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BANKRUPTCY OR CONSUMER PROPOSAL?: A LAWYER AND ACCOUNTANT’S COMPREHENSIVE GUIDE TO MASTERING INSOLVENCY LAW

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Bankruptcy or Consumer Proposal: Introduction

When your client has an amount of debt they cannot repay, they often consider measures such as bankruptcy or consumer proposal. To choose the most appropriate option for their unique situation, it’s important to have a good understanding of the details of each option. Let’s compare and contrast these options to help you help your client make the right choice that best fits their situation.

Bankruptcy or Consumer Proposal: Importance of understanding the differences between the two options

When faced with financial challenges, understanding the difference between a consumer proposal and bankruptcy can be crucial in determining the best path forward for your financial well-being. Let’s delve into the key disparities. Learn about the differences between a consumer proposal and bankruptcy so that you can further help your clients start to make an informed decision on the best debt relief solution for them before they see a licensed insolvency trustee.

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Overview Explanation of Bankruptcy or Consumer Proposal

Bankruptcy: A Solution for Unmanageable Debt

If your client is experiencing economic challenges, bankruptcy might be a sensible option to deal with their debt problems. It is a legal treatment focused on offering help to people, corporations, or entities facing economic hardship.

Bankruptcy allows debtors to get rid of certain unsecured financial obligations, such as credit card balances and unsecured lines of credit or loans. It offers debt relief and a fresh start, but undischarged bankrupts must comply with particular rules and procedures. These include potentially a meeting with creditors and for certain taking part in two credit counselling sessions.

Consulting a licensed insolvency trustee can aid in exploring options and making an informed decision when dealing with money problems, leading to a better financial future. Bankruptcy may be a sensible option, however, it’s vital to carefully consider all other restructuring options before filing bankruptcy. A licensed insolvency trustee can offer advice on the most appropriate strategy for your client’s particular scenario.

Consumer Proposal: A Negotiated Settlement

A consumer proposal is a much more flexible approach to debt repayment than bankruptcy is. In a consumer proposal, the licensed insolvency trustee acting as the Administrator, assists the debtor in their financial restructuring by negotiating with creditors to repay a portion of their debts over an extended period.

Although only a portion of the total debt is being repaid (as a rule of thumb, say 25%), once all payments are successfully made and the debtor attends the two mandatory financial counselling sessions, they receive their Certificate of Full Completion. Once that certificate is issued, their entire debt is discharged.

In a consumer proposal, unlike bankruptcy, the debtor does not hand over their non-exempt assets. Like in bankruptcy, the debts eligible for inclusion in a consumer proposal include credit card debt, unsecured personal loans, and tax debt. Proposals must be filed through a licensed insolvency trustee and are legally binding once accepted by the creditors.

Consumer Proposal Allows You to Keep More Assets

The important difference between a consumer proposal and bankruptcy is that although you need to account for the value of the equity in your assets, in a consumer proposal, you don’t lose them. This is a form of asset protection. A consumer proposal is a debt settlement financial restructuring where you negotiate with your creditors to repay a portion of your debt over some time not greater than 60 months. Upon successfully paying that portion in the promised time frame, all of your debts are erased. If you can do so without having to sell any of your assets, you get to keep them.

Bankruptcy or Consumer Proposal: How Does a Consumer Proposal Work?

Finding a way out of debt feels overwhelming. A licensed insolvency trustee can help your client understand the options available. This education empowers your client to make the right choice. A consumer proposal is a legally binding structured legal agreement between your client and their creditors. The benefit to your client is to ultimately remove the burden of their debt and let them get back to a stress-free life and a bright financial future. The main points of a consumer proposal are:

Binding Agreement with Creditors

A consumer proposal is a formal agreement that lays out how you’ll pay back a portion of your unsecured debt through a formal agreement under the Bankruptcy and Insolvency Act (Canada). Once you complete the proposal, your client will be free from all of their unsecured debts.

This agreement is a solution that works for both your client and their unsecured creditors. A licensed insolvency trustee, guides your client through the negotiation process, helping them come up with a plan to gradually pay off their unsecured debts over time. You qualify for a consumer proposal as long as your unsecured debt is $250,000 or less (not including any mortgage against your principal residence).

Administered by Licensed Insolvency Trustee

Only a licensed insolvency trustee can oversee the entire process. These professionals are the only ones with the professional accreditation to perform insolvency assignments in Canada. They are licenced, authorized and supervised by the federal government Office of the Superintendent of Bankruptcy (OSB) to handle insolvency matters. I guide your client through the process, ensuring compliance with all legal requirements. I also provide expert advice to you and your client.

Protection from Debt Collectors and Wage Garnishments

Like bankruptcy, a consumer proposal gives your client a stay of proceedings against constant harassment by debt collectors including wage garnishments. This is real legal protection against creditors. Once the proposal is filed, debt collectors must by law stop their collection calls and legal actions. This provides your client with a break from the unending pressure associated with collection efforts. This gives your client the breathing room to regain control of their income and expenses.

A consumer proposal allows for a path toward financial recovery giving your client a sense of security and relief from the stress of their debt. This empowers your clients to confront their financial challenges using a real plan of action to eliminate their unsecured debt over time.

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Bankruptcy or Consumer Proposal: How Does Bankruptcy Work?

Bankruptcy is perceived by people to be the darkest of all dark clouds. People associate bankruptcy not only with financial difficulties and loss but also as a symbol of being a total failure in life. The reality is that bankruptcy is a legal process designed to help honest but unfortunate people relieve themselves of the crushing debt load that is suffocating them. It offers them the chance to get a fresh start.

  • Structured legal process to relieve debts: When drowning in debt, bankruptcy acts as a lifeline. It allows people to go through a process approved by the Canadian government to eliminate their debt and provide a path for a fresh start.
  • Licensed insolvency trustee controls the assets: During bankruptcy, the licensed insolvency trustee is appointed to administer the bankruptcy process. The Trustee manages and sells the non-exempt assets, investigates the financial affairs of the bankrupt, conducts the two mandatory financial counselling sessions with the undischarged bankrupt and makes sure that all necessary administrative steps are taken. This includes the undischarged bankrupt fulfilling all of their bankruptcy duties.
  • Discharged from debt in 9-21 months: The main outcome of bankruptcy is the bankrupt’s discharge from his or her debts. Depending on the specific circumstances as to whether or not the undischarged bankrupt is liable to make regular payments for surplus income to the Trustee, bankrupts typically expect to obtain their discharge within a period between 9 and 21 months.

Embracing bankruptcy as a tool for financial freedom, rather than a symbol of failure, helps the person get on with their life. It is a chance to redefine one’s life and learn valuable financial lessons.

By referring your client to a licensed insolvency trustee people can decide on a proposal vs bankruptcy much easier navigate the bankruptcy process and emerge better and stronger on the other side.

Bankruptcy: Different Payments, Bigger Credit Impact

On the flip side, bankruptcy payments are often based on your income and can vary accordingly. This means that your monthly bankruptcy payments may fluctuate depending on your financial situation, making it more unpredictable compared to the fixed payments of a consumer proposal.

While bankruptcy can offer you a fresh start by clearing your debts, it typically has a more significant impact on your credit score and can remain on your record for a longer period, affecting your financial status for an extended time.

Choosing the Right Path

Deciding between a consumer proposal and bankruptcy is a personal decision that should be made based on your circumstances. Seeking professional advice from a licensed insolvency trustee can assist you in navigating the complexities of each option and making an informed choice that aligns with your financial goals.

Remember, the aim is to select a debt relief solution from the various options available that best fits your needs and helps you on your journey to financial stability.

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Bankruptcy: Different Payments, Impact on Credit

In bankruptcy, any monthly surplus income payments the undischarged bankrupt must make are calculated by a formula prescribed by the OSB based on the person’s income. The undischarged bankrupt must provide a monthly report of monthly income and expenses to the Trustee. As the monthly income varies, the surplus income monthly payments can change, either up or down.

While bankruptcy gives the person a fresh start, it has a worse impact on the person’s credit score and credit report since it remains on your record for a longer period.

Choosing the Best Path for You

Choosing between a bankruptcy or consumer proposal is a personal decision that should consider your circumstances and needs. Seeking advice from a licensed insolvency trustee helps the person choose between and navigate either option.

Remember, the aim is to select a debt relief solution that best fits your client’s needs among the various options available.

Bankruptcy or Consumer Proposal: Debts Discharged and Not Discharged

When it comes to managing debts, it is important to know which debts can be cleared through an insolvency process and which ones cannot be discharged. Here is a listing of the different types of debts and whether they can be discharged:

Debts that cannot be discharged:

  • Fraud or Malfeasance: It is important to know that debts from fraudulent activities or court fines from being found guilty of wrongdoing cannot be cleared through either a bankruptcy or consumer proposal. This ensures accountability for any unlawful financial actions.
  • Child Support and Spousal Support: Another category of debts that can’t be discharged includes obligations for child support and spousal support. The Canadian insolvency system believes from a societal perspective, these kinds of responsibilities are legally binding and must be met, no matter what other debts the person may have.

Debts that may be discharged after a certain time:

  • Student loan debt has specific regulations for discharge: After completing your education, there may be possibilities for discharging this debt. Student loan debt can only be discharged if you go bankrupt 7 years after the last time you were either a full-time or part-time student.
  • Debts that are discharged upon the discharge of the bankrupt person: Most unsecured debts.

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Impact on Your Credit Score: Bankruptcy or Consumer Proposal

When it comes to your credit score, it’s important to understand how a bankruptcy or consumer proposal can affect it. Bankruptcy has a more negative impact on your credit score compared to a consumer proposal. A consumer proposal is generally less harmful to your credit rating.

Duration of Impact

Another key difference between the two options is how long they stay on your financial record. A consumer proposal is typically noted on your credit report for three years after completing it. A first-time bankruptcy remains on your credit history for six years after receiving your bankruptcy discharge. This difference is important to know. It does affect many choices people make among the various debt relief options.

Ultimately, the choice between a bankruptcy or consumer proposal depends on your client’s unique financial circumstances. It’s always a good idea to seek professional guidance from a licensed insolvency trustee when making this decision.

Bankruptcy or Consumer Proposal: Social Stigma and Decision-Making

When it comes to making financial decisions, especially ones as impactful as considering bankruptcy, there are various factors to take into account. One significant aspect that often plays a role in decision-making is the social stigma associated with personal bankruptcy.

Bankruptcy is commonly viewed in a negative light in our society. People may perceive it as a sign of personal failure or irresponsibility. This stigma can make individuals hesitant to consider bankruptcy as a viable option, even when they are struggling with overwhelming debt.

However, it is essential to look beyond the social perceptions and focus on the practical aspects of the situation. Before choosing the path of bankruptcy, it is crucial to assess one’s ability to repay the debt. Understanding your financial capabilities and limitations is key to making an informed decision.

Mathematical analysis can be a helpful tool in this decision-making process. By conducting a thorough financial evaluation, including income, expenses, and debt obligations, individuals can gain a clear understanding of their financial standing. This analysis provides valuable insights into whether filing for bankruptcy is the most viable solution or if there are alternative options available.

Ultimately, the decision to pursue bankruptcy should not be solely influenced by social stigma. Instead, it should be based on a realistic assessment of one’s financial circumstances and the potential benefits and consequences of bankruptcy. By approaching the decision-making process with a rational and informed mindset, individuals can make choices that align with their financial well-being.

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Bankruptcy or Consumer Proposal: Getting Professional Help for Making the Right Decision

Exploring debt settlement or insolvency options creates tough choices that a person would rather not make. However, hiding their head in the sand and avoiding the reality of their financial situation ultimately is not a realistic option. One thing that bothers every person we speak to is who will find out about personal bankruptcy and how it will affect how others view the person.

As stated above, bankruptcy often carries a negative reputation in our society. May see it as a sign of personal failure. This stigma makes it tough for people to choose bankruptcy as a solution for dealing with overwhelming debt.

It is important to remember that your financial well-being, that of your family and your ability to get a fresh start is what matters most. Before you make any debt settlement decision, take a step backward and honestly consider your true financial situation. Understanding what you can realistically manage on your own without legal intervention is crucial in making the right choice.

Doing the math and looking at the realistic and true side of things will guide you in making an informed decision and doing the right thing that will be best for your financial future. A consumer proposal is the best bankruptcy alternative when a formal insolvency process is required.

Bankruptcy or Consumer Proposal: Conclusion

In summary, a licensed insolvency trustee plays a crucial role in assisting individuals and businesses facing insolvency. From conducting financial assessments to facilitating legal proceedings and providing ongoing support, LITs serve as trusted advisors and advocates, in conjunction with a person’s or corporation’s lawyer and accountant, for those navigating challenging financial terrain. By understanding the role and significance of an LIT, debtors can make informed decisions and embark on the path toward financial stability and recovery.

By assisting clients in navigating insolvency matters proficiently, lawyers and accountants can empower them to take proactive steps towards a brighter financial future. This includes providing insights on debt restructuring, bankruptcy options, and other relevant strategies that can improve financial sustainability and stability. Ultimately, the goal of leveraging a foundational understanding of Canadian insolvency laws is to facilitate positive outcomes for clients, equipping them with the knowledge and resources needed to overcome financial obstacles and achieve long-term success. This also allows them to remain your client!

I hope you enjoyed this bankruptcy or consumer proposal Brandon’s Blog. Individuals and business owners must take proactive measures to address financial difficulties, consumer debt and company debt and promptly seek assistance when necessary. It is crucial to recognize that financial stress is a prevalent concern and seeking help is a demonstration of fortitude, rather than vulnerability. Should you encounter challenges in managing your finances and find yourself burdened by stress, do not delay in pursuing aid.

Revenue and cash flow shortages are critical issues facing people, entrepreneurs and their companies and businesses with debt problems that are in financial distress. Are you now worried about just how you or your business are going to survive? Are you worried about what your fiduciary obligations are and not sure if the decisions you are about to make are the correct ones to avoid personal liability? Those concerns and more associated with your company debt are obviously on your mind.

The Ira Smith Team understands these overwhelming debt financial health concerns. More significantly, we know the requirements of the business owner or the individual who 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 and it does not mean that you are a bad person. 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 uses innovative and cutting-edge methodologies, to adeptly navigate you through the intricacies of your financial challenges ensuring a resolution to your debt-related predicaments without resorting to the rigours of the bankruptcy process. We can get you debt relief now! We have helped many entrepreneurs and their insolvent companies who thought that consulting with a Trustee and receiver meant their company would go bankrupt.

On the contrary. We helped turn their companies around through financial restructuring. 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.

The Ira Smith Trustee & Receiver Inc. team understands 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, to begin your debt-free life, Starting Over, Starting Now.

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CANADIAN BANKRUPTCIES LAWS: OPPOSITION TO TRUSTEE DISCHARGE

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

Introduction

Believe it or not, people search online for “Canadian bankruptcies laws” almost 500 times every month. Although the spelling looks a bit off, the point is that people are interested in Canadian insolvency laws. People also search for “Canadian personal bankruptcies laws”.

I recently reviewed an interesting bankruptcy case from British Columbia. The issue is one that does not normally find its way into the courts. The issue deals with the Trustee’s discharge from a bankruptcy administration.

So combining these disassociated events, it gave me the idea for this Brandon’s Blog.

Two kinds of discharges in a personal bankruptcy

In every personal bankruptcy, there are two kinds of discharges. In the normal course, first the bankrupt gets his or her discharge from bankruptcy. Then, when all parts of the bankruptcy administration is finished, the licensed insolvency trustee (formerly called a bankruptcy trustee) (Trustee), gets its discharge.

I have previously written several blogs on the discharge of a bankrupt, but for information purposes, I will briefly summarize the issues surrounding a bankrupt’s application for discharge. Then I will describe the issues in the BC case about the discharge of a Trustee.

The bankrupt’s application for discharge

A bankruptcy discharge is when the bankrupt person is released under Canadian bankruptcy legislation from his or her financial debts. Some people think that it is filing for bankruptcy that releases the bankrupt from responsibility. This is not the situation. It is the discharge process that “discharges” the debts.

The personal bankruptcy discharge is among the key advantages of the Canadian insolvency system. The discharge is crucial to the insolvency process. Debtors, after bankruptcy, can wipe the slate clean and begin again. This is a central concept under the “Canadian bankruptcies laws”.

A personal bankruptcy discharge provides the discharge of many unsecured financial debts. Certain debts will not be discharged. They are:

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

Notice of opposition to discharge

A bankrupt’s bankruptcy discharge application might be opposed by one or more unsecured creditors or the Trustee. This occurs if the bankrupt has not met all of his/her obligations. It can likewise happen if the insolvent has committed a bankruptcy offense. Those are acts provided in Section 173 (1) of the Bankruptcy and Insolvency Act (Canada) (BIA). The Court will assess the overall conduct of the bankrupt and provide its decision.

How bankruptcies work

There are 4 kinds of discharges:

  • Absolute discharge – The bankrupt is released from the commitment to repay the financial liabilities that existed on the day of filing for personal bankruptcy, except for the types of financial obligations indicated above.
  • Conditional discharge – A bankrupt has to fulfill specific conditions to obtain an absolute discharge. As soon as all conditions have been met, an absolute discharge is given.
  • Suspended discharge – An absolute discharge that will be given at a future date identified by the Court.
  • Refused discharge – The Court has the right to decline a discharge.

What does trustee discharge mean?

A recent case decided by The Supreme Court of British Columbia in Kelowna, BC, dealt with the issue of the discharge of a Trustee. After concluding a bankruptcy administration, the Trustee applies for its discharge. The case is McKibbon (Re), 2019 BCSC 848 (CanLII).

William Edward McKibbon is a person who went through the bankruptcy discharge process. His bankrupt’s application for discharge ultimately ended with his getting an absolute order of discharge after fulfilling his discharge conditions on February 24, 2016. His Trustee then received its discharge. The Trustee discharge date was on November 5, 2016.

Mr. McKibbon made an application to the Court for the withdrawal of the Trustee’s discharge. Section 41 of the BIA deals with the discharge of the Trustee. The case was heard on April 25, 2019, in The Supreme Court of British Columbia in Kelowna, BC. The Court’s decision was released on May 30, 2019.

Section 41(1) of the BIA states:

“Application to court

41 (1) When a trustee has completed the duties required of him with respect to the administration of the property of a bankrupt, he shall apply to the court for a discharge.”

The Trustee went through all the steps required and obtained its discharge.

Section 41(5) of the BIA says:

“Objections to be filed with court and trustee

(5) Any interested person desiring to object to the discharge of a trustee shall, at least five days prior to the date of the hearing, file notice of objection with the registrar of the court setting out the reasons for the objection and serve a copy of the notice on the trustee.”

No person objected to the Trustee’s discharge, including Mr. McKibbon. Now in 2019, he was asking the Court to revoke the Trustee’s discharge as he had certain complaints about the Trustee’s conduct.

The allegations against the Trustee

Mr. McKibbon now alleges that the Trustee’s discharge was gotten because the Trustee did not disclose all pertinent facts.

Mr. McKibbon’s allegations were that: (i) the Trustee had experienced issues in the calculation of the surplus income payable by the bankrupt in that the Trustee had miscalculated the surplus income numbers; (ii) the method by which the Trustee calculated the surplus income; and (iii) the Trustee had not finalized the bankrupt’s pre- and post-bankruptcy income tax returns because it had made errors when submitting those tax returns to the Canada Revenue Agency (CRA).

These allegations were disputed by the Trustee. The Trustee claims that the surplus income calculations were appropriate. Concerning the income tax returns, the Trustee stated that the issues relating to the income tax returns were the result of the CRA, incorrectly, re-allocating income and expenses between the pre- and post-bankruptcy periods.

Can the discharge of the Trustee be revoked?

Section 41(8) of the BIA deals with the revocation of a Trustee discharge. It states:

“Effect of discharge of trustee

(8) The discharge of a trustee discharges him from all liability

(a) in respect of any act done or default made by him in the administration of the property of the bankrupt, and

(b) in relation to his conduct as trustee,

but any discharge may be revoked by the court on proof that it was obtained by fraud or by suppression or concealment of any material fact.”.

Mr. McKibbon, in his complaint, said that the Trustee suppressed and concealed material facts.

The Judge’s decision

The Judge in his decision stated that the analysis of BIA section 41(8) goes back to 1899. The case law requires that to revoke the discharge of the Trustee, there needs to be an aspect of fraud in the suppression or concealment.

The Judge also referred to a 2011 decision in the Superior Court of Québec which reached a similar conclusion. That case is Re Delorme, 2011 QCCS 236 (CanLII).

Mr. McGibbon’s position was that these authorities are mistaken and made the wrong decision. He did so with no authorities have actually been pointed out to bring into question those verdicts!

The Judge concluded that in order for there to be a “suppression or concealment of any material fact”, there has to be an element of fraud. He also concluded that Mr. McGibbon had the onus to provide evidence that the Trustee purposely did so with the intent to defraud the court, the creditors or the bankrupt. He found that as Mr. McGibbon failed to do so, he did not have to dig into the details of the allegations.

The Judge also noted that Mr. McGibbon had a bankruptcy discharge hearing, and the Court set the amount of surplus income he needed to pay as part of his conditional discharge from bankruptcy. Therefore, any issue surrounding the surplus income calculation by the Trustee was eliminated with this condition that Mr. McGibbon fulfilled.

Accordingly, the Judge found that there is no basis whereupon any kind of deceptive behaviour can be presumed for the Trustee in failing to reveal any material facts in its discharge application. Therefore, the application to revoke the Trustee’s discharge was rejected. Finally, the Judge allowed for the Trustee to make any submissions it wished to concerning costs to be paid by Mr. McGibbon.

Are you thinking about using “Canadian bankruptcies laws”?

Is your business in financial distress because you cannot collect your billings? Do you not have adequate funds to pay your creditors as their bills to you come due?

If so, call the Ira Smith Team today. We have decades and generations of experience assisting people looking for financial restructuring, a debt settlement plan and to AVOID bankruptcy.

A restructuring proposal is a government approved debt settlement plan to do that. We will help you decide on what is best for you between a restructuring proposal vs bankruptcy.

Call the Ira Smith Team today so you can eliminate the stress, anxiety, and pain from your life that your financial problems have caused. With the one-of-a-kind roadmap, we develop just for you, we will immediately return you right into a healthy and balanced problem-free life.

You can have a no-cost analysis so we can help you fix your troubles. Call the Ira Smith Team today. This will allow you to go back to a new healthy and balanced life, Starting Over Starting Now.

 

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CANADIAN INSOLVENCY LAWS: ALIENATION OF ASSETS

 

Canadian insolvency laws: Introduction

In today’s commercial world, our economy focuses on and requires Canadian insolvency laws. Insolvency is the financial condition where you cannot pay your debts as they come due and if you liquidated all of your assets, there would not be enough cash to pay off all of your debts.

Insolvency laws are required in a mature economy. It reassures investors that there is a way to “recycle” assets. Asset recycling makes them once again valuable and revenue producing, should insolvency set in on a person or company.

Canadian insolvency laws: My goal with this blog

An insolvency process is used as a means of liquidating one’s whole legacy (i.e. the totality of one’s assets) in order to attempt to please all of the creditors that have grown way beyond the ability of the person or company to repay. Emotions always run high in insolvency procedures. We are dealing with the lives of real people that may be losing their jobs, income, homes and other assets.

The purpose of this vlog is not to teach you about insolvency laws. I want to caution anyone considering going into business how important it is to structure things properly. Your aim is to make sure that you are protecting yourself, your business and your family. If your business falters and becomes insolvent you will be glad that you did.

Canadian insolvency laws: Believe it or not, it may be good for you to meet a licensed insolvency trustee

So naturally, as a licensed insolvency trustee (formerly called a bankruptcy trustee) the first focus is on restructuring. Sometimes bad things happen to good people and companies. Bad judgement, bad luck and bad management all contribute to personal and corporate insolvency. Our primary focus is to use various ways to help people and companies recover from insolvency.

The potential ramifications of insolvency procedures can be minimized. A person can no longer afford to keep their assets. A company has too many problems to continue its business. However, those same assets can be used very successfully in a new business or by someone else. So insolvency laws and procedures help to avoid a total loss of asset values.

In many of our cases, this can involve particular minor legal procedures which could eventually conserve a fortune. For financial institutions, this can be especially good news.

Canadian insolvency laws: Why you need to “alienate” your assets


If you are running a company, or are likely to do so in your career, you must minimize your exposure by safeguarding your assets. By doing so, you are protecting yourself and your family for the future, especially if something in business goes wrong. The time to protect yourself is when you are starting out and there are no problems. If you do so when the problems have already arisen, it is too late. Any asset protection steps you take knowing yourself to be insolvent, will not stand up to attack.

By running a company, you will probably become a Director. If your business needs to borrow money from the Bank to operate, you will probably be required to guarantee the bank debt. So, if you anticipate yourself collecting considerable unsecured financial obligations in the coming years, you need to act. Starting out properly protecting yourself, allows you to either avoid or successfully defend, any challenges on the sequestration of your assets.

Canadian insolvency laws: Why you want to be an “alien”

You will make sure that the properties you have “alienated” no longer form part of your estate. The alienation ensures that the possessions from which you will still benefit cannot be gotten by your financial institutions if the business is unsuccessful and they are looking for any assets you may have to honour the financial obligations you accumulate.what does a court appointed receiver do

Canadian insolvency laws: Use your lawyer


When setting up a company, you need a lawyer. Make sure that you choose a lawyer that can also counsel you on how to protect your assets in the event your business venture fails. We are not lawyers, and the general advice I am going to give you is not meant to replace the advice of a lawyer.

Canadian insolvency laws: You may need more than one company to conduct your business

The first thing to think about is incorporating a limited liability company. Depending on the type of business, you may need to incorporate several, within which to house your operations, the leased or owned premises you operate out of and your shareholdings. Conducting your business through a company will require more documentation and therefore cost.

However, it is well worth it. It removes and protects you personally to the greatest extent possible from personal liability. The goal is to minimize or eliminate the destruction of you and your family. If you choose not to go through a corporate body, for whatever reason, protecting your personal assets becomes even more important. There will not be one or more corporate entities to serve as the first line of protection.

Canadian insolvency laws: Examples of multiple corporations in running a business

Examples of how multiple corporations will better insulate you and your business assets are:

Operating company. Your operating company is the one you conduct business through. It is the vehicle which will attract the most liability. There is always a risk in running any business. However, there is no law that requires you to hold all your business assets in your operating company.

Single purpose corporation. You may want to incorporate a second single purpose company to hold valuable assets used to conduct the business of your operating company. Tangible assets such as machinery and equipment are obvious. You are operating out of premises; either leased or owned.

You may wish to have a corporation that holds the tangible assets. Another company that is simply the real estate company. If you also have valuable intangible assets such as copyrights, licenses, trademarks, you may wish a separate company to hold all of the intangible assets.

These single-purpose corporations will then lease the assets to your operating company to conduct its business. Your operating company will pay rental charges, lease payments and licensing fees to the respective sole purpose companies. You need your lawyer to carefully document in writing everything. By now you can probably see the value in separating out the various important and valuable assets from your normal business operations.

Canadian insolvency laws: Alienating your most valuable asset

The most significant and most important property most of us will own is our house. The time to transfer your ownership interest to your partner ideally is before the first day of your going into business. Waiting until there are business problems and you are insolvent, any transfer will be successfully attacked. Obviously, you have to believe that you and your partner have a solid loving relationship before making the transfer as you will no longer have your ownership interest in the house.

Canadian insolvency laws: Does your company have too much debt?

To set up your company and structure your affairs properly, we urge you to use the best lawyer for your needs. This blog cannot replace the advice of your lawyer. However, if your company is experiencing financial difficulties, you need a professional trustee. If yes, call the Ira Smith Team. Our approach for each file is to create an end result where Starting Over, Starting Now takes place. This starts the minute you are at our front door.

The earlier you contact us, the more options we will have to implement. Whether it is a corporate restructuring or personal debt settlement through a consumer proposal, the goal is to avoid bankruptcy. However, if bankruptcy turns out to be the best option, we can assist there too.

You’re simply one phone call away from taking the necessary steps to get back to leading a healthy, balanced hassle-free life, ending the pain and stress you are feeling forever. Call Ira Smith Trustee & Receiver Inc. today for your free consultation.canadian insolvency laws 1

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