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CANADA INSOLVENCY CHANGES: FEDS PRESS RELEASE OFFERS FEW DETAILS

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If you would like to listen to the audio version of this Canada insolvency Brandon’s Blog, scroll to the bottom and click on the podcast

Introduction

On September 4, 2019, the Government of Canada department of Innovation, Science and Economic Development, issued a press release. They announced that there would be changes coming to the Canada insolvency legislation.

I have previously written about the fallout from the Sears Canada insolvency. Specifically, about the plight of retired employees seeing their medical benefits eliminated and their pension entitlement slashed. After that, there have been several private member bills trying to fix the Canada insolvency laws.

Budget 2019

As I have written in previous Brandon’s Blogs, the concern is for retired people (and present employees) when a company enters into an insolvency proceeding. Like in the Sears case, the worry is associated with the staff member’s health benefits plan which could be gutted for retirees. An equally important concern, are underfunded pension plans when a firm enters into bankruptcy protection.

Insolvent employers have placed a moratorium on reimbursements to workers and especially retirees on valid medical claims. Also, the staff member pension plan payments can be cut for retirees because the insolvent firm has not made the called for contributions. The retirees are in the weakest position as they can never make up for what they are now losing.

Pension payments are postponed income. In an insolvency filing, there is generally absolutely nothing left for current (other than perhaps their WEPPA claim in bankruptcy or receivership) and retired employees.

The reality is that all politicians currently acknowledge simply exactly how unsecure pension plans and health plans may be in the case of insolvency, restructuring or bankruptcy.

The Liberals acknowledge that this is a significant issue. Nonetheless, in this budget, they chose to ignore the problem.

What the press release said

The Government of Canada said that it is dedicated to far better safeguarding the rights of pensioners, employees and others during insolvency procedures. They say they can guarantee all Canadians can have satisfaction when it pertains to retirement. They say they can do this while maintaining laws that continue to support growth, advancement and also great jobs in Canada.

The Honourable Navdeep Bains, Minister of Innovation, Science and Economic Development Canada said, that beginning November 1, 2019, reforms to the Bankruptcy and Insolvency Act (BIA) and the Companies’ Creditors Arrangement Act (CCAA) announced in Budget 2019 will be enacted. He said that this will be done to enhance retired life security by making the insolvency procedure fairer, much more clear and also easily accessible.

So what is being planned?

The press release was consistent with the wording in Budget 2019. The press release went on to say that the BIA and CCAA modifications pertaining to boosting retirement protection will:

  • call for participants in an insolvency process to act in good faith (isn’t that already enshrined in our legislation and enforced by our Courts?);
  • offer the possibility of court-ordered disclosure of a creditor’s real financial interest in an insolvent business (how does this help retirees?);
  • enforce director obligations in suitable cases for senior management compensation settlements in the lead-up to an insolvency proceeding (whatever appropriate means);
  • limit the choices that can be taken initially in a CCAA administration to measures necessary to avoid the immediate liquidation of an insolvent company, thus boosting participation of all players (does this mean the government plans to outlaw a liquidating CCAA?);
  • exclude assets held in registered disability savings plans from creditors’ claims in bankruptcy;
  • reforms to the BIA and CCAA to guarantee the safeguarding of intellectual property user rights in insolvency, announced in Budget 2018, will also be enacted for November 1.

The devil is in the details

The Minister stated:

“It is unacceptable that some pensioners face hardship because of their employer’s insolvency and underfunded pension plans. Our government believes that after a lifetime of hard work, Canadians deserve a secure and dignified retirement. With these reforms, we are protecting Canadians’ retirement security and the ability of businesses to invest, grow and create more good jobs.”

This sounds great, but what does it mean? I don’t see anything in Budget 2019 or this recent press release that actually provides specifics on how retirees will be helped. There are no words talking about the super-priority of the amount of underfunding of pension plans. There is also no language on directors’ liability for such underfunding when the company continues to pay dividends to shareholders or bonuses to executives while the pension plan is underfunded.

We will have to wait to see how the proposed legislation actually reads. The other issue is our upcoming Federal election. Insolvency legislation is not a hot topic that gets votes. Perhaps real protection for retirees does. The government had a chance to really lay out how they will protect retirees, but they failed to do so. They talk about many issues in the press release. However, I don’t see anything directly related to retiree protection.

So I hope that the current federal government will follow through with legislation that has real teeth to protect retirees. But the 2019 Canadian federal election is scheduled to happen on or before October 21, 2019. That means that campaigning will have to begin very soon. So when will there be time to introduce the required legislation to be effective on November 1?

The federal government must have a plan otherwise they would not have put out the November 1 date in the press release. So let us wait and see and cross our fingers that retiree protection will be for real.

Canada insolvency summary

Are you nearing retirement with too much debt? Is your employer’s employee pension plan underfunded? Are you worried about how you will make ends meet in retirement?

The stress you are under because of your money challenges is huge. I understand your pain. At no cost to you, I will look at your whole set of circumstances and develop a plan that is as special as your issues. I know that I can help you through this.

There is no “one solution fits all” approach with the Ira Smith Team. That is why I can develop a debt settlement plan for you 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 your company back on the road to healthy stress-free operations and recover from the pain points in your life, Starting Over, Starting Now.

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BANKRUPTCY SMALL BUSINESSES: COMPLETE BANKRUPTCY OPTIONS FOR SMALL BUSINESSES

bankruptcy small businesses

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

Bankruptcy small businesses introduction

The press has reported that certain Big Pharma have considered bankruptcy as part of negotiations to reach a settlement over their liability in the opioid crisis. Bankruptcy, or bankruptcy restructuring is not just for big companies. There are bankruptcy small businesses too.

Earlier this year, Insys Therapeutics Inc. in the United States ended up being the first opioid drugmaker to use the bankruptcy statute. It followed its US$225 million settlement with the Federal government. In recent months, there’s been a supposition that drugmakers might utilize insolvency laws as a means to run away from accountability.

Bankruptcy small businesses: That is not how bankruptcy protection works

Thankfully, that’s not how bankruptcy works. Instead, as I’ve learned in my experience in the Canadian bankruptcy space, insolvency procedures are developed to not only help debtors. It likewise assists creditors too.

Bankruptcy and restructuring proceedings are not best for every stakeholder every time. The end result always appears unreasonable to creditors because they are not being paid in full. However, it’s most definitely not the free ride for the company filing under the bankruptcy laws that many people think it will be. This is especially true in the area of bankruptcy small businesses.

Bankruptcy small businesses: What happens when a small business files for bankruptcy?

To many people, the thought of bankruptcy creates an adverse reaction. The reason is simple: a bankruptcy filing means there is not enough money to pay everyone 100 cents on the dollar.

But the system makes the best of a grim situation by imposing an organized and open process that preserves value and urges negotiation. Bankruptcy reorganizations by well-known brand names such as General Motors revealed that it can bring parties to the table to reach agreements that could not be made absent the structured reorganization laws. It also resurrects sick businesses.

At the most basic level, the Bankruptcy and Insolvency Act (Canada) (BIA) and the Companies’ Creditors Arrangement Act (CCAA) develops for the estate to:

  • value and account for every one of the debtor’s assets into one proceeding;
  • recognize and classify creditor claims against the debtor;
  • in bankruptcy liquidation, sell the assets and distribute the money in priority of the claims of the creditors; and
  • for a bankruptcy restructuring, to take a hard look at productive assets and those no longer needed, value them, allow for selling off redundant assets to allow the company to continue in its healthy business side and offer the creditors a better deal than they would get in a liquidation.

Specifically how those essential parts of the bankruptcy and insolvency legislation play out in a specific bankruptcy small businesses situation will differ depending upon what kind of insolvency filing the borrower makes and the specific truths regarding the conduct of the debtor.

Bankruptcy small businesses: What types of bankruptcy can small businesses file?

When we hear about bankruptcy small businesses we normally think of a liquidation. However, debtors have two choices under the BIA: liquidation or reorganization.

Pure bankruptcy liquidation is designed to sell off the assets either as a whole to one buyer to allow for someone else to carry on the company’s business, or just sell pieces to many individual buyers. In the latter case, it means that business will not exist anymore.

The value obtained from the asset sale(s) will be distributed to the creditors in priority. First to statutory trust claimants, then to secured creditors, if any. If anything is left after that, it will then be distributed to unsecured creditors: first preferred unsecured and then ordinary unsecured.

On the other hand, a filing under the proposal provisions of Part III of the BIA allows for the company to attempt to reorganize. All aspects of the business will be looked at. The debtor can sell some of its assets that are underperforming or no longer fit into the restructured business plan. The cash raised can be used in the reorganization strategy that aims to resolve the current business problems and allow the company to come out of bankruptcy protection as a new and profitable viable business.

The BIA restructuring provisions are what would be used for bankruptcy small businesses. Large businesses (defined in this case as companies that owe more than $5 million) could use the same BIA proposal provisions. Alternatively, those large companies could also use the CCAA statute to reorganize. The specific situation will dictate what legislation is used for a reorganization.

bankruptcy small businesses

Bankruptcy small businesses: A restructuring attempt could go wrong

It is possible that companies that originally file under the BIA restructuring provisions ultimately become bankrupt. The reasons can vary.

The company may find that the financing it thought it had was no longer available, so they could not put forth a successful restructuring plan. So it will have no choice but to liquidate.

The company’s creditors may not believe that the restructuring plan pays them enough, is not a viable plan or there is too long to wait for too little money. In this case, the creditors when voting on the restructuring plan will vote in sufficient numbers to tank the restructuring. Any company that tries to restructure under the BIA and receives a sufficiently negative vote, is deemed to have filed an assignment in bankruptcy. In such a case, the only remaining option will be a liquidation, probably through a bankruptcy small businessses.

For a business wanting to make it through a restructuring, a successful plan needs lender assistance or a sufficiently strong cash flow so that the restructuring will be funded properly. If there is insufficient cash to fund the restructuring, the Trustee will have to report that to the creditors. The Trustee will also have to recommend against the restructuring plan if the Trustee believes the company does not have enough cash to provide the staying power to carry out the plan.

In that case, there will certainly be a negative vote and the company will go into bankruptcy liquidation. On the other hand, in a successful bankruptcy small businesses restructuring, as soon as a BIA proposal plan of arrangement is fully performed, a company emerges from bankruptcy protection and continues operating, generally in a more powerful position than previously.

Bankruptcy small businesses: Advantages of an insolvency process for debtors

Bankruptcy provides at the very least two valuable advantages to all debtors: time and room to maneuver.

The minute a debtor files, an automatic stay is in play for the debtor. It operates as a time out button on any litigation, collection or enforcement activities. Creditors can ask the Court to lift the stay under specific conditions, however, the standard for doing so is typically tough to satisfy.

The Bankruptcy Court has broad authority to regulate all issues involving the debtor’s estate, including adjudicating any disputed claims. By uniting all those with a stake in the business’s assets in one place, a debtor can effectively handle all claims against it.

While the stay is in place, debtors use the insolvency process to review their troubles and make the essential adjustments to prosper after reorganizing. Decisions are made about which contracts they want to carry forward and which to abandon.

To stay clear of a disputed process, smart debtors use the insolvency restructuring process to reach a total overall negotiation and agreement with all stakeholders. If necessary, smart debtors will also offer a benefit to top up its restructuring plan to make sure that it gets the number of creditors necessary for the plan to succeed.

Bankruptcy small businesses: Benefits of the insolvency process for creditors

Clearly, bankruptcy supplies debtors with substantial power to reposition their business affairs.

What lots of people misunderstand, nonetheless, is that this power is balanced by solid creditor benefits too. The BIA calls for debtors to disclose considerable information about their operations and imposes stringent checks on their actions.

As an example, the company wishing to reorganize must openly disclose financial and other information concerning every one of its assets. Much fo the disclosure is under oath in the sworn statement of affairs. There is also if necessary, the ability to examine company officials under oath. In many cases, the debtor must seek the court’s approval before taking action beyond running the business operations in the normal course.

Under the bankruptcy small businesses BIA provisions, the company is allowed to stay in possession of its property. Management also remains in control to continue running the business. The Trustee must report any material adverse change. The Trustee will also report to the creditors as part of the restructuring process.

Creditors that are worried concerning the debtor’s capacity to maintain the estate’s worth might ask the Court to expand the Trustee’s powers. It is possible to have the Trustee also appointed as an interim receiver to control the receipts and disbursements of the company. Creditors can also ask the Court to end the restructuring and place the company into bankruptcy. Creditors would need to show that either a key secured creditor or a large enough group of unsecured creditors, will under no circumstances vote in favour of any restructuring.

The insolvency laws allow for the creation of a board of unsecured creditors to oversee the restructuring. The Court might also form a unique board standing for a major group of litigants in situations where the debtor faces lawsuits or claimants whose damages are not yet quantified.

These and various other attributes include a degree of justness to an inherently unfair situation. The debtor might think that it is driving the bus, however, countless other stakeholders have the power to make sure that the business complies with the rules of the road.

With such safeguards in place, creditors and the general public need not be afraid of the most awful possible outcome if bankruptcy provisions are used to try to restructure companies involved in bitter disputes. The playing field will never be even, but the Canadian insolvency statutes try to bring as much fairness into the bankruptcy small businesses system as possible.

Bankruptcy small businesses conclusion

I hope that you found this bankruptcy small businesses Brandon’s Blog informative. The financial restructuring process is complex. The Ira Smith Team understands how to do a complex corporate restructuring. However, more importantly, we understand the needs of the entrepreneur. You are worried because your company is facing significant financial challenges. Your business provides income not only for your family. Many other families rely on you and your company for their well-being.

The stress placed upon you due to your company’s financial challenges is enormous. We understand your pain points. We look at your entire situation and devise a strategy that is as unique as you and your company’s problems; financial and emotional. The way we dealt with this problem and devised a corporate restructuring plan, we know that we can help you and your company too.

We know that companies facing financial problems need realistic lifeline. There is no “one solution fits all” approach with the Ira Smith Team. That is why we can develop a company restructuring process as unique as the financial problems and pain it is 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 your company back on the road to healthy stress-free operations and recover from the pain points in your life, Starting Over, Starting Now.

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BANKRUPTCY CANADA NEW EVENTS (2019)

Introduction

There has been two recent bankruptcy Canada new events that I believe are important to discuss. I believe you will hear more about it over the next few months. The two are unrelated.

One deals with the insolvency of oil and gas companies. The other with the rights of retired people and their company pensions and health benefits when their former employer goes into insolvency proceedings.

Bankruptcy Canada – The Redwater decision fallout

I have previously written about the Supreme Court of Canada decision in the Redwater Energy Corporation matter. On January 31, 2019, the top Federal Court released its decision in the case of Orphan Well Association v. Grant Thornton Ltd. The Supreme Court reversed 2 Alberta lower Court decisions. It is now the law of the land that, prior to lenders or creditors getting any type of repayment, the receiver or trustee will need to invest the funds from the sale of assets on the environmental remediation costs on all orphaned wells, that provincial legislation may need.

The decision made it clear that the receiver or trustee does not need to spend cash it does not have from the sale of assets or other recoveries. However, whatever amount it recoups from the sale of assets, on a net basis, will initially need to go to provincially mandated clean-up costs of the financially troubled company’s wells. This is before secured or unsecured creditors see a penny.

Trident Exploration Corp.

Now for the fallout. Natural gas producer Trident Exploration Corp. (Trident) ceased operations on April 30, 2019. On May 3 on application to the Court by the Alberta Energy Regulator’s Orphan Well Association, Trident was placed in receivership.

Its staff and contractors have been terminated and its 3,600+ wells are being transitioned to the Alberta regulator.

The company claimed it had functioned openly and collaboratively with its lenders and the regulator since February. It further reported that it was unable to see that a successful restructuring could be accomplished in a timely fashion. Therefore, Trident’s lender stopped supporting the business. Due to this, Trident does not have the funds to run its infrastructure or enter into insolvency proceedings. Consequently, they have determined to walk away, leaving greater than 3,600 sites, a number of them active, without an operator.

The regulator then issued its order for the sites to be properly decommissioned and capped off. On April 30, Trident, without replying to the regulator’s order or addressing their environmental obligations, the Directors ceased operations, terminated its staff and contractors. The Board then resigned. Trident’s wells will soon be transferred to the Orphan Well Association.

The Redwater effect

Trident blamed the recent Redwater Supreme Court decision which ruled that capping of orphan oil and gas wells and environmental remediation should take priority over lenders when a business goes bankrupt and leaves behind orphan wells.

Trident also said that the Redwater decision, regulatory uncertainty and current low pricing has developed a treacherous setting for energy companies that dare to risk their capital in Canada.

Trident estimates that its total abandonment and improvement obligations are about $329 million. They estimate that with those costs, any recovery by secured lenders is unsure and there would be no funds for either unsecured creditors or shareholders.

The Redwater effect is that the Court’s decision has had the unintended result of increasing Trident’s financial distress and accelerating the abandonment of its wells, has it had no funds to live up to its obligations.

Only time will tell if other insolvent energy producers take the route of Trident by just shutting down and abandoning its business and leaving its wells for the regulator to deal with.

Bankruptcy Canada – Retiree pension and health benefit rights protection in insolvency proceedings

Another topic I have previously written about is the lack of protection for retirees for pension and health benefit payments when the former employer enters insolvency proceedings. Rank-and-file members of the United Steelworkers (USW) from across Canada were on Parliament Hill to consult with MPs and requesting a commitment to legislate protection for retired workers. The USW very much want to make this a 2019 federal election issue.

The 2019 federal budget plan was very quiet on any type of commitment to shield workers and retirees by treating them as protected or priority creditors in our insolvency laws.

As a result of high-profile cases such as Nortel in Ottawa, Stelco in Hamilton and Sears, the USW is committed to campaigning for retirees to have a safe future.

Retirees understand just how unsecure their pension plans and benefits might be if a firm gets into restructuring under the Companies’ Creditors Arrangement Act (CCAA) or any proceeding under the Bankruptcy and Insolvency Act (Canada) (BIA).

Pensions are delayed earnings and, by the time financial institutions as well as various other creditors are paid, there is nothing left for workers for any shortfall or benefit payments. The USW feels that all Canadians ought to be outraged by the treatment of retired Canadians in corporate insolvency matters.

This is why they met with MPs Senators. They want to focus on a collection of recent Bills presently before the House of Commons and the Senate. Two are before the House of Commons but they have not progressed. One is sponsored by the New Democratic Party, and the other by the Bloc Québecois. They are focused on reforming the CCAA and the BIA to offer top priority to claims by workers arising out of an underfunded pension plan and the removal of benefits.

An additional Bill, presented in the Senate late last year by now-retired Senator Art Eggleton, likewise aims to grant secured standing for pension claims.

It will be interesting to see if the Conservative Party picks up on this important debate and turns it into an election issue. The Liberal Party had promised to deal with this issue in the last four years, but alas, they have not delivered.

Bankruptcy Canada – Summary

Corporations that cannot afford to properly shut down their business and retirees losing out on benefits they worked their whole life for are important issues in insolvency. Does your company not have enough cash to continue its operations? Did you not receive all amounts you are entitled to and now are facing personal financial problems?

If so, call the Ira Smith Team today. We have decades and generations of experience assisting people and companies trying to find financial restructuring or a financial debt negotiation strategy. As a licensed insolvency trustee, we are the only professionals licensed, recognized and supervised by the federal government to supply insolvency advice and carry out strategies to aid you to stay clear of personal bankruptcy.

Call the Ira Smith Team today so you can cut the stress, anxiousness and pain from your life that your financial issues have caused. With the special roadmap, we establish just for you, we will immediately return you right into a healthy and hassle-free life.

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

 

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CANADA FEDERAL BUDGET PLAN: RETIREE BANKRUPTCY PROTECTION REJECTED

Canada federal budget plan: Introduction

Like many Canadians, on March 19 I was watching to see if the Conservative Party would be successful or not in blocking Finance Minister Bill Morneau’s budget speech. In the end, the Liberals took the drop on Parliament by getting the budget introduced early, before the Finance Minister’s speech. That allowed the media in lockup to start broadcasting the details of the Canada federal budget plan before the Finance Minister gave his speech!

Canada federal budget plan: Retiree bankruptcy protection

I was also looking to see what the budget had in it about retiree bankruptcy protection. This matter has been in the news over the past two years. High profile insolvency cases such as Sears Canada and U.S. Steel Canada brought this matter to the forefront. I have written a few blogs on the topic of proposals to amend the Bankruptcy and Insolvency Act (Canada) (BIA) and the Companies’ Creditors Arrangement Act (Canada) (CCAA) to provide protection to retirees. This included private members’ bills introduced by Hamilton Mountain NDP MP Scott Duvall, Bloc Québécois MP Marilène Gill and Senator Art Eggleton, P.‍C.

As I have previously written, the issue for retirees (and current employees) relates to the employee health benefits plan and pension plan when a company enters into an insolvency administration. Insolvent companies have been allowed to put a moratorium on reimbursements to employees and retirees on valid health benefits claims. Also, the employee pension plan suffers a shortfall because the insolvent company has not made the required contributions. This automatically creates reduced pension benefits for retirees.

Pensions are delayed earnings. In either a bankruptcy or bankruptcy protection reorganization, there is generally nothing left for employees.

Given the recent high-profile insolvency cases, employees now recognize just how unsecure their pension plans and health benefits might be in the case of insolvency, reorganization or bankruptcy.

The Liberal Party already recognizes that this is a major problem. However, in this budget, they decided to ignore the issue.

Canada federal budget plan: What this budget is

Rather, this budget screams please re-elect the Liberal party. In the wake of the SNC Lavalin debacle, Prime Minister Justin Trudeau is trying to win votes by spending, spending and then more spending.

The Government of Canada market debt is projected to climb by $31 billion in the coming fiscal year, to strike a total amount of $754 billion. This brand-new funding demand comes along with $250 billion of existing debt that will be maturing and will require to be refinanced.

The Finance Minister estimates that Canada’s deficit will rise as a result of the $22.8 billion of new spending. The 2018-19 deficit projection is now set at $14.9 billion, slightly reduced from the Government’s estimate in Fall 2018. However, not surprisingly for an election budget, the Liberals found a way to spend those savings and then some. Their 2019-20 deficit projection is $19.8 billion.

Canada federal budget plan: What is in this budget

This budget has a bit of something for almost everyone. I am not an economist and this Brandon’s Blog is not meant to be an economic analysis of the budget. There are many sources for an in-depth analysis. However, some of the budget highlights are:

  • $1.25 billion over 3 years on a shared-equity home loan program for first-time home buyers.
  • RRSP withdrawal limit for new home buyers increases to $35,000 from $25,000.
  • To aid Canadians with uncommon medical conditions or diseases access to the medications they require, Budget 2019 proposes to invest up to $1 billion over two years into a National Pharmacare program, starting in 2022–23, with up to $500 million per year afterwards.
  • $3.25 billion to Indigenous Services for water quality, child welfare, education and other supports.
  • $2.2 billion for a one-time doubling of Gas Tax cash for cities’ infrastructure spending.
  • Personalized Canada Training Credit of $250 a year (up to $5,000 lifetime) for job retraining.
  • A credit of up to $5,000 for the acquisition of electric vehicles.
  • The rate of interest on Canada Student Loans decreased to prime and will be interest-free for 6 months after graduation.
  • Low-income working seniors can earn more without losing GIS benefits.
  • $595 million to sustain journalism will include 15% tax credit for electronic news subscriptions.
  • A promise of high-speed internet for all Canadians by 2030.

Canada federal budget plan: Vote for me

So as you can see, this budget is full of promises; a little something for everyone. The two glaring omissions seem to be nothing really for business and ignoring retiree bankruptcy protection. It appears that the Federal government went for the easy stuff – spending money, as opposed to harder things like amending the BIA and CCAA.

It is obviously an election budget. Details on how the new legislation and spending will work are scarce within Budget 2019. No doubt the devil will be in the details. The new proposed housing provisions will no doubt spur demand, which will keep the construction industry going which is a good thing. However, increased demand will probably mean higher prices in the major Canadian cities, especially in Toronto and Vancouver. So, it will take time to see if affordability gets worse or not for new home buyers.

Canada federal budget plan: I can’t spend more than I earn, how about you?

Our government has made no secret that it will be spending last year’s savings and then look to spend more than it takes in. The way they can do that is by just issuing more debt. This is certainly not unique to the Canadian government. All governments do it.

Unfortunately, normal working people can’t just take on more debt because we want to spend more. Eventually, I would run out of lenders willing to let me borrow more money, and my income would not be enough to make all my monthly payments, let alone repay the original loans! Rather, like you, I need to budget to make sure that my necessities are covered and that I have enough money for the other things I need to spend on. This includes my savings and emergency savings fund.

Have you lost the ability to borrow more money? Are you having trouble making your monthly payments? Is your business facing financial challenges that need to be addressed?

If so, call the Ira Smith Team today. We have years along with generations of experience helping people and companies in need of financial restructuring or a debt settlement plan. As a licensed insolvency trustee, we are the only professionals accredited as well as supervised by the Federal government to supply insolvency advice and services to help you avoid bankruptcy.

You can have a no-cost consultation to help you to fix your debt troubles. With you, we will discover your financial pain factors and offer you the strategy to finish them in your life. This will absolutely allow you to begin a clean slate, Starting Over Starting Now.

Call the Ira Smith Team today so you can start ending your stress and pain today. With the roadmap we create unique to you, we will quickly return you right into a healthy and balanced carefree life.

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EMPLOYEE BENEFITS CANADA: ENHANCING RETIREMENT SECURITY IN CANADIAN INSOLVENCY AND BANKRUPTCY

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If you prefer, you can listen to the employee benefits Canada podcast.  Please scroll down to the bottom of the page for the audio.

Employee benefits Canada:  Introduction

The Federal government supports the proposition that Canadians are entitled to a risk-free, safe, secure and sensible retired life.  Corporate financial troubles have increased problems about the safety of pension plan, wage and benefit payments for employees and senior citizens.   Employee benefits Canada is now being looked at by the Federal government.

The most recent case that has brought these issues to the forefront has been the Sears Canada liquidation.  Federal politicians have sponsored several private member’s bills which have now caught the serious attention of our Federal government.    Two such Bills were brought forward by Hamilton Mountain NDP MP Scott Duvall and Senator Art Eggleton.  The Federal government wants to make employee benefits Canada news.

Employee benefits Canada: My previous blogs

I have written on the issue in several blogs:

  1. TORONTO BUSINESS BANKRUPTCY PROTECTION: NDP WANTS FEDERAL INSOLVENCY LAWS CHANGED SO THERE IS PENSION PLAN SECURITY WHEN FINANCIALLY TROUBLED BUSINESSES FAIL – September 27, 2017
  2. SEARS CANADA IS CLOSING: THE #1 REASON YOU HAVE TO RUN AND NOT JUST WALK TO REDEEM YOUR GIFT CARDS AND CREDITS – October 18, 2017
  3. SEARS CANADA CLOSING: POLITICIANS WANT NEW LAWS TO PROTECT PENSIONERS DUE TO SEARS CANADA CLOSING – November 1, 2017
  4. SEARS CANADA DEFINED BENEFIT PENSION PLAN SHORTFALL: MP SCOTT DUVALL COMES THROUGH ON HIS PROMISE IN CANADIAN PARLIAMENT – November 8, 2017
  5. CORPORATE BANKRUPTCIES CANADA: SENATOR EGGLETON PROPOSES NEW PENSION FUND CANADA LAW – October 22, 2018

Arising out of certain policy statements in the Fall 2018 Budget, the Federal government is looking for responses from pensioners, employees, firms, professionals and various other stakeholders to take a macro, evidence-based strategy to try to provide better-retired life protection for all Canadians.

Employee benefits Canada: Canada’s retirement income system

Canada’s retirement income system (RIS) is currently based upon 3 columns:

  1. Old Age Security (OAS) and the Guaranteed Income Supplement (GIS) give a fundamental degree of retired life earnings.Canada Pension (CPP) gives standard a certain wage substitute for employees, funded by payments from employees, companies and the self-employed.
  2. Employer-based pension – Defined Benefit (DB) and Defined Contribution (DC)).
  3. Income tax-assisted personal saving vehicles, such as Registered Retired Savings Plan (RRSP) and Tax-Free Savings Accounts (TFSA).

Employee benefits Canada:  Insolvency and Bankruptcy Law

In 2008-2009, the Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) (BIA) and the Companies’ Creditors Arrangement Act (R.S.C., 1985, c. C-36) (CCAA) was changed.  Under the BIA, in a receivership or bankruptcy, arrears of wages was given a super-priority.  Approximately $2,000 per staff member must be paid before secured creditors. Any unfunded normal employer pension plan contributions (as distinct from any unfunded pension liability determined by an actuarial evaluation) also have a super-priority in either a bankruptcy or receivership.  

As far as a corporate restructuring proposal under the BIA, the amendment also states that the Court cannot approve any Proposal that does not provide for the same treatment.  The CCAA was similarly modified to be consistent with corporate restructuring under the BIA.

Employee benefits Canada: Corporate governance

The Canada Business Corporations Act (CBCA) supplies the fundamental business administration structure for Federally incorporated companies.  Although good corporate governance is important for all business stakeholders, it must be followed and implemented to be of any use.

As I indicated above, the Sears Canada defined benefit pension plan shortfall has caused the Federal government to now look at a variety of options to try to better protect employees and retirees for both pensions and benefits.

Employee benefits Canada:  The Feds are looking for stakeholder comments

The Federal government wants to listen to the thoughts of stakeholders on what further actions that might be embraced to boost retired life safety for workers and senior citizens impacted by company bankruptcy.  Specifically, the Federal government wants stakeholder response on increased security for workers’ claims in insolvencies, including changing the BIA and CCAA to make sure that there is a super-priority to pay unfunded pension plan contributions and benefits claims ahead of the claims of secured creditors.

Many options are being considered that the Federal government wants stakeholder comments on by the end of this year.

Employee benefits Canada:  Pension options being looked at

Possible pension options being considered are:

  • Solvency reserves: A solvency reserve is an account the employer could contribute to so that pension deficits can be eliminated.   I doubt this would work. If the company could afford to pay into a solvency reserve, they could also afford to just pay off the pension payment deficit.
  • Pension plan financing relief: The Minister of Finance has the authority to offer companies with pension plan financing relief to assist in the long-term survival of the company pension. The Minister’s authority could be boosted to assist companies with a pension plan deficit experiencing financial problems.  This type of help, being a moratorium on pension payments, could come with specific conditions. Such special conditions could include a moratorium on the payment of dividends, share redemptions and senior executive bonuses.
  • Self-managed accounts: Upon the bankruptcy of the company, the DB plan ends.  In that case, the only option is to transfer each former employees’ respective entitlement to purchase an annuity.  So, the expected benefit will never materialize because of the underfunding. Federal pension legislation (and provincial legislation to follow) could provide extra options.  It could allow rolling over of each entitlement into a self-managed plan such as an RRSP.  This way there is an opportunity to recoup some of the lost benefits over time.

Employee benefits Canada:  Corporate governance options being looked at

  • Limitations on the company: Dividends, share redemptions and senior management bonuses could be restricted under the CBCA in situations where a company is in arrears of pension contributions.  Once the arrears are caught up, then such special payments could continue. As federally incorporated companies are the minority of all companies in Canada. The Provinces would also have to invoke similar legislation.  An annual filing mechanism, perhaps through the Canada Revenue Agency, would also have to be established so that companies could be monitored.

Employee benefits Canada:  Bankruptcy and insolvency options being looked at

  • Increased “look-back” time: The BIA permits a court to reverse dividends paid or share redemptions made by an insolvent company within one year preceding the date of bankruptcy. The BIA and CCAA additionally allow a court to invalidate reviewable transaction (transfers at undervalue) by the Debtor as much as 5 years prior to the insolvency. In order to further connect corporate behaviour with employee interests, the “look-back” period in the BIA and the CCAA can be amended to include the unwinding of executive benefits, dividend payments and share redemptions at a time when there were also unfunded pension liabilities. The legislation could be amended to state that the recovered funds must go to paying down the pension payment arrears.  I would also go one step further to make the amount approved by the Directors of the corporation to be paid out while there were pension plan contribution arrears a personal liability of such Directors.
  • Improved openness in CCAA rules: In CCAA, the borrower business negotiates with its creditors on a debt settlement plan.  The process is conducted under court supervision.  The legislation could be amended so that when there is an underfunded pension plan, it would be mandatory to have legal representation for the employees who are participants in such pension plan.  This could be accomplished by amending the CCAA legislation to need that upon the motion to get the Initial Order the administrator of the pension plan must be an initial stakeholder that is consulted and served with the Initial Order motion material.  The plan administrator has the statutory right to retain legal counsel and be represented at all Court hearings.

Employee benefits Canada:  The solutions are varied and complex

As you can see, the range of possible solutions are varied and complex.  However, one thing is for sure though. The Federal government has now awoken to the issue of shareholders being enriched off of the backs of the workers.  The Sears Canada CCAA liquidation has brought the issue to the forefront. It will be very interesting to see how the Federal government proceeds in 2019.

Employee benefits Canada:  Is your company bogged down by too much debt?

Is your company under fire as a result of too much debt, including pension plan contribution arrears? Is your business looking for reorganizing to get debt alleviation?

The Ira Smith Team has years as well as generations of experience helping people and companies in financial difficulty. If your company needs a corporate restructuring debt negotiation strategy, we have the experience.  We will end your stress, anxiety and discomfort.   Whether it is a BIA or CCAA debt restructuring, we can help you.  We will return you and your company to a healthy, balanced and efficient pain-free life.

Our method for every case is to establish a remedy where Starting Over, Starting Now takes place. This begins the minute you consult with us and walk through our front door. You’re merely one telephone call away.  Therefore, with our help, you will take the required steps to go back to leading a healthy and balanced problem-free life.

Call us today for your free first consultation.

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ONTARIO PENSION PLAN: DOUG FORD GUARANTEES ONTARIO PENSION PLAN RELIEF FOR ALGOMA STEELWORKERS

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We are trying something new. At the bottom is an audiogram of this Ontario pension plan Brandon’s blog. If you would prefer to listen to it, and not read it, scroll down to the bottom and press on the play button. Let us know what you think by sending us a message in the Question box below.

Ontario pension plan: Algoma Steel

Ontario’s Premier Doug Ford is promising his help for Ontario steelworkers as well as their Ontario pension plan following the United States’ federal government’s 25 percent tariff on Canadian steel.

In news recently to Algoma Steel Inc. staff members in Sault Ste. Marie, Ont., Ford claimed the provincial government would assist in passing revisions under the Ontario Pension Benefits Act, R.S.O. 1990, c. P.8, along with insurance coverage from the Pension Benefits Guarantee Fund, subject to particular conditions.

Premier Ford didn’t provide any additional information on what specifically the help might be. However, he stated that negotiations are happening and extra info about just how Ontario is sustaining Algoma will certainly be introduced as quickly as possible.

Ontario pension plan: United Steelworkers

At the same time, the United Steelworkers union is prompting the federal government to enact regulations that would safeguard pension plans as well as benefits in situations of company bankruptcy, reorganization or liquidation. Union participants will be meeting legislators to check regulations focused on changing the Companies’ Creditors Arrangement Act (R.S.C., 1985, c. C-36) (CCAA) and the Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) (BIA).

Ontario pension plan: Proposed federal legislation to date

We previously described the efforts of Scott Duvall, MP for Hamilton MountainA, , MP for Manicouagan and Senator Art Eggleton:

Ontario pension plan: Canadian Association of Retired Persons

The Canadian Association of Retired Persons (CARP) is calling out the federal government, claiming it’s unreasonable that Sears Canada could pay out millions of dollars in shareholder dividends, a large part of which went to the US. At the same time, the pension plans of Sears Holding Corp.’s American staff members will be safeguarded by the U.S.’s Pension Benefit Guaranty Corp. while Canadian workers will certainly see benefits cuts.

“It’s time for the government to take decisive action to protect Canadian pensioners,” said Wanda Morris, chief advocacy and engagement officer at the CARP, in a press release.

Ontario pension plan: Private member’s Bill C-405

On October 17, 2018, Bill C-405 was presented by Conservative Erin O’Toole, MP for Durham. It is called “An Act to amend the Pension Benefits Standards Act, 1985 and the Companies’ Creditors Arrangement Act”.

The proposal is to change the Pension Benefits Standards Act, 1985 (R.S.C., 1985, c. 32 (2nd Supp.)), setting out what ought to take place if a business is under liquidation with the CCAA or Part III of the BIA.

His proposed changes lay out what should happen if a company is under liquidation through the CCAA or BIA. It proposes to allow, pending the permission of participants and beneficiaries, to transform the framework of the plan and/or move the pension’s assets to one more plans.

Granted this would probably be a necessary part of any global overhaul of pension plans. However, it is important to realize that it doesn’t do anything to safeguard the pensions or give the plan members and beneficiaries greater priority.

Ontario pension plan: Has a life event thrown you a curveball

Life has a way of throwing curve balls sometimes to good people. In the event of:

  • Illness;
  • addiction;
  • divorce;
  • family death; or
  • job loss

unbearable financial pressures can occur.

The Ira Smith Team has generations and decades of experience in dealing with people or their companies fighting the pain, stress and suffering that comes with financial problems and too much debt.

Our method for each person is to develop an outcome where Starting Over, Starting Now occurs. This begins the minute you come through our door. You’re just one call far from taking the essential actions to return to leading a healthy and balanced life, moving forward pain-free.

Call us today for your cost-free consultation.

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CORPORATE BANKRUPTCIES CANADA: SENATOR EGGLETON PROPOSES NEW PENSION FUND CANADA LAW

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Corporate bankruptcies Canada: Introduction

The U.S. Steel Canada court-supervised restructuring and the court-supervised liquidation of Sears Canada have something in common. They both forced us to focus on the treatment of pensioners in corporate bankruptcies Canada under the Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) (BIA) (or restructurings and liquidations under the Companies’ Creditors Arrangement Act (R.S.C., 1985, c. C-36) (CCAA)).

We previously wrote about these pension fund Canada issues and the beginning of the focus in Ottawa for the need for new legislation. My previous blogs were:

  1. TORONTO BUSINESS BANKRUPTCY PROTECTION: NDP WANTS FEDERAL INSOLVENCY LAWS CHANGED SO THERE IS PENSION PLAN SECURITY WHEN FINANCIALLY TROUBLED BUSINESSES FAIL – September 27, 2017
  2. SEARS CANADA CLOSING: POLITICIANS WANT NEW LAWS TO PROTECT PENSIONERS DUE TO SEARS CANADA CLOSING – November 1, 2017
  3. SEARS CANADA DEFINED BENEFIT PENSION PLAN SHORTFALL: MP SCOTT DUVALL COMES THROUGH ON HIS PROMISE IN CANADIAN PARLIAMENT – November 8, 2017

Senator Art Eggleton, P.‍C., shortly before his retirement proposed BILL S-253, An Act to amend the Bankruptcy and Insolvency Act and other Acts and Regulations (pension plans).

Corporate bankruptcies Canada: Bill S-253

Bill S-253 passed First Reading on September 18, 2018, and Second Reading was moved on September 25, 2018. This Bill proposes to amend the BIA as well as the CCAA. It proposes to make certain that claims for unfunded obligations or solvency deficiencies of a pension are accorded priority. This is for both solvent companies and companies that would be rendered insolvent by certain payments to shareholders..

This proposed legislation likewise would change the Pension Benefits Standards Act, 1985 as well as the Pension Benefits Standards Regulations, 1985 to equip the Superintendent of Financial Institutions to identify that the financing of a pension is impaired and to recommend procedures to be taken by the employer in regard of the financing of such plan.1

Corporate bankruptcies Canada: Is Bill S-253 new?

Yes and no. In our earlier blogs, I told you about the proposals by Bloc Québécois MP Marilène Gill’s Bill, C-372 and Hamilton Mountain NDP MP Scott Duvall rose in the House of Commons for leave to introduce Bill C-384. The amendments proposed to the BIA and CCAA in those proposed Bills, to create a priority for unfunded obligations or solvency deficiencies, are pretty well the same as in Senator Eggleton’s Bill S-253.

However, Senator Eggleton’s Bill goes further. It requires a company to report to the Superintendent of Financial Institutions:

“…of any proposed or actual decision of the employer, transaction or event, including the repurchase of shares of the employer or the payment of dividends to shareholders of the employer…”

that would cause a solvency deficiency and/or render the company insolvent.

Corporate bankruptcies Canada: So what now for Bill S-253?

To become legislation, a Bill needs to initially be presented in either the Senate or the House of Commons. It needs to after that go through numerous phases in each House: 1st, 2nd and 3rd reading. After that, it has to obtain Royal Assent. No doubt there will be a lot of debating and tinkering with this Bill. It will be interesting to see if this Bill makes it all the way through, or dies before becoming legislation.

However, the picture is clear. The result of the Sears Canada dividend payments and asset liquidation is clear. Shareholders received dividends and pensioners will have to take a deep cut in their pensions. This has caught the attention of the legislators in Ottawa. It will be interesting to see if the political will is there for pensioners to be protected in Canadian insolvency cases.

Corporate bankruptcies Canada: Does your company have too much debt?

Is your company experiencing financial difficulties? 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.ira smith trustee

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330 UNIVERSITY AVENUE: CORPORATE BANKRUPTCY COURT TORONTO SECRETS EXPOSED FROM THE CANADA LIFE BUILDING

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330 University Avenue: Introduction

On the west side of University Avenue and immediately north of Queen Street, lies 330 University Avenue, in Toronto’s core. This University Ave. building is known as the Canada Life Building. Work on the building began in 1929 for the brand-new head office of the Canada Life Assurance Company and it opened up in 1931. It was the 4th structure to act as the head office of Canada Life. Most noteworthy is that this company was Canada’s earliest, as well as the biggest insurance provider.

330 University Avenue: Brief building history

The development of this fifteen-floor Beaux Arts structure was by Sproatt & Rolph. It stands at 285 feet (87 m), 321 feet (97.8 m) including its famous weather beacon. This building was the very first of scheduled buildings along University Avenue, however, the Great Depression stopped those plans. When it finished, it was among the highest structures in Toronto. It stays one of the biggest office complexes in Toronto with windows that tenants can open. In 1997, Toronto City Council designated the building a heritage property.

330 University Avenue: The most noticeable part of the building

The weather beacon was added in 1951. Its colour codes sum up the weather report at a look. Environment Canada out of Toronto Pearson International Airport revises the weather details 4 times each day.

The top light indicates:
Consistent green = clear
Stable red = overcast
Blinking red = rainfall
Blinking = snow

The white lights along the tower show:

Lights rising = warmer
Lights running down = colder
Solid = consistent temperature level/ No adjustment

During the day, the weather tower shows the weather for that day. The evening signals show the weather for the next day.

330 University Avenue: 330 university avenue 8th floor

But enough of the history lesson. Maybe you didn’t come to this vlog to learn about the building’s history; I will now change the focus. On the 8th floor are the courtrooms. These Courts are presided over by Judges of the Superior Court of Justice Toronto Region. All corporate insolvency matters, certainly not just corporate bankruptcy matters, are part of what is known as the Commercial List.

Personal bankruptcy in Toronto Ontario is normally first heard in a different Court up the street at 393 University Avenue before a Registrar in Bankruptcy. The Registrar is a Master of the Court hearing bankruptcy matters. Most importantly, a Commerical List Judge in 330 University Avenue, Toronto Ontario M5G 1R8 must hear any appeal of a Registrar’s decision. This is for the reason that is what the rules state.

330 University Avenue: The corporate insolvency matters overview

The Court at 330 University deals mainly with corporate insolvency matters. Examples are:

  1. Corporate receivership – appointment of a receiver, motions by the receiver or a stakeholder requesting approval for specific relief, approval motions for sale of assets or fee and costs of the receivership administration, and above all, the receiver’s discharge application.
  2. Corporate restructuring – all motions for bankruptcy protection and restructuring of a company under the Companies’ Creditors Arrangement Act (CCAA), motions by the Court-appointed monitor or a stakeholder requesting approvals, approval motions for the Restructuring Plan of Arrangement including voting rights of all stakeholders, approval of the implementation of the Plan of Arrangement, approval of the fee and costs of the CCAA administration, monitor’s discharge application.
  3. Personal and Corporate bankruptcy matters – as indicated above, these would mostly be either an appeal from Registrar in Bankruptcy’s decision or an opposed matter that the Registrar was not allowed to hear under the bankruptcy rules.

330 University Avenue: Do I need a lawyer to appear at 330 University Avenue?

Corporations are not a human being, so they cannot show up in Court and speak. Therefore, a company requires a person to act on its behalf. Although a shareholder or officer and director authorized to speak on behalf of the company can represent the company in Court, it is not advisable.

I say this because the legal matters heard are most complex. As a result, an experienced insolvency lawyer is necessary to properly represent the position of either the company or a stakeholder.

The licensed insolvency trustee (formerly known as trustee in bankruptcy) who is acting as the receiver, monitor or trustee, similarly will have a competent insolvency or bankruptcy lawyer acting on its behalf. Motion filings always include very detailed reports.

Complex text, financial calculations and detailed exhibits will form part of the filed material. Most laypeople would need both an independent licensed insolvency trustee as a financial advisor, as well as an experienced corporate insolvency lawyer on their team. Therefore, the costs can mount quickly.

330 University Avenue: Is your company going to be in Court either for a restructuring or as a stakeholder?

Is your company dealing with severe economic problems and you aren’t sure what to do? There’s no embarrassment in looking for specialist, financial advice. As a licensed insolvency trustee, the Ira Smith Team can check your company’s circumstances and assist you to get to the most effective solution to solve your company’s financial issues. Several of our successful case studies can be found on our website.

Ira Smith Trustee & Receiver Inc. is here to assist. The government licenses and supervises us. Hence, to keep our license in good standing, we must adhere to a stringent code of ethics. We are well-known to the Judges at 330 University Avenue and all the Toronto insolvency lawyers.

I know the pain and discomfort you are in because of your corporate financial problems. You will certainly discover that we use a pleasant, non-judgmental technique in understanding you, your goals and in restructuring your company.

Give me a phone call today and allow me to address your economic issues Starting Over, Starting Now.330 university avenue

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BUSINESS DEBT ADVICE CANADA: TROUBLE SHOOTING DEBT STRAPPED COMPANIES

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Business debt advice Canada: Introduction

When it involves money, timing is everything. Your business is getting closer to the top of its banking line and your banker is asking for more information than usual. This is where your heart starts pounding faster and your stress level increases. This is the moment you can seize to right size your business or else it very well may fail. The purpose of my blog is to give you business debt advice Canada.

Business debt advice Canada: Relationships can become strained

Relationships can become strained with your lender and suppliers when business debts are mounting and your company is facing a cash crisis. However, there are actions a borrower can take to prevent calamity. Reassuringly, most of the time, lenders would rather support you if you have a viable business plan to correct the situation going forward, and not putting you out of business.

I hope the suggestions below shows you that you should look at this as an opportunity to fix your business. I have found that in trying times when a company has mounting debts and insufficient cash, there is no replacement for good management.

A solid business plan showing how the company will turn itself around is what your lender wants to see. Communication with your lender and your suppliers is key. Do not hide from the problem. Face it head on. If your business plan shows you can turn things around, you will feel like you are dealing from a sound platform and not just running scared.

Business debt advice Canada: Take emotion out of the equation

These situations generally become more tense before they become better. You, your lender and your unpaid suppliers all want the same thing. You all want the company to be successful and profitable, and to be able to pay all of its bills in full when due. Your lender and suppliers are not out to get you. However, if they do not: (i) know that you have solid business turnaround plan; and (ii) receive ongoing information to show what steps you are taking to fix the problems, they will have no choice but to turn off the tap.

I have unfortunately seen too many companies fail in their business restructuring efforts due to lack of communication. The turnaround plan may have been sound, but nobody knew. This only creates ill will among the stakeholders and a result that nobody wants.

Business debt advice Canada: Informal and formal turnaround options

I must preface this section by saying do not be afraid to consult with a licensed insolvency trustee (LIT) for business debt advisory services. Trustees’ training makes them expert in assessing troubled business situations and implementing turnaround steps. A LIT does a lot more than just bankruptcy.

You will find it helpful to have a professional trustee assist you in developing your turnaround business plan, implementing it and keeping management focussed and accountable. You will also find it very helpful to have a LIT go with you for meetings with your banker; there will be many of those!

Business debt advice Canada: Troubleshooting

Fully understanding the full current status of the company showing signs of financial trouble is key. Things that I focus on early on when looking at troubled companies are:

  • What are all the different assets of the company and where are they located?
  • Are all the assets properly insured?
  • What is the going-concern value and the estimated liquidation value of the assets?
  • What is the full extent of all liabilities and business debt levels? This includes amounts owing to the government for:
  • What is the status of premises lease(s) for both remaining term and cost?
  • Is the cost of the leased premises above or below current market value?
  • Has anyone personally guaranteed bank debt, the landlord or any other creditor that would affect turnaround decisions to be taken?
  • Has a current crisis cash-flow statement and turnaround business plan been developed and tested for reasonableness?
  • What are the causes of the company’s current financial problems and how likely are those causes to recur?

This list is not meant to be exhaustive. No doubt other questions will arise as answers are found for these first questions. However, this is the information I first want to get before embarking on developing a restructuring plan.

Business debt advice Canada: Informal restructuring and turnaround

If the business problems have been identified early and have not been allowed to fester, then an informal restructuring may very well work. Perhaps all that will be needed is some accommodation from the lender both in time and money. Banks are quite willing to enter into a forbearance agreement with their corporate client allowing the time (and sometimes more money) to see if the turnaround plan will work.

The bank would rather have a successful turnaround than shut you down. The bank needs to know that management has the bench strength to pull off the restructuring. If not, they will expect you to have a lawyer experienced in turnarounds and a LIT active on your team.

Companies that have relatively few trade suppliers may also be able to work out a restructuring of their unsecured debt. The fewer people you have to talk to and get onside, the higher the likelihood of success. Of course, the trust developed from earlier dealings is very important. If there is no trust, or if there are just too many suppliers, an informal restructuring will not work with them.

Business debt advice Canada: Formal restructuring

The Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) (BIA) and the Companies’ Creditors Arrangement Act (R.S.C., 1985, c. C-36) (CCAA) are the two primary Federal statutes that govern corporate restructuring in Canada. The requirements of each statute and the exact processes themselves are weighty enough to deserve their own blog. However, the takeaways from this blog on formal restructuring are:

  • In a formal restructuring, I still go through the checklist I have identified above of issues to look into.
  • Under the BIA, the restructuring section is Part I Division III of the BIA
  • If a restructuring under the BIA does not receive the necessary creditor AND court approval, the company will automatically be bankrupt
  • In a formal restructuring, the company stays in control of its assets and business operations
  • A formal restructuring invokes a stay of proceedings so no party can begin or continue litigation or enforcement action against the company
  • A company needs to have at least $5 million in debt to restructure under the CCAA
  • A BIA restructuring will be less costly than a CCAA restructuring because the company does not have to go to Court for approval every time it wishes to do something
  • The term “bankruptcy protection” in Canada, refers to a formal restructuring under either the BIA or CCAA.

Business debt advice Canada: What to do if your company has too much debt

Is your business facing financial problems? Perhaps your company is in need of a restructuring. The Ira Smith Team can develop a restructuring plan which may or may not include the need to file for bankruptcy protection.

The Ira Smith Trustee & Receiver Inc. Team understands the pain you are going through trying to keep your company alive while trying to negotiate with potential purchasers. We understand that you are playing beat the clock, and the pain and stress you are feeling thinking that you may just run out of time. The bankruptcy protection process can ease this stress and provide a level playing field so that no potential purchaser takes advantage of you.

The Ira Smith Team has a great deal of experience in running a stalking horse stalking horse asset purchase agreement. The stress placed upon you due to your company’s financial challenges is enormous. We understand your pain points. Call the Ira Smith Team today for your free consultation. We can end your pain and put your company back on a healthy profitable path, Starting Over, Starting Now.

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

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Toys R Us bankruptcy protection in Canada: Introduction

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

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

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

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

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

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

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

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

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

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

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

Such offsets include:

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

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

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

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

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

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toys r us bankruptcy protection in canada

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

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

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

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

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

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

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

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

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

Contact the Ira Smith Team today.

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