When do people generally want information about personal bankruptcy alternatives?
Personal bankruptcy alternatives are always sought after an economic downturn. The economic downturn is causing more people to rely on credit to supplement their income and/or their lifestyle. This mountain of debt will ultimately result in bankruptcy or hopefully, an alternative to bankruptcy.
What Bank of Montreal and Statistics Canada say about Canadian household debt
In BMO’s Annual Debt Report, the average household debt of those surveyed is $92,699, more than $4,000 higher than the four-year average dating back to 2012. And servicing that debt, which includes mortgages, lines of credit and credit card debt, is costing $1,165 a month.
According to Statistics Canada:
The debt-to-income ratio of Canadian households is 163.3% which means for every dollar Canadians earn, they owe $1.63 in debt
Canadian households now owe $1.841 trillion in various forms of debt
Adding debt to more debt is not a solution to the problem; it compounds the problem. If you are using credit cards to supplement your income or your lifestyle, you have a serious problem that needs professional help. Don’t wait until bankruptcy is your only option. You should be learning about personal bankruptcy alternatives before it is too late.
Is there such a thing as bankruptcy solutions?
We are asked this question all the time. Before even considering bankruptcy, I always want to discuss 3 formal alternatives to personal bankruptcy:
Credit Counselling Credit counselling is in reality debt counselling. Professionals provide assistance with a host of issues related to debt including budgeting, finding debt solutions, working with your creditors and rebuilding credit.
Debt Consolidation Debt consolidation is a single loan that allows you to repay your debts to several or all of your creditors at once, leaving you with only one outstanding loan.
Consumer Proposals Consumer proposals are formal offers made to your creditors under the Bankruptcy and Insolvency Act (BIA) to modify your payments. e.g. paying a lesser amount each month for a longer period of time and paying a total lesser amount than you owe, all on an interest-free basis!
In addition there are informal personal bankruptcy alternatives including budget review, contacting your creditors (including your mortgage lender), selling an asset and contacting the Federal Government’s Repayment Assistance Plan (if you’re having difficulty repaying your student loan debt).
This blog was originally published on July 21, 2015. It was updated on March 22, 2021.
Bankruptcy Sales: What Is a Stalking-Horse Bid?
A stalking horse bid, in the Canadian insolvency context, is an attempt by a company (and/or its Monitor,Receiver or Trustee ) in a Court supervised insolvency proceeding, to set what will be the baseline that must be met and beaten by any other bids for the assets. The intent is to maximize the value of its assets as part of a Court supervised sales process and to discourage any bid below a certain value.
A stalking horse is a process that allows a potential buyer (the stalking horse bidder) to make a public bid for a company’s assets in order to set a floor price for the amount of money to be received by the company’s creditors in a (bankruptcy) sale. The stalking horse bidder will get to purchase the company’s assets if no other bidder comes forward. The stalking horse provision allows for the bidding process terms and conditions to be set in a court-supervised sale.
In this Brandon Blog, I describe the stalking horse bid process and how it works
What’s a stalking horse bid? Example of a stalking horse bid
According to Wikipedia:
“The term stalking horse originally derived from the practice of hunting, particularly of wildfowl. Hunters noticed that many birds would flee immediately on the approach of humans, but would tolerate the close presence of animals such as horses and cattle. Hunters would therefore slowly approach their quarry by walking alongside their horses, keeping their upper bodies out of sight until the flock was within firing range. Animals trained for this purpose were called stalking horses.”
In an insolvency context, a stalking horse bid stands to test the market to see how the market values the assets for sale. If the market values the assets less than the amount of the stalking horse bid, then no one will bid higher and the party who made the stalking horse bid will be successful in acquiring the assets.
If the market values the assets more than the amount of the stalking horse bid, the higher offers will be made for the assets and for the Court to consider for approval. Presumably, a higher offer will be approved, the purchaser will purchase the assets and the stalking horse bid will not prevail.
stalking horse bid
How a Stalking-Horse Bid Works
The stalking-horse bid method allows a distressed company to avoid receiving low ball bids as its assets are being sold. Once the stalking-horse bidder has made its offer and it has been negotiated and court-approved, other potential buyers may submit competing bids for the company’s assets.
By setting the low end of the bidding range, the insolvent company hopes to realize a higher price on its assets. Insolvency proceedings are public. The public nature allows for the disclosure of more information about the deal and the buyer than what would be available in a private deal.
Stalking-horse bidders can generally negotiate which particular assets and liabilities it hopes to acquire. After the stalking horse bid is negotiated resulting in an asset purchase agreement, it will be necessary for the company, Receiver or Trustee to obtain Court approval of not only the stalking horse bid but also for the entire sales process to be implemented.
If the company is attempting to restructure and requires “bankruptcy protection”, then those corporate proceedings would be either under the Companies’ Creditors Arrangement Act (“CCAA”) or the Proposal provisions of the Bankruptcy and Insolvency Act (Canada) (the “BIA”). In that situation, it is the company making an application to the Court with the support and assistance of the monitor or proposal trustee.
If it is a corporate receivership or bankruptcy proceeding, then it is either the receiver or bankruptcy trustee making the application. In the case of bankrupt corporations, then it is the bankruptcy court that needs to approve the stalking horse bid, the entire sales process and approve the sale.
What does it take to get bankruptcy court approval?
When applying to the Court, approval for an entire sales process is being sought, a component of which is the stalking horse agreement. The Court has various considerations in determining if a stalking horse sale process should be approved. They are:
Is a sale transaction warranted at this time?
Will the sale benefit the whole “economic community”?
Do any of the debtors’ creditors have a bona fide reason to object to a sale process of the business?
Is there a better viable alternative?”
In the event the stalking horse bid is not the successful winner because of the other potential bidders at least one made a better offer, it is normal for the stalking horse purchaser to receive some form of compensation. The compensation is for the time, cost and resources invested to perform its due diligence, to make its offer which was found to be reasonable in the circumstances and to expose that offer to the marketplace to stand as a stalking horse bid, and for that bidder to not end up as the successful purchaser.
Our Firm has been involved in situations where the stalking horse bid has been both the successful bidunsuccessful bid. If the compensation, commonly known as break-up fees, is fair and reasonable, it will not dissuade other purchasers from coming forward in the sales process, and it will also be fair to the stalking horse bidder if they are unsuccessful. It is fair to the stalking horse bidder to have these bid protections incorporated into their offer.
The Court in considering the approval of a stalking horse bid also considers if the breakup fee, and the entire stalking horse bid, has been negotiated between arms’-length parties and has the support of the stakeholders involved in the insolvency proceeding.
stalking horse bid
The Pros and Cons of Being A Stalking Horse Bidder for Assets In Bankruptcy
There are various pros and cons to being a stalking horse bidder and making the stalking horse bid. First the advantages:
First to tie up the company’s management, perform due diligence thereby dealing exclusively with the company for the proposed purchase of its assets.
Gaining the advantage of time and access to the company’s financial information.
Having the time to be able to understand the company’s problems and challenges.
Getting under contract for the assets the purchaser wants to acquire.
The cons of making the stalking horse bid are:
Making sure that you set the break fee high enough to fully compensate the stalking horse bidder.
Not having too long a time period between approval of the stalking horse bid and the time when other bids must be submitted to avoid the assets or the company’s operations worsening through the process.
Would it have been better not to have been the stalking horse bidder and see how the company and its assets fare before having to submit a bid?
If the stalking horse bidder is not a secured lender, is there a likelihood the secured lenders will bid their security which will outbid yours?
If there is more than one acceptable bid, then an auction process is required to determine the successful bidder. The stalking horse bidder may not wish to participate in such an auction and will end up losing out.
Can a secured creditor credit bid? Cirque du Soleil agrees to ‘stalking horse’ takeover bid from lenders worth $375M
One of the most recent high-profile successful stalking horse bids was the Cirque du Soleil insolvency proceeding under the CCAA. In that case, a takeover proposal from the Cirque du Soleil’s secured creditors has been approved as the benchmark bid for a court-supervised auction of the insolvent entertainment company.
That is called a credit bid. When the secured creditor bids all or a portion of its outstanding loan. This will be done in situations where the secured creditor believes that the value of the assets to be sold is less than the amount owed, yet the company’s assets can be used to run a viable business. In that situation, the secured creditor would rather bid its security with the company debt to take over the assets.
By making a credit bid, the secured creditor potential purchaser does not need to come up with cash for the purchase price. However, cash will be required to make certain payments to parties the company business cannot operate without and to have working capital going forward.
If they bid the full amount of their loan and get outbid in other purchase agreements, it means they get fully paid out. Otherwise, they get the assets to run the company, bring it back to financial good health and profitability. Eventually, then they will sell the healthy company to recoup their money plus make a profit.
Stalking horse bid summary
If your company is experiencing financial difficulties, don’t waste your time stalking horses or any other animal. Seek the advice of your professional advisers. The earlier you seek financial help the more options will be open to you. ContactIra Smith Trustee & Receiver Inc. today. We’ll review your corporate issues and come up with a sound plan so that Starting Over, Starting Now you can enjoy financial peace of mind.
Arestructuring and turnaround process that does not garner the support of the creditors can lead to bankruptcy. Bankruptcy ends up being a result of an attempt to save the business that has gone awry.
Bankruptcy and Insolvency Act (“BIA”): Contains 275 sections and is intended to be a complete code for bankruptcies. The law dealing with bankruptcies is within the BIA itself
Companies’ Creditors Arrangement Act (“CCAA”): Deals with corporate restructuring and turnaround (as does the BIA) and contains 22 sections. Most of the law dealing with the CCAA has developed from Court decisions as the statute is very thin!
Once in motion it’s extremely difficult to set aside an assignment into bankruptcy. That is why the interests of all stakeholders must be carefully considered and addressed in order for a restructuring and turnaround plan to be successful. Take for example the motion which was recently brought before the Ontario Superior Court of Justice (In Bankruptcy and Insolvency) by Casimir Capital Ltd., an intermediary or broker of various underwritings and placements. Up until January 31, 2014 when it resigned, it was a member and registered as a securities dealer with the Investment Industry Regulatory Organization of Canada (“IIROC”).
Casimir Capital Ltd. brought a motion seeking to set aside its deemed assignment into bankruptcy, and a review of a decision of a trustee to allow certain creditors to vote against a proposal put forth by the firm to settle its debts. At that meeting, 93.7% of the creditors voted against the proposal. However, in the motion, Casimir argued that some of the creditors should not have been allowed to vote as it disputes the validity of their claims.
The decision: In Re Casimir Capital, 2015 ONSC 2819 (CanLII), Casimir’s motion was dismissed. In his ruling The Honourable Mr. Justice Pattillo stated that the trustee “…was correct in allowing the Disputed Creditors to vote.” and “…the steps taken by the Proposal Trustee in reviewing and validating the proofs of claims filed, including the Disputed Creditors, for the purpose of voting at the first meeting were more than sufficient.”
The court noted that even if the votes of the disputed creditors were disallowed, 69.4% of the other creditors, whose claims are not disputed, voted against the proposal. The Court also agreed with the trustee that the debtor’s motion to have its deemed assignment in bankruptcy set aside fails in any event because even if the disputed creditors votes are set aside, the votes of the remaining creditors still defeat the proposal. As you can see, this restructuring and turnaround attempt was doomed for failure, as essentially none of the needs of the stakeholders were successfully addressed. Therefore in this case, a deemed assignment in bankruptcy was the end result. I am sure the professionals involved did the best they could with what they had to work with, but it obviously was not enough.
Unfortunately many companies and individuals find themselves in financial difficulties and surviving these financial difficulties can be a daunting task. Ira Smith Trustee & Receiver Inc. has helped many companies to not only survive, but prosper. Our corporate restructuring and turnaround strategies not only deal with short term crisis management but the long term viability of corporations. Contact us today so that Starting Over, Starting Now once again your company can a financially viable entity.
Restructuring and turnaround services can produce great benefits as long as the company recognizes early enough that it has problems. As the holidays approach, we want to hear feel good stories. Here is a great feel good story.
The Company: Professional services company which had been in business for 16 years and was in need of restructuring and turnaround services.
Hard Assets: Negligible.
How The Company got Into Trouble: The principal’s husband was travelling on business for an extended period and she decided to take leave from her business. Rather than using technology, both new and old, to supervise the business while travelling and maintaining financial control throughout, she delegated all responsibility to senior management and senior staff. In the principal’s absence the senior management made a series of decisions that put the Company in serious jeopardy:
They leased extra space expecting the need to hire more staff to meet the anticipated increased business, but that business never came.
Their rent and staffing costs were too high.
Notwithstanding the increased staffing and staffing costs, they also outsourced more work than before.
The total costs and liabilities were increasing rapidly while revenue was declining.
They neglected to pay the payroll source deductions throughout and a secured claim to CRA arose in excess of $500,000.
Through a combination of incompetence and foul play, the senior management and staff encumbered the business with too much debt and had created a situation where many of the firm’s top clients were about to bolt. Without the intervention of a well planned yet swiftly implemented restructuring and turnaround plan, the company would surely die.
Upon the principal’s return, she sought the advice of her accountant and lawyer and was referred to us. The principal suspected the senior management’s actions were taken with a view to harm the company so that certain members of the senior management team could start their own firm and take certain staff members with them. It became clear to us that this company was a candidate for a restructuring and turnaround, not a candidate for bankruptcy. Working with the principal, we quickly devised and began implementing the restructuring and turnaround using a Proposal under the Bankruptcy and Insolvency Act (Canada) (“BIA”).
The principal worked very diligently through the Proposal process to maintain the trust of key customers.
She was able to give back a portion of the premises to the landlord, thereby reducing premises leasing costs.
She terminated unnecessary staffing, including those senior staff that was responsible for the decline of the company. The staff did launch a wrongful dismissal suit but that litigation was settled within the Proposal process.
After about 1 year the Company was able to change Banks and obtain a more favourable financing package.
The restructuring and turnaround plan was in place and working!
The Result: Through the Restructuring and Turnaround Proposal, the company was able to amass sufficient cash to pay off in full the source deduction trust claim in excess of $500K and they successfully completed their Proposal by paying an additional amount of $250,000 to compromise $1.2 million of unsecured debt. The Company to this date continues to operate profitably, provides employment and also contributes in other ways to the community. The restructuring and turnaround plan worked!
Do you believe you wages are owing to by your employer? People ask us what if my employer owes me money & goes into either receivership or bankruptcy.
We answer if wages are owed by your employer and the company is either in receivership or is bankrupt don’t despair; there is hope for you to recuperate monies owed to you. The Wage Earner Protection Program (“WEPP”) Act – WEPPA – in conjunction with an amendment to the Bankruptcy and Insolvency Act (Canada) – BIA – created a mechanism for employees to be compensated for claims of unpaid wages, commissions and vacation pay accrued in the six months preceding the employer files for bankruptcy or being placed in receivership and wages are owed to you along with claims for unpaid termination and/or severance pay.
Are there any exceptions to this? What are the rules?
There are a few exceptions. You are generally not eligible if, during the period for which you wages are owed to you by your employer, you:
were an officer or a director of your former employer
had a controlling interest in the business of your former employer
were a manager whose responsibilities included making binding financial decisions impacting the business of your former employer, and/or making binding decisions on the payment or non-payment of wages by your former employer
Who is eligible for the WEPP? You may apply if wages are owed to you by your employer and:
your former employer has filed for bankruptcy or is subject to a receivership
wages are owed to you by your employer, vacation pay, termination or severance pay from your former employer
amounts earned during the eligibility period or, in the case of termination or severance pay, your employment was terminated during the eligibility period ending on the date of bankruptcy or receivership
One more very important exception – it only applies if wages are owed to you by your employer and your employer is in either receivership or bankruptcy and owes you wages. If your employer is attempting a corporate restructuring under a Notice of Intention to Make a Proposal, a Division I Proposal or the Companies’ Creditors Arrangement Act, then WEPPA and its provisions do not come into play.
Claim limits
Regardless of the total amount owing to you, the maximum any employee can receive under WEPPA is the greater of $3,200 or four times the maximum weekly insurable earnings under the Employment Insurance Act (which is now greater than $3,200). Once employees file claims with both the Trustee and Service Canada, Service Canada pays their claims for owed wages by employer and Service Canada becomes the creditor. The amendment to the BIA has recognized WEPPA and created a priority charge that supersedes all secured charges except CRA’s deemed trust claim (and the reclaiming rights of farmers and suppliers) to a max of $2,000 per employee, secured against current assets.
Documentation
While no one wants – or expects – to be part of a receivership or bankruptcy, you should always keep detailed records of hours worked for any pay period. On any occasion when you discover there will be no paycheque, record the loss that you will suffer, such as not being able to pay bills or buy groceries. Ask for a formal explanation from your employer and keep detailed notes on your efforts. It’s important to prove that when owed wages by employer; you still expect to be paid, even if it’s late.
If your employer is in receivership or bankruptcy proceedings, and you believe you have a claim for owed wages by employer, find the trustee and get in touch with Service Canada. Have your records ready and make sure you get your Proof of Claim.
If you are experiencing financial problems, contactIra Smith Trustee & Receiver Inc. We are a licensed trustee and will listen to your issues and offer compassionate, professional assistance to aid you to avoid bankruptcy, so that you can regain control of your life, Starting Over, Starting Now.
Negotiating debt vs bankruptcy. Of course you would not pick bankruptcy as your first choice. If you are considering the options of negotiating debt vs bankruptcy, you must be mired in serious financial difficulty and have few options available to you.
You need the help of a professional, licensed trustee now! Don’t be seduced by the bogus claims of debt settlement companies who promise to negotiate with your creditors for pennies on the dollar and get you out of debt in no time flat. Although you are being bombarded with messages like this on radio, television and online, don’t fall prey to these scam artists.
Debt settlement companies have already been banned in the United States and now several Canadian provinces have introduced strict regulations in the debt settlement industry. A professional trustee will evaluate your individual situation fairly and in an even-handed manner, and present you with a solid financial plan for moving forward and getting out of debt, including all of the advantages and disadvantages of negotiating debt vs bankruptcy.
According to the Office of the Superintendent of Bankruptcy Canada, consumers continue to opt in large numbers for negotiating debt vs bankruptcy.
Negotiating debt – Consumer proposals rose by 4.8% in from January 31, 2012 to January 31, 2013.
Credit Counselling Credit counselling is in reality debt counselling. Professionals provide assistance with a host of issues related to debt including budgeting, finding debt solutions, working with your creditors and rebuilding credit.
Debt Consolidation Debt consolidation is a single loan that allows you to repay your debts to several or all of your creditors at once, leaving you with only one outstanding loan.
Consumer Proposals Consumer proposals are formal offers made to your creditors under the Bankruptcy and Insolvency Act (BIA) to modify your payments. e.g. paying a lesser amount each month for a longer period of time and paying a total lesser amount than you owe. In a consumer proposal you are choosing not to go bankrupt so this is actually negotiating debt vs bankruptcy.
Ira Smith Trustee & Receiver Inc. is a professional, licensed trustee who can help you get back on the road to financial health Starting Over, Starting Now. A licensed trustee can properly advise you on negotiating debt vs bankruptcy. If you wish to do some self-study, please review our bankruptcy FAQS. But don’t delay. Contact us today.
When do people generally want information about personal bankruptcy alternatives?
