Tag: Companies’ Creditors Arrangement Act

INSOLVENCY TRUSTEE COURT ORDER: THE FULL POWER OF THE COURT IN ONTARIO REGULATORY PROCEEDINGS

Post author By Brandon Smith
Post date October 6, 2025

Insolvency Trustee Court Order: Introduction

As a Licensed Insolvency Trustee (formerly called a trustee in bankruptcy) at Ira Smith Trustee & Receiver Inc. in the Greater Toronto Area, I meet with people and business owners every day who feel overwhelmed by debt. Many believe we only handle bankruptcies. The truth is, our role goes much deeper. We act as a bridge between financial trouble and the Canadian legal system.

From our Vaughan office at 167 Applewood Crescent, Suite 6, we help clients find a secure path through their financial challenges. One of the most powerful tools in this process is the insolvency trustee court order.

These court orders form the backbone of fairness and legality in Canadian insolvency cases. Whether you’re a small business owner looking for a way to save or safely close your business, or dealing with a multi-million-dollar corporate restructuring, court orders protect everyone involved.

Let me share a very recent Ontario court decision. In 2025, the Ontario Securities Commission (OSC) took action against Cacoeli Asset Management and related entities (Cacoeli). This case shows exactly how an insolvency trustee court order can stop improper conduct and protect investors.

In this post, I’ll explain:

What happened in the Cacoeli case and why it matters
How the court decided to appoint a receiver
What a Licensed Insolvency Trustee does under a court order
When you need a court order in insolvency proceedings

Let’s start with the case that brought these issues to light.

The Superior Court’s Insolvency Trustee Court Order Appointing the Receiver

In the recent Ontario court case of, Ontario Securities Commission v. Cacoeli Asset Management, 2025 ONSC 3012, the OSC asked the Ontario Superior Court of Justice for urgent help. They wanted an insolvency trustee court order to take control of the Cacoeli assets before their investigation was even finished. This is a serious step that requires strong reasons.

The Problem: Misused Investor Money

The OSC found that Cacoeli had raised at least $13 million from about 53 investors. Each investor thought their money was going to buy and manage a specific property. Different limited partnerships were created for each unique property.

However, the investigation revealed something troubling. Money meant for one property was allegedly being moved to support completely different properties. This is called “fund diversion.”

Investors who thought their money was buying Property A discovered it might have been used for Properties B, C, or D instead.

What Standard of Proof Was Needed?

Cacoeli’s lawyers argued that appointing a receiver is extremely serious. It takes away the company’s control over its own business. They said the OSC needed to prove a “strong prima facie case” – meaning very strong evidence that laws were broken.

Justice Steele disagreed. She confirmed that for protective orders under Ontario’s Securities Act, the OSC only needs to show “serious concern that there have been possible breaches.”

Why does this matter? It means courts can act quickly to protect investors. They don’t have to wait months or years for a full trial when people’s money is at risk.

Reading the Partnership Agreements

Cacoeli argued that their partnership agreements allowed them to move money around. They pointed to clauses that gave the General Partner power to “invest funds” and “engage in any transaction with affiliates.”

Justice Steele carefully read the agreements. She found that the “Purpose” section was crystal clear. Each partnership existed for one specific reason: to acquire and manage that particular property only.

The broad powers mentioned elsewhere in the agreement could only be used to support that specific purpose. They couldn’t be used to break the fundamental promise made to investors.

This finding confirmed that the fund diversion was serious and possibly illegal.

Why Include All Properties Under One Receiver?

Certain secured creditors held mortgages on specific Cacoeli properties. Some of them asked the court to exclude their properties from the receivership. They wanted to seize and sell those properties themselves.

Justice Steele said no. She ordered the insolvency trustee court order to cover all Cacoeli properties and companies.

Why? Excluding properties would create chaos:

Different creditors would fight over different assets
Multiple court cases would overlap and contradict each other
Costs would skyrocket
Small creditors would get nothing

Appointing one Licensed Insolvency Trustee as the court-appointed receiver guaranteed central oversight, coordination, and fairness for everyone.

Insolvency Trustee Court Order: The Court of Appeal Upholds Investor Protection

Cacoeli appealed Justice Steele’s decision. The case went to the Court of Appeal for Ontario. A panel of three justices – Hourigan, Zarnett, and Pomerance – reviewed the lower court decision in Ontario Securities Commission v. Cacoeli Asset Management Inc., 2025 ONCA 654 (CanLII).

The Main Argument on Appeal

Cacoeli made the same argument again. They insisted that appointing a receiver was so powerful that courts should require the higher “strong prima facie case” standard of proof.

The Court of Appeal’s Strong Response

The Court of Appeal rejected this argument completely. Their reasoning matters for anyone dealing with financial regulation:

Public protection comes first: Requiring a high standard of proof would “impede the public protection mandate of the OSC”
Early action is essential: A high standard would make it “impossible for the OSC to obtain receivership at the early stages of an investigation when the facts are not fully known.”

This is a clear message from Ontario’s highest court: when protecting the public is the priority, courts will allow regulators to act fast using an insolvency trustee court order – even before every detail is fully investigated.

The receivership order acts as a protective shield, not a final punishment.

The Final Decision

The Court of Appeal found “no question that the OSC has established a serious concern” about possible legal breaches.

The appeal was dismissed. The original insolvency trustee court order appointing the receiver remained in force.

Cacoeli was ordered to pay the OSC $15,000 for the costs of the appeal.

The Foundational Role of a Licensed Insolvency Trustee in Canada

Who Is a Licensed Insolvency Trustee?

A Licensed Insolvency Trustee (LIT) is the only professional in Canada authorized to administer bankruptcies and consumer proposals. In addition, only LITs can act as a receiver, be it private or court-appointed under an insolvency trustee court order.

We are not lawyers. We are officers of the court.

To become an LIT, you must:

Complete rigorous education requirements
Gain practical experience in the field
Pass demanding written and oral examinations
Demonstrate expertise in financial assessment, accounting, and insolvency law

This high standard allows us to act as impartial administrators of insolvency estates. Think of us as neutral referees. Our job is to balance the rights of:

The debtor (the person or company owing money)
The creditors (the people or companies owed money)

The Law That Guides Everything We Do

The first piece of legislation that covers every action a Licensed Insolvency Trustee takes is the federal law: the Bankruptcy and Insolvency Act Canada (BIA).

The BIA is the ultimate authority for virtually all consumer and corporate insolvency proceedings in Canada. It:

Lays out the rules for debt relief
Sets the framework for proposals (which help restructure debt)
Defines the powers and duties of trustees

Very large corporate restructurings are usually done under a different federal law, the Companies’ Creditors Arrangement Act (CCAA).

The BIA and CCAA are our playbooks. The courts are the referees who make the final calls. Provincial laws also apply, but the federal BIA governs all Licensed Insolvency Trustees.

Federal Oversight: The Office of the Superintendent of Bankruptcy

Unlike most private professionals, Licensed Insolvency Trustees are constantly supervised by a federal regulator: the Office of the Superintendent of Bankruptcy Canada (OSB).

The OSB’s job is to ensure that Canada’s insolvency system is fair, efficient, and that trustees perform their duties with integrity.

This creates two layers of oversight:

The OSB (administrative supervision)
The Courts (judicial supervision)

This dual oversight gives the public and creditors confidence in the system. We must report all significant actions to the OSB. For many major decisions, we seek court approval through an insolvency trustee court order.

Our Core Responsibilities

Whether helping an individual consumer get a financial fresh start through a personal insolvency process or managing a complex corporate wind-down, our core responsibilities stay the same:

Secure Assets: Take possession and control of all assets belonging to the debtor (subject to provincial exemptions for individuals and the rights of trust claimants and secured creditors)

Investigate Financial Affairs: Examine the debtor’s finances, including transactions before the insolvency filing, to ensure fairness

Realize Value: Sell assets in a way that maximizes returns for creditors

Distribute Funds: Distribute money collected to creditors according to the priority rules in the BIA and/or as approved by the court through an insolvency trustee court order

Report: Provide detailed financial reports to creditors, the OSB, and the court

Understanding the Necessity of an Insolvency Trustee Court Order in Insolvency Proceedings

What Is an Insolvency Trustee Court Order?

A court order is a written ruling by a judge that must be followed. In insolvency, an insolvency trustee court order is an official directive that either:

Grants the Licensed Insolvency Trustee specific powers, or
Approves a significant decision or action

In the Cacoeli case, the Ontario Superior Court of Justice issued an insolvency trustee court order appointing a receiver. This order gave the receiver legal authority to seize control over all assets and properties of the Cacoeli companies.

Why Court Involvement Is Essential

Courts aren’t involved just to follow bureaucratic procedure. They serve two critical purposes:

Neutrality and Impartiality: Insolvency creates conflict. A judge provides a neutral, binding decision that everyone must respect. This ensures no single party unfairly benefits.

Legal Compliance: By reviewing the Trustee’s requests and issuing an order, the court confirms that proposed actions follow the BIA and other relevant laws strictly.

What Requires Court Approval?

Not every action a Licensed Insolvency Trustee takes requires a judge’s approval. The insolvency trustee court order appointing the receiver gives certain discretionary powers, such as handling routine matters, including administrative disbursements.

However, any major decision that impacts the fundamental rights of debtors or creditors must be sanctioned by an insolvency trustee court order. This creates a clear line between day-to-day administration and actions requiring judicial authority.

Key Scenarios Requiring a Licensed Insolvency Trustee to Obtain an Insolvency Trustee Court Order

Many actions taken by a Licensed Insolvency Trustee in a court-supervised receivership require court permission through an insolvency trustee court order. Here are the most common situations:

Approval of Trustee Fees and Administrative Costs

Our fees are strictly regulated through a process called “taxation.” The ultimate fees and costs must be approved by the court through an insolvency trustee court order.

This is a critical check to ensure the estate isn’t being overcharged. It protects creditors from excessive fees eating into their recovery.

Authorizing Unusual or Complex Transactions and Asset Sales

A key duty of a Licensed Insolvency Trustee is to liquidate (sell) assets. However, court approval is required when the transaction is:

Unusual: Selling a non-standard asset or unique piece of real estate

Complex: Selling an entire business as a “going concern” (a live business that continues operating)

Controversial: When one or more stakeholders object to the sale price or terms

In these cases, the Trustee must provide sufficient evidence to a judge for an insolvency trustee court order to approve the transaction.

Resolving Disputes Among Stakeholders

The Trustee may face disputes such as:

A party claiming ownership of an asset under the receiver’s control
A dispute over the validity or priority of different security interests
Creditors disagreeing about distribution

When these disputes can’t be settled through negotiation, the Trustee brings a motion to court. A judge issues an insolvency trustee court order that settles the matter legally and definitively.

In the Cacoeli case, secured creditors wanted their properties excluded from the receivership. Justice Steele rejected this request. She stated the receivership must cover all properties to prevent chaos among creditors. This is a prime example of the court resolving a major stakeholder dispute.

Approving Debtor Proposals and Restructuring Plans

The goal of a business proposal under a BIA Division I Proposal or major corporate restructuring under the CCAA is to financially restructure the company to save it and as many jobs as possible.

A significant insolvency trustee court order is always required for final approval of a Division I restructuring proposal or restructuring plan. The court confirms that the plan is fair, reasonable, viable and calculated for the general benefit of all creditors.

Modifying, Annulling, or Terminating Insolvency Proceedings

Sometimes a debtor’s situation changes. They may need to alter their original plan based on changed circumstances. Or the Trustee may discover an issue that warrants ending the insolvency proceeding entirely, as the original plan is no longer viable.

A judge must review the facts and issue an insolvency trustee court order to modify, annul, or terminate the proceeding.

Addressing Trustee Liability or Allegations of Misconduct

If any stakeholder alleges that a LIT has breached their duties or acted improperly, the matter goes before a judge.

The court must issue an order to investigate the claim. If necessary, the court can order compensation or disciplinary action against the Trustee. This ensures absolute accountability.

The Far-Reaching Significance of Judicial Oversight in Insolvency

Protecting the Interests of All Parties

Judicial oversight is about trust. By demanding an insolvency trustee court order for critical actions, the system provides comfort to all parties:

Debtors know the process is being handled legally

Creditors know assets can’t be sold cheaply or favour one creditor over another

The Public knows the integrity of capital markets is being enforced, as the Court of Appeal confirmed in the Cacoeli case

Ensuring Transparency, Accountability, and Due Process

Every court motion becomes part of a public record. This transparency ensures every stakeholder can review the trustee’s actions.

The process also provides due process – the right to be heard. Any party can attend a hearing and object to a proposed action.

Upholding Public Confidence in the Canadian Insolvency System

Canada’s entire economy relies on:

The ability of businesses to take risks
The ability of creditors to enforce their rights

According to Industry Canada’s publication “Fresh Start: A Review of Canada’s Insolvency Laws“:

Insolvency legislation is a key component of Canada’s marketplace framework legislation that governs commercial relationships for both consumers and businesses. Certain and reliable rules provide security for investors and lenders that, in turn, influences the cost and availability of credit in the Canadian marketplace.

When the system fails, the court restores order. They are the clear, final legal instrument that upholds the integrity of the process and ensures public faith in financial markets and debt restructuring.

The Ultimate Framework for All Decisions

Regardless of the unique facts of any case, every judicial decision is rooted in federal and provincial law. Judges interpret the law to deliver their orders, making it the ultimate framework for every action taken by a Licensed Insolvency Trustee.

Consequences of Acting Without a Necessary Insolvency Trustee Court Order

Potential Ramifications for the Licensed Insolvency Trustee

A trustee who ignores the need for an insolvency trustee court order faces serious consequences:

Personal Liability: The trustee could be held personally responsible for any financial loss to the estate caused by unauthorized action

Disciplinary Action: The court and the OSB could impose sanctions, fines, or, in severe cases, the OSB could revoke the LIT’s license

Voided Actions: The action itself (such as an asset sale) could be reversed or voided by a subsequent court decision, creating chaos and cost

Adverse Impacts on the Insolvency Estate and Stakeholders

When a Licensed Insolvency Trustee acts outside the BIA or without proper authorization, the entire estate suffers:

Increased Costs: The estate incurs significant costs fighting legal challenges and correcting unauthorized actions

Delayed Proceedings: Disputes and legal challenges drag out the process, delaying final distribution of funds to creditors

Loss of Confidence: Creditors and debtors lose faith in the insolvency administration, leading to an unnecessarily hostile environment

Section 37 of the BIA provides that any person aggrieved by any act or decision of a Licensed Insolvency Trustee can apply to court to reverse or alter that act or decision. The court also has the authority to sanction the trustee.

Frequently Asked Questions: Insolvency Trustee Court Order

What is a Licensed Insolvency Trustee?

A Licensed Insolvency Trustee is the only professional in Canada who can legally administer receiverships, bankruptcies and consumer proposals. We used to be called trustee in bankruptcy, but the name changed to better reflect our broader role.

Think of us as a bridge between your financial troubles and the Canadian legal system. We’re officers of the court, which means we have a legal duty to be fair and impartial.

Only Licensed Insolvency Trustees can act as receivers, whether privately appointed or through an insolvency trustee court order.

To become an LIT, you must:

Complete rigorous education requirements
Gain practical experience in insolvency work
Pass demanding national examinations
Demonstrate expertise in insolvency law, accounting, and financial assessment

This ensures that every LIT has the knowledge and skills to handle complex financial situations fairly.

What does a Licensed Insolvency Trustee actually do?

Whether we’re helping someone with personal debt or managing a complex corporate restructuring or bankruptcy, our core responsibilities stay the same:

Secure Assets: We take control of all assets belonging to the debtor. This protects them from being hidden or sold improperly. (Some assets are exempt, and trust claimants and secured creditors keep their rights.)

Investigate Financial Affairs: We carefully examine the debtor’s financial transactions made before filing for insolvency.

Realize Value: We sell assets in a way that gets the best possible return for creditors. This might mean selling items individually or selling a business as a going concern.

Distribute Funds: We distribute the money we collect to creditors following the strict priority rules in the Bankruptcy and Insolvency Act. Sometimes, an insolvency trustee court order determines the distribution.

Report: We provide detailed financial reports to the court, creditors, and the Office of the Superintendent of Bankruptcy. Transparency is essential.

What law governs Licensed Insolvency Trustees in Canada?

The primary law that guides almost everything we do is the federal Bankruptcy and Insolvency Act. This is Canada’s main insolvency legislation.

The BIA covers:

Rules for debt relief and bankruptcy
The framework for consumer proposals and corporate proposals
The powers and duties of Licensed Insolvency Trustees
Priority rules for paying creditors
When court orders are required

For very large corporate restructurings (typically companies with debts over $5 million), the federal Companies’ Creditors Arrangement Act often applies instead. The CCAA allows for more flexible restructuring options.

Both laws work together with provincial legislation to create Canada’s comprehensive insolvency system.

Who oversees Licensed Insolvency Trustees?

Licensed Insolvency Trustees operate under two layers of oversight. This dual supervision ensures the system works fairly:

The Courts: Provide judicial supervision and make final decisions on major actions. Courts issue insolvency trustee court orders that authorize significant steps in the process.

The Office of the Superintendent of Bankruptcy Canada: This federal regulator provides administrative supervision. The OSB ensures:

Canada’s insolvency system remains fair and efficient
Trustees perform their duties with integrity
Trustees follow all rules and regulations
Any complaints against trustees are investigated

This two-level oversight gives the public, debtors, and creditors confidence that the process will be handled properly.

What is an insolvency trustee court order?

An insolvency trustee court order is a written ruling issued by a judge that must be followed. It’s a legally binding document.

In insolvency cases, these court orders serve two main purposes:

Grant the Licensed Insolvency Trustee specific legal powers
Approve a significant decision or action that the LIT plans to take

These orders form the backbone of fairness and legality in Canadian insolvency cases. They ensure that major decisions have judicial approval and oversight.

For example, when a receiver is appointed (like in the Cacoeli case discussed in our blog), the insolvency trustee court order gives that receiver the legal authority to take control of assets and manage the insolvency process.

Why do courts get involved in insolvency proceedings?

Courts aren’t just following bureaucratic procedure. They serve two critical purposes in insolvency:

Ensuring Neutrality and Impartiality: Insolvency creates conflict. Creditors want their money. Debtors need protection. The judge provides a neutral, binding decision that everyone must respect. This prevents any single party from benefiting unfairly at the expense of others.

Confirming Legal Compliance: Before issuing an insolvency trustee court order, the court reviews the Applicant’s request carefully. This confirms that the proposed actions strictly follow the BIA and other relevant laws. If something doesn’t comply with the law, the judge won’t approve it.

This judicial oversight protects everyone’s rights and maintains public confidence in Canada’s insolvency system.

When does a Licensed Insolvency Trustee need a court order?

Not every action requires an insolvency trustee court order. We have discretionary powers for routine administrative matters – like paying regular administrative expenses or communicating with creditors.

However, any major decision that impacts the fundamental rights of creditors or debtors must be sanctioned by a court order. Here are the most common scenarios:

Approval of Fees and Costs: Our fees and administrative costs must be approved by the court through a process called “taxation.” This protects creditors from excessive charges eating into their recovery.

Authorizing Complex Transactions: Court approval is required for asset sales that are:

Unusual (non-standard assets or unique properties)
Complex (selling an entire business as a going concern)
Controversial (stakeholders object to the sale price or terms)

Resolving Disputes: When disputes arise – such as someone claiming ownership of an asset, or secured creditors disagreeing about distribution priorities – we bring a motion to court. The judge issues an order that settles the matter legally and definitively.

Approving Restructuring Plans: Final approval of a BIA Division I restructuring proposal or a CCAA corporate restructuring plan always requires a significant insolvency trustee court order. The court must confirm that the plan is fair, reasonable, and has a realistic chance of success.

Modifying Proceedings: If circumstances change and the insolvency proceedings need to be modified, annulled, or otherwise terminated, a court order is required.

Addressing Trustee Issues: If anyone alleges the LIT has breached their duties, the matter goes before a judge who can investigate and order appropriate remedies.

What happens if a trustee acts without getting a required court order?

Ignoring the requirement for an insolvency trustee court order leads to serious consequences for the Licensed Insolvency Trustee:

Personal Liability: The LIT may be held personally responsible for any financial loss to the estate caused by the unauthorized action. This means paying out of their own pocket.

Disciplinary Action: The court or the OSB can impose:

Sanctions
Significant fines
Suspension from practice
In severe cases, complete revocation of the LIT’s license

Voided Actions: The unauthorized action itself – such as an improper asset sale – could be reversed or voided by a subsequent court decision. This creates chaos and additional costs.

Negative Impact on Everyone: Unauthorized actions harm the entire insolvency estate:

Increased legal costs
Delayed proceedings
Loss of creditor confidence
Potential loss of asset value

Section 37 of the BIA specifically allows any person who is aggrieved by an LIT’s decision to apply to court to reverse or alter that decision. The court has full authority to sanction the trustee.

What standard of proof is needed to appoint a receiver in regulatory cases?

This is one of the most important takeaways from the Cacoeli case about insolvency trustee court orders.

When a regulator like the Ontario Securities Commission asks the court for urgent protection, they only need to show “serious concern that there have been possible breaches.”

This is a lower standard than criminal cases or even most civil cases. The court doesn’t need:

Absolute proof of fraud
Complete evidence
A finished investigation

The Court of Appeal for Ontario specifically rejected the argument that regulators must meet a higher “strong prima facie case” standard.

Why does this matter?

This lower standard allows courts and regulators to act quickly through an insolvency trustee court order to:

Protect investors from ongoing harm
Freeze assets before they disappear
Stop improper conduct immediately
Preserve evidence

The insolvency trustee court order appointing a receiver acts as a protective shield, not a final punishment. Full investigations and trials can happen later, but the immediate protection comes first.

Why did the Cacoeli court order cover all properties, even those with secured creditors?

In the Cacoeli case, some secured creditors held mortgages on specific properties. They asked the court to exclude their properties from the receivership so they could seize and sell those properties themselves.

Justice Steele refused this request. The insolvency trustee court order covered all Cacoeli assets and properties without exception.

The Court of Appeal upheld this decision. Here’s why centralized control under one Licensed Insolvency Trustee as receiver was essential:

Prevents Creditor Chaos: If different creditors could seize different assets, they would fight over everything. The process would become a free-for-all with no coordination.

Avoids Multiple Court Cases: Excluding properties would lead to numerous separate legal proceedings, all overlapping and potentially contradicting each other.

Controls Costs: Multiple proceedings mean multiplied legal costs. A single insolvency trustee court order with one receiver keeps costs manageable.

Protects Small Creditors: When secured creditors grab assets first, unsecured creditors and small suppliers are not given a forum. Centralized control ensures everyone is treated fairly according to their legal priority.

Enables Efficient Administration: One receiver can see the whole picture, make coordinated decisions, and maximize value for all stakeholders.

This principle applies to most complex insolvency cases: centralized control through an insolvency trustee court order produces better outcomes than fragmented, competing proceedings.

Insolvency Trustee Court Order Final Thoughts: The Licensed Insolvency Trustee’s Role in a Regulatory Receivership

The insolvency trustee court order is an instrument of authority, protection, and fairness. As Licensed Insolvency Trustees, our job – whether in a standard bankruptcy, a financial restructuring or a specialized receivership like the Cacoeli case – is to impose order and protect stakeholders.

The Cacoeli decisions confirmed two critical points:

Lower Standard for Protection: Courts won’t wait for proof of fraud to a certainty. The “serious concern” standard is enough to appoint an LIT as a receiver quickly. This is essential to freeze assets and prevent further investor harm.

Centralized Control Is Key: The court agreed that the entire portfolio of assets must be placed under one receiver’s control – even properties secured by third parties. This centralized approach, ordered by the court, prevents a fragmented, costly, and unfair outcome for all stakeholders.

Need Help With Debt or Insolvency Issues?

If you’re facing financial challenges – whether personal or business-related – understanding the role of an insolvency trustee court order is just the beginning. At Ira Smith Trustee & Receiver Inc., we’ve helped many individuals and businesses in the Greater Toronto Area find their path to financial recovery.

From our Vaughan office, we provide:

Free, confidential consultations
Expert guidance on bankruptcy alternatives
Consumer proposals that can reduce your debt
Corporate restructuring solutions
Court-supervised receiverships

Contact us today to discuss your situation. Let us help you understand your options and find the best solution for your financial future.

Brandon Smith, Licensed Insolvency Trustee
Senior Vice-President
Ira Smith Trustee & Receiver Inc.
167 Applewood Crescent, Suite 6
Vaughan, Ontario
Greater Toronto Area

The information provided in this blog is intended for educational purposes only. It is not intended to constitute legal, financial, or professional advice. Readers are encouraged to seek professional advice regarding their specific situations. The content should not be relied upon as a substitute for professional guidance or consultation. The author, Ira Smith Trustee & Receiver Inc., and any contributors do not assume any liability for any loss or damage.

Brandon Smith is a Licensed Insolvency Trustee and Senior Vice-President at Ira Smith Trustee & Receiver Inc., serving individuals and businesses throughout the Greater Toronto Area. With years of experience in insolvency cases, including financial restructuring, Brandon helps clients navigate complex financial challenges and find sustainable solutions, Starting Over Starting Now.

Tags administrative disbursements, Bankruptcy and Insolvency Act, Cacoeli Asset Management, Companies’ Creditors Arrangement Act, Consumer Proposal, court approval, Court of Appeal for Ontario, court orders, court permission, Division I restructuring proposal, insolvency law, insolvency trustee court order, licensed insolvency trustee, Office of the Superintendent of Bankruptcy Canada, Ontario court decision, Ontario Securities Commission, Ontario Superior Court of Justice, personal insolvency process, trustee in bankruptcy

Brandon Blog Post

A CANADA TRUSTEE’S COMPLETE VIEW OF CANADA’S ‘TWO-SPEED’ ECONOMY: WHY CONSUMER INSOLVENCIES ARE SOARING WHILE CORPORATIONS AREN’T

Post author By Brandon Smith
Post date September 15, 2025

Canada trustee

The economy, much like a highway during rush hour, can move at different speeds. For some, it’s a smooth, open road. For others, it’s a gridlock of financial stress and mounting debt. As a Canada Trustee, I just read the new 2024-25 Annual Report from the Office of the Superintendent of Bankruptcy (OSB). It shows that Canada’s economy is looking more and more like this “two-speed” highway.

On one side, we have everyday Canadians and small businesses facing a significant increase in financial trouble requiring help with debt solutions. On the other hand, large corporations appear to be cruising along, handling economic bumps with ease. This striking difference is at the heart of the OSB’s 2024-25 Annual Report. It tells a powerful story about why more people are struggling and what the country’s official insolvency watchdog is doing about it.

This blog post will explore the key findings of the report, dive into the reasons behind this two-speed economy, and explain the important role of a Canada Trustee in helping people navigate these challenging times.

The Numbers Tell the Story: A Tale of Two Economies

The most surprising and important finding in the OSB’s report is the clear split between consumer and corporate financial health. The numbers don’t lie.

First, let’s look at the side of the road where most people are stuck: the world of consumer debt.

The OSB accepted 143,864 insolvency filings in the 2024-25 fiscal year.
This represents a notable increase of 7.6% from the year before.

To put this into perspective, an insolvency filing is when an individual or a small business officially asks for help with their debts, usually through a bankruptcy or a consumer proposal. Both these administrations occur under the Canadian Bankruptcy and Insolvency Act (BIA). A 7.6% jump in one year is a significant red flag. It points to a growing number of Canadians who are feeling the squeeze and can no longer keep up with their financial commitments.

Now, let’s look at the other side of the highway, where the big companies are. The OSB also tracks filings under the Companies’ Creditors Arrangement Act (CCAA). The CCAA is a law used by large corporations that need to restructure and reorganize their business when they are in serious financial trouble.

There were only 70 CCAA filings in 2024-25.
This is actually a decline of 2.8% from the previous year.

This is the core of the “two-speed” economy. The number of everyday people needing help is climbing fast, while the number of big companies in distress is going down. This trend suggests a Canada where financial stability depends heavily on your size. If you are a large, well-established company, you have been able to navigate recent economic challenges. But if you’re an individual, a family, or a small business, the ride has been much bumpier.

Why Are More Canadians Drowning in Debt?

The OSB report doesn’t go into a deep analysis of the “why” behind these numbers, but it points to some key factors that are widely recognized as the main drivers of financial stress. These are not new headlines, but their combined effect has been felt more deeply this year.

Inflation and the Rising Cost of Living: We’ve all felt it at the grocery store, the gas pump, and in our monthly bills. Inflation means that our money doesn’t go as far as it used to. For many families, this has made it harder and harder to afford the necessities of life. When prices for food, housing, and transportation keep climbing, it leaves less money for everything else, making it difficult to pay off existing debts.
High Interest Rates: Over the past couple of years, central banks have raised interest rates to try and control inflation. While this is a necessary step for the economy, it has a direct and painful effect on anyone with a mortgage, car loan, or credit card debt. Higher interest rates mean that more of your money goes toward interest payments and less goes toward paying down the actual debt. This can turn a manageable debt load into an impossible one very quickly. A higher interest rate on a mortgage can add hundreds, or even thousands, of dollars to a person’s monthly expenses, putting immense pressure on their budget.

When you combine these two factors, you get the perfect storm for consumer financial distress. A family might be earning the same income, but their expenses are higher, and the cost of servicing their debt is higher. Something has to give, and for many, that “something” is their ability to stay on top of their financial obligations. It’s a situation where hard work and careful budgeting are simply not enough to keep up with the rising costs. This is often the point where people begin to look for solutions and seek the help of a Canada Trustee.

Why Are Big Companies Staying Afloat?

The other half of the story is why large corporations seem to be faring so much better. While the OSB report does not provide a detailed explanation for this, we can draw some logical conclusions based on the nature of a large business.

Large companies are often more resilient to economic headwinds than small businesses or individuals. They have some advantages that help them ride out the storm:

Financial Resources: Large corporations typically have significant cash reserves and better access to credit. This means they can absorb higher costs and interest rates more easily. They can borrow money at lower rates and for longer terms than an individual.
Diversification: Many big companies operate in multiple industries or regions. If one part of their business is struggling, another part might be thriving, helping to balance things out.
Ability to Absorb Costs: Large companies have more power to pass along increased costs to their customers without losing them. They also have the resources to find ways to cut costs in their own operations, such as by streamlining processes or using new technology.

This creates a clear imbalance. While a single person might be overwhelmed by a credit card payment jump of $50, a large corporation can absorb an increase of millions of dollars in interest payments without having to file for protection. The system is designed to allow large corporations to handle big economic swings, but it leaves individuals and small businesses much more exposed. This is why the role of a Canada Trustee becomes so crucial.

Introduction: Understanding the Role of a Trustee in Canada

The OSB’s report mentions that a Canada Trustee is a key figure in the country’s insolvency system. But what exactly are licensed insolvency trustees, and what do they do? The term “trustee” is used to describe a professional who holds property and acts on behalf of others. This role is a foundation of Canada’s legal and financial system.

What is a Canada Trustee? Defining the Core Concept

Licensed Insolvency Trustees are federally regulated professionals. They help people and businesses with serious debt problems. They are the only professionals allowed to handle insolvencies in Canada. The OSB report shows they play a key role during financial hardship. They act as a link between a person in debt and their creditors. The person who gives the property to the trustee is called in this case, a bankrupt.

The Foundation of Trust: Legal Framework and Fiduciary Duty

The most important part of being a Canada Trustee is the “fiduciary duty.” The word “fiduciary” comes from a Latin word that means “trust,” and this is the core of the relationship. A trustee has a legal and moral obligation to always act with honesty, loyalty, diligence, and prudence. They must put the interests of the beneficiaries or creditors ahead of their own. This means they must avoid any personal conflicts of interest and not try to profit from their role. The trustee must also be ready to account for everything they do, keeping accurate records of all financial transactions concerning the trust property.

Why Canada Trustees are Essential in the Canadian Landscape

Trustees are an essential part of the Canadian legal landscape because they provide a way for someone to manage important assets or affairs for another person, especially if that person is unable to do so themselves. A trustee can be appointed in a will, chosen through a separate trust document, or appointed by a court. For instance, a trustee can be appointed to manage an inheritance for a minor or to handle the finances of an adult who is no longer capable of making their own decisions and handling their financial situation on their own.

Canada trustee

The Diverse Landscape of Trusteeship in Canada

While the blog focuses on the Licensed Insolvency Trustee, it’s important to know that the term “trustee” covers a wide range of roles in Canada.

Licensed Insolvency Trustees (LITs): Navigating Financial Hardship

This is the specific type of Canada Trustee that the OSB report focuses on. A Licensed Trustee is a professional who specializes in helping individuals and businesses with serious debt problems. They are the only professionals legally authorized to administer insolvencies in Canada. As the OSB report shows, they play a critical role in times of financial hardship, acting as a link between a person in debt and their creditors.

Estate Trustees (Executors): Stewarding Legacies

An Estate Trustee, often called an executor, is a person named in a will to manage and settle the affairs of someone who has died. Their duties are numerous, including making funeral arrangements, locating all of the deceased’s assets, paying off any debts and taxes, and finally, distributing what is left to the beneficiaries as directed by the will.[8, 9] It is a legally demanding role that requires careful attention to detail.

The Public Guardian and Trustee (PGT): Protecting Vulnerable Interests

Each province has a Public Guardian and Trustee, a government office created to protect the legal and financial interests of the most vulnerable people in society.[10, 11, 12, 13] The PGT acts as a trustee of last resort when there is no trusted family or friend available to do so.[10, 13] This includes protecting the interests of mentally incapable adults, children under a certain age, and deceased or missing persons when no one else can administer their estate.

Professional Trustees and Trust Companies: Specialized Asset Management

For those with large or complex estates, or when family conflicts are a concern, a professional trustee or trust company can be appointed to handle the trust property. These are professional fiduciaries—often a trust department of a bank or a private trust company—that are fully staffed with experts in law, taxes, and finance. They offer expertise and impartiality and can take on the day-to-day work of managing a trust.

Judicial Trustees: Court-Appointed Oversight

In some cases, a court may appoint a judicial trustee.] This happens when a person with mental or physical challenges needs help with their finances, and there is no one else to step in. A judicial trustee is authorized by the court to manage a person’s money and property, ensuring their bills are paid and their needs are met.

Core Responsibilities and Fiduciary Duties of a Trustee

Regardless of the type, every Canada Trustee is held to a high standard of conduct and has specific duties that are legally binding.

The Paramount Fiduciary Duty: Acting in the Best Interest of Beneficiaries/Creditors

An Estate Trustee, also called an executor, is named in a will to manage and settle a deceased person’s affairs. Their duties include making funeral arrangements, finding all assets, paying debts and taxes, and distributing what is left to beneficiaries as the will directs. This role requires careful attention to detail. The licensed trustee firm, Ira Smith Trustee & Receiver Inc., also acts as a court-appointed independent Estate Trustee.

Prudent Management of Trust Property and Assets

A Canada Trustee has a duty to manage and invest the assets they control responsibly and prudently. This means they must make informed decisions and act as a careful person would in similar circumstances. They must avoid risky or speculative investments and must treat all beneficiaries fairly.

Legal Compliance and Regulatory Adherence

A trustee must always follow the law. This can be complex, as a Canada Trustee must comply with a range of federal and provincial laws, as well as the terms of any will or trust document. For example, an Estate Trustee must ensure that all debts and taxes are paid before distributing assets, or they could face personal liability. In Ontario, the Trustee Act comes into play.

Reporting, Disclosure, and Accountability

A trustee must keep detailed and accurate records of all transactions and be ready to show these to the beneficiaries at any time. This “duty to account” is a crucial part of their role, ensuring that they are transparent and accountable for their actions. If a trustee fails in their duties, they can be removed by the court and ordered to pay for any losses.

Trustee Remuneration: Compensation for Services Rendered

Trustees are entitled to be paid for their services.] How much they are paid is usually determined by the will or trust document, or if not specified, it is decided by provincial law or the court. For example, the Public Guardian and Trustee of British Columbia charges prescribed fees for their services, typically ranging from 3% to 5% of the estate’s value.

Canada trustee

Navigating Financial Challenges: How Trustees Provide Debt Relief

As the OSB report highlights, the need for debt relief is growing. This is where the Licensed Insolvency Trustee becomes the most relevant kind of Canada Trustee for many people.

Understanding Financial Difficulties and Debt Problems

The first step in seeking help is acknowledging the problem. The OSB report shows that more Canadians are facing a financial gridlock due to factors like high interest rates and the rising cost of living. When you find yourself unable to pay your bills, a Licensed Insolvency Trustee is the professional to consult.

Options for Individuals: Consumer Proposals and Personal Bankruptcy

While consumer credit counselling can help many Canadians manage their debts, sometimes your financial situation requires more powerful legal solutions. When your debt load exceeds what you can realistically repay through traditional methods, consumer proposals and personal bankruptcy offer legal protection and genuine fresh starts.

As a Licensed Insolvency Trustee serving the Greater Toronto Area, I help people understand when these formal insolvency options become necessary alternatives to credit counselling. These government-regulated processes can eliminate or significantly reduce your debts while protecting you from creditor actions – something that consumer credit counselling services cannot legally provide.

If you’re facing overwhelming debt that exceeds 40% of your annual income, dealing with aggressive collection actions, or finding that minimum payments aren’t making a real dent in your balances, it may be time to explore these more comprehensive debt relief solutions that only Licensed Insolvency Trustees can administer:

Consumer Proposals: A consumer proposal is a legally binding offer to your creditors to pay back a portion of what you owe over a set period (up to five years).
Personal Bankruptcy: This is a legal process that allows you to be released from your debts and get a fresh financial start.

A Licensed Insolvency Trustee ensures that your rights are protected throughout these processes.

Corporate Insolvency and Restructuring

Beyond personal debt, a Licensed Insolvency Trustee also plays a key role in helping businesses that are in financial trouble. They can help companies reorganize and restructure their debt, which can save the business and its jobs. The OSB report’s mention of a decline in corporate filings suggests that this part of the economy is holding steady, but the service remains critical for businesses in distress.

Choosing the Right Canada Trustee for Your Specific Needs

The type of Canada Trustee you need depends entirely on your situation. Knowing who to turn to is the first step toward finding a solution.

When to Consult a Licensed Insolvency Trustee

You should consult a Licensed Insolvency Trustee when you are facing debt problems that you cannot solve on your own. They are the only ones who can legally help you with options like a consumer proposal or bankruptcy. A consultation with an LIT is free and will help you understand your situation and your legal options without any obligation.

When to Plan for an Estate Trustee/Executor

This is a step you should take when you are planning your will. Naming a trustworthy and competent person or company as your Estate Trustee is crucial for ensuring that your wishes are carried out and your beneficiaries are protected.

When the Public Guardian and Trustee May Be Involved

The PGT is an office of last resort. This means you should only expect them to be involved if there is no other suitable person to act as a trustee for a vulnerable individual or an estate. If you are worried about a family member who needs help, but no one is available to act, you can contact the PGT’s office.

When to Engage a Professional Trustee or Trust Company

A professional trustee is a good choice if you have a large and complex estate, or if you anticipate conflicts between family members after your death. They can provide professional expertise and impartiality, which can save a lot of stress and family disputes in the long run.

Key Factors in Trustee Selection

When choosing any type of Canada Trustee, remember to consider factors beyond just a personal relationship. Trustworthiness is a given, but you should also look for someone with the right skills, knowledge of tax and legal requirements, and the ability to act prudently and impartially.

Canada trustee

Regulatory Oversight and Professional Standards for Canadian Trustees

The different types of trustees in Canada are held accountable by various regulatory bodies and legal frameworks, ensuring they maintain high professional standards.

Licensed Insolvency Trustees (LITs): As the OSB report makes clear, LITs are strictly regulated by the Office of the Superintendent of Bankruptcy. The OSB conducts office visits, initiates compliance actions, and launches professional conduct investigations to ensure that LITs are following all the rules.
Estate Trustees: The duties of an Estate Trustee are regulated by provincial laws and overseen by the courts. If a trustee fails in their duties or mismanages an estate, the courts can remove them and hold them personally responsible for any losses.
Public Guardian and Trustee (PGT): These are government-appointed roles, and their authority and duties are set out in provincial laws.] They are held to the highest ethical and legal standards.
Trust Companies: Trust companies, which are often a part of a bank, are highly regulated entities.[16] They are regulated at the federal level by organizations like the Financial Consumer Agency of Canada (FCAC) and the Office of the Superintendent of Financial Institutions (OSFI).

Canada Trustee Conclusion

The OSB’s 2024-25 Annual Report shows that Canada’s economic reality is difficult for a growing number of people. In this “two-speed” economy, the role of a trusted professional like a Canada Trustee is more important than ever. Whether you need help with debt, are planning your will, or are a family member of a vulnerable person, knowing who these professionals are and how they can help is the first step toward securing your financial future.

The path to financial freedom in Canada’s current economic climate may be challenging, but it is not impossible. With the right information, a clear plan, and professional guidance, you can overcome your cost-of-living and debt challenges and move towards a more secure and hopeful financial future.

You’re not alone in this. There’s a path forward, and it starts with reaching out for the right kind of help. Take that step—you deserve it. If you’re a GTA resident dealing with overwhelming debt, don’t wait for your credit situation to get worse. As a licensed insolvency trustee serving Toronto, Mississauga, Brampton, Markham, and surrounding areas, I’m here to help you understand your debt relief options.

Free consultation available:

No obligation to proceed
Complete review of your debt and credit situation
Clear explanation of how debt relief options affect your Equifax credit score
Practical next steps you can take immediately

Remember: Your current financial situation doesn’t define your future. With the right help and information, you can overcome both debt challenges and credit score problems.

As a licensed insolvency trustee serving the Greater Toronto Area, I encourage consumers and business owners to view financial difficulties not as failures but as challenges that can be addressed with proper guidance. By understanding the warning signs of insolvency and seeking professional advice early, many people and businesses can find a path forward – whether through restructuring, strategic changes, or in some cases, an orderly wind-down that protects their future opportunities.

Remember: The earlier you seek help for company insolvency concerns, the more options you’ll have.

If you or someone you know is struggling with too much debt, remember that the financial restructuring process, while complex, offers viable solutions with the right guidance. As a licensed insolvency trustee serving the Greater Toronto Area, I help entrepreneurs understand their options and find a path forward during financial challenges.

At the Ira Smith Team, we understand the financial and emotional components of debt struggles. We’ve seen how traditional approaches often fall short in today’s economic environment, so we focus on modern debt relief options that can help you avoid bankruptcy while still achieving financial freedom.

The stress of financial challenges can be overwhelming. We take the time to understand your unique situation and develop customized strategies that address both your financial needs and emotional well-being. There’s no “one-size-fits-all” approach here—your financial solution should be as unique as the challenges you’re facing.

If any of this sounds familiar and you’re serious about finding a solution, reach out to the Ira Smith Trustee & Receiver Inc. team today for a free consultation. We’re committed to helping you or your company get back on the road to healthy, stress-free operations and recover from financial difficulties. Starting Over, Starting Now.

Canada trustee

Brandon Blog Post

CANADIAN COMPANIES’ CREDITORS ARRANGEMENT ACT: OUR COMPLETE GUIDE FOR STAKEHOLDERS

Post author By Brandon Smith
Post date February 17, 2025

Companies’ Creditors Arrangement Act Introduction

As more Canadian companies succumb to bankruptcy, it dawned on me how crucial the role of stakeholders is during these turbulent times. The Companies’ Creditors Arrangement Act (otherwise known as the CCAA) is federal legislation that provides a lifeline for struggling large businesses. Understanding what this means for us — whether we are employees, suppliers, or shareholders — can make or break our futures.

In this Brandon’s Blog post, we’ll explore the roles of various stakeholders in the CCAA process and the strategies we can employ to navigate this stormy sea of insolvent corporations.

Overview of the Companies’ Creditors Arrangement Act: An Overview Of This Lifeline For Canadian Businesses

The Companies’ Creditors Arrangement Act is a crucial piece of legislation in Canada. It serves as a lifeline for large businesses facing financial distress and unable to meet their financial obligations. But what exactly does it mean? And why is it so important? Let’s break it down.

Definition and Purpose of the Companies’ Creditors Arrangement Act

The Companies’ Creditors Arrangement Act allows a larger struggling insolvent company to restructure their debts while under legal protection. This means they can continue their operations without the immediate threat of creditors demanding payment. The primary goal is to help companies formulate a plan to repay their creditors over time. In essence, it’s about survival and recovery.

Imagine a ship caught in a storm. The Companies’ Creditors Arrangement Act is like a lifeboat for companies that owe $5 million or more, providing a safe space to regroup and chart a new course. It gives businesses the chance to stabilize and eventually thrive again.

How the Companies’ Creditors Arrangement Act Differs from Other Bankruptcy Processes

Many people confuse the Companies’ Creditors Arrangement Act with other bankruptcy processes. However, there are key differences. Here’s a quick comparison:

Flexibility: The CCAA offers more flexibility than traditional bankruptcy proceedings under the Canadian Bankruptcy and Insolvency Act (BIA). Companies can negotiate with creditors and create a tailored plan.
Control: Unlike a bankruptcy liquidation, where a Trustee takes control, the CCAA allows the company to maintain control of its operations during the restructuring process.
Focus on Recovery: The CCAA emphasizes recovery and rehabilitation, rather than liquidation. This is a significant shift from other processes that may prioritize asset sales.
Minimum Debt: As stated above, $5 million is the minimum debt level a company must have to avail itself of the bankruptcy protection provided by the Companies’ Creditors Arrangement Act. If debtor companies owe less than this minimum threshold but is still a candidate to restructure, then it would use the restructuring proceedings section of the BIA.

In short, the Companies’ Creditors Arrangement Act is designed to give businesses a fighting chance. It’s about finding solutions rather than shutting down operations.

Key Objectives of the Companies’ Creditors Arrangement Act For Canadian Businesses

So, what are the benefits of entering CCAA proceedings? Here are a few key points:

Protection from Creditors: The CCAA provides bankruptcy protection proceedings so the insolvent company having financial diffculties can gain immediate relief from creditor actions. This allows businesses to focus on restructuring without the constant pressure of lawsuits or asset seizures.
Time to Restructure: Companies can take the time they need to develop a viable plan called a Plan of Arrangement. This is crucial for long-term success.
Opportunity to Recalibrate: As a legal expert once said,
“The CCAA is not just a path to resolution; it’s a way for companies to recalibrate their commitments to survive.”

This highlights the Companies’ Creditors Arrangement Act’s role in helping an insolvent company rethink its strategies and commitments.

These benefits are essential, especially in today’s economic climate. With a large increase in Canadian corporate bankruptcies in 2024, debtor companies being able to restructure under either the BIA or the Companies’ Creditors Arrangement Act is more relevant than ever.

Importance of the Companies’ Creditors Arrangement Act in the Canadian Corporate Landscape

The Companies’ Creditors Arrangement Act plays a vital role in the Canadian corporate landscape. It’s not just a legal framework; it’s a safety net for businesses. As we see more companies facing financial challenges, understanding the CCAA becomes critical. The recent trends in business bankruptcies highlight the need for effective restructuring options.

Moreover, the success rates of businesses completing the CCAA process stand at an impressive 70%. This statistic underscores the effectiveness of the CCAA in helping companies navigate financial turmoil.

Role of Key Entities in the Companies’ Creditors Arragement Act Restructuring: The Monitor and the Office of the Superintendent of Bankruptcy

The Companies’ Creditors Arrangement Act process involves several key players, each with distinct responsibilities. This section focuses on two crucial entities: the Monitor and the Office of the Superintendent of Bankruptcy (OSB).

The Monitor’s Responsibilities: Overseeing the Process

The Monitor is a court-appointed officer who plays a central role in CCAA proceedings. They act as an independent third party, overseeing the debtor company’s restructuring efforts and ensuring fairness and transparency throughout the process. Key responsibilities of the Monitor include:

Monitoring the Company’s Business: The Monitor closely monitors the company’s financial affairs and operations during the CCAA proceedings. This includes reviewing financial statements, attending meetings, and ensuring the company complies with court orders.
Assisting in the Plan of Arrangement Development: While the company typically develops the Plan, the Monitor plays a vital role in reviewing, analyzing, and providing feedback on the proposed restructuring strategy. They may also facilitate negotiations between the company and its creditors.
Reporting to the Court and Stakeholders: The Monitor regularly reports to the court on the progress of the CCAA proceedings, including the company’s financial performance, the status of the Plan of Arrangement development, and any significant events. They also keep stakeholders informed through reports and notices.
Ensuring Compliance: The Monitor ensures that the company complies with all court orders and the provisions of the Companies’ Creditors Arrangement Act. They also help to ensure that the Plan is implemented effectively after it is sanctioned by the court.
Acting as an Impartial Facilitator: The Monitor acts as an impartial facilitator, balancing the interests of the various stakeholders involved in the CCAA process. They strive to ensure a fair and equitable outcome for all parties.
Providing Professional Expertise: Only licensed insolvency trustees (formerly called a trustee in bankruptcy) can be Monitors. They are experienced insolvency professionals with expertise in financial restructuring, accounting, and legal matters. They bring valuable knowledge and skills to the CCAA process.

The Role of the Office of the Superintendent of Bankruptcy: Administrative Oversight

The Office of the Superintendent of Bankruptcy (OSB) is a government agency that plays an administrative role in overseeing insolvency proceedings in Canada, including CCAA cases. While the OSB’s involvement in a specific CCAA case might not be as direct as the Monitor’s, its broader oversight is important. The OSB’s key functions related to the CCAA include:

Supervising the Administration of Insolvency Matters: The OSB is responsible for the overall supervision of the insolvency system in Canada, including the administration of the CCAA. They ensure that CCAA proceedings are conducted in accordance with the legislation and regulations.
Licensing Insolvency Professionals: The OSB licenses and regulates insolvency professionals, including those who act as Monitors in CCAA cases. This helps to ensure the competence and integrity of these professionals.
Maintaining Public Records: The OSB maintains public records related to insolvency proceedings, including CCAA filings. This provides transparency and access to information for stakeholders and the public.
Investigating Complaints: The OSB investigates complaints related to insolvency proceedings, including those involving CCAA cases. This helps to ensure accountability and address any potential misconduct.
Providing Guidance and Information: The OSB provides guidance and information to stakeholders on insolvency matters, including the CCAA process. They publish resources and provide educational materials to help stakeholders understand their rights and responsibilities.

In summary, the Monitor is a key participant in the day-to-day management and oversight of a specific Companies’ Creditors Arrangement Act proceeding, working closely with the company and creditors. The OSB, on the other hand, plays a broader administrative role, overseeing the insolvency system as a whole and ensuring the integrity of the process, including CCAA cases, through licensing, regulation, and public record maintenance. Both entities are essential for the effective functioning of the CCAA.

Procedural Components of The Initial Application: A Formal Request for Protection

Initial Filing Process

The process begins with the company filing an initial application with the court. This application formally requests protection under the Companies’ Creditors Arrangement Act. It’s a comprehensive document that outlines the company’s financial situation, the reasons for its difficulties, and the proposed restructuring plan (or at least a preliminary outline of one). Key components typically include:

Detailed Financial Statements: A clear picture of the company’s assets, liabilities, income, and expenses is crucial. This provides the court and creditors with a transparent view of the company’s financial health and the depth of its challenges.
Statement of Affairs: This document provides a snapshot of the company’s current financial position, listing assets and liabilities, and identifying secured and unsecured creditors, or at least those creditors in excess of a minimum dollar value threshold.
Reasons for Financial Distress: The application must clearly articulate the factors that led to the company’s financial difficulties. This could include market downturns, operational challenges, or unforeseen events.
Proposed Restructuring Plan (or at least an outline of a Plan of Arrangement): While a fully formed plan is rarely available at this stage, the initial application should provide a general overview of the proposed restructuring strategy. This might include debt reduction, asset sales, operational changes or a combination of all of them.
Appointment of a Monitor: A key aspect of the Companies’ Creditors Arrangement Act process is the appointment of a Monitor. The initial application typically nominates a proposed Monitor, an independent third party licensed insolvency trustee who will oversee the restructuring process and report to the court.

The Court’s Role: Granting the Initial Order

Once the initial application is filed, the court reviews it carefully. If the court is satisfied that the company meets the criteria for Companies’ Creditors Arrangement Act protection – namely, that it is a debtor company with debts exceeding $5 million and that it is in the best interests of the creditors to allow the company to restructure – it will grant an initial order.

This initial order is a powerful tool. It provides the company with a stay of proceedings, which temporarily prevents creditors from taking legal action to collect debts. This “breathing room” allows the company to focus on developing and implementing its restructuring plan without the immediate threat of asset seizure or bankruptcy. The initial order also formally appoints the monitor.

The Monitor’s Responsibilities: Oversight and Reporting

The Monitor plays a vital role in the Companies’ Creditors Arrangement Act process. Their responsibilities include:

Overseeing the Company’s Operations: The Monitor ensures the company continues to operate responsibly and in accordance with the court’s orders.
Monitoring Cash Flow: The Monitor tracks the company’s finances and reports to the court on its financial performance.
Assisting in the Development of the Restructuring Plan: The Monitor works with the company and its stakeholders to develop a viable restructuring plan.
Reporting to the Court and Creditors: The Monitor provides regular reports to the court and creditors on the progress of the restructuring process.

What Happens Next After The Initial Application and the issuance of the Companies’ Creditors Arrangement Act Initial Order?

The granting of the initial order marks the beginning of the formal Companies’ Creditors Arrangement Act proceedings. The debtor company, with the assistance of the Monitor, will then work to develop a detailed restructuring plan that will be presented to creditors for approval. This Plan of Arrangement will outline how the company proposes to address its debts and return to financial viability.

The initial application process under the Companies’ Creditors Arrangement Act is complex and requires careful preparation. Seeking professional advice from lawyers and financial advisors experienced in insolvency and restructuring is crucial for companies considering this option. Understanding the process is equally important for creditors seeking to protect their interests during these proceedings.

Companies’ Creditors Arrangement Act Procedural Components: Plan of Compromise or Arrangement Roadmap to Recovery

The culmination of the CCAA process is the development and implementation of a Plan of Compromise or Arrangement. Statutory requirements are that this document outlines how the company proposes to deal with its debts and restructure its business.

Development of the Plan: The Plan is typically developed by the company, often in consultation with the Monitor and creditors. It must be fair and reasonable to all stakeholders.
Classification of Creditors: Creditors are often classified into different groups based on the nature of their claims (e.g., secured creditors, unsecured creditors, employees). The Plan may propose different treatment for each class.
Key Provisions of the Plan: A Plan may include a variety of provisions, such as:
- Debt repayment schedules.
- Equity conversions.
- Asset sales.
- Operational restructuring.
Voting on the Plan: Creditors vote on the Plan at a meeting of creditors. Approval requires a majority of creditors vote in number and two-thirds in value of each class of creditors. Depending on how many classes of creditors there are and their respective interests, there could be one or more meetings of creditors by class.
Court Approval (Sanction): Even if creditors approve the Plan, it must be sanctioned by the court. The court will review the Plan to ensure it is fair and reasonable and complies with the Companies’ Creditors Arrangement Act.
Implementation of the Plan: Once sanctioned, the Plan becomes legally binding on all stakeholders, including those who voted against it. The company then implements the Plan, working towards its financial recovery.

This section provides a general overview of the procedural components of the CCAA. It’s crucial to remember that each CCAA case is unique, and the specific procedures and outcomes can vary significantly. Consulting with legal and financial professionals is essential for anyone involved in a CCAA proceeding.

Rights and Remedies of Stakeholders: Stakeholder Roles and Responsibilities in Companies’ Creditors Arrangement Act Proceedings

When a large insolvent company faces financial distress, it often turns to the Companies’ Creditors Arrangement Act for protection. This process can be complex, and various stakeholders play crucial roles. Understanding these roles is essential for navigating the CCAA landscape effectively. Let’s break down the responsibilities of board members, employees, and lenders.

1. Board Members Rights: Navigating Fiduciary Duties

Board members hold a significant responsibility during CCAA proceedings. They must navigate their fiduciary duties carefully. But what does this mean? In simple terms, fiduciary duties require board members to act in the best interest of the company and its creditors, both secured creditors and unsecured creditors, when the company is in the “zone of insolvency.” This is a critical point where their obligations shift from shareholders to creditors.

As a board member, if you find yourself in this situation, it’s vital for the Board of Directors to retain legal counsel early on before the commencement of proceedings. There is a significant gap in understanding the legal landscape. Why risk your position when you can have expert insolvency lawyer guidance?

In this zone, board members must prioritize transparency and accountability. They should regularly communicate with stakeholders to keep everyone informed about the company’s status. After all, a well-informed board can make better decisions.

2. Employee Rights: Importance of Communication

Employees are often the backbone of a company. During CCAA proceedings, they can feel anxious and uncertain. That’s why effective communication is crucial. Employees need to understand what’s happening within the company. Unfortunately, a staggering 75% of employees reported being uninformed about ongoing CCAA cases. This lack of information can lead to rumors and fear.

So, how can companies improve communication? Establishing clear channels is essential. Regular updates through internal memos, meetings, or dedicated websites can help keep employees in the loop. Remember,

“In times of crisis, clear communication is a stakeholder’s best tool.” – Crisis Management Consultant

Employees should also feel empowered to ask questions. They should know where to find information and whom to approach for clarity. This proactive approach can foster a more supportive environment during tough times.

3. Lender’s Rights: Minimizing Risks During Restructuring

Lenders play a pivotal role in CCAA proceedings. They need to minimize risks while navigating the restructuring process. First and foremost, retaining legal counsel is crucial. Lenders should stay updated on the case’s status and participate actively in discussions. This ensures they are aware of any developments that may impact their interests.

Best practices for lenders include:

Regularly reviewing case updates.
Filling out necessary forms to confirm their participation.
Engaging with legal experts to understand their rights and obligations.

By taking these steps, lenders can protect their investments and potentially recover more during the restructuring process. It’s all about being proactive and informed.

4. Unsecured Creditors’ Rights: Minimizing Risks During Restructuring While Enforcing The Rights of Creditors

Unsecured creditors, such as suppliers, are those who do not have a specific security interest in the company’s assets. As an unsecured creditor in a restructuring process, it is important to stay informed on the status of the case. Suppliers should ensure their accounting is accurate and that they understand their terms and what is outstanding. To protect their interests, unsecured creditors should take the following steps:

Ensure accurate accounting: Suppliers should ensure their accounting is accurate and understand their terms and what is outstanding. Landlords should ensure accurate accounting and confirm the debtor’s financial position regarding the lease, including whether the tenant is current or behind on rent.
Stay informed: Unsecured creditors should stay informed on the case’s status through external communications, including, a case-specific website created by the licensed insolvency trustee acting as the Monitor in the Companies’ Creditors Arrangement Act proceedings.
Communicate with the company: Suppliers should communicate with their contact person at the business regarding the status of payment and how they will be treated not only on the debt they are owed as at the filing date, but how payment will be made for orders after the commencement of the Companies’ Creditors Arrangement Act proceedings.
Retain insolvency legal counsel: In more complex situations, suppliers can benefit from hiring legal counsel to advise on the best strategy to protect their interests. Active lenders embroiled in a CCAA case almost always want to retain counsel to advise them throughout the process. Landlords should retain counsel to be responsive to court documents and otherwise tend to the landlord’s interest in the case. Insolvency counsel will be vigilant in ensuring the rights of creditors are respected.
Court-appointed Monitor case developments: Landlords need to stay updated on case developments since many debtor businesses often choose to resiliate or “reject” real estate leases that would prevent a successful restructuring.

5. Shareholders Rights: You Are An Owner

Shareholders in a company undergoing CCAA proceedings need to stay informed of the situation and follow case developments to ensure they participate appropriately in the process.

Shareholders are last in line in the order of priority to be repaid for their claim in a bankruptcy, so they usually recover very little, if anything, on their claim. However, shareholders do occasionally recover money in a CCAA case, and failure to remain current and file appropriate documents can result in being ineligible for any recovery as a shareholder

Creating Your Bankruptcy Playbook: Proactive Measures for Creditors

Bankruptcy can feel like a storm. It’s chaotic, unpredictable, and often leaves creditors scrambling for safety. But what if I told you that there are proactive measures you can take to navigate these turbulent waters? By creating a bankruptcy playbook, you can affirm your interests and improve your chances of recovery. Let’s dive into the essential steps you should consider.

How Legal Counsel Can Provide Leverage

Having legal counsel by your side can be a game-changer. Here’s how:

Expert Guidance: Legal professionals understand the intricacies of bankruptcy law. They can help you navigate the complexities and ensure that your interests are protected.
Negotiation Power: A lawyer can negotiate on your behalf. This can lead to better outcomes, whether it’s securing payments or renegotiating terms.
Timely Action: Legal counsel can help you file necessary documents promptly, ensuring you don’t miss out on potential recoveries.

Statistics show that 90% of creditors who actively engaged legal counsel in CCAA cases recovered more of their investments than those who did not. This is a clear indication of the value that legal representation brings.

Examples of Successful Creditor Strategies

Learning from others can provide valuable insights. Here are some strategies that have proven effective in past CCAA cases:

Supplier Communication: Suppliers who maintained open lines of communication with the debtor often fared better. They were able to negotiate payment plans or secure priority status for their claims.
Active Participation: Creditors who participated actively in meetings and discussions had a better understanding of the proceedings. This allowed them to advocate effectively for their interests.
Document Everything: Keeping meticulous records of all transactions and communications helped creditors substantiate their claims. This was particularly important in cases where disputes arose.

These strategies highlight the importance of being proactive. If you wait for things to unfold, you might find yourself at a disadvantage.

The Risks of Inactivity During Bankruptcy Proceedings

Inactivity can be a creditor’s worst enemy. The risks are significant:

Loss of Recovery: If you don’t engage, you may miss out on recovering any of your claims. On average, creditors recovered only 30% of their claims when they were involved from the outset.
Unfavourable Terms: Without active participation, you may be subjected to unfavorable terms that could further jeopardize your financial interests.
Missed Opportunities: Opportunities to negotiate or influence the outcome may pass you by if you remain passive.

In a insolvency scenario, every moment counts. The sooner you act, the better your chances of recovery.

Frequently Asked Questions about the Companies’ Creditors Arrangement Act

Navigating the Companies’ Creditors Arrangement Act can be complex. Here are some frequently asked questions to help you better understand this legislation:

1. What is the CCAA and when is it used?

The CCAA is a federal law in Canada that allows eligible companies facing financial difficulties to restructure their debts and operations with the protection of the court. It’s typically used by large companies with significant debt (at least $5 million) to avoid bankruptcy and preserve jobs. It provides a formal process for developing a plan of compromise or arrangement with creditors.

2. Who is eligible to file for CCAA protection?

A company is eligible to file under the Companies’ Creditors Arrangement Act if it:

Is a debtor company (incorporated under the laws of Canada or a debtor company to which the Winding-up and Restructuring Act applies).
Owes at least $5 million to its creditors.

3. What is a “stay of proceedings” and why is it important?

A stay of proceedings is a court order that temporarily suspends most legal actions by creditors against the company. This includes lawsuits, foreclosures, and repossessions. It’s crucial because it gives the company breathing room to stabilize its business and develop a restructuring plan without the immediate threat of creditor actions.

4. What is a Plan of Compromise or Plan of Arrangement?

The Plan of Compromise or Plan of Arrangement is the core of the CCAA process. It’s a document that outlines how the company proposes to deal with its debts and restructure its business. It typically includes details on debt repayment, asset sales, equity conversions, and other measures.

5. How is a CCAA plan approved?

Creditors vote on the Plan. Approval usually requires a majority in number and two-thirds in value of each class of creditors. Even if creditors approve, the plan must be sanctioned (approved) by the court to become legally binding.

6. What is the role of the Monitor in a CCAA proceeding?

The Monitor is a court-appointed officer who oversees the CCAA process. They monitor the company’s finances and operations, assist in the development of the Plan, report to the court and stakeholders, and ensure compliance with court orders. They act as an impartial facilitator.

7. How does the CCAA differ from bankruptcy?

The CCAA is a restructuring process aimed at avoiding bankruptcy. It allows a company to continue operating while it works to resolve its financial problems. Bankruptcy, on the other hand, is a formal legal process where a company’s assets are liquidated to pay creditors.

8. What happens to shareholders in a CCAA process?

Shareholders are often affected by a CCAA restructuring. Their existing shares may be diluted or cancelled, and they may receive new shares in the restructured company. The specifics depend on the terms of the Plan.

9. How long does the CCAA process typically take?

The length of a CCAA process can vary significantly depending on the complexity of the case. It can take anywhere from a few months to several years.

10. Where can I find more information about the CCAA?

You can find more information about the Companies’ Creditors Arrangement Act on the website of the OSB which is the government agency responsible for overseeing insolvency proceedings in Canada. Consulting with a lawyer specializing in insolvency law is also highly recommended.

11. What is the difference between secured and unsecured creditors in a CCAA?

Secured creditors have a security interest in specific assets of the company (e.g., a mortgage on a building). Their claims are secured by these assets.
Unsecured creditors do not have a security interest. Their claims are not tied to any specific asset. They typically receive a lower recovery than secured creditors in a restructuring.

12. Can a CCAA plan affect employees?

Yes, a CCAA plan can affect employees. It may involve workforce reductions, changes to compensation and benefits, or modifications to collective bargaining agreements. Employee claims for wages owed are often given priority in a CCAA proceeding.

This FAQ provides a general overview of the CCAA. It’s essential to remember that each CCAA case is unique, and the specifics can vary significantly. Consulting with legal and financial professionals is crucial for anyone involved in a CCAA proceeding.

Companies’ Creditors Arrangement Act Conclusion

Building a strategy early in the Companies’ Creditors Arrangement Act process can significantly impact recovery outcomes for all types of creditors involved. By affirming your interests, engaging legal counsel, and learning from successful strategies, you can create a robust bankruptcy playbook. Don’t let the storm of bankruptcy catch you off guard. Take proactive measures now, and you may find yourself on the path to recovery.

I hope you enjoyed this Companies’ Creditors Arrangement Act Brandon’s Blog. Do you or your company have too much debt? Are you or your company in need of financial restructuring? The financial restructuring process is complex. The Ira Smith Team understands how to do a complex restructuring. However, more importantly, we understand the needs of the entrepreneur or someone with too much personal debt.

You are worried because you are facing significant financial challenges. It is not your fault that you are in this situation. You have been only shown the old ways that do not work anymore. The Ira Smith Team uses new modern debt relief options to get you out of your debt troubles while avoiding the bankruptcy process. We can get you debt relief freedom using processes that are a bankruptcy alternative.

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

We know that people facing financial problems need a realistic lifeline. There is no “one solution fits all” approach with the Ira Smith Team.

That is why we can develop a restructuring process as unique as the financial problems and pain you are facing. If any of this sounds familiar to you and you are serious about finding a solution, contact the Ira Smith Trustee & Receiver Inc. team today.

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

The information provided in this Brandon’s Blog is intended for educational purposes only. It is not intended to constitute legal, financial, or professional advice. Readers are encouraged to seek professional advice regarding their specific situations. The content of this Brandon’s Blog should not be relied upon as a substitute for professional guidance or consultation. The author, Ira Smith Trustee & Receiver Inc. as well as any contributors to this Brandon’s Blog, do not assume any liability for any loss or damage.

Tags arrangement with creditors, bankruptcy protection proceedings, commencement of proceedings, Companies’ Creditors Arrangement Act, Court-appointed Monitor, federal legislation, financial distress, financial statements, initial application, insolvent corporations, meeting of creditors, plan of arrangement, plan of compromise, restructuring proceedings, restructuring process, statutory requirements, trustee in bankruptcy, Winding-up and Restructuring Act

Brandon Blog Post

INSOLVENCY ADVISORY SERVICES: STANDOUT HELP DOES NOT NEED HORRIFYING HIGH COSTS

Post author By Brandon Smith
Post date December 23, 2024

This is our last blog post for 2024. We will be back with more in January. Happy Holidays and a Happy and Healthy New Year to all of our readers.

Insolvency Advisory Services: Introduction

Insolvency is a complex financial situation with significant legal and practical implications. This Brandon’s Blog post explores the key aspects of insolvency law in Canada, drawing on authoritative sources to provide a clear and informative overview.

As the pandemic-induced economic rollercoaster continues, I recently read an article in The Globe & Mail Report on Business about the world of insolvency advisory services. On the one hand, professionals like me help to fix corporate car crashes during crises, seemingly thriving off others’ misfortunes. On the other hand, our services can lead struggling businesses to a new beginning, saving jobs and families. Not just the workers or the owners, but all the businesses that rely upon that one business. Let’s dive into this fascinating landscape where financial insolvency wizardry collides with corporate despair.

What is Insolvency?

Insolvency refers to a situation in which an individual or a company is unable to fulfill their financial obligations as they become due. In Canada, the legal framework offers several mechanisms to manage insolvency, with the goal of balancing the interests of both debtors and creditors.

The Insolvency Legal Framework

Key Legislation in Canadian Insolvency Law

The Bankruptcy and Insolvency Act (BIA) serves as the fundamental legislation governing insolvency in Canada. This federal law establishes the protocols for addressing bankruptcies and proposals, ensuring a fair and systematic approach for all parties involved.

In conjunction with the BIA, the Companies’ Creditors Arrangement Act (CCAA) offers a framework specifically designed for the restructuring of insolvent corporations, particularly those with debts exceeding $5 million. Both the BIA and CCAA are administered by the Office of the Superintendent of Bankruptcy (OSB), which operates under the Department of Innovation, Science and Economic Development Canada. The OSB is essential in overseeing the insolvency process, licensing insolvency professionals, and maintaining public records related to insolvency matters.

Provincial Laws and Their Impact on Insolvency

Federal legislation primarily regulates the fundamental aspects of insolvency in Canada; however, provincial laws significantly influence this area, particularly concerning property and civil rights. Specific issues addressed by provincial legislation include:

The establishment of security interests The handling of absconding debtors Regulations surrounding bulk sales Provisions related to fraudulent conveyances

This interaction between federal and provincial laws results in a comprehensive legal framework for managing insolvency in Canada.

Roles and Responsibilities

Licensed Insolvency Trustees are licensed professionals authorized by the OSB to administer bankruptcies, handle proposals, and act as monitors or receivers. Insolvency Trustees play a pivotal role in guiding debtors and creditors through the insolvency process, ensuring compliance with legal requirements.

Access to Insolvency Information

The OSB provides a searchable database of bankruptcy and insolvency records that is available to the public for a fee. This database includes detailed information on various insolvency proceedings, such as bankruptcies, proposals, receiverships, and proceedings under the CCAA. Furthermore, the publication “Insolvency Insider Canada” offers current news and legal updates on trends related to insolvency in Canada.

Insolvency Advisory Services: The Profit Motive

Have you ever thought about how much insolvency advisers bill out per hour? The article stated that downtown Bay Street bankruptcy legal counsel and licensed insolvency trustees charge up to $1,300 per hour for their services. Are these fees justified? Or are they merely a symptom of a broken system?

Understanding Senior Claims

In insolvency cases, fees charged by advisers are classified as senior claims. This means they get paid before other creditors. When a company admits insolvency and makes a filing under either the BIA or the CCAA, these advisers work hard to navigate the complex legal landscape.

But who benefits the most? According to The Globe & Mail article:

Adviser fees have been climbing steadily over the years. While companies going through insolvency struggle with debt, they may very well be paying unnecessarily high fees.

The Financial Implications

What does this mean for businesses? When firms find themselves in the dire straits of insolvency, they owe a mountain of money. The debt piles up, and the cost of hiring pricey advisers only adds to their woes. In many cases, legal and financial advisers are feasting on the carcass of struggling companies.

The Cold Reality

This narrative reveals the harsh truth: while companies drown in debt, they may very well be paying too much for their advisers. Insolvency advisers are essential for navigating bankruptcies and restructurings, but many companies may be paying too much for the help they need. No doubt there are certain regulated industries or overly complex businesses that need the minds and skills of the downtown Bay Street advisers. But that is not the majority of Canadian businesses.

Insolvency Case Study: Do Our Fees Hold Up In Court?

We are involved in the liquidation case of two companies. Certain stakeholders, including the Estate Trustees of the Estate of a deceased shareholder, disagreed with the fees we and our legal counsel charged. A court hearing concerning our fees as a court-appointed liquidator and those of our legal counsel was held in the winding-up case.

As liquidator we sought approval for substantial fees which were challenged by the respondents, shareholders of the companies, as disproportionate to the assets involved. The judge considered various factors including the complexity of the case, the time spent, and the results achieved, ultimately approving the fees, citing prior court approvals of the liquidator’s actions and rejecting the respondents’ arguments as a collateral attack. The decision highlights the principles of fairness and reasonableness in determining court officer fees.

What factors influenced the assessment of the fairness of our liquidation fees?

The court evaluated several factors to assess the fairness of the liquidation fees charged by the Liquidator and their counsel. Ultimately, the judge ruled in our favour based on the following considerations:

Nature, Extent, and Value of Assets: The Liquidator was responsible for liquidating two companies that presented moderately complex tax and accounting challenges.
Complications and Challenges Encountered: The Liquidator faced numerous obstacles, including concurrent family and estate proceedings, conflicts between the Estate Trustees and another shareholder, and multiple adjournments. Additionally, delays in court proceedings instigated by the Estate Trustees contributed to increased costs.

These delays included:

The conversion of the liquidation proceedings from voluntary to court-supervised, happened almost a year after the liquidation proceedings began.
The proposed sale of was delayed because the Estate Trustees continued accepting new orders despite the initial agreement to not accept new orders during the voluntary liquidation. They requested time to procure an offer to sell the company.
Further delays were caused when the Estate Trustees proposed to remove one of the companies from the liquidation but failed to do so. The Liquidator was then required to notify customers that business operations would cease once current orders were completed.
The Estate Trustees switched counsel, which caused adjournments and increased time spent on the case.

The degree of assistance provided by the company. The Estate Trustees were confrontational and slow to provide information, which made the Liquidator’s job more difficult.
The time spent. The liquidation proceedings were protracted due to issues between the stakeholders.
The Liquidator’s knowledge, experience, and skill. Both the Liquidator and its counsel were found to have significant knowledge and experience in corporate and insolvency matters.
Diligence and thoroughness. The Liquidator produced three comprehensive reports and affidavits for the motion. Their invoices provided a clear understanding of the thoroughness of their work.
The responsibilities assumed. The Liquidator was responsible for extensive activities, which were outlined in its reports and approved by the court. These activities included monitoring business operations, selling one of the companies’ primary assets, engaging various professionals, establishing and monitoring a claims process, and taking steps to wind down an active business.
The results of the efforts. The Liquidator successfully converted the voluntary liquidation into a court-supervised process. They managed the companies’ finances, initiated a claims process, and made interim distributions.
The cost of comparable services when performed prudently and economically. The rates charged by the Liquidator and its counsel were comparable to those charged by other providers in the Toronto market. Although the respondents argued that the fees were disproportionate to the value of the businesses, the court ultimately ruled that the fees were fair and reasonable given the factors outlined above.

The Mechanics of Corporate Insolvency

Understanding corporate insolvency and bankruptcy law can feel like navigating a maze. Why is there a need for specialized expertise in this field? Let’s dive into this complex world.

1. The Ins and Outs of Bankruptcy Law

Bankruptcy law is not just a set of rules; it’s a detailed framework designed to address financial distress. At the core is the legal process that aims to protect debtors while ensuring creditors get as much back as possible. This is where specialized knowledge comes in. It is critical to understand the nuances, strategies and strategizing, litigation processes, and the potential financial ramifications of each decision.

Think about it: would you trust someone who has only dabbled in the subject to handle a significant financial crisis? I wouldn’t. Expertise in this area enhances efficiency. A knowledgeable insolvency adviser can streamline the process and avoid costly missteps.

Also, this specialized knowledge often leads to reduced competition. But there are alternatives; there are experienced insolvency professionals who operate in lower-cost boutique firms like mine. Their offices may not be as fancy as the Bay Street crowd, but, what do you want to pay for. Their knowledge and expertise or their office furnishings and high rent?

2. A Day in the Life of a Licensed Insolvency Trustee Adviser

What does a licensed insolvency trustee adviser actually do day-to-day? Most of our time on corporate restructuring files involves analyzing company financials and negotiating with creditors. Navigating through heaps of paperwork is part of the gig, too. Advisors must also attend court hearings and meetings with various stakeholders, always looking to find the best possible outcome.

Typical Tasks Include:

Drafting essential documents and filings.
Conducting asset evaluations.
Coordinating with legal teams and financial analysts.

On any given day, a licensed insolvency trustee adviser may switch gears between solving legal puzzles and crunching numbers. It’s a mixture of law, finance, and a bit of psychology when negotiating to save distressed businesses.

3. Key Players in Corporate Insolvency

Corporate insolvency involves several key roles, each contributing to the process in distinct ways:

Legal Counsel: Legal professionals represent the interests of their clients and assist in navigating the complex legal landscape associated with insolvency proceedings. Court-
Court-Appointed Receivers/Insolvency Trustees: These individuals are tasked with managing the assets of the company during the insolvency process, ensuring proper handling and distribution according to legal guidelines.
Monitors: Monitors oversee the restructuring process to prevent the company from entering receivership or bankruptcy. They ensure that the company adheres to all legal requirements throughout the process.

Each of these roles is essential in facilitating a fair and orderly insolvency process. Together, they work towards achieving the best possible financial recovery while upholding the integrity of the legal framework.

4. Why Experience Really Matters

Experience can make or break an insolvency case. A seasoned insolvency professional will have seen various crises unfold, equipping them with the knowledge of what strategies work. They can anticipate challenges and react swiftly to changes in circumstances.

Also noteworthy is that judges usually have a high regard for seasoned practitioners. The more experienced the insolvency adviser, the more likely they will get favourable outcomes – and that’s crucial. After all, when dealing with millions on the line, would you want a novice watching your back?

Ultimately, the world of corporate insolvency is a ripe field for those with the right set of skills and experience. But remember, it’s about guiding businesses through some of the most turbulent waters they face.

The Ripple Effect of Rising Insolvency Advisories

In today’s economic climate, the rise in insolvency advisory fees is an issue that’s hard to ignore. It touches everyone – from entreprenurial businesses trying to stay afloat to investors scratching their heads over diminished returns.

Entrepreneurial Businesses and Higher Fees

As advisory fees rise, entrepreneurs are generally shut out of being able to restructure. That is one of the reasons why Ira Smith Trustee & Receiver Inc. was established. We offer the highest quality of service that rivals any Bay Street licensed insolvency trustee firm. However, due to our unique boutique formula, our hourly rates are slightly less than half of those charged by downtown Toronto Bay Street insolvency professionals.

We know that many entrepreneurs find themselves squeezed by Bay Street hourly rates, unable to afford the very advice meant to save their companies. That is why we can earn a fair return for our services in running our insolvency advisory business, without killing off the company we are trying to save because of higher fees. Downtown firms don’t think we can, but with the combined experience of Ira and Brandon Smith totalling over 60 years, we know how to and have done complex corporate restructuring. We are also one of those experienced seasoned firms that judges recognize as such. Our clients also give us 5-star reviews!

The Role of Insolvency Advisers

Despite the high costs, insolvency advisers play a crucial role in reviving struggling companies. When firms like Groupe Dynamite sought protection during tough times, savvy advisers helped them navigate those murky waters. Their expertise can mean the difference between a successful turnaround and a grim closure.

Lending and Creditworthiness

But there’s a catch. Rising advisory fees may also undermine a company’s creditworthiness. Imagine a lender reviewing a firm burdened by steep fees. They might hesitate, fearing that funds directed to advisers are funds that won’t go toward debt repayment. Essentially, high fees could close the door on future lending.

Myths Surrounding Formal Insolvency Proceedings

It is essential to clarify some misconceptions regarding the beneficiaries of formal insolvency proceedings. A common belief is that companies undergoing restructuring are guaranteed to be saved; however, this is not always the reality. Once advisers get to work, there are situations where we realize that most of the company isn’t salvageable. This emphasizes the importance of critically assessing the situation as quickly as possible so that unnecessary steps are not taken using up scarce resources.

In certain cases, such as that of Groupe Dynamite case, advisers have successfully revitalized struggling brands. Conversely, there are situations where advisers do earn fees from a business that ultimately cannot be sustained. Therefore, an effective insolvency assessment must identify these challenges from the outset in every case. It is crucial to ensure that a successful restructuring does not come at the expense of overwhelming financial burdens.

A candid and transparent dialogue between the insolvency advisor and company management is necessary before initiating any restructuring efforts. This collaboration is vital for determining the viability of the company and the best course of action moving forward.

The Ethical Dilemma In Insolvency Advisory

Navigating the complexities of insolvency involves not only strategic calculations but also significant ethical considerations. A critical question arises: at what point does one profit from another’s misfortune? The high fees charged by downtown Toronto Bay Street insolvency advisers, which can exceed $1,300 per hour, certainly prompts the question. This raises an important discussion about whether these professionals are genuinely aiding in recovery or merely capitalizing on the difficulties faced by their clients.

Insolvency advisory fees are typically structured to be front-loaded, meaning that the initial phases of an insolvency case require significantly more effort from advisers. This is necessary as they work to thoroughly understand the various issues at hand. Consequently, the execution of the devised strategy tends to be less intensive than its formulation.

This structure can exacerbate the financial strain on already struggling businesses, leading to concerns about the fairness of such practices. Therefore, transparency regarding fees is not merely a preferable quality but an essential component of ethical practice in insolvency advisory. Business owners deserve clarity to make informed decisions during challenging times.

Finding Balance

Achieving a balance between risk and reward is essential for long-term success in business. While it can be tempting to chase higher gains, it’s important to carefully consider the potential consequences. Understanding the balance between your business’s viability and the associated advisory fees is key to making informed decisions.

As we navigate the challenges ahead, let’s stay vigilant and compassionate, ensuring we take care of our businesses and those who support us in maintaining them.

I encourage you to take a moment to reflect on these points and prepare not just for success, but for stability in the ever-changing marketplace. Together, we can build a resilient foundation for the future.

Insolvency in Canada: FAQs

1. What is insolvency and how does it impact businesses in Canada?

Insolvency happens when an individual or a company is unable to fulfill their financial obligations when they are due. This situation can have important legal and practical implications, and it is guided by a detailed set of federal and provincial laws in Canada. For businesses facing insolvency, there are several potential outcomes, such as increasing debt, legal actions from creditors, and the possibility of closure. However, it’s important to remember that there are options available to help navigate this challenging situation, and seeking advice from financial professionals can be a valuable step forward.

2. What key legislation governs insolvency in Canada?

The BIA serves as the primary federal legislation governing bankruptcies and proposals in Canada. It establishes a structured process to protect the interests of all parties involved in insolvency proceedings. In contrast, the CCAA is specifically designed for the restructuring of insolvent corporations, with debts that exceed $5 million. Additionally, provincial laws contribute to the framework surrounding bankruptcy, particularly in matters related to property rights and fraudulent conveyances.

3. What role do Licensed Insolvency Trustees play in insolvency proceedings?

Licensed Insolvency Trustees are professionals authorized by the OSB to oversee bankruptcy proceedings, manage proposals, and act as receivers or monitors. Their responsibilities include offering guidance to both debtors and creditors throughout the legal processes, ensuring compliance with applicable regulations, and working to balance the interests of all parties involved.

4. Why are insolvency advisory fees considered a concern, especially for entrepreneurial smaller businesses?

Insolvency advisory services, though crucial in navigating complex legal and financial landscapes, often come with high hourly rates. This can be a significant burden for struggling businesses, particularly smaller enterprises, as these fees are prioritized as senior claims, meaning they are paid before other creditors. Some argue that these fees add to the financial strain and may not always guarantee a successful recovery.

5. What are some alternatives to high-priced Bay Street insolvency firms?

While large Bay Street firms dominate the insolvency landscape, boutique firms like ours offer comparable expertise and experience at lower hourly rates. Smaller Firms like ours prioritize practical solutions and cost-effectiveness, all delivered with a large dose of empathy. This makes us a viable alternative for businesses seeking quality advice without exorbitant fees.

6. How can businesses prepare for potential insolvency and mitigate risks?

Organizations can effectively mitigate the risks associated with insolvency by prioritizing strong financial management practices. This entails diligent monitoring of cash flow, diversifying revenue sources, maintaining adequate reserves, and establishing a contingency plan to address potential financial challenges. Timely identification of warning signs, along with seeking guidance from qualified professionals, can greatly enhance the likelihood of recovery.

7. What ethical considerations arise in the field of insolvency advisory services?

The power dynamics and the potential for substantial fees in insolvency advisory raise significant ethical considerations regarding the profit derived from a company’s financial difficulties. It is crucial to ensure transparency in fee structures and demonstrate a sincere commitment to prioritizing the client’s best interests over the pursuit of maximum profit. Such practices are essential for upholding ethical standards within the industry.

Insolvency Conclusion: Navigating the Stormy Waters Ahead

As I reflect on the unpredictability of the business world, it strikes me how everything can change in an instant. What appears stable today can be rocky tomorrow. We’ve seen thriving companies face insolvency as consumer habits shift overnight. There are many such examples. They soared high, only to crash due to rising interest rates impacting consumer spending. It’s a stark reminder that no one is immune to the tides of economic downturn.

For business owners, the key is preparation. Have you considered what your plans are if faced with potential insolvency? It’s essential to develop mitigation strategies. Keeping an eye on cash flow, diversifying income streams, and maintaining a strong financial buffer can save a business from downfall. By creating a robust financial foundation, we can cushion ourselves against unforeseen storms.

I hope you enjoyed this insolvency Brandon’s Blog. Do you or your company have too much debt? Are you or your company in need of financial restructuring? The financial restructuring process is complex. The Ira Smith Team understands how to do a complex restructuring. However, more importantly, we understand the needs of the entrepreneur or someone with too much personal debt.

You are worried because you are facing significant financial challenges. It is not your fault that you are in this situation. You have been only shown the old ways that do not work anymore. The Ira Smith Team uses new modern ways to get you out of your debt troubles while avoiding the bankruptcy process. We can get you debt relief freedom using processes that are a bankruptcy alternative.

We know that people facing financial problems need a realistic lifeline. There is no “one solution fits all” approach with the Ira Smith Team.

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

Tags advisory services, Bankruptcy, Bankruptcy and Insolvency Act, bankruptcy proceeding, BIA, business insolvency, CCAA, Companies’ Creditors Arrangement Act, court appointed receiver, financial restructuring, formal insolvency proceedings, insolvency process, Ira Smith Trustee, legal advice, legal counsel, legal fees, Office of the Superintendent of Bankruptcy, OSB, public record

Brandon Blog Post

CORPORATE INSOLVENCY DEMYSTIFIED: THE BEST ESSENTIAL PROCEDURES YOU NEED TO KNOW

Post author By Brandon Smith
Post date September 23, 2024

corporate insolvency

Importance of Understanding the Essence of Corporate Insolvency

For the directors and management of a company, corporate insolvency feels like stepping into an intricate maze without a map. As a business owner, navigating financial challenges is far from simple, especially when insolvency starts looming. So, what does corporate insolvency truly mean, and why is it pivotal for us as entrepreneurs to grasp its nuances?

That is the topic of this Brandon’s Blog post. I will break down the crucial steps in corporate insolvency proceedings. We’ll cover everything from spotting early warning signs of an insolvent company like cash flow issues and creditor pressure to navigating formal procedures including appointing a licensed insolvency trustee and making corporate insolvency procedures filings such as formal business restructurings or business bankruptcies.

Definition of Corporate Insolvency and Its Significance

Put simply, corporate insolvency emerges when a business can’t settle its debts as they come due or, notably when the amount of its liabilities surpasses the value of its assets. Think of it as reaching a point where your business’s financial juggernaut feels like it’s sliding down a slippery slope.

The weight of insolvency is staggering. Not only can it culminate in bankruptcy, but it can also lead to severe asset depletion and tarnish the company’s reputation. This situation isn’t just a statistic; it resonates with me as I have witnessed many falter under financial and emotional pressure. Entrepreneurs put their heart, soul, and resources into a venture, only to watch it crumble due to mounting financial strain.

The Implications For Entrepreneurs of Ignoring Corporate Insolvency

Many entrepreneurs can fall prey to the urge to ignore the warning signs. This decision, however, can be catastrophic. Ignoring insolvency can trap businesses in a cycle of debt that feels impossible to escape. Statistics reveal that a staggering 51% of small companies encounter financial distress at some point. This is not just a number; it’s a real-life scenario for many.

“Recognizing insolvency early can be the difference between recovery and closure.”

The consequences go beyond just finances. Picture this: you wake up every day feeling the pressure of creditors, accompanying feelings of stress and fear gripping you tightly. It clouds your judgment, making it difficult to devise a recovery plan. From my observations, it can transform a once-passionate entrepreneur into someone worn and defeated. The psychological impact is immense.

The Psychological Impact of Corporate Insolvency On Entrepreneurs

Entrepreneurs carry the weight of not just their financial obligations but also the hopes and dreams of their employees and communities. To think of potential closure or bankruptcy can feel like a dark cloud looming perpetually over one’s head. Many entrepreneurs, when faced with severe financial challenges, have shared feelings of confusion and despair.

Interestingly, challenges with cash flow emerge as a substantial reason behind many insolvencies, accounting for 82% of failures. I’ve come across several horror stories where businesses, with promising futures, succumbed to the pressure of mismanaged cash flow, all while their owners felt helpless.

Leading Common Danger Signs of Corporate Insolvency

There are many common danger signals of corporate insolvency. The leading ones can be described as:

Cash Flow Problems: If your business is struggling to meet its financial obligations, it could be a hallmark sign of insolvency.
Creditor Pressure: The moment creditors start taking legal action, alarm bells should ring; it’s a clear indication that your business is in trouble.
Declining Performance: A consistent drop in sales and market share can pave the way for financial struggles.
Debt as a Killer: When a business has gathered a considerable amount of debt that it cannot pay off, it can discover it is challenging to fulfill its economic obligations, which is the leading cause of bankruptcy.
Declining Sales and Market Share: a decrease in sales can act as a substantial indicator, shedding light on the multifaceted challenges a corporation grapples with.
Impact of Competition: Are more dominant industry players taking over a larger share of the target market causing a sales decline? The value of the enterprise and its ability to survive must be looked at in comparison to existing competition.
A problem in Securing Financing: When a company is unable to secure funding, it can be a concerning indication of economic distress. Lenders might consider the company as not creditworthy, implying they do not believe in its capability to pay off borrowed funds.
Workforce Downsizing and Layoffs: When a corporation finds itself ensnared in economic turmoil, it frequently turns to measures aimed at trimming expenses to reinvigorate its financial solvency. This may entail the reduction of personnel.

When I navigated through some of these struggles with entrepreneurs, I often saw how they failed to recognize these indicators until it was too late. In this intricate dance of financial management, awareness can serve as a life raft.

Corporate Insolvency: The Importance of Regular Financial Reviews

One critical practice that I have learned that entrepreneurs need to prioritize is conducting regular financial reviews. The significance of this cannot be overstated. By scheduling monthly or quarterly check-ins on financial performance, business owners can easily detect irregularities that may signal deeper issues. These reviews ensure that they are not just looking at the surface but diving into the underlying numbers. Analyzing cash flow statements and profit margins helps to understand the business’s pulse.

Moreover, regular reviews provide an opportunity to gather insights on when to cut costs or invest more strategically. In my journey, I’ve found that proactive measures are far more effective than reactive ones. Seeking the advice of financial professionals can also prove beneficial. Engaging with a licensed insolvency trustee or financial advisor can shine a light on areas needing attention and development.

“Timely intervention can save your business from collapsing.”

Reflecting on the insights and advice I have provided to entrepreneurs has further cemented their understanding of why preventive measures are paramount. It’s about more than numbers; it’s about safeguarding the futures of their employees and their families.

Being proactive is critical. Spotting the warning signs early can make all the difference. Whether you face cash flow problems, creditor pressures, or a decline in sales, it’s vital to take actionable steps without delay. Incorporating regular financial reviews into your routine is not just advisable; it’s essential for the long-term viability of your enterprise.

Ignoring these early warning signs can lead to a cascade of financial distress that might have been preventable. Knowledge is power, and armed with the right information, we can steer our businesses safely through turbulent waters.

Taking Initial Steps in Corporate Insolvency

Faced with financial challenges, taking immediate action is crucial – this is where we can regain some measure of control. From my experience, the initial steps can be lifesaving. Here’s what I always recommend:

Recognize financial distress and seek professional advice: It’s essential to consult with a licensed insolvency practitioner or financial advisor to assess your situation. Seeking help early can prevent a further spiral downward.
Identify signs of financial trouble and get expert support: It’s important to reach out to a qualified financial advisor or insolvency expert to evaluate your circumstances. Addressing the issue sooner rather than later can help you avoid worsening your situation.
Perform a Detailed Financial Review: Carefully examine your company’s financial records and current liabilities. Think of this as a triage process; by pinpointing the most pressing issues, you can create a clear and effective recovery strategy.

As I’ve witnessed firsthand, the retainer of an insolvency professional provides a knowledgeable guide in unchartered territory. Our expertise can streamline the process, making sure you’re not navigating blindly.

Corporate Insolvency: A Glimpse into Formal Insolvency Proceedings

Should insolvency become unavoidable and informal processes are not good enough, formal insolvency proceedings may need to be kicked in. It’s an unsettling process, yet understanding it can alleviate some fears:

Filing for an Insolvency Process: Your licensed insolvency practitioner will make the necessary filing that the company agrees to, be it a restructuring plan, bankruptcy protection or a liquidation bankruptcy filing, with the Office of the Superintendent of Bankruptcy and/or the Court, outlining all the reasons behind the insolvency and the suggested course of action.
Moratorium Period: The Bankruptcy and Insolvency Act (Canada) and the Court grants this stay period during which creditors can’t pursue legal action – whether it has been started yet or not, which is a much-needed breather!
Formation of a Creditors’ Committee: The insolvency professional will facilitate communication with creditors, establishing a committee to oversee proceedings. For smaller companies restructuring or liquidating under the Bankruptcy and Insolvency Act, Inspectors can be appointed to oversee the insolvency administration. In a restructuring, the Inspectors can be made up of representatives of both secured creditors and unsecured creditors. In bankruptcy, they are only made up of representatives of unsecured creditors.

These procedures may feel intimidating, yet having a capable team can illuminate the path ahead. It becomes less of a solo journey and more of a united front battling a common challenge.

*Corporate Insolvency**: Understanding Key Stakeholders and Their Roles*

Moreover, it’s essential to recognize the various stakeholders involved in insolvency proceedings. Understanding their roles can help demystify the process:

Company Directors: They hold a fiduciary duty to act in the best interests of both our company and creditors. It’s a heavy responsibility on company directors, but one that can’t be overlooked. Company directors also have personal liability for certain corporate debt such as unremitted source deductions, unremitted HST and unpaid salary, wages and vacation pay.
Creditors: The rights of creditors must be respected, and they play a major role in the decisions we make during insolvency proceedings. Ultimately, it is the outcome for creditors that is the measure of whether a restructuring plan, being the alternative to bankruptcy, will be successful or not.
Employees: A workforce is often directly affected, facing potential layoffs or terminations, adding a layer of emotional strain to an already stressful situation.
Shareholders: As the value of shares can plummet, communicating transparently with shareholders is essential to mitigate backlash.

As business owners, entrepreneurs have to navigate these intricate relationships, often balancing reputations, responsibilities, and the welfare of everyone involved.

Legal and Regulatory Considerations in Corporate Insolvency

The landscape of insolvency is governed by various pieces of insolvency legislation and other laws and regulations. Understanding them is crucial to making informed decisions:

Bankruptcy and Insolvency Act: This is a federal statute that details the official processes for managing insolvency, addressing both the financial troubles of businesses and individuals alike.
Companies’ Creditors Arrangement Act: This pertains to the restructuring alternatives available to large corporations encountering insolvency, specifically targeting entities with debts of $5 million or more.
Provincial and Territorial Laws: Don’t forget to keep an eye on regional regulations that may impact your situation.

Ignorance of these regulations can complicate matters further, leaving entrepreneurs vulnerable. Hence, diligent research and professional financial advice from a licensed insolvency trustee are vital!

Learning and Recovery from Corporate Insolvency

In the end, while experiencing the fallout of insolvency is distressing, it can also be a valuable learning opportunity. Trust me; I’ve taken away lessons from my encounters:

Improve Financial Management: Recognizing business financial vulnerabilities can lead us to instill better practices that prevent another fallout.
Strategies for Prevention: Developing proactive strategies around cash flow and debt circumvents future crises.
Recovery Opportunities: Embracing restructuring can pave the way for rejuvenation – a new beginning.

Understanding the essence of corporate insolvency empowers us, as business owners, rather than leaving us in a quagmire of despair. The strength lies in recognizing potential pitfalls and arming ourselves with knowledge and professional support!

Taking Action: Your Steps to Recovery From Corporate Insolvency

Winding the roads of entrepreneurship, the terrain gets a bit rocky. Financial distress can feel like a fog that envelops your vision, obscuring the path ahead. But I’ve learned that the moment we recognize the signs of corporate insolvency, immediate action becomes not just a choice, but a necessity. Here are some key aspects that are important to know.

Immediate Actions to Consider

When you first face financial difficulties, taking a moment to pause and assess the situation is crucial. Early warnings might manifest as cash flow problems, where the trickle of income no longer meets the outflow of expenses. Entrepreneurs feel that ominous pressure; it is as if the claims of creditors are a weight pressing down harder. It’s vital to recognize these signs early. If cash flow issues persist, I’d highly recommend consulting a licensed insolvency trustee. This can shed light on your options, offering a clearer view of the landscape.

“The earlier you act, the more options you have to remedy the situation.”

This rings true to me, particularly in my own experiences. Consultation can open doors to opportunities entrepreneurs didn’t know existed. It’s like having a map when you’re lost; it gives you direction. But what else can one do during these trying times? Conducting a thorough financial assessment of your company’s situation is essential. Dive deep into your financial statements, review your cash flow, and outline your debt obligations. This exercise can be eye-opening. I remember analyzing my finances and discovering small leaks – expenses that could be trimmed, and operational costs that could be re-evaluated. Making these assessments can help clarify the path forward.

Seeking Professional Help

In my journey, I’ve come to see professional advice not as a sign of defeat but as a strategic move. A licensed insolvency trustee can be a guiding light, navigating you through the murky waters of corporate insolvency. They provide a fresh perspective and a wealth of experience that can be incredibly beneficial. Think of them as a co-pilot during a storm. Their role involves assessing your business’s financial health and exploring restructuring options with you and providing specific financial advice tailored to your company’s unique situation. With my help as a licensed insolvency trustee, I have helped many companies to restructure their debts, avoid corporate failure and end up flourishing afterward.

Restructuring Options and Their Benefits

As I reflect on the various restructuring options available, one or more of them can be very beneficial. Options like debt consolidation, refinancing, or even asset sales can breathe new life into a struggling venture. I recall a company that opted for a debt restructuring strategy. Post-recovery, they reported a staggering 20% increase in sales! I couldn’t help but marvel at how transformative the right options could be. This solidifies the fact that businesses seeking advice early can improve their survival rates by up to 30%!

When contemplating restructuring, it’s important to weigh the pros and cons of each option. Every choice carries potential outcomes. Debt consolidation may simplify payments, while asset sales could provide immediate liquidity. What I learned was that the potential risks can lead to greater rewards when approached strategically. It’s all about creating a sustainable path forward rather than just reacting to immediate pressures.

Corporate Insolvency Conclusion: Your Journey Ahead

Recognizing financial distress is an unsettling experience. But as I’ve walked through this landscape, I’ve learned that taking action can yield fruitful paths toward recovery. Seeking professional help and evaluating corporate insolvency options is essential because there may very well be a rescue procedure I can take to prevent sinking deeper into distress.

In essence, the journey through insolvency doesn’t have to end in closure. It’s an opportunity for recovery and growth. If you’re facing similar challenges, remember that you are not alone, and by taking proactive steps, you can steer your business toward a brighter future.

I hope you enjoyed this corporate insolvency Brandon’s Blog. Do you or your company have too much debt? Are you or your company in need of financial restructuring due to distressed real estate or other reasons? The financial restructuring process is complex. The Ira Smith Team understands how to do a complex restructuring. However, more importantly, we understand the needs of the entrepreneur or someone with too much personal debt.

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

We know that people facing financial problems need a realistic lifeline. There is no “one solution fits all” approach with the Ira Smith Team.

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

The information provided in this Brandon’s Blog is intended for educational purposes only. It is not intended to constitute legal, financial, or professional advice. Readers are encouraged to seek professional advice regarding their specific situations. The content of this Brandon’s Blog should not be relied upon as a substitute for professional guidance or consultation. The author, Ira Smith Trustee & Receiver Inc. as well as any contributors to this Brandon’s Blog, do not assume any liability for any loss or damage resulting from reliance on the information provided herein.

Brandon Blog Post

BEYOND BANKRUPTCY SERVICES: OUR BEST PERSONAL INSOLVENCY FAQ 2 JUMPSTART YOUR FINANCIAL LIFE

Post author By Brandon Smith
Post date May 16, 2022

Bankruptcy services and FAQ information

Bankruptcy is a last resort for Canadian individuals, entrepreneurs and companies looking for a debt solution. However, bankruptcy services are just one of the available options we canvass with you to provide the opportunity to rebuild your financial affairs and your life.

I help people and senior company management understand bankruptcy and the other options available to rebuild their life. Frankly, bankruptcy is always the last option and hopefully in most cases, can be avoided.

In this Brandon’s Blog, I provide my best FAQ answers to common questions about personal bankruptcy services. The answers below will contain all the information you need to know. So here we go. In the future Brandon’s Blogs, I will talk about corporate bankruptcy services in addition to personal and corporate restructuring as alternatives to bankruptcy services.

Bankruptcy services: Who files for bankruptcy and why?

Many people who are considering looking into the need for the bankruptcy process may feel alone and lost. This is because they may not know anyone who has gone through the same thing, making them feel like they have no one to talk to about it. Bankruptcy can be very scary and intimidating, especially if you feel like you’re the only one experiencing financial difficulties.

Financial problems affect people from all walks of life and all income levels. It doesn’t discriminate, affecting married and single people alike, regardless of age. Seniors and those just starting out in life, consumers and companies are all susceptible to needing bankruptcy services.

The Office of the Superintendent of Bankruptcy Canada (OSB) keeps insolvency statistics. It used to be affiliated with a part of the federal government called Industry Canada. Now it is part of what is called Innovation, Science and Economic Development Canada. The OSB has not yet released the 2021 annual insolvency statistics. In 2020 99,244 insolvencies were filed in Canada. This was a 29.5% decrease in insolvencies filed with the OSB in 2020 compared to 2019. This is the largest annual decrease ever. The decrease can be largely attributed to the outbreak of COVID-19 and the various emergency response measures that followed.

The number of consumers filing for insolvency decreased from 137,178 to 96,458, while the number of businesses filing for insolvency decreased from 3,680 to 2,786. The proportion of proposals among consumer insolvency filings increased from 60.3% to 65.9%.

There are two things to remember from these statistics:

You are not alone. Many people face financial difficulties.
There are options available for avoiding bankruptcy services.
bankruptcy services

Bankruptcy services: Can bankruptcy clear debt in Canada?

Most outstanding debt owed to unsecured creditors is cleared not by a person filing for bankruptcy, but by that person receiving their absolute bankruptcy discharge.

Even after bankruptcy, some debts still need to be paid. This includes a student loan if it has been less than 7 years since you stopped being a student, alimony and child support, fines and penalties imposed by the court, and any debts due to fraud.

Also, any secured debts, such as a registered car loan or mortgage against real estate are not discharged by a bankruptcy – either personal bankruptcy or corporate bankruptcy.

What debts cannot be discharged through personal bankruptcy services in Canada?

See the section “Bankruptcy services: Can bankruptcy clear debt in Canada?” directly above.

Bankruptcy services: How much debt must you accumulate in order to file for bankruptcy in Canada?

The minimum amount of unsecured debt needed to file for bankruptcy in Canada is $1,000, as stipulated by the Bankruptcy and Insolvency Act (Canada) (BIA). In addition, the person, partnership or company must also be insolvent. Bankruptcy is a legal process. Insolvency is a bad financial situation.

Bankruptcy services: What debts are not erased in bankruptcy?

See the section “Bankruptcy services: Can bankruptcy clear debt in Canada?” directly above.

bankruptcy services

Bankruptcy services: What are the three types of bankruptcies?

There are several ways I could answer that question. For example, there are:

Personal bankruptcy is also sometimes referred to as consumer bankruptcy.
Small business bankruptcy. This would mainly be for a proprietorship or partnership.
Corporate bankruptcy – small or large companies.

Another way of answering the same question would be:

Voluntary bankruptcy – an assignment in bankruptcy being filed by the person or company.
Involuntary bankruptcy – a bankruptcy happening because one or more creditors issued a bankruptcy application resulting in a bankruptcy order.
Bankruptcy protection is not bankruptcy at all. It is a financial restructuring performed by a licensed insolvency trustee. The Office of the Superintendent of Bankruptcy Canada maintains a searchable list of individuals licensed to act as a licensed insolvency trustee in Canada.

My final way of answering the same question is:

Consumer proposal – This is a financial restructuring under the BIA to avoid bankruptcy for a person who owes $250,000 or less not including any debts secured against the person’s principal residence.
Proposal – This is a financial restructuring under the BIA to avoid bankruptcy for a person who owes more than $250,000 (not including any debts secured against the person’s principal residence) or for a company with any amount of debt.
Financial restructuring under the Companies’ Creditors Arrangement Act – This is what the media calls bankruptcy protection in order to restructure and avoid bankruptcy. To qualify to file under the Companies’ Creditors Arrangement Act statute, the company must have a debt load of $5 million or more.

All of the above bankruptcy services can only be administered by a licensed insolvency trustee (formerly called a bankruptcy trustee or trustee in bankruptcy), but they are not all bankruptcy.

I guess these are really 9 types!! It all depends on how you wish to look at it.

Bankruptcy services: What are the consequences for your assets when declaring bankruptcy?

A bankruptcy does not mean you have to give up all your assets. There are rules about bankruptcy exemptions in bankruptcy law. Also, every province/territory has laws that say what assets you can keep and how much equity you can have. These types of assets are called exempt assets. There are certain assets that you are allowed to keep that are not accessible to your creditors during a bankruptcy. These assets are exempt under federal law, provincial law or both.

In order to understand what exempt assets are in bankruptcy in Ontario, we must first look at the BIA. Section 67(1) of the BIA addresses the bankruptcy exemption issue specifically. It outlines what property of the bankrupt is available to creditors does and does not include.

Property that is not included is:

Property that is held in trust by the bankrupt for any third party.
Assets that are not subject to seizure under provincial law.
Payments to the bankrupt are made under a program that can be described as social assistance provided by the federal or provincial government.
Retirement Savings Plans – The bankrupt’s RRSP (other than for the total of payments made in the 12 months before bankruptcy) or RRIF cannot be touched even in bankruptcy.

As mentioned before, one type of asset that cannot be seized during bankruptcy is any property that is protected under provincial law. In Ontario, the amounts prescribed for exemptions are outlined in the Ontario Execution Act.

These exemptions include:

Household furnishings and household appliances – $14,180.
Tools and other personal property used to generate income:
Exemptions for farmers, being a debtor engaged exclusively in cultivating the soil or farming (and therefore it is that farmer’s principal source of primary income), $31,379 for livestock, fowl, bees, books, tools and implements, and other chattels ordinarily used by the debtor; $14,405 for any other case.
$7,117 for a motor vehicle.
$10, 783 for a principal residence.

Since these exemptions are provincial, you need to look at provincial/territorial laws for other jurisdictions in Canada.

bankruptcy services

Bankruptcy services: What are the implications of personal bankruptcy on retirement plans?

There are 4 main ways Canadians save to live comfortably in retirement. They are:

The principal residence.
RRSP..
Investments.
Private pension plan.

#1 – The principal residence and bankruptcy

For many Canadians, their house is the biggest investment they make and the majority of their savings are tied up in it. Owning a home makes people more confident about their financial future.

If the owner of a home becomes bankrupt, either through an assignment in bankruptcy or bankruptcy order, the debtor’s equity in the home is an asset for the licensed insolvency trustee to sell. The exception is if the home is fully encumbered so that there is only $10,783 or less of equity (in Ontario) in the home.

If the bankrupt is a joint owner, then the Trustee only has access to the bankrupt’s interest, which would be half the equity.

The loss of wealth from the sale of the house or the encumbrance of the house will make it take much longer to build back the equity by paying off the mortgage(s). In the case of joint ownership, the natural purchaser would be the non-bankrupt spouse or partner who owns the other half. The person would likely have to take on more debt to buy the equity from the Trustee.

The loss of wealth as a result of bankruptcy can mean having to work longer than originally planned. This is one way that bankruptcy can affect retirement.

#2 – Your RRSP and bankruptcy

It is the rare debtor that seeks an insolvency option and has a significant amount in their RRSP. This is notwithstanding that a creditor cannot seize your RRSP funds in Ontario.

If you think about it, if you have a 7-figure RRSP and a 6-figure total debt, then you are not insolvent. To be eligible to use the Canadian insolvency process, you must meet certain conditions, one of which is being insolvent.

The only amount of your RRSP that is affected by bankruptcy is any contributions made to the RRSP in the 12 months before the bankruptcy happened. That amount is subject to seizure by your Trustee. Rather than seizing that amount from your RRSP, the Trustee will require you to pay that amount to the Trustee for the benefit of your bankruptcy estate.

Not having a sizeable RRSP to start withdrawing at retirement obviously will affect your retirement plans.

#3 – Bankruptcy and investments

People who are able to save for retirement invest their money to make it grow in addition to an RRSP and principal residence. Investments such as stocks, bonds and mutual funds are very typical. There are two general ways these investments can be held: (i) investment in funds maintained by a life insurance company naming a designated beneficiary (either a spouse or blood relative); and (ii) investments held with your broker.

If you have investments through a contract of insurance and you name your spouse, child, parent, or grandchild as the beneficiary, then those investments are exempt from seizure in Ontario. If you file an assignment in bankruptcy will not have any effect on these investments, and you will be able to keep them. Therefore, this will not affect your retirement plans.

If your investments are through the brokerage arm of your bank, then your investments can be seized in Ontario. These investments will be lost in your bankruptcy and this will affect your retirement plans. If your spouse or partner purchases your interest in these investments from the Trustee, then whatever debt the purchaser had to take on to buy them may affect retirement plans.

#4 – Bankruptcy and a private pension plan

Not everyone in Canada has a private pension plan through their employer. Individuals who are self-employed certainly don’t have it. Having a private pension plan can relieve some of a person’s financial worries as they head toward retirement.

In Ontario, private pensions are protected from seizure and therefore not available for the Trustee. However, if you are already retired and are receiving the private pension income, that income is taken into account when calculating any surplus income payments you may have to make to your Trustee.

bankruptcy services

How bankruptcy services work in Ontario: What is the average length of time for a person to be discharged from bankruptcy in Canada?

To be discharged from bankruptcy in Canada can differ based on whether it is a first or second bankruptcy, and whether the bankrupt has any surplus income contributions to make. For a first-time bankrupt it can take 9 months (no surplus income) -21 months (with surplus income contributions). For a second time or more bankruptcy, it takes 24 months (no surplus income) to 36 months (surplus income).

Bankruptcy services: Surplus income

Surplus income is not an ideal term to describe the extra money an individual has. Many people would not feel they have surplus income, especially when they are dealing with debt. However, in the bankruptcy context, surplus income refers to a calculation that determines how much money a bankrupt individual must pay into their bankruptcy estate for the benefit of their creditors.

When you file an assignment in bankruptcy or have a bankruptcy order made against you in Canada, your monthly income is taken into consideration. To have what is supposed to be a practical standard of living during the bankruptcy period, the Office of the Superintendent of Bankruptcy Canada establishes a standard on an annual basis.

The earnings criteria are adjusted for inflation each year and based on information collected by Statistics Canada. Your licensed insolvency trustee decides how much you pay by making monthly payments into your bankruptcy estate each month based on these standards.

It is really the Canadian poverty line that is established by the Office of the Superintendent of Bankruptcy Canada. Regardless of where you reside in Canada, there is no difference between an expensive city as well as a remote area. Just the most fundamental demands of individuals in addition to members of the family are considered.

Bankruptcy services: Debt problems got you down? Feeling overwhelmed?

I hope this Brandon’s Blog on personal bankruptcy services was helpful to you in understanding more about the personal bankruptcy system in Canada.

If you or your company has too heavy a debt load, we understand how you feel. You’re stressed out and anxious because you can’t fix your or your company’s financial situation on your own. But don’t worry. As a government-licensed insolvency professional firm, we can help you get your personal or corporate finances back on track.

If you’re struggling with money problems, call the Ira Smith Team today. We’ll work with you to develop a personalized plan to get you back on track and stress-free, all while avoiding the bankruptcy process if at all possible.

Call us today and get back on the path to a healthy stress-free life.

Brandon Blog Post

DECLARING BANKRUPTCY: REAL ESTATE COMPANY LOSES CHALLENGE ON CORPORATE BANKRUPTCY APPEAL

Post author By Brandon Smith
Post date May 2, 2022

Declaring bankruptcy: Business insolvency

When the corporate finances are such that the business has an insufficient cash flow to cover its operating expenses and pay its debts when they come due, these financial difficulties create the financial condition of insolvency for the business. Another indicator of insolvency often exists at the same time: if you were to sell all of the company’s assets, you would not be able to raise enough money to pay off its outstanding debt.

Medcap Real Estate Holdings Inc. (Medcap) is an Ontario corporation that owns certain commercial real estate. Medcap’s principal, through other companies which he owns or controls, operates various fitness facilities.

Several creditors made a bankruptcy application to the Court to wind up Medcap’s business through a corporate bankruptcy. In December 2021, the Judge released his decision to issue a bankruptcy order and place the company in the legal position of bankruptcy. Medcap appealed the decision to the Court of Appeal for Ontario.

In this Brandon’s Blog, I discuss the two ways there are for declaring bankruptcy and highlight the reasoning of the Court of Appeal for Ontario in dismissing this company’s appeal for its corporate bankruptcy.

Declaring bankruptcy: An overview of corporate bankruptcy

In Canada, a company is a separate legal entity from its shareholders or Directors and Officers. So a company can go into corporate bankruptcy, as opposed to a person entering personal bankruptcy, also known as consumer bankruptcy. There are two ways a company (or a person) can go bankrupt.

The first way is that a company (or person) files for bankruptcy by filing an assignment in bankruptcy with a licensed insolvency trustee. This is called a voluntary assignment into bankruptcy. The second way, which is what happened to Medcap, is that they are pushed into bankruptcy.

To push a limited company (person) into bankruptcy, one or more creditors, each owed at least $1,000, make a bankruptcy application to the court. The application will include a sworn affidavit from the people with knowledge of the situation providing evidence as to why the company (the person) is insolvent, what acts of bankruptcy the business (person) committed within 6 months preceding the date of the application and requesting that a bankruptcy order be made against the debtor.

Regardless of the types of bankruptcy proceedings that may be involved, these are the only two ways for companies with crippling debt to become bankrupt. It is either voluntary or an involuntary one.

declaring bankruptcy

Declaring bankruptcy: Types of Corporate Bankruptcy

A company that ends up declaring bankruptcy may be doing so for a variety of reasons, all of which relate to significant financial losses. In Canada, there are two primary types of bankruptcy filings under the Bankruptcy and Insolvency Act (Canada) (BIA).

Once the company is insolvent and no longer viable, declaring bankruptcy in order to have liquidation of assets and end the business in that legal entity is the next step. In this situation, there may be certain business debts that are also a personal liability of the corporate Directors. Unremitted source deductions and HST and unpaid wages and vacation pay fall into this category.

Bankruptcy is a tricky topic. Many people tend to fear it, thinking of it as the end of the road. Given my description above of bankruptcy being for liquidating the company assets, that is understandable.

But what about the company that is insolvent but the business is very viable if the bad parts are cut out? In this kind of situation, filing under the BIA using the restructuring provisions of this federal statute, or for larger companies, the Companies’ Creditors Arrangement Act (CCAA), is a legal way for the company to restructure its debts to get its finances back in order. In a successful restructuring, the good parts of the business are restructured and preserved, the company’s finances are right-sized and most if not all jobs are saved. This form of declaring bankruptcy is what is referred to in the media as bankruptcy protection.

So in Canada, declaring bankruptcy is one type, but declaring bankruptcy protection is also possible. That is why I suggest in Canada, there are 2 types of business-specific options in corporate bankruptcy filings.

Declaring bankruptcy: Does corporate bankruptcy affect personal assets?

The legal separation of personal and corporate assets is clear. However, a company declaring bankruptcy may have an impact on the personal assets of certain people. There are situations where personal assets may be at risk. If you are concerned about your personal assets, you should consult with a legal professional to assess your individual case.

Before making any business or investment decisions, is when you should get that professional advice. Once a corporate bankruptcy filing has been made, it will be too late to properly plan for that situation. Personal assets could be at risk if it is a bankruptcy liquidation and not a successful restructuring.

Examples of when personal assets may be at risk because of business bankruptcies include:

the entrepreneur who had to give a personal guarantee of certain corporate debt financial obligations to the company’s primary secured creditor lender and in a liquidation of the company’s assets, the lender suffers a shortfall;
there is not enough money left over from the liquidation after any trust claims and secured creditor claims to pay the outstanding wages and vacation pay so the Directors’ personal assets may be at risk;
the liquidation value of the assets is essentially zero so the Directors are called upon by Canada Revenue Agency to repay any unremitted employee source deductions or HST amounts;
in bankruptcy liquidation, there is generally nothing available to repay investors or shareholders so the money an individual investor or shareholder loses certainly affects their personal assets and personal property. The stock of companies that liquidated their assets after declaring bankruptcy is worthless; and
any creditors that are unincorporated, being either a proprietorship or partnership who lose some or all of the amounts owed to them as ordinary unsecured creditors clearly affect the personal assets of those business owners.

Declaring bankruptcy: The Medcap case

With this discussion of corporations declaring bankruptcy, there are some interesting points to be learned from the Medcap appeal case and the bankruptcy process. The application judge dismissed the bankruptcy applications of all but one of the applicants. He issued the bankruptcy order and appointed the licensed insolvency trustee (formerly called a trustee in bankruptcy or bankruptcy trustee) which began Medcap’s administration of bankruptcy.

The Medcap company appealed the bankruptcy order on only one ground; the judge who made the original order failed to exercise his discretion on whether or not to dismiss the application. Medcap did not appeal the application judge’s finding that the prerequisites to the making of a bankruptcy order – a debt owing to an applicant of at least $1,000 and the commission of an act of bankruptcy within six months of the commencement of the application – had been met!

The most interesting part of the Court of Appeal’s decision is the discussion of the two factors that a court could look at where a judge could exercise discretion to justify refusing an otherwise proven bankruptcy application.

declaring bankruptcy

Declaring bankruptcy: Appealing a bankruptcy order

As mentioned previously, Medcap did not contest the judge’s conclusion that the creditor whose bankruptcy application was allowed had met the requirements under s. 43(1) of the BIA. This is that Medcap owed them a debt exceeding $1,000 and that Medcap committed an act of bankruptcy within 6 months before the filing of that bankruptcy application.

The application judge found that Medcap had failed to pay that creditor’s debt, for which a judgment was issued, despite demands. This is defined as an act of bankruptcy in s. 42(1)(j) of the BIA. In its appeal, the Medcap company argued that, even though the debt and the act of bankruptcy were proven, the application judge made a mistake by not using his discretionary power under s. 43(7) of the BIA to dismiss the application.

Medcap made three arguments to support its appeal: (i) that the trial judge erred in finding that Medcap was unable to pay its debts; (ii) that he erred in finding that the application was brought for an improper motive; and (iii) that he erred in finding that the bankruptcy order would serve no purpose.

Let’s see what the Court of Appeal for Ontario said about this.

Declaring bankruptcy: Unable to pay its debts

This is the first of the three bankruptcy issues that the Court of Appeal looked at. Medcap argued that the application judge dismissed the applications of all applicants but one because there was potential that they were not creditors. Medcap also stated that the application judge had not taken into account that Medcap had reached a settlement with the one creditor whose application was allowed to be heard. Medcap submitted that the application judge erred in not taking this into account as there was no debt owing because of the settlement and the payment of that settlement.

The appellate court found that the lower court judge did not err in rejecting Medcap’s argument. An application for bankruptcy is not solely for the benefit of the applicant creditor, but for the rights of creditors, ALL creditors. Further, the arrangements between the applicant creditor and the debtor will not be able to justify the withdrawal or dismissal of a bankruptcy application, unless the court is satisfied that the debtor is solvent and that other creditors will not be prejudiced by the withdrawal or dismissal.

To be able to pay debts as set out in the BIA, the evidence must be provided for all debts owed, as well as the debtor’s ability to pay them. In other words, the debtor must prove that they are solvent. Medcap did not provide such evidence. Therefore this ground of appeal was dismissed.

Declaring bankruptcy: Bankruptcy application for improper motives

Medcap argued that in cases where a creditor has an ulterior motive for filing a bankruptcy application, this can be sufficient cause for dismissal of the application. The Court of Appeal said that the existence of a motive is a question of fact, and the application judge considered and rejected the suggestion that there was such a motive in this case.

The Court of Appeal found that the application judge was within his rights to reject the argument based on the record. Therefore, the Court of Appeal for Ontario found no justification to interfere and dismissed the appeal on that ground. declaring bankruptcy

Declaring bankruptcy: There is no purpose for this bankruptcy

Medcap argued that the application judge erred in failing to find that no purpose would be served by bankruptcy. He ought to have dismissed the application on the basis that there was nothing to be gained by making a bankruptcy order.

The Court of Appeal emphasized that safeguarding creditors is crucial to insolvency proceedings. A debtor who has (a) committed an act of bankruptcy by not paying debts when they come due, and (b) failed to provide evidence to the court demonstrating the ability to do so, carries the burden of proving that bankruptcy would be pointless. The judge was correct in finding that Medcap had not met that burden.

The three-panel judge went on to say that, in order to demonstrate that there is no purpose for the Medcap bankruptcy, they would need to show that a better result would be achieved for creditors if it were allowed time to restructure under the commercial proposal provisions of the BIA or the provisions of the CCAA.

Medcap did not argue that doing either would have the requisite creditor support but rather suggested that leaving it up to them would be best.

The three appellate court judges hearing this case unanimously rejected Medcap’s appeal, upholding the lower court’s ruling and allowing the bankruptcy process legal proceedings to continue. At this point, the licensed trustee named in the bankruptcy order begins administering the bankruptcy legal process.

Declaring bankruptcy: The final word

What fascinated me most about this case was the nerve of Medcap to argue that the application judge should have declined to make the bankruptcy order, regardless of all the evidence against it.

The Court of Appeal for Ontario soundly rejected the appeal of the bankruptcy order being issued after analyzing the bankruptcy application process in Canada. It concluded that only a real possibility of a successful restructuring under either the BIA or CCAA to avoid bankruptcy liquidation would be a reason to do so.

I hope this Brandon’s Blog on the Medcap case was helpful to you in understanding more about declaring bankruptcy, corporate bankruptcy and how the Ontario court would decide if it was appropriate to issue a bankruptcy order. Hopefully, you have also gained insight into how a corporate bankruptcy decision is made and how a successful corporate bankruptcy protection filing and restructuring can be beneficial.

We understand how you feel. You’re stressed out and anxious because you can’t fix your or your company’s financial situation on your own. But don’t worry. As a government-licensed insolvency professional firm, we can help you get your personal or corporate finances back on track.

Call us today and get back on the path to a healthy stress-free life.

Brandon Blog Post

BANKRUPTCY PROTECTION: THE UNDENIABLE BEST THING YOU NEED TO KNOW TO CASH YOUR INSOLVENT CUSTOMER’S CHEQUE SAFELY

Post author By Brandon Smith
Post date November 12, 2021

We hope that you and your family are safe, healthy and secure during this COVID-19 pandemic. Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

Bankruptcy protection: What happens if a company gets into financial trouble?

A Canadian company seeking bankruptcy protection has two choices when it is financially troubled and wants to reorganize. By hiring insolvency legal counsel and a licensed insolvency trustee to get both insolvency and bankruptcy law advice and financial advice, they can protect themselves from their creditors, either by:

using the Companies’ Creditors Arrangement Act (CCAA) to file for bankruptcy protection; or
working with an insolvency trustee and filing a Notice of Intention to Make a Proposal under the Bankruptcy and Insolvency Act (BIA) you can obtain bankruptcy protection.

In order to reorganize in Canada, an insolvent company files for bankruptcy protection. If you are insolvent in Canada, then you must file for bankruptcy protection, which is equivalent to Chapter 11 in the United States. The process is called financial restructuring or financial reorganization. By doing this, the company will try to restructure while it continues to operate to come up with a restructuring plan that allows the company to survive while satisfying the needs of the creditors to some degree.a

This Brandon Blog discusses a recent court decision that demonstrates that there is a risk to creditors who receive payments from the insolvent company under bankruptcy protection for goods or services supplied if the restructuring fails.

What happens to the company that files for bankruptcy protection?

An organization that files for bankruptcy protection, or as it is sometimes called, creditor protection, differs from an organization that files for bankruptcy. A pure bankruptcy procedure consists of a liquidation. The company ceases to operate unless the Trustee sees value in continuing to operate the company for a limited period of time.

The trustee in bankruptcy takes possession of all assets that are either not subject to valid claims by secured creditors (typically financial institutions) or that belong to third parties (for example, equipment under lease or goods undergoing repair that are in the company’s possession). A licensed insolvency trustee then formulates a plan for selling the unencumbered assets of the company to maximize the proceeds. Afterwards, the Trustee distributes the funds in accordance with the BIA.

In the case of a company filing for bankruptcy protection, this is one of the alternatives to bankruptcy. The intention is to continue operating while it tries to restructure. Most of the time, this entails downsizing. A plan will be devised to repay some of the remaining debt in exchange for the creditors writing off the balance that is owed. With success, the company can retain employees and continue to operate. Creditors will be able to earn money by supplying the reorganized company in the future.

The CCAA allows companies that owe at least $5 million to their creditors to file for bankruptcy protection. Either the business will be restructured and continue to exist on new financial terms or a wind-down will be supervised to pay back anyone owed money by selling assets. BIA restructuring provisions can be used by companies that owe less than $5 million.

In other words, a company that goes bankrupt will shut down. Those who file for bankruptcy protection want to keep operating. As disruptive as bankruptcy and restructuring are, they can be beneficial for businesses, individuals and the economy since they preserve value and prevent assets from being wasted.

As soon as the company enters bankruptcy protection (or bankruptcy), proceedings against it are stayed. As a result, all collection rights for creditors are suspended. A “time-out” gives the company a chance to restructure, or the Trustee can handle its duties in bankruptcy without interference from creditors. Additionally, it “freezes” all creditors at the time of the filing, so that one cannot gain an advantage over another.

bankruptcy protection

A record number of companies have sought creditor protection under COVID-19 and more are on the way?

The list of large Canadian companies with outstanding debts looking for bankruptcy protection from creditors got to a decade high in May and June 2020. Numerous financial commentators believed there would be a full-blown financial crisis and that a lot more would certainly file as a result of COVID-19 caused the economic downturn. Despite this, the number of corporate insolvency filings appears to have stabilized and also slowed down in 2021. One main reason is the number of government programs supporting Canadian business. In the same way as the virus itself, COVID-19 has actually taken a hefty financial toll on companies with pre-existing conditions.

Some familiar Canadian corporations in the list of companies that filed in that time due to their financial situation were:

Reitmans
Frank & Oak
Aldo
DavidsTea
Cirque Du Soleil
Mendocino
Bow River Energy
FlightHub
Christian charity, Gospel for Asia
Cequence Energy
Delphi Energy
Sail

Twenty-two major Canadian companies sought creditor protection in May and June 2020, almost four times the usual rate. The list obviously does not include major U.S. names such as Chesapeake Energy, J Crew, Neiman Marcus, Brooks Brothers, Pier 1 and Boy Scouts of America.

**The bankruptcy protection court case facts**

I want to tell you about Schendel Mechanical Contracting Ltd (Re), 2021 ABQB 893. On November 9, 2021, the Honourable Mr. Justice Douglas R. Mah released his decision.

Schendel Mechanical Contracting Ltd. (Schendel) was one of three associated companies that at one time collectively formed a major construction concern in Alberta under the Schendel name. As a result of financial difficulties, it was an insolvent entity and it filed a Notice of Intention to Make A Proposal under the BIA on March 22, 2019. Schendel continued operations as part of its restructuring effort. On various Schendel projects, Schendel bought HVAC equipment from the supplier between April 2018 and May 2019.

Ultimately, Schendel’s debt restructuring plan failed. Schendel was deemed to have filed for bankruptcy when it failed to implement a successful BIA Proposal restructuring. Schendel went bankrupt immediately. Its secured creditor applied to the Court for the appointment of a Receiver, which was granted.

As a result of reviewing the company’s books and records, the Receiver found and disputed the legality of a $40,000 payment from Schendel, an insolvent company, to one of its suppliers. According to the Applicant Receiver, the payment was prohibited for a number of reasons and the funds should be returned. The recipient supplier asserted that the payment was both innocent and validly received and that it was entitled to retain it.

In this case, a cheque dated July 8, 2019, to make the payment. Due to an unknown reason, the supplier did not negotiate the cheque until 11:48 AM on July 19, 2019. Schendel was also deemed to have filed for bankruptcy and the Court made the Receivership Appointment Order all on the same day, July 19, 2019. The Court had, however, no evidence regarding the exact moment the receivership and bankruptcy decision was made on that same day.

bankruptcy protection

**The bankruptcy protection case: The Receiver’s position**

It is noteworthy that the action to recover the $40,000 was brought by the Court-appointed Receiver and not the insolvency trustee of the bankruptcy estate. According to the Receiver, the funds should be returned on the following grounds:

the automatic stay under section 69(1) of the BIA was in effect at the time of filing and throughout the extension of the proposal period, so the supplier was without recourse against Schendel;
the Court-ordered stay contained in the Receivership Appointment Order of July 19, 2019, as well as the concurrent stay imposed by a deemed bankruptcy under the BIA, deprived the supplier of all collection remedies as of that date;
as an alternative, the payment may be prohibited under the Fraudulent Preferences Act; or
it may be in violation of the Statute of Elizabeth (see note below).

NOTE: The English Parliament passed this statute in 1571 with the purpose of prohibiting transfers that would defraud creditors or hinder their collection efforts. As a result of widespread fraudulent transactions designed to defraud creditors, the 13 Elizabeth Statute was passed. It is still in effect in Alberta today.

**The bankruptcy protection case: The supplier’s position**

The recipient supplier said that it received the payment both innocently and legally and that it is entitled to retain it. In addition, the recipient supplier said:

besides some routine questions about payment, the supplier had not engaged in any activity to try to collect the debt;
the relationship with Schendel was arm’s-length;
both of the last two extension orders for the NOI define a process by which Schendel may pay, and the Receiver has fallen short to prove that the procedure was not followed when it comes to the subject payment; and
for either the Fraudulent Preferences Act or the Statute of Elizabeth, the required intent cannot be shown.

Since the bankruptcy trustee was not involved in this case, nobody was claiming that the payment was a preference or transfer under value under the BIA.

bankruptcy protection

**The bankruptcy protection case: The Judge’s decision**

The Court was not presented with evidence on whether the $40,000 payment in question was approved within the proposal extension process or whether it was not approved. There was evidence to support Schendel’s compliance with approved procedures. In the post-NOI period, the supplier was found to have provided goods to various Schendel projects worth $34,476.75.

There was evidence that the payment was not just a payment on account of a pre-filing debt without further transactions post-filing. According to the Judge, the stay would not apply to indebtedness arising from goods or services supplied to Schendel after the filing of the NOI. This is because such indebtedness would not be a claim that could be a proven claim in the bankruptcy.

The Judge further stated that it is the Receiver’s responsibility to prove that the payment violated the stay. Schendel and the supplier did continue to do business together after the NOI was filed, according to the evidence. During the hearing, the Judge said that he should not simply assume facts in the Receiver’s favour. Additionally, the evidence indicated that some of the $40,000 payment was applied to the post-NOI supply of goods. A total of $34,476.75 worth of product was supplied to Schendel after the NOI was filed.

As a result, the Judge rejected all of the Receiver’s arguments and dismissed his Application in its entirety. Consequently, the supplier kept the $40,000.

Bankruptcy protection: How to cash your insolvent customer’s cheque safely

Companies filing for bankruptcy protection, whether under the CCAA or BIA, are reorganizing to stay in business. Businesses require purchasing goods and services and paying for them. It’s possible that some pre-filing debts will be paid after the filing date even though the debts are frozen from a collection perspective.

The stay does not necessarily prohibit every post-NOI payment by an insolvent company to a creditor. Such payments are valid when they are necessary to enable the company to move forward with restructuring. For example, a creditor may require payment of all or a portion of its pre-filing debt in order to supply post-filing.

Parties can agree to repay past debts in order to secure future supplies. First and foremost, the BIA process aims to encourage a debtor to reorganize as a going concern. Both creditors and debtors benefit from the debtor’s continued operation during this critical time. The BIA’s stay provisions and preference provisions give debtors breathing room to reorganize their finances. Setting up legitimate agreements with key suppliers is an integral part of that process.

In the end, it is critical to determine whether the payment of past indebtedness is a valid condition of post-NOI supply, which is required for restructuring to proceed. In that case, the post-filing payment of the pre-filing amount will be valid. If not, the insolvency trustee can recover it from the supplier.

Creditors seeking to recover pre-filing debts must make the payment as a condition of a post-filing supply arrangement. Additionally, because all of this is playing out in real-time in higher-risk settings, a supplier is free to amend the pricing post-filing. Similarly, if the supplier can secure it, there is no reason for them to not try to go from an unsecured creditor to a secured creditor on the post-filing supply by taking security or requesting a letter of credit. This would all be done out of an abundance of caution because as stated above, unpaid post-filing debts are not a claim provable in the company’s bankruptcy if the restructuring is unsuccessful.

bankruptcy protection

Bankruptcy protection summary

I hope you found this bankruptcy protection Brandon Blog post informative. Are you worried because you personally or as business owners are dealing with substantial debt challenges and you assume bankruptcy is your only option? If it is too much debt for any reason, call me. It is not your fault that you remain in this way. You have actually been only shown the old ways to try to deal with financial issues. These old ways do not work anymore.

The Ira Smith Team utilizes new modern-day ways to get you out of your debt difficulties while avoiding bankruptcy. We can get you the relief you need and so deserve.

The tension put upon you is big. We know your discomfort factors. We will check out your entire situation and design a new approach that is as unique as you and your problems; financial and emotional. We will take the weight off of your shoulders and blow away the dark cloud hanging over you. We will design a debt settlement strategy for you. We know that we can help you now.

We understand that people and businesses facing financial issues need a realistic lifeline. There is no “one solution fits all” method with the Ira Smith Team. Even though we are licensed insolvency trustees, we have found that not everyone has to file bankruptcy in Canada. The majority of our clients never do. We help many people and companies stay clear of bankruptcy.

That is why we can establish a new restructuring procedure for paying down debt that will be built just for you. It will be as one-of-a-kind as the economic issues and discomfort you are encountering. If any one of these seems familiar to you and you are serious about getting the solution you need, contact the Ira Smith Trustee & Receiver Inc. group today.

Call us now for a no-cost consultation. We will get you or your business back up driving to healthy and balanced trouble-free operations and get rid of the discomfort factors in your life, Starting Over, Starting Now.

We hope that you and your family are safe, healthy and secure during this COVID-19 pandemic. Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

Brandon Blog Post

PENSIONS IN BANKRUPTCY: FEDERAL CONSERVATIVE PARTY PROMISE MASSIVE CANADIAN WORKER PENSION PROTECT1ON

Post author By Brandon Smith
Post date September 2, 2021

We hope that you and your family are safe, healthy and secure during this COVID-19 pandemic.

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

Pension & Bankruptcy in Canada

Underfunding is a major concern for traditional, defined-benefit pension plans. In other words, do they have enough pension assets and therefore enough money to meet their projected future pension obligations? Inadequate actuarial assumptions, poor investment returns, and mismanagement can lead to pension plan underfunding. In the case of corporate insolvency of a large employer with a defined-benefit pension plan, this issue always arises. Underfunded pensions in bankruptcy wind up hurting retirees.

The Sears Canada court-supervised liquidation forced us to again focus on the treatment of pensioners in corporate bankruptcies under the Bankruptcy and Insolvency Act (Canada) (BIA) or restructurings and liquidations under the Companies’ Creditors Arrangement Act (CCAA). It was widely reported that representative for 17,000 Sears Canada retirees says insolvency laws are unjust when it comes to underfunded pensions.

PM Justin Trudeau is the only person who wants this election right now. Erin O’Toole, leader of the Conservative Party, promised to prioritize pensioners ahead of companies and creditors during bankruptcy and restructuring proceedings if he were elected.

This Brandon Blog discusses the issue of pensions in bankruptcy and how the Liberals had several opportunities to fix it but did not.

Pensions in bankruptcy: Pension and benefits issues in bankruptcy and restructuring

Pensioners suffer pension losses and ultimately pension income losses when a company is insolvent and its defined benefit pension fund plan is underfunded. In practice, the pensioners’ rights are weak and highly inadequate, especially when pension plans are underfunded. Although provincial and federal government pension legislation purports to offer some protection for amounts owing to an underfunded pension plan, insolvency legislation does not preserve that protection for the majority of those amounts. The insolvency protection of pensioners and pensions in bankruptcy is thus largely illusory.

Founder and Director of the National Centre for Business Law, Dr. Janis Sarra teaches law at Peter A. Allard School of Law. Canadian pensioners and employees, she believes, are among the worst protected pensions in bankruptcy and/or in insolvency among 60 countries.

In every Canadian province and territory, pensioners are protected by law in connection with pension deficits and pension payments. Specifically, every jurisdiction grants a deemed trust to protect employee pensions earned on employer assets owed to pension plans. The Pension Benefits Standards Act, which governs federally regulated pension plans, specifies the amounts that must be held separately from the employer’s funds, for example. Funds held in trust for active and retired pension plan members are not considered a part of the employer’s estate in liquidation or bankruptcy.

Under the Pension Benefits Act in Ontario, employers are required to hold all amounts owing to the pension plan in trust on behalf of their employees. According to the Supreme Court of Canada, the Ontario Pension Benefits Act creates a deemed trust over the entire wind-up deficit, subject only to the doctrine of paramountcy. Therefore, Ontario’s pension legislation expressly recognizes that the deemed trust is covered by all amounts of the employer owing to the pension plan.

The pension legislation in Quebec confers a deemed trust on special payments due in the year of insolvency. The special payments already due are deemed to be in trust, and the amount owing to the pension plan for unpaid special payments is deemed to be in trust based on Quebec’s pension law.

Due to other judicial decisions not giving effect to these deemed trusts in BIA and CCAA proceedings, the federal and provincial pension legislation has been hindered. In the meantime, to the extent that the BIA and CCAA protect pensions, the protection is negligible in practice. In Ontario (and every other province), provincial law protections are subject to the doctrine of paramountcy.

Paramountcy says that in the conflict between federal and provincial laws, federal law takes precedence. Both the BIA and CCAA are federal laws. The Supreme Court of Canada has held that provincial deemed trusts are not applicable to bankruptcy cases unless the BIA expressly permits them. There have even been successful attacks on federal pension law.

In accordance with existing regulations, the secured creditors may receive funds that would otherwise go to employees’ pension plans. Therefore, there really isn’t much protection for pensions in bankruptcy.

Pensions in bankruptcy: PM Justin Trudeau had his chance to fix this problem

Erin O’Toole doesn’t seem to be bringing up a new subject. The Liberal federal government had at least three chances to fix this pension issue for Canadian workers whose employers become financially troubled and have to liquidate or file for bankruptcy. A brief look at the recent history follows.

Let’s look at some history of attempts to protect pensions in bankruptcy. The Canadian Association for Retired Persons, a nationwide not-for-profit group, lobbied politicians on Parliament Hill about legislation changes. According to Wanda Morris, vice-president of CARP, the unfunded pension liability should be given priority so that it is handled first.

There is no priority for retirees when it comes to dividing up assets in bankruptcy, and Morris wants to protect underfunded defined benefit pensions when the company goes through restructuring or bankruptcy.

CARP estimates that roughly 1.3 million Canadians, aside from the retired Sears employees, may be at risk due to defined benefit pension plans. The closure of Sears Canada stores made the plight of retirees a top priority for CARP.

Marilène Gill, Bloc Québécois MP, introduced a member’s BILL C-372, on Oct. 17, 2017. It was intended to change the BIA and the CCAA. The change seeks to correct the injustice faced by retired workers whose pension and insurance policy benefits are not secured when their company declares bankruptcy or undergoes restructuring. As a result of Sears Canada closing locations, the changes were related to the employees’ and retirees’ treatment.

On October 17, 2017, Bill C-372 passed First Reading. The House rarely passes private member’s bills like this one. The Liberal Party did not support taking it further and allowed it to die.

Hamilton Mountain NDP MP Scott Duvall asked for leave to introduce Bill C-384 in the House of Commons on November 6, 2017. He proposed amending Canada’s insolvency laws so that companies must bring any pension fund to 100% before paying any other secured creditors. Additionally, it requires companies to pay termination or severance pay owing before paying secured creditors. Similarly, this bill passed first reading and then died.

Lastly, Senator Art Eggleton, P.C., proposed BILL S-253 shortly before his retirement to amend the insolvency legislation in Canada. After First Reading passed on September 18, 2018, Second Reading followed on September 25. By introducing this bill, the BIA and CCAA would be amended. The plan proposed to give priority to claims for unfunded obligations or solvency deficiencies of pensions. This is applicable to both solvent companies as well as companies that might become insolvent if certain shareholder payments were made.

The proposed legislation would also amend the Pension Benefits Standards Act as well as the Pension Benefits Standards Regulations in order to enable the Superintendent of Financial Institutions to identify when a pension plan’s funding is impaired and to recommend to the employer the necessary steps to fix it. It is not surprising that the Liberal federal government did not carry forward this bill.

Pensions in bankruptcy: Erin O’Toole vows to force bankrupt firms to pay pensions over executive bonuses

The Hon. Erin O’Toole announced on August 24, 2021, that if he wins the election he plans to protect workers’ pensions. In bankruptcy and restructuring proceedings, he pledges to give priority to pensioners over the corporations and most other creditors.

According to him, as part of Canada’s Recovery Plan, a Conservative government will change the law to ensure that workers come first in cases of bankruptcy and reorganization.

The Conservative Party of Canada will also improve pension security by:

Preventing executives from receiving bonuses during a time of restructuring unless the pension plan is fully funded.
Unlike in the past, underfunded pension plans will no longer be forced to convert to annuities, a practice that involves financial assets being disposed of and replaced with an insurance contract to reduce risks, as well as offer pensioners, fixed payments. The practice of companies failing during a recession when markets are depressed usually locks in losses and means workers receive less money.
By mandating that companies report the funding status of their pension plans to their employees, they can provide their employees with greater transparency.

No further details were given. At least the Conservative Party is focused on this issue of when an employer is insolvent and there are pensions in bankruptcy.

Pensions in bankruptcy: Summary

We will have to wait to see the results of this election to know if anything might change when it comes to pensions in bankruptcy of the employer.

I hope that you found this pensions in bankruptcy Brandon Blog informative. An unexpected situation, such as your employer having financial trouble and entering liquidation or bankruptcy proceedings, by their very nature, are not pleasant and could have the effect of making your debt load now impossible to service. There are several insolvency processes available to a person or company with too much debt. You may not need to file for bankruptcy.

If you are concerned because you or your business are dealing with substantial debt challenges, you need debt help and you assume bankruptcy is your only option, call me.

It is not your fault that you remain in this way. You have actually been only shown the old ways to try to deal with financial issues. These old ways do not work anymore.

The Ira Smith Team utilizes new modern-day ways to get you out of your debt difficulties with debt relief options as an alternative to bankruptcy. We can get you the relief you need and so deserve. Our professional advice will create for you a personalized debt-free plan for you or your company during our no-cost initial consultation.

The tension put upon you is big. We know your discomfort factors. We will check out your entire situation and design a new approach that is as unique as you and your problems; financial and emotional. We will take the weight off of your shoulders and blow away the dark cloud hanging over you. We will design a debt settlement strategy for you. We know that we can help you now.

We understand that people with credit cards maxed out and businesses facing financial issues need a realistic lifeline. There is no “one solution fits all” method with the Ira Smith Team. Not everyone has to file bankruptcy in Canada. The majority of our clients never do as we know the alternatives to bankruptcy. We help many people and companies stay clear of filing an assignment in bankruptcy.

That is why we can establish a new restructuring procedure for paying down debt that will be built just for you. It will be as one-of-a-kind as the economic issues and discomfort you are encountering. If any one of these seems familiar to you and you are serious about getting the solution you need to become debt-free, contact the Ira Smith Trustee & Receiver Inc. group today.

Call us now for a no-cost consultation.

We hope that you and your family are safe, healthy and secure during this COVID-19 pandemic.

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

pensions in bankruptcy

Brandon Blog Post

WHAT DOES RECEIVERSHIP MEAN FOR 1 BETTER GUARANTOR BANKRUPTCY DISCHARGE

Post author By Brandon Smith
Post date August 18, 2021

We hope that you and your family are safe, healthy and secure during this COVID-19 pandemic.

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

what does receivership mean

What does receivership mean: Receivership is for secured claims

What does receivership mean? A receivership is an enforcement proceeding that helps secured creditors recover secured debts on debtor defaults on loan payments from troubled companies. There are two types of receivers and receiverships: Privately-appointed receivers and court-appointed receivers.

As you can tell from the title of this Brandon Blog, I am not going to be writing about receiverships. You can take a look at my April 14, 2021, Brandon Blog titled “WHAT IS A RECEIVERSHIP? OUR COMPLETE GUIDE TO RECEIVERSHIP SOLUTIONS” to read all about what receiverships are.

What does receivership mean? It is a remedy for secured creditors.

I want to go through two more concepts quickly, and then I will get to what I really want to talk to you about today.

What does receivership mean: Bankruptcy vs. receivership

Despite the fact that receivership and bankruptcy sometimes get used interchangeably, they are not the same thing. A bankruptcy proceeding and a receivership proceeding are both legal actions conducted under the Bankruptcy and Insolvency Act (Canada) (BIA) and governed by the Office of the Superintendent of Bankruptcy (OSB). According to the BIA, either a receiver or a bankruptcy trustee in Canada needs to be a licensed insolvency trustee, whose license is granted and whose actions are supervised by the federal government’s OSB.

Here is where the similarities end. In a receivership, a secured creditor would either hire a receiver privately or ask a court to place a company into receivership and appoint one to liquidate the collateral they have against the debtor. According to the Canadian bankruptcy process, either the person or company voluntary files for bankruptcy with a licensed insolvency practitioner, or one or more unsecured creditors apply to the Court for the appointment of an insolvency trustee to administer the bankruptcy Estate.

Licensed insolvency trustees are needed in both cases. The receivership procedure is a secured creditor’s remedy and bankruptcy is an unsecured creditor‘s remedy. To read up more on the bankruptcy process, look at my September 30, 2020, Brandon Blog “DECLARE BANKRUPTCY: A COMPLETE GUIDE ON WHAT IS IT LIKE TO DECLARE BANKRUPTCY“.

What does receivership mean? Not the same as bankruptcy.

Employee Rights in Bankruptcy Protection and Bankruptcy⁄Receivership

Bankruptcy protection can be gained to try to make a troubled company stable and then return the company to profitability by filing pursuant to either the BIA or the Companies’ Creditors Arrangement Act (CCAA), employees retain their right to unpaid wages, vacation pay, and severance or termination pay. There is no difference between filing and not filing. They are unsecured creditors of a troubled company, and the company directors are personally responsible for amounts owed to employees.

For the company in receivership or bankruptcy, the employees do have greater rights. The receiver of a company in receivership must register with Service Canada under the Wage Earner Protection Program Act (WEPPA) for the Wage Earner Protection Program. This program provides some compensation to eligible employees who are owed money by a bankrupt or receivership company.

To read more about WEPPA, take a look at my February 10, 2020 Brandon Blog, “SEVERANCE PAY ONTARIO & BANKRUPTCY-BARRYMORE FURNITURE UNPAID WORKERS ANGRY“.

So what does receivership mean to an employee with unpaid wages? It means they can claim a priority and get paid by Service Canada.

***What does receivership mean: Receivership – a typical appointment***

Now I will get to what this Brandon Blog is actually about. In Canada, it is the norm for secured creditors advancing loans secured against company assets, to also take a personal guarantee on the same debt from the principals of the company. In all entrepreneurial companies in Canada, that is at least the president running company affairs. If the lender-secured creditor suffers a shortfall from the liquidation of the company assets, the lender then looks to the guarantor(s) of the company debt to make good on the lender’s loss. Many times the company president/guarantor has no choice but to file consumer bankruptcy.

I was involved in a bankruptcy discharge hearing for one of our personal bankrupts in April 2021. He caused his company, being its sole Director, to file for bankruptcy with another Trustee. That same Trustee was also appointed as the company’s private receiver by the secured creditor. The company president provided the secured creditor with a personal guarantee.

Realizing that they would suffer a shortfall from the company situation, rather than suing on their personal guarantee, they approached us to consent to act as the Trustee in a Bankruptcy Application against the company president. We consented and the company president ultimately consented to a Bankruptcy Order being made to put him into bankruptcy with my Firm as the Trustee.

What does receivership mean: The bankruptcy of the guarantor

We administered the consumer bankruptcy. There were some assets to realize upon which we did. One realization required court approval as we were selling seat licenses and the right to purchase tickets for the Toronto Maple Leafs to a related party. The bankrupt person’s largest single consumer creditor was Canada Revenue Agency for unpaid income tax. The company in receivership was also a creditor as the president owed the company money. The secured creditor of the company was also an unsecured creditor of his in his personal bankruptcy for the personal guarantee on the shortfall.

The known creditors each filed their respective proof of claim in his bankruptcy, including the company by its privately-appointed receiver. We believed that the company by its receiver was a creditor for the amount of the shareholder loan owing to the company. The proof of claim they filed was for a much larger amount. As Trustee, we neither admitted nor disallowed any proofs of claim filed in this bankruptcy estate. The Trustee would have to take a cold hard look at the receiver’s proof of claim at some future date it is determined that a dividend will be paid to the creditors in this bankruptcy estate, which is highly unlikely.

What does receivership mean: The receiver opposes a bankruptcy discharge

Only one unsecured creditor opposed the bankrupt’s discharge. That was the receiver, or more correctly, the company in receivership by its privately-appointed receiver. The Trustee had not opposed. The lender, as an unsecured creditor, did not oppose either along with the other consumer creditors.

As I mentioned, in April 2021, the discharge hearing was held before the Master sitting as Registrar in Bankruptcy Court. The court raised a novel issue. Does the receiver have the standing to oppose the bankrupt’s discharge? The court allowed the hearing to be completed and allowed the parties to file further submissions, subsequent to the hearing, on this issue. Submissions were received from us, the
Trustee and from the Receiver in mid-May, 2021. The bankrupt took no position on the issue.

Does the Receiver have standing to oppose the bankrupt’s discharge?

Here is what I wrote to the court.

The security documents under which a privately-appointed receiver is appointed will determine if an unsecured amount owing by a bankrupt debtor is an asset secured by security held by a creditor over the assets of another party. If so, then the privately-appointed receiver has the right to file a proof of claim in the debtor’s bankruptcy as part of attempting to realize upon that asset forming part of the secured creditor’s collateral.

In doing so, the privately-appointed receiver is acting as Agent for the secured creditor. If the privately-appointed receiver files a proof of claim in the bankruptcy that is not disallowed by the licensed insolvency trustee administering the bankruptcy estate, then, in order to oppose the discharge of the bankrupt, the privately-appointed receiver must also be able to be the Agent for the debtor in receivership.

If the security under which the privately-appointed receiver is appointed allows for that receiver to operate the business of the debtor in receivership, then that receiver has the ability to be an Agent of the debtor in receivership and bring a claim in the name of that debtor.

In this matter, of the various pieces of security held by the secured creditor, only the General Security Agreement (the “GSA”), allows a receiver appointed in writing under it to operate the business of the debtor company. Under the GSA, the privately-appointed receiver has the ability to act as both Agent of the secured creditor and Agent of the company. The appointment letter appointing the receiver confirms that the appointment is under all security held, including the GSA.

Therefore, my opinion was that although we have concerns about the amount being claimed, the receiver has the ability to both file a proof of claim in this bankruptcy and oppose the discharge of the bankrupt as an Agent of the company. I believed it aided the administration of this bankruptcy to allow the receiver to oppose because it is able to draw the attention of the court to conduct of the bankrupt of which the court otherwise might not be aware of.

Finally, I advised the court that if there still was concern that it is formal defect or irregularity section 187(9) of the BIA, the court can determine that such formal defect or irregularity will not invalidate the opposition to the discharge of the bankrupt.

What the bankruptcy court decided

The court accepted our submission and agreed with it. The court continued to be skeptical of the amount of the company’s proof of claim filed by the receiver. The court noted that as Trustee, I reported that the bankrupt has fulfilled all statutory duties. Income and expense statements were provided and there was no surplus income payable.

On a general perusal of the Trustee’s s. 170 report, the Trustee does not report any significant misconduct or concerns but reserved its rights as to its position on the discharge pending the hearing and matters disclosed therein. In the court’s view, the Trustee’s non-opposition to discharge is a factor favouring the bankrupt’s discharge. After considering all facts, the court gave the bankrupt an absolute discharge from bankruptcy.

What does receivership mean summary

I hope that you found this what does receivership mean Brandon Blog helpful in describing the role of a privately appointed receiver especially in opposing the discharge of the bankrupt guarantor of the company’s secured debt. Problems will arise when you are cash-starved and in debt. There are several insolvency processes available to a person or company with too much debt. You may not need to file for bankruptcy.

If you are concerned because you or your business are dealing with substantial debt challenges, you need debt help and you assume bankruptcy is your only option, call me.

It is not your fault that you remain in this way. You have actually been only shown the old ways to try to deal with financial issues. These old ways do not work anymore.

The tension put upon you is big. We know your discomfort factors. We will check out your entire situation and design a new approach that is as unique as you and your problems; financial and emotional. We will take the weight off of your shoulders and blow away the dark cloud hanging over you. We will design a debt settlement strategy for you. We know that we can help you now.

That is why we can establish a new restructuring procedure for paying down debt that will be built just for you. It will be as one-of-a-kind as the economic issues and discomfort you are encountering. If any one of these seems familiar to you and you are serious about getting the solution you need to become debt-free, contact the Ira Smith Trustee & Receiver Inc. group today.

Call us now for a no-cost consultation.

We hope that you and your family are safe, healthy and secure during this COVID-19 pandemic.

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

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