Tag: chapter 11 bankruptcy protection

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EASY COMMERCIAL RENT RELIEF CANADA: THE SECRET TO CREATING A CORPORATE RESTRUCTURING

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

Keep healthy and safe everybody.

Commercial rent relief Canada introduction

Commercial rent relief Canada is one of the biggest needs of Canadian businesses. This is a result of the COVID-19 induced economic shutdown. I have written before on this problem and about the Canadian government Canada Emergency Commercial Rent Assistance (CECRA) Program.

This program is part of Canada’s COVID-19 Economic Response Plan. The CECRA has been updated from its original version which I also wrote about. You can view the updated discussion in my blog – COMMERCIAL TENANCIES ACT ONTARIO: NEW FIX FOR YOUR UNRULY LANDLORD’S COVID-19 COMMERCIAL LEASE TERMINATION.

The purpose of this Brandon’s Blog is to discuss how “unused” leased premises have been treated differently so far under both US and Canadian corporate restructuring. I will also fill you in on the secret to get commercial rent relief Canada for Canadian bankruptcy protection and financial restructuring. Unfortunately, as you will see, it isn’t much of a secret!

Commercial rent relief Canada – The US version

The US bankruptcy courts have been generous and pragmatic in cutting companies who filed under Chapter 11 some slack in relation to leased premises that were unused due to the economic shutdown. There were two cases in particular that I previously wrote about.

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

On March 12, 2020, the U.S. Bankruptcy Court District of New Jersey issued the Order authorizing the Chapter 11 bankruptcy application of Modell’s Sporting Goods, Inc. et al (Modell’s) submitted on March 11. Modell’s is America’s earliest, family-owned ran store of sporting items, sports footwear, clothing and equipment. It was founded in 1889.

On March 27, 2020, the court granted Modell’s court application making an order attending to both a bankruptcy suspension and an operational suspension. The bankruptcy suspension maintained the bankruptcy protection proceedings until April 30, 2020 (the Suspension Period). The operational suspension enables Modell’s to shut down all shops and also not operate. The judge additionally gave Modell’s the right to apply on brief notice to the court to extend the Suspension Period. The order went on to state the stay of proceedings holds throughout the suspension.

As part of their application, Modell’s submitted a modified budget to show what sources of cash it would have and also what expenditures it would pay during the Suspension Period. It likewise showed what expenditures were being incurred, but not paid. Commercial rent on every one of its shops was among the expenditures being accumulated but left unpaid.

Modell did not put any of the commercial lease payments in its amended spending plan. They needed to shut down every one of their stores as a result of the coronavirus pandemic. Shops shut suggests no sales. They were not going to pay rent at the same time the stores were not generating cash.

The court order accepted the modified budget plan. It also verified that the only payments that Modell’s would make were those indicated as most important. The business considered payments to every one of its landlords as non-essential. The court order did indicate that the accumulated and overdue commercial rent payments were not and also were not deemed to be waived or not payable.

Pier 1 Imports took a page from the Modell playbook

In February 2020, Pier 1 Imports, Inc. (Pier 1) declared Chapter 11 bankruptcy protection as part of trying to find a purchaser of its operations. It then closed all of its shops in Canada and most in the United States.

On Tuesday, March 31, 2020, following the Modell’s precedent, Pier 1 applied to the court to stop paying commercial rent on its US retail locations on a temporary basis. Pier 1 had to shutter all of its shops as a result of the COVID-19.

Following the Modell’s model, the court provided its approval. It is interesting to note that no commercial rent relief Canada was sought from the Canadian court.

commercial rent relief canada
commercial rent relief canada

Could this commercial rent relief Canada occur under Canadian bankruptcy protection?

So the concern is, could a business get this new Modell’s/ Pier 1 precedent to take place in a Canadian bankruptcy protection restructuring? Put another way, could Canadian companies being formally restructured get commercial rent relief Canada?

Under the CECRA program, landlords and tenants need to cooperate and agree with each other to apply for that commercial rent relief Canada. However, what if the landlord plays hardball? Can a Canadian firm declare bankruptcy protection in Canada and be successful in having the court order commercial rent relief Canada?

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

There are no express arrangements in either statute to conjure up commercial rent relief Canada. Actually, the reverse is true. In either a restructuring or liquidation, the case law says that if a leased premise is being used then rent must be paid to the landlord. Fairness is part of the Canadian bankruptcy landscape. There are years of cases on this problem and they all wind up the very same. You don’t even have to be open for business. If you are tying up the location and preventing the landlord from the right of reentry, the rent needs to be paid.

However, there are two comparable sections in each of the BIA and CCAA. Section 183( 1) of the BIA says:

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

The wording has been interpreted by the courts to imply that the bankruptcy court in each province has the sole responsibility to supervise and approve all acts needed to be done for the correct administration of the Canadian insolvency system. This holds whether it is bankruptcy protection restructuring or straight-out bankruptcy liquidation.

The CCAA offers more adaptability in an insolvency business restructuring than the BIA does. Generally, the court will reach its decisions in a CCAA restructuring on the basis of fairness and also reasonableness. The court is required to be worried that what is being recommended is not prohibited and there are cogent reasons regarding why what is being proposed serves to benefit all or most of the creditors affected by the restructuring.

Until recently, a Canadian court has not published a decision in response to an application for commercial rent relief Canada due to the coronavirus pandemic shutdown in a BIA or CCAA restructuring.

We now have a commercial rent relief Canada answer from British Columbia

The case is Quest University Canada (Re), 2020 BCSC 921. Quest University Canada (Quest) filed for CCAA bankruptcy protection in January 2020. It had several motions between January and May to extend the restructuring proceedings.

Also in May, Quest premised its request for a boost in its restructuring interim loan facility, somewhat, on it deferring lease payments on four of its university residences from June-August 2020. Southern Star Developments Ltd. (Southern Star) is the owner of the residences and also Quest’s landlord. Southern Star and its mortgagee Bank of Montreal (BMO), objected to any lease deferment. The court had to figure out whether it is appropriate to allow Quest to delay rent payments to its landlord, Southern Star.

Quest mandated that as part of the educational experience, all students going to Quest were required to reside on campus in the residences. A significant percentage of Quest’s students (some 75%) were international students. In addition, some faculty members resided in the residences.

Effects developing from the COVID-19 pandemic, as experienced in BC, across Canada and all over the world, are well known. On March 12, 2020, Quest’s board of governors declared the closure of Quest to the general public. Students had to leave the campus and finish the springtime and summertime semesters online. All occupants vacated the residences. Only a small number of personnel stayed behind for security purposes.

Then the BC government issued a Ministerial Order whereby it declared a state of emergency. The federal government prohibited the entry of foreign nationals into Canada, initially except the United States under the Quarantine Act. The Canadian government then extended the ban to most travellers from the USA also.

The timing of the pandemic as well as its extreme repercussions couldn’t be worse for Quest in regards to its restructuring efforts.

Quest’s commercial rent relief Canada application like Modell’s and Pier 1

Without referencing the US bankruptcy protection court orders I discussed above, Quest made a similar application to the court. Quest was looking for commercial rent relief Canada just like was given to the US companies in the Chapter 11 cases.

On May 18, 2020, Quest advised Southern Star that it would not be making rent payments for the residences starting in June 2020. Quest said it needed to conserve cash due to the fact that the residences could not be used (the same argument as the Modell’s and Pier 1 cases). Quest mentioned the continuous restructuring process, the closure of on-campus learning and the unpredictability of what academic instruction it would be able to offer in fall 2020 as reasons for the deferral.

The court had so far accepted and approved interim financing to permit the restructuring to continue. Quest told Southern Star that it wished to discuss a rent deferral arrangement over the following numerous months. Quest hoped that Southern Star would be accommodating given their history of working together and the COVID-19 pandemic.

Unfortunately, Southern Star right away showed its unwillingness to do so. Southern Star stated that, without receipt of lease payments from Quest, Southern Star will certainly not have the ability to make its mortgage loan payments to BMO. For apparent reasons, that is not an enviable situation for Southern Star, nor obviously, BMO, to be in.

In late May 2020, Quest sought and obtained an increase in the approved interim financing by $3 million. The cash-flow forecast that supported that application, included the Monitor‘s Second Report, did not reference any kind of rent payments by Quest to Southern Star until October 2020. Accordingly, the accepted interim funding is not adequate to fund Quest’s lease payments over the summer season.

Quest contended that it is critical to preserve the use of the residences and its relationship with Southern Star. Quest says that its ability to restructure and continue as a university depends on it. They also content that Southern Star and BMO will not suffer any prejudice if the rent deferral is allowed. Quest believed that it would be able to make up the deferred payments sometime in the future.

Southern Star and BMO opposed the court granting that relief. They contend that they will be prejudiced if Quest does not have to make the rent payments.

The court’s decision in Quest’s commercial rent relief Canada application

The court’s analysis was very detailed. The BC court reviewed precedent decisions from various provinces, including Ontario. For Quest, an important question that it wanted the court to answer was were the residences being used?

Quest suggested that it left the residences because of safety issues and provincial health and wellness orders relating to the COVID-19 pandemic. It stated that it is only allowed to make use of the residences for student housing. The court did not equate this absence of physical use of the leased facilities by students with a total absence of “use”.

The court concluded that Quest is “using” the residences within the CCAA restructuring because:

  • Quest is allowing some staff members to live there.
  • It is insisting, as against Southern Star as landlord of the residences, according to its right to quiet enjoyment of the residences. Simply put, Quest is exercising its right to “use” the residences, as usual, notwithstanding they are mostly vacant.
  • Certainly, since June 2020, Quest was able to populate the residences with students or other persons safely. This would be consistent with what they have done every past summer season.
  • The court did not see the use over the summertime as being irregular with the specified and allowed use of the residences.
  • As of June and proceeding right into July and August 2020, the principal reason the residences are vacant is no different than from previous summers. In previous summers, Quest had to pay rent to Southern Star because it was still “making use of” the residences.
  • Quest has actually not chosen to disclaim the (Sub)leases. On the contrary, Quest’s evidence is that the residences are essential and it must maintain them to advance the possible restructuring options available to them. The existence of the residences, and Quest’s legal rights to their use, remain a crucial marketing factor in relation to possible financial partners.

Fairness is a typical touchstone in CCAA and all insolvency proceedings. In the court’s view, substantial indicia of unfairness arise by permitting the rental fee deferment. The court stated that it had the option to allow Quest to choose to pay the rent. The court stated however that it did not have the right to prevent Southern Star from requiring payment and taking action in the face of any kind of default.

The court found that it was not appropriate to grant the rent deferment sought and dismissed Quest’s application. In doing so, the court followed the long line of cases in both CCAA and BIA restructuring cases as well as bankruptcy liquidation cases. By not granting the commercial rent relief Canada requested, it differentiated the Canadian insolvency system from the US system as seen in the Modell’s and Pier 1 cases.

A word of caution:

  • There is no discussion in the decision that Quest attempted to claim or rely upon a force majeure argument.
  • Notwithstanding how detailed the court’s analysis is, this BC court decision is not binding on courts in other provinces.

So as I said at the beginning, the secret to getting commercial rent relief Canada in a formal restructuring simply based on this court decision is either reach a deal with the landlord on your own or just hand the premises back to the landlord. Those are the only ways!

Commercial rent relief Canada summary

I hope you enjoyed this commercial rent relief Canada Brandon’s Blog. The Ira Smith Team family hopes you and your family are staying safe, healthy and well-balanced. Our hearts go out to every person who has been affected either through inconvenience or personal family tragedy.

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

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

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

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

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

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

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

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

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

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

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

Keep healthy and safe everybody.

commercial rent relief canada
commercial rent relief canada
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Brandon Blog Post

COMPANY BANKRUPTCIES: A USEFUL TOOL TO SHOWER EXECS WITH BONUSES?

company bankruptcies
company bankruptcies

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

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

Company bankruptcies introduction

Company bankruptcies have been in the news during 2020. The ones that got the most attention were large US retailers filing for Chapter 11 bankruptcy protection, their Canadian subsidiaries filing for restructuring or pure Canadian retailers who needed to file.

In the United States, almost one-third of 40 big firms seeking U.S. bankruptcy protection during the coronavirus pandemic awarded bonuses to execs within a month prior to filing their cases, according to a Reuters evaluation. Eight companies, consisting of J.C. Penney and Hertz, approved the bonuses as few as five days before seeking bankruptcy protection.

In this Brandon’s Blog, I discuss why this happened and look at could it happen in Canadian bankruptcies cases.

The role of a Key Employee Retention Plan (KERP) in company bankruptcies

A KERP is not a new concept in company bankruptcies. KERP refers to an advantage strategy utilized by a debtor company in a bankruptcy situation as incentives to upper management to stay working for the business throughout the bankruptcy. The purpose of this KERP is to help in the retention of particular essential qualified and competent executives of the company and its subsidiaries, by providing a retention bonus offer for such employees in return for their continued employment during the restructuring of the business in bankruptcy protection.

The KERP intends to maintain qualified officers, employees, and directors of the company and its subsidiaries upon whose judgment and effort the company depends upon for the successful conduct of its business. It is expected that providing such persons with a direct stake in the firm’s successful restructuring will assure a more direct alignment of their interests with those of the business and have them working on the company’s behalf throughout the entire financial restructuring. In this way, senior management and key personnel are incentivized to keep their employment with the company throughout its restructuring and not leave for a new opportunity.

So if KERP is normal, why pay out big bonuses ahead of time?

This phenomenon is unique to company bankruptcies restructurings in the United States. So far, it has not been applied directly to Canadian insolvency filings. The main reasons are the legislation and because of the supervisory role and practices of the courts.

KERPs have long caused objections that companies are enriching execs while cutting jobs, stiffing creditors and wiping out shareholders. In March, creditors filed a claim against previous Toys R’ US executives and directors, accusing them of misdeeds that consisted of paying out such rewards days before its 2017 bankruptcy filing. The company liquidated in 2018, terminating 31,000+ workers.

An attorney for the execs and directors stated the benefits were warranted, given the added work and stress on senior executives, as Toys R’ US had wanted to remain in business after its restructuring. As we all know, the restructuring failed and the company was liquidated.

United States legislation in 2005 needed execs and other company insiders to have a competing job offer in hand before getting retention bonus offers through a bankruptcy protection administration. That forced companies to design new means to pay the bonuses.

After the 2008 financial crisis, firms frequently proposed bonuses in bankruptcy court, casting them as incentive plans with goals execs have to satisfy. Courts mostly accepted the plans, ruling that the performance benchmarks placed the payment past the purview of the limitations on retention incentives. The plans, nonetheless, sparked objections from creditors calling them KERPs in disguise.

At some point, companies discovered they could avoid analysis entirely by approving benefits before insolvency filings. US Bankruptcy Trustees have no power to stop bonuses paid even days prior to company bankruptcies.

Why big bonuses are not paid out on the eve of company bankruptcies in Canada

As I mentioned earlier, the treatment of KERPs is really directed by the supervision of the court. A large Canadian bankruptcy protection filing that might involve a KERP is done under the Companies’ Creditors Arrangement Act (Canada) (CCAA). The Canadian legislation and therefore the decisions of the courts in Canada are different than in the United States.

A financial restructuring under the CCAA is a collaborative effort in Canada. It is not as adversarial as in the USA. In a Canadian CCAA restructuring, a Monitor is appointed by the court. The Monitor to a large extent is the “eyes and ears” of the court. The process is that the Monitor acts as a supervisor over the company’s affairs in restructuring and also acts as a mediator between the various stakeholders. The court places a high degree of reliance on the Monitor’s recommendations. The court also expects its Monitor to be in the middle of all important matters and make thoughtful and pragmatic recommendations.

In Canada, the legislation does not directly address the issue of a KERP. Rather, the court will review the terms of a KERP put before it for approval. The court expects that:

  • Hard evidence will be put before it to show why the KERP is required and will aid in the company restructuring.
  • Why the employees for whom it is being recommended qualify.
  • The court will want to see that the KERP was negotiated, that key stakeholders had input, and there is not a “one size fits all” plan for all the employees.
  • Rather, individual employee characteristics have been taken into account.
  • The Monitor has been involved in the discussions and is recommending it to the court with reasons.

The proper use of an appropriately-calibrated reward plan is evident:

  • Company bankruptcies cause staff members now in an insecure position to be prey to competitors able to provide the possibility of a stable and solvent workplace to people whose natural very first top priority is caring for their households.
  • There is a danger that the top and mobile employees will certainly be cherry-picked while the company in a restructuring might discover itself significantly handicapped in attempting to attract competent senior staff.
  • Sometimes a restructuring can result in a court-supervised sales process. Employees might commonly find themselves being asked to bring all of their skills and devotion to the task of making themselves unemployed.
  • Considering that many employers use a mix of base pay and profit-based motivations, company bankruptcies causing a restructuring may put greater demands on key staff including covering for associates who have been laid off or who have actually left for greener fields.

The main factors considered by the court being asked in company bankruptcies to approve a KERP

The main factors a court considers during company bankruptcies are:

  • Whether the Monitor recommends the KERP agreement and the cost.
  • For the senior staff to which the KERP is being recommended, how realistic is it that they would seriously consider various other work choices if the KERP was not approved?
  • Is the continued employment of the senior staff members for which the KERP is being recommended is essential for the security of the business and to boost the performance of the overall restructuring?
  • Each employee’s background with and expertise in connection with the debtor.
  • Any problems in replacing each of the senior staff for the employees to which the KERP would apply.
  • Were the KERP agreement and its cost authorized by the board of directors, including the independent Monitor, as the business judgment of the board needs to not be disregarded?
  • Is the KERP agreement and charge approved or consented to by secured creditors of the borrower (who might very likely end up paying for it)?
  • Are payments under the KERP payable upon the conclusion of the restructuring process or are milestones built in that may or may not be realistic.

These are the major issues that the court needs to consider when determining whether or not to approve a KERP. As you can see, in company bankruptcies in Canada resulting in a CCAA restructuring, the issues the court must consider are many. So far, business sense has prevailed in Canada not requiring the shenanigans now taking place in US bankruptcy restructuring cases.

Company bankruptcies summary

I hope you have found this company bankruptcies Brandon’s Blog interesting and helpful. The Ira Smith Team family hopes that you and your family members are remaining secure, healthy and well-balanced. Our hearts go out to every person that has been affected either via misfortune or inconvenience.

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

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

Income, revenue and cash flow shortages are critical issues facing entrepreneurs, their companies and individual Canadians. This is especially true these days.

If anyone needs our assistance for debt relief Canada COVID-19, or you just need some answers for questions that are bothering you, feel confident that Ira or Brandon can still assist you. Telephone consultations and/or virtual conferences are readily available for anyone feeling the need to discuss their personal or company situation.

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

Categories
Brandon Blog Post

INSOLVENCY TRUSTEE TORONTO NEWFANGLED COVID-19 BUSINESS RESTRUCTURING PLAN

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

Keep healthy and safe everybody.

Introduction

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

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

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

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

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

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

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

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

The novel court Order

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

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

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

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

Pier 1 Imports took a page from the Modell playbook

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

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

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

Could this happen in Canada?

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

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

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

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

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

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

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

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

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

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

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

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

Insolvency trustee Toronto summary

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

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

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

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

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

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

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

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

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

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

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

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

Keep healthy and safe everybody.

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BANKRUPTCY EXPERTS WEIGH IN ON US & CDN SMALL BIZ RESTRUCTURING

Introduction

Small and medium-sized businesses play a vital role in all worldwide economies. Bankruptcy experts in the USA identified problems. The Chapter 11 bankruptcy protection process for these companies was not working. It is pricey, usually ineffective and impractical. So, many businesses in the USA in need of restructuring could not have access to the US insolvency system.

On July 23, 2019, the US Congress passed the Small Business Reorganization Act (SBRA). On August 1, 2019, the Senate passed the Bill. On August 23, 2019, President Donald Trump signed it to enact it.

The purpose of the SBRA is to make business bankruptcy protection much less troublesome for small and medium-size ventures. The result is Chapter 11, subchapter V of the US Bankruptcy Code (Titled: Small Business Debtor Reorganization). The aim is to make it more affordable and will serve to save otherwise viable owner-managed businesses.

The purpose of this Brandon’s Blog is to discuss the new US legislation. I will also comment on an approach for the Canadian insolvency system. Can we streamline restructuring under the Bankruptcy and Insolvency Act (Canada) (BIA) for small business?

Changes made by the SBRA

A small company is defined in the SBRA as a person or company whose non-contingent debts (leaving out financial obligations to affiliates or people not dealing at arms’-length) are $2,725,625 or less and which chooses to be dealt with under the SBRA. The Act includes a new subchapter V to Chapter 11 of the US Bankruptcy Code. The purpose of this new approach is to make it simpler and more economical for small companies to efficiently restructure.

The main thrust of the Act is:

  1. A creditor cannot lodge a Chapter 11 restructuring plan that it is prepared to support. Just the business can. The company’s plan must be filed within 90 days of the day it filed its bankruptcy protection application, other than in specific conditions.
  2. A trustee comparable to those selected in a personal restructuring (Chapter 13) situations will be selected to manage each case.
  3. A creditors committee will not be developed.
  4. The Chapter 11 plan can change the legal rights of a lender registered against an individual’s primary home if the mortgage/funding secured by the home was used in the person’s business and was not financing used to purchase the property.
  5. The Court can approve a small business’ restructuring plan without the approval of any class of creditors. The Court must be satisfied that the restructuring plan treats all creditors fairly and does not prejudice any creditor class.
  6. To be fair and equitable, the restructuring plan must offer that all earnings received throughout the term of the restructuring plan will available to fund the restructuring for a duration of 3 to 5 years.

So the onus is on the creditors to carefully review all cases filed under the SBRA. Creditors will need to retain bankruptcy experts to advise them. Their role will be to make certain that Courts appropriately examine restructuring cases for fairness and that they treat all creditors equitably. This will be especially true for those that do not have the support of the creditors.

It will be very interesting to see if this new legislation accomplishes its goal of making it simpler and less costly for small businesses to restructure and continue.

The Canadian business restructuring landscape

There are two federal statutes that legislate business restructuring in Canada. They are the Companies’ Creditors Arrangement Act (R.S.C., 1985, c. C-36) (CCAA) and the Part III Division I of the Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) (BIA).

To qualify for restructuring under the CCAA, the insolvent corporation must owe at least $5 million. The CCAA is only for insolvent companies or income trusts to restructure. It is not for:

  • proprietors or partnerships
  • banks
  • telegraph companies (do people still send telegrams?)
  • insurance companies
  • companies to which the Trust and Loan Companies Act applies

Proceedings under the CCAA are a very heavily Court-driven process.

Restructurings under the Part III Division I proposal provisions of the BIA are available to both companies, proprietors and partnerships. It is also available to people who owe $250,000 or more, not including any mortgages or loans secured by the person’s principal residence.

For people who owe less than $250,000, a more streamlined restructuring process is available under Part III Division II of the BIA. These are called consumer proposals.

Restructuring under the proposal provisions of the BIA is not a heavily Court-driven process like the CCAA. Under consumer proposals, if all goes smoothly there is never a Court application.

So we have a simpler and streamlined version for people who have a smaller debt level but are still in need of restructuring their financial affairs. The same is also true for people with fewer or no assets that need to start over through the bankruptcy process. However, there is no equivalent streamlined version in Canada for small to medium-size businesses.

Could such a streamlined business restructuring model be developed? Not only do I think it could be, as one of the bankruptcy experts in Canada holding the designation of licensed insolvency trustee, I think it must be.

The statute for a streamlined Canadian business restructuring model

The CCAA is designed for large corporations. As I already stated, it is a heavily Court-driven process. Therefore, I think this eliminates the CCAA from developing a more streamlined version. It is not the case that it could not be done. It is just that a new section designed for simpler and more cost-effective CCAA proceedings goes somewhat against the purpose of the CCAA.

Therefore, I propose that CCAA legislation should remain available only to larger companies. Especially because the BIA, another federal statute, already includes restructuring provisions. It already has a streamlined version for bankruptcy and restructuring to avoid bankruptcy. So, why not a streamlined business restructuring section?

What would BIA streamlined business restructuring look like?

You might ask, why is this even necessary? Many small and medium-sized businesses are family-owned. There are even very large family-owned businesses. The Financial Post reports that “Family businesses own a bigger chunk of Canada’s economy than you think — way bigger”. They report it is a significant business sector contributing 35 percent of Canada’s real gross domestic product.

So with such an important business sector, it would make sense to allow those businesses on the smaller scale to qualify to have a simpler and more cost-effective way to restructure when they hit a financial bump in the road. If the viable parts of the business can be saved, it will continue to employ people, allow families to have a good quality of life and contribute to Canada’s GDP. It does not make sense to essentially kill off these smaller businesses because the cost of the restructuring will use up all the resources necessary to run the business.

I am not talking about family-owned businesses Bombardier Inc. and Loblaw Cos. Ltd. Rather, I am talking about the majority of Canadian entrepreneurial companies in the mid to small size range.

So here is what I propose for a streamlined restructuring process for small and medium-sized businesses. I will call it a new Part III Division III of the BIA. I will call it the General Scheme for Small Business Proposals (SBP) section of the BIA.

Size matters

The new SBP should be available to corporations, proprietorships and partnerships that are set up to conduct business. Their total debt should not be more than $1.5 million. There is nothing scientific about this number.

Statistics Canada could do an analysis as to the average debt load of Canadian businesses and an appropriate debt level could be picked based on it. For purposes of this Brandon’s Blog, I will use the $1.5 million amount.

I would not exclude loans from affiliates or people not dealing at arms’-length such as in the US legislation. In Canada, it is normal for the first funding of a company to come from the owners. Our chartered banks want to see a commitment from the owners before they will lend. Owners have sacrificed their own money to get the company off the ground. Just because that is how they had to finance the company, I would not preclude that debt from counting in the calculation.

The Canadian business landscape is different from that in the USA. Our numbers are generally smaller. In order to exclude non-arms’-length debt, you would probably have to lower the debt threshold I have mentioned. So, let us keep that debt threshold for discussion purposes and include all debt; secured or unsecured, arms’-length or related parties and owners.

If a person is not conducting business in his or her name, then this new SBP would not be for them. They would fall under either Division I or Divison II restructuring proposals.

Administration of restructurings under the SBP

Currently, only a licensed insolvency trustee (formerly called a bankruptcy trustee) (LIT) can administer restructuring proposals. Under Division I Proposals, the LIT is called the Proposal Trustee. Under consumer proposals, Division II personal restructurings, the LIT is called the Administrator.

So, for the new SBP, I will call the LIT the Small Business Administrator. It makes it obvious that it is the restructuring of a business qualifying under the new Division III. The use of the word “administrator” ties nicely into the word chosen already by Parliament for consumer proposals. So again, it makes it obvious that the LIT is administering a small business streamlined restructuring.

Since we are not talking about personal restructuring that falls under the consumer proposal provisions in this Brandon’s Blog, my suggestions for a streamlined business restructuring applies only to Part III Division I of the BIA Proposal restructurings to avoid bankruptcy.

Time to restructure

Under a Division I Proposal restructuring, the company or person can begin the restructuring process by filing either a Notice of Intention To Make A Proposal (NOI) or the Proposal itself. Under either filing, the debtor then has 10 days to file its cash-flow statement reviewed and approved by both the company or person and the LIT. Under an NOI filing, the company or person then has an additional 20 days (30 days after the NOI filing date) to file a Proposal (unless the time is extended by Court Order).

Most times with small to medium-sized businesses, the debtor is not current in all of its filings with the Canada Revenue Agency (CRA). This includes payroll remittances, HST and perhaps even income tax returns. In any restructuring where CRA is a creditor, they need to have the most current information from the debtor’s business filings, to be able to know the full amount owing by the business. They will not be able to properly assess the Proposal until they know the proper amount owing to them.

Also in any Proposal restructuring, we want to have a provisional income tax return prepared by the external accountant for the business. The provisional return is to show if any further tax liability exists for the fiscal year up to and including the date of filing of the Proposal.

Books and records will first have to be brought up to date. Then the accountant will need time to prepare and file the income tax return. There is a reason for this. We want CRA to know if there is a further liability.

Although there is no statutory provision allowing for this, CRA so far on an administrative level will allow for a split tax year in a restructuring. The liability for the fiscal year up to and including the Proposal date will be included as a debt in the restructuring. This is to the company’s or person’s advantage in the business.

Once the Proposal is filed, the meeting of creditors has to take place within 21 days of the Proposal date. In my experience, there is never enough time for the business to do all the necessary filings for CRA that I just mentioned. So, CRA always requests an adjournment of the meeting until such time as all the filings are up to date.

So, in my proposed streamlined version, I would propose to extend the filing of a Proposal after the filing of an NOI from 30 days to 90 days, without the need for the expense of going to Court seeking an extension. This should give enough time for the business to get all of its filings up to date and hopefully avoid the need for an adjournment of the meeting of creditors.

Creditors

There really is nothing that needs to be changed on how creditors file their claims. The same is true for the rules of how the LIT must assess all claims. I do like the idea in the new Chapter 11 subchapter V. That is the ability to change the legal rights of a lender registered against an individual’s primary home if the mortgage/funding secured by the home was used in the person’s business and was not financing used to purchase the property.

In Canada, it is very rare, if not unheard of, for an entrepreneurial business to get a bank loan without the owner giving a personal guarantee. Many times the personal guarantee has to be backed by a hard asset, such as a pledge of the personal residence. If the secured debt can be restructured, shouldn’t the pledge agreement on a personal asset also be part of that restructuring?

So, I propose that in the new SBP, there should be the ability to change the legal rights of a lender registered against an individual’s primary home if the funds were used for the business or if the pledge was in support of a personal guarantee for funds borrowed by the business.

The types of changes to the security pledge will be unique to the individual restructuring. It has to make business sense and common sense. It is always up to the secured lender to vote against the plan if they don’t like it. In that case, the restructuring will fail. There will be great pressure on the business to bring forward the best possible restructuring plan and not go crazy on what changes the owner wants to make to the pledge of security.

Deemed acceptance and approval

Without going into all the rules, under the current consumer proposal legislation, there is the concept of deemed creditor approval and deemed Court approval. Unless creditors holding 25% in value of the proven claims request it, there is no need to hold a meeting of creditors. Creditors are asked to vote by way of voting letters when they file their proof of claim. If no obligation to call a meeting arises, then the consumer proposal is deemed accepted.

If a consumer proposal is either accepted or deemed accepted by the creditors, then there is probably never going to be a need for the LIT administrator to formally seek approval by the Court. The BIA reads that after the acceptance or deemed acceptance, the consumer proposal is deemed accepted by the Court unless the Official Receiver or “other interest party” requests it within 15 days after the date of (deemed) acceptance.

Currently, under a Division I Part III restructuring Proposal there are no deeming provisions for either creditor acceptance or Court approval. I would like to see in the new SBP section, that similar deeming provisions for both creditor acceptance and Court approval be implemented. This will save time and cost thereby being much more efficient.

No deemed bankruptcy

In a Division I Proposal, if the creditors do not accept the restructuring, or the Court does not approve it, then the debtor is automatically deemed to have filed an assignment in bankruptcy. There is not a similar provision for consumer proposals.

If the creditors do not accept a consumer proposal, then it just dies then and there and the debtor goes back to their normal unprotected state.

My proposal for the new SBP is that if the creditors do not accept or the Court will not approve the restructuring plan, that does not produce a corporate or personal bankruptcy. Rather, the debtor just goes back to their normal unprotected insolvent state and they have to fend off their creditors as best as possible.

It may lead to bankruptcy, but that will not be automatic. In some corporate situations, the cost of a bankruptcy proceeding just does not make sense. This is especially true if a chartered bank has security over all of the assets and will be enforcing its security through a receivership.

Directors/Owners

Right now a corporate restructuring Proposal allows for Directors to be released from debts that arise prior to the date of filing the Proposal. The kinds of debts that a Director can be released from are those solely resulting from their role as a Director. In other words, generally statutory claims they would be legally liable for.

As I already mentioned, more often than not, the only way a small or medium-sized company can get a bank loan is if the entrepreneur personally guarantees the debt. There are times where a corporate restructuring can be done, but the secured debt arrangements will have to be amended. If the lender is not willing to amend the personal guarantee security arrangements in place, then, the corporate restructuring does not make sense.

So in my dream of the SBP, if a secured lender agrees to a restructuring of their debt, then the Director(s) who may be personally liable will now be responsible for the revised secured lending arrangement. This would also go hand in hand with my proposed change to the ability to change the legal rights of a lender registered against an individual’s primary home if the mortgage/funding secured by the home was used in the person’s business and was not financing used to purchase the property.

Bankruptcy experts summary

So there you have it. The US government saw fit to add to its Chapter 11 bankruptcy protection statute to allow smaller companies to restructure. My vision for a Canadian version is the SBP section to form a new Part I Division III for the BIA.

To summarize, the changes to allow for a more efficient and less costly way to restructure smaller businesses would include:

  1. The brand-new SBP will be offered to companies, proprietorships and partnerships that are established to run a business. It will be available to businesses with any kind of debt not greater than $1.5 million.
  2. A LIT who will be called a Small Business Administrator, will oversee and be responsible for the business restructuring.
  3. The time for the filing of a Proposal after the filing of an NOI will be extended from the current 30 days to 90 days. This will be without the need and cost of a Court application.
  4. There ought to be the capability to transform the rights of a lending institution who has taken an entrepreneur’s home as security for a business loan or personal guarantee of such financing and the funds were put into the business.
  5. Deeming provisions for both creditor acceptance and Court approval be implemented. It is already done in consumer proposals, so why not in streamlined business proposals? This will result in more efficient and less costly restructuring.
  6. If the creditors’ decline or the Court will not approve the restructuring, that will not generate a corporate or personal bankruptcy. Instead, the debtor simply returns to their vulnerable financially troubled state and they will need to deal with their creditors as best as possible. In some cases it may lead to either bankruptcy or just a closing down of the business. Where there is a secured creditor, it will lead to the enforcement of their security. Either way, it won’t be an automatic bankruptcy.
  7. A Director of a corporation can be released not only from statutory obligations arising from their office of Director. That person, or any other person, can have their guarantee of a debt to a lender be amended if the related business debt is amended in the restructuring.

There no doubt will be other areas that would need amending once all the relevant sections of the BIA were looked at. These are my ideas of the major amendments that could be made to the BIA, to allow for a more streamlined and cost-efficient restructuring for small and mid-sized businesses.

What about your business?

The financial restructuring process for either a large or small business 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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SOMETIMES EVEN A BONA FIDE SHARK NEEDS BANKRUPTCY AND INSOLVENCY HELP

bankruptcy and insolvency
bankruptcy and insolvency

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

Bankruptcy and insolvency: Introduction

Not every innovation that is seen on The Shark Tank is bound to be one of the very best. Among the winners, Fizzics is a machine that makes use of sound waves that improve the taste and quality of a beer. Not even a Shark can stop its company from being driven to bankruptcy and insolvency Chapter 11 bankruptcy protection. This proves that often an ingenious and fantastic invention being marketed with the assistance of a Shark might not truly interest people.

bankruptcy and insolvency
bankruptcy and insolvency

Fizzics was seen on the season 8 première of The Shark Tank. The judges, in spite of the early skepticism, accepted this pitch. It currently seems to be backfiring in a huge way. The idea of making a bottle of beer taste better, just like a draft beer from the tap, isn’t a silly way to invest your time. But a better tasting beer is a big luxury. Many people may check out is the brand-new shiny plaything on the block. It is something wacky and cute but not completely effective or needed.

What is difference between bankruptcy and insolvency in Canada?

What is insolvency? – Individuals are considered to be insolvent when they are not able to pay the financial debts they owe their creditors on their respective due dates. If you become insolvent, you might choose to declare bankruptcy, or you could handle your financial debts with other options such as a consolidation loan or a debt settlement consumer proposal.

Insolvency and bankruptcy are 2 terms that are often very closely associated when discussing debt. However, they have very different meanings. Insolvency describes an economic state. It is when you cannot afford to pay your debts when due. If you liquidated all of your assets, there would not be enough money to pay off all your debts in full.

What is bankruptcy? – Bankruptcy is a legal process. It means that a creditor has gone to court and obtained a Bankruptcy Order to place a person or company into the legal status of bankruptcy. Or, the person or company has filed an Assignment in Bankruptcy. The Bankruptcy and Insolvency Act (BIA) is the Canadian bankruptcy law legislation regulating all administrations of the BIA in Canada.

The various kinds of insolvency proceedings under the BIA are:

  • corporate bankruptcy;
  • personal bankruptcy; either a summary administration bankruptcy or an ordinary administration.
  • consumer proposals;
  • Part III Division I Proposal; and
  • receiverships.

Canadian BIA insolvency proceedings and bankruptcy proceedings can only be administered by licensed insolvency trustees (formerly called trustees in bankruptcy). The short form for a trustee in bankruptcy is now LIT, licensed insolvency trustee (Trustee). Trustees are licensed and supervised by the Office of the Superintendent of Bankruptcy (Canada) (OSB) which is part of Industry Canada. The OSB is responsible for the administration of bankruptcies in Canada.

Bankruptcy and Insolvency: Does the consumer really need it?

Eventually, these types of ideas are those that often tend to seem like the most effective thing since sliced bread. Their shiny brand-new finish tends to subside promptly given the expense of creating them. Even tougher, is finding a large enough market of people who truly intend to quit the dependable and old ways to carry out something. The uniqueness will swiftly wear away. The equipment will then come to be a chunk of scrap that is most likely to rest on the counter and seldom gets used. That might seem unkind, however, usefulness and need to at some point seem to divide the wheat (or barley) from the chaff!

So Fizzics, for all that it is able to do, turned out to be not the sort of device that has the ability to make a great deal of sense in a business setting. It is just for home-usage. In a bar, people go to consume alcohol and socialize. They are not there to wait on a number of sound waves to make their drink preference taste and look better. If they want a draft beer, they will order from the tap. If they want a bottled beer, that is what they will order.

For home usage, it is an excellent novelty. Everyone has their favourite beer. People anticipate it to taste the way they know it too – straight out of the bottle or can.

The Fizzics Business: The Sharks bit and invested money

Philip Petracca and his partner, David McDonald, made it to ABC’s “Shark Tank” in 2016, offering beer to a hesitant panel. They eventually turned most of the judges into followers. Lori Greiner and fellow Shark Mark Cuban agreed to spend $2 million into Fizzics for a consolidated 16.67 percent equity. Fizzics attained its objective of expanding its selling networks.

With the help of the Sharks, Fizzics entered Target, Best Buy, Brookstone, on Amazon, and several other areas– including Bed, Bath & Beyond. They have been reviewed in many renowned publications, and on several websites such as Yahoo! Tech as well as CNet. The Fizzics beer-making device was called absolutely nothing short of a wonder.

bankruptcy and insolvency
bankruptcy and insolvency

They increased their patented modern technology and generated a much more portable item called the Fizzics Waytap. Beer fanatics were still going crazy about the original dispenser in magazines.

On March 12, 2019, Fizzics Group, Inc. applied for Chapter 11 bankruptcy in Delaware under the United States insolvency and bankruptcy code. It reported assets of between $100,000 as well as $500,000 and debts of between $1 million and $10 million (based on contingencies and disputed claims). Time will tell if the business can be reorganized and saved, or if the remaining product inventory will end up in the clearance area!

Bankruptcy and insolvency: Do you need help?

I hope you enjoyed this Fizzics Shark Tank bankruptcy and insolvency blog. Do you or your business have excessive debt? Are you having an issue making your month-to-month expenses? Is your company handling its financial obstacles something you simply can’t figure the way out of? Are you looking for a business restructuring plan or an individual debt negotiation plan?

If so, call the Ira Smith Team today. We have years and generations of experience helping people and companies seeking financial restructuring or a debt settlement strategy. As a licensed insolvency trustee, we are the only specialists recognized, accredited and supervised by the Federal government to give insolvency advice and remedies to assist you and to prevent bankruptcy.

Call the Ira Smith Team today so you can end the stress and anxiety financial problems create. With the special roadmap, we will develop with and special to you, we will promptly return you right into a healthy, balanced hassle-free life.

You can have a no-cost appointment to assist you so we can fix your debt troubles. Call the Ira Smith Team today. This will certainly allow you to make a fresh start, Starting Over Starting Now.

 

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HOW TO SOLVE THE BIGGEST PROBLEMS WITH BANKRUPTCY PROTECTION MEANING

Bankruptcy protection meaning: Introduction

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

“bankruptcy protection noun [ U ]

UK ​ US ​ also bankruptcy-law protection

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

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

We have filed for bankruptcy protection from creditors.

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

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

See also

Chapter 11”

Bankruptcy protection meaning: Bankruptcy protection meaning

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

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

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

Bankruptcy protection meaning: How does it begin?

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

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

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

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

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

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

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

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

Bankruptcy protection meaning: Does Chapter 11 exist in Canada?

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

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

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

Bankruptcy protection meaning: The Canadian restructuring laws

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

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

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

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

3bestaward

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

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

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

Bankruptcy protection meaning: Some examples please

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

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

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

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