Tag: BIA

TORONTO BUSINESS BANKRUPTCY: NDP WANTS PENSION PROTECTION

Post author By Brandon Smith
Post date September 27, 2017

Toronto business bankruptcy protection: Introduction

The federal NDP party recently met in Hamilton, just outside of the Greater Toronto Area. There was a rally to argue for federal government regulation changes to safeguard pensioners in business bankruptcy and restructuring administrations.

Toronto business bankruptcy protection: Proposed NDP private member’s bill

Hamilton Mountain MP Scott Duvall, the New Democrats’ pension plan critic, informed a group at the United Steelworkers’ Hall that he will certainly 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.

Toronto business bankruptcy protection: The U.S. Steel Canada saga

The concern has actually been a lengthy simmering one with unions and created significant debate throughout the almost three-year, court-supervised restructuring of U.S. Steel Canada. The company exited from its business bankruptcy protection proceedings with a brand-new owner– Bedrock Industries– as well as an old name, Stelco.

Pensioners were smarting. The court permitted the firm to put on hold health benefit repayments for a year and a half while the business was under bankruptcy protection under the Companies’ Creditors Arrangement Act (CCAA).

Generally, these advantages have been maintained by the reorganized business. Pensioners are fretting that a financing system to maintain the pension plan solvent will ultimately fail. It calls for, inter alia, extra Stelco land to be cleaned up, marketed and sold for the net sales proceeds to cover future pension plan commitments.

Toronto business bankruptcy protection: Sears Canada too

Duvall, with NDP leader Tom Mulcair, claimed one more instance of exactly how the regulations are unfair to employees. They cited the Sears Canada situation. Sears Canada remains in business bankruptcy protection. Its employees are encountering a potential decrease in their pension plan benefits.

Toronto business bankruptcy protection: Fairness for employees

They say this should have to do with justness for employees. The NDP wants to see a Canada that benefits every person as well as seeing to it that companies, including multinationals, cannot take the pension plans their employees have earned.

They state that the existing regulation permits funds that ought to go to employees’ pension plans to be given to the secured creditors instead. The NDP is especially concerned when the secured lender is the financially troubled or creditor-protected company’s parent company.

Stelco’s biggest secured lender was U.S. Steel in the United States. The $500 million restructuring saw the American firm get $130 million.

Toronto business bankruptcy protection: Pension plan funding should have first priority

The Duvall proposed private member’s bill would call for pension plans to be 100 percent funded prior to secured lenders being paid. Firms would certainly not be permitted to put on hold retirement benefits in court-supervised restructurings, which occurred with U.S. Steel Canada.

The NDP is calling their proposal “End Pension Theft”. It focuses on altering CCCA legislation as well as the Bankruptcy and Insolvency Act (BIA) to stop companies from placing investors, financial institutions and other lenders ahead of their staff members when they go into bankruptcy protection.

business bankruptcy

Toronto business bankruptcy protection: Is there a comparable precedent for such an amendment

Yes there is – the enactment of the Wage Earner Protection Program Act (WEPPA). From 1975, proposals were proactively taken into consideration for the facility of a wage protection plan for when the bankruptcy, liquidation or receivership of a company. The many choices gone over for just how this could be attained consisted of:

very top priority for wages;
acknowledgment of existing provincial/territorial concerns within the BIA structure;
a waiver of the waiting time for EI benefits; and
a wage earner protection fund financed either from basic tax revenue or as a part of the EI coverage regimen.

In November 2003, the Senate Committee on Banking, Trade and Commerce examined the background of these conversations and chose

the alternative for a super priority be taken on. Although the BIA was amended in 2005, these changes did not quickly come into force, as many technical amendments were required to be passed in 2007. The WEPPA came into force on July 7, 2008.

The reason for the timing of creating the WEPPA was a result of NDP pressure put on the minority Liberal government of Prime Minister Paul Martin. The Liberals agreed to the NDP proposal as part of obtaining continued NDP support for the minority government.

So there is precedent for a significant amendment to Canadian insolvency legislation.

Toronto business bankruptcy protection: How likely is such a pension reform in restructuring proceedings to succeed?

At this time, I believe there are certain obstacles from seeing such a significant overhaul being successful. The reasons I say this include:

Today there is a Liberal majority government in power, so the support of the NDP party is not required for the government to pass the legislation it wishes to.
Providing a super priority for all pension shortfalls would dramatically alter the way lending is done in Canada. Banks would be required to include pension plan actuarial shortfall calculations into their borrowing base calculations. It may end up that when there is a pension plan shortfall, there is no borrowing room available at all for a business. This would increase the number of insolvencies.
If the number of business insolvencies increased, that could lead to an increase in job losses. That would hurt employees which would hurt the same group the private member’s bill would be trying the protect.

However, the Liberal government of Prime Minister Justin Trudeau has shown that it does try to play to whichever group the government feels it can gain votes from. So, it is not out of the realm of possibilities that the government would try to enact some legislation to give a limited super priority to a part of an underfunded pension plan liability. Time will tell whether such a proposal has any chance of success at this time.

Toronto business bankruptcy protection: Does your Toronto area business require restructuring proceedings to survive?

If you’re company is struggling with too much debt, give the Ira Smith Team a call. We can help with refinancing and restructuring so that your business can get back on track 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

toronto business bankruptcy

Tags Bankruptcy and Insolvency Act, bankruptcy and restructuring, bankruptcy protection, BIA, business bankruptcy, business bankruptcy protection, CCAA, Companies’ Creditors Arrangement Act, Ira Smith Trustee, pension plan shortfall, restructuring, sears canada, shortfall, stelco, super priority, toronto business bankruptcy, toronto business bankruptcy protection

Brandon Blog Post

BANKRUPTCY DISCHARGE: MY CHEAT-SHEET OF THE TOP 8 THINGS THE BANKRUPTCY COURT CONSIDERS

Post author By Brandon Smith
Post date September 13, 2017

Bankruptcy discharge introduction

A bankruptcy discharge is when the bankrupt is released under Canadian bankruptcy law from his or her debts as part of the bankruptcy process. Some people think that it is the act of filing bankruptcy that releases the bankrupt from liability. This is not the case. It is the discharge from bankruptcy process that “discharges” the bankrupt’s debts.

We explain in this vlog the procedure when a bankrupt’s outright discharge is opposed. We discuss the top 8 things that the Bankruptcy Court will consider in determining just what outcome the bankrupt could expect.

The primary benefit of the bankruptcy process for the insolvent person

The bankruptcy discharge is among the primary benefits of relief under the Bankruptcy and Insolvency Act (Canada) (BIA). The discharge is vital to the bankruptcy process. Debtors, after bankruptcy, can wipe the slate clean and start over, which is a central principle under the BIA statute.

Not all debts may be released

A bankruptcy discharge offers the discharge of many unsecured debts. Credit card debts, personal income tax debt, unsecured personal loans and under certain conditions, some student loan debt are all dischargeable debts. Financial debts, which will not be discharged include:

support payments to a previous spouse or to children;
fines or financial charges imposed by the Court;
debts emerging from fraudulent behaviour;
student loans if fewer than seven years have passed considering that the bankrupt quit being a full or part-time student.
bankruptcy discharge

It can be opposed

An insolvent’s bankruptcy discharge application may be opposed by one or more unsecured creditors or the Licensed Insolvency Trustee (formerly called a bankruptcy trustee) (LIT). A creditor opposition is created when the creditor files the required notice of opposition, setting out the reasons for opposing.

This happens if the insolvent has not met all of his/her responsibilities under the BIA. Making full disclosure, attending the required two financial counselling sessions and making all necessary surplus income payments are all duties of the bankrupt that must be fulfilled if a discharge is to be considered.

It can also happen if the individual bankrupt has actually committed a bankruptcy offence. Those are acts listed in section 173 (1) of the BIA. In this case, there needs to be a bankruptcy discharge hearing in Court and the Court will after that evaluate the LIT or creditor opposition as well as give its decision on the discharge from personal bankruptcy.

There are four types of discharges possible

There are 4 types of discharges:

Absolute discharge— The bankrupt is launched from the legal obligation to pay off financial obligations that existed on the day of bankruptcy, except for certain types of debt identified above.

Conditional discharge— The bankrupt must fulfill certain conditions, additional payments into the bankruptcy estate, to get an absolute discharge. Once all conditions have been fulfilled, an absolute discharge will certainly be granted.

Suspended discharge— An absolute discharge that will be granted at later on a specific date determined by the Court.

Refused discharge— The Court has the right to decline a discharge.

If there is no opposition to the discharge from bankruptcy of the bankrupt by a creditor or the LIT, then the LIT is able to provide an automatic discharge by issuing the appropriate certificate. There is no need for attendance in Court.

bankruptcy discharge

The opposition process

When a debtor’s bankruptcy discharge application is opposed by either an unsecured creditor or the LIT, the Trustee needs to secure a Court day. This will be for a Court hearing on the insolvent’s application for discharge. The LIT must then tell all creditors who have filed a proof of claim of the opposition. Details are also provided about the date, time as well as place of the Court hearing.

The Trustee needs to also file a report with the Court on the conduct of the bankrupt both prior to as well as after applying for bankruptcy. The report will as well give a summary of the financial results of the bankruptcy administration. If a creditor has opposed the bankrupt’s discharge, then that creditor likewise needed to send a notice of opposition.

Does the bankrupt need a lawyer on an opposed discharge?

When going to Court for his/her discharge application hearing, a bankrupt would be well advised to come with a skilled bankruptcy lawyer to represent his or her interests. Sometimes the discharge hearing is less formal than various other types of Court hearings.

However, the Court follows all the proper regulations of civil procedure. It is sometimes tough for nonprofessionals to put their best foot forward without an attorney’s aid.

There have been many Court cases on applications for discharge. A Court decision released recently from the Queen’s Bench of Saskatchewan supplies an exceptional walk-through of the points the Court will take into consideration. For those interested, the reference is Hertz Bankruptcy (Re), 2017 SKQB 224 (CanLII).

bankruptcy discharge

The top 8 things the Bankruptcy Court will consider

The concerns the Court thought about, in determining what type of bankruptcy discharge certificate to issue, which is the same in all bankruptcy discharge hearings, were:

Do the conditions of the bankruptcy filing and the bankrupt’s conduct sustain an order discharging the Bankrupt’s unsecured debts?
The Court’s problem is to make sure that within a choice the policy purposes of the BIA are fulfilled. The bankruptcy, including the insolvent’s discharge, should act as a deterrence for the person not to duplicate the very same behaviour.
If the circumstances of the bankruptcy support an order discharging the bankrupt, what terms of discharge are proper under the distinct circumstances of the bankruptcy?
What were the conditions of the insolvent when the debts were sustained?
What efforts did the insolvent make to pay the creditors?
Did the bankrupt pay in respect of certain other debts but not all of them and particularly not the debt of the opposing creditor?
Exactly what are the insolvent’s monetary opportunities for the future?
Is there any other conduct or reality that needs to be factored into with the regard to discharge?

The Court will take lots of variables into account. The conduct, previous income, education and age of the bankrupt are all important factors. The Court will certainly likewise trust the Trustee’s report to Court on the bankrupt’s application for discharge. The Trustee’s report assists in determining facts about the conduct of the insolvent and his or her future prospects.

bankruptcy discharge

Is the bankrupt young or old?

Prevention is always a consideration. It is however very important to remember that Courts tend to be extra conventional when dealing with older bankrupts. A more youthful bankrupt with years of income-making opportunities could be needed to make an extra significant repayment. Less respect is given to the instant ability to pay.

An older bankrupt with some surplus income but fewer working years might be needed to pay less surplus income obligations into the bankruptcy estate.

Bankruptcy discharge: Is my bankruptcy case over when I get a discharge?

You should by this point in my Brandon Blog realize that when you receive an absolute discharge from your bankruptcy, at that point, you are discharged from your unsecured debts.

A discharge shows that you have finished with your bankruptcy legal process and your personal liability for unsecured debts has ceased. It’s not a separate thing from bankruptcy; it happens either automatically or by an Order of the Court, as I have described above.

At that point, the LIT still has some duties to fulfill. They include:

if there is going to be a dividend paid to the creditors, making sure that all proofs of claim have been reviewed and allowed for dividend purposes;
resolve any uncertainties the LIT may have concerning certain filed bankruptcy claims, including the issuance of Notices of Disallowance if any;
preparing the bankruptcy administration Final Statement of Receipts and Disbursements;
getting approval from the Office of the Superintendent of Bankruptcy to the Final Statement
getting the Final Statement, including the LIT’s fee and disbursements, approved by the Court;
issuing the dividend bankruptcy payments, if any
getting the discharge of the LIT

It is then that your bankruptcy case is closed.

Bankruptcy discharge: Do you have too much debt and want to avoid bankruptcy?

Do you have too many debt obligations and debt payments and have no idea how to deal with them? Act before you find yourself in the throes of an emergency financial situation. Ira Smith Trustee & Receiver Inc. has assisted many Canadian businesses and people throughout the Greater Toronto Area (GTA) in dealing with debts that need a plan for Starting Over, Starting Now. Don’t postpone. Give us a call today. Financial problems can be solved while avoiding bankruptcy with timely activity as well as our excellent strategy tailored just for you.

Brandon Blog Post

CONSUMER PROPOSAL ONTARIO PROCESS: YOU DON’T HAVE TO BE A MVP TO DO ONE

Post author By Brandon Smith
Post date July 19, 2017

Consumer proposal Ontario process: Livan Hernandez now

Livan Hernandez made a lot of money as a pitcher in major league baseball. Yet, according to court documents, in July 2017 he applied for Chapter 13 bankruptcy in Florida. He filed in federal court at Fort Lauderdale. The purpose of this blog is twofold: 1. to show that even if you have made millions in your career, you can still get into debt trouble; and 2. the consumer proposal Ontario process (Proposal, Plan or CP) which are similar to Chapter 13 US bankruptcy filings.

Hernandez, according to Baseball Reference, made more than $53 million in his job. He states that he owes up to 49 lenders between $500,000 and $1 million and he has $50,000 or less in assets.

The court documents show that most of the creditors he owes are banks and credit cards. He also owes the IRS.

Hernandez pitched for 17 years in the majors, on 9 teams. He played in 2 World Series, winning and making Series MVP honours with the Florida Marlins in 1997 and losing with the San Francisco Giants in 2002.

Consumer proposal Ontario process: Chapter 13 trustee office

Mr. Hernandez would have attended at the Chapter 13 trustee office to file under the US Bankruptcy Code. A chapter 13 bankruptcy is also called a wage earner’s plan. It enables people with regular income to develop a plan to repay all or part of their debts. The Canadian equivalent is our CP.

Consumer proposal Ontario process: The rich and famous have problems too

We have written about the rich and famous having debt problems before. Our previous blogs on this topic include:

FAMOUS CELEBRITY BANKRUPTCIES HAPPEN TOO – July 30, 2013
HIGH EARNERS LIVING PAYCHEQUE TO PAYCHEQUE – October 21, 2014
40 PARK LANE CIRCLE, 44 PARK LANE CIRCLE TORONTO FOR SALE: ARE FINANCIAL PROBLEMS CONTAGIOUS? – March 31, 2015
BANKRUPTCY ALTERNATIVE: THE CLINTON PORTIS LIST FOR TURNING $40 MILLION INTO A BANKRUPTCY – January 11, 2016
CONSUMER PROPOSAL PROCESS FOR LOTTERY WINNERS? BUT WHY? – January 18, 2016
BANKRUPTCY OPTIONS: DO YOU REALLY NEED A $100K PERSONAL ASSISTANT? – August 22, 2016
#VIDEO – SOMEONE STARTED A KANYE DEBT GOFUNDME: MY THREE CRUCIAL TACTICS TO SOLVE KANYE’S DEBT PROBLEMS# – January 25, 2017

Consumer proposal Ontario process: Just what is a consumer proposal?

This vlog offers the answer to one of the most asked Plan questions. A CP is available to people under the Bankruptcy and Insolvency Act (BIA). Teaming up with a licensed insolvency trustee (LIT) offering to administer your Plan you make an offer to:

pay your creditors part of what you owe them over a period not greater than 60 months;
lengthen the time you have to pay back your debts; as well as
stay free from bankruptcy

Payments are made to the LIT. The LIT uses that cash to pay each of your creditors. The CP must be finished within 5 years. consumer proposal ontario process

Consumer proposal Ontario process: Who qualifies?

To meet the BIA requirements for a CP, you need to be an individual, not a company. Your overall financial debts need to not exceed $250,000 (not consisting of debts from a home mortgage, home equity line of credit or line of credit, secured by your principal residence).

You should also meet the insolvency requirements. This implies that:

your debts are greater than the value of your assets;
if you sold your assets you would not have appropriate funds to repay your monetary commitments totally;
you are unable to pay your debts as they come due

Making simply the minimum monthly payment as disclosed on your credit card statements do not count as repaying your debts.

Consumer proposal Ontario process: What is the cost of a consumer proposal?

Your Plan repayments cover the expense for the consumer proposal. There are no different prices either for doing a consumer proposal or fees paid to the LIT to administer your Plan. The fee the LIT earns is calculated per the BIA.

Consumer proposal Ontario process: How long will my consumer proposal take?

A CP can last for no more than 5 years. Nonetheless, you can reduce the term either by 1. increasing the amount of your month-to-month repayment agreed to with your creditors in your Plan or; 2. by giving a round figure settlement all at once (if you could get an adequate amount from either a financial institution or family).

Consumer proposal Ontario process: What are the actions involved in a consumer proposal?

A CP allows you to pay all or part of your unsecured debt in regular monthly payments over an established period (again, not exceeding 60 months).

In composing your Plan, the LIT has to make sure that your CP provides a better outcome for your creditors compared to what they could expect to receive in your personal bankruptcy.

The typical actions of a LIT assisting you in your CP are:

learn from you about your assets and liabilities;
work with you to create a strategy that you both believe will serve the requirements of both you and those you owe;
draft the Plan;
send the Plan to the Office of the Superintendent of Bankruptcy;
mail out the CP to your creditors who will have 45 days to accept or reject it.

The creditors can accept or reject your consumer proposal at a meeting of creditors if such a meeting was held. Usually, under a Plan, there is no need to hold a meeting.

Consumer proposal Ontario process: Can a consumer proposal stop debt collection agencies as well as prevent my wages from being seized?

Yes. As soon as the filing of a CP happens, all creditors must stop all legal action against you, including seizure activities (aside from any family law responsibilities under a proper settlement arrangement or court order).

Consumer proposal Ontario process: In a consumer proposal, will I turn over my residence as well as my auto?

Typically lending institutions who register a mortgage or various other security for financing are outside the CP procedure. It is the equity you have in your residence or auto that must be considered when you initially work out a budget and what type of Plan strategy you are going to make with your LIT.

If you have enough earnings to keep paying the mortgage against your home and/or your car loan as well as you wish to maintain the properties, you can do so. Again, your equity needs to be taken into consideration in the offer you make to your creditor. Also, your income, as well as costs, need to be evaluated to make certain you can pay for all these expenditures plus the regular monthly payment under your CP.

KEEP IN MIND: If you were to surrender your home or auto after declaring your Plan, you will not be spared the responsibility for any shortfall on your mortgage or auto loan given that the surrender took place after the filing of your CP.

Make certain that if you are giving back your home or auto to your lender, you await the bank to acknowledge that you have turned them over. Additionally, wait till they have begun their enforcement BEFORE you file your CP. That way any shortfall they experience will be a debt caught in your Plan

Consumer proposal Ontario process: Will I need to surrender my charge cards?

Typically, you must be prepared to give each of your charge cards to the LIT and you will not be able to ask for a brand-new credit card till after your Plan is completed. You can take advantage of a guaranteed/secured charge card.

If my creditors reject my CP or I fail to fully do it, will I automatically become bankrupt?

We highly recommend you to put your best foot forward when submitting your CP. We also recommend that you make your payments constantly on time. If your Plan is rejected by your creditors or you drop 3 payments behind, your CP will go into default. If that were to happen, you will no more have protection from your creditors and their collection initiatives.

Consumer proposal Ontario process: What should I do if I have too much debt?

If you’re thinking of a debt settlement program or are seeking methods to solve your debt problems and avoid bankruptcy, call Ira Smith Trustee & Receiver Inc. Our method is for every single person is to create an outcome where Starting Over, Starting Now comes true, starting the minute you walk in the door. You’re simply one call away from getting back on the road to leading a healthy, balanced and tension free life. consumer proposal process ontario

Tags avoid bankruptcy, Bankruptcy and Insolvency Act, BIA, Chapter 13, chapter 13 bankruptcy, chapter 13 trustee office, Consumer Proposal, consumer proposal ontario process, Ira Smith Trustee, licensed insolvency trustee, LIT, livan hernandez, livan hernandez now, personal bankruptcy

Brandon Blog Post

HOW TO SOLVE THE BIGGEST PROBLEMS WITH BANKRUPTCY PROTECTION MEANING

Post author By Brandon Smith
Post date June 28, 2017

Bankruptcy protection meaning: Introduction

The Cambridge English Dictionary gives us the bankruptcy protection meaning as follows:

“bankruptcy protection noun [ U ]

UK US also bankruptcy-law protection

LAW, FINANCE laws that limit the amount of money a bankrupt company (= one that owes more money than it can pay) must pay to those it owes money to:

The firm filed for bankruptcy protection after a massive accounting scandal.

We have filed for bankruptcy protection from creditors.

It’s the second time the company has sought bankruptcy protection in 25 months.

The Chicago-based business, already forced into Chapter 11 bankruptcy protection, said that a complete collapse is now a “distinct possibility”.

See also

Chapter 11”

Bankruptcy protection meaning: Bankruptcy protection meaning

The above definition is helpful, but, I would make one small change to it. There is a difference between a company that does not have enough cash to meet its expenses, or whose assets are worth less than the value of its liabilities. Such a company is insolvent. Such a company is only bankrupt if it has filed an assignment in bankruptcy or a Court has issued a Bankruptcy Order against it. Insolvency is the financial condition; bankruptcy is a legal state.

So, I will give you my bankruptcy protection Canada definition:

Bankruptcy protection is a legal state where the insolvent company (or person) has filed under the country’s bankruptcy laws to restructure and avoid becoming a bankrupt.

Bankruptcy protection meaning: How does it begin?

A company starts to go into “bankruptcy protection” by putting together its motion to the Court to tell that:

they are admitting that they cannot pay their debts generally as they come due;
their assets are worth less than the amount of their liabilities;
they cannot continue in business in their current financial and business condition;
there may be come calamity about to befall them if they do not have the time and breathing space to focus only on a restructuring and running of their business to regain profitability;
and they’re asking for the Court’s help and protection while they formulate a proposal or a plan of arrangement to present to the creditors.

The company is not seeking “bankruptcy protection”. Rather, it is seeking protection from its creditors. It is seeking a “time out” from the Court so that the company’s creditors cannot begin or continue legal action against the company. It wishes to be protected from such outside influences so that nobody can tip it over.

Management is saying that if given time, it believes that it can come up with a plan to restructure the company so that it can emerge a better and financially healthy company. It wishes to take the opportunity to see if its creditors, and the Court, will agree to a restructuring plan. It wishes to continue in business to continue to buy and sell goods and services and to continue to be an employer.

Bankruptcy protection meaning: We have all heard about Chapter 11 bankruptcy protection

We have all heard about Chapter 11 bankruptcy protection proceedings. This refers to the restructuring provisions of the United States Bankruptcy Code. A case filed under chapter 11 of the United States Bankruptcy Code is often called a “reorganization” bankruptcy.

The Chapter 11 filing provides bankruptcy protection to the company and allows it to restructure itself and its assets to attempt to maximize creditor and shareholder value and avoid bankruptcy. A Chapter 11 case begins with the petition being filed with the bankruptcy court serving the area where the debtor can show a domicile or residence. A petition may be a voluntary petition, a debtor filing, or it may be an involuntary petition, a filing by creditors that meet certain requirements.

You have probably just heard about Chapter 11 this week, as Takata Corp., the Japanese company that made faulty airbag inflators and is now the subject of many lawsuits in the United States and elsewhere just filed Chapter 11 bankruptcy protection proceedings this week.

Bankruptcy protection meaning: Does Chapter 11 exist in Canada?

Chapter 11 is not a Canadian term or provision. In Canada, there are two federal statutes that a company wishing to reorganize can rely upon. Because they are federal statutes, they apply across the country. So, it does not matter if you are applying for bankruptcy protection Ontario Canada or in any other province.

The first statute is the Part III Division I Proposal restructuring provisions of the Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) (BIA). The second, and today more common statute large companies file under, is, the Companies’ Creditors Arrangement Act (R.S.C., 1985, c. C-36) (CCAA).

There is no such thing as a bankruptcy protection act Canada. The BIA and CCAA are also not new bankruptcy laws in Canada. They have been on the books for some time and form part of the corporate bankruptcy laws in Canada . This vlog does attempt to give a bankruptcy protection Canada definition.

Bankruptcy protection meaning: The Canadian restructuring laws

Both companies and people can file under the restructuring provisions of the BIA. Only companies that meet the test can file under the CCAA. The CCAA is a relatively brief statute which allows a company the time for them to restructure their affairs. The CCAA is more flexible than the BIA and that is why it is the restructuring statute of choice for large and complex Canadian corporations. It has often been called the Canadian Chapter 11.

The reason for filing under the restructuring provisions of either the BIA or CCAA, is for the company to avoid bankruptcy. So there is a big difference when considering bankruptcy protection vs bankruptcy. That will be a topic for another blog or vlog.

A company would file for restructuring if management believes there is a viable business to be saved. Management believes that it has a viable business within the corporation and the corporation can be nursed back to good health by taking certain steps, including:

reducing debt;
preparing and implementing a new business plan;
reducing expenses; and
perhaps shedding redundant assets and/or unsuccessful business units.

3bestaward

Bankruptcy protection meaning: What happens to the company when it is in restructuring mode?

The premise is that management remains in control of the business, its assets and operations while restructuring. As part of the plan, there may be senior management changes if confidence has been lost in the old management. However, management remains in control and the company continues to run.

The further assumption is that the company has enough cash flow, and/or enough lines of credit while in reorganization mode, to run and ultimately emerge from its restructuring proceedings. The Court needs to know that there will not be prejudice to any creditor by providing the bankruptcy protection to the company. Ultimately, the creditors and the Court will consider the company’s restructuring plan and decide whether to approve it.

Bankruptcy protection meaning: Some examples please

There have been many CCAA filings over the last few years. Some very well-known household names in fact, such as:

Sears Canada Inc. – June 22, 2017
Express Fashion Apparel Canada Inc. and Express Canada GC GP, Inc. – May 04, 2017
Grafton-Fraser Inc. – January 25, 2017
Performance Sports Group Ltd., Bauer Hockey Corp. – October 31, 2016
Urbancorp Group of companies – May 18, 2016 and October 6 and 18, 2016
Golf Town Canada – September 14, 2016
Victorian Order of Nurses for Canada – November 25, 2015
Verity Energy Ltd. – May 1, 2015
Target Canada Co., et al – January 15, 2015 (this was just a liquidation, not a restructuring, but they used the CCAA)
U.S. Steel Canada Inc. – September 16, 2014

Bankruptcy protection meaning: What to do if your company cannot carry on because of too much debt

If your company has too much debt and insufficient cash flow, you need your plan and strategy in place NOW. Contact us now. The Ira Smith Team is here to solve your debt problems and help you carry out that winning strategy, no matter the reason. We’re here to help and get you back on solid financial footing Starting Over, Starting Now. We’re just a phone call away.

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

bankruptcy protection meaning 4

Brandon Blog Post

CURRENT INSOLVENCY ASSIGNMENTS: A WARNING TO ALL CREDITORS TO STAY IN THE PRESENT TO PRESERVE YOUR RIGHTS

Post author By Brandon Smith
Post date April 26, 2017

Current insolvency assignments: Introduction

One of our current insolvency assignments teaches creditors a valuable lesson if they wish to take part in a debtor’s restructuring proposal. Every licensed insolvency trustee maintains a website listing their current insolvency assignments that are noteworthy or of public interest. Today I want to tell you about a recent case of ours. It is not of public interest, but it is noteworthy, especially for trustees and lawyers practicing in the insolvency area. Notwithstanding the large volume of receivership and bankruptcy case-law, the issue we came across was novel and never decided in Court before.

Current insolvency assignments: Mr. and Mrs. R

Mr. R was the sole shareholder of a company that serviced the construction industry. Both Mr. and Mrs. R were both Officers and Directors of the company. The company became insolvent, could not continue and ceased operating. Mr. and Mrs. R., in addition to their personal debts, which were significant, were now also faced with extensive claims against them in their capacity as Directors.

Current insolvency assignments: Consultation with Mr. and Mrs. R

Mr. and Mrs. R’s litigation lawyer referred them to us. We advised them that they should not declare bankruptcy, but rather attempt to avoid bankruptcy and restructure by filing a joint proposal under Part III Division I of the Bankruptcy and Insolvency Act (Canada) (BIA). Their had a complicated situation and they required an immediate stay of proceedings to deal with all the lawsuits against them.

Therefore, we first filed a joint Notice of Intention to Make a Proposal (NOI) on June 8, 2016. This first step provided Mr. and Mrs. R with a first 30-day grace period, where no creditor could begin or continue legal proceedings or enforcement against them while we were working with them to finish developing their restructuring proposal.

Current insolvency assignments: A certain creditor’s reaction

As Trustee, we served the NOI on all known creditors by ordinary mail, as we are required to under the BIA. We served one creditor, Royal Bank of Canada (RBC) at two addresses: i) legal counsel for RBC; and ii) BH, an agent for RBC that we regularly deal with. At the time of mailing out the NOI, we did not know if this agent would be on the file, but we provided them with notice out of to be extra cautious. We mailed the NOI on June 9, 2016.

The NOI sent to the creditors, including RBC, did not contain any proposal whatsoever, because it had not been written yet! This is standard for the filing of an NOI before the proposal.

In response to the NOI, by letter dated June 20, 2016, we received, from another agent for RBC that we had never dealt with before and who was not on our original mailing list, two proofs of claim, each in the amount of $438,434.31; one proof for each of Mr. and Mrs. R, individually.

This agent also sent a voting letter. It asked the Trustee to count RBC’s vote “with respect to the proposal” of Mr. and Mrs. R “against acceptance of the proposal made as of the 08th day of June, 2016.”

Current insolvency assignments: The Trustee’s reaction

On June 22, we wrote to the agent advising that the Trustee’s position was that because no proposal was yet in existence, the RBC “vote” was invalid and that RBC would have to offer a proper voting letter once it received the proposal. This was also sent to RBC’s counsel. The Trustee received no response to this communication.

Current insolvency assignments: The joint proposal of Mr. and Mrs. R

The debtors, Mr. and Mrs. R, filed a proposal July 7. We served the proposal on all creditors. The Trustee served RBC three ways to: i) RBC’s counsel; ii) RBC’s agent BH; and iii) the agent who wrote us the June 22 letter with enclosures. Our package included not only the proposal but notice of the first meeting of creditors and forms for proof of claim and a voting letter.

We received nothing further from RBC. The meeting proceeded on July 27. RBC did not attend. One creditor, with a claim of $278,561.29, attended and voted for the joint proposal. The joint proposal was deemed to have been accepted. Consistent with our position, as Trustee, we did not count the RBC June 22 “vote”.

(2017), 2017 ONSC 4234, 2017 CarswellOnt 12497, Rizzo, Re

Current insolvency assignments: Off to Court for approval

After the acceptance of a proposal by the requisite majority of the creditors, a licensed insolvency trustee must make application to Court, for approval of the proposal. The proposal is not binding until there is a valid and subsisting approval order of the Court.

Our motion for approval of the joint restructuring proposal of the debtors, Mr. and Mrs. R, was heard on August 9, 2016. RBC opposed. RBC opposed on the basis that its vote against the joint proposal was not counted. RBC’s vote, if counted, would have defeated the proposal and Mr. and Mrs. R would be bankrupt.

Our lawyer made various submissions, including, that the “vote” of RBC:

was not valid;
that RBC was advised of this and did nothing to file a valid vote; and
RBC failed to attend the meeting of creditors.

As indicated above, only one creditor voted; it voted in favour of the joint proposal.

RBC claimed its vote was valid and ought to have been counted. The Court did not go so far as to say a creditor could never lodge a valid vote against a proposal before receiving it. In this case, the Court agreed with us and found the vote was not valid. The Court went on to say that the Trustee was correct in not counting it.

Current insolvency assignments: What the Court said

The threshold question was whether the Trustee was right to reject RBC’s purported “vote.” Section 53 of the BIA permits a creditor to assent or dissent “from a proposal” before a meeting. Section 54 says the creditors may accept or refuse “the proposal” at the meeting. However, the statutory scheme for creditor voting assumes there is a proposal.

The Court found that:

the agent’s purported “vote” was on its face defective;
there was no proposal of June 8;
RBC or its agent had never seen the joint proposal when it voted;
the Trustee was right to reject an obviously defective “vote”;
the Trustee made its position abundantly clear to RBC’s agents; and
RBC had every opportunity to cure the defect and it failed to do so.

Current insolvency assignments: What the Court ordered

The Court found that:

the Trustee was correct in rejecting the June 22 “vote”; and
RBC was not denied due process.

The Court granted our motion for approval of the joint proposal and awarded us our costs.

Current insolvency assignments: What does this mean?

What this means is very simple. Make sure that in anything you do, you understand what the rules are, don’t take your eye off the ball and never fall asleep at the switch. If this creditor’s agent and legal counsel had merely reacted to the mailing of the joint proposal and cast a proper vote, we never would have ended up in this situation.

There was nothing wrong with the proof of claim (although it was filed unnecessarily in duplicate). All RBC’s agent or lawyer had to do when it received the joint proposal mailing, was take 2 minutes to complete a new voting letter and send it in to the Trustee. If they had done this simple step, assuming they voted against the joint proposal, Mr. and Mrs. R would now be bankrupts. Instead, they are making their proposal payments to the Trustee to restructure themselves and avoided bankruptcy.

Mr. and Mrs. R have each secured full-time employment, and are making more money than in the last few years of running their company.

Current insolvency assignments: What to do because of too much debt

Being a Director of a corporation can be risky business. If the corporation is insolvent and continues to carry on business, and you continue to act as a Director, it can land you in a personal financial mess.

Are you experiencing financial distress because of acting as a Director or otherwise? Is your business struggling and you can’t seem to find a way out?

If you’re struggling with debt for any reason Ira Smith Trustee & Receiver Inc. can help. We’re experts in dealing with debt. Give us a call today and take the first step towards conquering debt Starting Over, Starting Now.

2016 CarswellOnt 21774, 2016 ONSC 8192, IN THE MATTER OF THE PROPOSAL OF MARCO RIZZO AND ANGELA RIZZO

Tags Bankruptcy, Bankruptcy and Insolvency Act, BIA, corporation, court, creditor, current insolvency assignments, debtor, debtors, director, insolvency, Ira Smith Trustee, joint proposal, licensed insolvency trustee, noi, notice of intention to make a proposal, proposal, trustee

Brandon Blog Post

BANKRUPTCY TRUSTEE IN VAUGHAN BECOMES LICENSED INSOLVENCY TRUSTEE

Post author By Brandon Smith
Post date February 22, 2017

The bankruptcy trustee in Vaughan: Why did we transform into a licensed insolvency trustee?

Similar to caterpillars turning into butterflies, this bankruptcy trustee in Vaughan went through a metamorphosis. The Office of the Superintendent of Bankruptcy officially changed the name “bankruptcy trustee” to “licensed insolvency trustee” (LIT). As of April 1, 2017, all licensed trustees must have fully transitioned to the use of the LIT designation.

The purpose of this blog is to offer an overview of the Canadian insolvency process. Think of it as a bankruptcy and insolvency lesson 101.

What is the purpose of the Bankruptcy and Insolvency Act

Among the primary functions of this insolvency process, it is to release the individual from specific financial debts. It is to give a straightforward honest but unfortunate debtor a “new beginning.”. The debtor has no responsibility for discharged financial obligations.

A discharge is available to personal bankrupts, not to corporations. Although a personal case typically causes a discharge of financial debts, the right to a discharge is not absolute. Some sorts of debts may not be released. Section 178(1) of the Bankruptcy and Insolvency Act (Canada) (“BIA”) sets out the types of debts that are not released by the discharge of the bankrupt. The kinds of debts that are not released are:

1. child support and alimony;

2. fraud or near fraud;

3. debts arising from Court orders.

Where can I do some of my research?

You must initially do some of your own research to get an idea of exactly what your choices are. One place to start is our website to learn about:

Personal Services

Once you have a good handle on what to expect, speak to a LIT to begin discussing what actions you have to take next.

bankruptcy trustee in vaughan

The BIA

The BIA allows for a procedure that permits people and companies to be released from all of their financial debts through either:

a restructuring (Consumer Proposal, Division I Proposal or the Companies’ Creditors Arrangement Act) under secure arrangements of the federal insolvency statute; or
through bankruptcy by turning over their property to a licensed insolvency trustee to realize upon it for the general benefit of creditors.

Either way, the funds available for distribution to the creditors are paid out by the licensed insolvency trustee. It is according to the scheme of priority laid out in the BIA.

The Court will consider approving a repayment plan that will repay the approved part of the financial obligations in no more than 5 years. When you use the restructuring provisions of the BIA (Consumer Proposal or Division I Proposal), you need to have a payback strategy to show your creditors just how you are going to pay back your debts. A successful restructuring plan is an alternative to bankruptcy and will allow a person or company to avoid bankruptcy.

There are various rules and ways that must be followed. Your licensed insolvency trustee can go over all the issues with you and is there to aid you through the process.

How does it all work?

Canada’s insolvency legislation is designed for debtors experiencing financial problems who cannot pay their present financial obligations and don’t have enough cash flow to offer a restructuring plan to avoid bankruptcy. The aim is to get a release from their existing debts.

The premise of the BIA is that the individual must deliver all of his or her non-exempt assets to the licensed insolvency trustee. The trustee will sell them for distribution to the creditors. In return, other than for either secured debts or the class of debts not released by a discharge from bankruptcy discussed above, the person’s debts will be erased. The person will be able to maintain any type of property that is categorized as exempt under provincial regulations. In this way, a discharge allows the individual to return to society as discharged bankrupt. This allows the person to start all over again.

Your credit score

Filing in an insolvency process could impact your financial resources and credit score for years. You should very carefully weigh all your options before choosing the bankruptcy option. That is a discussion a licensed insolvency trustee will be happy to have with you and will help you in first trying to find one of the possible bankruptcy alternatives. Hopefully, together you can see which one is best for you. Only if there is not an available alternative, will the trustee recommend bankruptcy?

A current bankruptcy filing may prevent you from acquiring a mortgage or other financing for years. Credit card businesses will instantly end your charge cards when you file for bankruptcy. Likewise, if you are trying to find a job or rent a place to live, some employers or property owners might look unfavourably on a current bankruptcy filing. If other applicants are as qualified as you and don’t have a bankruptcy on their record, you probably won’t be chosen.

Fresh start

Bankruptcy permits people or companies that are unable to pay their debts to settle their monetary difficulties and start restoring their credit. Declaring bankruptcy will trigger the “stay of proceedings”, preventing creditors from starting or continuing any legal action to collect their debts.

A bankruptcy filing will stay on your credit report for about 7 years. Since many financial debts can be discharged in bankruptcy with certain exceptions, people can take certain steps to begin boosting their credit rating after filing for bankruptcy and for sure after obtaining their discharge.

What to do if you are experiencing financial hardship

I hope this bankruptcy trustee in Vaughan Brandon’s Blog was helpful to you. People experience financial hardship for many reasons. If you’re experiencing financial hardship and are looking for a way out, contact Ira Smith Trustee & Receiver Inc. With immediate action and the right plan for moving forward, we can set you on a path to debt-free living Starting Over, Starting Now. All it takes is one phone call.

vaughan bankruptcy Big canada ira smith trustee

Brandon Blog Post

CONSUMER PROPOSAL VS BANKRUPTCY: THE GREATEST INFO YOU REALLY NEED TO KNOW

Post author By Brandon Smith
Post date November 23, 2016

Consumer proposal vs bankruptcy: Introduction

The holiday shopping season is upon us and the first sign that you are in financial trouble is if you truly need to learn about consumer proposal vs bankruptcy BEFORE you begin your holiday shopping! If you have already recognized that you need to know your options in dealing with your debt before you start putting holiday gift purchases on your credit card, I suspect that the New Year will become the time when you begin taking positive action to reduce your debt and gain back control over your life.

A consumer proposal is an alternative to bankruptcy. Although similar in many respects, there are some major differences. Consumer proposals are available to people only whose total debts do not exceed $250,000, not including debts secured by their principal residence. Division 1 proposals are available to both businesses and people whose debts exceed $250,000 (excluding the mortgage on their principal residence). The focus of this vlog is on the differences between a consumer proposal vs bankruptcy.

Consumer proposal vs. bankruptcy: What are consumer proposals?

Consumer proposals are formal ways governed by the Bankruptcy and Insolvency Act (BIA) available only to people. Working with a licensed insolvency trustee (Trustee) acting as the consumer proposal administrator, you make a proposal to:

Pay your creditors a percentage of what you owe them over a specific period not exceeding 60 months
Extend the time you have to pay off the debt
Or a mix of both

Payments are made through the trustee, and the trustee uses that money to pay each of your creditors. The consumer proposal must be completed within 5 years from the date of filing.

Below I will highlight more differences between a consumer proposal vs. bankruptcy.

Consumer proposal vs bankruptcy: What are the advantages of a consumer proposal?

The advantages of a consumer proposal vs. bankruptcy are:

You keep all of your assets
Actions against you by unsecured creditors, such as wage garnishments will stop.
Unlike informal debt settlement, the consumer proposal is a forum where all of your creditors must deal with your restructuring
You don’t have to declare the “B” word

What are the differences in credit history score?

The individual that declares bankruptcy will certainly get R9 status. This is the lowest credit score as well as it will continue to be on their report for 7 to 14 years. A person that submits a consumer proposal will have an R7 ranking which is less extreme. It will certainly continue to be on their record for approximately 8 years in total, from the moment of declaring.

For the most part, you will certainly pay less than you owe with a consumer proposal. Often as much as 70% less. Your several financial obligations will also be consolidated right into a simple regular monthly settlement. This number will be based upon what you can pay for.

Your ability to improve your credit score later is much different in a consumer proposal vs bankruptcy

What are the costs and fees of a consumer proposal versus filing for bankruptcy?

When doing a consumer proposal, the Trustee’s charges are included in the payment you bargain with your creditors. For instance, if your consumer proposal has you paying $400 monthly for 60 months, the Trustee’s fee and disbursements are taken from those funds.

Nevertheless, if you were to file for bankruptcy, the cost is established by any kind of excess earnings you could have (based on the criterion that includes earnings as well as family size), any assets that you may intend to try to keep, and also the monthly contribution for surplus income if any.

If there is no excess earnings or assets, the insolvency cost will be around $2,000. This is another difference between a consumer proposal vs bankruptcy.

**Are assets treated differently between a consumer proposal vs bankruptcy?**

If you do a consumer proposal, you can retain your assets whereas in bankruptcy your properties might be impacted. This consists of the equity in your home if higher than $10,000, a car or truck worth more than $6,000 (with no liens against it), financial investments, tax refunds, and also RRSP payments made in the last 1 year. In bankruptcy, you transfer your possessions (except those that are exempt by regulation) to the Trustee, and they are then sold or transferred to repay your creditors.

This difference between a consumer proposal vs bankruptcy is huge.

**What if I default on my consumer proposal vs bankruptcy payments?**

If you do not maintain your payments on a consumer proposal, it defaults and is void. You also are unable to submit an additional one. Collection action by your credits will begin again. If you do not complete all your duties in bankruptcy, you will certainly not be discharged and eventually, your creditors will resume collection activities as well.

This is another consumer proposal vs bankruptcy difference.

When is a meeting of creditors held in a consumer proposal?

A meeting of creditors in a consumer proposal is held if one is requested by one or more creditors who are owed at least 25% of the total value of the proven claims.

A request for a meeting has to be made by the creditors within 45 days of the filing of the consumer proposal. The OSB can also request the Trustee to call a meeting of creditors any time within that exact same duration.

The meeting of creditors should be held within 21 days after being called. At the meeting of creditors, they vote to either approve or decline the proposal.

If no meeting of creditors is asked for within 45 days of the filing of the proposal, the proposal will be deemed to have been accepted by the creditors no matter any objections received later.

**How long does it take to complete a consumer proposal vs bankruptcy?**

A consumer proposal is finished once the individual has actually made the required payments for the needed period of time. In a bankruptcy, the discharge depends on a variety of different aspects, consisting of whether it was the first time the debtor filed for bankruptcy and if they need to make surplus income payments.

If the debtor has actually never ever declared bankruptcy before and they do not have to make surplus income payments, most bankrupts are discharged 9 months after declaring bankruptcy. However, if the bankrupt has surplus income, they will need to make payments for 21 months prior to when they can be released.

This is another difference between a consumer proposal vs bankruptcy.

What do consumer proposals and bankruptcy have in common?

Both a consumer proposal and filing for bankruptcy are lawfully binding procedures that are provided by a Trustee. If you are thinking about bankruptcy, it is essential that you consult with a Trustee so that you can totally understand the procedure, what’s involved, and also any charges. You can speak with friends or family that may have filed for one or the other before, yet it is necessary that you get professional recommendations concerning your unique situation.

Filing for bankruptcy or doing a consumer proposal are both matters of public record. That means there will certainly be an irreversible public document regarding your insolvency that can be accessed by anyone. If the debts are joint or co-signed, the other individual is accountable for the financial debt in both a consumer proposal and personal bankruptcy as well, unless it is a joint filing.

Even these similarities still point out differences between a consumer proposal vs bankruptcy.

Consumer proposal vs bankruptcy: How to Figure Out Which Option is Best for You?

As you can see, when you look at a consumer proposal vs bankruptcy, there are definitely differences between the two, but they also have a lot in common too. What’s most important, though, is that you find the best way to get your finances back on track in a way that will help you achieve your long-term goals.

Consumer proposals and bankruptcy aren’t the only ways of obtaining debt relief and consolidating debt. There are also other ways of resolving debt problems that don’t involve an official program or paying anyone. If you honestly want to carefully and objectively look at all your options, contact a local Trustee, and speak to him or her. They’ll listen to your situation and issues and advise you on what will work best for you even if you do not need to file for either a consumer proposal or bankruptcy.

Their help is usually free and non-judgmental.

At our Firm, declaring bankruptcy is only encouraged until all other settlement solutions have been exhausted. A consumer proposal in Ontario is shaping up to be one of the better bankruptcy alternatives, primarily because of the reasons I describe in this Brandon’s Blog.

Consumer proposal vs bankruptcy: Who qualifies for a consumer proposal?

A consumer proposal is available to people whose total debts do not exceed $250,000, not including debts secured by their principal residence.

Consumer proposal vs bankruptcy: The bankruptcy process

Before you decide what to declare, contact a professional to discuss all of your options. A trustee is a highly-skilled, professionally licensed by the federal government that can evaluate your situation and presents all the options available to you. Whatever process ends up being the best and the most helpful for your particular circumstance, we can administer the insolvency process.

Consumer proposal vs bankruptcy: How to file for bankruptcy?

In order to file, you must engage a Trustee. This is an individual or company licensed by Industry Canada to administer the insolvency process. The 10 steps below are a guide to the bankruptcy process.

Consumer proposal vs bankruptcy: The 10 steps of the bankruptcy process

Contact a licensed insolvency trustee and attend a meeting with him or her to talk about your personal situation and your options including if it is possible for you to avoid bankruptcy.
Work with the trustee to complete the required forms. The trustee will then file the bankruptcy with the Office of the Superintendent of Bankruptcy (OSB).
The trustee notifies your creditors of the bankruptcy.
You attend a meeting of creditors if one is called.
You attend two counselling sessions.
Subject to your provincial exemptions, the trustee sells your assets; you may also have to make surplus income payments to the trustee.
In certain circumstances, you may have to attend an examination by an officer at the OSB.
The Trustee prepares a report to the OSB describing your actions during the bankruptcy.
You attend the discharge hearing if required.
You get your discharge from your bankruptcy and then the trustee completes the administration, including paying a dividend to your creditors, if available.

Consumer proposal vs bankruptcy: Move on with your life

I hope you have enjoyed this consumer proposal vs bankruptcy Brandon’s Blog. Both a successfully completed consumer proposal or obtaining your discharge from bankruptcy lets you get back on the road to financial health, relieve the stress you face and bring you:

Relief from harassing calls from debt collectors;
Freedom by getting out from under garnishments;
The ability to live better than just hanging on one payday to the next;
Improved credit ratings; and
Improved health and well-being.

Ira Smith Trustee & Receiver Inc. offers a full range of insolvency services to people facing a financial crisis. Whether you need help with a proposal to your creditors to avoid the worst case, financial counselling or advice about insolvency options, our goal is to make sure that you understand the process, your choices, and what steps will get your life back on track.

Call us for your free first consultation. We will inform you about all the choices readily available so you can make a proper decision about the very best plan to deal with your financial obligations. Contact Ira Smith Trustee & Receiver Inc. today. All you have to lose is your debt!

consumer proposal vs bankruptcy

Tags alternative to bankruptcy, Bankruptcy, Bankruptcy and Insolvency Act, bankruptcy options, bankruptcy process, BIA, Consumer Proposal, consumer proposal vs bankruptcy, Debt, division 1 proposal, Holiday Shopping, holiday spending, Ira Smith Trustee, licensed insolvency trustee, OSB, Superintendent of Bankruptcy, trustee

Brandon Blog Post

ARE BANKRUPTCY FEES TAX DEDUCTIBLE? IT DEPENDS WHO YOU ARE!#

Post author By Brandon Smith
Post date November 16, 2016

are bankruptcy fees tax deductible

Are bankruptcy fees tax deductible: If you would like a free copy of our eBook: “Cost of Claiming Bankruptcy in Canada” – please CLICK HERE

Are bankruptcy fees tax deductible: Introduction

We are often asked the question “are bankruptcy fees tax deductible?”. This vlog attempts to answer that question for the various types of Canadian insolvency proceedings.

I caution that we are not income tax advisors; I am a licensed insolvency trustee. This vlog does not attempt to and does not replace expert income tax advice. If you have a specific situation, you should get advice from your professional income tax advisor.

Are bankruptcy fees tax deductible: What does Canada Revenue Agency say?

Costs incurred in a bankruptcy filing can be categorized as either: (i) incurred for the purpose of gaining or producing income from a business or property or; (ii) incurred for capital or non-income earning reasons. Another way of saying it is a taxpayer cannot deduct personal expenses but can deduct those categorized as business expenses. So are bankruptcy fees tax deductible? It depends on who you are.

Are bankruptcy fees tax deductible: Personal bankruptcy and (consumer) proposal restructuring

If you are the individual person who has too much debt and either restructures under one of the proposal provisions to avoid bankruptcy, or goes bankrupt, then your real obligation is not to pay professional fees. Rather, you are making payments to the licensed insolvency trustee in a restructuring to settle all of your debts or you have given up your non-exempt assets and may also be paying part of your monthly income as surplus income to your licensed insolvency trustee.

Under either scenario, the licensed insolvency trustee obtains their fee under the Bankruptcy and Insolvency Act (BIA). You as the individual debtor are not paying bankruptcy expenses to earn income. Therefore you are not entitled to any tax deduction for the amounts and property given to the licensed insolvency trustee.

are bankruptcy fees tax deductible

Are bankruptcy fees tax deductible: Corporate restructuring

Corporations attempt to restructure under either the proposal provisions of the BIA or the restructuring provisions of the Companies’ Creditors Arrangement Act (CCAA) for the purpose of avoiding bankruptcy and the end of its business. The purpose of the restructuring attempt is to stay an active corporation, preserving jobs, continuing to earn income and pay income tax. In this case, professional fees paid to legal and financial advisors would be tax deductible for the company restructuring.

As this vlog is only to answer the questions are professional fees tax deductible, I am not addressing the issue of the income tax treatment of the corporate debt forgiven in a successful restructuring. That is where I turn to professional tax advisors for the answer.

Are bankruptcy fees tax deductible: Corporate bankruptcy

In a corporate bankruptcy, the bankruptcy corporation’s assets would be taken over by the licensed insolvency trustee handling the bankruptcy, subject to the interests of the secured creditor(s) and trust claimants, if any. Therefore, there are no fees paid by the bankrupt corporation for the purpose of earning income. Hence, there is no tax deduction for professional fees to be taken on the bankrupt corporation’s final income tax return.

Are bankruptcy fees tax deductible: Receivership and secured creditors

Receivership is a remedy for secured creditors to enforce security. The secured creditor whose loan is in default, when in a place to enforce its security, appoints a receiver to take possession of the assets, formulate a plan to maximize the sale value, sell the assets and remit the proceeds to the appointing secured creditor, up to the amount outstanding under the security. The company in receivership does not incur professional fees, but the secured creditor does; to both legal counsel and to the receiver. Those professional fees incurred in the normal business of the lender are therefore tax deductible.

I will leave the topic of the income tax consequences for a secured creditor who suffers a shortfall when realizing upon assets covered by its security to the professional tax advisors.

are bankruptcy fees tax deductible

Are bankruptcy fees tax deductible: Purchaser of assets

Many times in corporate restructuring, the restructuring plan calls for the sale of assets. In both bankruptcy and receivership, the assets will be sold. The purchaser of assets will in such cases be a corporation. That purchaser corporation will need insolvency and income tax professional advisors in structuring and paying for the asset purchase. Those professional fees are tax deductible to the purchaser.

Are bankruptcy fees tax deductible: Unsecured creditors

In any of the insolvency processes discussed in this vlog, there will certainly be many unsecured creditors. The major unsecured creditors, especially in corporate insolvency proceedings will want to consult with professional advisors as to their rights and remedies when faced with an insolvent debtor.

Sometimes unsecured creditors make an application to Court to have a Bankruptcy Order made against a debtor. Both legal and trustee advice is necessary.

In either case, the professional fees are paid in the normal course of business and will be tax-deductible.

Are bankruptcy fees tax deductible: Do you need insolvency advice?

If you need insolvency advice, either because you or your company have too much debt, or one of your major customers are experiencing financial problems, the professional fees may very well be tax deductible. The Ira Smith Team acts on behalf of both debtors and creditors. We have successfully restructured many people and corporations, thereby allowing them to avoid bankruptcy. We have also acted on behalf of both secured and unsecured creditors both in an advisory role and an enforcement role.

Contact a debt expert – a professional trustee – who can help get you on solid financial footing Starting Over, Starting Now. Ira Smith Trustee & Receiver Inc. can help keep you from financial ruin with immediate action and the right plan. Call us today for a free, no-obligation consultation.

Tags are bankruptcy fees tax deductible, avoid bankruptcy, Bankruptcy, bankruptcy fees, BIA, Consumer Proposal, corporate restructuring, income tax, Ira Smith Trustee, licensed insolvency trustee, professional fees, proposal, surplus income, tax, tax deductible

Brandon Blog Post

Division One Proposal Ontario Documents: corporate restructuring proposal

Post author By Brandon Smith
Post date October 19, 2016

Corporate restructuring proposal

I want to talk to you today about the required division one proposal Ontario documents and division 1 proposal restructuring proceedings under the Bankruptcy and Insolvency Act (Canada) (BIA). You may have heard about this section of the BIA also called Chapter 11 bankruptcy proceedings. The reason is that the corporate restructuring provisions under the BIA are in Canada under Division I of Part III of the BIA, while the corporate restructuring provisions in the United States is under Chapter 11 of the US Bankruptcy Code. We are going to focus today on the restructuring provisions under Division 1 Proposal proceedings of the BIA.

First steps

The first thing the insolvent debtor must do is hire the services of a licensed insolvency trustee (formerly known as a trustee in bankruptcy). The division 1 proposal proceedings apply to corporate restructuring or the restructuring of debt of an individual with a complex debt situation and a debt level of $250,000 or more. We are going to talk today about corporate restructuring and the Division One Proposal Ontario documents required for this process.

The first step in any corporate restructuring is for the board of directors to understand and resolve that the corporation is insolvent, that it needs to restructure under the Division 1 Proposal section of the BIA and that it needs to retain a licensed insolvency trustee to do that. The corporation working with the trustee then has a choice. It can first file what is called a Notice of Intention To Make A Proposal, which is a notice to its creditors that it will be shortly making a restructuring proposal. Or it can just file the real division one proposal itself with the licensed insolvency trustee.

Documents and process

The licensed insolvency trustee has to be satisfied that: (i) all the relevant information has been obtained; (ii) the company has a good chance of actually implementing this proposal; and (iii) the company’s cash flow is enough that it can run the business successfully and pay its ongoing debts in full through the ongoing restructuring proceedings, then the licensed insolvency trustee continues the restructuring process.

The licensed insolvency trustee will mail to all the known creditors a copy of:

the proposal
a statement of the company’s assets and liabilities
a list of creditors
a proof of claim form
the voting letter

The meeting of creditors is then held and if the proposal is accepted by the required majority then the proposal trustee takes the proposal documentation to Court for approval. Once the proposal is accepted by the creditors and approved by the court there is now a contract between the company and its creditors about how the company is going to restructure and what amount of money is ultimately going to be paid to the creditors through the licensed insolvency trustee.

Implementation

The company then carries its proposal as it continues its operations. It carries out its restructuring business plan and hopefully is successful in turning the corner and generating profits. The company would then be saving a certain amount of its profits in cash and pays the amounts required under the corporate restructuring plan over to the licensed insolvency trustee to create the restructuring fund. The licensed insolvency trustee then makes the distribution to the creditors as called for in the proposal itself. Once all the payments have been made, the company has successfully restructured and carried on its business free from the proposal proceedings.

What if your company has too much debt – division one proposal?

If your company has more debt than it can afford to pay contact a professional trustee immediately. We’re experts in debt management and corporate restructuring and with immediate action and the right plan we can help you get your company’s finances back on track Starting Over, Starting Now. Give Ira Smith Trustee & Receiver Inc. a call today.

Tags Bankruptcy and Insolvency Act, BIA, chapter 11, corporate restructuring, division 1 proposal, division one proposal, division one proposal ontario documents, Ira Smith Trustee, licensed insolvency trustee, proposal, restructuring business plan

Brandon Blog Post

INSOLVENT ESTATES CANADA 3 QUESTIONS WE ALWAYS ARE ASKED

Post author By Brandon Smith
Post date September 28, 2016

INSOLVENT ESTATES CANADA

Insolvent estates Canada: Introduction

We previously discussed the aspect of death and insolvency in two blog posts:

When it comes to insolvent estates Canada, among the various questions asked of us, these three questions are always asked:

What are the duties of an executor/personal representative when the estate has more liabilities than assets?
Can the executor(s) pay bills before the creditors actually file a claim?
Do executors or beneficiaries have to pay creditors out of their own pocket if the estate is insolvent?

We prepared the above video to answer these 3 questions. Below is a more detailed discussion of the last 2 questions.

Insolvent estates Canada: The loss of life of a debtor occurs; who’s responsible for the money owed?

Although some creditors may try to collect from the spouse or other relatives, money owed doesn’t transfer because of marriage or death. If the debt is “joint”, the survivor has taken on the obligation directly and is liable on the account.

Debts are normally paid out of the assets of the property of the deceased before distributions to heirs (before paying heirs, the deceased’s debts must be paid). If the estate is insolvent (the assets of the estate are not enough to pay the amounts owed), then the order of charge is commonly prescribed by way of provincial rules.

If warranted, the executors could apply to Court for an order letting them assign the deceased’s estate into bankruptcy. In that situation, then the Bankruptcy and Insolvency Act (Canada) (“BIA”), the federal legislation, will prescribe the order of payment.

If insurance was bought to pay off a specific debt such as a bank issued mortgage or loan, then upon the death of the individual the insurance company will repay the bank and the debt will not exist in the deceased’s estate.

What are your alternatives and your responsibilities, as an executor upon the death of a debtor?

If the estate is insolvent, before or after paying the testamentary costs, you have alternatives:

Pay the money owed out of your personal resources.
Allow the estate to go bankrupt.

Emotionally you may wish to pay the money owed because you believe in your heart that it is the proper thing to do and you don’t wish to dishonour the memory of your loved one with a string of bad debts and bankruptcy. But before you decide, you need to know that there is no liability for an executor or heir to take on the debts of the deceased.

Even though there may be a stigma connected to bankruptcy, the reality is that you are not responsible for the money owed, so why should you assume this burden and in all likelihood put your family in financial jeopardy?

Bankrupting the estate makes economic sense. An executor can sidestep the minefield of issues involved in administering the deceased’s insolvent estate by bankrupting it.

What should executors and heirs be aware of?

If you and/or another family member is the executor, be aware:

The executors have a legal responsibility for all acts completed, and for all acts not accomplished that they should have.
Notwithstanding everyone’s best efforts, they may unknowingly be inviting proceedings from lenders or heirs for difficult issues. This happens when family members, who are well-intentioned but not skilled at monetary, insolvency or legal issues, are executors because she or he is named, however actually has no know-how in this region.
By putting the property into bankruptcy, which requires the previous approval of the bankruptcy court, the executors are relieving themselves of personal legal responsibility because the estate will now be administered under the BIA and all creditors by the Licensed Insolvency Trustee.
The executor will relieve him or herself of coping with collection calls.
As long as there are sufficient funds in the estate to pay the funeral costs, that can be paid out first in the case of a bankruptcy of the deceased’s estate because of S.136. (1)(a) of the BIA states:

Priority of claims

“136 (1) Subject to the rights of secured creditors, the proceeds realized from the property of a bankrupt shall be applied in priority of payment as follows:

(a) in the case of a deceased bankrupt, the reasonable funeral and testamentary expenses incurred by the legal representative or, in the Province of Quebec, the successors or heirs of the deceased bankrupt;”

It is the first debt with a preferred status that can be paid.

What should I do if I am an executor and I find that the liabilities are greater than the assets?

If you are an executor of a will and you find out that the estate is insolvent, after speaking with the estate lawyer, contact Ira Smith Trustee & Receiver Inc. as soon as possible. We will evaluate the situation and give you sound financial advice on how best protect yourself as executor and the heirs, so that you will be able to go ahead Starting Over, Starting Now.

THIS VLOG WAS INSPIRED IN PART BY OUR eBOOK – PERSONAL BANKRUPTCY CANADA: Not because you are a dummy, because you need to get your life back on track

Tags Bankruptcy, Bankruptcy and Insolvency Act, BIA, creditor, Debt, executor, heir, insolvent estates canada, Ira Smith Trustee, licensed insolvency trustee, priority