Tag: BIA

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BANKRUPTCIES IN ONTARIO: OUR EXCLUSIVE 6 THINGS LIST CREDITORS MUST KNOW ABOUT CANADIAN BANKRUPTCY

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

Stay healthy, well balanced and safe and secure everyone.

Bankruptcies in Ontario -Introduction

Much of the insolvency chatter developing from the COVID-19 pandemic world in which we find ourselves is now concentrating on the waterfall of brand-new bankruptcies in Ontario that are predicted to arrive. I have previously written about some of the big-name US retailers that have filed for Chapter 11 bankruptcy protection.

Businesses shut down, job losses, government funding for people and businesses to try to hang on through this coronavirus are all in the headlines. What our “new normal” will look like and which companies and jobs will survive, right now, is anybody’s guess.

In this Brandon’s Blog, I want to highlight things creditors must know about canadian bankruptcy and bankruptcies in Ontario. By being well-versed, creditors will hopefully be able to better understand what is in store for them and for the debtors.

1. Bankruptcies in Ontario – the automatic stay of proceedings

In Canadian insolvency matters, an automatic stay of proceedings happens when a company or person files under the Bankruptcy and Insolvency Act (Canada) (BIA) for either:

  1. Bankruptcy
  2. Consumer proposal
  3. Corporate or large personal restructuring

The stay of proceedings is automatic under the BIA. Other than in one specific situation which I will touch on in a minute, absent proof that some sort of fraud is being committed on the court, a judge will not interfere with the automatic stay provisions. So an unsecured creditor will not be able to start or continue any action for collecting on a debt.

The one exception is in a restructuring where the major secured creditor goes to court and provides evidence that no matter what the restructuring may look like, they will never support it. The secured creditor would at the same time be requesting the court to lift the stay of proceedings so that they can enforce on their security.

Absent a restructuring proposal that promises to pay out that secured creditor 100% PLUS proof that the company or person has a realistic chance of refinancing to take out that secured creditor. Even in that situation, the court could give the debtor some time to pull it off, but it will be a very short lease. Otherwise, the secured creditor will probably get their wish and the restructuring effort will end.

In the case of a privately appointed receiver, there is no automatic stay of proceedings. This is notwithstanding that the conduct of the receiver in a private receivership is also governed by the BIA. The reason there is no automatic stay of proceedings is that a private receivership is not a filing under the BIA.

In either a court-appointed receivership or a corporate restructuring under the Companies’ Creditors Arrangement Act (Canada) (CCAA), the stay of proceedings authority does not come from statute per se. The respective statutes allow for the judge to order a stay of proceedings. That language is then incorporated into the court order appointing the receiver or authorizing the bankruptcy protection CCAA filing. In these cases, the court is available for anyone to make an application to lift the stay if they can prove that they are being prejudiced. Again, normally only secured creditors will be able to show prejudice.

2. Bankruptcies in Ontario – Know whether, when, and where proof of claim needs to be submitted

For bankruptcies in Ontario and restructurings, it is important to know what kind of insolvency proceeding is taking place. The notice you receive from the licensed insolvency trustee (formerly called a bankruptcy trustee) (Trustee) will tell you what kind of proceeding it is. It will also provide a proof of claim form to be completed. The notice will provide all the details.

It is important that you know:

  • The details.
  • How to complete a proof of claim form.
  • Where to send it into.
  • What timelines there may be.

Some creditors wish to file a proof of claim only so that if a dividend is declared they will get one. In that case, you can complete and file the proof of claim any time before the Trustee issues a final dividend. The Trustee must send a final notice to all named creditors who have not yet filed a proof of claim before issuing a final dividend.

Some creditors wish to actively participate in the insolvency process. They may wish to attend the meeting of creditors, vote on a restructuring proposal under the BIA. If creditors wish to actively participate in bankruptcies in Ontario, they should complete and file the proof of claim with the Trustee within the time-frame indicated in the notice accompanying the proof of claim form.

In a receivership, there will only be a need to file a proof of claim if the receiver has realized enough money from the sale of assets to pay out the trust claims and secured creditor claims in full and now has money for the unsecured creditors. This is very rare. In that situation, the receiver will conduct a claims bar process later on in the administration. That is when a notice with a blank proof of claim form will be sent out to the known creditors.

In a restructuring under the CCAA, first, the restructuring plan, called the Plan of Arrangement, is finalized. Then the Trustee will send out notices and blank proof of claim forms for creditors to complete and submit. Filling out the form at that stage will allow creditors to actively participate in the meeting and voting on the plan, as well as be in line to receive a payment.

3. Bankruptcies in Ontario – Obtaining a preference repayment from a future bankrupt debtor is not illegal or unethical, but you may have to give it back

If a customer of yours offers to pay you money, even if it turns out to be on the eve of an insolvency filing, take it! Always take the money; stress over any claim for it by a Trustee later.

The premise of the BIA is that all unsecured creditors will be treated equally. So, if certain unsecured creditors receive partial or full payment on the eve of filing, and then the debtor goes bankrupt, there is a presumption of a preference. The onus is on the creditor who received payment to rebut the presumption of a preference. If the Trustee is successful in attacking such a transaction, then the creditor must pay over the money to the Trustee. The creditor will also have spent money on its own legal fees. There will also probably be a cost award for all or a portion of the Trustee’s legal costs also.

Notwithstanding all this, it is better to have the money than not. Perhaps the Trustee will not knock on your door. Or, maybe you can avoid a lot of heartache by agreeing to and paying over a settlement amount that is less than 100% of what you received. Finally, there is a very limited number of defences to rebut the presumption of a preference. Perhaps your situation falls under one of them.

Taking the money is not immoral, unethical or illegal. You just may not be able to keep it if your customer files for bankruptcy after making the payment to you.

4. Bankruptcies in Ontario – review the Trustee’s Report very carefully and ask questions

The Trustee’s report outlines issues of importance regarding the conduct of the debtor both pre and post-filing. Sometimes, there may be an action that the Trustee could take to enhance the recovery of an asset, but lacks the funding to do so.

In those cases, a creditor or a group of creditors can choose to either:

  1. Fund the Trustee to take the action for the general benefit of all unsecured creditors.
  2. Get court approval to take the action in their own name under s.38 of the BIA.

It would be unusual for creditors to fund the Trustee. The simple reason is that they would be responsible for 100% of the costs but have to share any recovery with all the other unsecured creditors on a pro-rata basis. For this reason, it is not done.

Many times a creditor or group of creditors will choose to obtain court permission to take on the action in their own name. The court will insist that the creditor group make the opportunity to all creditors. However, a “buy-in” will be set. Most of the time other creditors won’t pony up to join in. Either they are not sophisticated enough to realize the potential benefit or they feel it is not worth their spending money in that way.

Under an s.38 action, if successful, the creditor can first pay back all its costs in doing the action. Next, they are entitled to keep up to the full amount of their claim. If any funds are left over, they must be paid over to the Trustee.

I am administering a bankruptcy file right now where there was foreign real estate. I did my investigation and determined that although saleable, the properties would take many years to sell and then to repatriate the money back to Canada. The major unsecured creditor wished to take control of the sales process. So, her lawyer got court approval for her to do so under s.38 of the BIA. No other creditor joined in with her. The properties are now sold, we have so far received a six-figure payment from the surplus sitting in her Canadian lawyer’s trust account after she was fully repaid all of her costs and the amount of her claim.

There is another six-figure amount sitting in a foreign country. We have retained legal counsel in that country now to get the rest of the funds repatriated into our trust account. Once received, we will finalize our vetting of all proofs of claim and make a distribution to the unsecured creditors.

5. A discharge from personal bankruptcies in Ontario ends the debtor’s liability for pretty well all debts

Unless the Trustee of a bankrupt corporation raises enough money for all of the creditors to be paid off in full, with interest, a corporation is never discharged from bankruptcy. In personal bankruptcy, the debtor is eventually entitled to an absolute discharge. The absolute discharge can be:

  • Received straight away when the debtor is able to be discharged.
  • Given once the bankrupt fulfills all of the conditions of discharge.

There are only a handful of claims that are not discharged upon the discharge of the bankrupt. Those are:

  1. Trust claims.
  2. Secured claims.
  3. Those claims which fall under s.178 of the BIA.

If a debtor wishes to get out of a liability where the creditor holds security, such as vehicle financing, the debtor needs to trigger a default prior to filing for bankruptcy. So continuing with the vehicle example, the debtor could tell the lender that it cannot afford to make any more payments. The debtor would then give the vehicle and the keys to the lender.

The debtor should then wait for notice from the lender that the vehicle has been sold, the lender has suffered a shortfall and demands payment for the shortfall. The shortfall is an unsecured claim. The debtor now files for bankruptcy after the shortfall claim has crystallized. There now is no longer a secured claim for this debt.

If the debtor does not wait for the shortfall notice from the lender, they run the risk that the shortfall occurs after the date of bankruptcy. In that case, the shortfall unsecured claim will not be a debt discharged by the bankrupt’s discharge.

I have previously written about the s.178 claims. You can read about them in my blog.

Lacking affirmative action by a debtor or Trustee, all secured claims go through the bankruptcy unaffected. It is incumbent on the Trustee to get a lawyer’s security opinion on the validity of any secured creditor’s security as against the Trustee. I have a corporate bankruptcy file now where the legal opinion was that the security was not valid. I advised the creditor who did not object. I guess they already knew!

6. Bankruptcies in Ontario – A fully completed restructuring also discharges most debts

The most essential element of reorganization situations under the BIA and CCAA that creditors need to know is about how debts get discharged in a restructuring. Similar to a personal bankruptcies in Ontario, in a successfully completed corporate restructuring, the debtor’s debts are discharged. Again, except for trust claims and secured creditor claims, the ordinary unsecured debts of a corporation are fully discharged when a restructuring plan that has been accepted by the creditors and approved by the court is fully completed. When the payout is made to the creditors and the company has successfully completed it, there are no pre-filing debts remaining.

So what is the significance to creditors? Well, if you are a director of the company, any debts that would have been a director liability, other than for a trust claim, vanishes. As there is no debt left, there is nothing left for the director to be responsible for.

Likewise, if someone personally guaranteed a premises lease to the landlord, if the lease is disclaimed as part of the restructuring, then the landlord has an unsecured claim. Once that claim is fully discharged in the restructuring, there is no debt left for the guarantor to be responsible for.

Creditors should also know that a company in a restructuring, may come to you to renegotiate your agreement with the company. If you refuse, the company could disclaim the agreement and any claim you have will be an unsecured claim in the restructuring.

7. Bankruptcies in Ontario bonus tip

It is better to get professional advice about extending credit to a customer and the best way to do it before you approve the credit. Getting professional advice after they have filed for bankruptcy limits your options.

Bankruptcies in Ontario – Summary

I hope you have found this bankruptcies in Ontario Brandon’s Blog helpful.

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

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

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

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

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

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

Stay healthy, well balanced and safe and secure everyone.

bankruptcies in ontario
bankruptcies in ontario
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Brandon Blog Post

THE TORONTO CORONAVIRUS EXTRAORDINARY PLAN TO BUSINESS RECOVERY

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

Stay healthy, well balanced and safe and secure everyone.

Introduction

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

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

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

Telltale signs from the United States

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

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

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

Entrepreneurs are doing whatever they can

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

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

The moratorium won’t last forever

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

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

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

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

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

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

Toronto coronavirus induced restructuring

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

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

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

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

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

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

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

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

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

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

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

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

Business not viable

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

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

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

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

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

Personal guarantees and director liabilities

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

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

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

Toronto Coronavirus Summary

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

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

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

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

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

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

 

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

Stay healthy, well balanced and safe and secure everyone.

toronto coronavirus

 

 

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Brandon Blog Post

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

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

Stay healthy, well balanced and safe and secure everyone.

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

Debt relief Canada COVID introduction

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

Personal insolvency –

Corporate insolvency

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

Debt relief Canada COVID specific:

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

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

Canadian Department of Justice concerns

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

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

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

What the draft legislation is designed to do

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

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

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

What the draft legislation says

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

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

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

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

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

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

Summary

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

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

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

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

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

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

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

Stay healthy, well balanced and safe and secure everyone.

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Brandon Blog Post

CONSTRUCTION LIEN ACT: CAN YOU TRUST AN INSOLVENCY PROCEEDING?

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

Stay healthy and safe everybody.

Introduction

Matters involving the Construction Act, R.S.O. 1990, c. C.30 ( formerly known as the Construction Lien Act) is very complex. In this Brandon’s Blog, I will use the term that laypeople are most familiar with, being the former name of the provincial legislation.

Construction law is a specialty unto itself. It gets even more complex when a company involved in construction enters insolvency proceedings. There is normally a conflict in these kinds of files between:

In this Brandon’s Blog, I describe a recent 5 member panel decision of the Court of Appeal for Ontario who had to decide whether a trust created under section 9(1) of the provincial Construction Lien Act survives a sale by the Monitor in an insolvency proceeding under the federal Companies’ Creditors Arrangement Act (CCAA).

The case is Urbancorp Cumberland 2 GP Inc. (Re), 2020 ONCA 197 (Urbancorp). The matter was heard on October 3, 2019. The unanimous decision was recently released on March 11, 2020.

Some background matters

Before getting into the actual case, there are two background matters that I should first explain. When I thought of these concepts and then the decision this way, it made it easier for me to understand.

The first issue is the types of insolvency proceedings. There are essentially four types of insolvency proceedings. Some are not mutually exclusive. Each one of them can be used for the assets of the insolvent debtor to be sold. I break down the insolvency proceedings list in this way:

  1. Using the restructuring provisions of either the Bankruptcy and Insolvency Act (Canada) (BIA) or CCAA.
  2. A bankruptcy administration under the BIA.
  3. A secured creditor taking enforcement proceedings on the assets subject to its security through the security itself by privately appointing a Receiver or Receiver and Manager.
  4. A secured creditor making an application to the Court that it is just or convenient for the Court to appoint a Receiver to act on behalf of all creditors in stabilizing an insolvent debtor situation and to come back to Court with recommendations on how to proceed, including the sale of assets.

The second issue has to do with trust claims under the Construction Lien Act. There are several sections in the legislation dealing with trust claims. As I stated above, it is a very complex topic. So, I am going to only focus on the one that is the subject matter of this case. That is section 9(1) of the Act. That section deals with a trust claim against the vendor of the construction assets. It states:

“9 (1) Where the owner’s interest in a premises is sold by the owner, an amount equal to,

(a) the value of the consideration received by the owner as a result of the sale,

less,

(b) the reasonable expenses arising from the sale and the amount, if any, paid by the vendor to discharge any existing mortgage indebtedness on the premises,

constitutes a trust fund for the benefit of the contractor. R.S.O. 1990, c. C.30, s. 9 (1); 2017, c. 24, s. 9, 70.

Obligations as trustee

(2) The former owner is the trustee of the trust created by subsection (1), and shall not appropriate or convert any part of the trust property to the former owner’s own use or to any use inconsistent with the trust until the contractor is paid all amounts owed to the contractor that relate to the improvement. R.S.O. 1990, c. C.30, s. 9 (2).”

The distinction here that I want you to keep in mind is the words in the very first line “Where the owner’s interest in a premises is sold by the owner…”(emphasis added).

Now for the case.

The Urbancorp Construction Lien Act case

This case deals with Urbancorp and related companies that developed and was building a residential condominium project. Urbancorp was insolvent and filed first a Notice of Intention to Make A Proposal under the BIA. The proceedings were later converted by the Court into proceedings under the CCAA. The insolvency proceeding was in both cases under a Federal restructuring statue. The Court appointed a Monitor to oversee the insolvency administration. Through various Court applications and court orders, the Monitor was given the authority to market and sell the condominium assets. The Monitor did so.

Now the cash the Monitor received from the sale stood in place of the original condominium assets. Subcontractors brought an application before the lower Court claiming they had a valid trust claim under the Construction Lien Act. The lower court judge carefully reviewed the evidence and prior decided cases and came to the conclusion that the subcontractors did not have a valid trust claim against the assets. The subcontractors appealed the lower court’s decision.

In addition to appealing the lower court’s decision, they also raised with the Court of Appeal a constitutional question that comes up many times. The constitutional question is, does federal law always take priority, or trump (with a small “t”!!) provincial law. This is otherwise known as the concept of paramountcy. Stated slightly differently, the issue can be stated as does section 9 of the Construction Lien Act remain to have application after a bankruptcy or initial order under the CCAA? The Attorney General of Ontario also stepped in on that part of the case.

The Court of Appeal accepted this constitutional question to be decided so there were now two issues before the Court of Appeal; the issue of paramountcy and the trust claim issue.

The constitutional question

The Court of Appeal went through a very thoughtful and careful analysis. It confined the constitutional question to the facts of this case. The court concluded in this case:

  1. The trust created under section 9(1) of the Construction Lien Act is a valid trust under provincial law.
  2. The BIA excludes from property available to the creditors any property held in trust.
  3. Therefore, this provincial trust can be effective when there is an insolvency proceeding under the BIA.
  4. Similarly, with the CCAA legislation, it follows that a section 9(1) provincially created trust might be effective when the insolvency administration is subject to the CCAA.

Now for the actual appeal

The Appeal Court now turned to the lower court judge’s decision that a section 9(1) of the Construction Lien Act trust did not apply in this matter. The five-member panel again went through a careful analysis of the statute and the case law. They spent a lot of time reviewing an earlier Court of Appeal for Ontario decision which the lower court judge relied upon in his decision.

The Court of Appeal highlighted that in that decision the lower court relied upon, the owner, being the insolvent debtor, had no interest in the asset that the subcontractors were claiming a trust claim against. The reasons were:

  1. The asset was part of a package of assets sold.
  2. There was a secured creditor who had security over all of the assets of the developer.
  3. The proceeds less the expenses to produce the sale were less than what was owed to the secured creditor.
  4. The court allowed the cash from the sale to stand in place of the assets.

Using this framework, the Court of Appeal stated that a s.9( 1) trust only arises if the value of the consideration received by the owner from the sale of assets, which have actually been enhanced by the work or materials of the contractor, surpasses the amount of the mortgage debt. A trust will not occur if the value is zero, or if the mortgage debt is equal to or above any kind of sale proceeds.

Therefore, the decision that the lower court relied upon in disallowing the trust claim does not stand for the suggestion that control by a CCAA Monitor of a sales process, or the receipt by the Monitor of the proceeds of the sale by itself, avoids a s.9( 1) trust against the proceeds of the sale of the enhancement are shown to have a positive worth that surpasses the mortgage debt on the asset. That fact pattern was absent from the case relied upon.

The decision

Now, you remember at the beginning of this blog I went through the essentially four types of insolvency proceedings. The Court of Appeal also considered the various types. The court drew a distinction in them as it relates to section 9(1) of the Construction Lien Act. Also remember that from my quotation above of this section, it starts with “Where the owner’s interest in a premises is sold by the owner…”(emphasis added).

In a receivership or bankruptcy, the owner loses control of the assets. The vendor in a sale is either the receiver/receiver and manager or the trustee in bankruptcy, respectively. In those examples, it is not the owner selling its own assets. It is the licensed insolvency trustee (formerly known as a bankruptcy trustee) selling its right, title and interest, if any, in the assets of the debtor. So the vendor is the licensed insolvency trustee in its specific capacity.

The Urbancorp matter started out as a restructuring under the Proposal provisions of the BIA and was then converted by the Court and continued under a different restructuring statute, the CCAA. In an insolvency administration under the restructuring provisions/statue, the owner does not lose control of its assets. True that the Monitor is given court authority to make decisions, market and then sell the assets. However, one of the cornerstones of the appointment of a Monitor is that the owner does not lose control of the assets and the Monitor does not become the owner of the assets.

Rather, the Monitor gets its powers from the court. The Monitor is actually selling the insolvent company’s assets as the company’s representative or agent. So even though it is the Monitor doing the selling, it is doing so on behalf of the owner. This is very different than a sale by a receiver/receiver and manager or trustee in bankruptcy.

In the Urbancorp situation, the value of the consideration received by the owner from the sale of assets, which have actually been enhanced by the work or materials of the contractor, surpasses the amount of the mortgage debt.

Highlighting these distinctions, the Court of Appeal for Ontario overturned the lower court decision and upheld the subcontractors’ trust claim. It substituted the lower court decision with an order that a s.9( 1) trust under the Construction Lien Act applies for the sum of $3,864,429 held in the accounts of the Monitor on account of the Urbancorp companies, for the benefit of the subcontractors, pro-rata in accordance with the amount owing to each of them.

Summary

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

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

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

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

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

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

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

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

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

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

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

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

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

Stay healthy and safe everybody.construction lien act

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Brandon Blog Post

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

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

Stay healthy and safe everybody.

<h2

Consumer proposal in Ontario: Introduction

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

Consumer proposals in Ontario: The issue

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

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

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

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

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

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

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

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

consumer proposals in ontario
consumer proposals in ontario

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

Effect of COVID-19 on consumer proposals in Ontario

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

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

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

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

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

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

The Court first defined two specific terms:

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

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

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

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

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

      consumer proposals in ontario
      consumer proposals in ontario

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

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

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

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

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

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

Consumer proposals in Ontario: Summary

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

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

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

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

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

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

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

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

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

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

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

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

consumer proposals in ontario
consumer proposals in ontario

Stay healthy and safe everybody.

Categories
Brandon Blog Post

REDWATER ALBERTA NEWS: $1.7B TO CLEAN UP ORPHANED WELLS DUE TO COVID-19

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

Stay healthy and safe everybody.

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

Introduction

When it went insolvent in 2015, Redwater Energy Corp. (Redwater Alberta or Redwater) might have been a small business, with only 19 generating wells and 90 dormant wells. However, a relatively small oil producer was responsible for a huge Supreme Court of Canada (SCC) decision.

Basically, the SCC decided in the Redwater Acase, that if a business goes belly up, its environmental obligation needs to be paid before secured creditors. I have written before on the Alberta Courts’ decisions and the SCC decision. As a result of COVID-19, the Canadian government just announced a $1.7 billion fund to create jobs in the Canadian oil patch.

Redwater Alberta history of cases

In my previous blogs, I described the Alberta court decisions. The Alberta Courts concurred with the receiver and held that the regulator’s enforcement activities to force Redwater’s adherence to its previously agreed requirements to clean up and permanently cap its oil site, in bankruptcy was not enforceable.

The Courts stated that given the bankruptcy of the company (in addition to a receivership), the Bankruptcy and Insolvency Act (Canada) (BIA) took paramountcy over the provincial law. The provincial Courts said that the BIA took paramountcy because:

  1. Allowed the receiver protection from the promises of Redwater Alberta as the licensee in connection with the Redwater properties disclaimed by the receiver/trustee, according to s. 14.06(4) of the BIA.
  2. The priority for the distribution of a bankrupt’s assets is regulated under the BIA, not provincial legislation. If the provable claim of the Regulator, an unsecured creditor, was paid in advance of the claims of Redwater’s secured creditors, that would not be the regime laid out in the BIA.

The SCC decision

In the SCC 5 to 2 judgment in the Orphan Well Association v. Grant Thornton Ltd. case, the SCC ruled that financially troubled companies like Redwater can no longer disclaim or merely bow out of properties they don’t want. In this situation, non-producing oil wells, when abandoned or orphaned, leave the resulting ecological cleaning to Alberta’s Orphan Well Association. It is a non-profit operating for the Alberta Energy Regulator.

What the SCC decision in the case of the Redwater Alberta receivership means is that the costs of properly and permanently sealing an oil well that is to be abandoned is a first ranking charge against the producer’s assets. In the Redwater case, the receiver had to turn over the proceeds (about $600,000) from the asset sales to the Alberta regulator. There was absolutely nothing left for any other creditor, either secured or unsecured.

This case was obviously difficult and contentious, given that it was a 5-2 decision and not unanimous. The majority decision stated that:

  • The regulator’s use of its provincial powers is not in conflict with the BIA to trigger the doctrine of federal paramountcy.
  • Section 14.06(4) of the BIA deals with the personal liability of receivers and trustees and does not let a trustee ignore the environmental liabilities of the estate.
  • The regulator is not asserting any claims provable in the bankruptcy.
  • There is no attempt by the regulator to upset the scheme of priorities stipulated by the BIA.
  • There is not a conflict by the regulator tagging the Redwater receiver as a licensee under Alberta legislation.

The Supreme Court decision goes on to say that the rules cannot be ignored just because there is a bankruptcy. Insolvency professionals must abide by valid provincial laws in administering corporate bankruptcy. It also found that receivers and trustees must:

  • conform with non-financial requirements the insolvent company must still adhere to that do not create a provable claim in the insolvency administration; and
  • Adhere to the parts of the provincial legislation that does not go against the BIA, notwithstanding that it might prove harmful to the position of one or more groups of creditors.

COVID-19 and orphaned wells

Near the end of March 2020, Finance Minister Bill Morneau said that help for the oil and gas industry would be announced. This industry has been hit by two different factors:

  1. Reduced demand due to people self-quarantining because of COVID-19 and therefore there is less demand for oil and gas.
  2. The price battle between Russia and Saudi Arabia. Oil on the world market is at an all-time low. At one point, a barrel of Canadian oil was selling for less than $5. The industry cannot operate with oil prices that low.

As a result, there have been massive job losses in British Columbia, Saskatchewan and Alberta oil patches. As well, the regulators do not have the money to reclaim and permanently seal off the abandoned orphaned wells. It is currently estimated that the total cost could be in the $8 billion range.

On Friday, April 17, Prime Minister Justin Trudeau announced that the federal government will invest at least $1.7 billion to the orphaned well cleanup. The money is to be used to create oil patch jobs to allow for the environmental cleanup.

So COVID-19 or coronavirus, has forced the Canadian government to create this support for the Canadian oil and gas industry. It will create jobs badly needed and allow for the cleanup of some orphaned oil wells.

Details of the support package have not been released. Presumably, the legislation will have to be drafted and passed in the House of Commons. No doubt, more information will come out in the coming days or weeks.

Summary

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

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

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

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

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

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

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

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

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

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

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

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

Stay healthy and safe everybody.

Categories
Brandon Blog Post

INSOLVENCY TRUSTEE TORONTO NEWFANGLED COVID-19 BUSINESS RESTRUCTURING PLAN

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

Keep healthy and safe everybody.

Introduction

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

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

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

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

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

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

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

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

The novel court Order

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

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

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

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

Pier 1 Imports took a page from the Modell playbook

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

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

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

Could this happen in Canada?

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

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

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

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

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

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

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

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

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

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

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

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

Insolvency trustee Toronto summary

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

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

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

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

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

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

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

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

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

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

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

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

Keep healthy and safe everybody.

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Brandon Blog Post

HST REMITTANCE REVIEW: UNPAID HST & THE DIRECTOR’S JOINT BANK ACCOUNT

Introduction

I have previously written about joint bank accounts and joint credit cards. I recently read a decision of the Tax Court of Canada that will be of interest to every entrepreneur whose company may be behind in their HST remittance and who has a joint bank account with their spouse.

Joint bank account considerations

Opening a joint bank account is a relatively easy procedure. People who share a joint savings or chequing account can each make deposits and withdrawals from the account without the signature of the person they share the account with. As a matter of fact, any person listed on the joint account can close it using proper identification. Data held by a bank on the owners of the joint account, similar to any other account, consists of personal identifiers of the holders of the account, which enables anyone legally authorized to get that information.

I have written before on the dangers of a joint bank account. The dangers have nothing to do with the bank per se. They are more non-bank related. Examples of problems include:

  • Sometimes moms and dads will share an account with a small child. The reason is to begin providing the youngster with financial literacy education. However, if you share a bank account with your minor child and your spouse, you are taking a chance that your partner can access that joint bank account that you share with your child without your authorization.
  • There is a threat with a joint account between partners when you have a saver as well as a spender who each has access to the account without the other’s signature. It can trigger family, relationships or business problems.

I wanted to give this brief background information, but it is not what is of most interest to entrepreneurs. The following Tax Court of Canada decision which I will now describe is.

Tammy White and Her Majesty The Queen facts

This judgement was rendered on February 4, 2020, in the Tax Court of Canada in Vancouver, BC. Ms. White appealed an assessment by Canada Revenue Agency (CRA) against her under subsection 160(1) of the Income Tax Act (R.S.C., 1985, c. 1 (5th Supp.)) (Income Tax Act) and subsection 325(1) of the Excise Tax Act (R.S.C., 1985, c. E-15) (Excise Tax Act). You will recall that last week, I spoke about the danger of receiving transfers of property from someone who owes money to CRA in my blog, DO YOU INHERIT DEBT IN CANADA: CRA SAYS YES TO PROPERTY TRANSFERS. That blog dealt with debt in death and the deceased Estate. This week, nobody died. You are probably wondering what this has to do with entrepreneurs and joint bank accounts. I will now tie it all together. I promise!

The appeal deals with the concern of whether the deposit of funds by a person into a joint account held with the entrepreneur’s partner comprises a transfer of property under subsection 160(1) of the Income Tax Act and subsection 325(1) of the Excise Tax Act.

The facts of the case are as follows:

  • On March 1, 2016, Mrs. White was assessed $49,962.45 under section 160 of the Income Tax Act and $90,886.35 under section 325 of the Excise Tax Act. She appealed both assessments to the Court. The assessments are a result of amounts that her husband, former business owner Andy White, apparently moved to his wife between March 15, 2013, and October 30, 2015.
  • On March 26, 2014, Andy filed a consumer proposal under the Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) (BIA).
  • Department of Justice counsel on behalf of CRA at the hearing backed off part of the claim by agreeing that any kind of purported transfers made after the date of the consumer proposal is beyond the range of the assessments in concern in this appeal.
  • Tammy and Andy were married in 1984 and always held the same joint bank account.
  • For the last 35 years, Andy and Tammy have made use of the joint bank account to pay their personal expenditures and the costs of running their family household.
  • Andy was a part-owner of White & Davidson Logging Limited, a company he started working for from a very young age.
  • The company began to experience financial troubles in 2004 as a result of weak demand in the British Columbia forestry industry and also a government-mandated decrease in cutting rights. These troubles resulted in the business selling its assets in 2006 and discontinuing business. At the time the business stopped operating, it had not remitted all amounts it had held back as payroll source deductions. It also did not make the required payment of the amounts it owed as HST tax obligations. Accordingly, it was not current in its tax obligations and did not make its final payroll or HST remittance.
  • Andy was a Director of the defunct company and therefore was assessed by CRA personally for the company’s unremitted payroll source deductions and unpaid HST.
  • After a while, and after being assessed by CRA, Andy eventually found full-time employment and deposited his pay into the joint bank account he shared with Tammy.
  • Andy owed CRA almost $91,000 for the company’s unremitted HST.
  • Tammy was also employed in a retail store. In the late 1990s, she opened up a bank account only in her name. Her pay was deposited into that new account.
  • Tammy was the sole owner of the family’s home. She admitted under oath that she made payments out of the joint account to pay the mortgage, utilities, property taxes and any other costs of running the home.
  • Certain amounts were also transferred from the joint account into Tammy’s personal account.

The issues

The issues are fairly narrow. In last week’s blog, I went through the criteria a court must look at to determine if there was a transfer of property at a time when the transferor owed an amount to CRA. You can refresh yourself on the criteria by clicking here.

CRA’s position was that a transfer of property from Andy to Tammy took place the moment his pay was deposited into the joint bank account. They also stated that Tammy gave no consideration for this.

Tammy’s position was that no transfer could have taken place by merely depositing the funds into the joint bank account. Andy maintained full control of the money. CRA, or the Sheriff, acting on a valid judgement, could garnishee Andy’s share of the funds in the joint bank account.

At the time in question, Andy’s pay that was deposited into the joint bank account totalled $89,806.72.

The Court’s decision

The court did not agree with CRA. The Judge found that:

  • Just depositing the funds in a joint account does not comprise a transfer. Mr. White did not unload himself of the funds when they were deposited into the joint account. He continued to have complete access to the funds in the account. As a matter of fact, the evidence was that Andy, as he had done since 1984, used some of the funds to pay his personal expenses and specific costs of his household.
  • Andy did not defeat or whatsoever prevent the Minister of Revenue from collecting any tax he owed by placing his compensation in the joint account. CRA could have taken collection activity relative to funds in the joint account. In fact, part of the evidence before the court was that the joint bank account was garnished by a third party to repay one of Andy’s debts.
  • As soon as the funds were put in the joint bank account, Tammy had the ability to impact a transfer. Nonetheless, such transfer did not happen until the funds were removed from the joint account and placed into the account only in Tammy’s name.
  • The Judge was very critical of CRA. They did not properly identify funds taken out of the joint account and put into Tammy’s account. There was limited evidence before the court. So, the Judge had to “guesstimate” as best as possible from the scant evidence how much was transferred from the time Tammy opened up her sole account and the date of Andy filing a consumer proposal.
  • The Judge determined that the amount of property Andy transferred to Tammy during the relevant period for no consideration was the amount of $34,052.
  • Accordingly, the Judge allowed the appeal and vacated the assessment. He referred it back to the Minister of Revenue to reconsider a reassessment of Tammy in the amount of $34,052.

HST remittance and the entrepreneur

So what does this mean for the entrepreneur? It tells me that if you are:

  1. Director of an insolvent company that owes unremitted source deductions or unpaid HST;
  2. the company goes either into receivership or bankruptcy or otherwise has to shutdown;
  3. you are assessed personally by CRA because you were the Director; and
  4. you get another job and deposit your pay into a joint bank account you hold with a spouse or child.

Your spouse or child will not be liable under the property transfer laws of the Income Tax Act and/or the Excise Tax Act by the mere depositing of your money into the joint bank account. What it also tells me is, if you are in this situation and do not have a joint bank account, maybe you should! If so, go back to the “Joint bank account considerations” section of this blog to see if it is the right thing for you to do in your situation.

Summary

I hope you enjoyed this blog on HST remittance and joint bank accounts. The Ira Smith Team is available to help you at any time. We offer sound advice and a solid plan for Starting Over Starting Now so that you’ll be well on your way to a debt-free life in no time.

Do you or your company have too much debt? If yes, then you need immediate help. The Ira Smith Team comprehends just how to do a debt restructuring. Much more notably, we know the demands of the business owner or the person who has too much debt. Due to the fact that you are managing these stressful financial problems, you are anxious.

It is not your fault you cannot fix this issue on your own. You have just been shown the old ways. The old ways do not work anymore. The Ira Smith Team makes use of new contemporary ways to get you out of your debt troubles while avoiding bankruptcy. We can get you debt relief now.

At Ira Smith Trustee & Receiver Inc., we take a look at your whole condition and layout a strategy that is as unique as you are. We take the load off of your shoulders as a part of the debt negotiation approach we will create just for you.

We understand that individuals facing financial troubles require a lifeline. That is why we can establish a restructuring procedure for you as well as end the pain you feel.

Call us now for a no-cost consultation. We will certainly get you or your business back on the road to a well balanced and healthy life and end the pain factors in your life, Starting Over, Starting Now.

hst remittance

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Brandon Blog Post

CREDITORS: ALARM BELLS RING WHEN FINANCIAL RESTRUCTURING HEADS SOUTH

Introduction

The purpose of this Brandon’s Blog is to describe the final type of bankruptcy in Canada. I will describe it from the viewpoint of creditors. Previously I’ve blogged about the three types of bankruptcies in Canada. I also wrote about the personal bankruptcy process and the corporate bankruptcy process in Canada.

Personal bankruptcy and corporate bankruptcy in Canada

From the first two, the personal bankruptcy process and the corporate bankruptcy process, that was from the perspective of a person or company filing an assignment in bankruptcy. I also wrote about a person or company being pushed into bankruptcy by one or more creditors through a bankruptcy application and a bankruptcy order.

Today’s blog is to talk about the third type of bankruptcy and that is a deemed assignment in bankruptcy. The deemed assignment is most commonly associated with when a financial restructuring under the Bankruptcy and Insolvency Act (Canada) (BIA) heads south.

Creditors and a deemed assignment in bankruptcy

In Canada, very large corporate restructurings are done under the Companies’ Creditors Arrangement Act. A person or a company of any size can also restructure under the BIA. This blog is about restructuring under the BIA to illustrate the third way a person or company can go bankrupt through a deemed assignment in bankruptcy.

The reason people or companies would file for a financial restructuring is to get a time out from its creditors taking action against them trying to collect on debts. People who owe more than $250,000 and companies who have too much debt qualify to restructure under the financial restructuring debt settlement provisions of the BIA. A restructuring filing gives them the needed time out to formulate a plan for settling the debt.

If a person owes $250,000 or less, then there is a different restructuring provision of the BIA available. That provision is the consumer proposal restructuring debt settlement section. If a consumer proposal restructuring attempt fails, that ultimately does not end up in being a deemed assignment in bankruptcy.

The deemed assignment in bankruptcy, the third type of bankruptcy in Canada, is really the topic of this blog.

Financial restructuring under the BIA

So the BIA has a financial restructuring section. The debtor needing a timeout can either file their restructuring proposal straight away or first buy some extra time by filing a notice of intention to make a proposal. If a debtor first files a notice of intention to make a proposal, within 10 days after that, they need to file a cash flow statement in the prescribed form plus related extra documents (unless the time period is extended by the court). The restructuring proposal must be filed within 30 days after the filing of the notice of intention to make a proposal.

When a debtor files the actual restructuring proposal a cash flow statement has to be filed with it as well. It will be an original one if the debtor goes straight away to the filing of the proposal or an updated one if they first filed the notice of intention to make a proposal.

Meeting of creditors to consider the proposal

Once filed the Licensed Insolvency Trustee (formerly called a bankruptcy trustee) (Trustee) must notify the creditors of the filing of a notice of intention to make a proposal and the restructuring proposal. The Trustee must call a meeting of creditors within 21 days of the filing of the restructuring proposal.

The creditors get to vote to approve or not approve the restructuring proposal creditor acceptances by voting and must be in the requisite majority calculated as a simple majority in number and at least 2/3 of the dollar value of all claims voting either in person at the meeting or by proxy and voting letter delivered to the trustee prior to the start of the meeting.

The need for Court approval

After creditors accept the Proposal, the Trustee must get the restructuring proposal approved by the court. For the court approval process, the court considers if:

  • the restructuring proposal, are the terms of the restructuring proposal fair and calculated to benefit the general body of creditors?
  • Did the Trustee properly follow all required procedural steps including properly holding and counting the voting by the creditors?

As long as the answers to these questions are yes and the restructuring proposal took the interests of all stakeholders into account, then the court will approve the restructuring proposal. Then the company or the person must successfully complete it including making all payments required under the restructuring proposal.

How can a restructuring proposal fail or head south?

A financial restructuring plan under the BIA can fail if:

  • the person or company fails to file the required cash flow statement and related documentation within the 10 day period after the filing of the notice of intention to make a proposal or the debtor;
  • fails to file a financial restructuring proposal within the 30-day time limit after the filing of the notice of intention to make a proposal or such greater time period authorized by the court;
  • the requisite majority of creditors voting do not accept the restructuring proposal;
  • the court does not approve the restructuring proposal; or
  • the restructuring proposal is accepted by the creditors and approved by the Court but the debtor fails to make the payments and do any other things contained in the restructuring proposal.

When the debtor is automatically bankrupt when there is an event of default in the Proposal

Under the following situations, the person or company will be deemed to have filed an assignment in bankruptcy if the person or company:

  • fails to file the required cash flow statement;
  • the debtor fails to file the financial restructuring proposal on time;
  • the requisite majority of creditors voting do not accept the restructuring proposal; or
  • the court does not approve the restructuring proposal

Under any of these conditions, the person or the company is automatically deemed to have filed an assignment in bankruptcy. You can go back and review my earlier blogs for the personal bankruptcy process and for what the corporate bankruptcy process is all about.

You can do the same thing when the restructuring proposals are accepted by the creditors and approved by the court but the debtor fails to make payments or do any of the other things contained in the restructuring proposal.

A Proposal default that does not automatically mean bankruptcy

Unlike the other events of default, when the debtor fails to make a payment under the Proposal, there is not an automatically deemed assignment in bankruptcy. Rather the Trustee has to give notice to the debtor and if there are any the inspectors in the restructuring to them also. The person or company attempting to restructure then has 30 days to remedy the default. If they do not remedy the default after the 30 day period then the Trustee has to issue a notice of default which is sent to the debtor, the creditors, and to the Superintendent of Bankruptcy.

After giving notice of default, the Trustee does not have to do anything else. Any one of the creditors can then bring a court motion to annul the restructuring proposal. If the Trustee has the funding to do so and is directed by the inspectors, the Trustee can also bring that motion.

If the motion is brought and is successful then and only then is the person or company deemed to have filed an assignment in bankruptcy.

But if nobody brings the motion the company or person actually just floats out there and the Trustee is entitled to go for taxation of its receipts and disbursements, make whatever distribution it can with the funds on hand and then go get its discharge.

Three types of bankruptcy in Canada

So to recap, the three types of bankruptcies in Canada are:

  • filing an assignment of bankruptcy;
  • a bankruptcy application and the issuance of a bankruptcy order; and
  • as explained in this blog, a deemed assignment in bankruptcy.

I hope you enjoyed this blog on creditors, a financial restructuring proposal and the process for a deemed assignment in bankruptcy. The IraSmith team is available to help you at any time. We offer sound advice and a solid plan for Starting Over Starting Now so that you’ll be well on your way to a debt-free life in no time.

Do you have too much debt? Are you banking on some outside event that you have no control over, like an inheritance or gambling winnings to save you or your company?

If yes, then you need immediate help. The Ira Smith Team comprehends just how to do a debt restructuring. Much more notably, we know the demands of the business owner or the person who has too much debt. Due to the fact that you are managing these stressful financial problems, you are anxious.

It is not your fault you cannot fix this issue on your own. You have just been shown the old ways. The old ways do not work anymore. The Ira Smith Team makes use of new contemporary ways to get you out of your debt troubles while avoiding bankruptcy. We can get you debt relief now.

At Ira Smith Trustee & Receiver Inc., we take a look at your whole condition and layout a strategy that is as unique as you are. We take the load off of your shoulders as a part of the debt negotiation approach we will create just for you.

We understand that individuals facing financial troubles require a lifeline. That is why we can establish a restructuring procedure for you as well as end the pain you feel.

Call us now for a no-cost consultation. We will certainly get you or your business back on the road to a well balanced and healthy life and end the pain factors in your life, Starting Over, Starting Now.

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Brandon Blog Post

TOP COURT APPOINTED RECEIVER SECRET: DETAILS MATTER

court appointed receiver

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

Introduction

I recently read an interesting case from the Court of Queen’s Bench of Alberta involving a court appointed receiver. To me, it highlights that sometimes the simplest of things can provide major difficulty. I will explain, but first, I will go over some basic facts that will help you understand the issue in this case better.

What is a court appointed receiver?

When a borrower defaults on its borrowing agreement, typically by non-payment, the secured creditor needs to decide if it is required to enforce against its security. The most common method for a lender to use is receivership. There are 2 types of these procedures in Canada; 1) private appointed or; 2) court appointed.

Normally, the procedure begins with the secured creditor seeking advice from its legal counsel and the receiver it is thinking of using. If it is chosen that there should be a receiver appointed, the secured creditor, normally a financial institution, then makes a selection. They can either appoint the receiver by private letter of appointment or make an application to the Court for an Order designating the receiver (court-appointed).

The Bankruptcy and Insolvency Act (Canada) (BIA) requires that just a licensed insolvency trustee (formerly called a bankruptcy trustee) can work as a receiver. A privately appointed receiver acts on behalf of the selecting secured creditor. A court appointed receiver has a duty of care to all creditors.

1305402 Alberta Inc v 0774238 B.C. Ltd, 2019 ABQB 982

This case was an application by the court appointed receiver (as a British Columbia Court designated receiver of two individuals and also several companies) to have funds in the amount of $281,711.11 paid to it in its capacity as the receiver. The application on its face seemed simple.

The British Columbia Securities Commission (the “Securities Commission”) made considerable enforcement orders versus the individuals and the companies (the “Debtors”). The total fines exceeded $9 million in total. They arose from the Debtors having gotten from various parties real estate financial investments without a prospectus and various other violations.

The Securities Commission got a receivership court order from the Supreme Court of British Columbia on October 3, 2019, appointing a receiver (the Receivership Order). The Debtors are the named parties whose assets the Receivership Order covers.

This application in the Alberta Court was made by the court appointed receiver to take possession of surplus cash paid into the Alberta Court, available from the sale of a property located in the Province of Alberta.

The Court’s problems

On the face of the Receivership Order, it was difficult to tell which parties were originally served with notice of the case. The Receivership Order indicates that a list of those served was attached as Schedule A. Yet Schedule A was not the service list. Rather, it was an example of the Receiver’s Certificate to be utilized in securing financing of the receivership. There was also a Schedule B to the Receivership Order. Unfortunately, it also was of no help. Its only purpose was to list the legal description of the subject land.

Counsel for the applicant argued that certain findings in the original receivership application would decide the outcome of this case. As a result, the Master said that it would certainly have been handy to understand whether the objecting party to this application had any type of capacity to make any kind of argument now!

For example, was the matter in this application already decided in the original motion, or, are there any estoppel issues that would stop someone with notice of the original receivership application from objecting now? In the end, the Master decided that the documents now before the Alberta Court was not adequate to figure out those problems now.

Duties of a court appointed receiver

In addition to having a general duty of care to all stakeholders, the specific duties are spelled out in the Receivership Order. Like all such orders, this one gave the receiver the duty to take possession of all of the assets of the Debtors.

The funds in Court are surplus from a sale or foreclosure in Alberta known as the “Rocky View Lands”. There was a consent order for repossession in the foreclosure action giving the mortgagee title. It was not readily evident from the material before the Master just how surplus proceeds were generated. Nevertheless, the funds were being held by the Court and the receiver was applying to take possession of the cash under its Receivership Order powers and duties.

The receiver’s problem

The proceeds were paid into Court on the application of the previous authorized owner of the Rocky View Lands. Unfortunately, that owner was not one of the Debtors! Just to make matters worse, one of the individuals who were one of the Debtors, filed an affidavit that appended a purported Trust Agreement. The Trust Agreement stated that the owner of the Rocky View Lands was holding the property in trust for 19 different named investors who were opposing this application.

The Master held that the applicant did not adequately prove its case to its entitlement to the funds paid into the Court. The owner of the lands was not one of the Debtors. It was only the property of the Debtors the court appointed receiver had authority over.

So the Master decided that the parties could come back to Court for a full trial to figure out who really had an interest in the funds. This could only be decided after full argument by both the receiver and the opposing parties. It was too early to direct that the funds be paid to the court appointed receiver now.

The devil is in the details

From the Master’s decision, it is obvious that the court appointed receiver came to Court without knowing all the details. In addition, the details that it must have known about who was served with the original receivership application were missing. I am sure this receiver was not trying to pull a fast one over anybody – they were just sloppy.

A detail like whose property was the receiver trying to take possession of is not a small thing. A detail like was any party who was opposing the receiver’s request already stopped from raising such opposition is also not such a small thing. The Master was correct in not allowing the receiver’s application to take possession of the cash sitting in the Alberta Court. This receiver will have to do its homework for when it comes back to Court when a full hearing is conducted.

Summary

I hope you have seen why details matter. Not only for a Court but for a licensed insolvency trustee also. When someone comes to consult with me about their business or personal debts and financial situation, I need details too so that I can fully understand their situation.

Do you or your company have too much debt and in need of debt restructuring? Wouldn’t it be beautiful, though, if you could do a turnaround?

The Ira Smith Team understands how to do a debt restructuring. However, more importantly, we understand the needs of the entrepreneur or the person who has too much personal debt. You are worried because you are facing significant financial challenges.

It is not your fault that you are in this situation. You have been only shown the old ways that do not work anymore. The Ira Smith Team uses new modern ways to get you out of your debt troubles while avoiding bankruptcy. We can get you debt relief freedom.

The stress placed upon you is huge. We understand your pain points. We look at your entire situation and devise a strategy that is as unique as you and your problems; financial and emotional. The way we take the load off of your shoulders and devise a debt settlement plan, we know that we can help you.

We know that people facing financial problems need a realistic lifeline. There is no “one solution fits all” approach with the Ira Smith Team. That is why we can develop a restructuring process as unique as the financial problems and pain you are facing. If any of this sounds familiar to you and you are serious in finding a solution, contact the Ira Smith Trustee & Receiver Inc. team today.

Call us now for a free consultation. We will get you or your company back on the road to healthy stress-free operations and recover from the pain points in your life, Starting Over, Starting Now.

Call a Trustee Now!