act (Canada) (BIA) requires that a bankruptcy trustee maintain the high standards of ethics that are central to the maintenance of public trust. It also requires that trustees shall not assist, advise or encourage any person to engage in any conduct that the trustees know, or ought to know, is illegal or dishonest, in respect of the bankruptcy and insolvency process.

What are the risks?

The risk for the trustee, of course, is serious – the loss of his or her license to practice. But what are the risks for the insolvent debtor?

For the undischarged bankrupt, in my view, the risks are twofold: (i) criminal; and (ii) civil. The criminal repercussions are obvious. The laying of one or more fraud charges would happen and the result would be a criminal conviction, jail time and a restitution order.

In the civil sense, I focus on the bankruptcy discharge process.

Forget about getting a discharge from bankruptcy

The credit card issuer would certainly oppose the bankrupt’s discharge. In the meantime, the credit card company would get a lifting of the stay of proceedings which protects an undischarged bankrupt from lawsuits, to start litigation to find that at least the debt incurred by the debtor to pay for the Canadian bankruptcy costs was a claim against the debtor for a debt not released by order of discharge. Sections 178(1) (a) and (e) are the most likely section of the BIA that would be relied upon.

So the credit card issuer and the trustee (probably by now the substituted trustee!) must oppose the bankrupt’s discharge. I am certain that the oppositions would be successful. The most likely result would be that the Court would flat-out refuse to hear the bankrupt’s application. The result of this is complex and should be discussed in a separate blog. Suffice to say that the bankrupt will have a very hard time ever getting out of bankruptcy without making full restitution. Even then, I would expect the Court to only grant a discharge upon certain conditions being met.

In other words, it would be a disaster and a mess for both the trustee and the bankrupt. These are my reasons why I feel that to pay bankruptcy fee online using cash is fine, but not by a credit card.

Pay bankruptcy fees online: What about you?

Are you facing financial problems? The Ira Smith Team can develop a restructuring plan for you. Debt problems are stressful and confusing. But with our help, you can be just like Nikki Haley and say “I don’t get confused”!

The Ira Smith Trustee & Receiver Inc. Team understands the pain you are going through trying to stay alive and trying to support yourself and your family. We understand the pain and stress you are feeling thinking that you may just soon hit the wall.

Our debt settlement plan process can ease this stress. The Ira Smith Team has a great deal of experience in helping people avoid bankruptcy while resolving their debt problems. We understand your pain points. Call the Ira Smith Team today for your free consultation. We can end your pain and put you back on a healthy profitable path, Starting Over, Starting Now.

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CLAIM BANKRUPTCY IN ONTARIO CASE STUDY: SHE REALLY WANTED TO BUT WE STOPPED HER AND SOLVED HER PROBLEMS

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Claim bankruptcy in Ontario: Case study introduction

For today, and the next few weeks, I want to give you some interesting case studies direct from our files. I will not mention any real names of course. Hopefully from these case studies, you will see that we do a lot more than just allow people or companies to claim bankruptcy in Ontario.

Claim bankruptcy in Ontario: A variety of problems

Today’s case study deals with our client who is a specialist medical doctor and surgeon. We will call her Dr. X. She had an ongoing successful career and then opened up a specialty high-end clinic to offer services not paid for by OHIP, the provincial medical plan. Unfortunately, Dr. X did not get the best advice from her professional advisers when she established the new business venture.

She set up her clinic in a separate building that she purchased. Dr. X then had it renovated extensively to meet the business’ needs, leased or purchased equipment and hired staff.

This new venture was financed entirely by debt:

  • personal debt such as mortgage financing against the matrimonial home;

  • equipment loans or leases in her personal name; and

  • Equipment and mortgage debt in the new business venture corporation for which Dr. X personally guaranteed it.

Therefore one way or the other, her personal responsibility was for 100% of the debt to get the business started. Her husband was responsible jointly with her for the mortgage raised against the matrimonial home.

The cash flow of the business was insufficient to pay the operating costs and debt financing. She had to keep borrowing money personally to keep the new business alive. The stress this caused affected her previously stellar activities as a surgeon and hurt her marriage. By the time Dr. X was came to us, she and her husband were separated and divorce proceedings were underway.

Claim bankruptcy in Ontario: And then it got even worse

To make matters worse, she could not attempt to liquidate assets to pay down debt and ease the burden. Like most equipment, the clinic’s equipment was not worth more than its original cost. There was no excess equipment either.

The building could not be sold and leased back for a very bad reason. There was a large environmental problem associated with the building which was not discovered through due diligence prior to purchasing it. The issue arose when she tried to refinance.

The potential lender performed a Phase 1 Environmental Study, which indicated that a earlier use in the building produced contaminants which were buried in the ground. The contaminants were leaching into the neighbours’ respective properties. So now there was further personal liability exposure as the sole Director of the company that owned the real estate!

Claim bankruptcy in Ontario: Filing bankruptcy in Canada would give Dr. X more headaches

Dr. X came to us convinced that she had to go bankrupt. The stress of her failing business was taking a huge toll on her normal duties as a surgeon and her marriage was over. She had previously seen a different licensed insolvency trustee and was convinced from that meeting that bankruptcy was her only answer.

Dr. X considered herself a total failure, in spite of she was still a sought after as a brilliant medical doctor and surgeon. We considered her assets and liabilities, income and expenses and her overall situation.

Claim bankruptcy in Ontario: More complications

To further complicate matters:

  1. The matrimonial home was listed at the amount required to clear all mortgages which was well above market value.

  2. Once Dr. X inevitably stopped making the first mortgage payments on the matrimonial home, the Bank holding the mortgage would begin power of sale proceedings. The first mortgagee would probably suffer a shortfall on the sale and Dr. X and her estranged spouse would be responsible for the shortfall on the first mortgage and the entire balance of the second mortgage.

  3. Dr. X had a life insurance policy with a cash surrender value (“CSV”). The CSV was not exempt from seizure by a bankruptcy trustee because the beneficiary was her Estate. In a bankruptcy, the CSV would go to the Trustee for the benefit of her creditors.

  4. Dr. X did not know if she could get replacement insurance coverage at all and if so, at a reasonable cost.

  5. There were many creditors who currently had a contingent claim against Dr. X with a very high dollar volume. These claims would ultimately be crystallized. In a bankruptcy, we anticipated that a lot of angry ordinary unsecured creditors, many of whom were sophisticated, such as banks and equipment lenders/lessors, would oppose her discharge from bankruptcy.

  6. In a bankruptcy, Dr. X would have to pay about $82,000 in surplus income payments to us as her bankruptcy trustee over a 21 month period for a monthly payment of $3,905. Dr. X could not afford to pay that much each month and keep her normal medical practice afloat.

Bankruptcy was not a good answer for Dr. X. Notwithstanding she earned a high income, the irony was that she could not afford to claim bankruptcy in Ontario!

Claim bankruptcy in Ontario: Our assessment

We had to deal with two problems; one financial and one emotional. Dr. X was an emotional wreck as a result of the failed business venture with all of its problems. We actually had to deal with that first. It is normal for a licensed insolvency trustee to take a holistic approach. The debtor facing financial problems always needs two outcomes: (i) a solution that will allow them to shed their debts and get piece of mind; and (ii) become rehabilitated.

We advised Dr. X that a personal bankruptcy was not the answer for her. We told her that she first had to shut down her clinic. She had to deal with the employees to make sure that they were paid up to the last date work their normal wages and vacation pay. They also needed to get their Record of Employment and T4 Statements as quickly as possible. Unfortunately there was no money for pay in lieu of notice.

Claim bankruptcy in Ontario: How to deal with the failed business venture

We then advised Dr. X that she should not bankrupt the corporation carrying on this new business. Rather, she should call up the first mortgagee and tell that she is abandoning the business premises and is sending the keys over. Then call up the equipment lessors and the lender that did some equipment financing to tell them the business has shut down and they should contact the first mortgagee to gain access to retrieve their property.

Next we advised Dr. X to safeguard the business books and records, so that she could have her accountant file final tax returns. She would also have the records for when Canada Revenue Agency wished to do an audit on the business activities.

The final piece of advice for Dr. X with respect to her new business venture was this. After performing the above steps, walk away. This would end the stress of operating a failing business.

Claim bankruptcy in Ontario: Our assessment and his personal financial fix

All of the contingent debts from the failed business venture had not yet crystallized. They were still contingent. We worked out a cash flow plan with Dr. X that she could keep current with, now that she had abandoned and stopped funding the debt incurred because of the failed business. She also stopped paying the first mortgage on the matrimonial home as the value of the home was now less than the total of the mortgage debt against it.. We worked with Dr. X on a plan to avoid bankruptcy, by filing a formal restructuring proposal under the Bankruptcy and Insolvency Act (Canada) (“BIA”).

Claim bankruptcy in Ontario: The advantages of our strategy

The advantages of this strategy, if the restructuring proposal could be fully performed, are:

  • Dr. X would not give up her assets to a bankruptcy trustee;

  • She would not lose her life insurance coverage or CSV;

  • All of her debts could be eliminated through the restructuring proposal;

  • Although the total of her restructuring proposal payments had to be more than her creditors would get in her bankruptcy, we could term those payments out to a maximum of 5 years;

  • Her estimated monthly payment would be less than the monthly surplus income payment in a bankruptcy; and

  • Dr. X would avoid bankruptcy and an opposed discharge process entirely.

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Claim bankruptcy in Ontario: The result

Dr. X followed our advice. Her restructuring proposal was accepted by her creditors qualified to vote at the meeting of creditors held 21 days after the filing of the restructuring proposal. The contingent claims had not yet crystallized. Although eventually those creditors were allowed to file their proper respective claims and take part in the dividends paid out to the unsecured creditors, we made it successfully through the voting process. The proposal was then approved by the Court.

Dr. X not only maintained her regular monthly proposal payments to us, she was able to pay off the proposal early. The reason for this was that now that she had a clear head and no longer felt she was a failure, she could focus on her medical practice and surgery, which once again flourished. Her income and savings rose. These are some of the benefits that financial rehabilitation brings. Dr. X also avoided going bankrupt.

Claim bankruptcy in Ontario: Does Dr. X’s financial problems sound familiar to you?

I present this case study to show how, as a licensed insolvency trustee in the GTA, we look at the entire story of each person or company that comes to us for help. We look at your entire situation and devise a strategy that is as unique as you and your problems; financial and emotional. The way we stopped Dr. X from going bankrupt and devised an alternate plan for her, allowed her to solve her financial problems and get her life back.

We know that people facing financial problems need a realistic lifeline. There is no “one solution fits all” approach with the Ira Smith Team. If any of this sounds familiar to you and you are serious in finding a solution, contact the Ira Smith Team today.

Call us now for a free consultation. We will get you back on the road to a healthy stress free life and your recovery will be as pain-free as possible. We may be able to stop you to claim bankruptcy in Ontario!

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TOYS R US BANKRUPTCY PROTECTION IN CANADA: COURT AGREES WITH TOYS R US BANKRUPTCY COUNSEL NEGATIVE = POSITIVE

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Toys R Us bankruptcy protection in Canada: Introduction

I want to tell you about a recent Ontario Court decision about the claims process approved in the Toys “R” Us (Canada) Ltd. and Toys “R” Us (Canada) Ltee (Toys R Us) bankruptcy protection proceedings. The Toys R Us bankruptcy protection in Canada began with the Court making the Initial Order on September 19, 2017. This Initial Order was made under the Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36, as amended (CCAA).

On January 25, 2018, the Toys R Us bankruptcy lawyers attended in Court. There was a motion before the Court to extend the time that Toys “R” Us remains under bankruptcy protection to try to restructure. The motion was also for the Court to approve a draft claims process to quantify the outstanding creditor claims.

Toys R Us bankruptcy protection in Canada: The normal claims process

It is the claims procedure which while not novel, is also not regularly seen. That is what I want to talk about.

In a bankruptcy regulated by the provisions of the Bankruptcy and Insolvency Act, RSC 1985, c.B-3 (BIA), creditors are required to prove their claims independently. They do so by providing to the trustee in bankruptcy sworn proof of claim forms that are accompanied by supporting invoices and other pertinent documents. The detailed treatment for creditor claims to be proven and counted is not set out in the CCAA like it is in the BIA.

The Court routinely grants claims procedure orders under the Court’s general powers under ss. 11 and 12 of the CCAA. Claims process orders generally involve developing a technique to interact with all the creditors. This is so they can file their claims. It normally creates a process to communicate to (potential) creditors. It tells them that there is a process they must follow to prove their claims by a specific date.

Toys R Us bankruptcy protection in Canada: Why do we even need a claims process?

The claims process includes an opportunity for the company under restructuring proceedings, or its representative, to check all claims. The Monitor, or its representative, can disallow creditors’ claims, either in whole or in part. The claims procedure establishes an adjudication mechanism. If claims are not agreed upon and cannot be settled by negotiation, then the adjudication process begins. This could be either in court or first by arbitration. Decisions on the claims of creditors are then subject to an appeal to the Court.

Claims procedure orders will usually also set a claims bar date. Claims will not be accepted after this date. it is necessary to have a cut off to give the right numbers for voting and distribution purposes. Late claims won’t be allowed. In this way the Monitor achieves finality.

Toys R Us bankruptcy protection in Canada: Who has the most up to date books and records?

Most large businesses, including Toys R Us, have readily ascertainable payables outstanding. Sophisticated electronic systems carefully track these amounts, supervised and reviewed by the company’s senior financial staff. The electronic systems not only track purchases and payments, but also the many vendor allowances which are offsets to the accounts payable.

Such offsets include:

  • guaranteed sale provisions, which means if the product does not sell within a specific period, Toys R Us can either return the unsold items to the vendor, or take massive discounts against amounts owing for such products;
  • early payment discounts, promotional allowances, warranty fees, co-op/marketing fees and defect fees; and
  • shipping and warehousing fees

So for large companies like Toys R Us, the vendor will most likely be reconciling their books to what the company shows on its books net of the various offsets.

The recommendation to the Court was for a different type of claims process. As indicated above, the process required by the BIA is a positive one. It requires each creditor to prove the state of its outstanding claims by submitting a sworn proof of claim backed up by invoices.

The draft form of claims process submitted to the Court in the Toys R Us bankruptcy protection in Canada proceedings was a different one. It proposed to list creditor claims from the company’s books and records and to provide each known creditor with a simple claim statement. The statement would set out the amount of the respective creditor’s claim recognized by the company. If a creditor agrees with the amount that the company says it owes, the creditor need do nothing and the listed claim will become the final proven claim at the claims bar date. I call this a negative claims process.

Creditors who disagree with the amounts set out in their claims statement can file a dispute notice with the Monitor by the claims bar date to begin a review process.

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Toys R Us bankruptcy protection in Canada: Advantages of the negative option

This negative option has certain advantages in companies such as Toys R Us. These advantages include:

  • eliminating the need for filing proofs of claim and supporting evidence in the majority of cases;
  • guarantees that known claims won’t lose out if a certain percentage of creditors to fail to file their claims on a timely basis; and
  • making the claims process streamlined; and
  • making the process easier for recognizing and counting all known creditor claims

Toys R Us bankruptcy protection in Canada: The negative option approved by the Court

The proposed claims process met the needs of the Court to ensure that any claims procedure is both fair and reasonable. The negative option claims process proposed in the Toys R Us case met the needs of the Court. The Court approved the negative claims process in the Order dated January 25, 2018.

Toys R Us bankruptcy protection in Canada: Does your company require restructuring?

Your company may not be as large as Toys R US, but it is the most important one to you. Your company may be facing financial challenges, and you have tried everything you can think of to solve the problems. But the red ink still flows. Many families rely on you and your company to continue for their survival. You have invested your money, your blood, sweat and tears in your company, and want to do everything possible to save it.

If you find your company in this situation, then you need the help of a professional trustee immediately. Call Ira Smith Trustee & Receiver Inc. If we consult with you early, we could develop a restructuring and turnaround strategy. By doing this your business will once again thrive. It may not be as complex as the Toys R Us bankruptcy protection process in Canada, but it is the most significant one for you.

Our approach for every person and company is to develop an outcome where Starting Over, Starting Now takes place. You’re just one telephone call away from taking the important actions to return to leading a healthy, balanced, and stress free life.

Contact the Ira Smith Team today.

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PERSONAL BANKRUPTCY IN ONTARIO CANADA: THE SOLUTION TO YOUR NAGGING DEBT?

Declaring personal bankruptcy in Ontario Canada: Introduction

Facing serious financial difficulties is devastating, especially if you believe that declaring personal bankruptcy in Ontario Canada is your only option. In fact, many people mistakenly believe that dire financial problems automatically mean personal bankruptcy.

If you are having problems meeting your financial obligations or have stopped meeting those financial obligations as they come due you are actually insolvent, not bankrupt. Insolvency is a financial condition; bankruptcy is a legal state.

Bаnkruрtсу is a legal рrосеѕѕ under the Bankruptcy and Insolvency Act (Canada) (“BIA”) that help you to resolve уоur debts if they have become unmanageable. If you have relatively few assets and low іnсоmе and dесіdе to file for bаnkruрtсу, you will probably fіlе under the streamlined Summary Administration part of the BIA.

If you have realizable assets that will produce a value greater than $10,000, then your bankruptcy would be administered under the general administrative provisions. Don’t worry about these distinctions right now. For now, just know that the summary administration rules are shortened. The cost of this type of bankruptcy administration is fixed by a tariff set by the Superintendent of Bankruptcy.


Declaring personal bankruptcy in Ontario Canada: A summary of the bankruptcy steps

In either case, you will turn over to your Licensed Insolvency Trustee (“LIT”) all of уоur рrореrtу that is not exempt (protected) by law. The LIT will sell your property and use the proceeds to рау for the bankruptcy administration and then distribute to уоur сrеdіtоrѕ.

If you have very little property, all of it may be рrоtесtеd. In that case, you will not lose it. How much уоur сrеdіtоrѕ will get in this process dереndѕ on how much уоur unрrоtесtеd property can be sold fоr and whether you will be required to pay “surplus income” to your LIT (more on
this later).

The final step of your bankruptcy process will be to get your discharge from your debts. This means that you will not have to рау them (with certain exceptions).

Declaring personal bankruptcy in Ontario Canada: Know the basic rules BEFORE filing for bankruptcy

Gеnеrаllу, going through bankruptcy helps реорlе with debts get a fresh start. Hоwеvеr, many реорlе have false ideas about how it can help them. Bеfоrе deciding you need to fіlе for bаnkruрtсу, you should know some of the bаѕіс rules. That way you will know what bankruptcy can and cannot do for you.

Declaring personal bankruptcy in Ontario Canada: What bаnkruрtсу may do for you, dереndіng on your sіtuаtіоn

  1. Dіѕсhаrgе уоur unѕесurеd debts; depending on your assets and income, you may not рау or lose anything. If you do, you will рrоbаblу рау less than you owe.
  2. Give you a short-term “аutоmаtіс stay” аgаіnѕt уоur сrеdіtоrѕ.
  3. As opposed to bankruptcy, one of the bankruptcy alternatives under the BIA will help you work out a repayment plan that lets you take longer to рау your debt and/or рау less than you owe. If your budget allows for this approach, the (consumer) proposal, allows you to keep property that ѕесurеѕ a debt. Examples of such assets would be your home or car. It can also allow you to keep nоn-еxеmрt аѕѕеtѕ that you would рrоbаblу lоѕе in a bankruptcy filing. This is one bankruptcy alternative.

Declaring personal bankruptcy in Ontario Canada: What bankruptcy does not do for you

Getting a dіѕсhаrgе of уоur debts through the bankruptcy process will not discharge:

  1. Any award of damages by a court in civil proceedings in respect of:
    1. i) bodily harm intentionally inflicted, or sexual assault, or
       ii) wrongful death resulting therefrom
  2. A debt or liability for alimony or alimentary pension.
  3. Any debt or liability arising under a judicial decision establishing affiliation or in connection with support or maintenance, or under an agreement for maintenance and support of a spouse, former spouse, former common-law partner or child living apart from the bankrupt.
  4. Debt or liability arising out of fraud, embezzlement, misappropriation or defalcation while acting in a fiduciary capacity or, in the Province of Quebec, as a trustee or administrator of the property of others.
  5. Any debt or liability resulting from obtaining property or services by false pretenses or fraudulent misrepresentation, other than a debt or liability that arises from an equity claim.
  6. Liability for the dividend that a creditor would have been entitled to receive on any provable claim not disclosed to the trustee unless the creditor had notice or knowledge of the bankruptcy and failed to take reasonable action to prove his claim.
  7. Any debt or obligation in respect of a loan made under the Canada Student Loans Act, the Canada Student Financial Assistance Act or any enactment of a province that provides for loans or guarantees of loans to students where the date of bankruptcy of the bankrupt occurred:i) before the date on which the bankrupt ceased to be a full or part-time student, as the case may be, under the applicable Act or enactment, or
    ii) within seven years after the date on which the bankrupt ceased to be a full or part-time student;
    iii) any debt or obligation in respect of a loan made under the Apprentice Loans Act where the date of bankruptcy of the bankrupt occurred: a. before the date on which the bankrupt ceased, under that Act, to be an eligible apprentice within the meaning of that Act, or

    b. within seven years after the date on which the bankrupt ceased to be an eligible apprentice; or
  1. Any debt for interest owed with an amount referred to in the above list.declaring personal bankruptcy in ontario canada

Declaring personal bankruptcy in Ontario Canada: More things bankruptcy does not do for you

  1. The bаnkruрtсу court can refuse to dіѕсhаrgе your debts if it finds that you are abusing the рrосеѕѕ. Thеrеfоrе, you cannot run up debt just before filing for bаnkruрtсу and automatically have it forgiven. The Court will look at what you ѕреnt the money on and can deny you a discharge if it finds that you have abused the ѕуѕtеm. You must be truthful and not try to hide аѕѕеtѕ.
  2. Will not help you with any debts you take on during and after you begin the bаnkruрtсу рrосеѕѕ.
  3. Will not give you a clean slate on уоur credit report (except to show what debts have been dіѕсhаrgеd). Bankruptcy reduces your credit rating to R9. This rating remains on your record for 6 years after your discharge for the first time bankrupt. These ratings are set by the relevant credit bureaus whose rules may vary.
  4. Will not protect some kinds of іnсоmе and рrореrtу you get during the соurѕе of the bankruptcy until you are discharged (such аѕ іnhеrіtаnсе, tax refund, gifts, lottery winnings).
  5. May not dіѕсhаrgе all of уоur debts without some ѕасrіfісеѕ. If you have very few аѕѕеtѕ and little іnсоmе, you may not lоѕе anything. Debtors with more assets and income above the poverty line can lose some of their assets and have to pay surplus income.
  6. Will not allow for your discharge after 9 months if you are required to pay surplus income. A first time bankrupt must pay surplus income for 21 months and a second or more time bankrupt will have to pay surplus income for 36 months. Whether or not a first time bankrupt will be entitled to an automatic and absolute discharge after paying the required surplus income depends on the specifics of your circumstances.
  7. A second or more time bankrupt is not entitled to an automatic absolute discharge and there must first be a Court hearing to decide what form of discharge is most appropriate given your circumstances.

Filing fоr bаnkruрtсу is a big deal

Declaring personal bаnkruрtсу in Ontario Canada is a big deal. It can be a trеmеndоuѕ rеѕоurсе for the honest but unfortunate debtor who needs a new start. However, there are rules, rеѕtrісtіоnѕ and fіnаnсіаl rаmіfісаtіоnѕ to соnѕіdеr before jumping in hеаdfіrѕt.

That is why the Ira Smith Team always looks first to see if one of the bankruptcy alternatives would be a better fit for you. The alternatives we look at with you include:

The Ira Smith Team has 50+ years of cumulative experience dealing with issues just like the ones that you’re facing. Give us a call today and let us give you back peace of mind Starting Over, Starting Now.

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CANADIAN BANKRUPTCY AND INSOLVENCY LAW: WHAT TO THINK ABOUT BANKRUPTCY

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Introduction

The holiday gift buying season is over. Next month the credit card bills will be arriving. Maybe you overspent on holiday gifts this year. Maybe you had too much debt to start with, and you know this new spending will put you over the top. Perhaps you already have questions about Canadian bankruptcy and insolvency law.

Perhaps you spent wisely but modestly because you were acutely aware of your financial problems. Maybe you never were an uncontrollable spender. Perhaps a specific damaging event outside of your control caused you to wind up deep in the red. So far you have worked hard to overcome the financial challenges, but for the first time you are thinking that you should read up on Canadian bankruptcy and insolvency law.

Either one unfortunate life issue or one foolish monetary choice is all it could take. Despite how you arrived, there is no simple escape, except perhaps winning the lottery or an unexpected inheritance.

Bankruptcy is one alternative

If you’ve fallen under just what seems like impossible financial debt and you have no chance to get out of it, bankruptcy is one alternative. It’s not constantly an excellent one– and never ever one to be taken gently.

Below is exactly what you should understand prior to making any kind of choices about filing personal bankruptcy.

Long-term results

Almost 63,372 people declared bankruptcy in 2016, an action that will certainly have an effect on them for a long time to come. They have certainly started learning about the Canada bankruptcy and insolvency law regime.

While declaring bankruptcy relieves debt pressures caused by decisions and/or issues of the past, it could adversely influence your future. The record of your filing for bankruptcy will certainly stay on your record for up to 10 years.

Numerous companies run a credit check on job applicants. The record of your bankruptcy will come up. Potential employers have either their own bias or unique interpretation about this. Perhaps the job you are applying for requires you to be bonded. Faced with many qualified applicants, a potential employer may very well choose the person who does not have a bankruptcy on their record. As I have previously written, it can likewise have an influence on insurance coverage costs.

The Canadian bankruptcy and insolvency law system is designed to financially rehabilitate the honest but unfortunate debtor. As a licensed insolvency trustee, I certainly believe in our system. However, it is also my role to point out to anyone considering personal bankruptcy, there are many issues to consider before taking this choice.

Evaluating your alternatives

For some people bankruptcy many not be the only option. Just how do you recognize its the right one for you? What are the options under Canadian bankruptcy and insolvency law?

Prior to making any type of choice about filing for bankruptcy, you should first contact a licensed insolvency trustee (LIT) in your area for a free consultation. The LIT will review with you your current financial situation and ask you various questions. The purpose is for the LIT to gain an understanding of your current financial position and how you got there. Based on this information, the LIT will be able to give you a preliminary opinion about what your realistic options are.

In general, the options available to someone experiencing difficulty in paying their debts on time include: (i) credit counselling; (ii) debt consolidation; (iii) (consumer) proposal; and (iv) personal bankruptcy.

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The proposal option used for half of all personal insolvency filings in 2016

I am using brackets around the word “consumer” when talking about the proposal option. A consumer proposal is available to anyone who owes the amount of $250,000 or less, not including the amount you owe on loans registered against your home. If you owe more than this $250,000 threshold, a proposal may still be the most viable option for you. That proposal process just falls under a different section of the Bankruptcy and Insolvency Act (Canada) (BIA). It is not called a consumer proposal, but rather a Division I proposal. The BIA governs Canadian bankruptcy and insolvency law.

As I mentioned above, in 2016, 63,372 Canadians filed personal bankruptcy. However the total number of people who filed an insolvency proceeding in 2016 in Canada was 126,843. So what did the other 63,471 people do? They filed a proposal. So roughly half of the people who filed an insolvency proceeding in Canada in 2016 to solve their debt problems, were able to avoid bankruptcy.

In 2016, 63,471 individuals filed a (consumer) proposal. This bankruptcy alternative is an organized settlement of your financial debts for an amount less than the total you owe. You can take up to 60 months of regular monthly payments to complete your (consumer) proposal.

The proposal provisions of Canadian bankruptcy and insolvency law allow those people “in the red” to keep their assets they can afford to continue paying for, including their home. At the same time, they made a monthly payment to the LIT to be distributed to their creditors for their past debts that they could not afford to repay.

Canadian bankruptcy and insolvency law: Beginning the insolvency filing process

If you believe that bankruptcy may be for you, your first action is to speak with a LIT. Remember, you are not only looking to them for solutions. The LIT is not only interviewing you. You are also interviewing the LIT to decide if this is someone you feel you can work with.

If you don’t feel comfortable after speaking to that first LIT, there is nothing wrong with you getting a second opinion from a different LIT. Not only is that not anything wrong with that, I urge it. You are going to be working with your LIT for quite some time. Make sure that you believe it will be a comfortable relationship for you.

The bottom line is if you got in over your head with money, you do have alternatives. Get an expert viewpoint on just what your options might be under Canadian bankruptcy and insolvency law. If you can’t make your monthly payments, you need professional help; and you need it now. Contact a professional Toronto bankruptcy trustee.

The Ira Smith Team has a cumulative 50+ years of experience helping people who are facing a financial crisis and we deliver the highest quality of professional service. Make an appointment for a free, no obligation appointment today and Starting Over, Starting Now you’ll take your first steps towards financial freedom.

We wish all of our readers and subscribers a healthy, happy and prosperous New Year 2018.

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ONLINE BANKRUPTCY SEARCH: THIS CANADIAN INSOLVENCY RECORDS SEARCH RENEWAL (IRS) WON’T CHASE YOU FOR MONEY!

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Online bankruptcy search: Introduction

This blog is about the Canadian government’s plan to update its online bankruptcy search function. It is an update to our November 15, 2017 Brandon’s Blog titled: “BANKRUPTCY FILINGS FREE PUBLIC RECORDS: WILL FREE SEARCHES TURN YOU INTO A PERSONAL BANKRUPTCY RECORDS SLEUTH FOR THE TRUTH”.

As you can imagine, I have a schedule for creating Brandon’s Blog. I created the above-mentioned blog and related video on the Office of the Superintendent of Bankruptcy (OSB) insolvency records search renewal (IRS) program and posted it for publishing on November 15. After doing so, the OSB published an update on its IRS program. The purpose of this blog is to give you the updated information.

The OSB November 2017 update offers more information about the IRS post it published in August 2017.

Online bankruptcy search: Updating the technology

The OSB has stated that its updated IRS system will consist of modern-day safeguards. The new IRS will secure the private information of people or companies who have either filed or become bankrupt or who have filed a consumer proposal or Division I proposal.

Online bankruptcy search: The legislative need

Under the Bankruptcy and Insolvency Act (BIA), the Superintendent of Bankruptcy is required to keep and make available a public document of all personal and corporate bankruptcies and proposals. The public document, includes the names of the insolvent debtors given statutory stay of proceedings from the commitment to pay their financial debts.

This record consists of vital information needed to administer the bankruptcy system. It is also important for the running of an efficient and well-functioning Canadian marketplace.

Online bankruptcy search: The purpose of the current system

The current Bankruptcy and Insolvency Records Search data source offers Canadians with access to search the public database for specific people or companies that have submitted a (consumer) proposal or bankruptcy, as the case may be. It is also for creditors to see if any party applying for credit are in an insolvency proceeding.

Online bankruptcy search: Uses of the current system

The OSB’s database allows for searches for:

  • creditors to take necessary activity with respect to specific insolvency filings;
  • insolvent debtors, either an individual or Directors of a company, to acquire information about their bankruptcy or proposal;
  • Licensed Insolvency Trustees (LIT) to properly administer insolvency estates;
  • people and companies making informed credit choices on people or organizations applying for loans or trade credit.

Online bankruptcy search: How many times a year is the current system searched?

Each year the current database, (which has a cost of $8 each search for public users), is searched about 800,000 times by individual Canadians, including LITs (for whom there is no charge). Any member of the public who pays the charge could browse the government insolvency records. The present system does not limit access in any other way.

Online bankruptcy search: The proposed new IRS

The OSB will be changing the current system. It is outdated by today’s privacy standards. The OSB will create a new IRS. While still attending to the legislative needs to give access to a public document of bankruptcies, it will substantially make individual information of debtors more secure.

As compared to the old system, the IRS will consist of many steps developed to particularly restrict the disclosure and use of the individual’s details of the debtors who file for an insolvency proceeding.

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Online bankruptcy search: New IRS protections

Examples of the brand-new protections which are not available in the current system, to shield disclosure of individual information, are:

  • Individual information entered will just be confirmed, not offered in a search result.
  • Searchers will need to recognize the first, last name, as well as date of birth of a debtor. This is required to get verification of an individual in bankruptcy or who has filed a (consumer) proposal.
  • The new system will no longer supply access to bankrupts’ documents that do not match the search requirements. The new IRS will be search specific, and not providing a complete list of names matching search criteria.
  • For every right search, a decreased measure of individual information will certainly be returned in the public search results page. Home addresses and complete postal codes will no longer be included in search results.
  • The public document search retention will be lower. The duration for the storage of details will be 10 years post-discharge.
  • The new system will consist of innovations designed to decrease the possibility for unexpected uses of the information. For example, machine-based searches.

Online bankruptcy search: Meeting the needs of LITs

The OSB has talked to the Canadian Association of Insolvency and Restructuring Professionals (CAIRP) as part of developing the IRS. The OSB has dealt with comments received thus far. The IRS layout will certainly make best use of technology to protect personal information. The new system will fulfill the specific needs of LITs, in meeting their insolvency estate management and legal requirements.

It must be kept in mind that the OSB has no plan to remove the $8 charge from the current system before its being retired. The first introduction of the fee was designed exclusively to sustain the OSB’s operating expenses in developing and keeping the existing system.

The new IRS will consist of many measures to appropriately reduce disclosure and increase the defense of personal information of debtors. The OSB says that it has no proof that a service charge with the brand-new IRS would better safeguard debtor information against improper use.

Online bankruptcy search: This IRS won’t chase you for money!

As a result, the OSB says it will look at and suggest getting rid of the historic governing arrangement which permitted the charging of a cost to get access to the public record. The OSB states that this will align with Treasury Board Policy. That is why this IRS, is not planning to ever chase you for money!

Online bankruptcy search: What to do if you think you might need an insolvency process

Are you or your company insolvent and in need of restructuring? Are you scared to become another entry in an online bankruptcy search? If so, the worst thing you can do is procrastinate and not take positive steps to remedy your situation. Contact the Ira Smith Trustee & Receiver Team. If we meet with you early on, we can create a restructuring and turnaround strategy designed specifically for you.

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SEARS CANADA DEFINED BENEFIT PENSION PLAN SHORTFALL: MP SCOTT DUVALL COMES THROUGH ON HIS PROMISE IN CANADIAN PARLIAMENT

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Sears Canada defined benefit pension plan shortfall: Introduction

On November 6, 2017, Hamilton Mountain NDP MP Scott Duvall rose in the House of Commons for leave to introduce Bill C-384. It is titled “An Act to amend the Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act (pension plans and group insurance programs)”. Mr. Duvall’s motivation was the Sears Canada defined benefit pension plan shortfall.

Sears Canada defined benefit pension plan shortfall: Hamilton Mountain MP Scott Duvall introduces Private Member’s Bill C-384

Here is what Mr. Duvall said:

“Mr. Speaker, I would like to take this time to thank my seconder, my colleague who has done great work and works very hard in this House, and who has also helped me a lot on this bill.

I rise today to introduce a private member’s bill titled, an act to amend the Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act. This bill will amend the Bankruptcy and Insolvency Act and the CCAA so that companies will have to bring any pension plan fund to 100% before paying any other secured creditors. It also makes amendments to require companies to pay any termination or severance pay owing before paying any secured creditors.

Other amendments will prevent a company from stopping the payment of any post-retirement benefits during any proceedings under the BIA or CCAA. These amendments will inject some fairness into a process that often sees the interests of workers, retirees, and their families placed behind all others.

We must fix the imbalances in current legislation and provide Canadian workers, retirees, and their families with the protection they expect and deserve. I am hopeful that all my colleagues in Parliament will put aside their partisan differences and support this bill. Canadian workers, retirees, and their families deserve no less.”

Although he did not mention it specifically by name in the House of Commons, Mr. Duvall has said that he would introduce such a Bill as a result of the Sears Canada defined benefit pension plan shortfall.

Sears Canada defined benefit pension plan shortfall: Hamilton Mountain MP Scott Duvall walks the walk

In our September 27, 2017 blog, TORONTO BUSINESS BANKRUPTCY PROTECTION: NDP WANTS FEDERAL INSOLVENCY LAWS CHANGED SO THERE IS PENSION PLAN SECURITY WHEN FINANCIALLY TROUBLED BUSINESSES FAIL, we told you that Hamilton Mountain MP Scott Duvall, the NDP pension plan critic, informed a group at the United Steelworkers’ Hall that he will present a private member’s bill to secure employees’ pension plans and benefits, and pressure business to offer termination or severance pay, prior to paying secured lenders.

With his Bill C-384, Mr. Duvall has lived up to his promise.

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Sears Canada defined benefit pension plan shortfall: This is actually the second Bill attempting deal with this problem

In our November 1, 2017 blog, SEARS CANADA CLOSING: POLITICIANS WANT NEW LAWS TO PROTECT PENSIONERS DUE TO SEARS CANADA CLOSING, we reported that Bloc Québécois MP Marilène Gill’s Private Member’s Bill C-372, passed First Reading. That Bill is titled “An Act to amend the Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act (pension plans and group insurance plans)”. In that blog, we described the provisions included in that Bill.

Like Mr. Duvall, Ms. Gill is trying to pass legislation to avoid another Sears Canada defined benefit pension plan shortfall insolvency situation.

Sears Canada defined benefit pension plan shortfall: What does Bill C-384 actually say

The purpose of this blog, is to describe the terms of Mr. Duvall’s Bill.

Mr. Duvall’s Private Member’s Bill C-384 passed First Reading. It is very similar to Ms. Gill’s BIll C-372. He wishes to amend the Bankruptcy and Insolvency Act (BIA) as follows:

  • In order to be approved by the Court, a corporate restructuring proposal under the BIA, for a company with a prescribed pension plan, the Proposal must include payment in full of any unfunded pension liability or solvency deficiency. The amount is calculated at the time of the filing of the Notice of Intention To Make A Proposal (NOI) or the Proposal if there is no NOI filed.
  • New section 69. 7 be added to the BIA that in the restructuring proposal of an employer, upon filing, until the discharge of the Licensed Insolvency Trustee (LIT), or the insolvent employer becomes bankrupt, all amounts that the employer must contribute under any arrangement for the benefit of the employees, must continue throughout the restructuring period. This would cover any pension plan, health, injury or accident plans and group insurance coverage.
  • The unfunded pension liability or solvency deficiency calculation is called “special payments” in Bill C-384. The calculation is by section 9 of the Pension Benefits Standards Regulations, 1985.
  • In a receivership, the receiver is personally liable for paying any unfunded pension liability or solvency deficiency. However, the receiver’s liability is only from the proceeds of the sale of current assets.
  • In either a receivership or corporate bankruptcy, the charge for any unfunded pension liability or solvency deficiency would rank ahead of the charge of any other secured creditor. It is interesting to note that the Bill does not attempt to provide such a security ranking to anything other than the pension liability or solvency deficiency.
  • The Officers and Directors of the company are not entitled to the benefit of this secured charge. Even if they are participants in the pension plan that has the unfunded pension liability or solvency deficiency.
  • New subsection 136(1) (d. 001) to the BIA, creating an extra class of preferred creditor. A preferred creditor is an unsecured creditor who ranks ahead of the ordinary unsecured creditors and ranks after the secured creditors. The Bill states that it would say that the amount of any termination or severance pay owed to an employee by a bankrupt employer, less any amount previously paid by the LIT, would rank in priority right after the wages owed to the employee.
  • There are also proposed amendments to the Companies’ Creditors Arrangement Act (CCAA) in Bill C-384. It is to bring the same changes in that statute as those to the BIA described above. The intent is that the treatment under both statutes is the same.

Sears Canada defined benefit pension plan shortfall: Now it is up to Justin Trudeau and his Liberal Party

We will now have to wait and see what happens to both Ms. Gill’s and Mr. Duvall’s Private Member’s Bills. As we previously reported, it is unusual that a Private Member’s Bill becomes real legislation. As the Liberals hold a majority in Parliament, if they don’t want it, or a revised Bill for the same purpose, to pass, it won’t.

Sears Canada defined benefit pension plan shortfall: Does your company need a restructuring and turnaround plan?

Is your company insolvent and needs to restructure? Is your business viable but can only employ people and carry on business if it can restructure its debt? Contact the Ira Smith Trustee & Receiver Team. If we meet with you early on, we can create a restructuring and turnaround strategy. That way your company won’t have to be like Sears Canada closing.

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SEARS CANADA CLOSING: POLITICIANS WANT NEW LAWS TO PROTECT PENSIONERS DUE TO SEARS CANADA CLOSING

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Sears Canada Closing: Introduction

Following the Sears Canada failed restructuring, is the Sears Canada closing of all stores. It is leaving 16,000 retirees unclear about the future of their underfunded pension plan. Support is expanding for brand-new laws to better protect Canadian workers during a company’s collapse.

Sears Canada Closing: What CARP has to say

CARP, a nationwide not-for-profit group formerly called the Canadian Association for Retired Persons, was recently on Parliament Hill to meet dozens of MPs as it lobbies for law adjustments.

Wanda Morris, vice-president of CARP, stated that CARP is requesting for the unfunded pension liability be provided priority position so it goes to the front of the line.

Pensioners hold no priority when it pertains to dividing up assets through a bankruptcy, and Ms. Morris wants protection for retirees for underfunded defined benefit pensions when the company goes through a restructuring or into bankruptcy.

Ms. Morris stated that along with the practically 16,000 retirees at Sears, CARP estimates that there are about 1.3 million workers in Canada that possibly could be in danger with defined advantage pension. Sears Canada closing all stores has made the plight of retirees a front and centre issue for CARP.

Sears Canada Closing: Private Member’s Bill C-372 passes First Reading

On Oct. 17, Bloc Québécois MP Marilène Gill suggested a member’s bill, C-372. The intent is to change the Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act.

The change attempts to correct the injustice dealt with by retired workers whose pension as well as group insurance policy benefits are not secured when their company declares bankruptcy or undergoes restructuring. The changes are a result of the Sears Canada employees and retirees treatment, as a result of Sears Canada closing locations.

Sears Canada Closing: What the NDP has to say

Hamilton Mountain MP Scott Duvall plans to introduce his very own private member’s bill to try to solve this problem. While he notes he has actually had talks with Gill, he claimed his suggestion will be a bit different.

Mr. Duvall specifies that his bill will amend the regulations from where it’s worded currently. He wishes that when a company goes into bankruptcy protection, the pensioners will be a secured creditor. He is also responding to the process which has led to Sears Canada closing store locations,

Sears Canada Closing: Bloc MP Marilène Gill and her Bill C-372

On October 17, 2017, MP Marilène Gill rose in Parliament and stated:

“Mr. Speaker, I have the honour to introduce my first bill in the House today, a private member’s bill that seeks to amend the Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act.

This bill seeks to correct the injustice faced by retired workers whose pension plans and group insurance plans are not protected when their company goes bankrupt or undergoes restructuring.

I will do everything in my power to ensure that this bill receives royal assent, that way, we can help prevent retirees, like those from my riding who are here today to support me, from losing their pensions, and improve the existing legislation by giving pension plans’ unfunded liabilities preferred creditor status, among other things. I hope my colleagues will be supporting this bill.”

Sears Canada Closing: Can it get Royal Assent?

BILL C-372 which passed First Reading on October 17, 2017 is named “An Act to amend the Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act (pension plans and group insurance plans)”.

Private member’s bills such as this one rarely pass the House. However, I thought it would be useful to describe what Ms. Gill’s views are as a result of Sears Canada closing.

Below is my analysis of how BILL C-372 proposes to amend the Bankruptcy and Insolvency Act (Canada) (BIA) and the Companies’ Creditors Arrangement Act (Canada) (CCAA). The impetus of course is certain high-profile corporate restructurings/failures with underfunded defined benefit pension plans. With Sears Canada closing, Ms. Gill put forward her private member’s bill.

The most recent corporate failure which initiated her private member’s bill of course was a result of Sears Canada closing.

Sears Canada Closing: Bill C-372 proposed BIA and CCAA amendments

Bill C-372 wishes to amend the BIA as follows:

  • In order to be approved by the Court, a corporate restructuring proposal under the BIA, for a company with a prescribed pension plan, the Proposal must include payment in full of any unfunded pension liability or solvency deficiency calculated at the time of the filing of the Notice of Intention To Make A Proposal (NOI) or the Proposal if there is no NOI filed.
  • The unfunded pension liability or solvency deficiency calculation is by section 9 of the Pension Benefits Standards Regulations, 1985.
  • In a receivership, the receiver is personally liable for paying any unfunded pension liability or solvency deficiency but only from the proceeds of the sale of current assets.
  • In either a receivership or corporate bankruptcy, the charge for any unfunded pension liability or solvency deficiency would rank ahead of the charge of any other secured creditor.
  • The Officers and Directors of the company are not entitled to the benefit of this secured charge. Even if they are participants in the pension plan that has the unfunded pension liability or solvency deficiency.
  • In a corporate restructuring proposal or bankruptcy, the amount not paid under the Wage Earner Protection Program Act (Canada) (WEPPA). It is the amount to adequately indemnify the beneficiaries in the event the employer ceases to take part in a group insurance plan. Such a plan is one that provides for the payment of benefits to, or in respect of, employees or former employees for, among other things, life, disability, health or dental insurance is a preferred claim. It will be a preferred, but still an unsecured claim.
  • The amount equal to the difference between any severance pay or compensation in lieu of notice owed by an employer to an employee and any amount previously paid by the trustee for that severance pay or compensation in lieu of notice.

There are also proposed amendments to the CCAA in Bill C-372. It is to bring the same changes in that statute as described above. The intent is that the treatment under both statutes is the same. I won’t repeat those again.

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Sears Canada Closing: Will Bill C-372 become law?

As I stated above, it is very rare that a private member’s bill becomes real legislation. The other reason is that the Liberals hold a majority in Parliament. If they don’t want it to pass, it won’t.

On October 25, 2017, Innovation Minister Navdeep Bains said the Liberal government has no plans to change laws to protect pensioners in the wake of Sears’ bankruptcy. That is a pretty definitive statement.

So right now it seems there is a lack of political will to make the proposed law amendments. I suspect that on a financial basis, there will also be opposition for the following reasons:

  • In most cases, it will be impossible to have a successful large corporate restructuring if 100% of unfunded pension liability must be paid. Therefore, jobs will not be saved if we have more corporate bankruptcy filings instead of restructurings.
  • Lenders will have to now ignore current assets in the borrowing base of corporations. This will make corporate borrowing much more difficult for solvent corporations with pension plans to carry on business.
  • Lenders may have to reserve the entire amount of any unfunded amounts. They will rank ahead in a receivership or bankruptcy.
  • Severance pay or compensation in lieu of notice will now be a claim ranking ahead of trade suppliers in a corporate restructuring or corporate bankruptcy. This may alter the amount of an unsecured credit line a supplier will be willing to give to a customer.
  • It will cause more chaos to normal lending and trade practices which will be a problem for any government.
  • Claims under the group health indemnity provisions may not result in any real benefit to employees of a company going through either a corporate restructuring or bankruptcy. There is rarely funds left over after the claims of secured creditors.

We will keep monitoring this important issue. We will update you when MP Scott Duvall puts forward his private member’s bill and as other matters arise.

Sears Canada Closing: What To Do If You Or Your Company Need A Financial Restructuring?

It is now Sears Canada closing time. If you’re attempting to discover a means to restructure your firm’s debt, so that you can avoid a Sears Canada closing scenario, call Ira Smith Trustee & Receiver Inc. If we meet with you early on, we can create a restructuring and turnaround strategy. That way your company won’t have to be like Sears Canada closing.

Our strategy for every person is to create a result where Starting Over, Starting Now occurs, starting the minute you walk in the door. You’re simply one telephone call away from taking the crucial steps to go back to leading a healthy, balanced and tension free life.

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DEEMED TRUST CANADA REVENUE AGENCY CLAIM: CAN THE CANADA REVENUE AGENCY SUPER PRIORITY LIEN BE PRIMED IN A CORPORATE RESTRUCTURING?

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Deemed Trust Canada Revenue Agency claim: Introduction

Section 227 (4) of the Income Tax Act (Canada) (ITA) and the mirrored provisions in the Employment Insurance Act (Canada), create deemed trusts against the property of a tax debtor. When a tax debtor doesn’t remit employee source deductions or HST collections, a deemed trust Canada Revenue Agency claim arises.

Deemed Trust Canada Revenue Agency claim: Parts of the Initial Order

In every Court-supervised restructuring under the Companies’ Creditors Arrangement Act (CCAA), there are several standard provisions in the Initial Order issued by the Court. In addition to the stay of proceedings provision, there’s also the need to make sure that the insolvent company has:

  • sufficient debtor in possession (DIP) funding to survive the restructuring process;
  • the Directors incentivized to stay in their capacity; and
  • the services of the Court-appointed Monitor and its legal counsel properly retained.

The normal way of achieving this is to give Court-ordered priority charges. Examples are for the borrowing authority, the Directors’ Charge and the Administrative Charge. This is so the lender, the Directors and the Court-appointed Monitor and its legal counsel know that there is a source of (re)payment.

Priority charges are made when certain affected parties may not be represented in Court. Therefore, a standard “comeback clause” is also in the standard Initial Order. This allows any affected party to make a motion before the Court to amend such Court-ordered priority charges.

Deemed Trust Canada Revenue Agency claim: The Canada North Group Inc. decision

A decision was recently released by the Alberta Court of Queen’s Bench in Canada North Group Inc. (Companies’ Creditors Arrangement Act), 2017 ABQB 550. The Court case reviewed several issues, but the one I found most interesting was one specific question. Can Court-ordered priority charges under a CCAA restructuring prime the deemed trust Canada Revenue Agency claim?

The decision goes through a very interesting analysis as to whether a deemed trust Canada Revenue Agency claim provides Her Majesty with the ownership of the property of the company or is merely a secured interest in the property. Section 227 (4) of the Income Tax Act (Canada) and the mirrored provisions in Employment Insurance Act (Canada), create deemed trusts. Section 37(2) of the CCAA explicitly preserves their operation. Specifically, can Court-ordered priority charges under a CCAA restructuring prime the deemed trust Canada Revenue Agency claim.

Deemed Trust Canada Revenue Agency claim: Section 227(4.1) of the ITA

Section 227(4.1) of the ITA states:

“Extension of trust

(4.1) Notwithstanding any other provision of this Act, the Bankruptcy and Insolvency Act (except sections 81.1 and 81.2 of that Act), any other enactment of Canada, any enactment of a province or any other law, where at any time an amount deemed by subsection 227(4) to be held by a person in trust for Her Majesty is not paid to Her Majesty in the way and when provided under this Act, property of the person and property held by any secured creditor (as defined in subsection 224(1.3)) of that person that but for a security interest (as defined in subsection 224(1.3)) would be property of the person, equal in value to the amount so deemed to be held in trust is deemed

(a) to be held, from the time the amount was deducted or withheld by the person, separate and apart from the property of the person, in trust for Her Majesty whether or not the property is subject to such a security interest, and

(b) to form no part of the estate or property of the person from the time the amount was so deducted or withheld, whether or not the property has in fact been kept separate and apart from the estate or property of the person and whether or not the property is subject to such a security interest

and is property beneficially owned by Her Majesty despite of any security interest in such property and in their proceeds, and the proceeds of such property shall be paid to the Receiver General in priority to all such security interests.”

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Deemed Trust Canada Revenue Agency Claim: What is the nature of Canada Revenue Agency’s interest?

The Court raised, amongst other things, the following two questions:

  1. What is the nature of Canada Revenue Agency’s interest?
  2. Does the statutory secured status deemed trust Canada Revenue Agency claim elevate it above a priority charge?

Canada Revenue Agency relied on the trust provisions in the Fiscal Statutes. It argued that it holds a proprietary and not secured interest in the debtor’s property. Key to its position under its deemed trust claim is the concluding phrase in s 227(4.1) described above.

Canada Revenue Agency asserted that these words take it beyond a mere secured creditor. They stated it was so because they do not just consider the Crown to be the owner of the interest. Rather, the statute says that it is the owner. However, previous decisions in Canada have found that the deemed trust is not in truth a real one as the subject of the trust cannot be identified from the date of creation of the trust.

The Court also stated that, in principle, the deemed trust is similar to a floating charge over all the assets of the tax debtor. This is because the tax debtor is free to deal with its property. When it does, the trust releases the disposed-of property and attaches to the proceeds of sale. To find otherwise would freeze the tax debtor’s assets and prevent it from carrying on business. The Court found that this was not a result intended by Parliament.

The Court concluded that Canada Revenue Agency’s interest is a security interest, not a proprietary interest.

Deemed Trust Canada Revenue Agency Claim: Can the statutory deemed trust Canada Revenue Agency claim be raised?

The Court stated that it may seem that certain sections of the CCAA conflict with the deemed trust sections in the Fiscal Statutes on a strict reading of only the above-noted section of the ITA. That is what Canada Revenue Agency did to support its interpretation.

However, the Court went on to say that one must not read these provisions in a vacuüm. The Fiscal Statutes, the BIA, and the CCAA are part of complex legislative schemes that run concurrently. They must be read in their entire context. The aims of the statutes and Parliament’s intention kept in mind.

The Court agreed with earlier cases that the purpose of the CCAA is to let the debtor to continue to carry on business and, where possible, avoid the social and economic costs of liquidating its assets. The Court also stated that the CCAA legislation is remedial in the purest sense. It provides a means whereby the devastating social and economic effects of bankruptcy or creditor initiated termination of business operations can be avoided. It allows for a Court-supervised attempt to reorganize the financial affairs of the company.

Deemed Trust Canada Revenue Agency Claim: The Supreme Court of Canada on the Indalex deemed trust

Following the Supreme Court of Canada decision in the Indalex deemed trust decision, the Court agreed that the securing of the DIP facility is a key aspect of the debtor’s ability to attempt a workout. The harsh reality is that commercial imperatives govern the lending practices of the lenders, not the interests of the policy considerations that lead the government to legislate in its favour.

The Court also found that the priority charges aid in the restructuring process. Certain examples of such priority charges are:

  1. Interim DIP lender’s charge providing both an incentive and guarantee to the lender the recovery of funds advanced during the restructuring.
  2. The priority charge in favour of Directors is important. The charge keeps the captains aboard the sinking ship. Without the benefit of this charge, directors might abandon the ship.
  3. A priority charge for administrative fees is critical to a successful restructuring. It is the only protection the Court-appointed Monitor and its legal counsel have to make sure that their bills are paid.

Further, the Court found that the Section 11.52(2) of the CCAA codifies and elaborates on priority charges. Previously, the Court used its inherent jurisdiction in granting priority charges. The Court found that this shows Parliament’s intention that secured creditors’ interests could be eroded if the Court felt the need.

Deemed Trust Canada Revenue Agency Claim: The Court’s Decision

The Court stated that Canada Revenue Agency’s position that the deemed trust Canada Revenue Agency claim cannot be primed, fails to reconcile that the goal of the Canadian insolvency restructuring regime and Parliament’s continued commitment to facilitating complex corporate CCAA restructurings, even if it requires erosion of security.

For this and the other reasons listed above, the Court determined that the CCAA gives the Court the ability to rank the priority charges ahead of the deemed trust Canada Revenue Agency claim and the resultant security interest.

Deemed Trust Canada Revenue Agency Claim: Is Your Company In Need of Financial Restructuring?

The CCAA’s aim is to help business survival and avoid the multiple traumas caused by business failure. The Ira Smith Team have decades of experience in both complex personal and corporate financial restructurings.

If you or your company cannot survive without a restructuring, contact Ira Smith Trustee & Receiver Inc. NOW for a free consultation. You are just one phone call away from getting back on the road to financial health and reducing your stress levels, Starting Over, Starting Now.

UPDATE: CHECK OUT OUR NEW VLOG BY CLICKING ON:

SEARS CANADA IS CLOSING: THE #1 REASON YOU HAVE TO RUN AND NOT JUST WALK TO REDEEM YOUR GIFT CARDS AND CREDITS

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