Tag: coronavirus pandemic

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MORTGAGE DEFERRAL CANADA IS ENDING: 3 KILLER WAYS TO DEAL WITH COVID-19 RELATED MONEY PROBLEMS

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.

Mortgage deferral Canada introduction

The bulk of the home mortgage deferral Canada that banks have given to Canadians was approved in March and April. This was the time when the COVID-19 pandemic began taking a financial toll on the country with non-essential businesses shuttered and millions unemployed or seeing their earnings take a deep cut.

The Office of the Superintendent of Financial Institutions (OSFI) proposed actions planned to support federally regulated lenders to make sure that they would not experience problems due to the mortgage deferrals provided to help Canadians. The OSFI mortgage deferral help it provided to the lending institutions enhanced the security of the Canadian economic situation and monetary system when faced with obstacles postured by the coronavirus.

The mortgage deferrals are slowly coming to an end. This Brandon’s Blog discusses what you can do if you fear what your personal fallout will be when the mortgage deferrals end.

How did mortgage deferral Canada work for the borrower?

As of July 30, there were approximately $170 billion in mortgage deferments for the biggest 6 banks. The majority were established to unwind by September 30. Mortgage deferral Canada arrangements between Canadians and their financial institutions were truly an individual conversation. The federal government provided a wide overview, yet the specific arrangements between each borrower and lender were established individually as each case required. The significant style was that if a customer was struggling with financial difficulty because of the COVID-19 lockdown, mortgage payments would be deferred for an agreed-on, short-term amount of time.

Currently, these mortgage deferral Canada setups are slowly ending. The chartered banks are reporting that currently, for those whose deferments have ended, 80% to 90% are current in their payments. That means 10% to 20% of people who had a mortgage deferral Canada deal currently cannot maintain their mortgage payments.

How did mortgage deferral Canada work for the lenders?

OSFI told the federally regulated lending institutions and mortgage insurers they can deal with home mortgage financings for which a payment deferment is approved as being current. Payment deferments of as much as 6 months approved prior to August 31 and repayment deferments of up to 3 months approved after August 30 and on or before September 30 that it need not categorize such mortgages as impaired or revamped.

In April OSFI advised lenders that in circumstances where banks provide home mortgage repayment deferrals, those mortgages can continue to be dealt with as performing loans under the . Consequently, OSFI told the banks they did not need to increase their capital resource requirements based upon the home mortgage deferral Canada arrangements they provided. OSFI additionally told the loan providers that it would not assess such mortgage portfolios as having a larger credit risk.

For all federally regulated banks, OSFI specified that it is prepared to use flexibility for any that might need additional time to satisfy upcoming due dates for filing regulatory returns, on a case-by-case basis.

Where mortgages need to be insured due to being high ratio, there are insurance coverage costs that the lending institutions need to make to the insurer each month. OSFI likewise aided the banks and insurers, such as CMHC, by stating that it will not place the lenders or insurers offside when the monthly insurance premiums were not being paid as a result of the mortgage deferral Canada arrangements. OSFI also stated that deferments will not boost capital charges on unpaid premiums. OSFI told insurance providers that they can deal with a mortgage for which a deferment is granted as performing.

So with these OSFI initiatives, lenders can make mortgage deferral Canada happen and both lenders and mortgage insurance providers can treat the mortgages under these deferred home mortgage settlements and mortgage insurance payments, as not being in default.

Mortgage deferral Canada is ending – what can you do if you believe it will cause financial problems for you

OSFI has just stated that any type of mortgage deferral Canada plans past September 30, 2020, will now be subject to OSFI’s typical policies. People who need to start making their mortgage payments once again, but whose economic situation has not improved since the pandemic hit, are scared. I have read some “what to do” articles if you think you will have trouble making your normal mortgage payments. In my view, several have actually missed the mark. Some I have checked out start explaining how a consumer proposal or bankruptcy can help you.

Just so you know, a consumer proposal or bankruptcy cannot help you with the end of your mortgage deferral Canada. The reason it cannot help you is that your mortgage is a secured debt. Your mortgagee is a secured creditor, assuming its mortgage security is valid. A consumer proposal or bankruptcy is a method of dealing with your unsecured creditors. The mortgagee has rights if you default on your mortgage whether or not you are involved in a formal insolvency process. If you have too much debt and too little income to service all that debt, you may very well need to consider an insolvency filing. But it is not a direct answer to your mortgage deferral Canada ending.

mortgage deferral canada
mortgage deferral canada

So in order, here are my 3 top recommendations of what you could do when your mortgage deferral Canada deal with your lender ends and you believe you will be in financial trouble.

  1. Take a critical look at your family household budget

I cannot emphasize enough just how essential the household budget is to your financial security. A spending plan is a listing of all income and your families’ costs. Do it on a monthly basis. It enables you to prepare how you need to spend your money and if there is anything left over each month for savings for an emergency fund or for investment. Rather than cash just flying out of your pocketbook, you make intentional choices on where you want your cash to go. You’ll never need to doubt at the end of the month where your money went or search for a hole in your wallet.

Numerous Canadians panic every month regarding where the cash will come from to pay their bills. A household budget will give you the direction you need. That direction should give you comfort. It reveals to you just how much you make and also what your costs are. If need be you can decrease unneeded costs or possibly tackle extra work to live within a well-balanced budget plan. No extra panicking at the end of the month.

So if you have a household budget that you follow, look at it carefully. If you don’t’ have one, prepare it immediately. Look at the last 6 months and see what your average monthly income has been and what your average monthly expenses were. List them all out line by line for both income and expenses. Then adjust any line that you believe will change in the coming months. Adding your normal monthly mortgage payment is one of those things that will need to be added.

Then take a look at it and see if you are spending less or more than you earn. If you are spending more, then you need to cut back on certain expenses, increase your income, or a combination of both. Take a critical look and slash any expenses that you can. Then see what that looks like.

If you feel that making your normal monthly mortgage payment will not be a problem, then terrific. Just follow your family budget and each month compare your actual to budget. Make any adjustments you need to along the way. However, keep spending less than you earn.

If your budget shows that you are going to have trouble making your normal monthly mortgage payment, then go on to my next step 2.

  1. Speak to your banker

Get ahead of it. Contact your lender. Let them know that you have a current family budget and it shows that you may need added help when your mortgage deferral Canada deal ends. Your banker will be impressed that you:

  • have a current budget that you are tracking; and
  • you are being proactive and not causing the banker to chase you because you came up on the computer screen as a delinquent mortgagor.

That already makes you the most liked person in the 10% to 20% of people who are experiencing problems paying their mortgage. Hopefully, your lender can work something out for you that will help you.

  1. Call me

If your budget shows that you do not have enough family income to pay all the families’ debts on a monthly basis and your lender cannot do anything to help you, then call me. I will take a critical look at your family budget and get more personal financial details from you. After reviewing all of it, I will give you my best recommendations to meet your unique financial challenges. Keep in mind that this is not your fault. The COVID-19 pandemic and the resulting shutdown of the Canadian economy continues to cause problems for the majority of Canadians.

Mention this blog, and I will not charge you a penny for this help. I truly want you to succeed.

Mortgage deferral Canada summary

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

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

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

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

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

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

mortgage deferral canada
mortgage deferral canada
Categories
Brandon Blog Post

INSOLVENCY CANADA: IS IT ILLEGAL FOR INSOLVENT COMPANY TO APPLY FOR THE CEWS

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, healthy and secure.

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

insolvency canada
insolvency canada

Insolvency Canada introduction

Canadian business restructuring, a type of insolvency Canada, has been in the news lately and no doubt will continue to be for some time. The COVID-19 pandemic, the lockdown and general fear have affected everyone; both Canadian business, employees and all other Canadians. Everyone is forecasting that business insolvencies will rise as a result of the coronavirus.

An interesting question posed to us recently is, is it illegal for an insolvency Canada company to apply for the Canada Emergency Wage Subsidy (CEWS). I have written a couple of blogs specifically on the CEWS previously:

In this Brandon’s Blog, I discuss the concept of CEWS and try to answer the question about insolvent companies applying for COVID-19 support.

Insolvency Canada CEWS refresher

The CEWS was established for an initial 12-week period from March 15 to June 6, 2020, offering a 75-per-cent wage help to qualified firms. Then on May 15, 2020, PM Justin Trudeau announced a CEWS expansion for 3 additional months to August 29. The CEWS safeguards work by assisting organizations to maintain workers on the payroll as well as also encouraging firms to re-hire staff members previously laid off. To date, 296,030 employers, representing 924,970 applications, have applied to the CEWS program.

Former Finance Minister Bill Morneau then announced in July that the CEWS extension would consist of program changes that would broaden the reach of the program. It would certainly offer much better-targeted assistance to guarantee that more workers can return to their work without delay as the economy reboots.

The modifications announced in July for the CEWS extension would:

  • Prolong the program up until November 21, 2020, with the intent to provide additional support up until December 19, 2020.
  • Make the aid available to a more variety of companies to include those with a revenue decline of less than 30%.
  • Provide a slowly lowering base help to all eligible companies. This would assist various companies with much less than a 30% earnings loss get aid to keep employees.
  • Present a top-up aid of around an added 25 percent for companies that have really been most adversely affected by the pandemic. This would be particularly practical to firms in markets that are recovering far more slowly.
  • Offer assurance to firms that have really already made business decisions for July as well as August by ensuring they would not have their benefits less than they would have had under the previous CEWS program.
  • Address particular issues brought to the government’s attention by various stakeholder groups.

By helping people get back to work and sustaining companies as they try to grow their income, these modifications gave companies some certainty that they needed to recall workers. It is very possible that some employers would fall into an insolvency Canada category.

Insolvency Canada: The current CEWS statistics

The Canadian government has approved 910,940 of the total applications so far. The approved applications by value are:

Under $100K 863,700

$100K to $1M 44,990

$1M to $5M 2,010

Over $5M 240

Total 940,940

To look at is it illegal for an insolvent company to apply for CEWS, we first need to see what the requirements are. Could it be that applications have been made by insolvency Canada employers? For sure it is!

Insolvency Canada: When is an employer eligible for the CEWS

The CEWS was first set up through the passage of BILL C-14, A second Act respecting certain measures in response to COVID-19. It received Royal Assent on April 11, 2020. It establishes the rules for the CEWS program, as amended and extended.

For the purposes of the wage subsidy, an eligible employer is:

  • a company or a trust, besides a corporation or a trust fund that is excluded from tax obligation under Part I of the Income Tax Act or is a public institution;
  • an individual aside from a trust;
  • a registered charity (other than a public institution);
  • a person that is exempt from tax obligation under Part I of the Income Tax Act (aside from a public institution), that is:
    • a farming organization;
    • a board of trade or a chamber of commerce;
    • a non-profit corporation for SRED activities;
    • a labour organization or society;
    • a benevolent or fraternal benefit society or order; and
    • a non-profit organization;
  • a partnership where each member of which is an individual or partnership in this listing;
  • a prescribed company, including certain Indigenous companies or businesses.

As you can see, the list is very exhaustive. The legislation does not exclude an insolvent company or mention anything about insolvency Canada. The legislation also does not exclude a company that has filed for a corporate restructuring being either a proposal under the Bankruptcy and Insolvency Act (Canada) (BIA) or under the Companies’ Creditors Arrangement Act (Canada) (CCAA).

Insolvency Canada: How does an eligible employer qualify for the wage subsidy?

In order to get the wage subsidy in respect of a specific claim period, an eligible company needed to have on March 15, 2020, an open payroll program account with the CRA and was using that account to make its payroll remittances.

Concerning the revenue test, a company’s income for the subsidy includes its revenue earned in Canada on an arm’s length basis, calculated utilizing the employer’s regular bookkeeping approach. Companies can pick to calculate their earnings using either a cash basis or the accrual technique of bookkeeping. Companies have to make use of the method they select when they first make an application for the CEWS for the duration of the program. Employers cannot combine the methods.

When a qualified employer has computed its qualifying revenue for each and every relevant claim period, it would determine if it has actually experienced the needed reduction in income to qualify for the wage subsidy for that claim period. However, the company is under no obligation to prove that the decrease in income is connected to the COVID-19 situation. If it does not qualify for one claim period, it is not barred from determining if it qualifies for any other claim period.

There is nothing in the legislation that disqualifies an insolvent company that is an eligible employer from calculating if it meets the test for eligibility for the CEWS. The phrase “insolvency Canada” does not appear anywhere.

Insolvency Canada: It is not illegal for an insolvent company to apply for the CEWS

From my research, as described above, I have not found anything in the legislation that established the CEWS that would make it illegal for an insolvency Canada employer to apply for the CEWS. If you think about it, this makes sense.

The Canadian government was worried that companies shutting down meant all workers were laid off and be applying for the Canada Emergency Response Benefit (CERB). As the economy opened up again, the government wanted to make it easier for businesses to bring back some or all of their workers in a very unsettling and uncharted time. The aim of all the Canadian government support programs is to give assistance to struggling companies.

There is an implicit assumption that companies could very well be insolvent and would therefore not be able to reopen unless they had financial support. So not only is it not illegal for an insolvent company to apply for the CEWS, it is quite logical that an insolvent company would not reopen or if it did, not hire back many workers.

This is, in my view, one of the reasons why the CEWS was established; to bring back Canadian workers to companies that could not otherwise afford to pay its employees if it could not receive back a refund for what it was spending on wages or salaries.

Insolvency Canada: How would the CEWS be treated under a formal restructuring

Whether the company is restructuring under the BIA or CCAA, the treatment of the CEWS is the same. The CEWS is taxable. You need to include the amount you get on the company’s or business’s income tax return when calculating your taxed revenue.

You will certainly likewise be expected to report the amount of the CEWS that was used to pay each of your staff members’ incomes by utilizing a unique code in the “other information” area at the end of the respective employee’s T4 slip. That specific information on the reporting needs has not yet been made public by the government. It presumably will be before the end of the year.

So in either a BIA or CCAA insolvency business restructuring, the CEWS should be shown as:

  • revenue in any cash flow statement prepared with anticipated receipt dates;
  • income for accounting and financial statement purposes; and
  • disclosed in the Trustee’s/Monitor’s reporting to stakeholders.

If it turns out that the employer involved in a formal restructuring did not qualify for a CEWS payment for one or more of the periods that it applied and received one, then it is a liability to the government. How is that handled in the restructuring? There could be two answers. From my research, I do not see this specifically being addressed.

You may need to return all or part of the CEWS you have actually already received if you:

  • send to the Canada Revenue Agency (CRA) any type of modifications to a previous application;
  • terminate an application;
  • made a calculation or data mistake for a claim;
  • learn you do not qualify after getting a subsidy payment for a claim made; or
  • receive a notice from the CRA that, following an evaluation, your claim has actually been lowered or disallowed.

Any type of CEWS overpayment you received that is not returned will be subject to interest charges. In the very next insolvency Canada section, I discuss what kind of liability a CEWS overpayment would be in a formal insolvency restructuring.

Insolvency Canada: What kind of liability is a CEWS overpayment

The CEWS is a subsidy payment made to you by CRA based on an application the insolvent company makes. Unlike a claim for unremitted source deductions or HST, it is not an amount the insolvent company collected, held in trust for and failed to remit to CRA. So as far as I am concerned, it is not a trust claim. It would be an ordinary unsecured claim.

The overpayment claim may not necessarily be caught in the restructuring. If the insolvent company applied for the CEWS AND received the subsidy payment BEFORE making the restructuring filing under either the BIA or CCAA, then I believe it would be an ordinary unsecured claim in the restructuring. However, if the company applied for the CEWS AFTER filing for restructuring, regardless of the claim period, the overpayment claim would be a post-filing claim and not caught in the restructuring. All of the overpayment would have to be repaid notwithstanding the formal restructuring.

If not repaid, presumably CRA would offset any other amount payable to the company, such as for HST input tax credits, against the CEWS overpayment liability in such an insolvency Canada situation.

Again, I caution that none of this appears in the CEWS legislation. It is my opinion based on my experience and the review of the relevant legislation.

Insolvency Canada summary

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

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

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

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

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

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

Categories
Brandon Blog Post

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

company bankruptcies
company bankruptcies

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

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

Company bankruptcies introduction

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The main factors a court considers during company bankruptcies are:

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

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

Company bankruptcies summary

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

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

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

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

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

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

Categories
Brandon Blog Post

CANADIAN BUSINESS: WHAT WILL BE THE ULTIMATE BUSINESS IN ONTARIO RECOVERY PROGRAM?

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.

Canadian business introduction

In April 2020, a survey of entrepreneurs who own what could be called a small Canadian business across the GTA was conducted. It found that almost two-thirds of them might have to shut down for good as they struggle to stay on top of rent and other bills throughout the COVID-19 pandemic.

In this Brandon’s Blog, I look at entrepreneurs in Canadian business, both small and large, and talk about the one essential ingredient that will determine Canadian business success or failure. This one necessary item may turn out to be the only Canadian business recovery program that will ultimately work.

Canadian business opening-up again

Many are progressively opening up under local, provincial and federal government guidance. They need to navigate a host of constraints, including restrictions on the number of customers at any one time. I have read that many say the restrictions with their added layer of costs may stop them from being profitable. Even though COVID-19 cases appear to be under control in Ontario, companies have actually reopened to dramatically smaller sized groups, imperilling their survival.

To save local Canadian businesses, and the millions they employ, the federal government developed Canada’s COVID-19 Economic Response Plan. The federal assistance programs for Canadian business include:

I have already written about most of these support programs. I have attached relevant links above so that you can read up on the various support programs for Canadian business.

Provincial governments have also stepped up. For example, in Ontario, the Doug Ford Conservative government has implemented:

  1. Interest/penalty relief – Canadian business in Ontario will get five months of interest and fine relief to make payments for taxes administered by the Province. From April 1, 2020 – August 31, 2020, Ontario will not apply any penalty interest on any late-filed returns or incomplete or late tax obligation payments under the Employer Health Tax, Tobacco Tax and Gas Tax obligations. This enhances relief from the federal government on interest and other charges from not remitting the amount owing for corporate income tax.
  2. WSIB payment deferments – Employers can delay WSIB payments for 6 months.
  3. Rent support for local Canadian business – Ontario has partnered with the Government of Canada on the Ontario-Canada emergency commercial rent assistance for small businesses and landlords experiencing financial problems throughout the COVID-19 pandemic.

But there are still Canadian business problems

Despite all these support programs, the Canadian business world still has to figure out how to pay the balance of their rent, utility, insurance as well as a host of various other recurring expenses. While some have had the ability to delay these expenses, they can’t do so for life. Companies will become required to take care of their unmet commitments. They will also have to figure out how they are going to go back to paying all their expenses in full once the support programs end and business has not yet come back to the pre-coronavirus pandemic level.

Some companies may have enough cash savings to ride out the pandemic or can access fresh cash resources from owners. That is both good and bad. Entrepreneurs will take from their retirement savings, and in some cases deplete them, in the hopes of keeping their business alive long enough to survive and once again be profitable. It is highly doubtful that Canadian business will be able to borrow from the Banks as a source of fresh capital under these circumstances.

For a lot of others, the crush of past-due costs will certainly limit and maybe even end their business.

What happens when the government support programs end?

That is a big question that I get asked always. The answer is somewhat obvious: Everyone will have to stand on their own two feet just like they had to before the COVID-19 pandemic. Right now all the Canadian business support programs are all scheduled to end August 31. What will happen then?

My personal belief is that the federal and provincial governments will not be able to end the economic response support programs that soon. Rather, I think they will have to extend all the programs again. They may tweak them to begin the process of weaning Canadian business off of government support. Nevertheless, I feel they will have to be extended.

I think the extension will come with stark warnings. I believe the government would not want to extend for more than 90 days, but Christmas will still come in December. Pandemic or no pandemic. Nobody will want to shut off the tap before Christmas. So, that means an extension until the end of the calendar year 2020. With it, the governments will have to warn everyone to get their houses in order now because for certain there will be no more support programs after December 31.

I don’t have any inside information. I am just guessing. But to me, that seems the most realistic to still help Canadian business because entrepreneurs and workers are still all scared. At the same time, the governments’ exit strategy time clock begins ticking. Everyone will have a fair warning.

There is one precious commodity Canadian business will need when the support programs stop

Please humour me. Let us just say you find my prediction to be a reasonable one. On January 1, 2021, Canadian business is not all of a sudden flush with cash. They have survived. Entrepreneurs will still be scared. They certainly will not hire everyone back with an uncertain economic climate. All of the creditors of the businesses will start demanding payment in full. They have been patient and understanding. But now, all business debts will be demanded.

What is the one commodity Canadian business will desperately need? Cash is an obvious one but, no more is coming. Not from the government, the Banks or investors. Entrepreneurs are already tapped out having used personal savings to keep their businesses afloat. The most precious commodity Canadian business will need is TIME. Time to gear up again. Time to get back on their feet and bring in some cash. The Courts will have reopened. Creditors will begin to sue. There will be no more “time-outs” built into our Canadian economic system.

How will businesses get the time they need?

Bankruptcy protection will very likely be the answer

Breathing time that briefly ices up the need to pay off old debt while letting Canadian business function and have the time to find a strategy to keep going. In most cases, that will only be able to happen with a bankruptcy protection insolvency filing.

While bankruptcy is only thought of with going out of business, there are two Canadian federal statutes that allow viable businesses to develop a restructuring plan to lead them back to success. The trouble is that bankruptcy laws don’t give sufficient time to do this while there is still a pandemic. Ongoing COVID-19 health problems will likely suppress the Canadian economy in 2021.

Some out-of-the-box thinking and creativity are going to have to go into bankruptcy restructuring. It will be incumbent on licensed insolvency trustees (formerly called bankruptcy trustees), insolvency lawyers and the courts to recognize viable businesses that deserve to survive. This will be the case even if the processes being recommended are a bit unorthodox. These times are unorthodox and the solutions will have to fit the realities of our time.

I have previously written many blogs on how the two Canadian insolvency statutes can be used to allow Canadian business to restructure. The two statutes are:

For the purpose of this blog, I won’t repeat what I have previously written about corporate restructuring under either the BIA or CCAA. For this blog, what you need to know is that CCAA proceedings are for companies with $5 million or more of debt. BIA proceedings are for those companies with $4,999,999 of debt or less. Both statutes allow for bankruptcy protection filing. They are the Canadian equivalent to Chapter 11 bankruptcy protection in the United States.

How will bankruptcy protections help Canadian business?

For numerous companies battling the consequences of COVID-19, the main issue will not be a massive backlog of debt. It will be the inability to pay off the debt fast due to an absence of immediate profits. Cash will be needed to carry on business and make commitments on a go-forward basis. Given enough time, Canadian business will be able to repay its debts which accrued during the coronavirus shutdown. Unfortunately, the time Canadian business will need will be much longer than how much longer creditors will be willing to wait.

This is where bankruptcy protection filing, under either the BIA or CCAA comes in. First, under a bankruptcy protection filing, there is an automatic stay of proceedings. Creditors will not be able to start or continue collection efforts. This includes repossession by secured creditors or beginning or continuing legal proceedings.

Other benefits of a bankruptcy protection filing for Canadian business will be:

  1. Buying some time to come up with a restructuring plan to keep viable businesses in operation.
  2. Saving jobs through restructuring rather than liquidating the assets of many companies.
  3. Allowing for the sale of entire business units to be integrated into other healthier companies in order for businesses to survive, albeit in a different legal format.
  4. To allow for the sale of redundant assets to raise much-needed cash.
  5. Get out of onerous equipment, IP or premises leases/contracts that need to be jettisoned or else a restructuring is not possible.
  6. Stopping secured lenders from calling a default on loan facilities due to either cash or non-cash impairment charges leading to going concern worries.
  7. Obtain operating capital by way of a new debtor-in-possession loan credit facility for restructuring. Most companies outside of a formal restructuring will be unable to borrow any more money as I have already mentioned. However, in a BIA or CCAA Canadian business restructuring, the court can approve emergency funding and raise that operating loan to the top of the pile by giving it a priority secured loan position.
  8. Stopping Canada Revenue Agency (CRA) from starting or continuing garnishee tactics, general collection efforts and especially placing liens on business property for unpaid taxes.
  9. To allow companies to restructure their debt and clean up their balance sheets in a post lockdown economy.

The biggest resource Canadian business will need is also going to be its largest enemy

So as you can see, I believe that the most important resource that Canadian business will need to survive will not be cash. It will be time. Creditors will no longer want to give businesses more time to repay. Companies will need more time to get back on their feet when the COVID-19 Economic Response Plan support programs end.

The only way I can see that truly happening while allowing for proper restructuring of viable businesses will be under bankruptcy protection filings. Those businesses that are not viable, by definition, will fall by the wayside causing more harm to many good people.

So this why I say formal bankruptcy protection proceedings to allow viable businesses to restructure will be the ultimate business recovery program in a post-lockdown Canada.

Canadian business summary

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

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

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

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

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

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

canadian business
canadian business
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Brandon Blog Post

CANADA IN RECESSION: WILL THE ECONOMY FALL INTO A GREAT DEPRESSION?

canada in recession
canada in recession

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

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

Canada in recession introduction

It’s official. C.D. Howe Institute has declared that Canada in recession because COVID-19 is now a reality. Canada’s economy is in a recession. Nouriel Roubini is a world-known economist and a professor of economics at New York University’s Stern School of Business. He accurately forecasted the credit crisis of 2007-2008. He has some stark current thoughts on just how bad the Canadian economy can go. He has written and talked at length lately about the components that could take Canada in recession to a depression.

Canada in recession – When will there be a recovery?

Dr. Roubini sees three possible scenarios for how things are going to develop in the global economy. He says:

  1. His baseline assumption for North America this year is one of a U-shape recovery.
  2. The equity markets in the US are pricing in a V-shaped recovery with very strong growth in the second half of the year into next year.
  3. There is a risk of a greater depression for the rest of the decade but not for this year.

He believes there are forces that are going to lead Canada into a depression. His view is that there is going to be a U-shape recovery because this is a global shock. Both households and corporations will have to spend less and save more. Precautionary savings are going to go higher. Income is going to be lower. This will translate into less business capital spending. He says there will be a global investment slump because of a global savings glut.

That is a recipe for a very anemic recovery.

Could external forces push the US and Canada in recession into a depression?

The question is how long and how deeply related to this crisis the recession will be? Although in the short term there is Canada in recession, later in the decade is when there will be a price to be paid. That potential for depression and deep slump happens later in the decade as a result of fear and panic leading people and companies to save more and spend less.

So, what can governments do to stave off a worse depression? Dr. Roubini is very pessimistic and believes a greater depression will happen sometime later in the decade. He believes it is only a matter of when and not whether it will happen.

He describes the North American economy as a train wreck in slow-motion. It won’t happen this year but there are fundamental forces like debt and deficits leading people and businesses to insolvency. There will be an inability to fund liabilities coming from demographics that become worse. There will be deflation that is going to make more people insolvent. The need for quantitative easing will debase currencies. The need will be because of the large fiscal deficits that eventually are going to lead to inflation by the middle of the decade.

There is also digital disruption because manufacturers will have to substitute labour with the capital in equipment and technology because businesses will have to cut costs to save more and spend less. That implies more automation and more robotics; especially if we are going to try to lessen our dependence on China for goods.

We are in the process of a democracy backlash. People who are scared are becoming more populist and will try to elect authoritarian populist governments to come to power all over the world. Relations with China will probably become colder because of the coronavirus related anger towards China. It is going to get very ugly.

There will be digital rivalries including cyber warfare. It will get worse over the next few years. This is the way warfare is going to be. It will not be the conventional words the enemies of the Western Hemisphere be it China, Russia, Iran or North Korea. They cannot fight the USA using conventional weapons.

Events in the 2016 US election and the COVID-19 pandemic in 2020 shows our enemies that they can use cyber and biological war to successfully weaken the North American economy and create societal problems. They will continue to interfere with the US democratic process and use man-made disasters. Pandemics and global climate change are two things they can weaponize to try to destabilize our way of life.

This has the potential to make us wind up into a great depression. Government fiscal policy cannot do much about it. That is not the tool we need to fight these new threats.

What about internal forces pushing the US and Canada in recession into a depression?

One huge issue is the debt level; both personal debt and sovereign. We are in way over our heads. We were before this crisis. In terms of how we get out of it is there a natural path that would resolve it? It doesn’t seem clear right now because governments are having to spend trillions of dollars to keep their economies afloat during the coronavirus pandemic. What has kept things in check prior to the pandemic is that interest rates were close to zero, if not negative, like in Europe and Japan. The current economic environment is going to make it impossible for governments to change the historically low-interest rates for the foreseeable future.

I have written many times before discussing different issues relating to record high Canadian household debt levels. The debt levels are the single most internal reason why Canada in recession could become Canada in depression.

Canada in recession summary

I don’t mean to be pessimistic when talking about Canada in recession. However, today, I just don’t see any silver lining. I am sure there is one, I just can’t see it right now.

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

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

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

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

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

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

 

Call a Trustee Now!