Tag: insolvency

BUSINESS DEBT CRISIS OPTIONS COMPLETELY EXPLAINED BY A TORONTO LICENSED INSOLVENCY TRUSTEE

Post author By Brandon Smith
Post date August 4, 2025

debt crisis

The Greater Toronto Area is facing its worst business debt crisis in decades. As a licensed insolvency trustee who has helped many GTA businesses navigate financial challenges, I’m seeing alarming trends that every business owner needs to understand.

The GTA Business Landscape: Canada’s Economic Powerhouse Under Pressure

Toronto is Canada’s business and financial capital. It is the second-largest financial centre in North America. Our diverse economy spans technology, manufacturing, retail, hospitality, and professional services. This diversity usually protects us during downturns, but today’s debt crisis and the need for GTA business debt relief are hitting all sectors.

The IBISWorld Ontario Economic Overview report shows the numbers that tell the story:

Commercial banking generates $117.9 billion in revenue
Retail trade employs 884,368 people in Ontario
Professional services support 562,343 workers
Manufacturing provides 560,630 jobs

Yet despite this economic strength, a June 2025 IPSOS poll found that only 26% of Toronto residents say our economy is in good shape. Most concerning? 41% believe we’re heading in the wrong direction – away from economic prosperity.

How COVID-19 Started Toronto’s Debt Crisis

The Initial Shock That Changed Everything

When COVID-19 hit in March 2020, Toronto’s downtown core emptied overnight. Restaurants, hotels, retail stores, and service businesses saw customers disappear. Some sectors lost 25% of their business immediately.

The Canadian government responded with the Canada Emergency Business Account (CEBA) program. The Government of Canada has reported that over 898,000 Canadian businesses received $49 billion in emergency loans. At the time, this felt like a lifeline.

But here’s what many business owners didn’t realize: CEBA wasn’t free money. It was a loan with a delayed payment schedule.

Permanent Changes That Hurt Businesses

COVID-19 didn’t just create a temporary problem. It permanently changed how people work and shop:

Remote work became permanent – Downtown Toronto office vacancy hit 18.2%
Online shopping exploded – Many customers never returned to physical stores
Business travel disappeared – Hotels and restaurants lost corporate clients
Consumer habits shifted – People became more price-conscious and cautious

Source: The Toronto Metropolitan University June 5, 2025 media release titled “New Economic Report Underscores Urgency to Revitalize Downtown Toronto”.

These weren’t temporary changes. They represent a “new normal” that many businesses still struggle to adapt to.

debt crisis

Current State of the Debt Crisis: The Numbers Are Alarming

The CEBA Cliff Hit Hard

Business failures in Canada jumped by 87.2% in early 2024 – the biggest increase in 37 years. This debt crisis spike happened right after the CEBA loan forgiveness deadlines passed.

Source: The Canadian Association of Insolvency and Restructuring Professionals (CAIRP), July 5, 2024, media release titled: “Q1 2024 Canadian Insolvency Statistics”.

Here in Toronto, CAIRP stated that GTA business insolvency rates climbed from 0.4 per 1,000 businesses in 2021 to 0.7 in 2023. While that sounds small, it represents hundreds of local businesses closing their doors because of the debt crisis.

Source: Canadian Association of Insolvency and Restructuring Professionals (CAIRP) July 5, 2024 media release titled: “Q1 2024 Canadian Insolvency Statistics”

Most Failures Are Permanent Closures

Unlike consumer debt problems, which often involve payment plans, business failures are mostly bankruptcies. This means permanent closure, not restructuring. Business owners are giving up entirely rather than trying to reorganize.

Rising Delinquencies: A Warning Sign of Worse to Come

The debt crisis isn’t just about businesses that have already failed. Over 309,000 Canadian businesses missed at least one credit payment in early 2025 – that’s 11.3% of all businesses with credit.

For GTA businesses, these are some missed payment rates:

Restaurants and hospitality: 16.9%
Retail stores: 13.2%
Overall business loans 60+ days overdue: 3.4%

Ontario leads the country in business payment debt crisis problems, with an 18.8% increase year-over-year.

Why Businesses Can’t Pay Their Bills

Customer spending is down. The average consumer cut credit card spending by $107 per month in early 2025. When your customers have less money, your revenue drops.

Operating costs keep rising. Food costs are up 5.8%, rent up 6.0%, and wages up 4.8%. Profit margins are getting squeezed from both sides.

Household debt is crushing consumers. Canadian consumer debt hit $2.55 trillion. Ontario homeowners saw mortgage payments jump by over $680 monthly after renewal. When families are financially stressed, they stop spending on non-essentials.

CEBA loans are now due. As of January 19, 2024, 161,000 businesses still owed $7.8 billion in CEBA loans. Interest started charging at 5% annually, turning “emergency help” into another monthly payment. Outstanding CEBA loans are due for full repayment on or before December 31, 2026.

New Regulatory Pressures Adding to Business Costs

While the government talks about cutting red tape, Toronto businesses face new municipal-level regulations that add costs:

New Rules Taking Effect

Toronto nightclub licensing changes (January 2025)
Digital platform worker protections (July 2025) – affects delivery and ride-share businesses
New building codes (January 2025) – impacts construction companies
“Renoviction” bylaws (July 2025) – add costs for landlords
Civil litigation procedure changes – increases legal costs

Each regulation may be well-intentioned, but they all add compliance costs when businesses can least afford them.

The Pandemic’s Effects Still Linger

Consumer Behaviour Changed Forever

In our practice, we see businesses still struggling with permanent shifts in customer behaviour:

Customers shop differently now:

More online shopping, less in-store browsing
Greater focus on local businesses
More price-conscious decision-making
Delayed major purchases (cars, appliances, travel)
Higher expectations for health and safety

Businesses must operate differently:

Heavy investment in technology and e-commerce
Flexible work arrangements affect office space needs
Enhanced health and safety measures
More resilient supply chains
Higher service level expectations

The Technology Investment Burden

Every business now needs robust online capabilities. This means ongoing costs for:

E-commerce platforms
Cloud-based systems
Process automation
Cybersecurity
Staff training

For businesses already struggling with a debt crisis, these necessary investments create additional financial pressure.

debt crisis

Economic Pressures: The Double Hit of Recession and Inflation

Inflation Squeezes Profit Margins

Even though headline inflation dropped to 3.8% nationally, key business costs remained high:

Food prices: up 5.8%
Shelter costs: up 6.0%
Overall consumer prices: up 11.4% over two years

Toronto businesses face a cruel math problem: costs rise faster than what customers can pay.

Recession Fears Become Reality

Ontario’s economic growth fell to just 0.8% in 2025, with unemployment rising for eight straight quarters to 7.5%. When unemployment rises, consumer confidence falls, and spending drops further.

The vicious cycle: Higher costs → Higher prices → Fewer customers → Lower revenue → Unable to pay debts

Tightening Credit Markets Make Everything Worse

High interest rates created a credit crunch that hit businesses hard:

Borrowing became expensive: 63% of businesses say high interest rates prevent expansion or investment.

Credit demand dropped: 6% fewer businesses applied for new credit in early 2025. New credit card applications fell 10.3%.

Consumer credit tightened: When customers can’t get credit, they spend even less at your business.

Mortgage renewal shock: Ontario homeowners face mortgage renewal shocks. Payments increase by an average of $680 monthly. This leaves less money for extra spending.

Managing Financial Crises: What Works?

Cash Flow Management Must Be Daily

In this debt crisis, managing cash flow isn’t a monthly task – it’s a daily survival skill.

Track money every day:

Check bank balances each morning
Use a 13-week cash flow forecasting financial model
Know exactly what’s due when
Plan every payment carefully

Speed up money coming in:

Accept all payment methods (cards, e-transfer, mobile)
Offer discounts for quick payment (2% for 10 days)
Call overdue customers personally
Send invoices immediately

Slow down money going out:

Pay critical suppliers first (those who could shut you down)
Use electronic payments to control timing
Negotiate payment plans before you’re in trouble
Consider temporary hour reductions before layoffs

Strategic Payment Prioritization

When cash is tight, not all debts are equal. Here’s the priority order I recommend:

Payroll and source deductions (CRA will shut you down)
Critical suppliers (those who keep you operating)
Rent and utilities (you need a place to operate)
Secured loans (they can seize collateral)
Unsecured loans and credit cards (last priority)

Strategies for Addressing the Debt Crisis

Debt Restructuring Options That Work

Informal arrangements: Sometimes you can negotiate with creditors before formal proceedings. Recent success: a dining establishment reduced its monthly payments from $12,000 to $4,000.

Consumer proposals: If you’ve personally guaranteed business debts, this can reduce personal liability by up to 80%.

Business proposals: For companies, a formal proposal can reduce payments to all creditors simultaneously, thereby eliminating a debt crisis.

Strategic bankruptcy: Sometimes, closing one business cleanly allows you to start fresh without old debts following you.

Asset Management Approaches

Smart asset management can generate cash and reduce the debt crisis:

Sale-leaseback arrangements: Sell equipment or property, then lease it back. This generates immediate cash while keeping operational assets.

Asset liquidation: Sell non-essential assets. That unused equipment or excess inventory can become debt payments.

Intellectual property monetization: You can make money from intellectual property by licensing your processes, customer lists, or trademarks for ongoing income.

Real estate optimization: Consider subleasing unused space, downsizing, or moving to cut overhead costs.

debt crisis

Closing the Funding Gap: Where to Find Money

Government Programs Still Available

Canada Small Business Financing Program:

Up to $1 million in loans
Government backs 85% of lender risk
Better rates than regular business loans
Available through most banks and credit unions

Business Development Bank of Canada (BDC):

Patient capital for struggling businesses
Industry-specific expertise
Flexible repayment terms
Will work with businesses other lenders won’t touch

Ontario-specific programs:

Advanced Manufacturing and Innovation Competitiveness (AMIC)
Canadian Digital Adoption Program (CDAP)
Various regional development funds

Alternative Financing When Banks Say No

Invoice factoring: Sell your accounts receivable for immediate cash (typically 80-90% of invoice value).

Merchant cash advances: Get cash now based on future credit card sales (expensive but fast).

Peer-to-peer lending: Online platforms connect you directly with individual investors.

Revenue-based financing: Repayments are based on monthly revenue rather than fixed payments.

Crowdfunding: Crowdfunding works well for businesses that serve customers directly and have strong stories.

Learning from Denmark: How Copenhagen Handles Debt Better Than North America

Denmark, especially Copenhagen, does things differently – and better in many ways.

As a licensed insolvency trustee, I’ve seen what works and what doesn’t. Denmark’s approach offers real lessons for Canadian businesses struggling with a debt crisis.

How Denmark’s Government Manages Money (And What Businesses Can Learn)

Denmark keeps things simple and clear when managing government debt. Here’s what they do right:

They Have Clear Fiscal Oversight Rules In Denmark everyone knows who’s responsible for what. The Finance Minister makes the big decisions. The Danish National Bank handles the day-to-day money management. No confusion, no finger-pointing.

Everything Is Out in the Open Danish debt management is transparent. They publish their plans, explain their decisions, and stick to clear goals. This builds trust with lenders and keeps borrowing costs low.

They Plan for Problems The Danish National Bank actively watches for risks. They don’t just hope things work out – they prepare for trouble before it happens.

They Focus on Long-Term Costs Instead of looking for quick fixes, Denmark focuses on keeping borrowing costs low over many years. They accept some risk to achieve better long-term results.

How Denmark Helps People With Too Much Debt

Denmark’s consumer debt relief system is much simpler than ours:

One Program, Not Many Unlike Canada, where people might get confused by multiple options, Denmark has one clear debt relief program. Everyone knows how it works.

Pay What You Can, Then You’re Done People pay back what they can afford for five years. After that, the remaining debt disappears. It’s that simple.

This approach reduces stress and gives people a clear path to financial freedom.

What Danish Business Debt Rules Teach Us

Denmark has clear rules for dealing with a business debt crisis:

Clear Collection Process When businesses can’t pay, there’s a step-by-step process everyone understands. No surprises, no unclear rules.

Fair Bankruptcy System If a business truly can’t continue, bankruptcy is available. But there are clear requirements – you can’t just walk away from debts without a good reason.

Some Debts Come First When paying back creditors, certain debts get priority – like employee wages and government fines. This protects workers and ensures fair treatment.

Four Key Lessons for Toronto Businesses

After studying Denmark’s system, here are the most important lessons for GTA businesses:

1. Have Clear Financial Rules Just like Denmark’s government, your business needs clear financial procedures. Know who makes spending decisions. Set borrowing limits. Create rules for paying suppliers.

Whenever we do a financial restructuring under either a BIA Proposal or a CCAA Plan of Arrangement, businesses with clear financial procedures survive crises better than those making it up as they go.

2. Manage Risk Before Problems Start Denmark doesn’t wait for a debt crisis – they plan. Your business should do the same.

Ask yourself:

What could go wrong with my cash flow?
Which customers might stop paying?
What happens if my biggest supplier demands cash only?
How would a recession affect my business?

3. Be Open About Your Financial Situation Denmark’s transparency builds trust and keeps borrowing costs low. The same works for businesses.

Be honest with:

Your bank about cash flow challenges
Suppliers about payment timing
Key customers about any service issues
Your accountant about all financial concerns

I’ve seen businesses get better deals from creditors simply by being upfront about their situation.

4. Think Long-Term Economic Resilience, Not Just Survival Denmark focuses on long-term borrowing costs, not just immediate needs. Businesses should think the same way.

Don’t just ask: “How do I pay this month’s bills?” Instead, ask: “How do I build a business that can handle future challenges?”

This might mean:

Accepting higher costs now for more reliable suppliers
Building cash reserves instead of maximizing current profits
Investing in systems that reduce future risks
Developing multiple revenue streams

Why These Lessons Matter for Canadian Businesses

Denmark’s approach works because it’s predictable and fair. Everyone knows the rules. There are clear consequences for breaking them. People can plan.

Canadian businesses facing debt crisis often struggle because:

Rules seem to change constantly
Different creditors want different things
No one explains the options clearly
Business owners feel lost and alone

Denmark’s system shows there’s a better way.

Applying Danish Lessons in Your Business

You can start using Danish-inspired approaches today:

Create Financial Transparency

Prepare monthly financial reports (even simple ones)
Share appropriate information with key stakeholders
Document your financial decision-making process
Keep clear records of all business debts and payments

Develop Risk Management Habits

Review your biggest financial risks monthly
Create backup plans for your most important suppliers
Maintain relationships with multiple lenders
Build cash reserves when times are good

Establish Clear Procedures

Write down who can authorize spending
Create a priority list for paying bills during tight times
Develop criteria for extending credit to customers
Set clear policies for managing business debt

When Danish-Style Approaches Aren’t Enough

Sometimes, despite good financial management, businesses still face an overwhelming debt crisis. That’s where professional help becomes necessary.

As a licensed insolvency trustee, I help businesses when:

Clear procedures aren’t enough to solve cash flow problems
Risk management didn’t prevent a major crisis
Transparency reveals more problems than solutions
Long-term thinking shows the business isn’t viable

Even then, Danish lessons help. Transparent businesses, planned, and managed risks professionally, have more options when a crisis hits.

The Bottom Line for Toronto Businesses

Denmark proves that simple, clear, fair approaches to debt work well. Their success comes from:

Clear rules everyone understands
Transparency that builds trust
Risk management that prevents problems
Long-term thinking over quick fixes

You can apply these principles whether your business is thriving or struggling. The earlier you start, the better your results will be.

If your business is already in debt crisis, these Danish lessons can still help guide your financial recovery. Combined with professional advice from a licensed insolvency trustee, they provide a roadmap back to financial health.

debt crisis

When to Call a Licensed Insolvency Trustee

Don’t wait until creditors are knocking down your door. The best outcomes happen when business owners seek help early.

Call immediately if:

You’re using credit cards for business expenses
Missing any loan payments
CRA is demanding payment
Suppliers put you on cash-only terms
Considering borrowing against your home
Losing sleep over business finances

What to expect in our first meeting:

Free consultation and options review
Honest assessment of your situation
Clear explanation of all solutions
No pressure to file if other options exist

Your Action Plan: Recovery Is Possible

Toronto’s business debt crisis is serious, but recovery is always possible with the right approach. I’ve guided hundreds of GTA business owners through financial difficulties.

Your immediate next steps:

Face the numbers honestly – create that daily cash flow tracker
Get professional help – talk to a licensed insolvency trustee
Communicate proactively – call creditors before they call you
Focus on cash flow – every decision should consider cash impact
Plan for recovery – what will your business look like post-crisis?

Remember: The longer you wait, the fewer options you have. But even in the worst situations, there’s usually a path forward.

Why Experience Matters in a Debt Crisis

Not all insolvency trustees understand business; some focus only on the consumer market. We specialize in owner-managed business insolvencies, working in the GTA and the wider Ontario market. We know local conditions and have relationships with Toronto-area lawyers, accountants, banks, and others. We know which solutions work for different business types.

Our approach is straightforward: preserve what can be saved, eliminate what can’t, and help you move forward with confidence.

debt crisis

Frequently Asked Questions About Toronto’s Business Debt Crisis

Answers from Ira Smith Trustee & Receiver Inc., Licensed Insolvency Trustee with years of experience helping GTA businesses

What is the current state of Toronto’s business debt crisis?

Toronto is facing its worst business debt crisis in decades. The numbers are shocking, and every business owner needs to understand what’s happening.

Here’s the reality: Business failures in Canada jumped 87.2% in early 2024 – the biggest increase in 37 years. Right here in Toronto, business closures climbed from 0.4 per 1,000 businesses in 2021 to 0.7 in 2023. That represents hundreds of local businesses shutting their doors permanently.

What’s really concerning is that over 309,000 Canadian businesses missed at least one credit payment in early 2025. That’s more than 1 in every 10 businesses struggling to pay their bills. Ontario leads the country in payment problems.

How did COVID-19 contribute to the debt crisis, and what permanent changes did it bring?

COVID-19 didn’t just create a temporary problem – it permanently changed how business works in Toronto. As someone who helped many businesses through the pandemic and since then, we saw this transformation firsthand.

The Initial Shock When lockdowns hit in March 2020, downtown Toronto emptied overnight. Restaurants, hotels, retail stores, and service businesses lost customers immediately. Some sectors saw 25% revenue drops in weeks.

The government launched the CEBA program, giving $49 billion in loans to nearly 900,000 businesses. At the time, this felt like a lifeline. However, many business owners didn’t realize that CEBA wasn’t free money – it was a loan with delayed payments.

Permanent Changes That Hurt Businesses The pandemic created a “new normal” that many businesses still can’t adapt to:

Remote work became permanent – Downtown Toronto office vacancy hit 18.2%
Online shopping exploded – Many customers never returned to physical stores
Business travel disappeared – Hotels and corporate catering lost their biggest clients
Consumer habits shifted – People became more price-conscious and cautious about spending

The Technology Investment Burden Every business now needs strong online capabilities. This means ongoing costs for e-commerce platforms, cloud systems, and staff training. For businesses already struggling with a debt crisis, these necessary investments create additional financial pressure.

In our practice, we see businesses that survived the initial COVID shock but are now failing because of the costs of adapting to these permanent changes.

What are the main reasons businesses are struggling to pay their bills?

After helping many GTA businesses, we see the same problems over and over. It’s not just one issue – multiple factors are hitting businesses at the same time.

Customers Have Less Money Your customers are financially stressed too. Average credit card spending dropped $107 per month in early 2025. When families cut back on spending, your revenue drops immediately.

Consumer debt in Canada hit $2.55 trillion. Ontario homeowners saw mortgage payments jump after renewal. When your customers are struggling with their own bills, they stop spending on non-essentials.

Operating Costs Keep Rising While customer spending drops, your costs keep climbing:

Food costs: up 5.8%
Rent and utilities: up 6.0%
Employee wages: up 4.8%

This creates a profit squeeze from both directions – less revenue coming in, more costs going out.

CEBA Loans Are Now Due This is a big one many business owners forgot about. As of January 2024, 161,000 businesses still owed $7.8 billion in CEBA loans. These loans now charge 5% annual interest. What felt like “emergency help” became another monthly payment.

New Regulations Add Costs Toronto keeps adding new rules that sound good but cost money:

New nightclub licensing requirements
Digital platform worker protections
Updated building codes
“Renoviction” bylaws for landlords

Each regulation adds compliance costs when businesses can least afford them.

How do tightening credit markets and inflation make the debt crisis worse?

High interest rates created a perfect storm that’s crushing Toronto businesses. Let me explain how this works.

Borrowing Became Expensive Our entrepreneurial business clients say high interest rates prevent them from expanding or investing. When you can’t borrow money to grow or even maintain your business, you’re stuck.

The Mortgage Renewal Shock Ontario homeowners face payment increases averaging $680 monthly when their mortgages renew. This leaves families with even less money to spend at local businesses.

The Inflation Squeeze While national inflation dropped to 3.8%, key business costs stayed high:

Food prices: up 5.8%
Shelter costs: up 6.0%
Overall prices: up 11.4% over two years

The Vicious Cycle Here’s how it all connects: Higher costs force businesses to raise prices → Higher prices mean fewer customers → Fewer customers means lower revenue → Lower revenue makes it impossible to pay debts.

Add unemployment rising for eight straight quarters to 7.5%, and you have a situation where businesses face higher costs and fewer customers at the same time.

What cash flow management strategies work for struggling businesses?

Cash flow management isn’t a monthly task anymore – it’s daily survival. Here’s what actually works, based on my experience with hundreds of struggling businesses.

Track Money Every Day Check your bank balance every morning with your coffee. Use a simple 13-week cash flow forecast to know exactly what’s due when. This isn’t busy work – it’s survival.

Speed Up Money Coming In

Accept all payment methods (credit cards, e-transfer, mobile payments)
Offer 2% discounts for payments within 10 days
Call customers with overdue accounts personally
Send invoices the same day you deliver goods or services

Slow Down Money Going Out

Pay critical suppliers first (those who could shut you down)
Use electronic payments to control timing
Negotiate payment plans before you’re in trouble
Consider temporary hour reductions before layoffs

Priority Order for Tight Times When cash is extremely tight, pay in this order:

Payroll and government deductions (CRA will shut you down)
Critical suppliers (those who keep you operating)
Rent and utilities (you need a place to work)
Secured loans (they can seize your assets)
Unsecured loans and credit cards (last priority)

What debt restructuring and financing options actually work for businesses in trouble?

We use every option available to help Toronto area companies conquer GTA busines insolvency. Here’s what actually works in real situations.

Debt Restructuring Options

Informal arrangements – Sometimes I can negotiate directly with creditors. Last month, I reduced a restaurant’s monthly payments from $12,000 to $4,000.
Consumer proposals – If you’ve personally guaranteed business debts, this can reduce your personal liability by up to 80%.
Business proposals – For larger companies, we can propose reduced payments to all creditors at once.
Strategic bankruptcy – Sometimes closing one business cleanly lets you start fresh without old debts following you.

Asset Management That Generates Cash

Sale-leaseback – Sell your equipment or building, then lease it back. This generates immediate cash while keeping what you need to operate.
Asset liquidation – That unused equipment or excess inventory can become debt payments.
Intellectual property licensing – License your processes or customer lists for ongoing revenue.
Real estate optimization – Sublease unused space or downsize to reduce overhead.

Financing When Banks Say No

Canada Small Business Financing Program – Up to $1 million with government backing
Business Development Bank of Canada – They’ll work with businesses other lenders won’t touch
Invoice factoring – Sell your unpaid invoices for immediate cash (usually 80-90% of value)
Revenue-based financing – Repay based on monthly sales rather than fixed payments

What can Toronto businesses learn from how Denmark handles a debt crisis?

After studying international approaches to a business debt crisis, Denmark offers four practical lessons for Toronto companies.

Have Clear Financial Rules Like Denmark’s government, your business needs clear procedures. Know who can authorize spending. Set borrowing limits. Create rules for paying suppliers.

In my experience, businesses with clear financial procedures survive crises better than those making it up as they go.

Manage Risk Before Problems Start Denmark doesn’t wait for a debt crisis – they plan ahead. Ask yourself:

What could go wrong with my cash flow?
Which customers might stop paying?
What happens if my biggest supplier demands cash only?
How would a recession affect my business?

Be Transparent About Your Situation Denmark’s openness builds trust and keeps borrowing costs low. Be honest with your bank about cash flow challenges, suppliers about payment timing, and your accountant about financial concerns.

I’ve seen businesses get better deals from creditors simply by being upfront about their situation.

Think Long-Term, Not Just Survival Don’t just ask “How do I pay this month’s bills?” Instead ask “How do I build a business that can handle future challenges?”

This might mean accepting higher costs now for more reliable suppliers, building cash reserves, or developing multiple revenue streams.

When should I call a licensed insolvency trustee for help?

Don’t wait until creditors are knocking down your door and you are in full debt crisis mode. The best outcomes happen when business owners seek help early, while they still have options.

Call immediately if you’re:

Using credit cards for business expenses
Missing any loan payments
Getting demands from CRA
Being put on cash-only terms by suppliers
Considering borrowing against your home
Losing sleep over business finances

What to expect in our first meeting:

Complete confidentiality (everything is protected by law)
Free consultation with no obligation
Honest assessment of your situation
Clear explanation of all available options
No pressure to file for bankruptcy if other solutions exist

Why timing matters: The earlier you call, the more options you have. I can often help businesses restructure and continue operating. If entrepreneurs are early enough, perhaps informal workouts are a possibility. Otherwise, perhaps Division I Proposals are the answer. But if they wait too long, your only choice might be permanent closure.

In my years as a licensed insolvency trustee, I’ve learned that business owners who seek help early have the best chance of saving their companies. Those who wait until the last minute often have fewer choices.

Remember: Asking for professional help isn’t admitting failure – it’s taking control of your future and finding the best path forward for your specific situation.

Take Action Today

The Toronto business debt crisis won’t solve itself. But with proper guidance, your business can not only survive but also emerge stronger and more resilient.

If you’re struggling with a business debt crisis, don’t suffer in silence. Contact me for a confidential consultation. We’ll review your situation, explore all options, and create a plan that works for your specific circumstances.

Asking for help isn’t admitting failure – it’s taking control of your future.

As someone who has helped many Canadian businesses and business owners, I’ve seen companies survive and thrive even in the toughest times. The businesses that succeed are those that face reality honestly, adapt quickly, and aren’t afraid to ask for help when they need it.

If your business is facing financial challenges, don’t wait until it’s too late. Early intervention provides more options and better outcomes. Contact Ira Smith Trustee & Receiver Inc. today to discuss your situation confidentially and explore your options.

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

Free consultation available:

No obligation to proceed
Complete review of your Canadian business debt and credit situation
Practical next steps you can take immediately

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

As a licensed insolvency trustee in the Greater Toronto Area, I tell consumers and business owners to see financial problems not as failures but as challenges. Proper guidance can solve them. By knowing the warning signs of insolvency and getting professional advice early, many people and businesses find a way forward. They can restructure, make strategic changes, or wind down in an orderly way that protects future chances.

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

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

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

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

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

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

debt crisis

Brandon Blog Post

FINANCIAL STRESS TEST: 10 UNDENIABLE WARNING SIGNS YOUR COMPANY IS HEADING TO BANKRUPTCY

Post author By Brandon Smith
Post date January 29, 2024

financial stress test

Financial stress test: Introduction

Poor financial management is a substantial element that causes a firm to be burdened with excessive financial debt. To avoid financial stress, one of the critical areas for companies is to develop a proper balance between their debt and equity financing, in addition to creating a distinct plan for managing their debt. Overlooking these obligations may lead to a situation where a company ends up being overloaded by debt and interest payments and ends up perilously close to insolvency and maybe even bankruptcy.

Investing in private or public companies always brings dangers, yet it can be particularly devastating when a company you’ve bought declares bankruptcy. In this financial stress test Brandon’s Blog, we discuss the topic of business financial stress and exactly how to identify early signs that a company you own or have invested in is heading in the direction of bankruptcy. By comprehending the 10 essential indications or danger signals, you will certainly be able to make enlightened choices and protect your economic future. We believe that recognizing these signs is critical for any manager, owner or investor and we discuss them below.

Financial stress test danger signal 1: Debt can be a killer

Too much debt can be a major business killer. It typically results in their insolvency and failure. When a firm struggles with low sales and revenues, the worry of debt becomes a lot more challenging to overcome. As investors, it is important to carefully keep an eye on the financial obligation level of a business to make sure that it can fulfill its economic obligations.

Among the indications that a company is heading towards bankruptcy is frustrating financial obligations. High degrees of debt, the first financial stress test, can be a significant root cause of financial tension for a company. When a business has gathered a considerable amount of debt that it cannot pay off, it can discover it is challenging to fulfill its economic obligations, which is the leading cause of bankruptcy. This can bring about a downward spiral where the business continues to borrow to pay off other financial debts, intensifying the problem. As an investor, it’s important to keep an eye on a firm’s financial obligation levels and assess its capability to handle and reduce its financial debt burden.

In addition to taking a look at a business’s financial statements, it is very important to remain updated on the latest information and advancements that might impact a firm’s debt circumstance. Modifications in rates of interest, credit report ratings, or industry-specific regulations can have a considerable effect on a firm’s capability to handle its financial obligations and its ability to continue to operate.

Comparisons can be made between different companies and their financial obligations. It truly is a tool with 2 sides. When debt is used practically and responsibly, it has the prospective to drive business growth and expand horizons. Nonetheless, if financial debt reaches unmanageable proportions, it can swiftly turn into a fatal strike. Organizations strained by frustrating financial debt frequently find themselves captured in a damaging pattern, unable to generate sufficient funds to satisfy their financial debt duties.

financial stress test

Financial stress test danger signal 2: Declining revenue

The second financial stress test is a decrease in sales can act as a substantial indicator, shedding light on the multifaceted challenges a corporation grapples with. It may insinuate that the demand for the enterprise’s offerings is experiencing erosion in the marketplace, or that rival contenders are annexing a larger slice of the market pie.

Discerning the underlying rationales behind the slump in sales assumes paramount importance, as it offers insights into the realms necessitating enhancements or recalibrations in corporate strategies. Furthermore, it facilitates the assessment of whether the market has wearied of the company’s product or service offerings.

Various methodologies exist for surveilling sales trends and scrutinizing a corporation’s performance. One prevalent approach involves scrutinizing the company’s financial records, encompassing the income statement and balance sheet. These documents provide a granular breakdown of the corporation’s sales figures, profits, and expenditures. By juxtaposing these numerical facets across temporal dimensions, both management and investors can pinpoint any deviations or recurring themes in the company’s sales acumen.

Sustained drops in revenue can be construed as momentous signifiers of financial adversity and disquiet. A dip in revenue may signify a flagging appetite for the company’s offerings or an encroachment on market territory by competitors. This deterioration exerts a direct influence on the corporation’s earnings and liquidity, thereby engendering mounting impediments in meeting monetary obligations and defraying expenses.

Lenders ought to lend a vigilant ear to this clarion, as it portends the company’s arduous struggle in generating commensurate income, with potential repercussions spanning financial hardship or, in extreme cases, insolvency if left unaddressed.

Financial stress test danger signal 3: Negative cash flow

When conducting a comprehensive evaluation of a firm’s financial well-being, sustainability, and overall fiscal robustness, one pivotal factor that investors should diligently scrutinize pertains to its capital. Cash flow, the third financial stress test, denotes the intricate ebb and flow of financial resources within a company, encapsulating both the inflow and outflow of monetary assets over a specified duration.

Capital stands as the linchpin of any prosperous enterprise, furnishing the wherewithal to discharge financial obligations, sustain day-to-day operations, and seize growth opportunities. A robust cash flow empowers a company to honour its debt commitments, bankroll its routine functions, and allocate resources for the expansion of its business. Conversely, an inadequacy in cash flow can give rise to formidable fiscal predicaments, potentially imperilling the company’s equilibrium and longevity.

If a company consistently experiences a surplus of monetary outflows over inflows, it may serve as an ominous harbinger of financial distress. One of the paramount indicators signalling that a company is grappling with financial strain and edging toward insolvency is an adverse cash flow. When a company persistently witnesses an outflow of cash exceeding its inflow, it undeniably indicates that financial woes are looming.

An unfavourable cash flow signifies that the company is not generating sufficient revenue to offset its expenditures, thereby engendering the perilous inability to meet financial obligations and fulfill fiscal commitments. Prudent investors must exercise vigilance when they discern this forewarning and regard it as a crimson banner, safeguarding their investments and rendering well-informed judgments concerning the financial destiny of the company.

Comprehending the significance of cash flow

Examining a corporation’s capital history and contrasting it with its prevailing levels of financial indebtedness bestows a valuable perspective on its financial well-being. If a company shoulders a substantial debt burden that eclipses its capital reservoir, it may signal heightened risk and potentially foreshadow impending financial tribulations.

Debt servicing: Enterprises endowed with a robust cash flow possess the capacity to expeditiously honour their debt obligations, thus evading the pitfalls of loan defaults. A bountiful cash flow not only equips them to promptly meet interest and principal repayments but also instills faith in lenders and stakeholders alike.

Operational expenditures: Cash flow plays a pivotal role in underwriting a company’s day-to-day operational outlays, encompassing personnel salaries, lease outlays, utility expenses, and inventory procurements. Ineffectual cash flow management can precipitate quandaries in sustaining routine business functions, thereby opening the door to potential disruptions.

Prospects for growth: A buoyant cash flow furnishes a corporation with the requisite financial means to seize burgeoning prospects, be it diversifying its product portfolio, venturing into novel market segments, or acquiring rival entities. Enterprises grappling with meagre cash flow may forfeit these openings and fall short of harnessing their full growth potential.

Analyzing cash flow: Key metrics and ratios

Pro Tip: It’s also crucial to compare a company’s cash flow metrics with those of its industry peers and competitors. This helps provide context and identify potential outliers or areas of concern.

Since we have developed the significance of capital in a business’s monetary wellness, let’s explore the important indicators and proportions that investors typically rely upon to evaluate a business’s financial security and efficiency.

Cash flow to debt ratio: This proportion contrasts a business’s operating capital to its overall debt, providing an understanding of its capacity to service its financial obligation obligations. A greater proportion suggests a favourable circumstance, showing that the company creates enough cash to cover its financial debt settlements.

Running cash flow (RCF): This metric exposes the cash created from a company’s core procedures. A positive RCF indicates that the business’s operations are producing enough cash to cover its costs and purchase future growth. An unfavourable RCF might recommend operational inefficiencies or declining sales.

Free capital (FCF): FCF represents the cash left after subtracting capital investment from running capital. It shows the surplus cash offered for debt settlement, shareholder distributions, or reinvestment in business. A healthy FCF is necessary for long-lasting economic stability.

While these metrics offer a beginning point for capital analysis, it is very important to perform an extensive testimonial of a company’s financial declarations, including its earnings statement and balance sheet. Comparing the trends in cash flow over multiple periods can reveal patterns and provide a more accurate assessment of the company’s financial stability.

financial stress test

Financial stress test danger signal 4: Inadequate liquidity

Inadequate liquidity stands as the pivotal fourth financial stress test, suggesting that a corporation is treading the precarious path towards insolvency. When a company grapples with a paucity of access to liquid resources, such as cash or readily tradable securities, it can substantially fetter its capacity to discharge fiscal obligations and retire outstanding debts. Constricted liquidity begets complexities for a company in navigating unanticipated financial setbacks or leveraging investment opportunities to generate revenue.

In the dearth of a commensurate cash flow, a company might resort to exorbitantly high-priced borrowings or precipitous divestment of valuable assets, thereby exacerbating its fiscal predicaments. Investors ought to meticulously monitor a company’s liquidity standings, for it can serve as a telltale sign of an impending bankruptcy risk.

Financial stress test danger signal 5: Impact of competition on a company’s financial health

When one undertakes the evaluation of an enterprise, it becomes paramount to consider the relative extent of its market dominance in comparison to its competition. If said market portion exhibits a downtrend, it could potentially signal operational hurdles, a struggle to maintain competitiveness, or perhaps even an ongoing struggle for supremacy. Moreover, prudent investors ought to delve into the company’s array of competitive strengths and weaknesses in this fifth financial stress test.

This endeavour necessitates a comprehensive examination of aspects such as the distinctiveness of their products, the standing of their brand, their operational efficiency, and the fidelity of their customer base. A holistic understanding of these facets stands as a fount of invaluable insights concerning the organization’s ability to maintain a lead within the competitive milieu.

Furthermore, seismic shifts in consumer proclivities might also wield a profound influence on the fiscal well-being of an enterprise. As the predilections of consumers undergo metamorphosis, organizations must adroitly recalibrate their stratagems to conform to these evolving exigencies. Failure to do so could culminate in market erosion and revenue diminution.

For example, a company that neglects to embrace the currents of e-commerce and the tenets of digital marketing might find itself outflanked by competitors who adroitly harness the potential of the online sphere. Investors ought to scrutinize the responsiveness of an enterprise to the vicissitudes in consumer comportment and evaluate its preparedness to exploit nascent prospects.

In the process of scrutinizing the financial robustness of an enterprise, it becomes imperative for proprietors, administrators, and financiers alike to factor in the competitive ecosystem. It is a sine qua non to undertake a scrupulous and penetrating inquiry to fathom the challenges posed by rival entities and gauge the organization’s tenacity in the face of such challenges.

One of the cardinal modes through which competition influences the financial stability of an enterprise resides in the transformations that transpire within the marketplace landscape. The advent of formidable competitors possesses the potential to upend the dynamics of the market, casting a substantial shadow over long-established entities.

These competitors may proffer analogous wares or services at more enticing price points or introduce pioneering solutions that captivate the discerning gaze of consumers. In such instances, the organization may experience an erosion of its market pie, thereby impacting its financial performance adversely.

Competition assumes a pivotal role in ascertaining the fiscal vitality of an enterprise. In the contemporaneous warp-speed business milieu, entities confront ceaseless challenges emanating from their adversaries, which can deliver both boons and banes. It is of utmost import for investors to vigilantly track the competitive vista and assess its prospective repercussions on the enterprise they have bestowed their confidence.

Financial stress test danger signal 6: Problem in securing financing

When a company is not able to secure funding, it can be a concerning indication of economic distress. Lenders might watch the firm as not creditworthy, implying they do not believe in its capability to pay off borrowed funds. This can develop a cycle of financial stress, making it even more difficult for the firm to fulfill its monetary commitments and survive. Investors should be cautious when they see a firm battling to get financing, as it can be a very early indication of prospective bankruptcy. It is critical to completely analyze a firm’s credit reliability before making any kind of financial investment decision.

This sixth financial stress test is one of the essential warning signs that a company might be heading towards bankruptcy is trouble in safeguarding financing. When a firm is unable to secure financings or credit history, it shows that lending institutions and financial institutions might have doubts about its capability to repay its debts.

This can be a significant obstacle for a company as it restricts its choices for raising funding and dealing with economic obstacles. Problems with getting financing can likewise affect the company’s operations, making it more difficult to buy development opportunities or meet everyday costs. Investors must focus on this red flag as it might suggest deeper economic stress within the company.

Financial stress test danger signal 7: Workforce downsizing and layoffs

This seventh financial stress test is an indicator of a company grappling with financial anxiety that emerges in the implementation of terminations and downsizing initiatives. When a corporation finds itself ensnared in economic turmoil, it frequently turns to measures aimed at trimming expenses to reinvigorate its financial solvency. This may entail the reduction of personnel or the curtailment of operational procedures.

Workforce reductions within a company can serve as a telltale sign of its struggles in meeting financial obligations and its ardent quest to curtail expenditures. Such measures can exert a deleterious impact on the morale and efficiency of employees, and it behooves investors to take heed, as it may foreshadow more profound fiscal challenges.

In the event that a business grapples with financial adversity, one stratagem to ameliorate the financial impact is staff terminations and a constricting of operational scope. These maneuvers are typically resorted to as a measure of last resort to forestall bankruptcy and enhance liquidity. Nonetheless, the downsizing of the workforce can engender unfavourable repercussions on morale and productivity, concurrently signalling to investors and stakeholders that the company is grappling with economic tumult.

Consequently, if you happen upon a corporation contemplating substantial staff reductions or a contraction in its operational domain, it becomes imperative to monitor the situation as a cautionary signal and conduct a comprehensive assessment of its overarching financial stability.

financial stress test

Financial stress test danger signal 8: Legal issues and lawsuits

Legal issues and lawsuits can be serious warning signs of financial stress within a company. When a company is involved in numerous legal battles, it not only incurs hefty legal fees but also faces the risk of significant financial settlements or judgments against it. These legal issues can drain a company’s resources and impact its profitability, leading to financial instability.

Additionally, the negative publicity associated with legal problems can damage a company’s reputation and erode customer trust. Investors should carefully monitor a company’s legal standing eighth financial stress test to assess the potential financial implications of ongoing legal battles before making any investment decisions.

Legal issues and lawsuits can serve as a warning sign of financial instability for a company. When a company is faced with numerous legal challenges, it can be an indication that its financial position is precarious. Legal battles can be expensive, and the costs associated with defending against lawsuits and paying settlements can take a toll on a company’s financial health.

Additionally, legal issues can divert management’s attention from crucial business operations, further exacerbating the financial stress. Therefore, investors should pay close attention to any company that is involved in a significant number of legal disputes, as it may suggest underlying financial difficulties leading to a negative financial impact.

Financial stress test danger signal 9: Loss of key clients or customers

A potential sign that a company might be veering toward the precipice of financial stress and bankruptcy materializes with the exit of pivotal clients or customers. When these linchpin stakeholders take their leave, the reverberations can be severe and calamitous, exacting a profound toll on the company’s finances. These clients are the linchpin of the company’s revenue streams, rendering their departure a grievous blow.

Multiple reasons may underpin their decision to depart, including the company’s inability to adapt to shifting customer expectations, the surge in competitive forces, or the repercussions of economic downturns. The attrition of these key clients signifies a waning appetite for the company’s offerings or the erosion of its business relationships. It is of paramount significance for investors to maintain unwavering vigilance and meticulously scrutinize any conspicuous losses in this sphere, as they may serve as potent harbingers of impending financial adversity on the horizon. For all these reasons, this is why it is our ninth financial stress test.

Financial stress test danger signal 10: Deteriorating stock performance

Our tenth financial stress test deals with public companies. One conspicuous red flag signalling a public company’s perilous journey of financial stress toward the brink of bankruptcy resides in the withering performance of its stocks. A consistent descent in the company’s stock values signifies a growing lack of investor faith in its fiscal vitality. The dwindling stock worth resonates as a resounding expression of apprehensions regarding the company’s capacity to yield profits and fulfill its financial commitments.

Investors maintain an eagle-eyed watch over stock performance as it crystallizes the company’s overarching steadiness and market sentiment. Hence, the vigilant tracking of a company’s stock performance, particularly for those in which one has invested, serves as a fount of invaluable insights into the financial strains at play and empowers judicious investment decisions.

A persistent depreciation in the company’s stock value embodies a potent indicator that investors harbour reservations about its fiscal well-being. This erosion of trust may emanate from worries concerning the company’s competence in revenue generation, financial obligation fulfillment, or operational perpetuation.

When investors bear witness to a protracted downturn in stock performance, they oftentimes construe it as a herald of impending fiscal turbulence or, in the direst of scenarios, bankruptcy. As potential investors grow increasingly reticent to pour capital into the company, they may grapple with impediments in securing essential financial resources.

Financial stress test: Conclusion

To protect your investments and make informed decisions, it’s extremely important for investors and owners to maintain a vigilant position and remain in harmony with the very early indications of financial stress and possible company insolvency. A detailed understanding and thorough surveillance of essential financial metrics and cautionary signs act as the barrier to safeguarding your investments.

An aggressive orientation and continual watchfulness in worrying about the financial health of your invested enterprises are essential for securing your financial future. Consequently, it’s imperative to maintain a watchful eye on variables such as declining income streams, placing financial obligation problems, feeble cash flows, and monitoring instability. Equipped by these perspicacious understandings, you will expertly browse the elaborate investment terrain and take on requisite procedures to secure your hard-earned wide range.

I hope you enjoyed this financial stress test Brandon’s Blog. If you or your company are struggling with managing overwhelming debt in this high-interest environment, don’t worry – there are some things you can do to take control of the situation.

Individuals and business owners must take proactive measures to address financial difficulties and promptly seek assistance when necessary. It is crucial to recognize that financial stress is a prevalent concern and seeking help is a demonstration of fortitude, rather than vulnerability. Should you encounter challenges in managing your finances and find yourself burdened by stress, do not delay in pursuing aid.

Revenue and cash flow shortages are critical issues facing people, entrepreneurs and their companies and businesses with debt problems that are in financial distress. Are you now worried about just how you or your business are going to survive? Are you worried about what your fiduciary obligations are and not sure if the decisions you are about to make are the correct ones to avoid personal liability? Those concerns are obviously on your mind.

The Ira Smith Team understands these financial health concerns. More significantly, we know the requirements of the business owner or the individual who has way too much financial debt. You are trying to manage these difficult financial problems and you are understandably anxious.

It is not your fault you can’t fix this problem on your own and it does not mean that you are a bad person. The pandemic has thrown everyone a curveball. We have not been trained to deal with this. You have only been taught the old ways. The old ways do not work anymore. The Ira Smith Team uses innovative and cutting-edge methodologies, to adeptly navigate you through the intricacies of your financial challenges, ensuring a resolution to your debt-related predicaments without resorting to the rigours of the bankruptcy process. We can get you debt relief now!

We have helped many entrepreneurs and their insolvent companies who thought that consulting with a Trustee and receiver meant their company would go bankrupt. On the contrary. We helped turn their companies around through financial restructuring.

We look at your whole circumstance and design a strategy that is as distinct as you are. We take the load off of your shoulders as part of the debt settlement strategy we will draft just for you.

The Ira Smith Trustee & Receiver Inc. team understands that people facing money problems require a lifeline. That is why we can establish a restructuring procedure for you and end the discomfort you feel.

Call us now for a no-cost consultation. We will listen to the unique issues facing you and provide you with practical and actionable ideas you can implement right away to end the pain points in your life, Starting Over, Starting Now.

CLICK HERE TO GET A FREE COPY OF OUR EBOOK 10 UNDENIABLE WARNING SIGNS YOUR COMPANY IS HEADING TO BANKRUPTCY

An image showing a traffic light with red and green lights with financial charts and dollar signs in the background to depict a company showing danger signals and nearing financial bankruptcy — *financial stress test*

Tags Bankruptcy, cash flow, competition, danger signals, Debt, deteriorating stock performance, economic distress, financial distress, financial impact, financial stability, financial stress, financial stress test, insolvency, key clients/customers, liquidity, litigation, market share, warning signs, workforce downsizing

Brandon Blog Post

CORPORATE BANKRUPTCY FAQ: USE OUR HACK TO SOLVE YOUR CHALLENGING INSOLVENT COMPANY ISSUES

Post author By Brandon Smith
Post date May 23, 2022

Corporate bankruptcy: An overview

Corporate bankruptcy is a legal process by which businesses can reorganize their financial affairs or liquidate their assets. Although bankruptcy can be complicated and stressful, it can provide businesses with a fresh start.

When it does happen, the corporate bankruptcy process can be complicated. Insolvency can take a toll on your company’s employees, customers, and shareholders. A solid understanding of corporate bankruptcy can help you properly restructure and reorganize your company using an insolvency process without killing your business.

Last week, I gave my best FAQ answers to common questions about personal bankruptcy services. A business partnership or sole proprietorship means that the individual(s) operate the business in their personal name. Answers about business bankruptcies for those forms of business would fall under the personal bankruptcy process that was covered in last week’s personal bankruptcy FAQ blog.

When a corporation conducts business, some of the questions, and answers, are different. In this Brandon’s Blog, I answer the most frequently asked questions about corporate bankruptcy.

**Can a business declare corporate bankruptcy?**

As stated previously, only a corporation can declare corporate bankruptcy. A corporation is its own legal entity. A “person” is eligible for relief under federal bankruptcy law. A “person” is typically defined in the Canadian bankruptcy legislation to include an individual, part of a partnership, a proprietorship, a company, an unincorporated association, a cooperative society, or a cooperative organization. corporate bankruptcy canada

What are the different types of corporate bankruptcy in Canada?

There are 2 different types of bankruptcy that a company can file for under the Bankruptcy and Insolvency Act Canada (BIA). They are:

Liquidation: This is when the insolvent company is unable to pay its debts and its business is no longer viable. The only real option for it is to sell off its assets to repay its secured creditors and unsecured creditors as best as possible since it files for bankruptcy in the priority outlined in the BIA.
Restructuring: This is when the company is insolvent and is incapable to repay its debts due to its financial difficulties, yet all or a sufficient portion of the company’s business is still viable. So, the company negotiates brand-new terms with creditors to lower its financial obligations and also might have the ability to sell some assets to settle its financial debts. Restructuring is the most well-known alternative to bankruptcy. Restructuring under insolvency legislation is also described in the media as bankruptcy protection.

**What factors lead to corporate bankruptcy proceedings?**

A company always shows signs of trouble before it needs to file for corporate bankruptcy. Some of the early danger signals are:

continued history of losses;
dwindling cash position;
the departure of key management or employees;
difficulty meeting loan or lease obligations;
the breaking of loan covenants; and
difficulty meeting payroll.

Corporate bankruptcy: What does it mean for a company when it liquidates?

As stated above, when a company liquidates it means that the company is unable to pay its debts and its business is no longer viable. The only real option for it is to sell off its assets to repay secured creditors and unsecured creditors as best as possible through bankruptcy and then shut down. corporate bankruptcy canada

**What happens to debt in corporate bankruptcy?**

If the purpose of the corporate bankruptcy is to shut down and have liquidation of business assets, then we first need to see what the net proceeds of sale from those assets are. The BIA describes the order in which funds must be distributed by a licensed insolvency trustee (formerly called a bankruptcy trustee) in bankruptcy. The order in which the debts must be repaid, in whole or in part, is called the priority.

The priority of the rights of creditors to be repaid in a corporate bankruptcy is:

Trust and deemed trust claimants – These are parties whose property is being held or is deemed to be held in trust for them by the bankrupt corporation. The most common type of deemed trust claim in a corporate bankruptcy is Canada Revenue Agency for unremitted employee source deductions.
Secured creditors – Creditors who hold valid security over the assets of the company get paid next. There could be more than just one secured creditor. Within the secured creditor group, the order of priority is based on the ranking of the security registration dates.
Preferred creditors – These are unsecured creditors who have been given certain priority in a corporate bankruptcy under federal bankruptcy laws. The most common examples in a corporate bankruptcy would be Trustee fees, the Trustee’s lawyer’s fee, the levy payable to the Office of the Superintendent of Bankruptcy Canada on any distribution made by the Trustee to a creditor and certain salary, wages or commissions due to employees.
Ordinary unsecured creditors – This group comes after the preferred creditors. They are all creditors who have supplied goods or services and do not hold any security and do not fit into the definition of a preferred creditor.

The balance of any unpaid debt ends up getting written off on the books of the creditors because there are no assets left in the company to claim against.

**How does a company get into corporate bankruptcy and what happens to the company?**

The way a company gets into bankruptcy is the exact same way an individual can. For a liquidation, either the company can file a voluntary assignment into bankruptcy. If it is one or more creditors owed at least $1,000 trying to push the company into bankruptcy, then they would file a Bankruptcy Application with the court requesting the court to make a Bankruptcy Order. corporate bankruptcy canada

**Why might a company choose to file for corporate bankruptcy protection and restructure under a BIA proposal?**

Corporate bankruptcy protection and restructuring under a BIA proposal can provide a company with financial difficulties a much-needed relief and a chance to return to profitability. When a company files for protection, the BIA proposal offers an orderly and reliable process for restructuring, which can be appealing to businesses that have a good chance of a turnaround.

A corporation that has a viable business and can return to profitability after restructuring, with support from creditors, has all the right ingredients for a successful restructuring. This is why a company might choose to file for corporate bankruptcy protection and restructure under a BIA proposal. The company will survive and jobs will be saved.

Who is responsible for developing the reorganization plan for the company?

Reorganization is the restructuring of a business to gain efficiency, improve workflow, and drive profits. Reorganization plans vary in length and detail and take a certain period of time to properly develop. They generally describe desired outcomes and final goals. Sometimes a company will undergo a complete reorganization, while other plans focus on aspects that require reorganization, such as a business unit or department.

The reorganization plan of a company is essential to ensure its smooth transition. The reorganization plan involves restructuring various departments of the business, reducing operational costs, and streamlining the workflow. Writing a reorganization plan requires a lot of time, effort, and money.

When a business downsizes, it reduces its workforce to a smaller number. Such a reduction can be a painful process that even threatens to collapse the business. The company needs to have a plan in place to accomplish this reorganization while still running the business. When downsizing occurs, businesses require reorganization plans. Involving and informing employees of the process makes them more likely to follow new plans and less resistant to change.

All of the various individual department organization plans and product sales plans need to be combined into an overall business plan. This overall business plan must also include financial information to show how the company, emerging from restructuring, will operate profitably.

Now that the overall plan is set, senior management must work with its outside financial and legal restructuring professionals to establish the restructuring commercial proposal or plan of arrangement to be presented to the creditors to be voted upon. An excellent communication program must be put into place so that creditors can understand the benefits to them of supporting and voting in favour of the restructuring proposal. Normally negotiations with certain creditors or creditor groups must take place in order to come up with a final and successful restructuring plan that will gain both creditor support and pass through the legal proceedings of court approval. corporate bankruptcy canada

**What becomes of a corporation after corporate bankruptcy?**

Going through corporate bankruptcy means your company’s assets have been sold to pay off some portion of its debts. Bankruptcy also by operation of law terminates all of the employees. So the corporation is left with no assets and no employees. All it has is debt and a deficit equal to the total debt less the amount that is shown on the balance sheet for the company’s preferred and common stock.

Therefore, the corporation, as a legal entity, is then left to just float away into the stratosphere. There are only 2 ways that a company can survive a corporate bankruptcy:

from the sale of the corporate assets, pay off 100% of all of its business debt plus interest; or
file a BIA proposal, obtain creditor support and court approval and successfully complete it.

The first way will almost never happen. The second way can happen if there is a good reason to try to make sure that the corporation as a legal entity survives. A reason for doing this might be that there is value to the shares. After becoming bankrupt, a successfully completed proposal annuls the bankruptcy. By definition, the proposal will discharge all of the company’s outstanding debt. The company is now debt-free.

The common stock may have value because it is a public company and the shares can be relisted on the stock exchange. Now the corporate shell is attractive to a private company that wishes to go public and can do so by amalgamating with this public shell. Alternatively in a private company, or in a public company, there may be significant tax loss carryforwards available for use if this corporate shell is merged with the right kind of profitable company. the only way to use the tax losses is first by owning all the shares.

This is all possible, but, the normal outcome for a company that has gone through a corporate bankruptcy is just to fade away, never to be heard from again.

**When a company declares corporate bankruptcy, what will happen to your stock or bond?**

When you invest money in a company by investing your capital, your money is legally represented by the stock or bonds that you purchased. When you see a company declaring bankruptcy, it means the company can no longer afford to pay its debts.

If a company just liquidates its assets during corporate bankruptcy, the existing shares will likely be worth very little or nothing at all. For a private company, a successful corporate restructuring might increase the value of the shares as the company will emerge from its restructuring with much less debt than before.

The value of a company’s shares is most likely to lower if it effectively restructures its financial affairs. It might have to issue brand-new stock to creditors that will not be paid back in full, watering down the value of the business’s shares.

As far as corporate bonds are they secured or unsecured against the company’s assets? If secured, they could be repaid in whole or in part depending on where they stand in the secured assets pecking order. If unsecured, then it just becomes part of the larger unsecured creditor pool. In a corporate bankruptcy that is a liquidation, those bondholders will receive their share of any distribution made by the Trustee to the ordinary unsecured creditors if there is such a distribution made.

Corporate bankruptcy and insolvency at a glance

In conclusion, bankruptcy and insolvency of course go together, although many people prefer to think of bankruptcy as an economic failure while insolvency is more accurately a sign of a business’s financial failings.

In the same way I hoped last week’s personal bankruptcy blog helped your understanding, I hope this Brandon’s Blog on corporate bankruptcy was helpful to you in understanding more about the corporate bankruptcy system in Canada.

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

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

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

CLICK HERE TO GET THE FREE HOW TO CLOSE YOUR BUSINESS WITHOUT BANKRUPTCY OFFER

Brandon Blog Post

WHERE IS LAURENTIAN UNIVERSITY WITH ITS HELPFUL CONCLUSIVE COMPENSATION CLA1MS PROCESS?

Post author By Brandon Smith
Post date July 28, 2021

where is laurentian university

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.

Where is Laurentian University in dealing with ‘An ugly stain for years to come’: Laurentian University students, staff reeling from cuts

As regular Brandon Blog readers know, I have been writing about the financial difficulties leading to the Laurentian University creditor protection filing under the Companies’ Creditors Arrangement Act (CCAA) as major events unfolded. The filing for bankruptcy protection was to allow for ongoing operations to continue and to come up with a Plan of Arrangement to deal with creditor claims.

The end of this week was scheduled to be another milestone in the Laurentian CCAA insolvency process, but it appears that event won’t happen on time. The purpose of this Brandon Blog is to discuss where is Laurentian University at with its compensation claim process for current and terminated faculty and staff?

Laurentian University situation so dire, it couldn’t afford to pay staff

This post-secondary institution faced a cash crisis and many financial issues leading to having filed its application for creditor protection on February 1, 2021. So far, I have written on:

LAURENTIAN UNIVERSITY FACING INSOLVENCY MAKES STARTLING CCAA NEWS FILING FOR CREDITOR PROTECTION. I wrote about what creditor protection in the Canadian context is for companies under financial strain and why Laurentian University did so.
LAURENTIAN UNIVERSITY INSOLVENCY RESTRUCTURING – OUR UPDATED GUIDE ON ITS MASSIVE CUTS TO GAIN FINANCIAL HEALTH. I discussed what went wrong in this Northern Ontario Sudbury-based university leading to the Laurentian University insolvency restructuring.
LAURENTIAN UNIVERSITY IN SUDBURY: THE LAURENTIAN FEDERATED UNIVERSITIES SUFFERED A CRUSHING DEFEAT. I explained the court rulings in favour of Laurentian University in Sudbury in its effort to terminate all of its federated agreements with the independent universities: the University of Sudbury, Thorneloe University and Huntington University.
COMPANIES’ CREDITORS ARRANGEMENT ACT: CREDITORS ARE NOW ABLE TO MAKE BOLD CLAIMS AGAINST LAURENTIAN. I wrote about the CCAA Claims Process having begun, other than for compensation claims of current and terminated faculty and staff. I described the rules for creditors to file their claims.
LAURENTIAN UNIVERSITY OF SUDBURY: LAURENTIAN SCORES HUGE WIN OVER THORNELOE UNIVERSITY. I discussed the Laurentian University of Sudbury decision of the Court of Appeal for Ontario concerning the request of one of the independent universities, Thorneloe University.
CUSHMAN WAKEFIELD TORONTO: COURT READILY APPOINTS FIRM TO REVIEW LAURENTIAN’S MASSIVE REAL ESTATE HOLDINGS. I discussed the Cushman Wakefield Toronto appointment as the Sudbury school plans a real estate review in Phase 2 of its court-guided restructuring process. The purpose of the independent third-party review is to see what Laurentian University might sell to get out of its financial hole and get it back onto a proper financial footing.

Where is Laurentian University with the Amended and Restated Claims Process Order?

I previously wrote about the Laurentian University Amended and Restated Claims Process Order (A&R Claims Process Order) when it was obtained from the Court on May 31, 2021.

Among other things, the A&R Claims Process Order developed a claims process to recognize, identify and deal with certain claims of creditors. The A&R Claims Process Order left out Compensation Claims to allow Laurentian, with the help of the Monitor and in discussions with the Laurentian University Faculty Association (LUFA) and also Laurentian University Staff Union (LUSU), to establish a process as well as a method for the identification of Compensation Claims.

Compensation Claims usually consist of the claims of current and previous employees, retirees, and also the labour unions relative to employment, benefits, pension, and/or labour contracts among the stakeholders and Laurentian University, and also claims of specific third parties relative to involvement of their employees in the retirement health benefit plan.

In their application to Court last May, Laurentian University told the Court that they would be back to have the Compensation Claims process approved no later than July 30, 2021.

Where is Laurentian University with its creditor protection compensation claims program now?

Laurentian told the Court that its Compensation Claims process will:

develop the key groups of claims to be covered in a Compensation Claims
procedure;
determine what info and also how the information needed to calculate such
claims can be assembled based upon the information in the hands of Laurentian and third-party service providers;
develop the Compensation Claims Methodology; and
think about alternate procedures for notice as well as claims handling.

In its motion record dated July 23, 2021, Laurentian has advised the Court that although it is working diligently with the Monitor, LUFA and LUSA, Laurentian will not be able to serve materials explaining its Compensation Claims process in time to seek Court approval no later than July 30. So, Laurentian is asking for an extension from July 30 to August 20, 2021. In the motion record, it is not stated exactly where is Laurentian University in this process. Laurentian has advised that its lawyers have booked time with the Court to hear the motion on August 17, 2021, at 9:30 AM.

UPDATE: On July 28, 2021, the Court approved amending paragraph 46 of the Claims Process Order to extend the date that Laurentian University must bring a motion to the Court to seek approval of: (a) the Compensation Claims Methodology, and (b) the process for notification of Employees and claims process, from “no later than July 30, 2021” to “no later than August 20, 2021”.

***Where is Laurentian University? Ask current President* *Dr. Robert Haché***

In support of this motion for an extension of time, the motion material includes the affidavit of Dr. Robert Haché, University President and Vice-Chancellor of Laurentian University of Sudbury, sworn on July 23 (the Haché Affidavit).

The Haché Affidavit really doesn’t say much and unfortunately, it does not say exactly where is Laurentian University in the finalization of the Compensation Claims process. It summarizes the background about the bilingual university financial troubles as to how this post-secondary education institution got to where it is today in the Laurentian CCAA insolvency process and advises the Court that:

Laurentian and the Monitor have been working diligently on settling the Compensation Claims Methodology, nonetheless, as a result of a variety of competing and urgent demands put on the University’s limited resources, (which presumably includes the demands of day to day operations) development has actually been slower than expected.
Although the information-gathering phase took longer than anticipated, drafts of the Compensation Claims Methodology have been prepared and also shown to LUFA and LUSU.
Regardless of best efforts, Laurentian was not able to finalize the Compensation Claims process in order to have everything in time for the Compensation Claims Methodology to be provided for Court authorization by July 30, 2021, based on the A&R Claims Process Order.
Therefore, the University looks for a short extension to that date. This requires a change to paragraph 46 of the A&R Claims Process Order to prolong the day whereby Laurentian can bring a motion to the Court to seek the authorization for the Compensation Claims Methodology to no later than August 20, 2021.

The Haché Affidavit is light on details as to what the issues getting in the way are, what has been agreed to so far and where is Laurentian University in all this? Close or still far off? It provides no real useful information to determine where is Laurentian University on this issue. My review of documents that were made public sheds no more light than what I am telling you in this Brandon Blog. They are obviously hoping that this request will not meet with any opposition so that it will allow for a positive impact on the financial restructuring.

So, unfortunately, there is no real insight into what is holding up the Compensation Claims process for claims of current and former faculty and staff, including severance payments, which certainly will be in the millions of dollars.

I doubt that anyone will wish to try to upset the restructuring over this issue. As of the time of writing this Brandon Blog, there is not a current Monitor’s Report in support of this motion yet made public.

Where is Laurentian University in all of this? I suspect that Laurentian will receive the extension it is requesting.

Where is Laurentian University summary

I hope that you found this where is Laurentian University Brandon Blog interesting. Problems will arise when you are cash-starved and in debt. There are several insolvency processes available to a person or company with too much debt.

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

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

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

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

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

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

Call us now for a no-cost consultation.

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

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

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Brandon Blog Post

DIFFERENCE BETWEEN CONSUMER PROPOSAL AND BANKRUPTCY: THE PROVEN CANADIAN WAY TO GET DEBT FREE

Post author By Brandon Smith
Post date July 26, 2021

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

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

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

Difference between consumer proposal and bankruptcy: Know your options

Regular readers of my Brandon Blog know that there are a lot of steps you need to go through to financially reorganize your life. I have written before different blogs on various aspects of both consumer proposals and bankruptcy. The purpose of this Brandon blog is to discuss in one place, the difference between consumer proposal and bankruptcy.

Many people opt for one of these options because life has thrown them a curveball, they no longer have the cash flow to pay off their debts and want to start fresh. There are some great benefits to filing bankruptcy. They include eliminating creditors and debts, getting control over your personal finances, and having a stress-free life, Starting Over, Starting Now. But if you’re considering a first-time bankruptcy, or the bankruptcy option even if you are familiar with the Canadian bankruptcy process from a prior time, you should consider the pros and cons of a consumer proposal, the only government-approved debt settlement plan in Canada. It will be good for you to know the options that I explain below.

Consolidation loans vs consumer proposals

What’s the distinction between a consumer proposal and a debt consolidation loan? The consumer proposal process is an insolvency procedure that allows you to resolve all the amounts you owe to your unsecured creditors via an arrangement with your creditors. It does this without needing you to file bankruptcy. A consumer proposal can only be carried out by a licensed insolvency trustee. A consumer proposal allows you to get rid of all the amount owed by repaying only a part of your financial obligations over time.

A consolidation loan means that you still have sufficient assets and income and a good enough credit score, in order to borrow the total amount you owe. The loan must carry an interest rate lower, and hopefully much lower, than the average interest rate of your combined total debt. You use the loan proceeds to repay 100% of your debts. You now have only one loan with a monthly payment you can afford. Taking out a consolidation loan is not an insolvency process.

The main difference between consumer proposal and bankruptcy

The consumer proposal is a fundamental part of our personal insolvency system. It is an insolvency procedure controlled by the Bankruptcy and Insolvency Act (Canada) (BIA) that allows individuals who owe $250,000 or less (not including any financial debts secured against their principal home). It permits you to pay a portion of your financial debts with time, yet eliminate all of them if fully executed. It is an alternative to declaring bankruptcy. It is an alternative to bankruptcy.

Bankruptcy is also a fundamental part of our insolvency system under the BIA. However, rather than restructuring, in personal bankruptcy, the person surrenders all of their non-exempt assets to the licensed insolvency trustee for the benefit of the person’s creditors. Once the bankrupt person has fulfilled all of their duties, they are entitled to receive a discharge from bankruptcy, subject to the Trustee or a creditor opposing it.

Personal bankruptcy involves the liquidation of the bankrupt’s assets in return for the eventual elimination of their unsecured debts. It is not considered a restructuring like a consumer proposal is.

Difference between consumer proposal and bankruptcy: The process of filing a consumer proposal vs bankruptcy

You start by talking to a Trustee who will provide you basic guidance on both a consumer proposal and also bankruptcy. The Trustee will likewise inform you specifically just how each process functions. If at the end of that discussion you inform the licensed bankruptcy trustee that you really feel good in wanting to take the next steps with them, the Trustee will provide you with their intake form. When the form is completed, you send it to the Trustee, including supplying any kind of backup documents asked for, the Trustee can then provide you advice for your unique financial difficulties.

If you choose a consumer proposal, the licensed insolvency trustee will prepare the necessary filing documents for you to sign. This includes assisting you with preparing the best possible proposal that works for both you and your creditors. You then meet with the Trustee to sign the documents. The Trustee then files the documents electronically with the Office of the Superintendent of Bankruptcy (OSB). The OSB then issues the Certificate evidencing the filing and the formal process begins.

After seeing your completed intake sheet, the Trustee will advise on whether or not a consumer proposal would work for you, or if your best or only option is filing for bankruptcy. Similarly, in bankruptcy filings, the Trustee prepares all the required filing documents for your signature. The Trustee explains all of them to you, you sign them and the Trustee then electronically files the filing documents with the OSB. The OSB then issues its Certificate evidencing the bankruptcy and that formal process begins.

You initially meet with the licensed bankruptcy trustee, in-person, by video or phone, to share details of your personal situation, and working together, you determine whether a consumer proposal, an alternative to filing bankruptcy, or personal bankruptcy is the best option for you. With COVID-19, we have been holding all of our no-cost consultations and meetings by phone and video. We can do the sign-up process by video and email. We have found this is very convenient for our clients as they are not required to take the time to attend our office in person.

As you can see, the process of filing a consumer proposal vs bankruptcy is not that different. For filing, there is not really a difference between consumer proposal and bankruptcy.

Major difference between consumer proposal and bankruptcy

Is there a major difference between consumer proposals and bankruptcy? Yes. So far in this discussion, there have not really been major differences. But there really are as the consumer proposal is akin to filing for bankruptcy protection while the other is bankruptcy. Both provide legal protection from creditors. But a consumer proposal gives a person what the media calls filing for bankruptcy protection. When you file for bankruptcy, that calls for the liquidation of non-exempt assets.

Both bankruptcy and a consumer proposal can be excellent options for somebody who is experiencing a challenging financial position. A consumer proposal is an excellent choice for individuals who have the ability to make monthly payments to their creditors totalling less than the amount they owe, yet eliminating all their debts, while keeping the equity they have in assets they wish to keep. Bankruptcy is an excellent choice for those who are bewildered by their financial obligations, and who don’t have a consistent income, making it actually hard or impossible to manage making payments at any level to their creditors.

While both bankruptcy, as well as a consumer proposal, can supply a financial clean slate, there are a few vital distinctions.

In a consumer proposal, you normally get to keep all of your assets. In a bankruptcy, if you have equity in assets that you want to keep, you or someone friendly to you has to pay that equity to your Trustee for the benefit of your creditors. Otherwise, you need to surrender all non-exempt assets to the Trustee for the Trustee to sell them and then put the cash towards the claims of your creditors. The assets covered by your bankruptcy exemptions do not need to be surrendered.

In bankruptcy, you also have the issue of needing to obtain your bankruptcy discharge. If either the Trustee or one or more creditors object to your discharge, then you will not get your automatic bankruptcy discharge and you will have a discharge hearing in Court. You may also be subject to surplus income payments in a bankruptcy, which you will need to make to your Trustee (21 months for a first time bankrupt, 36 months for a second time or more bankruptcy).

The amount to offer your creditors in a consumer proposal has to be a better amount than they would receive from your bankruptcy. After doing the calculations I spoke about above, including any surplus income obligation, you will better understand what amount needs to be offered to your creditors.

Another difference between consumer proposal and bankruptcy is that there is a benefit of a consumer proposal in that you can spread the monthly payments for the amount determined over a term of up to 60 months, interest-free. In a bankruptcy, you are typically required to make any required payments over the term of your bankruptcy, which is much shorter than in a proposal. Therefore the consumer proposal allows you to term out a slightly higher settlement over a longer period of time. This makes the monthly repayment less complicated on your cash flow as well as your budget plan.

Once your consumer proposal is (deemed) accepted by the creditors and (deemed) approved by the Court, you just need to make your promised monthly payments to the Trustee. The Trustee handles making payments at regular intervals to your creditors. Once you have completed the payment promised under the consumer proposal, you receive your Certificate from the Trustee showing that you completed the consumer proposal. That is it. No discharge hearing can be opposed and no extra surplus income payments. It is already accounted for in the amount offered to your creditors in your consumer proposal.

The cost difference between consumer proposal and bankruptcy

When doing a consumer proposal, the fee of the licensed insolvency trustee is included in the payment you negotiate with your creditors. As I mentioned above, the calculation of what to offer in a consumer proposal does not include what the fee and costs are. Rather, it is compared to what the unsecured creditors can expect in bankruptcy.

However, if you were to file bankruptcy, the fee is based on the surplus income you may have to pay (based upon a criterion that includes income and family size) and also any assets that you are required to assign over to the Trustee. You might also have to make month-to-month contributions to cover the fee and costs if your income and non-exempt assets are insufficient to pay for the bankruptcy proceedings.

If there is no surplus income or assets, you, or someone on your behalf, will need to pay the bankruptcy fee which will be approximately $1,800 plus HST.

Difference between consumer proposal and bankruptcy: What’s worse? Credit rating impact of a bankruptcy vs consumer proposal

Both a consumer proposal and bankruptcy are insolvency proceedings under the BIA. Therefore both will negatively affect your credit rating. In a consumer proposal, your credit rating will show as an R9 on your credit report while you are making payments. Once you have completed your consumer proposal, your credit rating will be an R7 for 3 years after completion.

For a first-time bankrupt, if you were to file for bankruptcy, your credit report will show an R9 rating for 6-7 years after being discharged.

The difference between consumer proposal and bankruptcy summary

I hope that you found this difference between consumer proposal and bankruptcy Brandon Blog interesting. Problems will arise when you are cash-starved and in debt. There are several insolvency processes available to a person or company with too much debt.

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

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

Call us now for a no-cost consultation.

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

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

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Brandon Blog Post

CREDIT CARDS MAXED OUT: THAT SCARY CRUSHING FEELING WHEN CANADIAN INSOLVENCY AT HIGHEST LEVEL

Post author By Brandon Smith
Post date July 21, 2021

credit cards maxed out

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.

How do credit cards maxed out affect your credit score?

Your credit score is one of the most important things you have to offer anyone who is seeking to lend you money, whether it’s from a bank, a different credit card issuer, or even a landlord. Your credit score is a sort of credit health report that measures how much you owe, how much you owe on different kinds of credit, and how likely you are to default on payments.

Credit cards can be a convenient and effective way to manage your finances. However, the best use of a credit card may not be the best use when it comes to your credit score. Lenders consider one or more credit cards maxed out as a reason for your credit score to decline.

Right now we have a very unique situation when it comes to consumer debt. The average Canadian’s monthly credit card balance is lower today than it was 2 years ago. People’s credit card balance for months has declined. So it is not the case right now that credit cards maxed out. Yet, a recent poll shows that Canadians’ stress levels about their potential insolvency are the highest ever.

In this Brandon Blog, I look at the issues and provide some tips as to what positive things you can do if you are concerned about insolvency. Let’s look at the issues.

Changing habits as pandemic adds to debt load

There has actually been a surge in total Canadian consumer debt. It came mainly from financial debt growth in home mortgage debt and also automobile loans. Home mortgage balance increases originated from both refinancings of existing home loan debt and brand-new mortgage applications.

The thinking with vehicle financings is that it arose from Canadians acquiring vehicles that they had actually intended to purchase earlier. Concerning home loans, the refinancings were to consolidate higher interest rate non-mortgage debt, for credit products such as credit cards, into a brand-new higher home mortgage amount, at greatly reduced rates of interest.

Throughout the last 18 months approximately of the COVID-19 pandemic, Canadians have actually partially paid for or totally repaid their high-interest-rate consumer debt by turning it into low-rate debt from bigger home mortgages along with residence equity credit lines. They have used their real estate to obtain a debt consolidation loan.

Now that the Canadians have in fact done that, the Ipsos survey discovered that 50% of Canadians are now more worried about not having the capability to repay their financial obligations than they used to. Yet one-third of respondents say they will spend more as the economy resumes.

As the economy slowly resumes, many Canadians are looking at a great amount of debt incurred during the pandemic and are stressed over making ends meet without taking on even more financial obligations. They have maxed out the possibility of getting even more cash from their homes.

The reasons are that either there is no more asset value to borrow from and/or their income cannot sustain any more financial obligations. So where is one of the most likely areas this brand-new financial debt is most likely to come from? Paid down credit cards are going to increase once more and many will sooner rather than later have credit cards maxed out from additional credit card debt.

Canada on verge of widespread insolvency and restructuring surge in COVID-19 new normal

Statistics Canada recently reported that overall household debt increased by 0.8% for the 2nd straight month to over $2.5 trillion. Mortgage debt and also home equity credit lines made up $1.98 trillion of that total amount. Over the initial 5 months of 2021, households had $57.5 billion in home mortgage financial obligations, compared to $34.3 billion over the exact same time period in 2020.

At the same time, non-mortgage debt climbed by 0.4% in May to $786.2 billion. Growth in credit card debt as well as other personal loans was the main driver. While charge card debt rose for the third month straight, it was still down by 3.3% from May 2020.

These statistics seem to bear out my thoughts that Canadian consumers now have no more room to borrow against their homes, so now, they will need to turn back to their credit cards and increase their credit card debt in order to fund their expenses. This will not turn out well in the long run. I foresee people having maxed out the amount they can borrow against their homes and then once again having their credit cards maxed out.

Lots of people do not understand how financial problems are created pushing individuals to seek out a remedy such as bankruptcy or a consumer proposal to restructure. The majority think that people get into financial trouble because they can’t properly handle their money. However, in most cases, it is because of an unforeseen trigger. Divorce, job loss, illness and the present pandemic are examples of triggers.

People in financial trouble feel shame and unfortunately, stop them from connecting with us early. Reaching out to a licensed insolvency trustee early is so important.

Credit cards maxed out Is a bad idea

By maxing out your credit cards you’re boosting your credit utilization ratio. This accounts for 30% of your credit score. As such, a maxed-out credit card can adversely impact your credit rating.

Theoretically, yes, you can pay off your credit card by just making the minimum payment. However, it can take you years to pay it off if you are only making the minimum payment. Your interest charges will be higher than your minimum monthly payments.

Your credit utilization ratio and therefore your credit score will suffer. Many people try to solve this problem by just applying to the credit card issuer for an increased credit limit. This may work once, but it does not make any sense. You cannot eliminate debt by increasing it!

Furthermore, you’ll be carrying that debt and paying for it at a very high rate of interest. On the other hand, if you make your repayment by the due date, or make big routine payments to pay it off, you will certainly pay no or extremely little in interest.

credit cards maxed out

Are your credit cards maxed out? Here’s some personalized tips for paying off credit card debt

What can you do trying to be credit card debt-free? My 4 step strategy can help you get there.

1. Credit cards maxed out: Take control

It isn’t simple or comfortable to take a hard look at your finances, but it is essential. Analyze your household expenses, as well as the interest rates linked to every resulting financial obligation. Track your monthly expenses to really understand what your credit card purchases get you on a monthly basis.

This is the first step in understanding your expenditures and cutting down on the ones that are not needed. To recognize where you are going, you need to recognize where you have in fact been.

2. Credit cards maxed out: Minimize interest rates

The normal rate of interest on a bank card is about 19 percent. That’s rather high, so you may wish to think of doing a balance transfer by moving your credit card debt to a card with a minimized or zero-interest offer to assist in paying it off a lot faster.

A word of care: you’ll probably require to pay a transfer fee in doing so. Likewise, you will need to repay the debt in full before that promotion price finishes. Otherwise, the remaining balance on your new balance transfer card will again attract a greater rate of interest, possibly the very same or higher than the card you moved the debt from.

Although I do not hold out a lot of hope, you can ask your credit card firms if they will lower your rate of interest.

3. Credit cards maxed out: Credit counselling as well as debt paydown approaches

If you merely cannot make sufficient earnings to fund your debt repayments, consider a non-profit credit counselling service. At no charge to you, they can get you into a Debt Settlement Plan. Bear in mind that as soon as you are in such a strategy, your charge cards will certainly be cut off.

Do not go to any one of the financial debt settlement services that market often on television or social media. All they do is charge you a fee to take down basic information that a certified non-profit credit counselling agency or a licensed insolvency trustee would certainly do for no cost. After that, they run you through their “program” charging you a lot more fees until you can pay no more. After that, they send you to a qualified bankruptcy trustee.

There are 2 regular financial debt settlement strategies– avalanche method and also snowball method. The avalanche technique of getting out of the credit card financial debt is you initially put all your available cash to pay down your highest interest rate debt. As soon as that’s cleaned up, you start settling the following most costly debt. You keep repeating this up until all your consumer debts are gone.

Sometimes, the snowball technique offers a great deal of extra motivation. With this method, you settle the tiniest financial debt initially, to improve your mood. You use that power to resolve what is the next tiniest debt and so on. You are grabbing steam like a snowball rolling downhill.

It does not matter which strategy you utilize. The vital thing is that you start now and stick with it.

4. Credit cards maxed out: Adhere to it.

Remember your single focus should be reducing debt, not new non-essential spending. So do not prepare any kind of sort of travel getaways or big purchases in the meantime. You could backslide or strike some road bumps yet do not let that distract you or depress you.

Now for the challenging part. When possible, save some money to assist with unpredicted expenses that you would typically place on your credit card. This will certainly minimize the amount you would have to borrow by paying with real cash.

It’s an incredibly lengthy as well as agonizing trip to fully pay off your credit cards maxed out. It also can be an extremely lonely one. People don’t get into the bank card debt trap overnight, so you can’t leave it without some effort.

Credit cards maxed out summary

I hope that you found this credit cards maxed out Brandon Blog interesting. I wrote this now because I fear the trend I see from both the Ipsos survey and the Statscan report shows that now that Canadians have done their debt consolidation and credit card balances are low, the credit cards are now being run up again. The end result will be higher debt than the average Canadian started with.

Problems will arise when you are cash-starved and in debt, especially with a maxed-out credit card. There are several insolvency processes available to a person or company with too much debt.

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

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

Call us now for a no-cost bankruptcy consultation.

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

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

Brandon Blog Post

WHAT DOES THE BANKRUPTCY TRUSTEE INVESTIGATE? SIMPLE RULES EXPLAINED BY A TORONTO TRUSTEE

Post author By Brandon Smith
Post date July 14, 2021

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

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

What does the bankruptcy trustee investigate – What is a bankruptcy trustee?

The new name for a bankruptcy trustee is a licensed insolvency trustee. I will use the terms interchangeably in this Brandon Blog. In this blog, I discuss what does the bankruptcy trustee investigate? But first, I want to go through a few basics.

The process of a bankruptcy trustee’s role in the Canadian insolvency system is a delicate one. The licensed insolvency trustee starts out by reviewing the debtor’s financial information and advises the debtor on whether a restructuring is possible to avoid bankruptcy or if filing for bankruptcy is their only realistic option.

The Trustee’s job is to help a debtor restructure his or her financial affairs and to do that, he or she must know what the debtor’s assets and liabilities are, the bigger picture of the debtor’s life and what transactions the debtor may have recently entered into. It is not just what he or she claims his or her debts are.

The Trustee collects all this information in order to advise the debtor on whether a bankruptcy protection financial restructuring filing is possible or if bankruptcy is their best option and why. The debtor then must choose what sort of insolvency process they wish to enter. Once filed, the Trustee also acts for the creditors and is required to perform an investigation.

Today I discuss what does the bankruptcy trustee investigate? Anyone contemplating a bankruptcy filing should know what they are in for before it is too late.

What does the bankruptcy trustee investigate – Tell your bankruptcy trustee everything

I thought of writing this blog topic because just yesterday, a lawyer friend called up with a question. The lawyer is a family law lawyer, representing a spouse who completed a consumer proposal. The lawyer, on behalf of his client, is making a claim as having a trust claim over his spouse’s home.

The judge asked if the client declared this claim as a potential asset in his sworn statement of affairs in the consumer proposal bankruptcy paperwork? The answer is no. Now the judge says, correctly, that the client had a duty to disclose that information at the time. The judge is correct. The judge then went on to ask how he can rely on the credibility of the client’s assertions now? What a jackpot they are now in!

That is why I say tell your bankruptcy trustee everything. If there is full disclosure in the initial interview before the period of time the bankruptcy process begins, I can then consider any troublesome issues and advise on the best course of action. Then you don’t need to worry about what does the bankruptcy trustee investigate. Nobody wants to have a nasty surprise like my lawyer friend’s client.

What does the bankruptcy trustee investigate? What if I fail to remember to divulge something?

It is fairly possible that you will accidentally neglect to divulge something in your bankruptcy documents or inform your Trustee about it. You do not want anyone thinking you are conducting the concealment of assets.

What does the bankruptcy trustee investigate? What can I do?

As quickly as you learn of your error, call your trustee right away and correct this mistake. You want to make sure the Trustee understands it was a simple error and not a case of you making a false claim.

What does the bankruptcy trustee investigate? What if I have outstanding tax returns?

If as an example, you forget to inform your insolvency trustee that you have unfiled tax returns, CRA can oppose your discharge and request that all outstanding returns be filed before you get to a discharge hearing. This will extend the time you remain in bankruptcy and puts your discharge into a court hearing.

It may turn out that the amount owing from those unfiled returns is not that large, and if you had filed the returns before going bankrupt and declared that additional liability, there would not have been a problem at all. Your Trustee actually should have caught that before you filed and got you to bring your tax filings current.

What does the bankruptcy trustee investigate? What happens If I overreported income?

Reporting earnings greater than you actually earn might set off a surplus income payment requirement that is either higher than it should be or where there would not have been one at all if you had properly reported your monthly income. Make sure you have documents to back up everything you are advising your trustee about so that such an error is not made.

The same holds true for underreporting. You may have a surplus income obligation that will not be caught and finding out at the end will hold up your discharge. Again, your Trustee should have asked for backup during your initial meeting and should have caught your error before filing for bankruptcy.

What does the bankruptcy trustee investigate? Suppose I am not divulging certain information?

If you fail to divulge particular information about your assets or give information that at some point complicates your insolvency, it is certain that this will complicate your discharge at the very least. It may also open you up to having committed a bankruptcy offence which will create worse penalties and headaches for you.

Recall that I mentioned at the beginning of this Brandon Blog that the reason I wrote on this topic today was because of a phone call received from a divorce lawyer friend of ours. The lack of disclosure was not caught in the consumer proposal administration. However, it may totally ruin the client’s chances for any meaningful recovery in his family law proceedings.

If the client had divulged the asset, which at the time was contingent, to the bankruptcy trustee acting as an administrator in the consumer proposal, the Trustee could have worked that into a successful outcome for the client AND the client would not now have his legal problems which could very well cost him big time!

What does the bankruptcy trustee investigate? – Collection of information by bankruptcy trustee also allowed under PIPEDA

A person filed a complaint after a bank, where she as well as her husband had gotten a mortgage from, revealed her personal information, especially regarding her financial situation, to the Trustee of the Bankrupt Estate of her spouse. There was no disagreement that this disclosure happened without the complainant’s understanding or permission.

However, the federal government ruled that it was allowable under the Personal Information Protection and Electronic Documents Act (PIPEDA) given that the financial institution was required to provide the information under another law, namely, the Bankruptcy and Insolvency Act (BIA).

PIPEDA paragraph 7(3)(b) specifies that a party may disclose personal information without the knowledge or consent of that party if the disclosure is for the purpose of collecting on a financial obligation owed by the person to that party.

Paragraph 7(3)(i) of PIPEDA specifies that an organization might disclose personal information without the knowledge or permission of the person if the disclosure is required by law. Trustees are licensed by the Office of the Superintendent of Bankruptcy (Canada) (OSB) under the BIA and also are held to requirements of practices or solutions established by the BIA.

The designated Trustee for her hubby’s insolvent estate wrote to the financial institution, requesting the complete financial institution file connected to the mortgage on the residence jointly had by the complainant wife and the bankrupt husband be disclosed, according to the provisions of S. 164(2) of the BIA.

The bank stated that it revealed the wife’s personal details without her understanding or permission, based on the PIPEDA sections I referenced above. The complainant thought that the Trustee did not have the right to access her individual info from the financial institution without her understanding or consent. The Privacy Commission ruled against her.

As long as the Trustee is asking for information from a 3rd party that will assist in the bankruptcy administration, that 3rd party can provide the information without worrying about what does the bankruptcy trustee investigate or a PIPEDA violation.

On the flip side, for every insolvency administration we perform, as part of the initial sign-up documents, we provide a PIPEDA disclosure statement to the debtor or designated officer of the company. Our PIPEDA disclosure says that in performing our duties we collect and store personal information which we may have to divulge to 3rd parties in performing our duties under the BIA, to the court or in assisting the debtor in reaching arrangements with their creditors.

What does the bankruptcy trustee investigate? – Can I sell my stuff before filing bankruptcy?

Bankruptcy is a fair and well-balanced treatment that considers the interests of all stakeholders. I always tell potential clients that any sale or transfer of property has to be done as if your creditors are evaluating your every move while you do it.

In Ontario, the Execution Act provides for certain personal exemptions, which also apply to anyone who does a bankruptcy filing in Ontario, up to a stated value. The exempt property consists of:

household furnishings and appliances – $14,180;
tools and other personal property used to earn an income:
- in the case of a debtor engaged solely in the tillage of the soil or farming, $31,379 for livestock, fowl, bees, books, tools and implements and other chattels ordinarily used by the debtor in the debtor’s occupation, or
- in any other case, $14,405;
motor vehicle – $7,117; and
principal residence – $10,783.

You might be liquidating assets that you don’t need to because they would be exempt. If you are thinking about liquidating nonexempt property to make financial settlements with certain of your creditors, this will be problematic. You could end up preferring some over others which will cause both you and them problems in your bankruptcy.

This is another factor to think about. My best advice is that you raise these issues with a Trustee before you do anything if you are contemplating bankruptcy. The Trustee will explain to you the ramifications of what you are thinking of doing so that you will have the smoothest time possible in your bankruptcy estate. The Trustee will also explain what does the bankruptcy trustee investigate so you will be informed.

What does the bankruptcy trustee investigate and look for in bank statements?

The personal bankruptcy trustee uses bank statements and other documents to discover errors or irregularities in your pre-filing personal bankruptcy paperwork. To start, you’ll list your creditors and the amounts you owe each of them; your assets, their values, and whether you can keep any of them as exempt property; your earnings for the last 12 months; as well your regular monthly expenditures. Not only will you disclose your income in several spots in the bankruptcy documents, but you’ll also give confirmation in the form of paycheque stubs and income tax returns, as well

The Trustee then goes over these anomalies with you to permit you to give better paperwork in support of your list of assets and liabilities. You’ll likewise have to send duplicates of your bank statements and also other documents that the Trustee asks for after you file for bankruptcy. Your licensed insolvency trustee makes use of the bank statements to validate your reported info.

If for some reason your historical financial institution deposits are dramatically different than your claimed earnings, you’ll need to be prepared to describe the disparity. If you approximated your bank accounts having a total of $100, yet it was, in fact, your deposit accounts had $1,500 on the day you filed, it will be nonexempt, and the Trustee will take it.

If you paid any type of huge expenses or transferred a large sum or an asset to someone right before you filed personal bankruptcy, the Trustee will have an obligation to report those transactions to your creditors, the OSB and the court and bring that cash back right into the personal bankruptcy estate for all creditors to share. If the cash is not recoverable from a third party, the Trustee will oppose your discharge and will look for payment of a minimum of that cash from YOU as a condition of your bankruptcy discharge.

If nevertheless, the Trustee thinks that you either lied or deliberately omitted details, the Trustee has to report that. The Trustee will certainly oppose your discharge and you will have a substantial issue on your hands needing you to retain a personal bankruptcy attorney.

What does the bankruptcy trustee investigate? All of that.

Red flags the bankruptcy trustee looks for at the meeting of creditors

Communicating with creditors and the meeting of creditors are very useful tools for the trustee in bankruptcy. The creditors have a much longer relationship with the bankrupt than the Trustee. They may very well have information that would be helpful to the Trustee in gaining a better understanding of the assets and liabilities of the bankrupt and of the bankrupt’s financial affairs not clear from the financial documents already reviewed by the Trustee.

At the First Meeting of Creditors in bankruptcy or the Meeting of Creditors in a Division I Proposal (or if required in a consumer proposal), the Trustee and creditor representatives can ask the debtor questions about their financial affairs. This is especially so for any type of discrepancies raised by your filing documents or financial records that indicates that you may be misstating assets or worse, the concealment of assets.

In any financial restructuring, including corporate reorganization plans, the value of the debtor’s nonexempt property really matters mainly because of the rule that entitles unsecured creditors to get a better outcome from such a repayment plan than would be the case in the debtor’s bankruptcy.

If your earnings don’t match your reported numbers, or if you improperly report side hustle business revenues, you can anticipate some sharp concerns and also possibly trouble getting your restructuring authorized or your discharge from bankruptcy.

What does the bankruptcy trustee investigate – When the bankruptcy trustee suspects fraud?

When allegations of bankruptcy fraud enter into bankruptcy administration, the next step normally includes obtaining information via an examination under oath. The BIA enables either the Trustee or the OSB to examine a bankrupt under oath. The BIA additionally permits the Trustee to put questions under oath to anyone that might have information, knowledge or documents concerning the affairs of the bankrupt. One of the key functions of the bankruptcy trustee is to protect the interests of unsecured creditors and to do so at every stage of the bankruptcy process.

As soon as the Trustee has gathered sufficient proof to support a case, the Trustee has 2 options, depending on the circumstances. If it is criminal activities or bankruptcy offences that the bankrupt person or the Directors of the bankrupt company have done, the Trustee can ask the OSB to review the proof. If they concur with the Trustee’s analysis, they can then call in the RCMP to check out.

If the RCMP has adequate evidence of a crime having been committed, or of bankruptcy offences, they will have the Crown lay bankruptcy fraud charges and then there will be a criminal trial. The result can be a fine, jail time or both. This will also give cause for the Trustee to have no choice but to oppose the person’s bankruptcy discharge.

If it is only about the recovery of money for creditors, the Trustee, if it has sufficient evidence and also funds, can launch a legal action against the appropriate party. The point of this kind of adversary case is to obtain cash for creditors (rather than prosecuting a criminal offence).

Such a proceeding resembles legal actions in various other courts yet generally, the matter in a bankruptcy administration will be heard in a shorter period of time in bankruptcy court than proceedings in various other courts. The obvious goal is for the Trustee to enter into settlement agreements with the offending parties. The goal of settlement agreements is to get cash for the creditors.

What does the bankruptcy trustee investigate summary

I hope that you found what does the bankruptcy trustee investigate Brandon Blog interesting and that you now have a better appreciation for the investigation aspect of an insolvency proceeding. Problems will arise when you are cash-starved and in debt. There are several insolvency processes available to a person or company with too much debt.

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

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

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

Call us now for a no-cost bankruptcy consultation.

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

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

Tags allegations of bankruptcy fraud, Bankruptcy, bankruptcy fraud, bankruptcy offence, bankruptcy protection, bankruptcy trustee, BIA, collection of information by bankruptcy trustee also allowed under PIPEDA, concealment of assets, Consumer Proposal, financial restructuring, financial situation, First Meeting of Creditors, I am not divulging certain information, insolvency, Ira Smith Trustee, jail time, licensed insolvency trustee, meeting of creditors, nonexempt property, Office of the Superintendent of Bankruptcy Canada, personal bankruptcy, PIPEDA, questions under oath, red flags the bankruptcy trustee looks for at the meeting of creditors, repayment plan, tell your bankruptcy trustee everything, trustee, trustee in bankruptcy, unsecured creditors, what does the bankruptcy trustee investigate, what does the bankruptcy trustee investigate and look for in bank statements, what happens If I overreported income, what if I fail to remember to divulge something, what if I have outstanding tax returns, what is a bankruptcy trustee, when the bankruptcy trustee suspects fraud

Brandon Blog Post

INSOLVENCY DEF: SHE HAS $100,000 IN DEBT AFTER A FAMILY EMERGENCY

Post author By Brandon Smith
Post date June 16, 2021

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

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

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

What is insolvency def?

The insolvency definition (insolvency def) is a state of financial distress in which a person or company is unable to pay its debts. The definition of insolvency can be displayed in an insolvent person or the insolvent debtor company which arises from:

poor cash management;
a reduction in cash inflow;
an increase in expenses;
inadequate accounting controls and reporting;
a lack of proper human resources management; or
all of the above.

The purpose of this insolvency def Brandon Blog is twofold. First I will give a simple primer on what insolvency def is. Next, I will explain how a person can analyze their situation to determine if an insolvency process is for them and if so, which one.

I will use a real-life example that appeared earlier this week in the Toronto Star.

Factors contributing to insolvency

The above reasons can lead to different types of insolvency. The insolvency def can be looked at in a few different ways when considering factors and symptoms.

Balance Sheet insolvency def –

Balance sheet insolvency is when a person or company does not have enough assets, if fully collected or liquidated to pay off all of their debts.

Cash flow insolvency def –

Cash-flow insolvency is when an individual or company has enough assets, if fully collected or liquidated, to pay what is owed. Nevertheless, they do not have enough cash to pay their creditors in full.

What is the difference between technical insolvency and actual insolvency def?

While insolvency def in the technical sense is a basic synonym for balance sheet insolvency, cash-flow insolvency is not the same as insolvency under the Bankruptcy and Insolvency Act (Canada) (BIA).

What Is an insolvent person according to the BIA?

“Insolvent person” according to the BIA insolvency def is a person or company that is not bankrupt and is resident, carries on business or has property in Canada, whose liabilities to creditors provable as claims under the BIA amount to $1,000 or more and which for any reason they are not able to pay those obligations as they typically come to be due.

Further, if the insolvent person or the insolvent company liquidated all of their assets, there would still not be enough money to pay off all of the amounts owing to creditors; both secured creditors and unsecured creditors.

What does the insolvent def mean financially?

Now that I have given you the textbook insolvency def, let us look at a real-life example. Every Monday in the Toronto Star there is a column called Millenial Money. This past Monday, Evelyn Kwong wrote about a 34-year-old named Chele. Chele earns $45,000 per year gross.

As I understand it, she borrowed $100,000 to pay for medical expenses back home in the Philippines for a family member. Also, her ex-husband racked up an amount of debt that she is also responsible for. It is unclear from the article if the two sets of debt obligations total $100,000 or something greater.

They presented Chele’s situation to a financial expert to give advice. After looking at Chele’s debt situation, he advised that she speak with a licensed insolvency trustee to determine if a consumer proposal or a bankruptcy proceeding would be best to alleviate Chele of her outstanding debts.

What If I Am Insolvent?

What is Chele’s situation? First, let us look at her monthly statement of income and expenses:

Monthly take-home pay	$2,200
Recurring monthly expenses:
Rent	700
Transportation	810
Food	250
Sports and hobbies	50
Cell and internet	100
Personal	300
Monthly total expenses	$2,210

So Chele is able to essentially balance her cash-flow budget. Her take-home pay is presumably after income tax and other deductions. We can assume that she either receives a small refund on her tax return or at least does not owe any income tax.

As she rents, she does not own a home. Her transportation costs are for her car which is financed. Let us assume that the equity she has in her car fits into her provincial exemption so that a licensed insolvency trustee would have no interest in her car.

So Chele has no assets other than her car and she owes at least $100,000. Now we can look at the consumer proposal as an alternative to bankruptcy vs her doing an assignment in bankruptcy filing.

Consumer proposal vs bankruptcy proceeding

As I have written before, a consumer proposal is an insolvency process under the BIA for any person who owes $250,000 or less, not including any debts secured by their personal residence. It is a debt settlement arrangement to pay your unsecured creditors less than the total you owe in order to relieve yourself of all of your debt obligations.

A person can take up to 5 years to make the regular monthly payments to the licensed insolvency trustee acting as the Administrator in the consumer proposal. The insolvency trustee then distributes the total amount agreed to by the creditors and paid by the insolvent debtor as a dividend distribution. Once the insolvent debtor fully completes the consumer proposal, they are relieved of all of their unsecured debt balances (other than a few minor exceptions laid out in the BIA).

Canadian bankruptcy law says that any offer to the creditors in a consumer proposal has to be a better alternative for the creditors than they would get from the person’s bankruptcy estate. So first we need to calculate what the creditors could expect from Chele’s bankruptcy.

Chele has no assets available to her creditors. Her equity in her only asset, her car, is protected by her personal exemption for a vehicle in Ontario. There are no other known assets. All bankruptcy trustees are required to perform a surplus income calculation. In Chele’s case, she earns $2,200 per month net of tax, and she is allowed to earn as a single person in 2021 $2,400 per month before she is subject to any surplus income. So she also does not need to contribute any surplus income.

Assuming Chele has never been bankrupt before if she performs all of her duties in bankruptcy, she is entitled to a discharge from bankruptcy 9 months after the date of bankruptcy, unless a creditor opposes it. All she will be required to pay is the fee to the licensed insolvency trustee to administer her bankruptcy.

In a consumer proposal, in this case, she could offer anything because that would meet the requirement of being a better alternative than her bankruptcy. However, creditors generally expect to receive no less than 20% to 25% on their outstanding debt. So if Chele owes $100,000, at the midpoint of 22.5%, she would have to offer to pay her creditors $22,500 payable in monthly payments over no more than 5 years or 60 months. That works out to a monthly payment of $375. Chele does not have room in her budget right now to afford that monthly payment.

So in her case, unless she can figure out how to reduce her spending so that she can afford a monthly payment for the next 60 months, my advice to her would be to choose the bankruptcy option and file an assignment in bankruptcy. If all goes well, she can start to rebuild her life, free from all her unsecured debt, in 9 months’ time.

Insolvency def summary

I hope that you found this insolvency def 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.

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.

Call us now for a no-cost consultation.

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

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

Brandon Blog Post

FILE FOR BANKRUPTCY: CAN YOU FILE FOR BANKRUPTCY CANADA FROM THE LUXURIOUS CARIBBEAN?

Post author By Brandon Smith
Post date February 22, 2021

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

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

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

File for bankruptcy introduction

You have all probably read about or heard about the Ontario judge who presided over Toronto-area court cases from the Caribbean. With today’s technology, it is electronically possible to attend Zoom court from anywhere in the world. That got me thinking. Can a Canadian file for bankruptcy from the Caribbean or anywhere else in the world?

So I did the research. In my opinion, using what is right now permissible technology, I think it is possible for a licensed insolvency trustee to either accept a Canadian filing bankruptcy or make it happen from the luxurious Caribbean or anywhere else outside of Canada. In this Brandon Blog, I will explain the bankruptcy process and why I think a person or company can file for bankruptcy from outside Canada.

You owe money: Considering bankruptcy?

To file for bankruptcy is a difficult decision to make, especially considering the financial and personal consequences it has on you and your family. But sometimes, there is no other option. If you find yourself unable to pay your debts, filing for bankruptcy may be your best bet for a fresh financial start. But before you decide to file for bankruptcy, you must assess your situation and understand the consequences.

It’s easy to be overwhelmed when you’re facing the prospect of filing for bankruptcy. Bankruptcy is a complicated legal proceeding, and the law has established procedures that must be followed in a specific order. If you’re considering bankruptcy, it’s important that you understand how the process works and the critical role a licensed insolvency trustee (formerly called either a trustee in bankruptcy or a bankruptcy trustee (Trustee) plays in that process.

As a Trustee, I can tell you that bankruptcy is a serious undertaking. It can have a big impact on you financially and emotionally, and there are many important decisions you must make before, during, and after the process. The decisions you make now will have a big impact on your future. As a Trustee, I always first try to help people and companies look at the alternatives to bankruptcy in order to avoid bankruptcy, rather than file for bankruptcy. Personal bankruptcy or business bankruptcies are truly a last resort when there is no other choice.

How to file for bankruptcy Canada: Let the licensed insolvency trustee no-cost consultation happen first

You may be considering filing for bankruptcy in Canada because you have debts that you can no longer pay. If you are drowning in debt, you might feel like there is no way out. But bankruptcy isn’t the end of the world. In fact, it can help many people get a fresh start by eliminating debts they can no longer pay. But as I always say, an individual or company may not need to file for bankruptcy. You have to consider all of your options. But in this section, we will focus on the bankruptcy filing process.

It all starts with you going to see a Trustee for a free, no-obligation initial consultation. The Trustee will listen to the facts you describe and ask you some questions to gain a better and deeper understanding of your specific situation. The Trustee will then tell you about the various debt relief options he or she believes are available to you. The Trustee will then provide you with his or her recommendation as to what is best for your situation and why.

Many factors will play into the Trustee’s recommendations, especially around your debt issues, including:

The types of debts.
Your unsecured debt vs. secured debts.
Do you have any student debt and if so, when did you graduate from the program that you acquired the student loan debt for?
The total amount of your Canadian debts and any foreign debt you may have.
Is Canada Revenue Agency hounding you for tax debt?
How appropriate are all the various debt options for your situation?
What percentage of debts are related to your assets that you cannot afford to lose.
What is the nature and extent of all of your assets?
Which assets are exempt from seizure and which are non-exempt?
Do you have any joint (co-signed) debt and how will your insolvency filing affect the other person?
Is the pressure from debt you are feeling right now require an immediate filing or could you wait a bit to see how some things play out over the short-term future?
Do you need immediate protection from debt and the related creditors or debt collectors taking collection actions right now such as trying to enforce against your assets, sue you or garnish your wages under a judgement?
How is your burden of debt currently affecting you and your family?
Comparing your current debt situation pre-filing to what your debt after filing and after your discharge will look like under each of the available alternatives.
How does the Trustee’s debt assessment factor into the realistic alternatives available to you to avoid bankruptcy?
Does your debt level at this stage that of overwhelming debts or are you right now only feeling mild indigestion? Perhaps you could work out of your debt problems on your own with just one or two strategies the Trustee will share with you at the no-cost consultation stage.

The Trustee considers all of this to see if you have an unmanageable debt to determine the best options available to you, including having you file for bankruptcy. You don’t want to do a consumer bankruptcy filing for yourself or have your company filing bankruptcy if it is not necessary to fix the debt problems.

How to file for bankruptcy – How the bankruptcy process starts

Alright, now for getting to answering the question I posed in the title and at the beginning of this Brandon Blog. Can a Canadian file for bankruptcy from the luxurious Caribbean? Can Canadian bankruptcy filings start from outside of Canada? To answer this question, we must look at what are the requirements of both the debtor, be it a person or company, and the Trustee, for a bankruptcy file to begin? All of my comments below, with appropriate amendments for context, will apply to:

an individual filing a debt settlement consumer proposal;
a person filing for personal bankruptcy;
either a person or a company filing a debt settlement financial restructuring proposal under Part III Division I of the Bankruptcy and Insolvency Act (Canada) (BIA); or
a company filing an assignment in bankruptcy.

Before the COVID-19 pandemic, the debtor and Trustee met in-person at the Trustee’s office in order for the Trustee to assess the debtor’s financial situation. If an insolvency process was required to help fix the debtor’s financial problems, then there was also an in-person meeting at the Trustee’s office to sign up the filing documents. Since the pandemic began, the Office of the Superintendent of Bankruptcy Canada (OSB) Messages to LITs concerning COVID-19 gave Trustees the authority to hold meetings by video conference. This is how the whole world has been operating for almost 1 year now. So this is how the insolvency process begins.

In addition to the initial consultation and signup. other meetings are also held via video meetings. Examples are a Meeting of Creditors and the two credit counselling sessions. Although the OSB’s guidance does say that Trustees can use methods other than in-person…..” for those areas where they have an approved resident or non-resident office…” keep in mind that a Trustee is licensed to act within an entire province! I won’t get into the semantics of the apparent conflict between the OSB’s guidance and its licensing approval process in this Brandon Blog.

Who can file for bankruptcy?

Any insolvent person can file for bankruptcy. Section 2 of the BIA defines an insolvent person as:

“insolvent person means a person who is not bankrupt and who resides, carries on business or has property in Canada, whose liabilities to creditors provable as claims under this Act amount to one thousand dollars, and

(a) who is for any reason unable to meet his obligations as they generally become due,
(b) who has ceased paying his current obligations in the ordinary course of business as they generally become due, or
(c) the aggregate of whose property is not, at a fair valuation, sufficient, or, if disposed of at a fairly conducted sale under legal process, would not be sufficient to enable payment of all his obligations, due and accruing due;”
So to file for bankruptcy, amongst other requirements, the person or company must reside, carry on business or have property in Canada.

The locality of the debtor

Once all the documents are signed up to file for bankruptcy, the Trustee has to file them with the OSB in the “locality of the debtor“. Section 2 of the BIA defines “locality of the debtor” as:

“locality of a debtor means the principal place

(a) where the debtor has carried on business during the year immediately preceding the date of the initial bankruptcy event,

(b) where the debtor has resided during the year immediately preceding the date of the initial bankruptcy event, or

(c) in cases not coming within paragraph (a) or (b), where the greater portion of the property of the debtor is situated;”

If the debtor has been living in the Caribbean for 4 months immediately preceding the date of the filing of the assignment in bankruptcy, do they qualify? The answer is yes. Court decisions have determined that the word “during” means “at some time” during the year preceding the date of bankruptcy. It does not mean continuously. So during these pandemic days where we meet with everyone online, it is possible for the Canadian person to be in the Caribbean, meet with the Trustee for the initial consultation, decide on an insolvency process, in this case, bankruptcy and then initiate the bankruptcy proceedings, all from the luxury of a Caribbean vacation spot.

Let’s not delve into how a debtor who needs to file for bankruptcy can afford to live in the Caribbean or whose villa it is. That is beyond the scope of this Brandon Blog.

What about the Trustee?

The same way the debtor, or a judge, can transact business by video meeting from outside Canada, the same is true for the Trustee. As long as the Trustee can access all his or her office documents and systems online from outside of the office, there is no reason why the Trustee could not operate from the Caribbean as well to handle the person or company that wants to file for bankruptcy.

I am not advocating for this position, especially when you consider both the danger of and the appropriateness of travelling during these times of hardship and sacrifice. But since the question was “Can a Canadian file for bankruptcy from the Caribbean or anywhere else in the world?”, the answer is YES.

So whether you are a judge in the Ontario court, an insolvent debtor or a Trustee, I do not see any legal reason why someone could not file for bankruptcy from the Caribbean or anywhere else in the world.

File for bankruptcy summary

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

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

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

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

That is why we can establish a new restructuring procedure for paying down debt that will be built just for you. It will be as one-of-a-kind as the economic issues and discomfort you are encountering. If any one of 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.

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Tags avoid bankruptcy, Bankruptcy, Bankruptcy and Insolvency Act, Consumer Proposal, debt assessment, debt collectors, debts, file for bankruptcy, filing bankruptcy, insolvency, insolvent person, Ira Smith Trustee, licensed insolvency trustee, locality of the debtor, Office of the Superintendent of Bankruptcy Canada, student debt, Toronto-area court cases, unsecured debt

Brandon Blog Post

TRUSTEE BANKRUPTCIES FEES IN A SCARY CORONAVIRUS WORLD

Post author By Brandon Smith
Post date November 23, 2020

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

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

Trustee bankruptcies introduction

Are trustee bankruptcies filings high right now?

Every day we read or hear in the media about the life-threatening health challenges faced daily by Canadians. We also hear sad stories about people who have lost their job because of businesses having to close down.

The general public thinks that right now there is a lot of personal bankruptcy and corporate bankruptcy filings. In actual fact, the numbers are low. The 2 main reasons are:

Government support programs have helped support people and businesses. Most of the programs ended effective September 30, 2020.
Creditors are not chasing or harassing borrowers right now. Given that we are about 5 weeks away from Christmas, that will not change until some time in 2021.

I am receiving a lot of inquiries from people and entrepreneurs about their personal and business debt situation. I am doing a lot of initial consultations by telephone or video meeting. That tells me that there should be an increase in insolvency filings in 2021.

It may surprise you to hear that even a licensed insolvency trustee (formerly called a bankruptcy trustee or trustee in bankruptcy) business could be having cash-flow problems. A recent court decision out of Ottawa highlights this issue. The purpose of this Brandon’s Blog is to discuss the court case and what it means for a trustee bankruptcies fee collection.

What are the fees of a licensed insolvency trustee?

This question is quite relevant, but the answer depends on what role the licensed insolvency trustee takes on.

A trustee in bankruptcy performs a wide variety of services, such as:

administrator in a consumer proposal;
the monitor under a Companies’ Creditors Arrangement Act (CCAA) corporate restructuring;
licensed insolvency trustee in either a summary administration or ordinary personal bankruptcy;
receiver over a company’s assets, either by private appointment or court appointment;
the licensed insolvency trustee in a corporate restructuring under the proposal provisions of the Bankruptcy and Insolvency Act (Canada) (BIA);
as the licensed insolvency trustee in a corporate bankruptcy; or
act as a consultant in either a corporate or personal insolvency situation, advising either a creditor or the debtor.

The fee will certainly differ depending on what duty is played. Keep in mind that the costs of trustee bankruptcies are established under the BIA itself for all insolvency administrations under the BIA.

Personal bankruptcy administration where the non-exempt assets are estimated to be worth less than $15,000 is called a summary administration bankruptcy. Rule 128 of the BIA General Rules dictates the cost and disbursements in such trustee bankruptcies. This kind of fee is called a tariff. A tariff also exists in a consumer proposal file.

A bankruptcy is called an “ordinary” bankruptcy when the realizable assets are estimated at $15,000 or greater in personal bankruptcy. Every corporate bankruptcy is an ordinary administration. The BIA also regulates the trustee bankruptcies fee and disbursements.

With this information as background, I will now discuss the recent case out of the court in Ottawa.

**A bankruptcy trustee needs cash flow too**

The case involves a court application by an Ottawa bankruptcy trustee on 3 separate ordinary administration personal bankruptcy files. Normally, when a bankruptcy trustee wishes to get an interim draw towards its fees and disbursements in an ordinary administration, they either get the approval of the creditors at a meeting of creditors or, approval of the inspectors appointed in the bankruptcy administration.

The First Meeting of Creditors has to take place within 21 days of the date of bankruptcy. It is rare to have to call another meeting of creditors. So if the Trustee does not get approval for an interim draw at the outset from the creditors present at the First Meeting, that chance is gone quickly. If no inspectors are appointed, or a long time has passed and the Trustee has trouble finding the inspectors, getting inspector approval may also prove difficult.

But there is one more way for a Trustee to get approval to get an interim draw for its cash flow.

Office of the Superintendent of Bankruptcy (OSB) Directive no. 27R

The OSB publishes Directives from time to time. Trustees are bound by and obliged to follow all regulations provided by the OSB. This is so there will be consistency in the insolvency process across Canada. Directive 27R is titled “Advance of Trustee’s Remuneration for Bankruptcies Under Ordinary Administration.”. It was issued on February 10, 2010. The purpose of this Directive is to set out the correct procedure the Trustee should comply with when making an interim withdrawal or taking out an advance on remuneration for ordinary trustee bankruptcies.

To withdraw an advance on its compensation, the Trustee needs to obtain consent in the form of:

a resolution of a duly comprised meeting of creditors;
the resolution of a majority of the inspectors at a properly convened meeting of inspectors; or
make an application to the Court for an order approving such interim advance.

This is what this Ottawa Trustee did for 3 of its trustee bankruptcies.

The OSB did not like the court application

The OSB did not like the fact that the Trustee made this application. The OSB actually opposed the application, notwithstanding the Trustee was properly following all the requirements of Directive 27R. The Trustee brought to the court’s attention that it would still take some time to prepare its Final Statement of Receipts and Disbursements, submit it to the OSB to receive their comment letter and then apply to the court for taxation. The process would take many months.

The Trustee also highlighted for the court that these are not normal times. Due to the coronavirus pandemic, government and court staff were not working at their normal pace. The Trustee also pointed out that its own business had to lay off staff and its own cash flow was suffering. Therefore, the Trustee was making an application to the court for approval for an interim draw, as allowed. The Trustee highlighted what has gone on to date in each bankruptcy estate. The Trustee also provided proof of proper service on the OSB of this motion.

The decision does not indicate why the Trustee did not just go for inspector approval. Nevertheless, its position was that it was within its rights to make this application to the court and for the court to approve it.

The OSB’s basis for opposing this motion can be summarized as:

Interim draws approved by a court under Directive 27R are just to be made in special circumstances.
While COVID-19 is an exceptional situation, it is insufficient to call for the orders asked for by the Trustee.
The OSB additionally argues that the motion was not on notice to the creditors in the respective trustee bankruptcies estates concerned, who might actually object to the amount being claimed by the Trustee.
The OSB is worried that, if the motion is granted and the court order made, it could cause more need on the court’s time as more Trustees will seek similar orders in other trustee bankruptcies estates.
Finally, the OSB says that this matter is not urgent and therefore ought to not be dealt with right now. The Trustee should just go for final taxation in the normal course.

The OSB also provided two earlier court decisions where interim draws were not approved in support of its opposition.

The court sees COVID-19 creating urgencies, even for trustee bankruptcies

The court considered the OSB’s submissions and the cases it relied upon. The court distinguished those cases from the current motion for these trustee bankruptcies. Due to COVID-19, the Court found that it is not practical for the Trustee to need to wait on the receipt of the OSB Letter of Comment and then proceed to final taxation.

The court stated these are not normal times. The timelines for any of the steps involved in the final taxation process could be much longer, taking into consideration the stay-at-home orders that have been issued, even including the OSB team.

The judge stated that the court must deal with the situation as it presently exists and as it advances each day, and also make appropriate decisions as necessary. He stated that businesses in all industries have been laying workers off. This includes the insolvency industry. A lot of the businesses that are still operating are doing so with minimized staff. Those businesses are attempting to make the most out of their limited cash flow to sustain operations.

The court stated that it understands that the choice it makes on this motion might bring about an influx of cases for interim draws in trustee bankruptcies. If that becomes the case, the court will deal with it. In addition, the court recognized that, because of coronavirus, interim draws are a practical method of managing the liquidity crunch presently being experienced by Trustees. Even if there had been no coronavirus pandemic, Directive 27R still allows for such an application to the court in the trustee bankruptcies.

The Court was also conscious that accounting firms, and consequently licensed insolvency trustee businesses, have been proclaimed essential services in the Province of Ontario.

**The court’s decision on the trustee bankruptices motion**

As a result of all these findings, the court decided that licensed insolvency trustees must have the tools essential to maintain their operations and to permit people and companies to get access to the Canadian insolvency system. Therefore, the court held that Trustees need to be able to access the funds in their trust accounts that they have actually earned as fees, inclusive of HST.

Taking all this into account, the court exercised its discretion and ordered that the Trustee is approved to withdraw 75% of the fee that has been earned in the three trustee bankruptcies, including HST. The Trustee should then move to final taxation. There are already safeguards built into the final taxation process where creditors in each of the trustee bankruptcies estates can object to the taxation and the total fees if they wish to.

If the total final fees are approved, then the Trustee can withdraw the remaining 25%. If final taxation results in any fees less than the 75% interim draw approved in any of the trustee bankruptcies, then the Trustee will have to repay into the bankruptcy estate the specific amount(s).

The court ordered that any costs incurred on the motion was an overhead cost of the Trustee and was not recoverable from the trustee bankruptcies. Costs were neither sought nor awarded. My understanding is that the OSB is not appealing this decision.

Trustee bankruptcies summary

I hope you have enjoyed this trustee bankruptcies Brandon’s Blog. It is the first decision I am aware of that deals with the reality that like any other entrepreneur, a licensed insolvency trustee is running a business too.

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 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.

Tags bankruptcy administration, Bankruptcy and Insolvency Act, bankruptcy trustee, Consumer Proposal, Corporate Bankruptcy, insolvency, Ira Smith Trustee, licensed insolvency trustee, personal bankruptcy, trustee, trustee bankruptcies, trustee in bankruptcy

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The Initial Shock That Changed Everything

Permanent Changes That Hurt Businesses

Current State of the Debt Crisis: The Numbers Are Alarming

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Most Failures Are Permanent Closures

Rising Delinquencies: A Warning Sign of Worse to Come

Why Businesses Can’t Pay Their Bills

New Regulatory Pressures Adding to Business Costs

New Rules Taking Effect

The Pandemic’s Effects Still Linger

Consumer Behaviour Changed Forever

The Technology Investment Burden

Economic Pressures: The Double Hit of Recession and Inflation

Inflation Squeezes Profit Margins

Recession Fears Become Reality

Tightening Credit Markets Make Everything Worse

Managing Financial Crises: What Works?

Cash Flow Management Must Be Daily

Strategic Payment Prioritization

Strategies for Addressing the Debt Crisis

Debt Restructuring Options That Work

Asset Management Approaches

Closing the Funding Gap: Where to Find Money

Government Programs Still Available

Alternative Financing When Banks Say No

Learning from Denmark: How Copenhagen Handles Debt Better Than North America

How Denmark’s Government Manages Money (And What Businesses Can Learn)

How Denmark Helps People With Too Much Debt

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Four Key Lessons for Toronto Businesses

Why These Lessons Matter for Canadian Businesses

Applying Danish Lessons in Your Business

When Danish-Style Approaches Aren’t Enough

The Bottom Line for Toronto Businesses

When to Call a Licensed Insolvency Trustee

Your Action Plan: Recovery Is Possible

Why Experience Matters in a Debt Crisis

Frequently Asked Questions About Toronto’s Business Debt Crisis

What is the current state of Toronto’s business debt crisis?

How did COVID-19 contribute to the debt crisis, and what permanent changes did it bring?

What are the main reasons businesses are struggling to pay their bills?

How do tightening credit markets and inflation make the debt crisis worse?

What cash flow management strategies work for struggling businesses?

What debt restructuring and financing options actually work for businesses in trouble?

What can Toronto businesses learn from how Denmark handles a debt crisis?

When should I call a licensed insolvency trustee for help?

Take Action Today

Financial stress test: Introduction

Financial stress test danger signal 1: Debt can be a killer

Financial stress test danger signal 2: Declining revenue

Financial stress test danger signal 3: Negative cash flow

Comprehending the significance of cash flow

Analyzing cash flow: Key metrics and ratios

Financial stress test danger signal 4: Inadequate liquidity

Financial stress test danger signal 5: Impact of competition on a company’s financial health

Financial stress test danger signal 6: Problem in securing financing

Financial stress test danger signal 7: Workforce downsizing and layoffs

Financial stress test danger signal 8: Legal issues and lawsuits

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Financial stress test danger signal 10: Deteriorating stock performance

Financial stress test: Conclusion

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What factors lead to corporate bankruptcy proceedings?

Corporate bankruptcy: What does it mean for a company when it liquidates?

What happens to debt in corporate bankruptcy?

How does a company get into corporate bankruptcy and what happens to the company?

Why might a company choose to file for corporate bankruptcy protection and restructure under a BIA proposal?

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What becomes of a corporation after corporate bankruptcy?

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**Can a business declare corporate bankruptcy?**

**What factors lead to corporate bankruptcy proceedings?**

**What happens to debt in corporate bankruptcy?**

**How does a company get into corporate bankruptcy and what happens to the company?**

**Why might a company choose to file for corporate bankruptcy protection and restructure under a BIA proposal?**

**What becomes of a corporation after corporate bankruptcy?**

**When a company declares corporate bankruptcy, what will happen to your stock or bond?**

***Where is Laurentian University? Ask current President* *Dr. Robert Haché***

**A bankruptcy trustee needs cash flow too**