Tag: form 31 proof of claim

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STATUTE OF LIMITATIONS IN ONTARIO: THE UNCERTAINTY BEHIND ONTARIO’S LIMITATION PERIOD IN BANKRUPTCY NOW ABSOLUTELY SETTLED

statute of limitations in ontario
statute of limitations in ontario

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

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

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

Statute of limitations in Ontario: The uncertainty behind Ontario’s limitation period for debt collection

Many individuals have a problem determining the statute of limitations in Ontario for financial debt collection under the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B. This confusion is all-natural because the time duration is computed based upon the moment when a creditor knew, or ought to have actually recognized that it had a claim to get legal advice on and initiate legal action for recovery.

The unpredictability emerges because the point you need to begin determining from is not necessarily a certain date you can indicate on the calendar. Rather, it may need to be presumed from the realities in any specific situation.

Why does the limitation period matter? It matters because if a creditor does not initiate legal action within the allowed period of time in Ontario within 2 years of knowing, or having out to have known, that it had a claim to litigate, the claim is then statute-barred. What this means is that the claim can no longer be pursued as a valid debt.

In this Brandon Blog, I describe what seems to be the final word now on the statute of limitations in Ontario and proving your claim in bankruptcy.

Statute of limitations in Ontario: Time limits, collections and bankruptcy

If you think it was confusing for only the average Ontario citizen, think again. It was also confusing for lawyers and licensed insolvency trustees. In my March 15, 2021, Brandon Blog titled “STATUTE OF LIMITATIONS: IS STATUTE BARRED DEBT A BASIC PROPER BANKRUPTCY CLAIM IN ONTARIO?“, I described the decision of Master Mills (as she then was) who has since been elevated to the position of a Judge.

Her decision released on March 8, 2021, in. the legal proceeding of In re: John Trevor Eyton, 2021 ONSC 1719 (CanLII), has changed the way we look at creditors who file a proof of claim in either a consumer proposal, restructuring proposal or a bankruptcy. Just to refresh your memory, she decided that if a claim was past the two-year limit under the statute of limitations in Ontario, then the creditor could not even file a proof of claim in bankruptcy on that debt.

In that blog, I also described what the statute means for debt collectors. I also said that the Eyton decision was going to be appealed. Well, it was and we now have the ruling from a Judge of the Ontario Superior Court of Justice (In Bankruptcy and Insolvency).

statute of limitations in ontario
statute of limitations in ontario

Statute of limitations in Ontario and bankruptcy

The appeal raises a rarely-considered and narrow issue: is a claim which is statute-barred under the statute of limitations in Ontario able to be included by a creditor in filing a Form 31 proof of claim in the bankruptcy of the debtor?

On May 19, 2021, Justice S.F. Dunphy released his decision regarding the appeal of the Eyton decision. I won’t repeat the original decision here because I discussed it in detail in my above-noted blog.

Suffice to say that the basis of this litigation is that the Trustee disallowed the creditor’s filed proof of claim because the last payment made on the debt was in April 2016. The creditor did not take legal action against the debtor.

This made the claim now more than two years old before the date of bankruptcy. Therefore the Trustee said since the claim is statute-barred, it cannot be a debt to be proved in this bankruptcy.

Statute of limitations inForm 79 Ontario: When it is too late to sue?

As previously mentioned, the creditor appealed the Trustee’s decision to Master Mills and lost. Now the creditor was appealing the Master’s decision to the Judge.

The issue to be decided was when:

  • it is far too late to take legal action to try to collect on the debt;
  • the debtor has actually submitted either for a restructuring proposal or for bankruptcy under the Bankruptcy and Insolvency Act (Canada) (BIA);
  • the debtor has actually included the amount of that creditor’s claim in the sworn Statement of Affairs; and
  • under the statute of limitations in Ontario, the financial debt is statute-barred yet is not extinguished,

can the creditor file a claim for that financial obligation in the insolvency proceeding?

statute of limitations in ontario
statute of limitations in ontario

Statute of limitations in Ontario and the Effect of Form 79 Statement of Affairs

The creditor’s first point in the appeal was that its debt was listed in the debtor’s sworn Statement of Affairs. Since the debtor recognized the debt, and the debt is not extinguished, then a proof of claim for the amount should be admitted by the Trustee.

The Judge did not think much of this argument. He stated that just because an amount is listed as a liability on the Statement of Affairs, each creditor is still required to prove their claim. The distinction is that a debtor may think that the debt is a provable claim, but a creditor still has to prove their claim. Stated another way, every claim is a potential claim until proven in accordance with the BIA.

In most restructuring proposals or bankruptcy administrations, the debtor’s listing of claims for at least the unsecured debt will never exactly match the final list of proven claims. That is just the way it is.

Can statutes of limitation barred claims be proved in bankruptcy?

As the BIA is federal law, then all provincial limitations laws in Canada are in play. Not just the two-year limitation period in the statute of limitations in Ontario. The creditor’s legal counsel advanced the following arguments regarding civil claims in bankruptcy:

  • The BIA does not define provable claims with any reference or qualification relating to any provincial applicable limitation periods.
  • The Supreme Court of Canada in Schreyer v. Schreyer, 2011 SCC 35 (CanLII), [2011] 2 SCR 605 decided that the meaning of the term provable claims in the BIA is that if the debt exists and can be liquidated and if the underlying obligation exists as of the date of bankruptcy and if no provincial exemption rule applies, the claim will be deemed to be provable.
  • The two-year limitation period in the statute of limitations in Ontario is procedural in nature because it does not extinguish the debt, it just says that a proceeding, such as the issuance of a statement of claim, cannot begin.
  • In one of the Ontario cases I mentioned in my earlier blog (Re: Temple), the Judge, in that case, found that a claim that was older than the basic limitation period in Ontario could be used as a debt owing for the purpose of launching a Bankruptcy Application seeking a Bankruptcy Order being made against a debtor.

The Judge was not persuaded by any of these arguments. He shot them down one by one. I can summarize all of his comments as follows. The purpose of the BIA is to have an equitable distribution of the bankrupt’s assets amongst the creditors, in the priority laid out in the BIA. The claims of all unsecured creditors are to be treated equally and each unsecured creditor is to receive their pro-rata share.

If a creditor who cannot enforce its claim in respect of payment can receive the same share as a creditor who still can enforce its claim for payment, then the claims of all unsecured creditors are not being treated equally.

So Judge Dunphy of the Ontario Superior Court of Justice (In Bankruptcy and Insolvency) dismissed the appeal. I have been told by the lawyer for the creditor who appealed the Master’s decision to the Judge that he does not feel he has a chance to win an appeal to the Court of Appeal for Ontario. So the law on claims barred by the statute of limitations in Ontario in an insolvency proceeding is now settled. Such a claim is not a claim provable and probably cannot even be used as the basis of a claim in a Bankruptcy Application.

statute of limitations in ontario
statute of limitations in ontario

What does this mean for proceedings and intended proceedings in Ontario?

As far as what this means for debt collectors trying to collect a claim in respect of any statute barred debt and for a debt collection agency, whether they are trying to collect on personal debts such as a credit card debt or on commercial debts, look at my previous blog where I discuss what it means for a debt collection agency.

As far as what it means for an insolvency process, there are several takeaways for me on this. First, whenever a creditor files a completed Form 31 proof of claim, there needs to be a schedule attached to the form that clearly shows how the debt is calculated. If there is not going to be any distribution to the unsecured creditors then there is no need to vet every claim to the nth degree.

However, where there will be a distribution to the unsecured creditors, then the Trustee is going to have to take great care in reviewing and vetting each claim. The Trustee will have to make a determination in each case if the claim is barred by the statute of limitations in Ontario or not. If there is insufficient detail in the schedule attached to the Form 31 proof of claim, the Trustee will have to go to each such creditor and get more details. I suspect there will be a whole lot more claims being disallowed than in the past.

Of course, each creditor whose claim has been disallowed by the Trustee because it is barred by the statute of limitations in Ontario has the right to appeal the Trustee’s decision to the Master sitting in the Ontario Superior Court of Justice in Bankruptcy and Insolvency).

Statute of limitations in Ontario: Get a personalized debt free plan today

I hope that you found this statute of limitations in Ontario Brandon Blog interesting. If you are concerned because you or your business are dealing with substantial debt challenges and you assume bankruptcy is your only option, call me. It is not your fault that you remain in this way. You have actually been only shown the old ways to try to deal with financial issues. These old ways do not work anymore.

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

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

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

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

Call us now for a no-cost consultation.

statute of limitations in ontario
statute of limitations in ontario

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

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

 

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Brandon Blog Post

FALSE PRETENCES: OUR STEP-BY-STEP NEW APPROACH CREDITORS MUST TAKE FOR THEIR CLAIM TO SURVIVE A BANKRUPTCY

false pretences
false pretences

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

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

False pretences and bankruptcy introduction

Just because you have filed for bankruptcy, doesn’t mean you are free and clear of your debts. In fact, some debts, such as those obtained with the use of false pretences, may not be discharged through bankruptcy at all.

A creditor can file a form 31 proof of claim for a debt incurred by false pretences. However, it takes more than just stating it in a proof of claim. A court must have made that determination. If not, the debt can be ruled as dischargeable through bankruptcy. But if the court has made that determination and it is the basis of the claim, that debt will not be discharged upon the bankrupt receiving his or her bankruptcy discharge.

I have discussed the topic of false pretences and bankruptcy before, but based on a recent Ontario court decision, I need to break down the basics of this type of debt and how it relates to a person’s bankruptcy.

What is a false pretence?

A false pretence is a false claim or statement made to induce a person to part with property or to give some valuable thing or advantage. It is a criminal offence in Canada. False pretences are the main element of the crime. The essence of this common law offence is that a person knowingly makes a false statement of fact, intending to induce the victim to act on it to his/her detriment. The reason why the false pretence is punished is that it is a fraud on the public.

Some people choose to give false information when they apply for credit or an extension of credit to make their financial situation look better. This is often done by people who have no intention of repaying the debt and therefore use certain fake information with the intent of deliberately misleading the creditor. They are hoping that the potential creditor will not verify all the information. They can get away with this when they are not required to prove false information with the creditor.

Crimes of Dishonesty: What is the criminal offence of false pretences?

The offence of false pretences is a criminal offence that occurs when a person obtains property from another person by deceiving or defrauding the other person. This can be done either by a false representation of existing facts or by a false promise. The person must intend to defraud and in doing so possess the intent to commit an offence. This is a fairly complex offence under paragraph 362(1) of the Canadian Criminal Code and includes a wide variety of possible scenarios. More often than not, it involves obtaining personal property under false pretences.

Section 362(1) of the Criminal Code of Canada states:

“Every one commits an offence who

(a) by a false pretence, whether directly or through the medium of a contract obtained by a false pretence, obtains anything in respect of which the offence of theft may be committed or causes it to be delivered to another person;…”

If you have been charged with a criminal offence under subsection 362(1)(a) of false pretence in Canada, you need to ensure you have a good defence. Sometimes, it is a difficult offence to prove beyond a reasonable doubt. The only thing the Crown really needs to prove is that you made a false representation to obtain the property of another and that the other person believed you (and was therefore defrauded). It is up to you to ensure that you have a good defence.

But I am not writing this Brandon Blog to focus on criminal behaviour. Rather, I want to discuss this concept from the perspective of someone who might file an assignment into bankruptcy.

false pretences
false pretences

Debt arising from false pretences not released by the bankrupt’s discharge

Section 178 (1)(e) of the Bankruptcy and Insolvency Act (Canada) (BIA) states that an order of discharge does not release the bankrupt from any type of financial obligation or liability arising from obtaining property or services by false pretences or fraudulent misrepresentation other than a debt or liability that arises from an equity claim.

In the past, it was quite customary for a creditor seeking judgment for recovery of a debt who is alleging that the debt arises from circumstances caught by section 178(1)(e) of the BIA to also seek both the civil judgment for the money and also a declaration in the judgment that the debt is one of the debts that falls into the category of not being released just because the bankrupt received his or her bankruptcy discharge. This relief was sought even though the defendant was not involved in any bankruptcy proceeding.

In the past, the courts have provided such relief where the evidence before the court substantiated it, notwithstanding the defendant was not an undischarged bankrupt. There are now two cases in Ontario that say such a dual judgment, both the civil award of money plus the BIA debt declaration will not be made anymore where there is not an actual bankruptcy proceeding.

The most recent false pretences released decision in Ontario – Bank of Montreal v. Mathivannan, 2021 ONSC 2538

On April 6, 2021, the Honourable Justice Kurz of the Ontario Superior Court of Justice released his decision in this case. The Bank of Montreal (BMO) was attempting to get a summary judgment against a defendant for $35,723.71 plus pre as well as post-judgment interest as a result of an unpaid conditional sales contract.

BMO alleged in its statement of claim that the claim arose because the defendant had fraudulent intent by purposely misrepresenting her employment and employment income in her application for credit, being a statement in writing, under a conditional sales agreement for an automobile. The false document application was made to the dealership for financing to purchase a vehicle from it. The conditional sales agreement was then assigned to BMO as a normal financing business practice that is used.

The defendant was noted in default. Under the rules, when noted in default, it is as if the defendant admitted the allegations of fact contained in the statement of claim. However, the opposite is not true. The plaintiff is not necessarily entitled to a judgment merely because the allegations of fact are deemed to have been admitted. They actually must be proven.

The deemed admissions of fact that come from the statement of claim are that:

  • Defendant made certain representations as to her employment and her employment income.
  • BMO relied on those representations and provided the defendant credit.
  • Those details supplied by the defendant were false.
  • That false information was created solely for the objective of defrauding BMO to advance credit for the purchase of the vehicle.
  • BMO gave the credit based on those representations.

The court’s decision regarding the false statements in the credit application document

The court determined that BMO’s statement of claim:

  • Falls short to state how the false statements meet the test for false pretences or fraudulent misrepresentation.
  • It did not say whether they were significant or not.
  • The affidavit evidence used to support the statement of the claim simply offers the verdict that they were false and illegal.
  • With those non-inclusions, the pleadings in the claim do not support a finding of fraudulent misrepresentation or false pretences.

The court had no problem in giving BMO judgment for the civil claim for money, being the $35K plus pre and post-judgment interest. Where the court had a problem was in the evidence of the fraud. Therefore, the request for the additional relief of stating that the debt is one not released by the defendant’s discharge when she obtains her discharge from bankruptcy has not yet taken place.

The court did not grant the additional relief to protect this claim in the event the defendant ever declared bankruptcy. But there is another, and in my view, deeper reason, which all plaintiffs finding themselves in the position of BMO and seeking the same kind of two-phase relief must keep in mind.

false pretences
false pretences

The court should not issue hypothetical decisions even with deceitful conduct

The court did not doubt that the defendant made the false statement. What the court said, following the decision of the trial judge in Royal Bank of Canada v. Elsioufi, the Honourable Mr. Justice Dunphy, that there was not an essential legal basis to determine fraud to approve the civil monetary judgment requested. Justice Kurz followed the thinking of Justice Dunphy by stating that even if a positive finding of fraud were called for to release a judgment, he would certainly refrain from doing so.

That is because it would stand for a theoretical declaration applicable to a bankruptcy case before that proceeding beginning. Justice Kurz also concurred with Justice Dunphy that courts ought to make decisions based on examined evidence and not only based on admissions or even on consent.

So the old-fashioned method in Ontario of bringing to court the request for not only a civil monetary judgment, but also a declaration that the debt falls under s.178(1) of the BIA and therefore not discharged upon the discharge of the bankrupt is over. In the words of Justice Dunphy:

“I am moved to issue this brief endorsement for publication purposes as I have noticed a growing practice of some to request such declarations on a routine basis. I may even have signed one or two before giving the matter further thought and research and I have concluded that the practice is to be discouraged.”

Justice Kurz refused to grant BMO any sort of special costs in its motion, as it did not need to make that kind of motion merely to get the civil monetary claim in a judgment.

False pretences: A new creditor blueprint is needed

Now that at least in Ontario, if the old way will not work anymore, what is a creditor to do now? It is not only for a claim falling under false pretenses or fraudulent misrepresentation but potentially many other of the classes of debts falling under section 178(1) of the BIA including false pretences or fraudulent misrepresentation.

The above-noted court decisions can be instructive. First, if a plaintiff believes that the debt was incurred because of a type of fraud, including false pretences or fraudulent misrepresentation, hard evidence should be provided to the court. Proof using genuine documents, a copy of original documents proving breach of trust, is evidence that should be included.

It should not merely be a deponent’s or plaintiff’s conclusion given the known facts being deposed. It should support a finding of the fraud, even though the court may refrain from making a finding of fraud to deliver a civil monetary judgment in favour of the plaintiff. Providing this evidence will be important later on.

Next, there must be an actual bankruptcy. Either the person must have recognized their financial condition of insolvency and filed an assignment in bankruptcy or a creditor have the court issue a Bankruptcy Order against the person. It could even be the judgment creditor able to prove that the person ought to be adjudged bankrupt.

Third, once bankrupt, the judgment creditor should file a proof of claim with the licensed insolvency trustee administering the bankruptcy estate. Proof of the debt would be the judgment which would be attached to the proof of claim and marked as “Schedule A”.

Fourth, does the plaintiff continue to believe that the claim falls under one of section 178(1) of the BIA exclusions and would survive the person’s discharge from bankruptcy, such as false pretences? If so, then the creditor can make an application to the bankruptcy court to lift the stay of proceedings against the bankrupt, for the creditor to attempt to obtain a judgment from the court that the claim of that creditor is not released by the discharge of the bankrupt.

Fifth and final, the creditor having obtained such leave, can then make a new application to the court for the specific finding that the court refused to make in both of the cases I discussed above. The original evidence supplied by the creditor in its original application will now become very important for the court to review. That is why I said it should be pleaded, with evidence when the civil monetary judgment was sought so that it could be relied upon now.

False pretences summary

I hope you enjoyed the false pretences Brandon Blog post. Are you worried because you or your business are dealing with substantial debt challenges and you assume bankruptcy is your only option? Call me. It is not your fault that you remain in this way. You have actually been only shown the old ways to try to deal with financial issues. These old ways do not work anymore.

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

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

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

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

Call us now for a no-cost consultation.

We will get you or your business back up driving to healthy and balanced trouble-free operations and get rid of the discomfort factors in your life, Starting Over, Starting Now.

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

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Brandon Blog Post

COMMERCIAL TENANCIES ACT ONTARIO AND THE BANKRUPT TENANT: THE COMPLETE GUIDE TO HAPPILY LOCking IN A LANDLORD’S CLAIM

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.

Commercial Tenancies Act Ontario: Introduction

On October 28, 2020, the Court of Appeal For Ontario clarified the interplay between the Commercial Tenancies Act Ontario and the Bankruptcy and Insolvency Act (Canada) (BIA) when a commercial tenant in Ontario goes bankrupt.

In this Brandon’s Blog, I describe what the appellate court decided in the 7636156 Canada Inc. (Re), 2020 ONCA 681 (CanLII) case. I also discuss what it means for commercial landlords when one of its tenants goes bankrupt and what the relationship is between the Commercial Tenancies Act Ontario and the BIA.

Commercial Tenancies Act Ontario: The facts

The facts were not in dispute. On May 1, 2018, the corporate tenant filed for bankruptcy and the Trustee was appointed. On July 23, 2018, the Trustee disclaimed the lease on the commercial premises.

One of the schedules for the commercial lease required the tenant to lodge a letter of credit (LOC) in the amount of $2.5 million in favour of the landlord. The LOC was to have an initial term of one year, renewed each year on an automated basis until 60 days after the expiry of the lease’s term. It was stipulated that the LOC is to continue to stand as protection for the landlord in case the tenant ended up being bankrupt.

According to the lease, the tenant provided the LOC. It was an irrevocable standby LOC issued by The Bank Of Nova Scotia (BNS) for the $2.5 million amount in favour of the landlord. The LOC had been renewed annually before the date of bankruptcy.

To get the LOC, the tenant put up money collateral in the amount of $2.5 million to BNS which was invested in a BNS GIC. BNS took security against the company and registered a financing statement under the Personal Property Security Act, R.S.O. 1990, c. P.10. The security was good and valid as against the Trustee. The Trustee was in agreement that the security was valid.

Commercial Tenancies Act Ontario: The landlord draws against the LOC

As of the bankruptcy date, there were no arrears of rent owing under the lease. Since the commercial tenant was bankrupt, the landlord made 3 claims on the LOC. These three claims totalled the full $2.5 million LOC value.

The initial draw, in the amount of $207,732.28, was made on May 16, 2018, before the Trustee disclaimed its interest in the commercial lease. Under the Commercial Tenancies Act Ontario, the Trustee has the right to occupy the premises for 3 months from the date of bankruptcy, if it wishes. By the end of the 3 months, whether the Trustee occupied or not, it must either disclaim its interest in the lease or adopt it and assign it to a purchaser.

The opportunity to sell the lease would happen if the rented commercial premises are in a sought after location and the lease has value in it. A lease can have value if it is at a rental rate below the market rent at the date of bankruptcy.

The 2nd draw, in the amount of $1,709,768.40, occurred on December 4, 2018. The 3rd claim against the LOC, in the amount of $582,499.32, was made on April 2, 2019.

The LOC draws covered the losses asserted by the landlord as follows:

  • $207,732.28 being the rent for May 2018;
  • $1,621,160.72 for rent for the months of August 2018 to April 2019, inclusive;
  • $368,479 for the unamortized cost for the landlord allowance as included in the lease, inclusive of interest; and
  • $302,628 for restoring the premises, as allowed for in the lease.

In support of each demand against the LOC, the landlord gave BNS the required certificate verifying the debt of the tenant under the lease. The landlord was the beneficiary under the LOC for the debt of the tenant, for which repayment was demanded from the tenant and not paid.

BNS accepted the landlord’s draw claims under the LOC and paid the complete amount of the LOC to the landlord. BNS never asked the landlord to return the funds paid.

The landlord believed that it was entitled to the funds under the lease drawn up in accordance with the Commercial Tenancies Act Ontario. BNS also believed that the landlord fulfilled its requirements to receive payment under the LOC from BNS.

Commercial Tenancies Act Ontario: The landlord’s proof of claim

The landlord knew how to complete form 31 proof of claim and filed it with the Trustee. The landlord filed for a preferred claim in the amount of $623,196.84. The preferred claim was for 3 months’ accelerated rent: May, June, and July 2018. The landlord’s proof of claim also attached a schedule showing the calculations.

In Ontario, a landlord’s preferred claim for rent in case of a commercial tenant’s bankruptcy is limited: a maximum of 3 months’ pre-bankruptcy arrears as well as for accelerated rent, a 3-month post-bankruptcy claim.

The right to accelerated rent must be stipulated in the lease. Further, the landlord’s entire preferred claim is limited to the value of the bankrupt company’s property on the premises, after the claims of trust claimants or secured creditors.

All these rights are laid out in the Commercial Tenancies Act Ontario.

Commercial Tenancies Act Ontario: The Trustee’s disallowance of the landlord’s proof of claim

The Trustee disallowed the landlord’s proof of claim, stating that the landlord’s preferred claim for three months’ accelerated rent had been paid by the landlord’s draws against the LOC.

The disallowance also stated that:

  • the funds used to pay the landlord from the LOC originated from funds that came from the bankrupt tenant;
  • the LOC was to be reduced prior to the date of bankruptcy; and
  • the landlord did not include proper support for its case for further damages in regard to the tenant’s obligations under the commercial lease.

The Trustee’s position that the LOC should have been reduced in amount is not important for the purpose of this Brandon’s Blog. I won’t spend any time on it other than to tell you that the court did not agree with the Trustee’s position.

commercial tenancies act ontario
commercial tenancies act ontario

Commercial Tenancies Act Ontario: The landlord appeals

The landlord appealed the disallowance to the Registrar in Bankruptcy. The Registrar permitted the landlord’s appeal partly. She held that considering that the landlord had drawn on the LOC for the May 2018 rent, the Trustee appropriately disallowed the preferred claim for the month of May.

However, she further determined that the landlord was correct in its accelerated rent claim for the other two months. The landlord could look for payment from the bankruptcy estate or from the LOC. According to the Registrar, the Trustee therefore incorrectly refused the preferred claim for those other two months.

Commercial Tenancies Act Ontario: The Trustee’s motion to a judge

The Trustee wasn’t finished debating about the landlord’s rights to claim against the entire LOC given the Trustee’s disclaimer of the lease, the Commercial Tenancies Act Ontario and the BIA. The Trustee made a motion to the court to determine what amount from the LOC the landlord was entitled to. The Trustee’s position was that the landlord was not entitled to the full amount of the LOC. Since the security for the LOC was funding from the company, any excess not required by BNS should be paid to the Trustee.

The parties’ positions that they laid out in their respective materials were largely what was already before the Master. The motion judge concluded that the landlord was only entitled to make use of the LOC for the 3 months’ accelerated rent.

The judge’s reasoning was:

  • a disclaimer of the lease by a trustee in bankruptcy is the same as a voluntary abandonment of the lease by the occupant under the Commercial Tenancies Act Ontario with the consent of the landlord. This snuffs out all obligations of the tenant under the commercial lease;
  • he turned down the landlord’s submissions that the independent obligation of BNS to it under the LOC meant that the funds coming from the LOC were not the property of the bankrupt and therefore not payable to the Trustee;
  • that upon the disclaimer of a lease by a Trustee, a bankrupt commercial tenant does not owe any amounts to the landlord. Therefore, the landlord cannot make use of the LOC for any claim other than the 3 months of rent arrears and the 3 months of accelerated rent; and
  • that the obligation of BNS, under the LOC, to make payment to the landlord beneficiary is limited to the amount owing by the commercial tenant under the lease. As he ruled that from the disclaimer the tenant’s only obligation was for the rent arrears and the accelerated rent, therefore, the landlord could not claim any other amounts against the LOC.

Commercial Tenancies Act Ontario: The landlord appeals to the Court of Appeal For Ontario

The question before the appellate court that I want to discuss is, did the judge err in holding that, upon the disclaimer of the lease by the Trustee, the landlord was not qualified to make use of the LOC other than for the amount of its preferred claim?

The decision of the Court of Appeal for Ontario in considering this case and the interplay between the BIA and the Commercial Tenancies Act Ontario clarified exactly what it means when a Trustee issues a disclaimer of lease and what the contractual relationship around the LOC means.

The Trustee argued that when it disclaimed the lease, the landlord was thereupon stopped from making use of the LOC for any amount other than the amount of its preferred claim. The Trustee contended that such a concept of insolvency legislation overrides the autonomy principle for a LOC and therefore limits the lawful amount the landlord could draw.

The Court of Appeal For Ontario made certain findings relating to a disclaimer of lease by a Trustee as follows:

  • The disclaimer under the Commercial Tenancies Act Ontario is for the sole benefit of the bankrupt commercial tenant.
  • While a disclaimer operates to finish the bankrupt tenant’s responsibilities under the lease, the disclaimer cannot be interpreted to be a consensual surrender for all purposes (emphasis added).
  • A Trustee’s disclaimer of a bankrupt tenant’s lease ends the legal rights of the landlord against the bankrupt tenant’s estate relative to the unexpired term of the lease, aside from the three months’ accelerated rent claim under the Commercial Tenancies Act Ontario and the BIA.

Commercial Tenancies Act Ontario: The landlord has a LOC on things

The appellate court recognized that the ability of the landlord to rely upon the LOC for more than just its preferred claim depends on the wording of the lease. In this case, the lease stated that the LOC functions as safety and security for indemnification of the landlord for losses:

“resulting from any termination, surrender, disclaimer or repudiation of this lease … in connection with any insolvency and bankruptcy or otherwise” and that the Landlord’s rights in respect of the LOC were not affected by the disclaimer of the Lease in any bankruptcy proceeding but would “continue with respect to the periods prior thereto and thereafter as if the Lease had not been surrendered, disclaimed, repudiated or terminated.”

Further, one of the terms of the LOC was that it will not be released, discharged or affected by the bankruptcy of the commercial tenant or the disclaimer of the lease.

The appellate court also went on to state that the motion judge’s decision runs counter to a standard principle relevant to LOCs. That is that providing financial institutions, such as BNS, have an independent responsibility to make a settlement to the beneficiary. The LOC is a contract between BNS and the landlord. It is regulated by the principle of the freedom or autonomy of LOCs, not by the BIA or the Commercial Tenancies Act Ontario.

Under the freedom principle, the issuer needs to pay the beneficiary upon appropriate qualification, subject to the minimal exemption for fraud which was not found in this case.

So with a properly worded lease and a properly worded LOC as security, the landlord can call on the LOC for all claims against the bankrupt commercial tenant after a Trustee disclaims its interest in the lease. With these facts, the landlord was successful in being able to claim everything it was owed, up to the limit of the LOC.

Commercial Tenancies Act Ontario summary

I hope you have enjoyed this Commercial Tenancies Act Ontario Brandon’s Blog. A sick insolvent company’s business can be saved by a debt restructuring.

Do you or your company have too much debt? Are you or your company in need of financial restructuring? The financial restructuring process is complex. The Ira Smith Team understands how to do a complex restructuring. However, more importantly, we understand the needs of the entrepreneur or the person who has too much personal debt.

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

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

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

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

Call us now for a free consultation.

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

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

commercial tenancies act ontario
commercial tenancies act ontario
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BANKRUPTCY DISCHARGE CERTIFICATE CANADA: THE COMPLETE HAPPY STORY OF YOUR BANKRUPTCY DISCHARGE

bankruptcy discharge certificate Canada
bankruptcy discharge certificate Canada

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

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

Bankruptcy discharge certificate Canada introduction

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

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

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

Who can issue a bankruptcy discharge certificate Canada?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

bankruptcy discharge certificate Canada
bankruptcy discharge certificate Canada

Bankruptcy discharge certificate Canada: What does trustee discharge mean?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Bankruptcy discharge certificate Canada summary

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

Do you have too much debt? Are you in need of financial restructuring? The financial restructuring process is complex. The Ira Smith Team understands how to do a complex restructuring. However, more importantly, we understand the needs of the entrepreneur or the person who has too much personal debt.

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

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

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

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

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

bankruptcy discharge certificate Canada
bankruptcy discharge certificate Canada
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BANKRUPTCY BLOG 2019: OUR MOST FAVOURITE INSOLVENCY TOPICS

bankruptcy blogIntroduction

I first want to wish all of you and your families a healthy, happy and prosperous New Year. As 2019 draws to a close, I thought it would be interesting to do some research in my 2019 Brandon’s bankruptcy blog to see which ones were the most top 10 popular this year.

So, in order counting down from number 10 to number 1, here are my top 10 bankruptcy blog counts for 2019.

#10 – 407 ETR DEBT SETTLEMENT: OUR NEWEST GUILT FREE WAY TO DO IT

This was a blog I wrote in 2015 as a follow up from one in 2014. It was updated for a 2018 Court decision.

In January 2014 in our blog titled 407ETR FAIRNESS-ONTARIO COURT OF APPEAL ENSURES FRESH START I described to you the decision of the Court of Appeal for Ontario in 407 ETR Concession Company Limited v. Superintendent of Bankruptcy (In the Matter of the Bankruptcy of Matthew David Moore) (the Moore Decision).

The highway’s owners appealed that decision to the Supreme Court of Canada (SCC). On Friday, November 13, 2015, the SCC released three decisions all dealing with the same basic issue: does the federal Bankruptcy and Insolvency Act (BIA) take paramountcy over provincial laws purporting to deal with the issue of debt and bankruptcy in Canada. The SCC answer was a resounding YES!

This blog talks about how 407etr deals with the debt owing by an insolvent person filing either a consumer proposal or for bankruptcy.

#9 – SOMETIMES EVEN A SHARK NEEDS BANKRUPTCY AND INSOLVENCY HELP

Not every innovation that is seen on The Shark Tank is bound to be one of the very best. Among the winners, one just entered into bankruptcy and insolvency proceedings. In this blog, I described one such company that got a deal on Shark Tank, but ultimately, went into bankruptcy.

Fizzics is a machine that makes use of sound waves that improves the taste and quality of a beer. Not even a Shark can stop its company from being driven to Chapter 11 bankruptcy protection. This proves that often an ingenious and fantastic invention being marketed with the assistance of a Shark might not truly interest people.

#8 – COURTS OF JUSTICE ACT: COURT OF APPEAL FOR ONTARIO CREATES NEW RULE?

This was a June 2019 blog about a then-recent decision of the Court of Appeal for Ontario that raises certain issues for a Receiver appointed under the Ontario Courts of Justice Act. The question answered in this blog which I focussed on was does the appeal period in the BIA or the Courts of Justice Act, regulates the appeal period from the order of the motion judge in this situation?

#7 – GAMBLING DEBT BANKRUPTCY: CAN GAMBLING DEBT BE DISCHARGED IN BANKRUPTCY?

I am often asked if you can have a gambling debt bankruptcy; can gambling debts be discharged in bankruptcy? In that January 2018 blog, I discussed the issues and provided my views on how best to get a discharge from not only gambling debts but debts related to any addiction.

#6 – CANADIAN REVERSE MORTGAGE: SENIORS MOVING FORWARD WITH INCREASED DEBT

In this August 2019 blog, I discussed the issue of how seniors are flocking to the Canadian reverse mortgage product in record numbers. I described what seniors must know to avoid reverse mortgage problems.

#5 – PRENUPTIAL AGREEMENTS MAKE FAMILIES STRONGER: THEY AREN’T JUST FOR THE RICH & FAMOUS – PRENUPS IN ONTARIO ARE FOR YOU TOO

In this July 2017 blog, I wrote about how prenuptial agreements make families stronger and why anyone can benefit from prenups in Ontario.

#4 – FORM 31 PROOF OF CLAIM: HOW TO COMPLETE THE PROOF OF CLAIM

This blog is from October 2018. I discussed how a form 31 proof of claim form should be completed and discussed why it is important for it, and the related proxy, to be completed properly.

#3 – 40 PARK LANE CIRCLE, 44 PARK LANE CIRCLE TORONTO FOR SALE: ARE FINANCIAL PROBLEMS CONTAGIOUS?

This March 2015 blog asked somewhat tongue in cheek if financial problems could be a result of where you lived. I reviewed some high profile insolvency cases by residents of 40 Park Lane Circle and 44 Park Lane Circle in the toney Bridle Path area of Toronto. I also provided some solutions people could use to solve their own debt issues.

#2 – WHAT HAPPENS TO DEBT WHEN YOU DIE CANADA: ARE YOU FREE OF DEBT

This was a June 2018 blog. In it, I explored what happens to debt when you die in Canada. Does debt survive death or not?

#1 – AVERAGE CANADIAN NET WORTH 2018: MIDLIFE WEALTH SHOCK MAY LEAD TO DEATH

This September 2018 blog looked at household debt at an all-time high, making the average Canadian net worth 2018 is a hot topic. My blog explored a then-recent study showing what could happen if we experience wealth shock.

Bankruptcy blog conclusion

You may have already noticed over the last 10 days or so I have slowed down a bit in the writing of my Brandon’s bankruptcy Blog. The holiday period will do that to me! I will continue in January at a slower pace of blog posting. Come February, I will pick up the pace again.

In the meantime, again, I wish all of my loyal readers and their families a healthy, happy and prosperous 2020.

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TRUSTEE COMPANY RESPONSIBILITY IN REVIEWING BANKRUPTCY PROOF OF CLAIM

Introduction

I recently read a case from the Court of Queen’s Bench of Manitoba. The decision deals with the responsibility of a trustee company in reviewing and disallowing bankruptcy proofs of claim.

The case

The case citation is Re 5274398 Manitoba Ltd. o/a Cross Country Manufacturing (Bankrupt) 2019 MBQB 89. This is an appeal of Bellhop Express Corp. (“Bellhop”) from the Notification of Disallowance of Claim by the licensed insolvency trustee (formerly called a trustee in bankruptcy) (Trustee). 5274398 Manitoba Ltd. operating as Cross Nation Production (the Company) filed a Proposal under Division I Part III of the Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) (BIA).

On February 6, 2018, a creditors meeting was held in Winnipeg at which time the creditors of the Company, existing in person or by proxy, elected to approve the proposal. On February 5, 2018, the day prior to the meeting, Bellhop sent its Proof of Claim and also registered its ballot voting down the Proposal.

The Trustee disallowed the Bellhop Proof of Claim for voting. The Trustee also did not count Bellhop’s vote against in the calculation in whether the Proposal received the required majority of creditors.

The Court approved the Proposal. After Court approval, the Trustee again reviewed Bellhop’s Proof of Claim. On September 10, 2018, the Trustee sent a formal Form 77—Notice of Disallowance of Claim, Right to Priority or Security or Notice of Valuation of Claim to Bellman.

Bellhop appealed the Trustee’s decision to the Court. Their right to do so is found in Section 135 of the BIA.

The appeal

In the Canadian bankruptcy system, the obligation to prove a claim is that of the creditor. When a creditor files a Proof of Claim, the Trustee has the duty of examining it in order to identify whether the claim stands. If the Trustee is not pleased with the Proof of Claim, he or she might look for additional details from the creditor. The goal of the Trustee is to figure out whether the claim of the creditor is a claim provable under the BIA.

Once the Trustee has made its determination, the claim is either admitted or disallowed. If disallowed, in whole or in part, the Trustee must issue its disallowance using Form 77—Notice of Disallowance of Claim, Right to Priority or Security or Notice of Valuation of Claim. The creditor receiving such a Notice of Disallowance can appeal the Trustee’s decision to the Court.

In this case, before getting to the merits of the appeal, the Court had to decide if the creditor was allowed to present new evidence in support of its claim not previously provided to the Trustee. In this case, the Court decided that it would be appropriate for this new evidence to be presented.

The Trustee did not handle its investigation properly

The Court was prepared to approve additional Bellhop evidence. The Court said that the Trustee company got Bellhop’s Proof of Claim and made inquiries through the Company regarding it. It obtained specific information and made use of some or all of it. The Trustee then developed its Notice of Disallowance.

The Court was critical of the Trustee’s analysis of the Proof of Claim. The Court stated that the Trustee should have shared with Bellhop the information it obtained from the Company and the Company’s legal counsel which it relied upon to develop the Notice of Disallowance. The Trustee could have also shared a draft of its Notice of Disallowance to see if Bellhop had any other documents or information to refute the Trustee’s analysis. Unfortunately, no such transmittal of details was provided by the Trustee to Bellhop before the issuance of the Notice of Disallowance.

The Court went on to say that it was this failure to share such details, it denied Bellhop of the chance to comment on it. It also, therefore, created this situation where Bellhop had to seek leave of the Court for the chance to submit extra details.

The Court’s view was that a Trustee could prevent this situation by having telegraphed its decision to the plaintiff before the official Notice of Disallowance was issued. The Trustee should have asked for the Bellhop’s remarks of any type of, prior to providing its Notice. If the plaintiff failed to react, or react properly, after that it will certainly have a harder job in obtaining approval to provide more proof of its claim.

So under these circumstances, the Court allowed Bellhop to submit more evidence.

The review of the claim and the Trustee’s disallowance

It is a shame that the Trustee seemed to stop short of a fullsome review of all potential information before reaching its decision to disallow the Bellhop Proof of Claim. The reason being is that the Court spent a great deal of time having to determine the issue of presenting additional evidence. The Court was quite critical of the Trustee in its handling of the adjudication of the claim requiring the motion for leave to present more evidence.

In the end, the Court agreed with the Trustee’s decision to disallow the Bellhop claim. The Court held that the proof sent to the Trustee did not warrant a claim of $3,270,684, or anything near that. To reach a decision to allow the claim, part of which was for the loss of income, the Trustee would have to decide on an arbitrary basis. The role of the Trustee is to be neutral and rely upon evidence; not act arbitrarily.

The Court went on to say that there is a responsibility upon creditors in a BIA proceeding to equip a Trustee with sufficient proof that sustains the claim they are making. That did not happen in this case. The Court went on to say that additionally, there is no responsibility on a Trustee to sustain the cost of a substantial examination of a claim which on its face seems blatantly overvalued. Were that the situation, creditors would certainly be urged to submit extremely pumped up claims.

The far better strategy is to urge a circumstance where creditors file sensible claims with sufficient proof to sustain them. That way creditors ensure that the time, initiative, and expense of a Trustee to examine, analyze and value the claim is reasonable.

So in the end, the Court sided with the Trustee’s decision but admonished the Trustee for essentially wasting the Court’s time.

Trustee company summary

Do you or your business have creditors claiming against you? Are you in financial distress? Do you not have sufficient funds to pay your expenses as they come due?

Call the Ira Smith Team today so we can get rid of the tension, anxiousness, pain and discomfort from your life that your money issues have generated. With the unique roadmap, we establish simply for you, we will promptly return you right into a healthy and balanced problem-free life.

We have years as well as generations of experience helping people and businesses trying to find debt restructuring to avoid bankruptcy. You can have a no-cost evaluation so we can assist you to repair your financial difficulties.

As a Trustee company, we are the only experts recognized, approved and audited by the federal government to offer insolvency guidance and solutions. A proposal is a federal government accredited debt settlement strategy to remove your debt and let you avoid bankruptcy.

Call the Ira Smith Team today. This will definitely enable you to return to a brand-new healthy and balanced life, Starting Over, Starting Now.

trustee company

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FORM 31 PROOF OF CLAIM: HOW TO PROPERLY COMPLETE THE PROOF OF CLAIM

Form 31 proof of claim: Introduction

In last week’s vlog, I reviewed why it is important to complete a form 31 proof of claim truthfully, and the penalties for filing a false claim. For both personal and corporate insolvency files, creditors call asking how to complete the document. I discuss in this vlog why it needs to be completed properly. I also provide a link in this blog that you can click on to see how to properly complete the form step by step.

The reference to “form 31” is merely the number of the form given to the form 31 proof of claim form under the Canadian Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) (“BIA”).

What is the form 31 proof of claim form?

Completing and returning form 31 is the second phase in the bankruptcy process. They are included with the notice of bankruptcy documents mailed out by the licensed insolvency trustee (formerly known as a bankruptcy trustee) (the “Trustee”) to formally notify the creditors of the bankruptcy.

When properly completed and filed by each creditor, they are what a Trustee uses to compare the debt as listed on the debtor’s bankruptcy sworn Statement of Affairs. The amount claimed by a creditor is normally different than the amount of the debt listed on the bankruptcy schedules. The reason for this is normally because the creditor’s records are accurate to the penny, while the bankrupt’s records are usually not up to date.

The process is the same whether you are filing a secured claim, an ordinary unsecured claim or a priority claim, which is also unsecured, under s.138 of the BIA. What is important is that you need to have a provable claim.

If the Trustee determines that you have either an unliquidated claim or a contingent claim, there will be additional steps you will need to take for the Trustee to be able to ascribe a value and for you to have a properly proved claim.

Form 31 proof of claim: Form 31

In every:

the Trustee will supply to all creditors form 31 document. If the debtor who intends to restructure first files a Notice of Intention To Make a Proposal, a claim form is not sent out at that stage. It will be sent with the actual restructuring proposal and other related documents.

The same document contains both where you can make your claim as well as complete the proxy form, if applicable. Creditors may experience difficulty completing the document. So, the Trustee provides instructions on how to complete the claim form and proxy. That is also why I have provided a step-by-step instruction sheet from the link below so you can follow exactly how to complete the form.

form 31 proof of claim
form 31 proof of claim

Form 31 proof of claim: Acceptability of proof of claim

It is important to properly complete the document. It must be completed fully and properly. The claim must include all necessary details called for under the BIA. Below is a link to an example on how to properly complete the form 31 proof of claim. A Trustee is required to review all proofs of claim received.

The purpose of this is to know what claims are acceptable to be admitted for voting at the First Meeting of Creditors. Also, all proofs received either before or after the creditors’ meeting must also be reviewed carefully to make sure that they are acceptable if there is a dividend to be paid on the claims in the insolvency proceeding.

The Chair of the creditors meeting has the power to admit or disallow claims for the purpose of voting at the meeting. The Trustee has the same power for the proofs of claim for dividend purposes. Most times the Trustee will also be the Chair at the meeting of creditors.

It is incumbent on the Trustee to communicate with creditors whose claims the Trustee believes to be deficient. The purpose is to obtain additional information to make a final determination. The Trustee has to decide whether to admit or disallow a specific claim.

As you can see, completing the document properly is essential.

Does a creditor have to file a claim?

Nobody will force a creditor to file a claim in a bankruptcy estate. A creditor’s claim becomes valid when the creditor files it and the Trustee accepts it. . When a creditor files a claim against a bankruptcy estate, the creditor is making a claim that the Trustee should record and count their claim so that the creditor will be entitled to receive their pro-rata share of any dividend payments that may be made.

The Trustee will issue the maximum payment each creditor is entitled to when the bankruptcy estate is liquidated. When a creditor files a claim, the creditor also becomes an interested party in the bankruptcy case. An interested party is a person who has a vested interest in the bankruptcy case. If the claim is filed before the First Meeting of Creditors in bankruptcy, then the creditor has the right to participate in and vote at the meeting.

Form 31 proof of claim: My example

CLICK HERE TO SEE AND DOWNLOAD PROPERLY COMPLETED

FORM 31 PROOF OF CLAIM

form 31 proof of claim
form 31 proof of claim

Can I file a proof of claim after the deadline?

There are really only two important deadlines when it comes to filing a claim. The first is before the First Meeting of Creditors. As mentioned above, if you wish to participate in that meeting, then you need to have filed a properly completed valid claim before the start of the meeting. However, if you don’t file it by then, although you won’t be able to vote at the meeting, you have not lost out on anything else.

Once all the realization of assets of the bankrupt has been completed, being both the current assets, fixed assets, and possibly even intangible assets, if the Trustee has sufficient funds to issue a dividend payment, then the Trustee has to review all the claims filed. The Trustee also has to compare the claims register containing all of the creditor claims filed against the names and amounts listed in the bankrupt’s sworn Statement of Affairs.

If any creditors have not yet filed, and there will be a payment made to the unsecured creditors, the Trustee has to send a specific notice pursuant to the requirements of the BIA to each such creditor. The notice in writing says that a dividend will be paid, and if you don’t file your claim by a specific date, then you will be barred from receiving any payment.

How do I object to a form 31 proof of claim?

First, you have to be a creditor with a proven claim accepted by the Trustee. The BIA states that any creditor can inspect the claims filed. So if you have personal knowledge that a party listed on the sworn Statement of Affairs is really not a creditor, then you would be assisting the Trustee by reviewing the claims filed and pointing out any claims you believe are invalid, and why. However, it is very unusual for a creditor to take the time to do so.

The next opportunity and really the only time it matters, for a creditor to object to a claim filed by a creditor is if a dividend distribution is going to be made and the Trustee sends out the Final Dividend Sheet. If you think there are errors, then you can object to the approval of the Trustee’s Final Statement of Receipts and Disbursements and the Dividend Sheet.

Reasons that you may feel one or more claims are incorrect could be:

  • You do not believe that someone that has filed as a secured creditor can provide adequate proof of security with their claim.
  • You feel that the compromise of claims being proposed is improper.
  • There may be details of payments received by a creditor are missing and therefore their claim is overvalued.
  • The priority of claims listed is improper.
  • The priority of payment as listed in the Trustee’s Final Statement is incorrect.
  • Some of the more complicated claims, such as the claim of lessor, a claim by wage earner, claim by farmer or another claim for employees have been incorrectly calculated by the Trustee.

If you have any concern that there is an error with the amounts being claimed, or if you believe that there are circumstances where one or more claims are not valid, you should immediately communicate this to the Trustee.

Keep in mind that once the Trustee issues the Final Statement with Dividend Sheet and has the intention of making a payment to all creditors with valid claims, you have to file your own objection within 30 days of the date on which the notice was issued.

Form 31 proof of claim: Do you need help?

Do you or your company have too much debt? Is a financial restructuring or debt settlement plan necessary but you just don’t know where to start? If so, then you need the help of a professional trustee.

The Ira Smith Team has years of experience of helping individuals and companies successfully complete their restructuring proposal debt settlement plans. Our approach for each file is to create an end result where Starting Over, Starting Now takes place. This starts the minute you are at our door.

form 31 proof of claim
form 31 proof of claim

You’re simply one phone call away from taking the necessary steps to get back to leading a healthy, balanced hassle-free life, recover your money and move on to the next investment opportunity. Call us today for your free consultation.

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