Tag: Companies’ Creditors Arrangement Act

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CUSHMAN WAKEFIELD TORONTO: COURT READILY APPOINTS FIRM TO REVIEW LAURENTIAN’S MASSIVE REAL ESTATE HOLDINGS

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.

Sudbury, Ont., school looks for court approval to move on to Phase 2 of restructuring plan

 

On June 29, 2021, the Laurentian University CCAA Court-appointed Monitor issued its Fifth Report to Court in the Laurentian University insolvency restructuring under the Companies’ Creditors Arrangement Act (Canada) (CCAA). On July 5, 2021, it filed its Supplementary Fifth Report with the Ontario Court.

The report was issued in support of Laurentian’s application to the court for approval to retain a Toronto office of Cushman & Wakefield (Cushman Wakefield Toronto) as Real Estate Advisor to Laurentian. The Supplementary Fifth Report was filed at the direction of the Ontario Court (further described below).

I have previously written about Laurentian University’s court-supervised restructuring in 5 previous Brandon Blogs:

The first phase of the Laurentian insolvency process had many parts to it. First was to declare its poor financial situation and file for bankruptcy protection under the CCAA and perform a review of its various contracts, leases, supplier arrangements, the federated university model, its academic offerings and its faculty and non-teaching staffing. As part of this first phase, Laurentian also needed to determine where cuts needed to be made.

Laurentian then implemented the reductions for cost savings including reaching new arrangements with the unions representing its employees to set out the terms of new collective bargaining agreements and to disclaim various agreements, including the federated university agreement with Huntington University, Thorneloe University and the University of Sudbury.

My February 8 and May 5 Brandon Blogs describe these steps in detail.

Next in this phase 1 was getting approval from the Ontario Court to retain a consultant to, amongst other things, perform a governance review and for the Monitor to get approval for the claims process the Monitor approves of. At this stage of the process, Laurentian pulled together a list of creditors; secured creditors and unsecured creditors.

This was all described in my June 14 Brandon Blog, including the changes to the claims process resulting from the hearing in the Ontario Court. The Monitor advised the court that the Monitor approves of the amendment and therefore the amended claims process received court approval.

In this Brandon Blog, I describe the second phase of this insolvency process and the Laurentian restructuring plan now being undertaken. It is the real estate review.

cushman wakefield toronto
cushman wakefield toronto

Cushman Wakefield Toronto: Laurentian University plans real estate review to see what could help pay off debt

On July 5, 2021, the Court listened to Laurentian University’s application for an order approving Laurentian to retain Cushman Wakefield Toronto as a realty advisor to do an evaluation of Laurentian’s real estate portfolio, and also its request for a sealing order with respect to the monetary details of the Cushman Wakefield Toronto retainer.

The Monitor advised the court that a significant amount of Laurentian University’s assets is represented by its real estate holdings. This includes the land and buildings on which the primary campus rests in addition to off-campus realty. The Monitor also advised that Laurentian has noted that with the academic and labour force changes lately executed within the CCAA proceedings, there may be opportunities to customize its use of space within different structures. This leads to possibilities to monetize specific real estate assets. Therefore, Laurentian determined, that it was appropriate to involve a real estate consultant to take on a study of its real estate portfolio in order to advise Laurentian on the best way to monetize its available real estate.

The Monitor described its RFP process that had a deadline of May 28 for the submission of proposals from qualified real estate professionals. After the Monitor, Laurentian and its respective legal counsel received certain requests for additional time in order to submit a proposal, the Monitor extended the deadline for submissions to June 1, 2021. The Monitor advised the Ontario Superior Court of Justice Commercial List that it received 6 proposals and held meetings with 4 of the parties who submitted a proposal in order to interview each of them.

The Monitor recommended to the court that the proposed contract between Laurentian and Cushman Wakefield Toronto (including the third parties Cushman Wakefiled Toronto advised would be part of its team) be approved. The Monitor also advised the Court that Laurentian would be seeking a sealing order from the Ontario Superior Court of Justice Commerical List concerning the financial terms of the Cushman Wakefield Toronto retainer. Accordingly, a copy of the Cushman Wakefield Toronto proposal excluding any financial terms.

What the court said about the Sudbury school plans a real estate review in Phase 2 of its court-guided restructuring process

Chief Justice Morawetz took issue with the part of the motion that requested the financial terms of the Cushman Wakefield Toronto proposal to continue to be confidential under a sealing order. He directed that the total amount of the retainer be disclosed. Proprietary information such as how Cushman Wakefield Toronto calculated its total fee could remain private.

After evaluating the Confidential Appendix, Chief Justice Morawetz shared his view that specific aspects of the appendix did not contain commercially sensitive or proprietary details. Upon obtaining further instructions, Laurentian legal counsel advised the court that certain portions of the appendix could develop part of the general public record. Therefore the information covered by the sealing order was tightened up.

The sole purpose of the Monitor’s Supplementary 5th Report to Court dated July 5, 2021, was to abide by the Court’s decision that a redacted copy of the financial terms of the Cushman Wakefield Toronto retainer must be filed with the Ontario Superior Court of Justice Commercial List so that it will become a public document.

cushman wakefield toronto
cushman wakefield toronto

Laurentian University owns some of the last undeveloped waterfront on Sudbury’s Lake Nepahwin

So phase 2 of the Laurentian University creditor protection CCAA process is now underway. Laurentian has real estate both on and off-campus that will be reviewed for monetization by Cushman Wakefield Toronto. The monetization will provide the necessary funds to offer to both secured creditors and unsecured creditors in the ultimate financial restructuring plan called a Plan of Arrangement.

Laurentian has some of the last undeveloped waterfront on Lake Nepahwin. Much of that land is bushland, including some prime beachfront property on Lake Nepahwin, where the university has its own beach.

Here is a fun fact about some Laurentian real estate. In recent years, the only public discussion concerning Laurentian’s lands has actually centred on a couple who purchased a residence in the area, just to find out half their backyard, including their septic tank, was encroaching on university property!

The Sudbury couple stated they made offers to Laurentian to purchase the land from them. The latest offer was for them to pay Laurentian $70,000 plus give the university a bigger land parcel in return for the Laurentian land to eliminate the encroachment. Laurentian refused and started a lawsuit against them.

Perhaps as part of the overall financial restructuring, Laurentian can see fit not to continue this war against the Sudbury couple and accept their offer. You would think the Board of Governors has much bigger issues to be concerned about, such as the entire CCAA restructuring including the monetization of the real estate portfolio.

Cushman Wakefield Toronto summary

I hope that you found this Cushman Wakefield Toronto Brandon Blog interesting. Problems will arise when you are cash-starved and in debt. You may have assets that you can monetize to rectify your financial situation. Many do not though.

If you are concerned because you or your business are dealing with substantial debt challenges, whether you need gambling debt help or just plain old 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 alternatives 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 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 bankruptcy 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.

cushman wakefield toronto
cushman wakefield toronto
Categories
Brandon Blog Post

LAURENTIAN UNIVERSITY OF SUDBURY: LAURENTIAN SCORES HUGE WIN OVER THORNELOE UNIVERSITY

laurentian university of sudbury
laurentian university of sudbury

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.

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

Laurentian University of Sudbury: This will forever be a stain on Laurentian University

The Laurentian University of Sudbury is a public-funded, northern Ontario multilingual and tricultural independent university, serving both Canadian and global students for both undergraduate programs & graduate programs.

However, Laurentian University of Sudbury has its financial problems. It was in need of a restructuring plan. On February 1, 2021, it applied to the Court and obtained protection under the Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36 (” CCAA”), to permit it to restructure, financially as well as operationally, in order to emerge as a sustainable university for the advantage of all stakeholders.

When it sought CCAA protection, Laurentian University of Sudbury, with the assistance of the Monitor, identified a number of issues in which an economic restructuring was required. These consisted of a downsizing of the variety of programs being taught, as well as new, sustainable collective bargaining agreements with the labour unions representing Laurentian professors and other staff.

To date I have written 4 blogs on the Laurentian University of Sudbury CCAA proceedings:

In this Brandon Blog, I discuss the recent decision of the Court of Appeal for Ontario released on June 23, 2021, concerning the request of Thorneloe University to appeal a decision of the CCAA judge.

laurentian university of sudbury
laurentian university of sudbury

Laurentian University of Sudbury and the Federated Universities

The Laurentian University of Sudbury additionally recognized, at the beginning of its CCAA proceeding, that it would be essential in dealing with its financial insolvency, to have a fundamental readjustment or realignment of its setups with the 3 Federated Schools: Thorneloe University (sometimes referred to as “Thorneloe“), Huntington University (“Huntington”) and also University of Sudbury (“USudbury”) (collectively referred to as the “Laurentian Federation”).

A court-ordered mediation facilitated the Laurentian University of Sudbury reaching agreements with the unions on the collective bargaining agreements. Nevertheless, the Laurentian University of Sudbury was not successful in reaching what is considered to be the needed readjustments with the Federated Universities on the 60-year-old federation agreement.

On April 1, 2021, Laurentian sent out notices of disclaimer to the Federated Universities. The Monitor concurred with the notifications under the CCAA insolvency process. Thorneloe University College brought an action opposing Laurentian University’s disclaimer notification. (USudbury brought a comparable motion, which was heard by a different judge). Huntington University did not bring such action as they reached an accommodation with the Laurentian University of Sudbury.

The CCAA judge dismissed Thorneloe’s action. Thorneloe University College sought leave of the Court of Appeal for Ontario to appeal the Judge’s decision. At the heart of its opposition is its opinion that permitting the disclaimer will certainly result in Thorneloe’s insolvency and also yet supply only de minimis monetary benefit to Laurentian. Thorneloe further submitted that the real intention for the disclaimer is the elimination of competitors, which is inconsistent with the responsibility to act in good faith.

Thorneloe likewise looked to present new evidence in connection with the Laurentian Federation, consisting of testimony from Thorneloe’s President. There was no resistance from the parties to the introduction of new evidence. The Court of Appeal for Ontario allowed the new evidence.

The Thorneloe appeal

Thorneloe applied for an order that the Laurentian Federation Arrangement, and also the Financial Distribution Notice between Laurentian and Thorneloe, not be disclaimed. The Court of Appeal noted that the CCAA judge noted that the provision of the CCAA under which the Laurentian University of Sudbury issued its disclaimer notices calls for a harmonizing of interests.

The CCAA judge said there are competing interests that must be balanced in determining if the disclaimers should be allowed. After taking part in that analysis, he concluded that the much better choice, or, to say it another way, the least unfavourable selection, was to uphold the notices of disclaimer.

In addressing whether leave should be provided, the Court of Appeal for Ontario will think about 4 aspects, specifically whether:

  • the requested appeal is prima facie meritorious or not;
  • the factors on the suggested appeal are of significance to the insolvency community;
  • the factors on the proposed appeal are important to the action, being the CCAA restructuring; and also
  • whether the appeal will unduly impede the progression of the restructuring.

    laurentian university of sudbury
    laurentian university of sudbury

Laurentian University of Sudbury: The prima facie test

Thorneloe puts five questions to the court for answers in their submission that leave ought to be given:

  • Can the CCAA, a law whose objective is to stop bankruptcies, be made use of by a debtor to remove competitors as well as create the bankruptcy of a currently solvent entity (in this case, one more university)?
  • Must s.32 of the CCAA be interpreted so generally that it enables the disclaimer of an arrangement that will certainly lead to the bankruptcy of the counter-party, for removing competition, and where the potential financial gain to the debtor is both unsure and also of no consequence?
  • What inferences need to be made by the CCAA Court where a DIP loan lender demands the disclaimer of a contract that will certainly cause the bankruptcy of the counter-party or else it will refuse to advance further funds, yet the DIP lending institution refuses to explain why it demands the disclaimer?
  • What is the duty of the CCAA Court when faced with a requirement for the disclaimer of a contract which the debtor admits is motivated to eliminate competitors, and after that threatens that if the CCAA Court does not support the disclaimer, the debtor may not be able to restructure?
  • What are the aspects appropriate for persons to act in good faith under s.18.6 of the CCAA, and also specifically where the Laurentian University of Sudbury and/or the DIP lender looks to close down Thorneloe for the confessed objective of eliminating Thorneloe as a competitor?

The Court of Appeal for Ontario was not satisfied that the suggested appeal, challenging the CCAA judge’s discretionary decision to accept the disclaimer and to decline to erase the related term in the DIP Amendment Agreement, is prima facie meritorious. Within that verdict, the appellate court was cognizant that valid findings of fact are owed considerable deference as are discretionary decisions, as long as there is not an extricable error in interpreting the law. So the Court of Appeal of Ontario stated that Thorneloe did not meet the leave test.

Laurentian University of Sudbury: Significance to the practice

In a very tersely worded statement, the Court of Appeal for Ontario said that they do not feel that the proposed appeal is significant to the insolvency community as the concerns raised turn on the application of the legislation to this particular case only.

Laurentian University of Sudbury: Significance to the action

The Court of Appeal for Ontario stated the suggested appeal does have significance. However, the court said that the significance still does not justify leave be provided.

Laurentian University of Sudbury: Appeal would hinder progress of the action

The appeal court said there is a danger that an appeal would be a distraction from the
real-time restructuring initiatives and also would unduly hinder the progress of the CCAA case.

So the Court of Appeal for Ontario has decided that Thorneloe should not be given the right to appeal the notice of disclaimer as decided by the CCAA judge. This seems to end this part of the CCAA restructuring. If Thorneloe’s submissions to the courts about its own solvency are correct, we should soon see the bankruptcy of Thorneloe University.

laurentian university of sudbury
laurentian university of sudbury

Laurentian University of Sudbury summary

I hope that you found this Laurentian University of Sudbury Brandon Blog interesting. Among the countless problems that can arise when a significant customer stops doing business with you, your business cash flow takes a massive hit.

If you are concerned because you or your business are dealing with substantial debt challenges, whether you need gambling debt help or just plain old 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 alternatives 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 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 bankruptcy 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.

Categories
Brandon Blog Post

COMPANIES’ CREDITORS ARRANGEMENT ACT: CREDITORS ARE NOW ABLE TO MAKE BOLD CLAIMS AGAINST LAURENTIAN

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.

companies' creditors arrangement act
Companies’ Creditors Arrangement Act

If you would like to listen to an audio version of this Companies’ Creditors Arrangement Act Brandon’s Blog, please scroll to the very bottom and click play on the podcast.

Companies’ Creditors Arrangement Act: Facing insolvency, Laurentian University files for creditor protection

Laurentian University’s filing under the Companies’ Creditors Arrangement Act has been reported in the media and I have written about it in previous Brandon Blogs. On February 1, 2021, Laurentian University filed for what the media calls the “bankruptcy protection process” under the Companies’ Creditors Arrangement Act. It is really a creditor protection process for a financial restructuring. A large amount of work and involving tough choices will definitely be required for Laurentian to emerge from this as a financially and operationally sound university.

This restructuring will call for difficult negotiations with its lenders, suppliers, faculty and labour unions. Laurentian will have to overhaul its academic programs and look for brand-new revenue generation opportunities to survive. As well it will require a re-evaluation of its federated colleges’ design (Laurentian is just one of 4 universities that make the Laurentian Federation; the others who are all part of the Laurentian Federation Agreement are: the University of Sudbury, the University of Thorneloe, and Huntington University).

The stay of proceedings provided by the Court gives Laurentian protection from creditors and prevents them from taking steps against Laurentian, without the prior leave of the Court. The Companies’ Creditors Arrangement Act filing means that Laurentian has concluded that it cannot fulfill its financial commitments as they end up being due and uses the protection supplied by this restructuring law to reduce its overall debt load without having to pay its debts in full.

FOR A FULL DESCRIPTION OF WHAT THE COMPANIES’ CREDITORS ARRANGEMENT ACT IS AND HOW IT WORKS, SEE OUR BLOG:

CCAA CANADA: OUR EXTRAORDINARY GUIDE TO 2020 TROUBLED CANADIAN COMPANIES SEEKING BANKRUPTCY PROTECTION

FAQ on the Companies’ Creditors Arrangement Act Insolvency Proceedings of Laurentian University

As I mentioned, I previously wrote three blogs so far on the Laurentian University Companies’ Creditors Arrangement Act insolvency process:

Every time there has been a major event in this court-supervised restructuring, I have written about it. So far the topics I have covered are:

  • The filing under the Companie’s Creditors Arrangement Act.
  • What creditor protection is under the “Bankruptcy Protection Legislation“.
  • What a stay period and a stay of proceedings are.
  • What does CCAA mean?
  • The Laurentian President affidavit upon filing and what it said about the university finances.
  • What Laurentian has said about its day-to-day operations, the Federated University model and the need to get out of that agreement and general oversight of university affairs.
  • The shock and the effect on Northern Ontario’s community over Laurentian’s filing.
  • The potential effect on current students, both undergraduate and graduate students and the overall student experience.
  • The initial list of creditors, both secured and unsecured creditors, in this restructuring process filing.
  • The unions have lost the fight to unseal documents relating to Laurentian communications with the provincial government.
  • Faculty and other staff terminations.
  • The union represents faculty members on a new collective agreement reached by Laurentian Union Faculty Association or LUFA.
  • Adjustments to the benefit pension plan and health benefit plan.
  • The failure of the non-Laurentian parties to the Federated University agreement in appealing Laurentian’s disclaimer of the Federated University model agreement.
  • The status of the interim financing DIP loan in the Companies’ Creditors Arrangement Act administration.
companies' creditors arrangement act
Companies’ Creditors Arrangement Act

So as you can see, all the topics that I have covered in these 3 previous Brandon Blogs really are answers to a legal FAQ regarding Laurentian University’s CCAA filing.

Decisions about Laurentian University being made by creditors, insolvency specialists and the Ontario Court but not public

The National Union of Public and General Employees have stated that in a free and democratic society, choices regarding publicly financed institutions are expected to be made by elected officials or people who are responsible to them. That makes sure that when choices are made the demands of our communities who are funding these institutions through our tax dollars and donations are considered.

But when such organizations, like Laurentian University, are permitted to use a bankruptcy protection statute like the Companies’ Creditors Arrangement Act, that responsibility is lost. All that matters is what the creditors either desire or are willing to accept. They want the federal government to change bankruptcy protection legislation so that this cannot happen again.

Liberal MP Paul Lefebvre introduced a bill in Parliament that aims to keep Laurentian University’s turmoil from happening at other schools. He and the Union believe that public institutions shouldn’t be allowed to use bankruptcy protection to force through cuts. I don’t believe that at this time, the bill has any traction to change bankruptcy legislation.

4 inspectors will be chosen to work with court monitor in the claims process

This now brings us current to the last attendance in the Ontario Superior Court of Justice Commercial List where Laurentian and its court monitor brought forward a claims process to be approved by the court in this Companies’ Creditors Arrangement Act process.

The lawyer for TD Bank advised the Court that TD supports the making of a Claims Process Order however feels that, in the circumstances, the procedure ought to contemplate that the Monitor will disclose its analysis of the claims filed with the Pre-filing Lenders. The Bank said that Laurentian and the Monitor have acknowledged that there may very well be material claims filed, some of which will be unliquidated and/or contingent. Some may be subject to a bona fide conflict – both relative to liability as well as quantum.

The Bank proposed a modification to the Monitor’s Claims Process where material cases should be discussed with the Pre-filing Lender group so that there could be a consensual resolution of such claims. The Bank said that it is reasonable as well as proper in this case to produce a reasonable and transparent process that enhances the goals of the Companies’ Creditors Arrangement Act.

Based upon information available to TD Bank at the time its factum was issued, the overall quantum of claims is unidentified, yet can sensibly be expected to include substantial claims representing: (a) the claims of the Pre-filing Lenders; (b) claims of current and also previous employees; (c) those of the federated colleges occurring from the termination and disclaimer of their contracts with Laurentian; (d) potential claims developing from the pension-related issues; as well as (e) claims of various other creditors with prefiling and also restructuring claims.

The Judge specified that he bore in mind the TD Bank submissions that it is extremely vital to move quickly, however not to rush. The Claims Process needs to be reasonable to all. He acknowledged that the Pre-filing Lenders should have some involvement in the Claims procedure. So the Judge borrowed from the provisions of the Bankruptcy and Insolvency Act (Canada) (BIA), as there were no specific rules for this in the Companies’ Creditors Arrangement Act. He ruled that there will be a bespoke process.

Laurentian and the Monitor should modify their proposed Claims Process by assigning 4 Inspectors; 2 of which will be representatives of the Pre-filing Lender group. The remaining 2 will be drawn from the creditors from those with a claim over $5 million.

The Inspectors will:

  • Be selected by the Monitor who will devise an appointment process.
  • Act in the interests of all creditors.
  • Stand in a fiduciary capacity on behalf of all creditors.
  • Need to accomplish their duties on an impartial basis.
  • Are entitled to payment by following the payment structure for Inspectors set out in the BIA.
  • Help the Monitor in evaluating and admitting material claims.

    companies' creditors arrangement act
    Companies’ Creditors Arrangement Act

Laurentian expecting about 15 claims of more than $5M from creditors, court documents show

Laurentian reported that upon filing under the Companies’ Creditors Arrangement Act, it estimated its liabilities at $322 million. The categories of creditor groups are properly summarized by legal counsel for TD Bank recently in Court, indicated above.

The “bespoke” Claims Process approved by the Court is now underway. It is for all claims against Laurentian, but not including any form of compensation claim by any current or former employee. That type of claim has been defined by Laurentian and its Monitor as “Compensation Claims“. The Monitor advised the Court that it would soon come back to Court to get approval for a special process to establish the Compensation Claims.

The current Claims Process, not including any Compensation Claims, works like this:

  • Any creditor who has not received a Claims Package and who believes that he or
    she has a Claim against Laurentian, under the Claims Process Order must contact the Monitor
    in order to obtain a Proof of Claim form or visit the Monitor’s website.
  • Employees (and Former Employees) will not be receiving a Claims Package and do not need to complete a Proof of Claim at this time. Compensation Claims of Employees and Former Employees will be determined by a Court Approved Compensation Claims Methodology at a later date.
  • Three types of Claims qualify for this Claims Process: (i) Claims for amounts owing as at the date of Laurentian filing under the Companies’ Creditors Arrangement Act (Pre-filing Claims), February 1, 2021; (ii) Claims which arose as a result of the restructuring itself (Restructuring Claims); and (iii) Claims against senior management, Directors and Officers, the Board (D&O Claims).
  • In order to for Claims to be considered in the Claims Process, the fully completed Proof of Claim must be received by the Monitor no later than:
    • For Pre-filing Claims, 5:00 PM Toronto time on July 30, 2021 (Pre-Filing Claims Bar Date).
    • For Restructuring Claims, 5:00 p.m. (Toronto Time) on, whichever is later: (i) July 30, 2021, or (ii) the date that is 30 days after the date on which the Monitor sends a Proof of Claim Document Package to the Creditor with respect to such Restructuring Claim (Restructuring Claims Bar Date).
    • For D&O Claims, 5:00 PM Toronto time on July 30, 2021 (D&O Claims Bar Date).

No doubt the Monitor, the Inspector Group and Laurentian will be very busy sorting out all the Claims.

Public institutions shouldn’t be allowed to use bankruptcy protection to force through cuts

There has been an outcry from the public service community that public institutions should not be allowed to make use of Canadian insolvency laws like any other person or company that qualifies. I doubt that movement will get much traction.

I hope that you found this Companies’ Creditors Arrangement Act Brandon Blog interesting. If you are concerned because you or your business are dealing with substantial debt challenges 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 while avoiding 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 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. 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 to become debt-free, contact the Ira Smith Trustee & Receiver Inc. group today.

Call us now for a no-cost consultation.

companies' creditors arrangement act
Companies’ Creditors Arrangement Act

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.

Companies’ Creditors Arrangement Act

Categories
Brandon Blog Post

LAURENTIAN UNIVERSITY IN SUDBURY: THE LAURENTIAN FEDERATED UNIVERSITIES SUFFERED A CRUSHING DEFEAT

laurentian university in sudburylaurentian university in sudbury

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.

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

Laurentian University in Sudbury introduction

As widely reported, Laurentian University in Sudbury had federation agreements with the University of Sudbury, Thorneloe University and Huntington University (also known as the Federated Schools or federated universities). These three northern Ontario institutions are each an independent university offering university credits through certain courses that Laurentian University students took.

The reason for the federation agreements, which also had a companion Grant Distribution and Services agreement, is because these three colleges did not have full provincial status to register students, handle the admission to programs, confer degrees or receive provincial funding. Everyone benefitted from the arrangement.

The colleges were able to offer courses (in addition to a few specific courses unique to each respective college) and Laurentian, in turn, shared $7.7 million in funding. Canada Laurentian University made the calculation that it may not need all of the courses they administer on behalf of the 3 colleges. Rather, they can gain a full $7.7 million in funding, rather than just their administrative charge for doing the processing of the academic courses and degrees.

As readers of Brandon Blog know, I have been following the northern Ontario Laurentian University in Sudbury, Ontario financial difficulty insolvency restructuring saga. To date I have written 2 blogs on it:

In my 2 previous Brandon Blogs, I told you about Laurentian University’s academic program cuts comprising 38 English-language undergraduate and 27 French-language undergraduate program closures, in addition to 11 graduate program cuts (4 in French; 7 in English). These undergraduate program and graduate program cuts, dozens of program cuts, have caused job losses amongst the 116 full-time professors and 1 counsellor placement ending up being redundant. It has also obviously affected both undergraduate students and graduate students alike.

In this Brandon Blog, I talk about the Ontario Superior Court of Justice ruling in favour of Laurentian University in Sudbury in its effort to terminate all of its federated agreements.

laurentian university in sudbury
laurentian university in sudbury

Laurentian University in Sudbury: Losing academic programs will ‘hurt,’ prof says

The Laurentian University in Sudbury Board of Governors approved the issuance of issued Notices of Disclaimer of Laurentian University in Sudbury to terminate the university’s current agreement with the other Laurentian affiliates, Huntington University and Thorneloe University College, as well as the University of Sudbury (the Federated Universities). The decision was made amidst growing concern from students at all three universities. The Notices of Disclaimer were issued on April 1, 2021 (no joke!).

This news made waves in the Canadian higher education community. Laurentian University in Sudbury decided to terminate its agreement with the Federated Universities effective at the expiry of the notices. Laurentian University cited, in a press release, “concerns relating to low retention and graduation rates.” One grad student described it as “An ugly stain for years to come“.

Huntington University ended up settling with Laurentian University. Perhaps capitulating is a better word. On the other hand, Thorneloe University and the University of Sudbury each brought a motion before the court under section 32(2) of the Companies’ Creditors Arrangement Act (CCAA) for an order that their Federated Universities agreements not be terminated. They did so within the 15 day period they had to oppose the Disclaimers under the CCAA. Their motions were heard on the last two days of April. These motions were heard separately by two different Judges.

laurentian university in sudbury
laurentian university in sudbury

Sudbury’s Laurentian, Huntington universities reach a separation agreement, but Thorneloe and the University of Sudbury fought on

The Thorneloe University College and the University of Sudbury did not want to just capitulate. Huntington reached an agreement with Laurentian University regarding just how to terminate its collaboration. Both Thornloe and the University of Sudbury proceeded with their motions to set aside the Disclaimers. Thornloe’s motion was heard on April 29, 2021, by Chief Justice Morawetz.

Justice Gilmore listened to the University of Sudbury‘s motion on April 30, 2021. The Laurentian University stay of proceedings was expanded briefly up until May 2, 2021. On that date, the Justices released short endorsements dismissing both motions and the CCAA proceedings were extended until August 31, 2021. On May 7, both Justices released their detailed reasons.

The factors that the court needed to consider were:

In choosing whether to make the order opposing the Disclaimers, the court needs to consider whether the:

  • monitor approved the proposed Disclaimers;
  • Disclaimers would boost the prospects of a viable Plan of Arrangement being made for Laurentian; and also
  • Disclaimers would likely cause considerable financial difficulty to a party to the agreement.

The arguments against the Disclaimers in each of the northern Ontario Thorneloe and the University of Sudbury motions were essentially the same. They were:

  • Thorneloe and Huntington did not create Laurentian’s economic problems.
  • The Disclaimer will result in a significant financial challenge for Thorneloe and as a result, Thorneloe will need to make an insolvency filing either under the CCAA or the Bankruptcy and Insolvency Act (Canada).
  • Thorneloe and Huntington are immaterial to Laurentian’s financial scenario. Therefore the Disclaimer would not cause a material improvement for the chances of a successful Plan of Arrangement and a restructuring of Laurentian’s finances.
  • The partnership between Laurentian and the two northern Ontario colleges is not a business relationship to which the provisions of the CCAA were meant to apply.
  • Laurentian is acting in bad faith against the provisions of s. 18.6 of the CCAA.
  • The debtor-in-possession lender (DIP lender) has no reason to make it a condition of increased financing that the Federation Agreements must be terminated.

    laurentian university in sudbury
    laurentian university in sudbury

The court decision about the Laurentian University in Sudbury Disclaimers for Thorneloe University and University of Sudbury

In both cases, everyone had their legal counsel and Thorneloe retained a financial advisor also. Thorneloe‘s financial advisor prepared a report for the court to attempt to counter the submissions of both Laurentian University and the CCAA Monitor.

The Judges each weighed all the evidence very carefully and both concluded that the:

  • Monitor authorized the Disclaimer Notices.
  • Disclaimers will improve the prospects of a successful Plan of Arrangement for Laurentian.
  • Notices of Disclaimer will have negative economic consequences to Thorneloe and the University of Sudbury, yet this is not enough of a factor to prohibit the Notices of Disclaimer.
    University of Sudbury and Thorneloe was provided a choice, similar to Huntington, which was not accepted.
  • Court has a choice to make and neither choice is a good one. It is required to consider
    the more comprehensive implication of refusing the Notices of Disclaimer which would result in the demise of Laurentian.

The choice is if the motions succeed so the Disclaimers are not effective, it might cause an unravelling of Laurentian’s restructuring strategy and also the collapse of Laurentian. This in turn would certainly have a substantial impact on all professors, students and parts of the northern Ontario region and the entire Sudbury community. It would likewise create financial harm to Thorneloe and the University of Sudbury. Certainly, this is not a desirable outcome.

If the Notices of Disclaimer are supported, the court acknowledged that this very well may threaten the survival of the colleges. The court was sympathetic to this but stated that the impact on the colleges will be considerably less than if Laurentian and the colleges both stop operating. Given these two undesirable choices, the much better choice or the least unwanted selection is to support the Notices of Disclaimer.

Therefore, the motions brought by Thorneloe and the University of Sudbury to revoke the Notices of Disclaimer were dismissed. The Judges reject appeals from federated universities. Thorneloe stated it would appeal the decision of the court. As previously stated, Huntington has already struck a brand-new plan with Laurentian. The University of Sudbury is considering what it ought to do next.

laurentian university in sudbury
laurentian university in sudbury

Laurentian University in Sudbury summary

I hope you enjoyed the Laurentian University in Sudbury Brandon Blog post. According to the Monitor’s reporting to the court, on April 30, 2021, Laurentian owes millions of dollars; $321.8 million to be precise.

Are you worried because you just lost your job through no fault of your own? Is your business dealing with substantial debt challenges and financial problems due to your largest customer failing to perform and pay your company? Do 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 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. 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.

laurentian university in sudbury

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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LICENSED INSOLVENCY TRUSTEE FOR BANKRUPTCY SIMPLE STEPS ON HOW TO AVOID BANKRUPTCY AND SAVE YOUR BUSINESS

licensed insolvency trustee for bankruptcy

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.

Licensed Insolvency Trustee for bankruptcy on why businesses go bankrupt

In my last Brandon Blog, Business Bankruptcy In Canada: Discover The Causes Of Business Insolvency And Bankruptcy, I described the causes of business insolvency, the types of business entities normally found in Canada and tips on how to pull your business around back from insolvency.

Numerous businesses are battling to survive today, not to mention stay lucrative. They are scaling down or just closing their doors. They are accessing the available government support money for a business. Most entrepreneurs hesitate to seek the advice of a licensed insolvency trustee due to the fact that they are afraid all the licensed insolvency trustee (formerly called a bankruptcy trustee or a trustee in bankruptcy) wants to do is be a trustee for bankruptcy.

In this Brandon blog post, I want to continue from the suggestions from my last blog, to show you exactly how that the last point I push for is to be a trustee for bankruptcy. I first look to reorganize your business. If your business or company remains in danger because of the effect of the COVID-19 pandemic, it will certainly be advantageous for you and also your organization to do so.

I will also show how sometimes, a trustee for bankruptcy or receivership, can actually help save parts of your business. The only other alternative could be to let all the business parts fail, which is the worst possible outcome.

The role of a debtor in bankruptcy or insolvency

Remember, I previously defined insolvency as a financial condition, where bankruptcy is a legal condition and a legal process. You will also recall that in my last Brandon Blog, I described the three common types of business structures in Canada; proprietorship, partnership and corporation. Just as these three business structures are different in form, they are also treated differently in insolvency vs bankruptcy. Here is how I differentiate the role of each debtor.

Proprietorship – Sole proprietorships are a type of business structure in which one individual is the sole owner of the business, which gives that person control over everything related to the business. This includes the business’ name, structure, accounting, legal obligations and tax responsibilities.

As I described last week, in Canada, the person, the sole proprietor, is carrying on business in their personal name, operating as the business name. You can register a sole proprietorship with the provincial government by completing an application form.

A sole proprietorship is the simplest kind of business structure. It permits an individual to sell goods or run a service with complete control of it on their own. Nonetheless, a sole proprietorship is not considered a separate legal entity from the owner. This means that any liabilities incurred by the business are also personal financial obligations of the owner.

So in an insolvency situation, all of the sole proprietor’s assets come into play as do all of his or her debts. It is not just the business assets and business liabilities. It is everything. This is the worst-case scenario for an entrepreneur.

So if the business is viable, and the personal assets and liabilities lead to the sole proprietor being in the situation where they can do a debt settlement plan, they can choose one of two options to restructure their entire personal financial situation. This assumes they cannot resolve their financial issues informally to bring their financial situation back to being solvent.

Partnership – A terrific way to begin a new business is teaming up with one or more people. All of you should enhance the group’s abilities as well as energy. Nonetheless, you also wish to be with people that are trustworthy, industrious and have a certain expertise that will help the business grow. Just like the way a proprietorship is one person, a partnership is made up of two or more people.

A partnership agreement is crucial. This is an agreement between the partners, describing the rights as well as obligations of each partner in the business. The same way a sole proprietor is personally responsible for the debts of the business and is putting all of their personal and business assets at risk, the same is true for partners in a business partnership. The partners are each liable for 100% of the business debts in case of insolvency. The partners cannot limit their liability to only their partnership share of the business.

Corporation – When you incorporate a business, it is a corporation. The company is a different legal entity from its owner shareholders. Shareholders are not responsible for the unpaid debts owed to financial institutions (normally a secured creditor), suppliers to the firm (normally an unsecured creditor) or the government. There are only two exceptions: (i) certain government liabilities that are a personal liability of a Director; and (ii) if the entrepreneur directly guarantees a financial debt of the company, such as a company loan, then that individual will have a liability with respect to such debt.

If the company’s financial future becomes bleak because it is insolvent, there are options. In my last blog, I talked about self-help remedies senior management of a company whose business is viable can try to informally bring the company back to a healthy financial state. You can re-read that blog to see the options available. If the self-help remedies do not work yet then we must look at more formal proceedings.

trustee for bankruptcy
licensed insolvency trustee for bankruptcy

Licensed InsolvencyTrustee for bankruptcy: Settle with creditors and debt collectors without bankruptcy

In a proprietorship or partnership, if the underlying business is viable, then there are a variety of options to try to turn the business around yourself. You would use the self-help methods I described in my last blog. If the self-help options do not work, there are debt settlement options available to the individual(s) under the Bankruptcy and Insolvency Act (Canada) (BIA). They would be the only government-sanctioned debt settlement plan available in Canada. Either a consumer proposal or a Division I Proposal. You can read about how each one works by clicking on the following links:

In a successfully completed debt settlement program, the bankruptcy trustee would not be a trustee for bankruptcy. Rather, the trustee in bankruptcy would be an Administrator under a consumer proposal or a Proposal Trustee in the Division I Proposal.

If the business is not viable or the circumstances are such that a debt settlement plan is not feasible, then personal bankruptcy would be the only other option. You can read about how personal bankruptcy works by looking at our top 20 bankruptcy FAQs section. Upon the bankruptcy of the person, the sole proprietorship is automatically terminated.

Since a partnership is a way of carrying on business personally, then the same insolvency options available to the partners to the business debtor are also available. A restructuring is always preferred over a bankruptcy when the partnership is in financial difficulty.

For a debt settlement insolvency filing, the licensed trustee is not a trustee for bankruptcy. That is the case only if there is an actual bankruptcy assignment. Under provincial law, if a partner goes bankrupt, the partnership is automatically dissolved.

Licensed Insolvency Trustee for bankruptcy: Ask creditors to help you avoid bankruptcy of the corporation

Without wanting to sound like a broken record, you can review my prior blog to go over the self-help remedies for turning a business around, even if it is a corporation. A self-help remedy is always a great alternative to bankruptcy. If that isn’t appropriate, or just plain does not work, then you must get in touch with an insolvency trustee.

Again, if the company’s business is viable, then there are financial restructuring alternatives. these alternatives will be within a government-regulated insolvency proceeding. There are two formal restructuring statutes in Canada:

In both cases, a company should retain the services of both a licensed trustee for bankrutpcy and a bankruptcy lawyer. The lawyer acts as legal counsel to the company. The licensed trustee will be both a financial advisor and steer the company through the restructuring process. The CCAA option is for companies with $5 million or more of debt. A BIA Proposal is for a company with any amount of debt. The main difference between the two processes are:

  • In a failed BIA Proposal, the debtor is immediately deemed to have filed an assignment in bankruptcy. This is not the case in a failed CCAA Plan of Arrangement.
  • A CCAA proceeding is more costly as there are many more court appearances in that forum than in a BIA restructuring.

Using one of these two statutes to gain what is called in the media “bankruptcy protection” in order to work out a successful restructuring with your unsecured creditors is always preferable. The company will pay less than it owes while keeping its viable but insolvent business alive. Don’t underestimate the power of preserving jobs in the eyes of a court. A bankruptcy trustee can be very helpful in obtaining great results.

trustee for bankruptcy
licensed insolvency trustee for bankruptcy

Licensed Insolvency Trustee for bankruptcy: When to consider an Assignment for the Benefit of Creditors

If the business is not viable and is insolvent, then the only thing left to consider is an assignment in bankruptcy filing. It is definitely a last resort if everything I have already spoken about in this Brandon Blog just won’t work and you have run out of options. Trustees in bankruptcy always consider the alternatives to bankruptcy, but sometimes filing bankruptcy is the only option available.

In the case of a proprietorship or partnership, it is the individual sole proprietor and one or more of the partners who will be meeting with a trustee in bankruptcy and filing for a personal type of bankruptcy. the personal bankruptcy trustee will administer the personal bankruptcy estate. Again, you can read up on personal bankruptcy by looking at our top 20 personal bankruptcy FAQs section.

In personal bankruptcies, it will be either a streamlined system called a Summary Administration and if not, it is then an ordinary administration bankruptcy. Unlike a company, a person is ultimately entitled to a bankruptcy discharge.

When it comes to the administration of bankruptcy for a corporation, it is always an ordinary administration bankruptcy. The purpose of this Brandon Blog is not to run through all the steps in a personal or corporate bankruptcy process. Above I have provided some links to read up on debt settlement restructuring and personal bankruptcy. For corporate bankruptcy, I recommend that you read our corporate website page on corporate bankruptcy.

Alternatively, you can also read my previous Brandon Blog Bankrupting a Limited Company: Canadian Corporate Bankruptcy Process.

A trustee for bankruptcy administers the bankruptcy process for the benefit of unsecured creditors. Sometimes, it is a secured creditor who needs to enforce their security. They do not necessarily need the company to meet with a trustee for bankruptcy. Rather, the secured creditor needs the appointment of trustee to act not in a bankruptcy administration, but rather, to act as a receiver or receiver-manager to enforce the secured creditor’s position by taking control of the assets subject to the security and ultimately selling them. To read the receivership process, you can read the receivership section of our corporate website.

You can also read my Brandon Blog titled What Is A Receivership? Our Complete Guide To Receivership Solutions.

Licensed Insolvency Trustee for bankruptcy: How to avoid bankruptcy and save your business from closing

I hope you enjoyed the licensed insolvency trustee for bankruptcy Brandon Blog post. Are you worried because you or your business are dealing with substantial debt challenges 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 while avoiding bankruptcy. We can get you the relief you need and so deserve. As you can see from this blog, we are not just a trustee for bankruptcy. We believe every person and business should first explore debt settlement to avoid bankruptcy.

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. 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.

trustee for bankruptcy
licensed insolvency trustee for bankruptcy
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LAURENTIAN UNIVERSITY INSOLVENCY RESTRUCTURING – OUR UPDATED GUIDE ON ITS MASSIVE CUTS TO GAIN FINANCIAL HEALTH

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.

laurentian university insolvency

Laurentian University insolvency: Laurentian students, faculty ‘shocked’ at university’s declaration of insolvency

On February 8, 2021, I wrote my blog about the Laurentian University insolvency filing for creditor protection under the Companies’ Creditors Arrangement Act (Canada) (CCAA) on February 1, 2021. It was the very first time in Canada that a public university took such creditor protection action. That blog is titled: Laurentian University Facing Insolvency Makes Startling CCAA News By Filing For Creditor Protection.

Post-secondary education can be a hard path for lots of young Canadians. The road can be filled with challenging experiences. Nevertheless, students never thought that having their college or university teeter on the edge of bankruptcy while they’re still going there would be a reality they would need to face! “It was a surprise,” declares one third-year Laurentian University student, resembling the views of her peers.

The students found out about the Laurentian University insolvency when they logged into their student portal. That is when they found out that the school has declared itself insolvent. The University President and Vice-Chancellor stated in the CCAA proceedings that the university’s dire financial situation financial issues were first determined as early as 2008-09 when a prior administration.

The students who were accepted to the school on the understanding that the school would continue operating and that their field of study would not be in danger surely feel betrayed by this. What a stressful time for them.

Everyone was pretty shocked when we found out that the Laurentian University insolvency CCAA filing happened. Nobody had really focussed before on the fact that public institutions like Laurentian would become insolvent and then be eligible for a CCAA process.

What went wrong in this Sudbury, Ontario-based university? In this Brandon Blog, I’m going to give you an update to my February 8, 2021, Brandon Blog and what has gone on since then in this Laurentian University insolvency process.

Laurentian University insolvency: Is Laurentian University closing?

No. The purpose of the CCAA filing is to allow Laurentian University to restructure so that hopefully it will remain open for a long time to come. Laurentian has continued operating. Courses are continuing (virtually because of the COVID-19 pandemic).

Laurentian opened up discussions with its different stakeholders, including its students, faculty, other staff, trade suppliers, research-granting agencies and donors immediately after the issuance of the court order approving the Laurentian University insolvency filing.

Laurentian has to negotiate functional modifications in order to drive go-forward financial savings. Consequently, these conversations have included settlement negotiations between Laurentian and the:

  • Committee of representatives chosen by the Senate, to deal with the course offering to restructure.
  • Federated Universities;
  • Laurentian University Faculty Association, the bargaining unit representing the professors; and
  • Laurentian University Staff Union, the bargaining unit for non-faculty personnel.

    laurentian university insolvency
    laurentian university insolvency

Upon the initial CCAA filing, the Laurentian University insolvency application included a request for a sealing order to keep away from public viewing two Exhibits. Laurentian’s position was that stakeholders should not be able to see those documents as it would weaken and perhaps totally frustrate Laurentian’s ability to restructure. The court granted the sealing order.

On March 4, 2021, the Ontario Confederation of University Associations, the faculty union and the Canadian Union of Public Employees served notices looking for leave to appeal the sealing order from the Court of Appeal for Ontario. On March 31, 2021, the Court of Appeal for Ontario issued its decision dismissing the motion for leave to appeal.

Laurentian University cuts 100 professors, dozens of programs

Laurentian University told the court that it had many programs relative to its number of pupils. Since the day of the CCAA declaration, Laurentian had roughly 209 different programs – 166 undergraduate programs as well as 43 programs for graduate students. Laurentian additionally advised that a lot of programs have continually reducing enrolment and are not financially sustainable.

The university undertook an evaluation of low-enrollment programs and a review of the variety of courses to be provided moving forward. This procedure led to a full review of programs as well as potential program closures. The results of this analysis led to recommendations for academic program restructuring. The recommendations were accepted by the Senate Sub-Committee charged with completing this review and also the complete Senate.

The program closures consist of 38 English-language undergraduate programs and 27 French-language undergraduate programs. This represents 39% of the undergraduate programs offered as of February 1, 2021. This will affect about 772 undergraduate students (557 in English language programs and 215 in French-language programs). In addition, Laurentian proposes to close 11 graduate programs (4 in French; 7 in English).

If programs are being cut, then it stands to reason that teaching costs and other staff costs also need to be reduced. At the commencement of the CCAA proceedings, approximately 612 employees were represented by LUFA including 355 full-time faculty, many of whom had tenure pursuant to the collective agreement, 252 sessional faculty or health care professionals and 5 full-time counsellors.

The faculty and the Laurentian Board are parties to a collective agreement with a three-year term which expired on June 30, 2020. Pursuant to the provisions of the agreement, it automatically continues year-to-year unless notice is provided that either the union or university intends to terminate or amend it. In February 2020, the union provided the Laurentian Board with a notice to bargain. The agreement automatically remains in force during any period of negotiation.

On April 7, 2021, after participating in insolvency negotiations and mediation, the parties entered into a new labour agreement term sheet. Since academic programs were cut, faculty cuts had to follow. The term sheet calls for a new collective agreement with a five-year term expiring on June 30, 2025. It declares 116 full-time faculty positions and 1 counsellor position redundant.

The faculty downsizing will be achieved through voluntary resignations and termination of employment. Faculty to be terminated, who is currently teaching, will be terminated effective May 15, 2021. Those faculty who were not teaching in the current term were terminated effective April 30, 2021. There are also some other salary decreases across the board and benefits reductions for continuing faculty.

As far as other unionized staff (non-faculty), there will be 42 job losses. For the remaining non-teaching staff, there will be certain salary and benefits adjustments. For non-union staff, there is some salary rollback and loss of certain benefits.

laurentian university insolvency
laurentian university insolvency

Laurentian University insolvency: Court ruling allows Laurentian University to reduce value of pension plan payouts

The institution oversees three pension and benefit plans: (a) a registered defined benefit pension plan (DBP); (b) a supplementary unfunded retirement plan (SURP) and (c) a retirement health benefits plan (RHBP). The SURP, as well as RHBP, are currently unfunded. Repayments pursuant to the SURP and RHBP have remained stayed, in conformity with the terms of the CCAA Order.

The DBP is a plan registered with the Financial Services Regulatory Authority of Ontario under the Ontario Pension Benefits Act as well as the Income Tax Act (Canada). The DBP has a going-concern pension deficit of roughly $4.5 million. The University needs to deal with the going-concern shortage. Under provincial government regulations, it needs to do so within a 10-year duration.

Terminated personnel that are DBP members, need to think about whether they want to move their pension plan entitlement to a different trustee due to the fact that they are not qualified to receive their pension payments yet. Alternatively, they could maintain their pension with Laurentian University as trustees. For retiring or terminated staff, depending on their situation, they must elect either an immediate pension plan payment or a deferred pension.

On March 17, 2021, the court made an order specifying, amongst other things, that for any kind of DBP participant that wanted to transfer their pension plan, a transfer proportion of 65.8% will be used for any commuted value transfer request for anyone that received a retirement or termination statement and an election form, for whom such transfers had not yet been made.

Therefore, anyone making such an election lost 34.2% of what they believed their pension entitlement was going to be. Various other amendments to the DBP are also proposed to take place in the Laurentian University insolvency matter. As you can imagine, the further amendments are aimed at creating long-term solvency for the DBP. Therefore, it involves certain reductions to what the remaining members thought they bargained and signed up for!

As part of the restructuring, the Laurentian University insolvency process also proposes that the RHBP will be terminated. Any claims against the SERP will be dealt with in the CCAA proceedings.

The SURP was implemented on July 1, 2002, to supply additional retirement benefits to Laurentian staff members who were in the DBP, to get additional benefits for those earning income over a certain limit. Retiring employees that qualified for the SURP were automatically enrolled. They received either a yearly or monthly payment from the SURP. All of the SURP commitments are unfunded. Historically, the university made annual payments in respect of the SURP from existing operating funds every July.

The insolvency negotiations and mediation have led to the Laurentian University insolvency process recommending that the SURPs be terminated. Accumulated obligations will be managed in the Laurentian University insolvency CCAA Plan of Arrangement. All SURP payments stopped on February 1, 2021, as a result of the CCAA stay of proceedings.

By March 17, 2021, all the changes I have talked about so far were approved by the court.

Judges reject appeals from federated universities, Laurentian insolvency plan can proceed

Laurentian has a federated school structure whereby it has formal affiliations with the Federated Universities: the University of Sudbury, Huntington University and Thorneloe University. Laurentian has a federated institution framework whereby it has official affiliations with the Federated Universities: the University of Sudbury, Huntington University as well as Thorneloe University.

The University of Sudbury is a Roman Catholic multilingual university offering programs in Culture and Communication Studies, Indigenous Studies, Philosophy as well as Religious Studies consisting of courses in both English and French. It was founded in 1913 as Collège du Sacré-Coeur before changing its name to the University of Sudbury in 1957.

Huntington is an independent university founded in 1960 with its own charter and offers programs in Communication Studies, Gerontology, Religious Studies as well as Theology.

Thorneloe is a university with historic origins and association with the Anglican Church of Canada. It offers programs in the departments of Ancient Studies, Religious Studies and also Women’s, Gender as well as Sexuality Studies.

Laurentian and the Federated Universities are connected via a selection of historical connections as well as contractual arrangements. Each of the Federated Universities is a separate legal entity and each is controlled by their own respective board of governors, independent of Laurentian providing oversight of university affairs, respectively.

The Federated Universities do not admit or register their own students and they do not confer their own degrees (with the exception of Theology at Huntington as well as Thorneloe). All Federated University programs and courses are offered by Laurentian University, and all students go to the Laurentian campus. Although the Federated Universities each manage their own respective financial affairs, they cannot receive provincial funding directly. The majority of the public funding for Federated Universities is processed through Laurentian.

As part of the Laurentian University insolvency CCAA restructuring, Laurentian served Notices of Disclaimer on the Federated Universities as it felt it was financially more advantageous for Laurentian to be free from those contractual responsibilities. As a result of the negotiation and mediation process, on April 16, 2021, Laurentian and Huntington entered into an agreement whereby Huntington essentially agreed to cease offering its courses and turn over certain course rights to Laurentian. The only exception allowed in this Laurentian University insolvency process negotiation was that if the court held that the University of Sudbury and Thorneloe University were permitted to continue to receive funding from Laurentian to teach courses or programs, Huntington could also, should it choose to do so.

The University of Sudbury and Thorneloe took a different approach. They each filed motion records in court objecting to the Notices of Disclaimer. The court heard the motions on May 2, 2021, along with Laurentian’s motion to extend the restructuring period and the resulting stay of proceedings to August 31, 2021, and to approve an increase of $10 million to its debtor-in-possession financing.

Laurentian argued that a condition of the increased financing was that the Federated Universities agreements be terminated and that terminating them will improve the University finances. The University of Sudbury and Thorneloe argued that it has not been shown necessary to Laurentian’s future viability and solvency that the Federated Universities relationship had to end and all it really is was an attempt to put them out of business.

Two different judges heard the University of Sudbury and the Thorneloe University motions. Each released their decisions last Sunday night. Each judge dismissed their respective motions. Laurentian’s increased financing and the extension of its restructuring period were also approved. The judges indicated that Reasons would follow. At the time of writing this Brandon Blog, the Reasons have not been released. When they are, I will certainly let you know what the Judges’ thought processes were.

laurentian university insolvency
laurentian university insolvency

Unprecedented Laurentian University insolvency summary

Seeking to escape a mounting debt problem, the administration of Laurentian University insolvency process has led to its filing for bankruptcy protection under the CCAA statute. This will have unfortunate consequences for some students whose courses of study are no longer offered. It will also have a terrible effect on the roughly 164,000 people who live in Sudbury, many of whom are directly involved in the school.

I hope you enjoyed the Laurentian University insolvency Brandon Blog post. You may be very upset and frustrated over this. You may have been directly affected by the course and employee downsizing. Perhaps your pension has just been cut drastically from what you thought it would eventually be. You may even be downright depressed. No doubt the Sudbury entrepreneurs may be very frustrated whether their businesses will be able to continue to pay all its debts as they come due.

Are you worried because you or your business are dealing with substantial debt challenges 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 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. 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.

laurentian university insolvency
laurentian university insolvency
Categories
Brandon Blog Post

LAURENTIAN UNIVERSITY FACING INSOLVENCY MAKES STARTLING CCAA NEWS FILING FOR CREDITOR PROTECTION

We hope that you and your family are safe, healthy, and secure during this coronavirus 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.

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

laurentian university

UPDATE MAY 5, 2021: SEE OUR UPDATED BLOG PUBLISHED TODAY ON THE LAURENTIAN UNIVERSITY INSOLVENCY CREDITOR PROTECTION PROCEEDINGS STATUS – CLICK HERE FOR THE UPDATE

Laurentian University introduction

Laurentian University is facing a cash crisis and has filed for creditor protection. The Ontario university states that the application under the federal Companies’ Creditors Arrangement Act (CCAA) is intended to permit the university to continue running day-to-day operations during restructuring.

The Sudbury, Ontario school is not shutting down and will continue to provide services for students. It states it will keep normal operations and keep classes running. In this Brandon Blog, I talk about what creditor protection in the Canadian context is and why Laurentian University did so.

Laurentian University: What is creditor protection?

In its simplest terms, creditor protection is the protection you get when you start a proceeding with a filing under either the Bankruptcy and Insolvency Act (Canada) (BIA) or the CCAA. Under the BIA, an individual or company gets that protection in either a consumer or corporate bankruptcy. This safeguard is also obtained by filing under the restructuring proposal provisions of the BIA. A company safeguards itself when it files for restructuring under the CCAA.

Once a filing is done, without getting special permission from the court, none of your creditors can start or continue legal action against the person or the company for the repayment of a debt or for any enforcement action against its assets.

Laurentian University, therefore, received its sheltering once it made its filing under the CCAA. When using this statute, it can also be called CCAA protection.

Below is the section titled “How the Laurentian University restructuring story begins”. I discuss its particular issues leading up to the need to file.

Laurentian University: What is a stay period?

The “time out” that a person or business gets from its creditors is called a stay period (Stay of Proceedings). Upon the agreement of the court to the initial filing, the result is that the court will issue an Order giving the company an initial 30 days of protection from creditors to allow for the preparation of the restructuring proposal called a Plan of Arrangement.

This initial stay can be extended by the court, as long as the judge is convinced that the company is acting in good faith and working expeditiously in sorting through the myriad of issues stopping it from putting together its Plan of Arrangement.

Laurentian University: What does CCAA mean

The CCAA is a Canadian federal law that helps companies in financial difficulties emerge from its difficulties. The company begins its reorganization proceeding with its application to the court and files for creditor protection to avail itself of the process for a company and its creditors to come to an agreement on how to reorganize the company’s debt, while the company continues to operate normally and pay amongst other things, wages to its employees.

One of the biggest advantages of the CCAA is that it allows a business to “hold the fort” while the creditors and the company work out an agreement that will hopefully get the company back on its feet. While operating in this fashion, company management remains in control of running the business. The company does not hand over its assets to a licensed insolvency trustee (Trustee). Rather, the Trustee is appointed by the court to act as Monitor.

As the title sounds, the role of the Monitor is that of the neutral court officer working with the company. The duties of the Monitor include:

  • overseeing and providing supervision of the company’s affairs;
  • assisting in the negotiations with creditors;
  • helping with the drafting of the Plan of Arrangement for describing what the restructuring process will be;
  • report regularly to the court on the progress and details of the restructuring administration, and ultimately,
  • conducting the meetings of the various classes of creditors where voting on the Plan of Arrangement takes place.

Although the CCAA is unique to the country of Canada, other countries have similar restructuring legislation. The most famous is probably Chapter 11 of the US Bankruptcy Code. This is when you normally hear the term “bankruptcy protection“.

laurentian university

Laurentian University files to reorganize university finances

Last Fall, Laurentian University recognized it was in financial trouble. On October 1, 2020, it issued a press release advising that it has financial challenges brought on by the global COVID-19 pandemic and its pre-existing structural deficit. It also announced at that time that it hired Ernst & Young as financial advisors to assist in a further review of its detailed financial results, budgets, and our various initiatives to help identify and analyze any additional opportunities for cost savings or improvement.

On February 1, 2021, facing insolvency, Laurentian University took the step to begin its insolvency proceeding under the CCAA in order to come up with a formal restructuring plan. Since it is in the early stages of the insolvency administration, the actual plan has not yet been developed as Laurentian University needs time to come up with the proper plan. It will be one of many future events I will keep my eye on for you.

From my review of the filing documents, I can tell you what the story is so far.

How the Laurentian University restructuring story begins

“We are working with all stakeholders to ensure a smooth process for students,” said Peter Baxter, the university’s provost and vice-president, academic.”

Who would’ve thought that universities, which are supposed to be institutions of higher learning, would actually run into financial problems and put their stakeholders at risk? But that’s exactly what happened and is the current situation with the Laurentian University insolvency in Sudbury, Ontario. I guess the place was not run by any of the finance profs! It is obviously a stressful time for all students, staff, faculty, and creditors.

Dr. Robert Haché, the President and Vice-Chancellor of the Laurentian University of Sudbury, swore the necessary affidavit on January 30, 2021, in support of Laurentian’s court application for an Initial Order to commence CCAA proceedings. In his affidavit, Dr. Haché stated:

  • Laurentian’s financial issues were first determined as early as 2008-09 when a prior administration gave a budget to the Board that would not be balanced for the 2008-2009 academic year and showed little to no improvement for the future financial prospects of the university absent any revised processes. The budget was approved, but the Board expected the financial situation to be fixed as a top priority item.
  • A Plan for Regaining Sustainability at Laurentian was presented to the school’s Board on December 18, 2008, and again on February 20, 2009. The Board approved the implementation of the plan, expecting to regain financial health over a three-year period.
  • Starting in 2014, Laurentian undertook a $64 million Campus Modernization Project for the construction of approximately 250,000 sq. ft. of classrooms, research, study as well as a public area.
  • The Campus Modernization Project involved Laurentian incurring a substantial amount of long-term debt (approximately $40 million) to pay for the construction of buildings and facilities to modernize the campus in order to accommodate its historical growth and fuel the projected enrolment growth. The university elected to defer repayment of the principal amounts borrowed until after construction was completed, leading to the accrual of further interest.
  • When the Board approved the 2016-17 operating budget, LU forecasted operational deficits continuing through 2021-22 leading to an accumulated operational deficit of greater than $43 million.
  • With the exception of the modest growth experienced in 2020, enrolment has declined each year from 2015 to 2018 and tuition fees remain low, while labour and debt servicing costs have grown substantially.
  • The 10% tuition reduction and tuition freeze ordered by the Province of Ontario beginning in 2019.
  • Laurentian’s academic costs are generally higher as a percentage of total costs than other Ontario universities.
  • Not re-evaluating over the last decade its programs to make sure it is focusing on those the marketplace of students deem relevant and required.
  • The COVID-19 pandemic has made all these issues worse.

From reading his sworn affidavit, I would use one simple word to describe what has led to the Laurentian University insolvency – MISMANAGEMENT! Dr. Haché joined Laurentian University in July 2019. So he has only been involved in this mess for the last 19 months.

What Laurentian University reports its immediate plans are by making this CCAA filing

Laurentian University reported that as at April 30, 2020, it had $358.5 million in assets based on generally accepted accounting principles. Of that total, only $33.2 million is either liquid or near-liquid. As at the same date, its liabilities are:

  • Line of credit $14.4 million
  • Short-term loan $1.4 million
  • Accounts payable and accrued liabilities $22.4 million
  • Accrued vacation pay $1.8 million
  • Deferred revenue $1.0 million
  • Current portion of long-term debt $2.7 million
  • Long-term debt $89 million
  • Employee future benefits liabilities $20.8 million
  • Deferred contributions $38.6 million
  • Deferred capital contributions $129.9 million

This adds up to $322 million. The balance sheet balances because the remainder represents either restricted capital or special purpose endowments.

Laurentian University advised the court that it intends to come back requesting an Amended and Restated Initial Order. Right now, Laurentian has the benefit of the Stay of Proceedings and will not be making any payments on any outstanding amounts owing as of February 1, 2021.

Among other things, the motion in respect of the Amended and Restated Initial Order will seek the following additional relief:

  • extending the Stay of Proceedings to April 30, 2021;
  • suspending Laurentian’s requirement to make certain special payments in respect of its defined benefit pension plan, pending further Order of the Court;
  • suspending Laurentian’s need to reply to requests for information received under the Freedom of Information and Protection of Privacy Act (Ontario) during the Stay of Proceedings, nunc pro tunc to February 1, 2021;
  • the appointment of a mediator, as an officer of the Court and a neutral third party to undertake a mediation of various issues under the supervision of this Court, on an urgent basis;
  • approving Laurentian’s request for a debtor-in-possession credit facility (the “DIP Facility”) borrowing authority up to the principal amount of $25 million to finance its working capital requirements and other general corporate purposes, post-filing expenses and costs during the Stay of Proceedings.

The court has now declared that Laurentian University is insolvent. I will be following this CCAA administration and will write more blogs on material points of special interest as this restructuring winds its way through the court.

Laurentian University summary

I hope you enjoyed the Laurentian University Brandon Blog post. If you are concerned because you or your business are dealing with substantial debt challenges 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 while avoiding bankruptcy. We can get you the relief you need and so deserve.

The tension put upon you in such a time of uncertainty 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. 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 coronavirus 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.

Categories
Brandon Blog Post

DECLARING BANKRUPTCY IN CANADA: NEVER WORRY WHAT TO DO AGAIN WITH THESE AWESOME TIPS

declaring bankruptcy in canada
declaring bankruptcy in canada

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.

If you would prefer to listen to the audio version of this declaring bankruptcy in Canada Brandon Blog, please scroll to the bottom and click play on the podcast.

Declaring bankruptcy in Canada: Introduction

Declaring bankruptcy in Canada is a legal process through which you may be discharged from your financial obligations (with certain minor exceptions). Its purpose is to permit an honest but unfortunate debtor to obtain a discharge from many financial debts, based on affordable conditions.

The Office of the Superintendent of Bankruptcy (OSB) is charged with the administration of the Bankruptcy and Insolvency Act (Canada) (BIA), the Companies’ Creditors Arrangement Act (CCAA) and their respective rules. All documents associated with filings under either of those Acts can be found at the OSB’s internet site. The OSB likewise licenses and supervises the actions of licensed insolvency trustees (LITs ). LITs are accredited to:

  • administer the estates of bankrupts;
  • manage alternatives to bankruptcy such as consumer proposals and commercial proposals in order for debtors to get creditor protection and restructure in order to avoid bankruptcy; and
  • serve as a monitor under the CCAA.

When can you declare bankruptcy in Canada?

Any insolvent person in financial difficulty can declare bankruptcy in Canada any time through a bankruptcy assignment after they have seen a licensed insolvency trustee and made suitable arrangements for the Trustee to administer handle the bankruptcy administration. The bankruptcy trustee prepares the necessary documents for the debtor to sign for filing for bankruptcy.

The licensed trustee then files certain legal documents with the OSB. The OSB then issues its Certificate to evidence the bankruptcy of the person or company. The date and time indicated on the Certificate are when a voluntary bankruptcy starts.

If you are not able to get a LIT to accept your data, or if you cannot afford to work with a LIT in order to declare bankruptcy in Canada, the OSB’s Bankruptcy Assistance Program might have the ability to help. This is provided that you are not and have actually not just recently been, involved in commercial activities or you are not in jail.

What happens when you declare bankruptcy in Canada?

There are three different avenues that can have someone declare bankruptcy in Canada:

  1. Voluntary assignment – A financially troubled insolvent person or company can make a voluntary assignment in bankruptcy. This is where they voluntarily make a general assignment in bankruptcy for the general benefit of all of their creditors.
  2. Bankruptcy application – A creditor who is owed at least $1,000 on an unsecured basis submits an application to the court for obtaining a bankruptcy order against the debtor and the debtor’s property.
  3. Deemed bankruptcy – When a debtor who has made the choice to start an insolvency process under the BIA to gain debt relief through trying to restructure their unsecured debt, has fallen short to satisfy the requirements for:
    1. submitting a Division I proposal;
    2. gaining the necessary votes in favour of the proposal from the unsecured creditors; or
    3. obtaining court approval for the proposal.

Under a deemed bankruptcy, the moment the debtor fails in one of these ways, the BIA says that the debtor is deemed to have made an assignment in bankruptcy.

The bankrupt is able to earn a living after filing for bankruptcy. For this objective, the bankrupt can work or run a company, after the bankruptcy event. However, an undischarged bankrupt cannot be a director of a company. Also, upon the onset of the bankruptcy, the debtor must turn over to the licensed insolvency trustee, any shares of companies owned by the bankrupt.

The Trustee will send a notice to your creditors informing them of the bankruptcy. If there needs to be a meeting of creditors, the Trustee will hold it. The Trustee will also provide the bankrupt person with two credit counselling/financial counselling sessions with an individual who is an OSB qualified credit counsellor from the Trustee’s office, as part of the overall bankruptcy administration.

As you can see, not every way of declaring bankruptcy in Canada is totally voluntary.

declaring bankruptcy in canada
declaring bankruptcy in canada

Declaring bankruptcy in Canada: What assets do you lose in bankruptcy?

One of the most important tasks a Trustee has in the entire personal bankruptcy process or corporate bankruptcy process after the debtor chose declaring bankruptcy in Canada is to:

  • take an inventory of the debtor’s assets;
  • make sure they are physically secure and insured;
  • formulate a plan to sell the assets for the most amount possible under the circumstances;
  • review the financial affairs of the bankrupt, including the household income and financial situation of the bankrupt in a personal bankruptcy filing, and prepare a report to the creditors; and
  • then pay a dividend to the creditors.

There are however certain exemptions allowed for people. Few are based on federal law. Most are based on provincial law. So exempt assets may differ from province to province. In Ontario, assets that are exempt, and therefore not subject to seizure by a Trustee, are:

  • The equity in your home of no greater than $10,000.
  • A vehicle with an equity value of no more than $6,000.
  • Garments and medical/dental aids.
  • Household furnishings up to a worth of $13,100.
  • Tools of the trade with a value of no greater than $11,300.
  • Pension plans, RRIF, RRSP (other than any kind of RRSP payments made within 12 months of the date of bankruptcy).
  • Farmers– no greater than $29,100 for animals and also tools & equipment.

Even though someone has decided that filing bankruptcy is the route they must go, there are certain assets they will not have to give up.

Declaring bankruptcy in Canada: Does Bankruptcy clear tax debt in Canada?

The short answer is yes. Income taxes payable calculated on your tax return but not paid is a type of debt that is released when a person gets their bankruptcy discharge. However, you should know that there is a wrinkle for anyone who owes $200,000 or more in income tax debt and if that debt to Canada Revenue Agency (CRA) equals 75% or more of the total unsecured proven claims in the bankruptcy. If that is the case, then that affects the bankrupt’s ability to get a discharge after declaring bankruptcy in Canada.

If it is the person’s first time filing bankruptcy and they do not have to make surplus income payments, then they are still entitled to a discharge after 9 months from the date of bankruptcy. If it is their first time but they do have surplus income payments, then they cannot apply for a discharge until after 21 months.

If this is the person’s second time filing bankruptcy, if they do not have any surplus income payments, then rather than being able to apply for a discharge after 9 months, they must wait 24 months. If they do have surplus income payments, then it is extended to 36 months.

If someone has been bankrupt more than one time before and has at least $200,000 of income tax debt representing 75% or more of the total proven unsecured claims, then regardless of their surplus income payment situation, they must wait 36 months.

Such a bankrupt is called a high tax debtor. A high tax debtor is not entitled to have the Trustee issue an automatic bankruptcy discharge when the time has expired. Rather, there must be a court hearing for the bankrupt’s application for discharge.

CRA will oppose an absolute discharge at least on the basis of the fact that they are a high tax debtor. The Trustee does not have to oppose the discharge on this basis. However, if the bankrupt has failed to live up to any of their duties, including making the required surplus income payment, the Trustee will oppose.

The court will make a conditional order of discharge. At least one of the conditions will be to pay a certain amount to the Trustee for the benefit of the unsecured creditors. The amount depends on the unique circumstances of that bankrupt, but you can assume that the amount will be about 25% of the income tax owing.

So anyone how has income tax debt and is contemplating declaring bankruptcy in Canada, needs to look at their total liabilities carefully. If at all possible, you do not want to be a high tax debtor when declaring bankruptcy in Canada.

Declaring bankruptcy in Canada: What debt does bankruptcy not cover?

Some people think that in a personal bankruptcy filing, the bankruptcy filing itself is what eliminates the person’s debts. That is wrong. At the moment of declaring bankruptcy in Canada, nothing actually happens to your debts. It is the person’s discharge from bankruptcy that “discharges” the person from their debts.

Yet, there is still a category of debts that are not covered and not discharged when a personal bankruptcy discharge occurs. The debts that are not covered or discharged, are outlined in section 178(1) of the BIA. These such debts are:

  • any type of penalty, fine, restitution order or other order comparable in nature to a penalty, fine or restitution order, enforced by a court in regard of an offence, or any kind of debt developing out of a recognizance or bond;
  • any damages award by a court in civil process for:

    ( i) physical injury intentionally caused, or sexual assault, or

    ( ii) wrongful death resulting therefrom;
  • any type of financial debt or responsibility for spousal support or alimentary pension;
  • any kind of financial obligation or liability developing under a judgment establishing an association or about support or maintenance, or under an agreement for maintenance and support of a spouse, former spouse, previous common-law companion or child not living with the bankrupt;
  • any type of financial obligation or liability occurring out of fraudulence, embezzlement, misappropriation or defalcation while acting in a fiduciary capacity or, in the Province of Quebec, as a trustee or administrator of the property of others;
  • any financial debt or liability resulting from getting property or services by false pretenses or fraudulent misrepresentation, apart from a debt or responsibility that arises from an equity claim;
  • liability for the dividend that a creditor would have been qualified to receive on any kind of provable claim not disclosed to the trustee unless the creditor had notification or understanding of the bankruptcy and fell short to take reasonable activity to confirm the claim; or
  • student loans if the bankruptcy filing happened before the person stopped being a full or part-time student or within seven years after the day on which the bankrupt stopped to be a complete- or part-time student

Declaring bankruptcy in Canada summary

I hope you enjoyed this declaring bankruptcy in Canada Brandon Blog post. If you are concerned because you or your business are dealing with substantial debt challenges 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 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. 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 this 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.

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.

Categories
Brandon Blog Post

BANKRUPTCY DISCHARGE CERTIFICATE CANADA: THE COMPLETE HAPPY STORY OF YOUR BANKRUPTCY DISCHARGE

bankruptcy discharge certificate Canada
bankruptcy discharge certificate Canada

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

The Ira Smith Trustee Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting. We hope that you and your family are safe and healthy.

Bankruptcy discharge certificate Canada introduction

What is a bankruptcy discharge? When a bankrupt is discharged from bankruptcy, he/she gets a bankruptcy discharge certificate Canada. The individual is launched from the legal responsibility to repay financial debts that existed on the day that the bankruptcy was filed. This is true other than for certain financial debts that are not discharged when the insolvent receives his/her discharge which I will go over listed below.

Usually, only personal bankrupts are discharged from bankruptcy. Companies that are bankrupt remain that way. The only method a company can exit from bankruptcy is if the claims of creditors are paid off with interest. This never occurs. If it could, the company would have submitted a restructuring strategy under either the Bankruptcy and Insolvency Act (Canada) (BIA) or the Companies’ Creditors Arrangement Act (Canada) (CCAA).

Therefore, the balance of this Brandon’s blog will talk about an individual person who receives a bankruptcy discharge certificate Canada.

Who can issue a bankruptcy discharge certificate Canada?

Only a Canadian licensed insolvency trustee (Trustee) can carry out the bankruptcy administration and then provide the bankruptcy discharge certificate Canada. If neither the Trustee nor a creditor opposed the discharge and the Trustee issued the certificate, that means the bankrupt individual satisfied all of their obligations without the need for a court hearing.

If either the Trustee or a creditor opposes the discharge of the bankrupt individual, by issuing a notice of opposition to discharge, that indicates:

  1. In the case of a Trustee opposition, that means the bankrupt did not fulfill all of their duties as an undischarged bankrupt when the time came for the Trustee to make that determination if the bankrupt is entitled to a discharge.
  2. One or more creditors believe there is information that needs to be evaluated by the court to determine what kind of discharge from bankruptcy the person should get if any.

The court would then determine what type of bankruptcy discharge the bankrupt should receive:

  1. absolute – entitled to an immediate discharge;
  2. conditional – can obtain a discharge after fulfilling one or more conditions;
  3. suspended – the bankrupt’s discharge will occur at a later date and is combined with either an absolute bankruptcy discharge or conditional bankruptcy discharge;
  4. refused – the bankrupt’s discharge is such that the court refuses to hear the application; or
  5. “no order” – the Trustee advises the court that notwithstanding the time period has elapsed, the bankrupt has not properly fulfilled all of his or her duties and the bankrupt has failed to respond to the Trustee’s requests. In this case, once the “no order” order is issued, the Trustee is at liberty to seek its discharge (more on this below).

Once the bankrupt person has fulfilled the conditions set by the court and/or the suspension period has ended, the Trustee can then issue the bankruptcy discharge certificate Canada.

Bankruptcy discharge certificate Canada: How long will I be bankrupt?

For a 1st time bankrupt person, many will certainly qualify for an automatic discharge after 9 months.

If you have been bankrupt before a second bankruptcy discharge will not be able to get a discharge in 9 months. Your bankruptcy will be prolonged. A 2nd bankruptcy lasts for a minimum of 24 months. If you have surplus income, a second-time bankrupt will not have the ability to get a bankruptcy discharge certificate Canada for 36 months.

For a 3rd time bankrupt, the timeline is the same as the 2nd time bankrupt. Nonetheless, it is more probable that there will be resistance to that bankrupt’s discharge by the Trustee or one or more creditors. The court can prolong the time in whichever means it believes is most suitable.

Bankruptcy discharge certificate Canada: Who tells my creditors that I am discharged from bankruptcy

The Trustee will notify the Office of the Superintendent of Bankruptcy (OSB) that the individual has been released from bankruptcy. The Trustee advises the OSB by filing a copy of the bankruptcy discharge certificate Canada. The Trustee advised the creditors that the insolvent is qualified to a discharge unless an opposition is filed in the bankruptcy notification sent out to all creditors.

The Canadian credit bureaus, Equifax Canada and TransUnion Canada are notified because they pay the OSB to get Canadian bankruptcy information. The credit bureaus then update all credit files with the corresponding bankruptcy info, including discharges.

Bankruptcy discharge certificate Canada: What debts are not forgiven and will survive my bankruptcy?

What debts cannot be discharged? A bankruptcy discharge certificate Canada provides the discharge of all unsecured debts, except for:

  1. matrimonial or children support payments;
  2. fines or penalties mandated by the court;
  3. claims arising from fraud or fraudulent breach of trust;
  4. student loan debt if less than 7 years have actually passed since the bankrupt stopped being a part-time or full-time student.

These kinds of debts survive bankruptcy and are not released. The person will need to continue paying those financial obligations according to their terms. All other debts are discharged and do not have to be paid.

Also, any debts that are properly secured by one of your assets, such as a house mortgage or car financing, are not released as a result of your bankruptcy or your bankruptcy discharge certificate Canada.

Bankruptcy discharge certificate Canada: What if my creditors still contact me and try to get me to pay them?

If the creditors are consistently calling you and demanding settlement, supply them with a duplicate of your bankruptcy discharge certificate Canada. If the creditor states they were not aware of your bankruptcy, also offer them a duplicate of your sworn statement of affairs revealing them listed as a creditor.

If they are listed, then the Trustee sent them a notice of bankruptcy including a form 31 proof of claim to complete and return to the Trustee.

bankruptcy discharge certificate Canada
bankruptcy discharge certificate Canada

Bankruptcy discharge certificate Canada: What does trustee discharge mean?

After the Trustee has fully completed the administration of the bankruptcy estate, the Trustee is entitled to its discharge. The Trustee must prove to the OSB that it has completed the administration. This includes providing the OSB with a copy of the Final Statement of Receipts and Disbursements to get the Superintendent’s comment letter.

Then the Trustee must provide the final statement, the comment letter, and other documents to the court to prove that the administration is complete, get the final statement approved, and taxed. When that happens, the court issues the Trustee’s discharge order. The Trustee then files that order with the OSB and closes its file.

It is possible for the Trustee to receive its discharge while the bankrupt remains undischarged. This happens either when the result of the bankrupt’s discharge hearing results in a “no order” (see definition above) or sufficient time has elapsed showing the bankrupt is not going to fulfill the conditions to get a discharge. In this case, the Trustee is at liberty to get its discharge.

Once the Trustee gets its discharge, an undischarged bankrupt loses the protection of the automatic stay of proceedings that were invoked upon the bankruptcy occurring. Once this protection is lost, the creditors are at liberty to once again pursue the bankrupt person for collection on the debts owing.

Bankruptcy discharge certificate Canada: what if I fail to include one of my creditors in my bankruptcy?

If I failed to remember to include one of my creditors in my bankruptcy do I need to pay them? If your Trustee hasn’t been discharged yet, simply tell the creditor to call your Trustee to participate in your bankruptcy.

If your Trustee has actually been discharged then the creditor is qualified to be paid the same returns (% of the debt) your other creditors obtained from your bankruptcy. You will need to pay this amount.

If you intentionally omitted the lender from your bankruptcy (the obligation is on the lender to verify this) after that the lender can ask the court to enable their financial obligation to survive, and if successful, you will need to pay the full amount.

Bankruptcy discharge certificate Canada: What are the benefits of keeping my bankruptcy discharge papers?

As reviewed above, after you have actually successfully finished every one of your bankruptcy responsibilities and any kind of conditions of discharge, you will receive your discharge from bankruptcy. When you get your bankruptcy discharge your Trustee will give you a bankruptcy discharge certificate Canada.

That paper is proof that you have actually formally been launched from your financial debts that were included in your bankruptcy. As already stated, particular financial obligations can’t be discharged in bankruptcy. Also, any type of debts that you sustain after the day of your bankruptcy are your responsibility as well as are not eliminated by your bankruptcy discharge.

Bankruptcy discharge certificate Canada: How long does my credit score take to recover from bankruptcy?

Your bankruptcy will stay on your credit report for 6 years from the date your bankruptcy discharge certificate Canada is issued. If you have actually been bankrupt more than once, then it might be reported for approximately 14 years from the date of your discharge.

Having actually removed your financial obligation problems by getting your bankruptcy discharge certificate Canada, most individuals see they now have the ability to construct a more powerful financial future. Unless you urgently need to purchase a house for the very first time or buy an auto, you need not also bother with getting approved credit to take on debt right away. Many find they have the ability to live without credit considering that they have a more powerful cash flow than prior to bankruptcy. They are now able to start saving.

While you remain in bankruptcy, you are learning to live your life without credit. You are living essentially on a cash basis. You are not spending more than you make. Your Trustee is advising you to do so on an after-tax basis so that you will not have a nasty surprise when tax time comes.

Bankruptcy discharge certificate Canada: 2 simple steps to improve your credit score after your discharge from bankruptcy

This remains for the first 2 or three years after you have actually completed the bankruptcy process. Throughout this time access to credit will be restricted.

We encourage all our bankrupts, once discharged, to immediately start rebuilding their credit. You can slowly start rebuilding your credit through 2 simple steps:

  1. Apply for a secured credit card. This kind of credit card works on the basis that you deposit money against the card with the secured credit card issuer. You then use the credit card like any other. If you pay it off each month, this gets reported to the credit bureaus. This proper use of this credit helps to improve your credit score. If you do not pay the card off when due, the issuer takes the money from your deposit to pay it off.
  2. Take out a small RRSP or TFSA loan. The funds are deposited into your RRSP or TFSA. Make monthly payments against the loan so that the principal and interest are all fully repaid within 1 year. Start small. The important thing is that you do what your cash flow allows. The fact that you are current on your loan is reported monthly to the credit bureaus. This helps to improve your credit score.

Keep in mind that if you do not stay current in paying off your secured credit card balance or your loan, this will further hurt your credit score. The idea is that you have saved this money each month so that you are able to make the monthly payment.

Bankruptcy discharge certificate Canada summary

To declare personal bankruptcy is a major life event. However, it is a necessary thing to rid yourself of crippling debt. Most people who declare bankruptcy have been faced with a major life event. The main examples are illness, pay cuts, job loss, or divorce. It is not your fault. I hope this bankruptcy discharge certificate Canada Brandon’s Blog has given you helpful information.

Do you have too much debt? Are you 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 the person who has too much personal debt.

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

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

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

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

The Ira Smith Trustee Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting. We hope that you and your family are safe and healthy.

bankruptcy discharge certificate Canada
bankruptcy discharge certificate Canada
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Brandon Blog Post

STALKING HORSE INSOLVENCY PROCESS: OUR BEST GUIDE TO GET YOUR M&A DEAL DONE

stalking horse

The Ira Smith Trustee Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting. We hope that you and your family are safe and healthy.

If you would like to listen to an audio version of this stalking horse insolvency process Brandon’s Blog, please scroll to the bottom and click on the podcast.

Stalking horse introduction

I have written before about a stalking horse in the insolvency context. Two things recently happened that suggested that I should write about it again, from a slightly different perspective. The first thing was that Ira Smith recently did a Zoom webinar presentation for the M&A Club Canada. The topic they wanted the webinar on and the title of the webinar was “Insolvency restructuring to get your M&A deal done”. Second, I see that there has been an increase in online searches for that term.

So, the purpose of this Brandon’s Blog is to describe what a stalking horse is and provide you with some insight as to how an insolvency process can be used to get an M&A deal done.

What is a stalking horse in the insolvency and M&A world?

In the distressed M&A context, a stalking horse refers to a possible buyer participating in a stalking horse auction to purchase the assets of an insolvent debtor as a going concern. In a stalking horse public auction of a financially troubled business, an initial bid by the stalking horse bidder is divulged to the marketplace and becomes the minimum quote, or floor cost, that potential purchasers can then outbid.

It was first extensively utilized in the USA and currently is a routine part of the Canadian insolvency landscape. The stalking horse process is different than the sealed tender sale approach that is traditional in Canada. The stalking horse sales process has been used in Canada many times. The case study that Ira presented in his webinar and gone over below, was one that the Ontario Superior Court of Justice approved.

The stalking horse participates in the process understanding that it might be outbid. Accordingly, it negotiates a break fee to cover its costs. This includes its due diligence costs to put together the first offer. Typically, for a competing bid to knock out the stalking horse offer, it will certainly have to be more than the stalking horse bid plus the Break Fee (described below). The competing offer will certainly likewise need to be on the exact same terms as the stalking horse bid, and cannot include any kind of burdensome conditions.

Why would anyone want to become a stalking horse?

So, why would someone want to be a stalking horse? Initially, as a stalking horse, you will certainly have the most effective opportunity of discussing the terms of a purchase that are customized to satisfy your specific issues. Also, as the first prospective buyer, you will have even more time to evaluate and comprehend the insolvent debtor’s company. You will also have a chance to develop connections with management, vendors, and key stakeholders in the sales process. This gives the stalking horse bidder a leg up.

Their expenses of participating in the sales procedure are covered by the break fee that you will negotiate. That break fee is generally secured by a unique court-ordered charge against the assets of the insolvent debtor. However, you will need to consider the ranking of this charge against other charges that may have been already granted by the court.

How a stalking horse bid works

The stalking horse method permits a distressed company to prevent receiving reduced proposals as it sells its assets. When the stalking horse prospective buyer has made its deal, the court has accepted that quote and all other conditions of the court-supervised sale, other prospective purchasers may send contending bids for the company’s assets.

By setting the low end of the bidding process, the insolvent firm wishes to realize a greater price, yet understands it cannot obtain a lower one. Insolvencies are public. The general public nature allows for the disclosure of even more information about the opportunity and the company than what would certainly be available in a private deal. Because of this, in this case study, I explain below, I can mention some names.

Stalking horse prospective buyers can typically bargain which specific assets it wishes to obtain. It likewise does not have to acquire any of the insolvent business’s liabilities. It may however choose for business reasons to take some on voluntarily. Examples would be amounts owing to critical suppliers or employment-related liabilities for employees of the insolvent company they may wish to retain.

MPH Graphics stalking horse bid process case study

MPH Graphics inc. (MPH) was an insolvent company. They had a potential purchaser who was willing to stand as a stalking horse bidder. We ran a successful stalking horse process in this case. This case happened quite a few years ago, but, since then, we have used the identical technique in other cases. When a similar kind of case comes up in the future, we would use the same process. So, although the case is older, the steps taken are still well suited today.

MPH was a company that provided printing design and finishing for Canadian and US customers. MPH printed a variety of products such as business cards, direct mail pieces, annual reports, and marketing materials and primarily serviced government agencies, not for profit organizations, and unions.

MPH grew by acquisitions and required additional capital equipment financed by debt. The business also had to change because the industry was changing from traditional printing presses to digital. That changeover required further capital investment.

MPH was insolvent

MPH’s line of business primarily serviced government agencies, not for profit organizations, and unions. Absorbing the acquisitions produced inefficiencies and redundancies. It also needed to move to larger premises which meant moving costs and higher ongoing rent costs were being incurred.

At the same time, the industry was extremely pricing competitive. Gross margins were squeezed. Overhead costs, especially sales salaries and entertainment expenses increased. There was now a history of losses. The technical staff was very experienced. To get the union business, MPH’s technical side had to be a union shop. MPH had a blue-chip client list, which is what was really of interest to the stalking horse bidder.

Receivable collections were slowing down and the bookkeeper had to put payable cheques that were printed every month in a drawer. The cheques could not be released because there was not enough money to pay their liabilities as they become due.

stalking horse

The stalking horse bidder came knocking

The bidder was an industry consolidator. They came knocking to try to buy the MPH assets. The consolidator did its due diligence and issued a non-binding letter of interest. After further discussions, that interest turned into a binding agreement to purchase the assets. One of the terms of the deal was that the stalking horse bidder required court approval of the purchase and a vesting order from the court to vest the assets out of MPH into the acquiring corporation.

Notwithstanding there were tax losses, the purchaser did not want to purchase shares and have to deal with all the creditor issues. The company could not on its own give the purchaser the certainty it wanted by way of a vesting order. So an insolvency process was required.

What kind of stalking horse insolvency process?

There are generally three insolvency options. Some are not necessarily mutually exclusive. They are:

  • receivership;
  • bankruptcy; and
  • restructuring.

Receivership is a remedy for secured creditors. In a receivership, the company loses control of the sales process. Bankruptcy is a remedy for unsecured creditors. In bankruptcy, likewise, the company loses control. It needed a process where the company stays in control.

The insolvent company’s requirements were:

  • stay in control of the process;
  • do that specific transaction or a better one; and
  • get court protection for both the sales process and the sale.

So neither receivership nor bankruptcy would work. So what would allow the company to meet its requirements and run a stalking horse bid process?

A stalking horse process works best in an insolvency restructuring process

What is needed is a debtor in possession option. In the United States, it is called a Chapter 11 proceeding. In Canada, there are two federal statutes that apply and can accommodate the needed process:

The benefits of this approach are:

  • The company stays in control of the process.
  • It allows for the stalking horse transaction or a better one to be completed.
  • Allows the insolvent company to get protection from its creditors through the automatic stay of proceedings. This gives it the time to run the stalking horse process, go back to court for approval, and to complete a transaction.

Liquidating proposal under the BIA to run the stalking horse process

We chose the strategy of a proposal filing under the BIA. The main reason was that the CCAA is for companies that owe $5 million or more. MPH owed under that threshold, so only the BIA process was available. The strategy would have been the same, even if MPH qualified for a CCAA process and we decided to go under that statute.

As time was of the essence, we MPH first filed a Notice of Intention to Make a Proposal (NOI). This quickly got them the stay of proceedings they needed and access to the court, before needing to draft the definitive proposal document.

The company filed the NOI to implement a sale of its assets, properties, and undertaking, in order to attempt to preserve as much value as possible for the Company’s stakeholders, while preserving as many jobs as possible. As Trustee, we then wrote a report to the court in support of the company’s motion to get the purchaser’s agreement of purchase and sale to be approved as a stalking horse bid and for approval of a sales process, we would run.

As Trustee, we worked with MPH, the purchaser, and their respective legal counsel, to draft the sales process and the terms and conditions of sale. These would be the rules that would allow for the marketplace to become aware of the opportunity to purchase all or substantially all of the assets, properties, and undertaking of MPH.

Key elements of the stalking horse sales process

The key elements of the stalking horse sales process were:

  • The break fee payable to the stalking horse bidder if they turned out to not be the successful purchaser was set at the amount of $100,000.
  • The Overbid Amount (as described in the Stalking Horse Agreement of Purchase and Sale) was reduced to the amount of $100,000.
  • If an auction was to be held between parties that all qualified as successful bidders, each bid had to be at least $5,000 higher than the last one.

The outcome of the stalking horse sales process

The process we recommended to the court was a 5-week process. The court approved our recommendations and ran the sales process. The process included:

  • Advertising the opportunity in a national newspaper.
  • Preparing and distributing a “teaser” non-confidential information circular to distribute to anyone who requested it along with the terms and conditions of sale.
  • Preparation and distribution of a confidentiality agreement to those who wished more detailed financial information.
  • Receipt of signed confidentiality agreements and distribution of the confidential information memorandum we prepared.
  • Receiving non-binding letters of intent from potential purchasers and deciding which ones we chose to provide access to our electronic data room.
  • Potential purchasers performed due diligence and submitted their final binding offers with deposit funds.

We then reviewed all offers received, to make sure that they met the terms and conditions of sale. We did receive a better offer, but that purchaser’s offer was conditional on them obtaining financing. They could not waive the condition, so the stalking horse bidder’s agreement of purchase and sale turned out to be the winning bid.

Court approval of the stalking horse bid

As Trustee, we then prepared our report to court to provide all the information as to the steps we took and the results of the process. We obviously recommended that the company be allowed to complete the stalking horse agreement. The court agreed and issued the vesting order.

There were enough funds to pay out the government trust claim and all the secured creditors in full. There was also enough cash left over to pay for all the costs of the process. Unfortunately, there was not enough money to do any sort of proposal. So the company filed an assignment in bankruptcy and we became the trustee in bankruptcy.

Moving from our role as proposal trustee to the bankruptcy trustee, we informed all the creditors the details of the sale and the outcome. The business and many jobs were saved as a result.

Stalking horse summary

I hope you have enjoyed this stalking horse Brandon’s Blog. Hopefully, you have better insight now into the fact that a sick insolvent company’s business can be saved by doing a sale of its assets to a healthy organization.

Do you have too much debt? Are you 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 the person who has too much personal debt.

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

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

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

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

The Ira Smith Trustee Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting. We hope that you and your family are safe and healthy.

Call a Trustee Now!