Tag: insolvency

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CONSUMER PROPOSAL OR BANKRUPTCY: LIST OF MY CREDITORS FOR CONSUMER PROPOSAL

Consumer proposal or bankruptcy: Introduction

We always perform an initial free consultation with people thinking about filing either a consumer proposal or bankruptcy. People ask me, what if I can’t create a list of all my creditors?

Consumer proposal or bankruptcy: A refresher

If you are a regular reader of my Brandon’s Blog, then you know the difference between a consumer proposal vs bankruptcy. For those of you who need a brief refresher, both the consumer proposal and bankruptcy are different processes under the Bankruptcy and Insolvency Act (Canada) (BIA). To file either one, the person must be insolvent. That means that they cannot meet their liabilities as they become due and if they liquidated all their assets, it would not produce enough cash to pay of all the debts.

Consumer proposal – This is a restructuring process to avoid bankruptcy for any person who owes $250,000 or less, not including any mortgage or line of credit debts secured by a mortgage registered against their home. The purpose of a consumer proposal is to AVOID bankruptcy.

Division I proposal – This is a restructuring process for people who owe too much money to fit under the consumer proposal rules. A company can also reorganize under this section of the BIA.

Bankruptcy – If a person cannot successfully carry out a restructuring proposal but requires relief from their crushing debts, then they would file for bankruptcy. In this process, subject to certain provincial exemptions, you would hand over your assets to the licensed insolvency trustee (Trustee). The Trustee would then sell the assets for cash, call for your creditors to file a proof of claim with the Trustee and then distribute the money according to the rules of the BIA.

Consumer proposal or bankruptcy: A common question

Regardless of whether the person is thinking about a consumer proposal, Division I proposal or bankruptcy, a common question is: (i) what if I don’t know who all my creditors are; or (ii) what if I leave off some creditors from my sworn statement of affairs; or (iii) do I have to list all of my creditors?

Some of our clients come to us, tell us that they don’t even know who their creditors are. Sometimes it’s been such a long time that they don’t even receive the bills or notices anymore and their memories aren’t good enough. So here is an easy hack so that you can put together a list of most, if not all, of your creditors.

Consumer proposal or bankruptcy: The easy hack

We will add CRA to your statement of affairs. If you don’t know how much you owe them, we will put them in showing either “$1” or “Unknown” as a placeholder

Every person must file an income tax return. Most people know whether they are current or not in their tax filings. So Canada Revenue Agency (CRA) should always be listed.

CRA cannot file an accurate proof of claim if you have not been current in your income tax filings. So we tell everyone to file all outstanding tax returns and provide us with a copy before filing either a consumer proposal or bankruptcy.

Pull your credit report

You may obtain your credit report from either Equifax or TransUnion. Your credit report will list all those who you owe money to and who wanted to update their files with your new credit score. We will add those creditors to your statement of affairs also.

Check your mail and save the bills

No doubt your creditors will keep mailing your statements. Even if all it says is balance forward unpaid, or is from a collection agency or lawyer, it will list their address, their name and the amount they say you owe. We will put that information on your statement of affairs.

Your lawyer can easily do an execution search. This search will show who holds a judgement against you and some basic details. We will add those details to your statement of affairs.

Consumer proposal or bankruptcy: The test is due diligence, not perfection

The test is, did you use your best efforts to identify all of your creditors on your sworn statement of affairs. It is very rare that any of our clients know exactly how much they owe. It is normal for the amounts according to the sworn statement of affairs to be different from the proofs of claim filed. That is OK.

Sophisticated large creditors pay the Superintendent of Bankruptcy to get a download of insolvency filings on a regular basis. They match the names of those who have filed against their client database. If a client shows up that they did not have listed as having filed, they contact the Trustee. Once they contact us, we send them a creditor’s package. They will then be able to further check their records and if owed money, can file a proof of claim.

We had a client who said they mistakenly left off a few creditors in their proposal filing. Those creditors found out. All those creditors had judgements against the person who filed the restructuring proposal. These creditors were very mad at being left off the list, although they did not suffer any damages.

It made it much tougher for the person and us to get a deal struck with all the creditors. At the end of the day, a deal was struck and the person is currently performing and is currently making their payments under the restructuring proposal. The anger of these creditors rubbed off on creditors who would have otherwise been happy with a lesser proposal. So in the end, leaving these creditors off the initial sworn statement of affairs just cost them more money!

Consumer proposal or bankruptcy: Corporate filings

In terms of a corporation filing either a restructuring proposal or bankruptcy, we normally don’t incur the same issues. A company will have an accounting department and/or an accounting system. They will be able to produce a list of creditors. The amounts shown may not be current, but the list of names and addresses will be reasonably accurate.

However, the easy hack I described above also works for a company.

Consumer proposal or bankruptcy: More free stuff

I hope that you have found my free easy hack useful to answer the question of how to create a list of all my creditors. You can use it if you wish to do proper budgeting, which everyone should do. You don’t have to wait until you are insolvent!! With proper budgeting, you can avoid insolvency and therefore bankruptcy.

If you have too much debt and need someone to talk to about consumer proposal vs bankruptcy, call the Ira Smith Team. We will listen to your issues and provide you with our thoughts and recommendations for free. That’s right; a free initial consultation. So why not? All you have to lose is your stress. We will advise you whether or not we think you are a candidate for either a consumer proposal or bankruptcy. If we feel you can solve your financial problems without an insolvency process, we will tell you straight.

The Ira Smith Team understands the stress you are under and the pain it is causing you and your loved ones. We can eliminate your pain. I guarantee that you will start feeling better right away after our free initial consultation. Taking action after that will put you on the right path, Starting Over Starting Now.

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BANKRUPTCY IN ONTARIO CANADA & CONSUMER PROPOSAL ONTARIO

Bankruptcy in Ontario Canada: Introduction

Bankruptcy is sometimes necessary for the financially troubled individual or company. In Canada in 2017, there were 125,807 insolvency filings; 60,669 bankruptcies and 65,138 proposals. Bankruptcy in Ontario Canada accounted for 15,968 of the 2017 filings. The majority of these across Canada filings were people, not companies.

Bankruptcy in Ontario Canada: Not entirely unexpected

Any debtor with severe monetary troubles must think about bankruptcy. Bankruptcy isn’t always the right response though. In my practice, we first run through the various options available to avoid bankruptcy.

It is proper only when you have too many financial obligations that you cannot realistically repay, in whole or in part, from your future earnings or from selling your assets. This is the meaning of the financial state of insolvency.

If you make $100,000 a year and your financial obligations are only $20,000 (assuming you have no assets), why go bankrupt? Temporary financial sacrifice on your part could pay off your debts in full. This is definitely more suitable for bankruptcy.

What about a proposal?

Although each case is unique, generally speaking, if your unsecured financial debts are less than 60 percent of your net yearly pay, stay clear of bankruptcy. You could use a self-help remedy to pay off your debts in full. Alternatively, you could look to the proposal or consumer proposal mechanisms under the Bankruptcy and Insolvency Act (Canada).

Under the proposal provisions of the BIA, a person or company could take up to 5 years to pay off part of the debt. A successful proposal forgives the balance of your debt (subject to certain ones indicated below). Many creditors will wait if you show good faith and make organized repayments that provide your creditors with a better result.

A filing may protect some assets

I advise every person and company in need of restructuring that timing is crucial. It is human nature for debtors to regularly wait far too long. By waiting too long, they shed possible advantages from an earlier restructuring filing. The longer a person or company waits, the fewer options they have. Also, if you wait too long, the less creative I can be to protect your assets.

5 general tips

  1. Collect your tax refunds prior to your filing. When you file for bankruptcy, any tax refund owing to you prior to the date of bankruptcy belong to your bankruptcy estate. Your licensed insolvency trustee (Trustee) collects the payments.
  2. The insolvency process is meant to treat all creditors fairly and all ordinary unsecured creditors equally. Seek the advice of a Trustee prior to making payments to specific unsecured creditors prior to filing. Your good intentions may prove to have created transactions that the Trustee can attack. The Trustee will then seek recovery from those parties.
  3. Consider how the causes of your insolvency will look to your creditors. Uncontrolled lifestyle spending looks a lot different from ongoing costs due to a mental or physical illness or an addiction. The causes of your insolvency sometimes dictate whether a proposal or bankruptcy filing is preferable.
  4. Have you contributed to an RRSP in the 12 months before filing for bankruptcy? That amount will have to be paid over to your Trustee under bankruptcy or accounted for in what type of proposal can be successful.
  5. If you have student loans, was the last time you were either a full or part-time student more than 7 years prior to your filing? If no, you won’t be able to end the student loan debt. However, it may be enough to relieve yourself of your other unsecured debts to have enough funds every month to start repaying the student loans.

Some debts can’t be discharged

Bankruptcy will not end every debt. There are certain debts that cannot be discharged through bankruptcy. Examples are:

  • student loans as described above
  • child support and alimony under either a court order or written separation agreement
  • fines or restitution ordered by a Court
  • debts arising out of fraud, embezzlement or misappropriation while acting in a fiduciary capacity
  • amounts owing to secured creditors registered against your assets, such as a mortgage or car loan. Any amount still owing after the asset is sold, if any, is an unsecured claim which is discharged in a bankruptcy

Bankruptcy must be your last option

Bankruptcy could be your ideal choice if the amount of your debt and the amount you can realistically repay will not settle it. If you have few possessions to lose in bankruptcy, then a bankruptcy filing may be your best choice. By meeting with a Trustee early to discuss your options, you will get a good understanding of what may be possible.

I always advise every person or company never file for bankruptcy without first striving to solve a case without bankruptcy. Bankruptcy must be your last option, not your very first – avoid bankruptcy if you can.

Think about all readily available options prior to determining that bankruptcy is genuinely the best decision for you and your situation. If you find you are in too deep and can’t dig out fast enough, then you do need professional help.

Seek the advice of a professional trustee

Many people and companies facing serious financial issues don’t know where to go for professional help or are too embarrassed. There’s no shame in seeking professional, financial help. Licensed insolvency trustees evaluate your situation and help you to arrive at the best possible solution for your problems.

Ira Smith Trustee & Receiver Inc. is here to help. We’re federally regulated and subject to a strict code of ethics. We offer a depth of expertise and provide a high quality and cost-effective service. I understand your pain and we can end it. You will find that we use a friendly, non-judgmental method.

Give us a call today and let us help you solve your financial problems Starting Over, Starting Now.bankruptcy in ontario canada

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BANKRUPTCY AND INSOLVENCY ACT: COURT MAY NOT LISTEN TO BANKRUPTCY TRUSTEE

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Bankruptcy and insolvency act: Introduction

I want to describe to you a very interesting case that was recently decided in the Court of Appeal of British Columbia, Randen v. HPCB-Online Ltd., 2018 BCCA 123 (CanLII). The bankrupt’s creditors applied to have the transactions reviewed under section I00 of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (“BIA”). One of the areas of contention was that the judge in the lower court found he could not rely on the bankruptcy trustee’s opinion of value in the circumstances.

The applicants, Shawn and Edvige Cody, were the principals of the bankrupt, Half Price Computer Books Ltd. (“Half Price”) and the applicant HPCB-Online Ltd. (“Online”). About ten days before Half Price was assigned into bankruptcy, Online bought roughly 10% of the book inventory of Half Price.

The application under s.100 was originally made by the bankruptcy trustee, and later transferred to creditors David Randen, The Innovative Alliance Inc., J.R. Trading Co. Inc. and Fairmount Books Inc. under section 38 of the BIA. The lower court judge found Online acquired property from Half Price at much less than reasonable market value. The lower court judge ordered Online and the Codys to pay back the difference which he established to be $287,000.

Bankruptcy and insolvency act: Section 100

Section 100 of the BIA. The section was repealed in 2009, but applies on transactions before then. The main purpose of that section was for reversing the effects of non-arm’s length transactions that reduced value from the estate of a bankrupt person or company.

Until 2009, s. 100 of the BIA provided:

“100 (1) Where a bankrupt sold, purchased, leased, hired, supplied or received property or services in a reviewable transaction within the period beginning on the day that is one year before the date of the bankruptcy event and ending on the date of the bankruptcy, both dates included, the court may, on the application of the trustee, inquire into whether the bankrupt gave or received, as the case may be, fair market value in consideration for the property or services concerned in the transaction.

(2) Where the court in proceedings under this section finds that the consideration given or received by the bankrupt in the reviewable transaction was conspicuously greater or less than the fair market value of the property or services concerned in the transaction, the court may give judgment to the trustee against the other party to the transaction, against any other person being privy to the transaction with the bankrupt or against all those persons for the difference between the actual consideration given or received by the bankrupt and the fair market value, as determined by the court, of the property or services concerned in the transaction.”

Bankruptcy and insolvency act: The questionable transaction

The brand-new company Online bought roughly 10% of Half Price’s stock, or 44,000 books. These books were clearly selected by Mr. Cody as the best-selling. Online paid $21,964.50 for these books, about $0.50 CDN for each publication. The books and records of Half Price, including an e-commerce website which Half Price created at its expense and was the property of Half Price, were copied and used by Online to aid in the sale of these publications at the instructions of Mr. Cody.

The Half Price sorting software and mailing software program that was later used to retail these books by Online, which software was the property of Half Price, was duplicated and taken or transferred to Online. Additionally, there was a claim that the goodwill of Half Price was made use by Online. There was no evidence that Online paid anything for the use of the software and goodwill.bankruptcy and insolvency act 1

Bankruptcy and insolvency act: The lower court’s first problem

The lower court found that Online paid conspicuously much less compared to fair market value. It must pay to the bankruptcy Estate for the benefit of the creditors which he determined to be $287,000. The lower court judge noted that this was not a case in which the trustee was driving the application. The trustee assigned the action to specific creditors.

Normally, the bankruptcy trustee would have to submit evidence to the court in a section 100 application as to the value of the property in question. Since the trustee had assigned its interest to specific creditors, there was no report from the trustee. The creditors said the value of the joint assets is close to $1.07 million. The lower court had to look at the trustee’s actions in determining what the trustee must have thought the value was.

The lower court acknowledged the need in s. 100 to accept the trustee’s viewpoint about the value, unless other values are confirmed. The court however discovered it could not depend on that viewpoint in this case. The first problem was that they were standing in the place of the trustee. The trustee had determined that the software and other assets was of no value. In addition, the trustee did not figure out that there was any kind of goodwill value to this.

Bankruptcy and insolvency act: The lower court’s second problem

The second problem was that Half Price could have moved the best publications to Online at the direction of the Codys. The remaining books, being 90% of the book inventory, sold for around the same value as the 10% of publications. Though this is not entirely determinative of worth, it shows that the inventory, software and goodwill was not as valuable as these creditors represented to the lower court..

The BIA required the lower court judge to accept the trustee‘s viewpoint as to the value, or in this situation the point of view of those creditors, unless other values can be confirmed. The lower court considered the trustee’s activity when the bankruptcy first happened, that those assets had no value. The lower court found that it could not rely on any trustee viewpoint on worth.

Bankruptcy and insolvency act: The Court of Appeal

The Court of Appeal confirmed that a trustee in bankruptcy is an officer of the court and has an obligation to offer all relevant facts to the court in a dispassionate, non-adversarial fashion. It went on to say that the creditors do not have the same responsibilities. They got the right to pursue the proceedings in their very own passionate way. The Court of Appeal went on to say that it was open to the court to decline the trustee’s opinion on the evaluation of a fair market price.

The Court of Appeal finally concluded that although the Court did not have to accept the trustee’s opinion of value, there was insufficient evidence for the lower court judge to place a value. So the Court of Appeal ordered a new trial in the lower court. Now both the creditors, and certainly the trustee, will have to submit evidence about what the fair market value was, in their respective opinion. That way, the lower court will be able to rely on experts, an officer of the court and real evidence.

Bankruptcy and insolvency act: The licensed insolvency trustee

Licensed insolvency trustee is the relatively new name for a bankruptcy trustee. Is your company experiencing financial problems? Are you, or somebody you care about, experiencing personal financial problems?

Bankruptcy is the last thing we try to do for a company or person in financial difficulty. If caught early enough, we can get involved in a turnaround situation for your company to keep jobs and value. We also carry out debt settlement plans for people.

If you’ve personally fallen victim to money mistakes and are in pain and stressed out, it’s time for professional help now too.

The Ira Smith Team knows that you are worried because you are facing significant financial challenges. Your business provides income not only for your family. Many other families rely on you and your company for their well-being. The stress placed upon you due to your company’s financial challenges is enormous. We understand your pain points.

Contact the Ira Smith Team today. We know how to solve both corporate and personal financial challenges, remove your pain and put things back on a healthy path. Contact us today for your free consultation so that we can save your company, Starting Over Starting Now.

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AFTER BANKRUPTCY DISCHARGE CANADA: LIVE WELL AFTER A BANKRUPTCY DISCHARGE

after bankruptcy discharge canada

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After bankruptcy discharge Canada: Introduction

The purpose of my blog is to provide ideas and suggestions on how a person can fulfill one of the aims of the Canadian insolvency system. That is to carry out successful financial rehabilitation and live profitably and happily after bankruptcy discharge Canada.

After bankruptcy discharge Canada: You are not alone

In 2017, 122,198 Canadians went for either bankruptcy or a restructuring proposal. The split was roughly even. These people and their families underwent significant financial and emotional pain. In January and February 2018 together, 19,082 Canadians went for either bankruptcy or a restructuring proposal. The split favoured restructuring proposals slightly.

After bankruptcy discharge Canada: Your financial slate is now clean

Your financial slate is wiped clean. However, your credit score has taken a beating. Now is the time to not squander the opportunity you have for financial rehabilitation. Notation of your bankruptcy stays on your credit report for 7 years after your bankruptcy discharge. In the case of a restructuring proposal, the notation remains on your credit report for 3 years after successful completion of your financial restructuring.

After bankruptcy discharge Canada: My 10 step program to live profitably after a bankruptcy discharge

So how can a discharged bankrupt hop on a rapid course to a bankruptcy rebound? Here are my suggestions:

  1. Use your bankruptcy experience to improve your financial education. Take a course on practical money management.
  2. You won’t have any credit cards so you have to rely more on cash. Use an envelope system so that every payday you segregate your cash into envelopes, each marked with an essential family expense. Make sure the cash is used only for those essential purposes and no cheating. No borrowing from the envelopes!
  3. Points 1 and 2 above lead naturally into the next point. Sit down with the entire family and work out a monthly budget. Your total expenses cannot be more than your total income, after income tax, for the month. If everyone is involved in setting it up, then they will all understand if you just can’t afford something in a certain month. Also, they will all be helping you stay on budget.
  4. You do need to find a way to start rebuilding credit. Obtain a secured credit card. Not the drug store variety, but the kind issued by a real credit card company. You have to deposit funds with the credit card issuer and then you get a credit limit equal to the funds deposited. Use that credit card each month, but pay off the FULL balance each month. The credit card company then reports to the credit reporting agencies that you are using credit wisely. Over time, this will improve your credit score.
  5. Always remember the behaviours that got you into financial trouble in the first place and don’t repeat them. If it was an event outside of your control like job loss or a medical emergency, it was not your behaviour that was the cause of your financial problems.
  6. Establish SMART goals. Specific, Measurable, Achievable, Realistic and Timely goals. Setting and reaching your goals will certainly make you an economic success.
  7. Begin building up savings. You need to be financially prepared for a life emergency. As a bare minimum, begin setting up a reserve so that you can withstand a 6 to 9 month emergency that increases your expenses or reduces your income.
  8. Start investing in an RRSP using an RRSP loan. Take out a small RRSP loan. Use your tax savings to pay it down, and work into your budget repaying the rest of the loan, with interest, during the year. Do the same thing the following years. Not only will you build up RRSP savings, the reported loan repayments will improve your credit rating because you are using credit wisely again.
  9. Purchase based only on your needs that are in your budget; never on your “wants”.
  10. Do not purchase anything on impulse. Research, research and research to make sure that you are getting the best deal possible.

After bankruptcy discharge Canada: The takeaway

The takeaway? It is not easy to recover after bankruptcy discharge Canada. It is a series of small steps using modified behaviour and healthy money management skills. But it is possible. I have seen many of my past clients do it. There is not a magic pill you can take. It is a matter of concentrating and working on moving on and learning from your past mistakes. Working at it one day at a time, you will regain your self-respect and feeling of self-worth by restoring your financial and credit report health and wellness.

After bankruptcy discharge Canada: What if you have too much debt?

I hope that you have found this information helpful. Bankruptcy is the last thing we try to do for a person in financial difficulty. If caught early enough, we can get involved in a debt settlement restructuring program for you.

The Ira Smith Team knows that you are worried because you are facing significant financial challenges. The stress placed upon you is enormous. We understand your pain points.

Contact the Ira Smith Team today. We know how to solve your financial challenges, remove your pain and put things back on a healthy path. Contact us today for your free consultation so that we can save your life, Starting Over Starting Now.

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STALKING HORSE CREDIT BID: WE NEED COURT APPROVAL BEFORE STARTING A COURT SUPERVISED SALES PROCESS

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Stalking horse credit bid: Introduction

In last week’s vlog, “STALKING HORSE ASSET PURCHASE AGREEMENT: THE WEINSTEIN COMPANY GALLOPS INTO A COURT SUPERVISED SALES PROCESS“, I described what a stalking horse asset purchase agreement is. I also defined and described the proposed stalking horse credit bid process of The Weinstein Company. That process was approved last Friday by a Delaware bankruptcy judge. The Court delayed the court sales auction by a couple of business days to May 4, 2018.

Stalking horse credit bid: Our earlier case studies

Over the last few weeks, I have provided some case studies from our files for both personal and corporate insolvency matters. As a refresher, these case study vlogs are:

Stalking horse credit bid: Our stalking horse sales process case study

This is the last vlog along our case study theme. The purpose is to show the decision making that the Court goes through in being asked to approve a stalking horse credit bid and a stalking horse sales process in a corporate insolvency file.

We were Court-appointed as Receiver and Manager of a club operating a golf course, restaurant and party function business. The first secured creditor filed its motion to appoint us. We were appointed very close to Christmas that year. Obviously, the golf course was not operating at the time of our appointment. The food and beverage facilities only had one remaining Christmas party and the annual club New Year’s party. No parties were booked yet into the New Year.

We did the normal things a Receiver does such as:

  • taking physical possession of the premises and the books and records;
  • identifying if there were any assets located off premises; and
  • arranging for property and liability insurance.

We were able to use the time to understand the business and the nature and extent of the assets.

There was already a purchaser ready to give an offer to purchase the Receiver’s right, title and interest in the operating assets comprising the club’s businesses. We arranged for an appraisal of the assets and business. We received and reviewed the appraisal. The secured creditor told us the form of offer they would support.

Armed with the appraisal information and the secured creditor information, we entered into a conversation with the potential purchaser. The amount this purchaser told us it was willing to pay was far more than appraised value and above the minimum threshold for acceptance from the secured creditor.

Stalking horse credit bid: Our stalking horse offer

We decided that a stalking horse bid process would be ideal. We doubted that any party would bid higher than the value this potential purchaser was discussing. It made sense to also have the court supervised sales process completed prior to April, so that it would be the purchaser opening up and preparing the course for play and running the food and beverage business, rather than the Court appointed Receiver.

The potential purchaser agreed to become a stalking horse bidder and to the timeline. We and our legal counsel worked with the potential purchaser and its legal counsel to prepare a draft stalking horse asset purchase agreement. The purchase price was the amount this now stalking horse purchaser was always discussing.

Stalking horse credit bid: We galloped off to Court

We filed our motion for approval of our activities to date, requested permission to enter into the proposed stalking horse agreement and sought approval for our proposed stalking horse sales process. The Court had no problem with our activities to date, or the stalking horse agreement, but did not like our truncated stalking horse sales process. We were not able to be in Court until February and we wished to complete the sale by March 31. The Court felt that was not enough time to run a sales process that was fair to all potential bidders. Our legal counsel attempted to persuade the Judge that comparing the appraisal (which the Court saw but our purchaser did not see) and the value of the stalking horse offer, we did not feel that there would be any other bidders.

We could not persuade the Court. The Judge approved everything, but he amended the timeline so that we would run a process that would last at least 5 weeks from the time we ran our advertisement for this business opportunity.

The Court considers various factors when asked to approve a receivership or bankruptcy sales transaction. The basis for this comes from a 1991 Court of Appeal for Ontario decision in Royal Bank of Canada v. Soundair Corp., 1991 CanLII 2727 (ON CA). In no particular order, the Court is concerned with:

  1. Whether the Receiver has made enough effort to get the best price and has not acted improvidently.
  2. Considering the interests of all parties.
  3. The efficacy and integrity of the process used to get offers.
  4. If there has been unfairness in the working out of the process.

In the Judge’s opinion, a 5 week sales process would ease any concerns he had.

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Stalking horse credit bid: The outcome

We amended our sales process in accordance with the Judge’s instructions. We then:

  • ran the advertisement and issued our preliminary “teaser” sales document to all those that requested it; and
  • set up our online data room of pertinent business and other information about the assets and business operations.

Anyone who wished to do due diligence signed our confidentiality agreement. Everyone who signed our confidentiality agreement was then provided with a unique password to enter the online data room.

The due diligence period ended and since everyone knows the amount of the stalking horse offer, no other potential bidders submitted an offer. Nobody wanted to bid more.

We went back to Court to tell of the results and obtained Court approval to complete the transaction of the stalking horse bidder whose asset purchase agreement was already approved by the Court.

In the meantime, spring had arrived. We hired the necessary golf course superintendent and other maintenance and operating staff and opened up the golf course. We ran the golf club until the sale was completed near the end of June that same year. In the eyes of the Court fairness was achieved, we operated the golf club and the secured creditor was happy with the result of the sale.

Stalking horse credit bid: Is your business facing financial problems?

This case study shows how we were able to satisfy all stakeholders in a Court supervised sales process, to transfer the assets to a new business, remit funds to the secured creditor on a basis acceptable to them and meet the requirements of the Court.

Is your business facing financial problems? Perhaps your company is in need of a restructuring. The Ira Smith Team can develop a restructuring plan which may or may not include the need to file for bankruptcy protection.

The Ira Smith Trustee & Receiver Inc. Team understands the pain you are going through trying to keep your company alive while trying to negotiate with potential purchasers. We understand that you are playing beat the clock, and the pain and stress you are feeling thinking that you may just run out of time. The bankruptcy protection process can ease this stress and provide a level playing field so that no potential purchaser takes advantage of you.

The Ira Smith Team has a great deal of experience in running a stalking horse stalking horse asset purchase agreement. The stress placed upon you due to your company’s financial challenges is enormous. We understand your pain points. Call the Ira Smith Team today for your free consultation. We can end your pain and put your company back on a healthy profitable path, Starting Over, Starting Now.

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CAN YOU FILE PERSONAL AND CORPORATE BANKRUPTCY? SMALL BUSINESS OPTIONS

Can you file personal and corporate bankruptcy: Introduction

Can you file personal and corporate bankruptcy is a question all small business owners ask us when they come to our office for a free consultation. We discuss local business bankruptcy with entrepreneurs in our office. Their personal and business lives are intertwined. There’s very little distinction between the individual their small business.

This is especially true if their business in unincorporated and is being operated as a proprietorship. Our role is to first understand them as a person and as a business separately. This way we can give the best possible advice. If the business is a proprietorship, then we are only talking personal bankruptcy, or alternatives to avoid bankruptcy, such as a consumer proposal or restructuring proposal.

If their business legal form is that of a corporation, then we look at both the corporate and personal issues separately. The reason for this is because in the eyes of the law, the corporation and the individual are separate people. Many times it is not necessary for both the corporation and the individual to each file an insolvency process. Maybe only one has to.

Separating your business and personal assets and liabilities is a great reason for incorporating your business. When discussing bankrupting an incorporated company, we also need to consider if there are any Director liabilities. We must also consider the owner’s personal situation. This is so we can make sure they do not do themselves more personal harm than good. We also first look to see if there is a way to restructure and save the corporation.

Can you file personal and corporate bankruptcy: What is bankruptcy

Bankruptcy is a lawful method for the honest but unfortunate company or person to get a remedy from the burden of the financial debts that cannot be repaid. When an assignment in bankruptcy is submitted a “stay of proceedings” is invoked.

What the stay of proceedings means

The stay of proceedings results in stopping creditors from beginning or continuing with litigation against the company or person. The stay of proceedings also stops an unsecured creditor who has obtained a judgement. It stops them from garnishing funds from a bank account or part of the person’s wages.

For unsecured creditors, the stay of proceedings also calls a timeout to make sure that one unsecured creditor does not get a benefit over others in regards to the settlement of financial obligations. Keep in mind that the bankruptcy process could also be started by one or more unsecured creditors. They must be owed at least $1,000 in total.

can you file personal and corporate bankruptcy

Can creditors push you into bankruptcy?

The unsecured creditor(s) could file a motion with the Court requesting that a Bankruptcy Order be issued against the company or person. The method of bankrupting a corporation in Canada is the same as that of a person. In addition to being able to prove that the company or person owes this unsecured creditor or group at least $1,000, they also need to prove that at least one act of bankruptcy has been committed in the 6 months prior to the filing of the motion.

The Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) identifies the various acts of bankruptcy. The most common one is “ceases to meet his liabilities generally as they become due”.

Secured creditors are generally not impacted by bankruptcy. They can realize upon the assets of the company or person covered by the security. In return for the original loan, the lender required that the borrower put up the security as a condition of the loan. The reason for this was so that if insolvency happens, the lender could sell the assets to try to repay the loan, interest and costs.

The secured creditor only really takes part in the bankruptcy process if after they have sold all the assets covered by their security, they are still owed money. The balance they are still owed is an unsecured debt.

Personal bankruptcy

If an individual’s business is a single proprietorship or a partnership, but not a corporation, legally, the person or people are also the business. So when they deal with the possibility of bankruptcy, all their assets are included, subject to provincial exemptions. Simply put, the assets of the business are not held different from their individual assets, so a small business bankruptcy of this kind is personal bankruptcy.

Where does Canada Revenue Agency fit in?

There are generally 3 types of claims that Canada Revenue Agency (CRA) has against a business. It does not matter if the business is incorporated or is a sole proprietorship.

The 3 kinds of CRA claims generally are:

  1. Unremitted source deductions from employee payroll
  2. Net HST owing
  3. Unpaid income tax from profitable years

Both the HST liability and income tax, in a bankruptcy, is an unsecured claim. However, the HST liability is also a personal claim against the Director(s) of a corporation. Unremitted source deductions are both a deemed trust claim against the bankrupt’s assets and in the case of a corporation, a personal claim against the Director(s) of the company.

When we do our first consultation with a business owner, when the business is run in a corporation, whenever unremitted source deductions or HST is involved, this always leads to a talk about the person’s situation in the event CRA would make a claim against the Director.

Some bankruptcy statistics

According to the Office of the Superintendent of Bankruptcy Canada, for the 12 months ending September 30, 2017, there were 125,912 insolvencies in Canada. This is a decrease of 3% over the same time period a year earlier. Consumer insolvency filings were 122,296 or 97.1% of total filings. The consumer filings were split into 59,192 bankruptcies and 63,104 consumer proposals – roughly half and half.

Business insolvency filings for the same time period in all of Canada totalled 3,616, a decrease of 8.1% from the 12 month period one year earlier. Business insolvency filings were split into 2,719 bankruptcies and 897 proposals. These statistics do not include filings by very large corporations under the Companies’ Creditors Arrangement Act (R.S.C., 1985, c. C-36).

As you can see, for a country the size of Canada, there were not a lot of business insolvencies during the first 9 months of 2017. The consumer filings were split roughly even between bankruptcy and a consumer proposal, the best consumer bankruptcy alternative.

Alternatives to Declaring Bankruptcy

A consumer proposal entails paying back a part of your financial debts in return for your unsecured creditors forgiving the remaining balance owing. A consumer proposal provides a significant benefit for a proprietor or partner in an unincorporated business. Unlike in a bankruptcy, your assets are not available for seizure by the licensed insolvency trustee (LIT).

You can take up to 60 months to pay off your consumer proposal. How much you will have to offer your creditors depends on what the unsecured creditors could expect in your bankruptcy. Working with a LIT, you work out that amount through discussion and analysis. A LIT can explain the entire process to you.

From a financial viewpoint, a consumer proposal is better than your bankruptcy because it permits the unsecured creditors to recoup a larger part of the debt than they would receive in your bankruptcy.

What is best for you and your business?

If you find you or your business is in a financial danger zone, contact Ira Smith Trustee & Receiver Inc. We’re full-service insolvency and financial restructuring practice serving companies and people throughout the Greater Toronto Area (GTA) facing financial crisis or bankruptcy that need a plan for Starting Over, Starting Now.

Your financial problems can be solved with immediate action and the right plan. Give us a call today.

can you file personal and corporate bankruptcy
can you file personal and corporate bankruptcy
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Brandon Blog Post

CURRENT INSOLVENCY ASSIGNMENTS: A WARNING TO ALL CREDITORS TO STAY IN THE PRESENT TO PRESERVE YOUR RIGHTS

Current insolvency assignments: Introduction

One of our current insolvency assignments teaches creditors a valuable lesson if they wish to take part in a debtor’s restructuring proposal. Every licensed insolvency trustee maintains a website listing their current insolvency assignments that are noteworthy or of public interest. Today I want to tell you about a recent case of ours. It is not of public interest, but it is noteworthy, especially for trustees and lawyers practicing in the insolvency area. Notwithstanding the large volume of receivership and bankruptcy case-law, the issue we came across was novel and never decided in Court before.

Current insolvency assignments: Mr. and Mrs. R

Mr. R was the sole shareholder of a company that serviced the construction industry. Both Mr. and Mrs. R were both Officers and Directors of the company. The company became insolvent, could not continue and ceased operating. Mr. and Mrs. R., in addition to their personal debts, which were significant, were now also faced with extensive claims against them in their capacity as Directors.

Current insolvency assignments: Consultation with Mr. and Mrs. R

Mr. and Mrs. R’s litigation lawyer referred them to us. We advised them that they should not declare bankruptcy, but rather attempt to avoid bankruptcy and restructure by filing a joint proposal under Part III Division I of the Bankruptcy and Insolvency Act (Canada) (BIA). Their had a complicated situation and they required an immediate stay of proceedings to deal with all the lawsuits against them.

Therefore, we first filed a joint Notice of Intention to Make a Proposal (NOI) on June 8, 2016. This first step provided Mr. and Mrs. R with a first 30-day grace period, where no creditor could begin or continue legal proceedings or enforcement against them while we were working with them to finish developing their restructuring proposal.

Current insolvency assignments: A certain creditor’s reaction

As Trustee, we served the NOI on all known creditors by ordinary mail, as we are required to under the BIA. We served one creditor, Royal Bank of Canada (RBC) at two addresses: i) legal counsel for RBC; and ii) BH, an agent for RBC that we regularly deal with. At the time of mailing out the NOI, we did not know if this agent would be on the file, but we provided them with notice out of to be extra cautious. We mailed the NOI on June 9, 2016.

The NOI sent to the creditors, including RBC, did not contain any proposal whatsoever, because it had not been written yet! This is standard for the filing of an NOI before the proposal.

In response to the NOI, by letter dated June 20, 2016, we received, from another agent for RBC that we had never dealt with before and who was not on our original mailing list, two proofs of claim, each in the amount of $438,434.31; one proof for each of Mr. and Mrs. R, individually.

This agent also sent a voting letter. It asked the Trustee to count RBC’s vote “with respect to the proposal” of Mr. and Mrs. R “against acceptance of the proposal made as of the 08th day of June, 2016.”

Current insolvency assignments: The Trustee’s reaction

On June 22, we wrote to the agent advising that the Trustee’s position was that because no proposal was yet in existence, the RBC “vote” was invalid and that RBC would have to offer a proper voting letter once it received the proposal. This was also sent to RBC’s counsel. The Trustee received no response to this communication.

Current insolvency assignments: The joint proposal of Mr. and Mrs. R

The debtors, Mr. and Mrs. R, filed a proposal July 7. We served the proposal on all creditors. The Trustee served RBC three ways to: i) RBC’s counsel; ii) RBC’s agent BH; and iii) the agent who wrote us the June 22 letter with enclosures. Our package included not only the proposal but notice of the first meeting of creditors and forms for proof of claim and a voting letter.

We received nothing further from RBC. The meeting proceeded on July 27. RBC did not attend. One creditor, with a claim of $278,561.29, attended and voted for the joint proposal. The joint proposal was deemed to have been accepted. Consistent with our position, as Trustee, we did not count the RBC June 22 “vote”.

(2017), 2017 ONSC 4234, 2017 CarswellOnt 12497, Rizzo, Re

Current insolvency assignments: Off to Court for approval

After the acceptance of a proposal by the requisite majority of the creditors, a licensed insolvency trustee must make application to Court, for approval of the proposal. The proposal is not binding until there is a valid and subsisting approval order of the Court.

Our motion for approval of the joint restructuring proposal of the debtors, Mr. and Mrs. R, was heard on August 9, 2016. RBC opposed. RBC opposed on the basis that its vote against the joint proposal was not counted. RBC’s vote, if counted, would have defeated the proposal and Mr. and Mrs. R would be bankrupt.

Our lawyer made various submissions, including, that the “vote” of RBC:

  • was not valid;
  • that RBC was advised of this and did nothing to file a valid vote; and
  • RBC failed to attend the meeting of creditors.

As indicated above, only one creditor voted; it voted in favour of the joint proposal.

RBC claimed its vote was valid and ought to have been counted. The Court did not go so far as to say a creditor could never lodge a valid vote against a proposal before receiving it. In this case, the Court agreed with us and found the vote was not valid. The Court went on to say that the Trustee was correct in not counting it.

Current insolvency assignments: What the Court said

The threshold question was whether the Trustee was right to reject RBC’s purported “vote.” Section 53 of the BIA permits a creditor to assent or dissent “from a proposal” before a meeting. Section 54 says the creditors may accept or refuse “the proposal” at the meeting. However, the statutory scheme for creditor voting assumes there is a proposal.

The Court found that:

  • the agent’s purported “vote” was on its face defective;
  • there was no proposal of June 8;
  • RBC or its agent had never seen the joint proposal when it voted;
  • the Trustee was right to reject an obviously defective “vote”;
  • the Trustee made its position abundantly clear to RBC’s agents; and
  • RBC had every opportunity to cure the defect and it failed to do so.

Current insolvency assignments: What the Court ordered

The Court found that:

  • the Trustee was correct in rejecting the June 22 “vote”; and
  • RBC was not denied due process.

The Court granted our motion for approval of the joint proposal and awarded us our costs.

Current insolvency assignments: What does this mean?

What this means is very simple. Make sure that in anything you do, you understand what the rules are, don’t take your eye off the ball and never fall asleep at the switch. If this creditor’s agent and legal counsel had merely reacted to the mailing of the joint proposal and cast a proper vote, we never would have ended up in this situation.

There was nothing wrong with the proof of claim (although it was filed unnecessarily in duplicate). All RBC’s agent or lawyer had to do when it received the joint proposal mailing, was take 2 minutes to complete a new voting letter and send it in to the Trustee. If they had done this simple step, assuming they voted against the joint proposal, Mr. and Mrs. R would now be bankrupts. Instead, they are making their proposal payments to the Trustee to restructure themselves and avoided bankruptcy.

Mr. and Mrs. R have each secured full-time employment, and are making more money than in the last few years of running their company.

Current insolvency assignments: What to do because of too much debt

Being a Director of a corporation can be risky business. If the corporation is insolvent and continues to carry on business, and you continue to act as a Director, it can land you in a personal financial mess.

Are you experiencing financial distress because of acting as a Director or otherwise? Is your business struggling and you can’t seem to find a way out?

If you’re struggling with debt for any reason Ira Smith Trustee & Receiver Inc. can help. We’re experts in dealing with debt. Give us a call today and take the first step towards conquering debt Starting Over, Starting Now.

2016 CarswellOnt 21774, 2016 ONSC 8192, IN THE MATTER OF THE PROPOSAL OF MARCO RIZZO AND ANGELA RIZZO

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Brandon Blog Post

ADVANTAGES AND DISADVANTAGES OF CONSUMER PROPOSALS TORONTO ON CANADA

Advantages and disadvantages of consumer proposals: Introduction

In this vlog, we answer the question “What are the advantages and disadvantages of consumer proposals?”.

Advantages and disadvantages of consumer proposals: Who is it for?

A Consumer proposal is a part of the Bankruptcy and Insolvency Act (BIA) found in Part III Division 2 of the BIA. It is available for people who do not owe more than $250,000 to their creditors, NOT including any mortgages or other loans registered against a principal residence.

The first test is being insolvent? What I mean by that is:

  1. are your financial obligations greater than the worth of your property?
  2. if you sold your assets you would not have enough funds to settle your financial commitments totally
  3. you are having problems making the total required payments to pay off in full each of your financial commitments monthly

advantages and disadvantages of consumer proposals

Advantages and disadvantages of consumer proposals: The Advantages

If so, then teaming up with a licensed insolvency trustee (LIT) acting as your consumer proposal administrator, the advantages are:

  1. Pay your creditors part of what you owe them over a period not greater than 60 months.
  2. Broaden the time you can use to pay off your financial debts.
  3. Stop the interest clock.
  4. Make monthly payments to the LIT for the benefit of your creditors that you can afford within your budget.
  5. If successful, you get to keep your assets.
  6. If successful, the cost of your consumer proposal can be thought of as being free. The BIA sets the fee of the LIT. The amount of payments you must promise to make to get your creditors to vote in favour ignores the fee of the LIT in performing that calculation.
  7. Remain free from bankruptcy.

You should think of a consumer proposal as obtaining an interest-free loan to combine your debts, pay only a part to get rid of them all. Your interest-free loan can have a term of no longer than 5 years.

Advantages and disadvantages of consumer proposals: The Disadvantages

There are not many disadvantages to a consumer proposal. The only one I can think of is that it is an insolvency proceeding under the BIA, so it will be and stay on your credit record for some time. But if you have so much debt you don’t know where to turn and you can’t pay it off, then your credit score has probably already taken a hit.

Get started now to gain back control of your life

If you’re thinking of a consumer proposal as an option to deal with your financial debts, telephone Ira Smith Trustee & Receiver Inc. now.

Our method is to set up an outcome for you where Starting Over, Starting Now becomes a reality, beginning the minute you walk through our door. You’re simply one telephone call away from leading a healthy, balanced and stress-free life again.

advantages and disadvantages of consumer proposals

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Brandon Blog Post

CREDIT SCORES ONTARIO: USE YOURS TO SCORE THAT DREAM DATE!

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Credit scores Ontario: What is it?

Credit scores Ontario is a judgment about your financial health, at a specific time. It indicates the risk you represent for lenders, compared with other consumers. There are many ways to work out credit scores. The credit-reporting agencies Equifax and TransUnion use a scale from 300 to 900.

In Canada, the magic number is probably 650. A score above 650 will likely qualify you for a standard loan while a score under 650 will likely bring difficulty in receiving new credit.

Credit scores Ontario: How is it calculated?

The credit score formula takes all or most of the following into account:

  • Your payment history
  • The total amount you owe
  • Length of your credit history
  • New credit accounts
  • New credit inquiries, whether approved or not
  • Types of credit in use

Credit scores Ontario: Good credit scores do have sex appeal

A good credit score has shown that money does play a big role in the dating world; it is a reality. It’s sad but true; your income does play a big part in how attractive you seem to a potential partner. And, did you know that good credit scores have sex appeal?

Credit scores Ontario: Like it or not, a good credit score makes you attractive

There’s an old joke that says there’s no such thing as an ugly man in a Ferrari. But, let’s be honest, if you were on an online dating site and saw a potential date who was attractive but unemployed or in what you perceived as a low paying job, would you reach out to that person?

Conversely, if you saw someone who wasn’t movie star attractive but reported a high income or listed their profession as CEO, lawyer or doctor, wouldn’t they look a lot better to you?

Credit scores Ontario: Credit score dating backed by scientific studies

Don’t take my word for it. This is all backed up by science. There are many studies on the subject including a recent one co-authored by behavioural economist Dan Ariely who in the journal Quantitative Marketing and Economics reported:

  • Men and women prefer a high-income partners over low-income partners
  • This income preference is more pronounced for women

Credit scores Ontario: Beware – high income is only one part of it

Income only tells part of the story. Find out how they spend their money. Are they living within their means? They may have a big income but is it enough to cover the expenses of the fancy sports car, big house and exotic vacations? Big earners, celebrities and even Presidents (and President-elects!) declare bankruptcy too:

Credit scores Ontario: what to do about too much debt

We aren’t in the dating business, but we can help you get your debt issues under control. Give the Ira Smith Team a call today so that Starting Over, Starting Now you can live a debt free life, and you may have better luck dating.

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Brandon Blog Post

MANAGING HEALTHCARE EXPENSES IN RETIREMENT: ARE CANADIANS PROPERLY PREPARED?

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Managing Healthcare Expenses in Retirement

Managing Healthcare Expenses in Retirement: The Myth

We Canadians tend to wrap ourselves with our secure universal healthcare program without paying any mind to the fact that some things are not covered (and coverage varies from province to province). Most people working don’t worry about managing healthcare expenses in retirement.

Some of the items not covered or only partly covered may include:

  • Prescription drugs
  • Eye glasses and contact lenses
  • Para-medical services like physiotherapy
  • Dental Care
  • Dentures

Unfortunately the older we get, the more likely it is we’ll be availing ourselves of these types of services. However, we don’t seem to be saving for these expenses.

Managing Health Care Expenses in Retirement: What should the average Canadian be saving?

According to the Canadian Institute for Health Information costs paid out-of-pocket for healthcare expenses not covered by our provincial plans are on average:

  • $2,700 for people between the ages of 55 and 80
  • More than $5,600 a year for those 80+

The time to start managing healthcare expenses in retirement is now. By 2063 it’s estimated that 20% of Canadians will be 65 and older. And the cost of healthcare is only going to rise making managing healthcare expenses in retirement more challenging.

If you’re living paycheque to paycheque or are a senior on a fixed income, how will you come up with the money to pay for prescription drugs or para-medical expenses? Sadly there are those who are denying themselves their medical necessities because the money is just not there. Or, they’re accumulating debt month over month to try to keep up with expenses. Neither one of these options is a good solution.

Managing healthcare expenses in retirement: What Can You Do If You Have Too Much Debt?

If you’re teetering on the brink of insolvency, Ira Smith Trustee & Receiver Inc. is here to throw you a life jacket. There is no reason to drown in debt when help is at hand. Give us a call today and meet with us for a free, no obligation consultation. We’ll evaluate your situation and come up with a solid plan so that Starting Over, Starting Now you can be on your way to debt free living.

Call a Trustee Now!