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HOW TO SOLVE THE BIGGEST PROBLEMS WITH BANKRUPTCY PROTECTION MEANING

Bankruptcy protection meaning: Introduction

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

“bankruptcy protection noun [ U ]

UK ​ US ​ also bankruptcy-law protection

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

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

We have filed for bankruptcy protection from creditors.

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

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

See also

Chapter 11”

Bankruptcy protection meaning: Bankruptcy protection meaning

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

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

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

Bankruptcy protection meaning: How does it begin?

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

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

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

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

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

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

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

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

Bankruptcy protection meaning: Does Chapter 11 exist in Canada?

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

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

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

Bankruptcy protection meaning: The Canadian restructuring laws

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

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

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

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

3bestaward

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

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

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

Bankruptcy protection meaning: Some examples please

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

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

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

If your company has too much debt and insufficient cash flow, you need your plan and strategy in place NOW. Contact us now. The Ira Smith Team is here to solve your debt problems and help you carry out that winning strategy, no matter the reason. We’re here to help and get you back on solid financial footing Starting Over, Starting Now. We’re just a phone call away.

UPDATE: CHECK OUT OUR NEW VLOG BY CLICKING ON:

SEARS CANADA IS CLOSING: THE #1 REASON YOU HAVE TO RUN AND NOT JUST WALK TO REDEEM YOUR GIFT CARDS AND CREDITS

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BANKRUPTCY TRUSTEE IN VAUGHAN BECOMES LICENSED INSOLVENCY TRUSTEE

alternative to bankruptcy

The bankruptcy trustee in Vaughan: Why did we transform into a licensed insolvency trustee?

Similar to caterpillars turning into butterflies, this bankruptcy trustee in Vaughan went through a metamorphosis. The Office of the Superintendent of Bankruptcy officially changed the name “bankruptcy trustee” to “licensed insolvency trustee” (LIT). As of April 1, 2017, all licensed trustees must have fully transitioned to the use of the LIT designation.

The purpose of this blog is to offer an overview of the Canadian insolvency process. Think of it as a bankruptcy and insolvency lesson 101.

What is the purpose of the Bankruptcy and Insolvency Act

Among the primary functions of this insolvency process, it is to release the individual from specific financial debts. It is to give a straightforward honest but unfortunate debtor a “new beginning.”. The debtor has no responsibility for discharged financial obligations.

A discharge is available to personal bankrupts, not to corporations. Although a personal case typically causes a discharge of financial debts, the right to a discharge is not absolute. Some sorts of debts may not be released. Section 178(1) of the Bankruptcy and Insolvency Act (Canada) (“BIA”) sets out the types of debts that are not released by the discharge of the bankrupt. The kinds of debts that are not released are:

1. child support and alimony;

2. fraud or near fraud;

3. debts arising from Court orders.

Where can I do some of my research?

You must initially do some of your own research to get an idea of exactly what your choices are. One place to start is our website to learn about:

  1. Personal Services
    1. Credit Counselling
    2. Consumer Proposals
    3. Bankruptcy Alternatives
    4. The Bankruptcy Process
    5. Why use a Licensed Insolvency Trustee?
    6. Rebuilding Credit
    7. Personal Bankruptcy
    8. TOP 20 PERSONAL BANKRUPTCY FAQs
  1. Corporate Services
  2. Creditor Services
  3. Our Blog titled Brandon’s Blog

Once you have a good handle on what to expect, speak to a LIT to begin discussing what actions you have to take next.

bankruptcy trustee in vaughan
bankruptcy trustee in vaughan

The BIA

The BIA allows for a procedure that permits people and companies to be released from all of their financial debts through either:

  1. a restructuring (Consumer Proposal, Division I Proposal or the Companies’ Creditors Arrangement Act) under secure arrangements of the federal insolvency statute; or
  2. through bankruptcy by turning over their property to a licensed insolvency trustee to realize upon it for the general benefit of creditors.

Either way, the funds available for distribution to the creditors are paid out by the licensed insolvency trustee. It is according to the scheme of priority laid out in the BIA.

The Court will consider approving a repayment plan that will repay the approved part of the financial obligations in no more than 5 years. When you use the restructuring provisions of the BIA (Consumer Proposal or Division I Proposal), you need to have a payback strategy to show your creditors just how you are going to pay back your debts. A successful restructuring plan is an alternative to bankruptcy and will allow a person or company to avoid bankruptcy.

There are various rules and ways that must be followed. Your licensed insolvency trustee can go over all the issues with you and is there to aid you through the process.

How does it all work?

Canada’s insolvency legislation is designed for debtors experiencing financial problems who cannot pay their present financial obligations and don’t have enough cash flow to offer a restructuring plan to avoid bankruptcy. The aim is to get a release from their existing debts.

The premise of the BIA is that the individual must deliver all of his or her non-exempt assets to the licensed insolvency trustee. The trustee will sell them for distribution to the creditors. In return, other than for either secured debts or the class of debts not released by a discharge from bankruptcy discussed above, the person’s debts will be erased. The person will be able to maintain any type of property that is categorized as exempt under provincial regulations. In this way, a discharge allows the individual to return to society as discharged bankrupt. This allows the person to start all over again.

Your credit score

Filing in an insolvency process could impact your financial resources and credit score for years. You should very carefully weigh all your options before choosing the bankruptcy option. That is a discussion a licensed insolvency trustee will be happy to have with you and will help you in first trying to find one of the possible bankruptcy alternatives. Hopefully, together you can see which one is best for you. Only if there is not an available alternative, will the trustee recommend bankruptcy?

A current bankruptcy filing may prevent you from acquiring a mortgage or other financing for years. Credit card businesses will instantly end your charge cards when you file for bankruptcy. Likewise, if you are trying to find a job or rent a place to live, some employers or property owners might look unfavourably on a current bankruptcy filing. If other applicants are as qualified as you and don’t have a bankruptcy on their record, you probably won’t be chosen.

Fresh start

Bankruptcy permits people or companies that are unable to pay their debts to settle their monetary difficulties and start restoring their credit. Declaring bankruptcy will trigger the “stay of proceedings”, preventing creditors from starting or continuing any legal action to collect their debts.

A bankruptcy filing will stay on your credit report for about 7 years. Since many financial debts can be discharged in bankruptcy with certain exceptions, people can take certain steps to begin boosting their credit rating after filing for bankruptcy and for sure after obtaining their discharge.

What to do if you are experiencing financial hardship

I hope this bankruptcy trustee in Vaughan Brandon’s Blog was helpful to you. People experience financial hardship for many reasons. If you’re experiencing financial hardship and are looking for a way out, contact Ira Smith Trustee & Receiver Inc. With immediate action and the right plan for moving forward, we can set you on a path to debt-free living Starting Over, Starting Now. All it takes is one phone call.

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PERSONAL BANKRUPTCY BLOG – TRUSTEE EXPLAINS BANKRUPTCY OPTIONS

Introduction

Our Brandon’s Blog certainly is a personal bankruptcy blog, but it is more than that. Brandon writes on various finance and insolvency-related topics including corporate restructuring, corporate bankruptcy, alternatives to bankruptcy, credit counselling, restructuring through a consumer proposal or a Division I Proposal or the Companies’ Creditors Arrangement Act (CCAA).

Every Monday and Wednesday night Brandon posts to Brandon’s Blog. Monday night is a blog and Wednesday night is a vlog. Just to remind you what this means, here are dictionary definitions:

blog Pronunciation: /blɒɡ/noun

A regularly updated website or web page, typically one run by a person or small group, written in an informal or conversational style: you can add personal bankruptcy blog to the growing list of insolvency-related material popping up on the Web

vlog Pronunciation: /vlɒɡ/ noun

A blog in which the postings are primarily in video form: you can add personal bankruptcy vlog to the growing list of insolvency-related material popping up on the Web

Differences between US and Canadian insolvency statutes

In the United States, people filing for bankruptcy have many “chapters” from which to choose. Similarly, Canada has one chief insolvency law, the Bankruptcy and Insolvency Act, or BIA, and several supporting pieces of legislation. In perusing a personal bankruptcy blog, the potential filer can find the information he or she seeks.

In the United States, Chapter 11 bankruptcy is the most complex because it applies to large businesses and usually involves gigantic sums of money. In Canada, the equivalent is the Division I proposal. In such a proposal, the debtor’s business can keep assets necessary for its role so that it can generate streams of income from other places to repay its debts. Management also stays in control of the company and business operations.

What are the Choices in Canada?

The BIA sets out the ground rules, and several smaller pieces of legislation fill in the details. Although we Canadians don’t call them various chapters, our legislation is like that of the U.S. Here are the options for filing bankruptcy in Canada:

Personal bankruptcy in Canada is most similar to Chapter 7 in the U.S. By filing bankruptcy, the debtor seeks to deal with his or her entire debt load at once. The debtor does not believe that he or she has the means to attempt a restructuring. There are certain assets that are exempt for any one of a number of reasons, so anyone filing bankruptcy should consult a Trustee to find out more.

If a debtor decides to file a consumer proposal (because his or her debt load is $250,000 or less, not including any mortgages against the principal residence) or a Division I Proposal (for unsecured debts $250,000 or greater) instead, he or she is seeking a restructuring of debt so for repayment over a five years or less. Many times, debtors can negotiate with their creditors for part of the amount owed and work out deals on monthly payments, rates of interest, and other such considerations. A proposal is most similar to Chapter 13 in the U.S. and used by people who wish to AVOID bankruptcy.

Basically, the business operates as usual while making an offer to its creditors of payments over time, totalling an amount greater than the creditors would receive if everything was sold off in liquidation in bankruptcy. The largest businesses might even have several layers of debt that would need restructuring as part of a Division I proposal, and each layer might have different guidelines and restrictions based on the proposal.

For companies with greater than $5 million in debt, they could also make use of a different Federal restructuring statute called the Companies’ Creditors Arrangement Act (CCAA). Both the Proposal under the BIA and restructuring under the CCAA are for large complex corporate reorganizations.

Is a Lawyer Required?

Unlike citizens of the United States, Canadians don’t need a lawyer to file for bankruptcy. A Licensed Insolvency Trustee acts as the “referee” between debtor and creditors. In this way, people file and handle bankruptcy proceedings on their own in Canada. If the debtor has various complex issues or is a defendant in litigation where the plaintiff wishes to continue the litigation perhaps to attempt to prove that their claim is one not released by the person’s discharge from bankruptcy, then they may very well need a lawyer for those issues.

What to do if you have too much debt and want to read a personal bankruptcy blog?

To find out more, check out our Brandon’s Blog entries for the topic of personal bankruptcy blog. If you’re dealing with serious financial issues, contact a trustee, who is the Canadian bankruptcy expert. For the reasons already given, you should do this whether or not you’re contemplating bankruptcy. The reason is very simple: the licensed insolvency trustee will assess your situation, offer you all of your available options and will do this for you for free! You can’t find a better deal anywhere.

We’re not only bankruptcy experts; we’re experts in dealing with debt. Contact Ira Smith Trustee & Receiver Inc. today for a free consultation and you will be well on your way to regaining your former quality of life Starting Over, Starting Now.

THIS VLOG WAS INSPIRED IN PART BY OUR eBOOK – PERSONAL BANKRUPTCY CANADA: Not because you are a dummy, because you need to get your life back on track

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BUSINESS RESTRUCTURING PROPOSAL: REASONS WHY GOODWILL TORONTO IS NOT ALWAYS ENOUGH

The issue of a business restructuring proposal of Goodwill Toronto has recently been in the news. This video is an interview aired on TV Ontario, The Next Ontario show, with Dr. Sarah Kaplan, Professor of Strategic Management at Rotman School of Management, University of Toronto. The purpose of the interview is to obtain Dr. Kaplan’s views on the Goodwill Toronto closure of 16 Goodwill stores.

Toronto Goodwill thrift stores were operated, not unlike a Salvation Army thrift store, to raise funds to support the aims of the non-profit; in this case job skills and job creation for those who might otherwise be unemployable.

It takes money to restructure

We have all heard the expression “It takes money to make money”. I would like to make a slight twist on that expression by stating that it takes money to have a successful business restructuring proposal. Not only does the company and business have to be able to have sufficient cash flow in order to operate during the restructuring period, but there are also extraordinary one time expenditures related to the restructuring. Examples of such one time expenditures are reasonable one time exit fees to get out of uneconomical contracts, bonus payments to key personnel to ensure that they perform throughout the entire restructuring rather than resign for a new position elsewhere and professional fees.

Our Goodwill Toronto analysis

Our firm was consulted early in January to act as the licensed insolvency trustee in a business restructuring proposal of Goodwill Toronto. We spent half a day meeting with representatives of Goodwill Toronto in order to learn of their plight and to determine what sort of restructuring proposal might be possible.

In our meeting we learned that the main assets of Goodwill Toronto consisted of: (i) cash or liquid investments pledged to a Canadian chartered bank on account of business loans; (ii) accounts receivable with a certain percentage collectability; and (iii) inventory of items for sale, mainly used clothing, spread across 16 stores in leased locations.

We also learned that there were over 400 unionized employees, the majority of which had long term service with Goodwill Toronto. This is significant for three main reasons: (i) a viable restructuring proposal would be required to save the jobs of many, but probably not all of the employees; (ii) if the business restructuring proposal was unsuccessful, Goodwill Toronto would automatically be deemed to have filed an assignment in bankruptcy (a deemed assignment); and (iii) in a bankruptcy, the employees would have a claim under the Wage Earner Protection Program Act (WEPPA).

It takes money to implement a successful business restructuring proposal

So, why is this significant? The reasons it is significant for a restructuring vs. bankruptcy are:

  1. The secured portion of the employees’ WEPPA claim coming ahead of all creditors, including the chartered bank, totalled approximately $900,000.
  2. Next in priority was the claim of the chartered bank.
  3. There were no free assets after the above 2 claims that Goodwill Toronto could use to fund operations or the extraordinary expenses associated with a business restructuring proposal discussed above.

So as you can see, with no free cash flow, no excess realizable assets or a third party who could fund a business restructuring proposal (or in the worst case a bankruptcy proceeding), it would not be possible for a knowledgeable licensed insolvency trustee to agree to act as there was no source of funding available.

This is why the best of intentions and goodwill (toronto) is not always enough!

The Sarah Kaplan interview

Professor Kaplan raises many good points in this interview, including:

  1. We should first think about what the whole business model of the goodwill is.
  2. The goods that they get to sell are aimed at just generating revenues that allow them to perform their actual services like job.
  3. It may be that the retail environment is tougher in some ways if we think about the alternative for people who buy things at goodwill would be to go to discount stores or dollar stores.
  4. As the market is becoming more and more competitive we could imagine that people would not need to shop at Goodwill if they can get a t-shirt for $5 at WalMart.
  5. Goodwill’s in other areas though are doing fine so we may need to look a little bit more deeply into the problem.
  6. The entire board resigned so there could be some other management issues that led to Goodwill Toronto to be running a deficit.
  7. You have to be well managed and being a social enterprise is not an excuse to not be well managed; you need the same skills capabilities and maybe even more skills and more capabilities than in the for-profit world.
  8. The fact that they’ve taken this extraordinary really drastic measure leads me to believe that the difficult retail environment is not the whole story and therefore not the whole story for other social enterprises.

NOTE: After writing this blog, Goodwill Toronto filed an assignment in bankruptcy.

Is your company in need of a business restructuring proposal?

If your company is trapped with too much debt, you need a professional trustee to help you manage debt and create a viable business restructuring proposal (either under the Bankruptcy and Insolvency Act or the Companies’ Creditors Arrangement Act – BIA or CCAA) before it reaches a critical stage where bankruptcy is your only option. We have been able to help many companies carry out a successful business restructuring proposal. Successful completion of such a program, will free you from the burden of your company’s financial challenges to go on to be a productive, profitable employer allowing management to focus on business growth and not be plagued by debt problems.

Contact the Ira Smith Team today in order to look at the bankruptcy alternative of a business restructuring proposal. We can help and Starting Over, Starting Now you can be restored to financial health.

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STALKING HORSE BID: DO YOU REALLY WANT 2 STALK YOUR ADORABLE HORSE?

stalking horse bid
stalking horse bid

This blog was originally published on July 21, 2015. It was updated on March 22, 2021.

Bankruptcy Sales: What Is a Stalking-Horse Bid?

A stalking horse bid, in the Canadian insolvency context, is an attempt by a company (and/or its Monitor, Receiver or Trustee ) in a Court supervised insolvency proceeding, to set what will be the baseline that must be met and beaten by any other bids for the assets. The intent is to maximize the value of its assets as part of a Court supervised sales process and to discourage any bid below a certain value.

A stalking horse is a process that allows a potential buyer (the stalking horse bidder) to make a public bid for a company’s assets in order to set a floor price for the amount of money to be received by the company’s creditors in a (bankruptcy) sale. The stalking horse bidder will get to purchase the company’s assets if no other bidder comes forward. The stalking horse provision allows for the bidding process terms and conditions to be set in a court-supervised sale.

In this Brandon Blog, I describe the stalking horse bid process and how it works

What’s a stalking horse bid? Example of a stalking horse bid

According to Wikipedia:

“The term stalking horse originally derived from the practice of hunting, particularly of wildfowl. Hunters noticed that many birds would flee immediately on the approach of humans, but would tolerate the close presence of animals such as horses and cattle. Hunters would therefore slowly approach their quarry by walking alongside their horses, keeping their upper bodies out of sight until the flock was within firing range. Animals trained for this purpose were called stalking horses.”

In an insolvency context, a stalking horse bid stands to test the market to see how the market values the assets for sale. If the market values the assets less than the amount of the stalking horse bid, then no one will bid higher and the party who made the stalking horse bid will be successful in acquiring the assets.

If the market values the assets more than the amount of the stalking horse bid, the higher offers will be made for the assets and for the Court to consider for approval. Presumably, a higher offer will be approved, the purchaser will purchase the assets and the stalking horse bid will not prevail.

stalking horse bid
stalking horse bid

How a Stalking-Horse Bid Works

The stalking-horse bid method allows a distressed company to avoid receiving low ball bids as its assets are being sold. Once the stalking-horse bidder has made its offer and it has been negotiated and court-approved, other potential buyers may submit competing bids for the company’s assets.

By setting the low end of the bidding range, the insolvent company hopes to realize a higher price on its assets. Insolvency proceedings are public. The public nature allows for the disclosure of more information about the deal and the buyer than what would be available in a private deal.

Stalking-horse bidders can generally negotiate which particular assets and liabilities it hopes to acquire. After the stalking horse bid is negotiated resulting in an asset purchase agreement, it will be necessary for the company, Receiver or Trustee to obtain Court approval of not only the stalking horse bid but also for the entire sales process to be implemented.

If the company is attempting to restructure and requires “bankruptcy protection”, then those corporate proceedings would be either under the Companies’ Creditors Arrangement Act (“CCAA”) or the Proposal provisions of the Bankruptcy and Insolvency Act (Canada) (the “BIA”). In that situation, it is the company making an application to the Court with the support and assistance of the monitor or proposal trustee.

If it is a corporate receivership or bankruptcy proceeding, then it is either the receiver or bankruptcy trustee making the application. In the case of bankrupt corporations, then it is the bankruptcy court that needs to approve the stalking horse bid, the entire sales process and approve the sale.

What does it take to get bankruptcy court approval?

When applying to the Court, approval for an entire sales process is being sought, a component of which is the stalking horse agreement. The Court has various considerations in determining if a stalking horse sale process should be approved. They are:

  • Is a sale transaction warranted at this time?
  • Will the sale benefit the whole “economic community”?
  • Do any of the debtors’ creditors have a bona fide reason to object to a sale process of the business?
  • Is there a better viable alternative?”

In the event the stalking horse bid is not the successful winner because of the other potential bidders at least one made a better offer, it is normal for the stalking horse purchaser to receive some form of compensation. The compensation is for the time, cost and resources invested to perform its due diligence, to make its offer which was found to be reasonable in the circumstances and to expose that offer to the marketplace to stand as a stalking horse bid, and for that bidder to not end up as the successful purchaser.

Our Firm has been involved in situations where the stalking horse bid has been both the successful bid unsuccessful bid. If the compensation, commonly known as break-up fees, is fair and reasonable, it will not dissuade other purchasers from coming forward in the sales process, and it will also be fair to the stalking horse bidder if they are unsuccessful. It is fair to the stalking horse bidder to have these bid protections incorporated into their offer.

The Court in considering the approval of a stalking horse bid also considers if the breakup fee, and the entire stalking horse bid, has been negotiated between arms’-length parties and has the support of the stakeholders involved in the insolvency proceeding.

stalking horse bid
stalking horse bid

The Pros and Cons of Being A Stalking Horse Bidder for Assets In Bankruptcy

There are various pros and cons to being a stalking horse bidder and making the stalking horse bid. First the advantages:

  • First to tie up the company’s management, perform due diligence thereby dealing exclusively with the company for the proposed purchase of its assets.
  • Gaining the advantage of time and access to the company’s financial information.
  • Having the time to be able to understand the company’s problems and challenges.
  • Getting under contract for the assets the purchaser wants to acquire.

The cons of making the stalking horse bid are:

  • Making sure that you set the break fee high enough to fully compensate the stalking horse bidder.
  • Not having too long a time period between approval of the stalking horse bid and the time when other bids must be submitted to avoid the assets or the company’s operations worsening through the process.
  • Would it have been better not to have been the stalking horse bidder and see how the company and its assets fare before having to submit a bid?
  • If the stalking horse bidder is not a secured lender, is there a likelihood the secured lenders will bid their security which will outbid yours?
  • If there is more than one acceptable bid, then an auction process is required to determine the successful bidder. The stalking horse bidder may not wish to participate in such an auction and will end up losing out.

Can a secured creditor credit bid? Cirque du Soleil agrees to ‘stalking horse’ takeover bid from lenders worth $375M

One of the most recent high-profile successful stalking horse bids was the Cirque du Soleil insolvency proceeding under the CCAA. In that case, a takeover proposal from the Cirque du Soleil’s secured creditors has been approved as the benchmark bid for a court-supervised auction of the insolvent entertainment company.

That is called a credit bid. When the secured creditor bids all or a portion of its outstanding loan. This will be done in situations where the secured creditor believes that the value of the assets to be sold is less than the amount owed, yet the company’s assets can be used to run a viable business. In that situation, the secured creditor would rather bid its security with the company debt to take over the assets.

By making a credit bid, the secured creditor potential purchaser does not need to come up with cash for the purchase price. However, cash will be required to make certain payments to parties the company business cannot operate without and to have working capital going forward.

If they bid the full amount of their loan and get outbid in other purchase agreements, it means they get fully paid out. Otherwise, they get the assets to run the company, bring it back to financial good health and profitability. Eventually, then they will sell the healthy company to recoup their money plus make a profit.

Stalking horse bid summary

If your company is experiencing financial difficulties, don’t waste your time stalking horses or any other animal. Seek the advice of your professional advisers. The earlier you seek financial help the more options will be open to you. Contact Ira Smith Trustee & Receiver Inc. today. We’ll review your corporate issues and come up with a sound plan so that Starting Over, Starting Now you can enjoy financial peace of mind.

stalking horse bid
stalking horse bid
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RESTRUCTURING AND TURNAROUND IS NOT ROCKET SCIENCE! HERE’S WHY

restructuring and turnaround, assignment in bankruptcy, bankruptcy, bankruptcies, Bankruptcy and Insolvency Act, BIA, Companies Creditors Arrangement Act, CCAA, Casimir Capital Ltd., deemed assignment in bankruptcy, trustee, proposal, starting over starting nowA restructuring and turnaround process that does not garner the support of the creditors can lead to bankruptcy. Bankruptcy ends up being a result of an attempt to save the business that has gone awry.

There are two statutes which set out the law of bankruptcy and insolvency law in Canada, including the Canadian regimes for a corporate restructuring and turnaround:

  • Bankruptcy and Insolvency Act (“BIA”): Contains 275 sections and is intended to be a complete code for bankruptcies. The law dealing with bankruptcies is within the BIA itself
  • Companies’ Creditors Arrangement Act (“CCAA”): Deals with corporate restructuring and turnaround (as does the BIA) and contains 22 sections. Most of the law dealing with the CCAA has developed from Court decisions as the statute is very thin!

Once in motion it’s extremely difficult to set aside an assignment into bankruptcy. That is why the interests of all stakeholders must be carefully considered and addressed in order for a restructuring and turnaround plan to be successful. Take for example the motion which was recently brought before the Ontario Superior Court of Justice (In Bankruptcy and Insolvency) by Casimir Capital Ltd., an intermediary or broker of various underwritings and placements. Up until January 31, 2014 when it resigned, it was a member and registered as a securities dealer with the Investment Industry Regulatory Organization of Canada (“IIROC”).

Casimir Capital Ltd. brought a motion seeking to set aside its deemed assignment into bankruptcy, and a review of a decision of a trustee to allow certain creditors to vote against a proposal put forth by the firm to settle its debts. At that meeting, 93.7% of the creditors voted against the proposal. However, in the motion, Casimir argued that some of the creditors should not have been allowed to vote as it disputes the validity of their claims.

The decision: In Re Casimir Capital, 2015 ONSC 2819 (CanLII), Casimir’s motion was dismissed. In his ruling The Honourable Mr. Justice Pattillo stated that the trustee “…was correct in allowing the Disputed Creditors to vote.” and “…the steps taken by the Proposal Trustee in reviewing and validating the proofs of claims filed, including the Disputed Creditors, for the purpose of voting at the first meeting were more than sufficient.”

The court noted that even if the votes of the disputed creditors were disallowed, 69.4% of the other creditors, whose claims are not disputed, voted against the proposal. The Court also agreed with the trustee that the debtor’s motion to have its deemed assignment in bankruptcy set aside fails in any event because even if the disputed creditors votes are set aside, the votes of the remaining creditors still defeat the proposal. As you can see, this restructuring and turnaround attempt was doomed for failure, as essentially none of the needs of the stakeholders were successfully addressed. Therefore in this case, a deemed assignment in bankruptcy was the end result. I am sure the professionals involved did the best they could with what they had to work with, but it obviously was not enough.

Unfortunately many companies and individuals find themselves in financial difficulties and surviving these financial difficulties can be a daunting task. Ira Smith Trustee & Receiver Inc. has helped many companies to not only survive, but prosper. Our corporate restructuring and turnaround strategies not only deal with short term crisis management but the long term viability of corporations. Contact us today so that Starting Over, Starting Now once again your company can a financially viable entity.

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TARGET CANADA LIQUIDATION BEGINS FEBRUARY 5; ATTENTION TARGET CANADA SHOPPERS

Target Canada liquidation, Target Canada, Companies’ Creditors Arrangement Act, CCAA, 17,600 employees, debt, Target Corporation, liquidation plan, creditor protection, Ira Smith Trustee & Receiver Inc., Starting Over Starting Now, restructuring of insolvent corporations, restructuringThe Target Canada liquidation plan for the sale of its inventory, fixtures, store leases and other real estate was approved by Order of The Honourable Regional Senior Justice Morawetz on February 4, 2015. In this blog, we will focus only on the Target Canada liquidation of the inventory, furniture and fixtures located at its retail stores, distribution centres and corporate head office. Hopefully, we will succeed in explaining it in plain English!

Target Canada sought and obtained creditor protection on January 15, 2015 under the Companies’ Creditors Arrangement Act (R.S.C., 1985, c. C-36) (“CCAA”), a Canadian federal statute. As we indicated in our earlier blog, TARGET CANADA CLOSING: $5.4 BILLION AND COUNTING, the CCAA, which is normally used for the restructuring of insolvent corporations with debts over $5 million, in order to preserve all or a portion of the business and jobs. This time, rather than being used for a restructuring and turnaround, it is being used to provide for an orderly liquidation.

The closing of the Target Canada stores will put 17,600 people out of work over the next five months. The Initial Court Order provided for an Initial Stay Period was to expire on February 13, 2015. In order to carry out the Target Canada liquidation plan, part of the relief it sought and obtained was an extension of the Stay Period to May 15, 2015.

The two questions that we have been asked the most are: 1. what is the Target Canada liquidation plan for its inventory and chattels and how long will it take; and 2. will the suppliers receive everything they are owed from the liquidation?

The first question is easier to answer than the second. First, below in point form is a summary of the Target Canada liquidation plan for its inventory and chattels which is now approved by the Court:

  1. An exclusive agent was approved to conduct the Target Canada liquidation of the inventory, furniture and fixtures located at the retail stores, distribution centres and corporate head office, to liquidate in its entirety.
  1. The exclusive agent is a contractual joint venture comprised of Merchant Retail Solutions ULC (“ULC”), Gordon Brothers Canada ULC and GA Retail Canada. ULC will collectively act as the exclusive agent.
  1. The current time estimate is that the Target Canada liquidation will end no later than May 15, 2015 for the stores, April 30, 2015 for the distribution centres and March 31, 2015 for the corporate office. Circumstances may alter this schedule, but this is the current plan.
  1. All sales will be “final sales” and “as is” and all advertisements and sales receipts will reflect same.
  1. The exclusive agent has guaranteed that Target Canada will receive a net minimum amount of 74% of the “Cost Value” of the Merchandise (the “Guaranteed Amount”), computed in accordance with the Agency Agreement, and subject to adjustment in accordance with the Agency Agreement, if: (i) the aggregate Cost Value of the Merchandise is less than $445 million or greater than $475 million; and/or (ii) the Cost Value of the Merchandise as a percentage of the Retail Price of the Merchandise exceeds 63%. (This part was not plain English!!).
  1. What this means is that if there is no adjustment to the Guaranteed Amount calculation based on the Agreement, Target Canada is guaranteed to receive a minimum estimated amount of $340 million from the liquidation of the inventory, furniture and fixtures (based on an average Cost Value of $460 million).

Now for the second question. Target Canada owes money to nearly 1,800 businesses around the world, from India to Shanghai and Brampton to Winnipeg. It is impossible to estimate at this time what suppliers may expect to receive from the Target Canada liquidation, for the following reasons:

  1. There is no current estimate for what the net proceeds may be from the sale of the Target Canada store leases and real estate.
  1. There will be further deductions from the Target Canada liquidation including the:
  • trust claims of any party, statutory or otherwise, against the assets, properties and undertaking of Target Canada;
  • operating costs and liquidation specific costs for which Target Canada will have used its own cash flow rather than having borrowed those funds;
  • exclusive agent’s Charge and Security Interest (on the Limited Inventory Charged Property only);
  • Administration Charge (to the maximum amount of $6.75 million);
  • KERP Charge (to the maximum amount of $6.5 million);
  • Directors’ Charge (to the maximum amount of $64 million);
  • Financial Advisor Subordinated Charge (to the maximum amount of $3 million); and
  • DIP Lender’s Charge.
  1. The final amount of claims to ultimately be filed and admitted in the Target Canada liquidation are unknown. All we know is that in its initial motion material, Target Canada stated that it owed a total of $5.1 billion, of which $3.1 billion was owed to an entity related to Target Corporation in the United States. Target Corporation has stated that it will subordinate its $3.1 billion claim to those of the unsecured creditors.
  1. What claims may come before the claims of unpaid suppliers? The unpaid suppliers are ordinary unsecured creditors. The scheme of distribution, which has not been developed yet by Target Canada or submitted to the Court for approval, will have to reflect that the claims of trust claimants, other secured creditors and preferred creditors must be paid first before the claims of the ordinary unsecured creditors.

On paper, it seems that the Target Canada liquidation will provide sufficient proceeds to pay off all creditors in full, with assets and liabilities both in the $5-billion range. But the true value of the recorded assets will be less than stated. So for now, this second question cannot be answered.

We will continue to watch and blog about the Target Canada liquidation. If your business is showing signs of financial stress, contact Ira Smith Trustee & Receiver Inc. before your business problems lead to your business closing. The earlier you begin to deal with debt, the more options you’ll have. We approach every file with the attitude that financial problems can be solved given immediate action and the right plan. Starting Over, Starting Now you can live a debt free life.

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TARGET CANADA CLOSING: $5.4 BILLION AND COUNTING

Target Canada closing, Target Canada, Target Canada, Target Corporation, Companies’ Creditors Arrangement Act, CCAA, restructuring of insolvent corporations, restructuring and turnaround, business failure, orderly liquidation, Zellers, starting over starting now, financial viability, financial hardship, receivership or bankruptcyTarget Canada closing was announced on January 15, 2015, when Target Canada Co. and related entities commenced court-supervised restructuring proceedings under the Companies’ Creditors Arrangement Act (“CCAA”). The CCAA, which is a Federal statute normally used for the restructuring of insolvent corporations with debts over $5 million, in order to preserve all or a portion of the business and jobs. This time, rather than being used for a restructuring and turnaround, it is being used to provide for an orderly liquidation.

What went wrong? Target Canada is an indirectly wholly-owned subsidiary of the United States-based retailer Target Corporation. Target Corporation was founded in 1902 as Dayton Hudson Corporation, and is one of the largest retailers in the United States of America. You would think they had the experience to avoid such a disaster. It seems that everything went wrong and right now Target Canada estimates that this business failure will result in a loss of $5.4 BILLION!

The mistakes made by Target Canada and its US based parent seem to be very basic. The mistakes made leading to the Target Canada closing can be summarized in the following 9 point list:

1. Walk before you run – Target Corporation’s leadership saw expansion into Canada as an opportunity to extend the Target shopping experience to a broader group of people and thereby expand its revenues and profits. They also believed that there were significant opportunities in the Canadian market that made their strategies well positioned to succeed.

However, rather than starting off with a few stores in select Canadian markets, they began in 2011 by purchasing the net amount of 135 store leases from Zellers Inc. for a net purchase price of $1.6 billion. Perhaps a more modest start would not have put so much financial pressure on Target Canada from the very beginning.

This is reason number one leading to Target Canada closing.

2. Failure to implement your plan in a reasonable period of time – Although Target Canada entered Canada in 2011 through the purchase of the leases, they first undertook necessary renovations and leasehold improvements before Target Canada opened at many of the former Zellers locations under the Target banner. The first stores did not open until March 2013 – more than 2 years after the decision was made to acquire the Canadian locations.

This obviously gave Target Canada’s competitors a long lead time to plan for the Target invasion. The major competitors include Wal-Mart, The Bay, Sears, and also major supermarket chains like Loblaws, electronic retailers like Best Buy and Future Shop, and home improvement stores like Canadian Tire, Home Depot, Rona and Lowes.

This is reason number two leading to Target Canada closing.

3. Miscalculation of Demand for your Product – The opening of that many stores resulted in market densification – particularly in large cities served by more than one Target store – and reduced the impact of many of the new store openings. There were too many stores for the marketplace.

This is reason number three leading to Target Canada closing.

4. Poor Supply-Chain Management – Target Canada encountered significant supply chain issues. Stores were often: (i) out-of-stock for important merchandise, resulting in consumer dissatisfaction; and (ii) over-stocked on other merchandise, necessitating discounts to manage the inventory and impairing operating margins. These supply chain issues created a poor first impression. Therefore, many potential customers appear to have returned to or maintained the shopping practices they had before Target’s entry into Canada where such problems didn’t exist.

This is reason number four leading to Target Canada closing.

5. Tinkering with a proven model – Canadian consumers expected Target Canada to follow Target’s U.S. prices, which is a significant source of loyalty to the Target brand. Rather than match or reflect the U.S. prices in Canada, its pricing model was designed to compete with other similar Canadian retailers and included generally higher prices than Target’s U.S. stores. This appears to have limited Target Canada’s ability to distinguish itself in the competitive Canadian retail marketplace. It appears to me that Target Canada did not attempt to distinguish itself on a superior customer experience and did not attempt to distinguish itself in its pricing model.

Many of the Target Canada suppliers, either directly or through related entities, supplied merchandise to both the Canadian stores and Target Corporation’s U.S. stores, and many of those cross-over vendors have operations in Canada. Couldn’t Target have used its buying clout to not have Target Canada’s pricing model to be the same as its Canadian competitors?

This is reason number five leading to Target Canada closing.

6. No online presence – Need I say any more? Any home-based business owner knows you need to have an online presence today.

Although Target US has an established and successful online retail business, Target Canada elected to focus on the build-out of the physical stores and improving store operations, and did not prioritize the establishment of an online retail business for Canadian customers. This turned out to be a significant competitive disadvantage as the retail market moves beyond traditional bricks-and-mortar stores. By the time Target Canada woke up, it was too late.

This is reason number six leading to Target Canada closing.

7. Too little too late – Beginning in Spring 2014, Target Canada added internal resources and consulted at great length with a variety of strategic, operational and financial advisors in an attempt to improve Target Canada’s operations and identify strategies that could make the Canadian operations viable in the long term. Target Canada could not identify an option that would result in TCC breaking-even in the next five years. Were any of these financial viability studies conducted before the net spend of $1.6 billion on leases in 2011? Would not those same studies have identified what senior executives should have done to have a successful Target Canada launch?

This is reason number seven leading to Target Canada closing.

8. Not understanding the marketplace – In 2011, Canada had a population of 34.4 million. In comparison, this was slightly smaller than the population of the State of California at the same time. The financial returns for Canadian stores were expected to be in line with historical returns for U.S. store openings. This typically meant losses until the completion of the first full year of store operations, and profits thereafter. Target Canada never made any money. For the 2013 and 2014 fiscal periods, Target Canada’s losses totalled $3.6 billion (before interest and taxes).

This is reason number eight leading to Target Canada closing.

9. Management – Based on the above, clearly Target management miscalculated the success of an expansion into Canada out of the US. No doubt other US retailers who may be considering an expansion into Canada, must look at this expansion failure before embarking on implement their own expansion into Canada.

This is reason number nine leading to Target Canada closing.

At the time of filing, Target Canada had 17,600 employees. Because this is an orderly liquidation and not a restructuring and turnaround, those jobs will not be saved as a result of Target Canada closing. No doubt these job losses will create financial hardship for many of these employees’ families. To its credit, Target US has established a trust fund for payment of the Target Canada obligations to its employees. This trust fund is in addition to the proceeds from the sale of the Target Canada assets.

The lessons to be learned from the Target Canada closing story is that every business, regardless of size, must not only have a properly vetted business plan before implementing any business strategy, but management must have carefully studied and tested it to ensure as best as possible that management understands the marketplace it wishes to operate in and that the implementation of the plan will be successful for the business.

Ira Smith Trustee & Receiver Inc. acts for both debtors and secured lenders, in the performance of financial and viability assessments for financially challenged businesses. The earlier that we are consulted, the better the chances are that we can construct and assist management in implementing its plan to return to financial health without the need for receivership or bankruptcy proceedings.

Contact Ira Smith Trustee & Receiver Inc. before your business problems lead to your business closing. The earlier you begin to deal with debt, the more options you’ll have. We approach every file with the attitude that financial problems can be solved given immediate action and the right plan. Starting Over, Starting Now you can live a debt free life.

UPDATE: CHECK OUT OUR NEW VLOG BY CLICKING ON:

SEARS CANADA IS CLOSING: THE #1 REASON YOU HAVE TO RUN AND NOT JUST WALK TO REDEEM YOUR GIFT CARDS AND CREDITS

Note: The facts contained herein regarding Target Canada Co. (“TCC”) and Target Corporation, and the expansion of Target Corporation into Canada was derived from the Affidavit of Mark J. Wong, General Counsel and Secretary of TCC, sworn January 14, 2015 in support of TCC’s CCAA application.

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OWED WAGES BY EMPLOYER? FIND OUT IF YOU QUALIFY TO GET PAID

accrued vacation pay wage earner protection program, owed wages by employer, starting over starting now, avoid bankruptcy, licensed trustee, trustee, Service Canada, receivership, bankruptcy, notice of intention to make a proposal, Division I Proposal, Companies’ Creditors Arrangement Act, WEPPA, bankrupt, wages, Bankruptcy and Insolvency Act, BIADo you believe you wages are owing to by your employer? People ask us what if my employer owes me money & goes into either receivership or bankruptcy.

We answer if wages are owed by your employer and the company is either in receivership or is bankrupt don’t despair; there is hope for you to recuperate monies owed to you. The Wage Earner Protection Program (“WEPP”) Act – WEPPA – in conjunction with an amendment to the Bankruptcy and Insolvency Act (Canada) – BIA – created a mechanism for employees to be compensated for claims of unpaid wages, commissions and vacation pay accrued in the six months preceding the employer files for bankruptcy or being placed in receivership and wages are owed to you along with claims for unpaid termination and/or severance pay.

Are there any exceptions to this? What are the rules?

There are a few exceptions. You are generally not eligible if, during the period for which you wages are owed to you by your employer, you:

  • were an officer or a director of your former employer
  • had a controlling interest in the business of your former employer
  • were a manager whose responsibilities included making binding financial decisions impacting the business of your former employer, and/or making binding decisions on the payment or non-payment of wages by your former employer

Who is eligible for the WEPP? You may apply if wages are owed to you by your employer and:

  • your former employer has filed for bankruptcy or is subject to a receivership
  • wages are owed to you by your employer, vacation pay, termination or severance pay from your former employer
  • amounts earned during the eligibility period or, in the case of termination or severance pay, your employment was terminated during the eligibility period ending on the date of bankruptcy or receivership

One more very important exception – it only applies if wages are owed to you by your employer and your employer is in either receivership or bankruptcy and owes you wages. If your employer is attempting a corporate restructuring under a Notice of Intention to Make a Proposal, a Division I Proposal or the Companies’ Creditors Arrangement Act, then WEPPA and its provisions do not come into play.

Claim limits

Regardless of the total amount owing to you, the maximum any employee can receive under WEPPA is the greater of $3,200 or four times the maximum weekly insurable earnings under the Employment Insurance Act (which is now greater than $3,200). Once employees file claims with both the Trustee and Service Canada, Service Canada pays their claims for owed wages by employer and Service Canada becomes the creditor. The amendment to the BIA has recognized WEPPA and created a priority charge that supersedes all secured charges except CRA’s deemed trust claim (and the reclaiming rights of farmers and suppliers) to a max of $2,000 per employee, secured against current assets.

Documentation

While no one wants – or expects – to be part of a receivership or bankruptcy, you should always keep detailed records of hours worked for any pay period. On any occasion when you discover there will be no paycheque, record the loss that you will suffer, such as not being able to pay bills or buy groceries. Ask for a formal explanation from your employer and keep detailed notes on your efforts. It’s important to prove that when owed wages by employer; you still expect to be paid, even if it’s late.

If your employer is in receivership or bankruptcy proceedings, and you believe you have a claim for owed wages by employer, find the trustee and get in touch with Service Canada. Have your records ready and make sure you get your Proof of Claim.

If you are experiencing financial problems, contact Ira Smith Trustee & Receiver Inc. We are a licensed trustee and will listen to your issues and offer compassionate, professional assistance to aid you to avoid bankruptcy, so that you can regain control of your life, Starting Over, Starting Now.

Call a Trustee Now!