Tag: Ira Smith Trustee

BANKRUPTCY SEARCH ULTIMATE GUIDE: WHAT KIND OF BANKRUPTCY RECORDS DO YOU WANT TO SEARCH

Post author By Ira Smith
Post date December 20, 2021

bankruptcy search

As the COVID-19 pandemic continues, we hope that you, your family, and your friends are safe, healthy, and secure. Ira Smith Trustee & Receiver Inc. is fully operational, and both Ira and Brandon Smith are readily available for phone or video consultations.

Bankruptcy search: What bankruptcy records exist in Canada?

Records of bankruptcy exist in Canada in four different forms. A party can use three of them to determine whether a specific company or person has filed for bankruptcy or some other form of insolvency.

There are, however, two methods to do a bankruptcy search that cost money, and one of those methods also requires the permission of the individual or company who is involved in the insolvency proceeding. It is not well known that there is another paid way. Only licensed insolvency trustees, attorneys, and credit grantors use it.

There is a 4th type of bankruptcy record that can only be accessed by a select few people. In this Brandon Blog, I will discuss the various ways to do a bankruptcy search, discuss each one and focus on an unreported court decision involving one of them.

Bankruptcy search type 1: Bankruptcy and insolvency records search

If you need to file for bankruptcy or to file a consumer proposal or a full restructuring proposal under the Bankruptcy and Insolvency Act (Canada) (BIA), you may be distressed. Their main concern is who will know about my bankruptcy and who can see my bankruptcy records? As I will explain, there is a very small probability that anyone who is not a creditor of yours will find out about an individual insolvency filing by the methods it is made public, notwithstanding they are public records.

There are 6 different kinds of official bankruptcy records that you might want to search. These include:

Personal bankruptcies
Business/corporate bankruptcies
Corporate/business receivership.
Consumer proposals
Full BIA proposals
Companies’ Creditors Arrangement Act (CCAA) bankruptcy protection filings

Personal bankruptcies are those which are filed by individuals. Business bankruptcies are those which involve businesses.

Insolvency filings in Canada are available through the Bankruptcy and Insolvency Records Search database of the Office of the Superintendent of Bankruptcy (OSB). In order to search by name, enter the search criteria information you know in any order and click “Search.” If you are not entitled to a search account like a licensed insolvency trustee is, a minimum fee of $8 will be assessed for each set of 10 (or fewer) records.

A lot of people don’t know about this database. Furthermore, nosy neighbours are not going to pay $8 to do a search of bankruptcy records and spend time in front of the search screen to find out whether a person or company has filed for bankruptcy, whether a consumer proposal has been filed, whether a full BIA proposal has been filed, whether a company has filed for bankruptcy protection under the CCAA, or whether a business is in receivership. It is really only licensed insolvency trustees who need to do frequent searches. There is no other internet search tool or online search service in Canada.

Bankruptcy search type 2: How long do credit bureaus report consumer bankruptcies?

Insolvency and bankruptcy records for all Canadians maintained by the OSB can be accessed by credit reporting agencies such as Equifax and TransUnion. Additionally, they have access to the names and addresses of individuals who have declared bankruptcy. Since it pertains to consumers, they call the information they collect about insolvency filings “consumer reports” or “credit bureau records”.

If you don’t consent in writing in advance, no one can pull your credit report. Most likely, when you apply for a credit card or a loan, you authorize the credit card company or financial institution to pull your credit report. You may also authorize a credit report to be obtained when you apply for insurance or rent an apartment.

If you don’t give written permission, that person won’t be able to get your credit report. An insolvency filing on your credit report is not visible to a friend, relative or neighbour. Depending on whether it is a personal bankruptcy or another type of personal insolvency filing, these companies keep a record of the past insolvency filing on file for varying amounts of time. In the case of consumer bankruptcy, the credit report will probably show the past bankruptcy for seven years after the discharge is granted. Upon completion of a consumer proposal, it takes slightly less time.

Bankruptcy search type 3: Will my bankruptcy be published in the newspaper?

In the past, I have written about the differences between a summary administration consumer bankruptcy and an ordinary administration personal bankruptcy. Under the streamlined summary administration rules, a bankrupt person’s assets cannot have an expected liquidation value greater than $15,000.

Notice of bankruptcy does not have to be published in a summary administration bankruptcy. The Trustee must publish a notice in the prescribed form in a local newspaper as soon as possible after the bankruptcy and no later than five days before the first meeting of creditors in any ordinary administration personal bankruptcy or corporate bankruptcy (which is, by definition, an ordinary administration).

Newspapers publish bankruptcy notices in the legal notice section. Lawyers, trustees, and bankers are the only people who regularly look in that section. To find your name, someone would have to read all the local newspapers every day for the bankruptcy notice of you or your company. The chances of someone you know seeing the notice of bankruptcy published in the newspaper are extremely slim, but not impossible.

Bankruptcy search type 4 is only available to a select few

In contrast to the previous three types of bankruptcy searches, this type is only available to a select few. Furthermore, it is the subject of this unreported Ontario court decision I am going to tell you about. I am talking about the bankruptcy search of records and files kept by licensed insolvency trustees who handle bankruptcy filings for individuals and corporations.

Under the BIA, the Trustee must allow the OSB, the bankrupt, or any creditor access to the bankruptcy administration’s books, records, and documents. Trustees’ books and records are available only to them.

Now for the unreported decision. You may recall that I previously wrote a Brandon Blog titled “TRUSTEE IN BANKRUPTCY: CERTAIN ACTIONS AGAINST TRUSTEE CAN BE UNLEASHED WITHOUT FIRST REQUIRING COURT PERMISSION“. During a period of 13 years, Mr. Flight filed for bankruptcy 4 times! Over and over again, he filed the same type of bankruptcy. According to him, the defendant Trustee in bankruptcy is responsible for his financial situation. In a lawsuit filed against the trustee in bankruptcy, Mr. Flight claims negligence, fraud, breach of fiduciary duty, unjust enrichment, and conversion. Allegations are made that the accused failed to identify and correct a fraud perpetrated by a bookkeeper for Mr. Flight’s sole proprietorship business.

Recently, they appeared in court. M. Flight’s motion was decided by the Judge on December 7, 2021. The motion was for:

the delivery of all the records pertaining to all four bankruptcies involving Mr. Flight, including the records related to the action commenced by the Trustee against the bookkeeper; as well as
to examine Mr. Flight’s Trustee to investigate the administration of the 4 bankruptcies.

Mr. Flight’s counsel claims the Trustee has returned some but not all of the documents with respect to the last bankruptcy filing in 2016. That was the focus of the hearing. Other filings occurred in 2004, 2006, and 2011, all outside the statutory period of four years during which the Trustee is obligated to keep the records.

Counsel for the Trustee asserts that copies of the records have been produced and that the request for an examination is an improper fishing expedition with the collateral purpose of bolstering a separate lawsuit brought by Mr. Fight against the Trustee.

Bankruptcy search: The Judge’s analysis

As per the Judge, a Trustee must maintain proper books and records when administering estates under the BIA. It is directed that the Trustee allow the bankrupt as well as those I mentioned to inspect and copy those books, records, and documents. A Trustee is required to retain records related to estate administration for at least four years following discharge under Rule 68 of the Bankruptcy and Insolvency General Rules.

Moreover, the Judge noted that based on the Trustee’s evidence, no books or records from Mr. Flight’s first 3 bankruptcy cases are in the Trustee’s possession. The Judge found that the Trustee made an effort to provide copies of the documents sought. Due to the submissions by both sides leads to a discrepancy between the number of pages sent by the Trustee and those received by Mr. Flight, the only practical solution is to perform a review and reconciliation of what was sent by the Trustee and what is still in its possession, with those documents received by Mr. Flight.

Bankruptcy search: The Judge’s decision

Within 60 days of the court’s order, counsel for Mr. Flight or its representative may arrange and attend the Trustee’s office or as directed by Trustee’s counsel to examine the file as produced and do their bankruptcy search. The Trustee shall be permitted to designate a representative to facilitate and oversee the examination of documents.

At that time, Mr. Flight’s counsel or his representative may scan an electronic copy of the documents using a scanning device provided by Mr. Flight’s counsel or his representative. All the documents involved in the proceedings shall be made available as may be necessary to provide a complete account of the Trustee’s administration of the estate.

If the parties disagree over whether certain documents should be allowed to be viewed and copied, they can go back to court. According to the Judge, an examination of the Trustee was not appropriate at this time. A Trustee examination is premature until the final determination has been made as to whether all documentation has been provided.

As I have already stated, this kind of bankruptcy search is not one of the normal ones you think of.

Bankruptcy search: Summary

I hope you found this bankruptcy search Brandon Blog informative. Are you or your company in financial distress and a debt crisis? Are you embroiled in costly litigation or a crushing debt load and need a time out in order to restructure? Do you not have adequate funds to pay your financial obligations as they come due? Are you worried about what will happen to you in retirement? Do you need to search out what your debt relief options and realistic debt relief solutions for your family debt are? Is your company in financial hot water?

Call the Ira Smith Team today. We have decades and generations of experience assisting people looking for life-changing debt solutions through a debt settlement plan and AVOID the bankruptcy process.

As licensed insolvency professionals, we are the only people accredited, acknowledged and supervised by the federal government to provide insolvency advice and to implement approaches to help you remain out of personal bankruptcy while eliminating your debts. A consumer proposal is a government-approved debt settlement plan to do that. It is an alternative to bankruptcy. We will help you decide on what is best for you between a consumer proposal vs bankruptcy.

Call the Ira Smith Team today so you can eliminate the stress, anxiety, and pain from your life that your financial problems have caused. With the one-of-a-kind roadmap, we develop just for you, we will immediately return you right into a healthy and balanced problem-free life.

You can have a no-cost analysis so we can help you fix your troubles.

Call the Ira Smith Team today. This will allow you to go back to a new healthy and balanced life, Starting Over Starting Now.

Tags bankruptcy records, bankruptcy search, credit bureau records, credit card, frequent searches, insolvency records search database, internet search tool, Ira Smith Trustee, legal notice, licensed insolvency trustee, notice of bankruptcy, official bankruptcy records, online research service, public records, search criteria, search of bankruptcy, search screen

Brandon Blog Post

LAURENTIAN UNIVERSITY UPDATE: LAURENTIAN UNIVERSITY SPECIAL AUDIT SIMPLY NOT GOING WELL

Post author By Ira Smith
Post date December 6, 2021

laurentian university update

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.

Laurentian University update: Introduction

In February 2021, I wrote a blog about the Laurentian University cash crunch and that on February 1, 2021, it had filed for creditor protection. It stated that its application under the federal Companies’ Creditors Arrangement Act (CCAA) was intended to allow it to continue operating its day-to-day operations during restructuring. As events unfolded in the CCAA restructuring process, I wrote six more Laurentian University update blogs.

In this Brandon Blog, I provide a Laurentian University update regarding the difference of opinion it has with the Auditor General of Ontario concerning the information and documents the Auditor General is requesting access to.

Laurentian University update: The Laurentian insolvency reflects a structural crisis in Ontario’s university system

To the court, Laurentian described itself as a public institution, bilingual and tricultural, with around 8,200 undergraduate students and 1,098 graduate students. The Ontario Minister of Colleges and Universities appointed Alan Harrison of Queen’s University as a special advisor in January. He found Laurentian had been hiding deficits since 2014.

The Laurentian debacle is the result of a structural crisis rooted in Ontario’s neoliberal university system, namely increased tuition fees and corporate management. Back then, Laurentian did not address regional enrolment issues honestly in its presentation of its financial problems.

Historically, northern universities have faced low enrolment or excess capacity in some academic programs. But most students in northern Ontario come from away. University participation rates in northern Ontario are far below those in southern Ontario, which should be a top priority, but is not.

Furthermore, there are other factors affecting northern Ontario, including rising tuition fees and student debt, as well as deteriorating employment prospects.

laurentian university update

Laurentian University update: Auditor General of Ontario investigating Laurentian’s finances

The Standing Committee on Public Accounts unanimously passed a motion on April 28, 2021, asking the Office of the Auditor General (OAG) to conduct an audit of Laurentian’s value for money for the period of 2010 to 2020. The Committee discussed the motion and said they want the audit to examine what led Laurentian to enter the CCAA process, to bring transparency to the situation, and to identify lessons learned.

Moreover, the Government Committee noted that it would like the audit to focus on the future and ensure something similar does not occur at another academic institution. Considering the historical scope of the request, as well as the desire to be forward-looking, the Committee granted discretion to the OAG on the scope of the audit.

The OAG began a value-for-money audit to examine Laurentian’s governance, operations, and past financial decisions.

**OAG gives a Laurentian University update on the value-for-money audit**

The OAG released an interim report last week on the Laurentian audit. In it, Laurentian is not painted in a good light. The OAG says Laurentian denied it unfettered access to information it deemed absolutely necessary for the audit. The OAG states that the university has refused to provide information that its internal and external legal counsel determined was subject to solicitor-client privilege.

According to the OAG, such a comprehensive restriction of audit work is unprecedented. In addition, it is claimed that Laurentian has implemented communication and documentation protocols that discourage university employees from interacting freely with the OAG or providing the OAG with unrestricted timely access to information without repercussions. In fact, the OAG says that Laurentian has created a culture of fear surrounding the OAG’s work and having conversations with people from the OAG. It says that Laurentian has instilled a fear of reprimand within its employees.

According to the OAG, Laurentian has a mandatory obligation to provide information and records to the OAG, which entitles the OAG to free access to Laurentian’s records and information, including privileged information.

It was noted by the OAG that Laurentian had refused to provide some non-privileged documents and information on the grounds that reviewing documents to determine if the information is privileged would take too much time. Therefore, on September 29, 2021, the Auditor General applied to the Ontario Superior Court of Justice for a declaration that section 10 of the Auditor General Act grants the Auditor General access to privileged information and documents.

Laurentian University is now being sued by Ontario’s Auditor General in an argument over how free and unfettered access to the university’s accounts should be defined. An Ontario court has never ruled on whether the OAG can compel audit subjects to disclose privileged information between lawyers and their clients.

laurentian university update

Laurentian University update: Laurentian’s response to OAG accusations that it is withholding documents for financial audit

Laurentian for its part, responds in part by saying that it has received numerous requests for information from the OAG. Staff and directors of Laurentian have also met with the OAG delegation. In response to requests from government ministries, regulatory bodies, and governmental authorities, Laurentian has spent considerable time and effort.

In response to the OAG’s inquiries, the university says that:

It has provided extensive information.
The OAG has direct access to financial accounting and other systems at the university, therefore it is not a matter of access.
As part of this process, external counsel has assisted Laurentian in reviewing privileged documents and making sure the disclosure of information does not violate any court orders.
The university continues to supply all documents requested by the OAG, except for those subject to privilege or court-ordered confidentiality.
It has taken time and effort to respond to the information requests due to the limited resources at their disposal.
The university does not agree with the OAG’s belief that it is entitled to privileged documents, such as those that are protected by solicitor-client privilege, settlement privilege, and court-ordered confidentiality.

Laurentian University update: Auditor General seeks court hearing on access to information Laurentian deems “privileged”

As well as filing the court application last September, the OAG also informed the Standing Committee on Public Accounts of Laurentian’s restrictions on its work. The Committee then requested information from Laurentian University in connection with their motion. In the Public Accounts Committee’s opinion, the Legislative Assembly Act, Standing Orders, and Parliamentary Privilege give it the authority to command the production of documents or other items it deems necessary for its work.

Having sent three letters, Laurentian began sending the Committee documents in November 2021. Laurentian’s external legal counsel continues to tell the OAG and the Standing Committee on Public Accounts that Laurentian will not share privileged information, information subject to court-ordered confidentiality, or information implicating third parties and the CCAA process.

Thus, the hearing will proceed. The hearing is scheduled for today.

Rather than pending within the CCAA proceeding, the parties agreed that the issue of whether the Ontario Ministry of the Attorney General Act:

requires an auditee to disclose privileged information to the OAG; or
provides the OAG with access to an auditee’s privileged information should be heard under the Rules of Civil Procedure as a Commercial List matter instead.

Chief Justice Morawetz approved the following procedure following a case conference on September 27, 2021:

An application may be made for an interpretation of section 10 of the Ontario Ministry of the Attorney General Act.
It is only a question of interpreting section 10 of the Ontario Ministry of the Attorney General Act that will be raised in the application. The application will not raise CCAA issues. The OAG”s request for privileged documents or other aspects of the audit may be subject to the right of Laurentian to seek relief.
The following timetable will be followed, subject to possible changes:

- - OAG’s application record will be served by September 30, 2021;
  - Laurentian’s response application record must be served by October 15, 2021;
  - any cross-examinations must be completed by October 29, 2021;
  - OAG factums must be served by November 12, 2021;
  - the university’s factums must be served by November 26, 2021; and
  - the hearing will take place on December 6, 2021.

It will no doubt be a fascinating hearing and His Honour’s ruling will be unique and will probably motivate me to report the results in another Laurentian University update. As stated earlier, no Ontario court has ever heard such a matter.

Laurentian University update: Summary

I hope you found this Laurentian University update Brandon Blog informative. Are you or your company in financial distress and a debt crisis? Are you embroiled in costly litigation and need a time out in order to restructure? Do you not have adequate funds to pay your financial obligations as they come due? Are you worried about what will happen to you in retirement? Do you need to find out what your debt relief options and realistic debt relief solutions for your family debt are? Is your company in financial hot water?

You can have a no-cost analysis so we can help you fix your troubles.

Call the Ira Smith Team today. This will allow you to go back to a new healthy and balanced life, Starting Over Starting Now.

laurentian university update

Tags academic programs, Auditor General of Ontario, culture of fear, fear of reprimand, fear surrounding, Government Committee, Ira Smith Trustee, Laurentian, Laurentian University, laurentian university update, non-privileged documents, Ontario Ministry of the Attorney General Act, Standing Committee on Public Accounts, timely access

Brandon Blog Post

BASIC ONTARIO EMPLOYEE NON COMPETE CLAUSE ENFORCEABLE NO MORE

Post author By Ira Smith
Post date December 3, 2021

non compete clause enforceable

***Non compete clause enforceable*?: Introduction**

It has always been tempting to ignore a non-compete agreement. Particularly if you left your job feeling that you weren’t appreciated or respected, you weren’t given proper notice, or you were owed wages or commissions. Employees tend to make poor decisions in such situations. It used to be potentially very costly to ignore a non compete clause enforceable in Ontario. In this Brandon Blog post, I describe how that has now changed in Ontario.

Monte McNaughton, Ontario’s Minister of Labour, Training and Skills Development, announced changing employment laws in Ontario with the passing of the Working for Workers Act, 2021, on November 30, 2021. I discuss what this means for employees in Ontario and especially for anyone who has a non compete clause enforceable in their employment contract or any other written agreement with their employer.

This blog does not provide legal advice since my firm is not a law firm and I am not a lawyer. Moreover, it is not intended to be a substitute for legal advice, especially legal advice from an employment lawyer or a labour lawyer. It is merely my interpretation of the new Ontario law as an insolvency trustee who advises entrepreneurs and their businesses.

**What is a non compete clause and historically are non compete clauses enforceable in Canadian courts?**

Employees who have signed a non-competition agreement at the time of hire are prohibited from engaging in any businesses, occupations, professions, projects, or other activities that compete with their employer’s business after the employment relationship has ended. Such clauses in an employment agreement or other employment-related agreements are an example of restrictive covenant clauses.

Employment agreements containing a non-competition clause are generally void in Canada due to the unreasonable restraint they impose upon the employee’s trade. Courts have held that it is not possible to have a non compete clause enforceable if a non-competition period, activity, or geographic scope has ambiguous language or is vague, it is unenforceable. These rulings have helped protect former employees against aggressive employers. The BC Supreme Court, the Ontario court and appellate courts have ruled this way in favour of former employees.

Generally, the Courts have only made a non compete clause enforceable if the non-competition clauses are in employment agreements in exceptional circumstances and where there is unambiguous language, especially when they are reasonable between the parties and in the public interest. Employees rarely retain a lawyer just to inquire about the enforceability of their non-competition clause. Rather, it would be part of a larger consultation before entering into an employment contract and for sure when the lawyer was hired to handle a broader wrongful dismissal/termination of employment case.

non compete clause enforceable

**Can an insolvency proceeding under the Bankruptcy and Insolvency Act (Canada) (BIA) help you escape a judgment liability for breach of a non compete clause enforceable in Canada?**

An individual ex-employee found in breach of a non-compete agreement could initiate one of the following insolvency proceedings:

Consumer proposal.
Division I proposal.
Bankruptcy.

Sadly, it would not help in a case where the court found the non compete clause enforceable. A former employee would not be able to discharge an enforceable judgment debt obtained by the employer for breach of a non compete clause in an employment agreement or any ancillary agreements arising from employment by using an insolvency proceeding.

This is because the employer should frame the claim against the former employee as a debt resulting from the loss of profits caused by the former employee’s breach of fiduciary duty. This type of debt is not dischargeable under section 178(1) of the BIA. For such an ex-employee, an insolvency process is of no use. The judgment debt will remain with them after they discharge all their other debts and get discharged from their insolvency process.

**Ontario introduces employee-friendly legislation making non compete clause enforceable no more**

On October 25, 2021, the Ontario provincial government introduced Bill 27: Working for Workers Act, 2021. This new law makes changes for the banning of a non-compete agreement, needing companies of a certain minimum number of employees to have work-life plans, and also licensing temp help agencies. According to the Ontario government, these changes will certainly:

foster a healthy work-life balance; and
ban any unfair non-compete agreement that is used to limit job opportunities, suppress salary increases, and suppress wage growth to promote competitiveness.

Ontario is the first province in Canada to ban a non-competition agreement in a contract of employment. It is not entirely clear to me if this new legislation invalidates any existing non-competition agreement. According to my understanding, new laws do not apply retroactively unless they explicitly say so, which Bill 27 does not.

The new legislation includes four major elements:

Amends the Ontario Employment Standards Act, 2000 to prohibit employees and employers from entering into non-competition agreements.
Requires employers with at least 25 employees to institute a written policy on employees’ time off. By doing so, Ontario is prioritizing workers’ mental health and family time.
Introduces licensing for temporary help agencies and recruiters operating in Ontario.
With a few exceptions, this bill amends Ontario’s Occupational Health and Safety Act to require employers to provide washroom access to delivery personnel.
non compete clause enforceable

Non compete clause enforceable with respect to the sale of a business and other employer alternatives

A non compete clause enforceability applies in a sale of business context or a partial sale of business context if:

the buyer and business owner seller (or principal of the corporate seller) enter into a non-compete agreement with respect to the seller; and
immediately following the sale, the seller becomes an employee of the buyer.

Employers in Ontario are now prohibited from utilizing non-competition clauses or similar restrictive covenants and such clauses in employment contracts. However, it does not mean that they need to be completely exposed to having their employees rush off to a direct competitor and divulge all the employer’s trade secrets.

The HR and/or onboarding practices of Ontario employers need to be reviewed and updated where necessary. As part of this process, any restrictive covenants in employment contracts will have to be reviewed and perhaps struck or at least amended because making any new non compete clause enforceable is out of the question in Ontario. Also, for employers with 25 or more employees, a “disconnecting from work” policy will have to be rolled out to all incoming and current employees.

Even though making any new Ontario non compete clause enforceable is no longer an option, employers can still take three simple steps to protect their legitimate business interests when establishing terms of employment:

At the time of hire, sign confidentiality agreements and use non-solicitation clauses. Employees can’t be prevented from working for competitors. Employers can, however, continue to prohibit their employees from asking former co-workers, current clients, and suppliers, or exerting influence over clients, to follow them to new jobs. This can be put in an employment contract to help protect the employer’s relationships with clients and others important to their business.
Be careful what information you give employees with different levels of responsibility and seniority. Due to the fact that employees can work for competitors, employers should be cautious about disclosing information to employees that are not necessary for them to be able to perform their duties. Low-wage workers are the most obvious group who do not need access to what could be considered important business information that an employer would not want to get into the hands of their competitors.
Differentiate amongst your employees. Those who are not defined in their employment agreement or are not in fact key employees, and especially low-wage employees should not need access to intellectual property, customer lists or client lists, supplier lists, or to the employer’s trade secrets. Therefore, they should not be given that information and especially access to trade secrets.

***Non compete clause enforceable*?: Summary**

I hope you found this non compete clause enforceable Brandon Blog informative. Is your company or are you personally in financial distress and a debt crisis? Do you not have adequate funds to pay your financial obligations as they come due? Are you worried about what will happen to you in retirement? Do you need to find out what your debt relief options and realistic debt relief solutions for your family debt are? Is your company in financial hot water?

You can have a no-cost analysis so we can help you fix your troubles.

Call the Ira Smith Team today. This will allow you to go back to a new healthy and balanced life, Starting Over Starting Now.

Brandon Blog Post

2021 GLOBAL SUPPLY CHAIN CRISIS: HOW THIS TERRIBLE CRISIS CAUSED A DELICIOUS QUADRUPLING OF OUR LIQUIDATION RECOVERY

Post author By Ira Smith
Post date November 29, 2021

supply chain crisis

As the COVID-19 pandemic continues, we hope that you, your family, and your friends are safe, healthy, and secure. Ira Smith Trustee & Receiver Inc. is fully operational, and both Ira and Brandon Smith are readily available for phone or video consultations.

The audio version of this Brandon Blog can be found at the bottom of this page. Please click on the play button to listen to it.

**What is a supply chain?**

The supply chain refers to the facilities that enable a product and all the material it requires to be manufactured to move from one place to another. Depending on the product and its complexity, the product or its materials can pass through multiple locations. The supply chain operated smoothly for a long time. Then the COVID-19 pandemic and its effects on the economy struck.

This Brandon Blog discusses the current global supply chain crisis and its impact on our recent auction liquidation sale. You might be surprised at the outcome.

Snarled supply chain: First was the Suez canal supply chain crisis

This crisis was caused by Ever Given, a 400-meter-long (1,312-foot) container ship that ran aground in the Suez Canal, Egypt, on March 23, 2021. Throughout the Suez Canal and around the Cape of Good Hope, billions of dollars in cargo were delayed due to the incident. Worldwide container shipping was impacted by five percent. Those Mediterranean ports that rely on the Suez Canal would again face cargo backlogs if the canal were to be cut off in the future.

Piraeus handled 5.4 million containers last year, making it the biggest freight port in the Mediterranean and the fourth largest in Europe, according to research firm PortEconomics. The incident has now been resolved, but it shed light on the vulnerability of how raw materials, components, and finished products are transported through chokepoints such as the Suez Canal, which may have severe implications when blocked.

As soon as the ship was freed, traffic resumed and container ships continued on their voyages.

supply chain crisis

Supply chain crisis: Port congestion in Los Angeles and Vancouver

The global supply-chain crisis is evident everywhere, from half-empty shelves in grocery stores to soaring fuel prices at the pump. Because container ships were anchored off the coast, waiting to dock and unload, San Pedro Bay near Los Angeles and Burrard Inlet just outside the Port of Vancouver were the poster children for the global supply chain crisis.

Global manufacturing and transportation systems are impacted by changes in supply and demand. Transportation prices have increased as a result of the huge demand for container shipping, and ports have found it difficult to process incoming goods.

Global supply chains have been disrupted by the COVID-19 pandemic, resulting in product shortages, shipping delays, manufacturing disruptions, and soaring prices that have sparked inflation concerns.

In addition, companies face an increase in labour and manufacturing costs, forcing them to decide whether to pass on the increases to customers – and possibly lose market share – or absorb losses themselves.

Raw materials, parts, and consumer goods are at risk because global supply chains are at their breaking point. It has become more difficult to operate at certain ports and terminals because vessel capacity is very limited and empty containers are hard to find.

The initial lockdown resulted in employees getting laid off. Now there are labour shortages. These line operators are now hard to hire back because many have now got better-paying jobs at other companies. There is even a shortage of truck drivers to deliver the goods from the major ports to the warehouses.

The USA’s largest container port, Los Angeles, continues to unload a backlog of container ships around the clock. However, when this machinery is broken, we can experience being out of goods and experiencing back-ordering, which means we cannot get what we want when we want it.

Due to the crowded docks and port terminals, truckers couldn’t return empty containers and pick up loaded containers scheduled for delivery.

Global supply chain crisis: Shoppers need to start early for the holidays

There are product shortages everywhere. Nutella, a shortage of semiconductors has resulted in a shortage of new cars, steeply higher gas prices, and backorders for holiday gifts such as toys, books, and furniture due to major disruptions in the global supply chain.

Holiday shoppers are warned not to leave their holiday shopping until the last minute because the shelves may be empty. Presently, there are shortages of the most popular items and stores cannot replenish their inventories for this holiday season.

What is the cause of this? People bought more goods online during the pandemic lockdown, but fewer services. Except perhaps take-out food delivered to our house, it is much harder to purchase services online. The lockdown also affected manufacturing and transportation, resulting in a global supply chain crisis.

Just-in-time music stopped and fragile supply chains stopped moving, causing the supply chain crisis. Due to startup problems, it is now impossible to get everything working smoothly again. With the lockdown over, there is also pent-up demand and consumers wanting to make the holidays normal again by getting out shopping in-person to satisfy the elevated demand.

So what does all this have to do with a liquidation? I will tell you shortly, but first, I will explain what liquidation of a company really means.

supply chain crisis

**Involuntary vs. voluntary liquidation of a company**

Liquidating means selling your property or assets for cash or cash equivalents on the open market. Liquidation in the world of investing is when an investor closes out their position in a securities position; exiting an investment. The process of liquidating a business or distributing its assets to claimants is termed liquidation in finance and economics.

Most people on the street would say that a liquidation process is the sale of business assets, either because the business owner is closing or going bankrupt. It is possible for businesses to do a partial liquidation of slow-moving or unnecessary assets even without facing financial hardship.

When a limited company‘s liabilities exceed its assets, or when its bills cannot be paid when they fall due, the company is insolvent. It will be forced to liquidate the assets through insolvency proceedings. Financial institutions are normally secured creditors. This allows them to enforce their security through receivership. The assets that were pledged as collateral would be taken over by a receiver, whether appointed privately or by the court.

A corporate bankruptcy filing is also an alternative, or perhaps in conjunction with a receivership. Either way, the entity is forced to convert assets to cash and cease operations through insolvency proceedings, a legal process.

A company that fails to repay creditors due to financial hardship, will end up in receivership and/or the bankruptcy process. This results in compulsory liquidation, also known as involuntary liquidation.

Alternatively, the shareholders of a non-insolvent company may decide there is now a period of time where winding up operations through voluntary liquidation proceedings makes sense. Perhaps there was an insurmountable shareholder dispute, or maybe the company’s operating genius shareholder passed away.

Besides providing the capital to start the company, other shareholders were passive. As a result, the shareholders may decide to wind down the solvent company on their own volition while there is still value for them.

Paying off creditors

In either case, after assets have been liquidated, the cash is distributed to creditors first. The shareholders are entitled to the remaining net amount after paying liquidation costs and creditor claims.

Regardless of whether the company is insolvent or solvent, in general, the priority of claims from an asset liquidation tends to fall into the following classes of claims:

Trust claims – either by contract or statute.
Secured creditors.
Ordinary preferential creditors.
Ordinary unsecured creditors.

After full payment of all outstanding debts from the liquidation of assets in their priority of claims, regardless if it was voluntary or through insolvency proceedings, the remaining funds will be distributed to the shareholders according to their share priority (preferred vs. common) and the proportion of shares they own in the company.

supply chain crisis

**2021 global supply chain crisis and my liquidation story**

I have so far only focused on consumer buying patterns. A similar process is occurring in the commercial and industrial sectors as well. As more people have received the Covid-19 vaccine, federal government support has essentially stopped and economic growth is coming back, it is difficult for businesses to find the inputs needed to make their products. This is the basis for the story I am going to tell you.

Shareholder resolutions appointed my firm as Liquidator of two sister companies under section 193(1) of the Ontario Business Corporations Act. A furniture manufacturer specializing in custom contract orders for commercial use. The other company owned the factory property.

As a result of an unresolved shareholder dispute, the shareholders decided that the best thing to do was to liquidate the solvent manufacturing company, while they could still obtain value for themselves. Having made that decision, it was obvious that selling the Toronto property was also a wise move in today’s market.

The manufacturing company had operated for over 50 years. The company’s equipment was fully depreciated. We contacted two auctioneers who each submitted a proposal. Each explained why they predicted a low gross recovery. Both proposals were presented to the shareholders, who chose the auctioneer they preferred us to retain.

An online auction was conducted for two weeks. Initially, neither the number of bidders nor the bids were very high. After about a week, the magic happened and we saw a surge in demand. The consequences of the supply chain crisis became apparent. As the number of bidders increased, so did the bids.

We ended up with a gross recovery last week that quadrupled both auctioneers’ estimates. There was no doubt that the old equipment and delivery truck, which all worked fine, were in great demand. In fact, the vehicle’s black book value was much lower than its actual sale price.

Nevertheless, if you need that kind of truck and equipment and dealers do not have either new or used available, then historical trading values may be somewhat meaningless when there is only one available source.

Without a doubt, we are thrilled with the results of the liquidation auction. As soon as the buyers pay for their goods and pick them up, we will have a clean factory so that we can close the sale of the property next month.

Thank you, global supply chain crisis 2021!

Supply chain crisis summary

I hope you found this supply chain crisis Brandon Blog informative. Is your company or are you personally in financial distress and a debt crisis? Do you not have adequate funds to pay your financial obligations as they come due? Are you worried about what will happen to you in retirement? Do you need to find out what your debt relief options and realistic debt relief solutions for your family debt are? Is your company in financial hot water?

You can have a no-cost analysis so we can help you fix your troubles.

Call the Ira Smith Team today. This will allow you to go back to a new healthy and balanced life, Starting Over Starting Now.

supply chain crisis

Tags biggest freight port, container ships, covid-19 pandemic, elevated demand, fragile supply chains, global supply chain crisis, holiday season, Holiday Shopping, Ira Smith Trustee, labour shortages, major ports, pent-up demand, port terminals, product shortages, shortage of truck drivers, Suez Canal, supply chain, supply chain crisis, supply chains

Brandon Blog Post

WHAT IS A STALKING HORSE: A COMPLETE PROCESS THE CHEF NEEDED TO USE TO SUCCEED

Post author By Ira Smith
Post date November 22, 2021

what is a stalking horse

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.

What is a stalking horse bid?

In the 16th century, the term originated. It originally was a replica of a horse or something that looked like a horse, that was set out by hunters in an area they wished to hunt in. By hiding behind it, the hunters wouldn’t have to worry about scaring away whatever was being hunted.

Today, it means anything that is put forward or proposed, to test the waters or mask the true nature of the proposal. It is much more recent to think about a stalking horse bid. Its name comes from the fact that it is a way to draw other bidders out of the woods and test their level of seriousness in participating in a sale process and making a bid for the assets being sold.

In this Brandon Blog, I describe an Ontario court decision denying the request of a company under bankruptcy protection to sell its assets and if the company only had known what is a stalking horse bid and used it.

The company of celebrity chef Mark McEwan files for creditor protection

On September 28, 2021, McEwan Enterprises Inc. (MEI), a premier hospitality company based in Toronto, Ontario, obtained protection under the Companies’ Creditors Arrangement Act (CCAA) with a list of more than $10 million in liabilities. The company was founded by chef Mark McEwan.

In his early career, Chef McEwan worked as an executive chef at Toronto’s Sutton Place Hotel. In addition to mentoring budding chefs in his kitchens, Chef McEwan is also a judge on Food Network’s hit series Top Chef.

MEI at one time ran multiple dining establishments, and gourmet grocery stores, in addition to a catering service. Due to the negative impact on the hospitality industry of the coronavirus, MEI experienced significant losses and business challenges and found itself filing for bankruptcy protection under the CCAA.

what is a stalking horse

The owner of the Bloor-Yonge location opposes CCAA restructuring by celebrity chef Mark McEwan

MEI’s restructuring plan presented for bankruptcy court approval would involve Fairfax Financial Holdings Ltd and McEwan repurchasing the business under a specific asset purchase agreement by a new numbered company. With fewer grocery and restaurant locations, the business would retain its 268 employees and reduce lease obligations. The company’s restructuring plan in the CCAA proceedings focuses on effecting a going-concern sale transaction. That is, selling and transferring substantially all of its assets and many of its liabilities to a new entity formed by MEI’s current shareholders, Fairfax Financial Holdings Limited and Chef McEwan.

One of MEI’s creditors, the landlord of the Bloor-Yonge grocery store, opposed the plan. Based on its analysis of the situation, the court found that the proposed transaction did not meet the CCAA’s requirements for approval. Consequently, the sale, the centrepiece of the restructuring plan, failed to get bankruptcy court approval from the bankruptcy judge.

What is a stalking horse? Why did MEI’s proposed bankruptcy sale process fail?

MEI’s legal and financial advisers are excellent. They probably told Chef McEwan the MEI restructuring plan as presented to the court had little chance of success. It would shock me if they didn’t. Because I am not involved in the MEI CCAA proceeding, I can only guess that Chef McEwan ignored his advisors’ counsel, ignored financial and legal advice, rolled the dice, and lost.

Chef McEwan swore affidavits as part of MEI’s court application. According to him:

MEI’s value and success are dependent upon his continued involvement;
the MEI brand has become synonymous with his personal brand and television projects;
by inference, he implied that he would not cooperate with any third-party buyer, who would therefore not have his involvement; and
in his view, a third-party sales process was not necessary and could negatively affect the company’s operations.

I think it is never wise to go into court with a smug attitude or threaten non-cooperation with a third party, in addition to the legal issues I will explain shortly. If MEI had used a real bankruptcy auction process and a higher bidder was able to pay the amount of the purchase, the court would not care whether Chef McEwan would work for the new owner if it was not a condition of the potential purchaser’s offer.

Section 36(4) of the CCAA was at issue. Section 36(3) refers to the factors that a court should consider when considering a specific sale transaction. They are:

a reasonable process led to the proposed sale or disposition in the circumstances;
did the monitor approve the process;
is the monitor submitting a report to the court indicating that a sale or disposition would be more beneficial to the creditors than a sale or disposition under a pure bankruptcy liquidation;
to what extent have the creditors been consulted;
how the proposed sale or disposition will affect creditors and other interested parties;
considering their market value, determine whether the consideration to be received for the assets is reasonable and fair.

In this case, the purchaser was to a related party as described in section 36(4) of the CCAA. According to the law, a court may grant authorization only if it is satisfied that:

the assets were tried to be sold or otherwise disposed of to non-related parties in good faith;
in accordance with the process leading to the proposed sale or disposition, it offers a greater consideration than any other offer.

This was not the case with MEI. I won’t go into all the reasons for MEI’s CCAA bankruptcy sale failure in this what is a stalking horse Brandon Blog, as you can read all about them here. The bankruptcy judge determined that the facts of the case do not meet the requirements of section 36(4), thus the proposed transaction cannot be approved.

Accordingly, it was dismissed.

what is a stalking horse

What is a stalking horse? The competitive bidding process Chef McEwan should have used

The fatal flaw in MEI’s application for approval of the offer was their inability to prove to the court that there was not an even better offer in the marketplace because there was no sales process, possibly being an auction process. Chef McEwan should have used his offer as a stalking horse bid in a competitive auction process. He would have sought court approval for a court-supervised auction-type process. As long as they were fair, he could have set the bidding procedures, the bidding process timelines, and the bidding range through his stalking horse offer, and have the court approve it all at the bidding procedures hearing.

His offer would be exposed to the market, and he might be outbid. However, he was still in control of setting his offer. In terms of his approach, he chose to put MEI under the CCAA process, but once there, he had to adhere to the rules of that process. How could a stalking horse bidding process possibly work? Let’s find out.

What is a stalking horse? A court-supervised auction for bankruptcy sales

Typically, the debtor executes a binding stalking horse agreement with a purchaser against which higher and better offers can be solicited, and which stipulates that the stalking horse will be considered the highest and best offer if no competing bids are received. In order to achieve that goal, the debtor will ask the bankruptcy court to approve a competitive auction process and related bidding procedures.

An organization in distress can use the stalking horse bid method to avoid receiving low bids when selling its assets. Stalking horse bids are initial bids on insolvent company assets. Setting a low-end bidding bar prevents other bidders from underbidding the purchase price. Those wishing to participate in the stalking horse bid process and submit an offer after performing due diligence must submit a better offer than the stalking horse bid.

what is a stalking horse

What is a stalking horse and what are the advantages and disadvantages of a stalking horse bid?

There are certain advantages for a stalking horse bidder. Since the stalking horse bidder is the opening offer that sets the floor price for the assets or company, the insolvent company usually provides several incentives. To begin with, the stalking horse bidder has the opportunity to negotiate the legal and financial terms of an asset purchase agreement with the debtor that will serve as the floor price. Thus, the stalking horse bidder does not simply enter into an agreement negotiated by someone else that might not be exactly what it needs.

In addition, the stalking horse bidder may negotiate bidding options that discourage competitors from bidding, although the entire process needs to be fair to all parties. Thirdly, a stalking horse bidder gets to perform its due diligence first. The due diligence process involves verifying, investigating, or auditing all relevant facts and financial information of a potential deal or investment opportunity.

However, there is still a chance that someone else may outbid the stalking horse offer and, if they want the assets badly enough, they may even bid more than the liquidation value. In the MEI case, MEI failed to prove that accepting its offer would be better than liquidation through a receivership or bankruptcy proceeding. This was another MEI flaw.

Even if that were to happen, stalking horse offers always contain a break fee. When someone else wins, this money will be awarded to the stalking horse bidder. It must be possible to pay the break fee and still have a better offer than what the stalking horse bidder offered. As part of the stalking horse bidding process, the break fee is meant to compensate the stalking horse bidder for the time spent and as an expense reimbursement for the professional fees spent on doing their due diligence and allowing their offer to sit out there for everyone to see.

All the remaining steps follow a typical auction where the highest bidder wins the distressed company‘s assets.

What is a stalking horse recent well-known Canadian example?

Thanks for asking. The court-supervised auction of insolvent entertainment company Cirque du Soleil was conducted based on an offer made by Cirque du Soleil’s secured creditors. That creditor proposal replaced a shareholder offer as the stalking horse bid, which set the minimum requirements for potential rival bids. Also included in the successful bid was Cirque’s commitment to maintaining its headquarters in Montreal for at least five years.

The stalking horse sales process is well known in Canada bankruptcy courts, as you can see. In this process, the stalking horse bidder gains certain advantages while the distressed company and its assets are exposed to the market. After a public auction sale, the court is able to determine if there is or is not a better offer out there under a previous bankruptcy court-approved sales process. So I hope that you can now answer the question, what is a stalking horse?

what is a stalking horse

What next for the chef?

I guess it’s time to start fresh. Most of the time and money spent so far has been in vain. If MEI wants to make another shareholder offer, it will have to prove to the court that it met all the CCAA requirements.

What is a stalking horse summary?

I hope you found this what is a stalking horse Brandon Blog informative. Are you in financial distress and a debt crisis? Do you not have adequate funds to pay your financial obligations as they come due? Are you worried about what will happen to you in retirement? Do you need to find out what your debt relief options and realistic debt relief solutions for your family debt are?

Call the Ira Smith Team today. We have decades and generations of experience assisting people looking for life-changing debt solutions through a debt settlement plan and AVOID the bankruptcy process.

As licensed insolvency professionals, we are the only people accredited, acknowledged and supervised by the federal government to provide insolvency advice and to implement approaches to help you remain out of personal bankruptcy while eliminating your debts. A consumer proposal is a government-approved debt settlement plan to do that. It is an alternative to bankruptcy. We will help you decide on what is best for you between a consumer proposal vs bankruptcy.

You can have a no-cost analysis so we can help you fix your troubles.

Call the Ira Smith Team today. This will allow you to go back to a new healthy and balanced life, Starting Over Starting Now.

what is a stalking horse

Brandon Blog Post

THE LUCRATIVE RESP BANKRUPTCY PLAN TO DEBT RELIEF

Post author By Ira Smith
Post date November 15, 2021

resp bankruptcy

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.

RESP bankruptcy introduction

Parents contribute to their child’s Registered Education Savings Plan (RESP) in order to save for their children’s post-secondary education. In contrast to Registered Retirement Savings Plans (RRSPs), RESP contributions, or the total amount of all contributions made by the parent(s), is a property that is available for seizure in bankruptcy of the owner of the RESP.

In this Brandon Blog, I explain why an RRSP, unlike an RESP, is mostly exempt from seizure in bankruptcy. RRSPs and a Registered Retirement Income Fund (RRIF) are exempt from seizure based on a balancing act between federal and provincial laws. The RESP bankruptcy is not exempt. Since I practice in Ontario, I will only comment on the situation there.

Will I lose my RRSP in bankruptcy?

An RRSP’s exemption from seizure in bankruptcy was determined solely by provincial law before 2008. The bankruptcy treatment of RRSPs was not outlined in federal insolvency law. The Bankruptcy and Insolvency Act (Canada) (BIA), being the federal bankruptcy law in Canada, other than the exception described in the next section, exempted assets contained in either an RRSP or an RRIF from seizure as of July 2008.

Inequality among RRSPs was the reason for changing the BIA. If your RRSP was held at a financial institution, it would not be exempt from seizure if you filed for bankruptcy. But if you held it:

at an insurance company; AND
the beneficiary designation of your plan was irrevocable as your spouse, child, parent, or grandchild in the event of your death

under the Ontario Insurance Act, the entire RRSP or RRIF was exempt from seizure.

The reason for amending the BIA was twofold:

all RRSPs and RRIFs should be treated the same, regardless of which institution holds them; and
retirement income should not be lost as a result of financial problems for Canadians who have gone bankrupt, since their fresh start is made possible by the bankruptcy system.

In other words, before July 2008, people who were going to file for bankruptcy and who had a sizeable RRSP with a chartered bank would transfer the RRSP to an insurance company and designate one or more beneficiaries accordingly. In Canada, bankruptcy courts heard many cases about transactions designed to save an RRSP from seizure in bankruptcy.

An insolvency trustee or bankruptcy trustee could replace the named beneficiary of an insurance policy or retirement investment, including RRSPs or RRIFs, with the Estate and then collapse the plan so as to obtain the funds if the beneficiary designation of the policy was revocable. Trustees cannot collapse investments if the beneficiary is irrevocable; such plans constitute exempt assets. A Trustee would have to use it as one of the reasons for opposing a bankrupt’s discharge. Since the person, aware of their insolvency, transferred the asset for no value, the creditors are unable to pursue them. This was is known as a settlement.

The leading case on this issue, which was eventually followed by other jurisdictions, including Ontario, is Royal Bank of Canada v. North American Life Assurance Co., 1992 CanLII 4696 (SK CA), also known as the Ramgotra case. Dr. Ramgotra was bankrupt. A lower court decision regarding what should be done with the RRSP funds, turned into an RRIF, prior to his bankruptcy but when he knew he was in financial trouble, was appealed by the Royal Bank of Canada, having received Court approval to appeal the case instead of the Trustee appealing. The Court of Appeal found that the property had an irrevocable interest in Mrs. Ramgotra despite the transfer of the RRSP being a settlement.

So effective July 2008, the Canadian government amended the BIA so that regardless of which of the financial institutions an RRSP was held, only the contributions made within 12 months of the date of bankruptcy were subject to being lost to the licensed insolvency trustee in bankruptcy.

resp bankruptcy

Registered Education Savings Plans (RESP) and bankruptcy: RESP bankruptcy is not exempt

It is fairly simple to understand why RESP contribution funds are not exempt from seizure in bankruptcy. Since the parent can collapse the plan before maturity, the child does not receive a property interest in the RESP funds. There is therefore no trust or transfer of property to the child. In an RESP bankruptcy, the bankrupt parent’s Trustee can therefore collapse their RESP.

A Trustee must make satisfactory arrangements with the parent, or another relative, to have them pay the Trustee the equivalent amount of funds in the RESP at the date of bankruptcy. This way the Trustee will have recovered on the asset for the benefit of the bankruptcy estate and the bankrupt’s creditors. The bankrupt parent will have done what is necessary in order to avoid the RESP collapsing, losing the government contributions money and not having the plan value go forward for the child.

MP Dan Albas introduced his private member’s bill, An Act to amend the Bankruptcy and Insolvency Act (property of bankrupt registered education savings plans), on June 3, 2019. In this bill, the purpose was to amend section 67(1)(b.3) of the BIA, so that RESPs receive the same treatment as RRSPs and RRIFs. Like many other private member’s bills that die, this bill has not made any progress.

The thrust is obviously to make sure that other than for contributions made in the 12 months before the date of bankruptcy, a parent should not lose the RESP benefits for their child’s post-secondary school education because of their bankruptcy.

No matter how well-intentioned, one societal reason this Bill C-453 initiative will fail is that an elementary or high school student’s college tuition differs from that of a retiree whose earning years are behind him or her. So to date, there is no federal law that provides creditor protection for a Registered Education Savings Plan.

How to preserve an RESP bankruptcy

Your RESP’s liquidation cash value can be determined by contacting the financial institution holding the funds. The liquidation value does not include the government grant portion of the funds that are only available if the child attends a qualified educational institution.

You can instruct your Trustee to contact the financial institution holding the RESP funds to have the plan cashed out and remit the proceeds (net of government contributions) to the Trustee. This way the asset of the bankruptcy estate will go for the benefit of your creditors if you are not interested in keeping your RESP, which is unlikely in almost every case.

Preserving an RESP bankruptcy can be achieved in two ways. The first is to avoid bankruptcy. No, I don’t mean to tell you not to deal with your financial problems because like it or not, you are in an insolvency scenario. Just don’t use bankruptcy. If your debts not secured by your primary residence are $250,000 or less, you should consider a consumer proposal. You may use the large debtor proposal provisions of the BIA if the debts exceed this amount.

Second, the nonbankrupt spouse, or another relative, can buy the Trustee’s right, title, and interest in the RESP for an amount equal to its liquidation cash value. Thus, the purchaser becomes the owner of the RESP, and the child will continue to benefit from it. In acting in the best interests of unsecured creditors, the Trustee will have recovered the liquidation cash value.

RESP bankruptcy: A very recent divorce example

Having just dealt with this issue last week in one of our personal bankruptcy filings, I am writing about the RESP bankruptcy treatment today. I am the insolvency trustee in a bankruptcy filed by a divorced mother who is now on her own. The failure of her restaurant caused by the COVID-19 pandemic caused her to go bankrupt because of her high debt load.

Her ex-husband and she owned a registered education savings plan for their only child. As part of the no-cost session I provide to anyone contemplating insolvency, I discussed what might happen to an RESP bankruptcy if a bankruptcy is filed.

It was an upsetting experience for the mother. It was clear that she was upset at the prospect of losing half the liquidation proceeds if the plan collapsed. In addition, it was part of the divorce agreement that the jointly owned RESP would be continued for the benefit of the child. We had to create a plan to keep the RESP afloat in the event of RESP bankruptcy. I had no trouble coming up with the plan. What was tricky were the technical details.

This is what we came up with. First, we told her to contact the financial institution where the funds were held and obtain a written statement of the plan’s liquidation cash value. After receiving the written statement from the financial institution, we told her to pass it along to us. She did, and it turned out that the total liquidation value was approximately $26,000. She, therefore, had a half-interest valued at $13,000. We then got her permission to contact her ex-husband and explain the situation.

The ex-husband was informed that his ex-wife would be filing for bankruptcy by us. There would be an RESP bankruptcy. He knew that he had to maintain the RESP. When his ex-wife went bankrupt, we told him that if he purchased our right, title, and interest in the RESP, he would become the sole owner, and the fund would be preserved in an RESP bankruptcy and they could continue contributing to it. It was no problem for him, thankfully.

Because she had actually not yet filed for personal bankruptcy, we had not yet been designated as the licensed insolvency trustee. Our objective was to make sure there wouldn’t be a change of mind despite the divorce condition. Based on Canadian bankruptcy legislation, we scheduled the ex-husband to offer a $13,000 third-party cash guarantee to cover the costs of carrying out the personal bankruptcy.

Furthermore, we agreed that upon the bankruptcy, subject to the approval of the Inspectors, if any were appointed in this summary administration bankruptcy, we would then convert this third-party guarantee into the right, title, and interest as the licensed insolvency trustee of the RESP.

A bill of sale would be issued to him, and we would confirm jointly with the financial institution that he is now the sole owner of the RESP, and they would need to amend their records accordingly. This RESP bankruptcy would have been fully realized as we had gotten the full value of the mother’s half-interest in the RESP. It was a win-win situation for everyone involved.

RESP bankruptcy: What about you?

Hopefully, you see from this Brandon Blog, there are ways to deal with an RRSP both in bankruptcy and non-bankruptcy situations. I hope you found this RESP bankruptcy Brandon Blog informative. Are you in financial distress and a debt crisis? Are you worried about any RRSP or RESP contributions? Do you not have adequate funds to pay your financial obligations as they come due? Are you worried about what will happen to you in retirement? Do you need to find out what your debt relief options and realistic debt relief solutions for your family debt are?

As licensed insolvency professionals, we are the only people accredited, acknowledged and supervised by the federal government to provide insolvency advice and to implement approaches to help you remain out of personal bankruptcy while eliminating your debts. A consumer proposal is a government-approved debt settlement plan to do that. It is an alternative to bankruptcy. We will help you decide on what is best for you between a consumer proposal vs bankruptcy.

You can have a no-cost analysis so we can help you fix your troubles.

Call the Ira Smith Team today. This will allow you to go back to a new healthy and balanced life, Starting Over Starting Now.

resp bankruptcy

Brandon Blog Post

TO CALCULATE HST IS EASY: PAYING IT AND SOLVING OTHER GIGANTIC COVID-19 BUSINESS DEBT PROBLEMS ARE NOT

Post author By Ira Smith
Post date November 8, 2021

calculate hst

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.

Calculate HST and Canadian small business

I read two business reports this week, one from the Canadian Federation of Independent Businesses (CFIB) and one from the Canada Revenue Agency (CRA). They both contain troubling information. The combined effect is bad news.

CRA reports that businesses owe $14.3-billion in unpaid sales tax. CFIB estimates that small businesses in Canada owe a collective $139 billion in debt due to the COVID-19 pandemic as of August 2021.

Almost three-quarters of small businesses that took on debt expect it to take more than a year to repay. For businesses in the hospitality sector, the number jumps to 87 percent, with most saying it will take longer than two years to pay it off. Nearly a quarter worried about ever being able to pay off their debts.

These two reports clearly illustrate that one of the debts Canadian business owners have amassed is collected but unremitted Harmonized Sales Tax (HST). This Brandon Blog will not only describe how to calculate HST but also explain what will happen if you do not pay it over to CRA.

***Calculate HST* Amounts in Sales and *Purchase Documents***

You must register for GST/HST if you bill more than $30,000 per year. You do not need to register if you don’t exceed this amount. The HST calculation varies according to the province or territory you operate in. Several provinces have harmonized their provincial sales tax with the Goods and Services Tax (GST) and charge HST on taxable goods and services. GST and provincial sales tax have to be charged in provinces with PST; GST is calculated on the price of each taxable sale of goods or services before PST is added.

HST is calculated on the revenue from each taxable sale that is collectible or collected. The HST on each taxable supply produces an input tax credit that can then be deducted from the HST owing. HST on taxable sales less input tax credits from taxable supplies is the net amount of HST due or refund for the period. Your HST return may need to be filed annually, quarterly, or monthly, depending on how large your business is as measured by total sales and therefore sales taxes also.

CRA has created an HST calculator to help you calculate HST.

calculate hst

Calculate HST is just one part of small business debt and the COVID-19 impact

In their August 2021 research study, the CFIB uncovered a variety of issues that show the Canadian small business sector is struggling. They found:

It is estimated that 71% of Canadian small business owners have taken on new debt loads to deal with the effects of the COVID-19 pandemic.
CFIB estimates that total Canadian small business debt loads related to the coronavirus is around $139 billion, and 76% of businesses that took on debt said it would take them more than one year to repay it.
Governments should continue business relief measures as government support is winding down since Canadian small businesses are carrying such a burden and are having difficulty regaining their footing. Rent assistance is one such support program.
Only 39% of small businesses in Canada are currently making sales they consider to be normal for this time of year, despite recent improvements. Most continue to experience declines in revenue.
About 17% of small businesses in Canada have sales that are half or less of what they should be.
Four in five businesses are using one or more sources of funding to cope with COVID-19.
In the arts, recreation & information, and hospitality sectors, 9 of 10 businesses are using some federal, provincial, or other funding to cope with COVID-19.
In three out of five cases, government relief programs replace less than 30 percent of the COVID-19 shortfall.
Scaling back federal relief programs comes too quickly for most business owners.
According to half of the entrepreneurs, repaying their debt is the biggest challenge their business faces on the road to recovery.

Now for the CRA news release that has to do not only with how to calculate HST, but who is and is not paying their HST.

How to calculate HST is only the first part: Businesses owe $14.3-billion in unpaid sales tax, Canada Revenue Agency says

The number of companies falling behind on federal sales tax remittance indicates financial distress, as companies battle the pandemic and supply chain issues. In March 2020, when pandemic restrictions began, the nation owed $11.5 billion in GST and HST to the government. By September 2021, it owed $14.3 billion, an increase of 24 percent over that amount.

As of 2020-21, the CRA has received about 500,000 fewer sales tax returns than the year prior. There were approximately 105,000 fewer sales tax filers, the agency reports. Despite the fact that so many businesses are still operating at some level, they are not even bothering to file their tax returns.

Most businesses file their HST returns on either a once-a-year reporting period or on a quarterly reporting period. Some larger companies report and remit monthly. Quarterly remitters with annual taxable income between $1.5 million and $6 million showed the largest drop in returns by reporting period.

Therefore, it is clear that Canadian businesses are using the tax amounts collected as another source of financing since the pandemic hit. There is no mention of HST in the CFIB study. HST collected but not remitted was not even considered as a source of financing, which it is.

calculate hst

***Calculate HST* but if you don’t pay, it is a *deemed trust***

Regardless of the business legal structure, the GST/HST amounts you collect from your customers are considered a deemed trust in favour of the federal government. In an operating business, it takes precedence over whatever debts you owe to other creditors, including secured creditors. The CRA can still get payment from your bank even if the bank does not lend money to you. They can go to the bank where you keep your business funds and get payment there. All that is explained in my blog post about Canada v. Toronto-Dominion Bank.

However, the CRA has the following options:

garnish bank accounts, accounts receivable, and all other sources of income;
confiscate and sell assets; and
pursue other legal remedies.

In my experience, CRA does not typically seize and sell assets. Instead, they pursue garnishments. As in the TD Bank case, they can also just go to whichever of the financial institutions the business banks with and demand the HST funds that have been deposited. When a company owns real property, they may get a judgment from a federal court without notifying the owner, and register that judgment against the title to the real property. Upon refinancing or selling the property, the business owner is required to repay the judgment, plus interest.

Calculate HST: Are HST and COVID debt crushing the life out of your business?

In an environment hamstrung by manufacturing and shipping backlogs, businesses may experience supply shortages and higher delivery costs. Even though paying your bills may be the most emotionally satisfying course of action, it may not be the most practical.

It’s better for your business and your employees if you seek professional advice if you believe that you cannot make next month’s payroll. The following issues cannot be ignored: lenders demanding loan repayment, landlords threatening to end your lease or seize your assets as payment, suppliers cutting off credit or halting deliveries.

The first thing I do as a licensed insolvency trustee is to determine what stage of the business the company is at. The stage the business is at is crucial for me to understand. The choices are:

Solvent and viable.
Solvent but not viable.
Insolvent and viable.
Insolvent and not viable.

The business can probably restructure with some simple changes to its operations if it is solvent and viable. Insolvent companies that are still viable may be restructured under the provisions of the Bankruptcy and Insolvency Act or the Companies’ Creditors Arrangement Act.

The business can be liquidated or sold if it is not viable, but it is solvent. If it is insolvent and not viable, we are probably looking at bankruptcy or receivership.

A deep dive is required to find out what the correct answer is. For sure I would need to calculate HST collected but unremitted, as that is a deemed trust claim, apart from one exception I describe below.

calculate hst

Calculate HST: What happens to the deemed trust claim in a bankruptcy?

The Excise Tax Act (ETA) defines GST/HST as a deemed trust claim. Under the ETA, a deemed trust claim will include amounts for GST/HST that was collected by the business but not paid to the CRA. There is only one exception. A bankruptcy of the business will rearrange the priorities. In a bankruptcy, the deemed trust GST/HST claim becomes an ordinary unsecured claim. There is no statutory authority for this same outcome in a BIA restructuring Proposal. However, sometimes, as an administrative issue, CRA will allow this treatment also.

According to one school of thought, unremitted amounts included in deposits or loan repayments to a financial institution before bankruptcy continue to be deemed trust claims. Nonetheless, the Supreme Court of Canada clarified GST/HST deemed trusts and secured creditors’ responsibilities for funds received.

The Callidus Capital Corporation v Her Majesty the Queen decision was reversed by the Supreme Court of Canada in 2018. For secured creditors, the decision that the deemed trust provisions of the ETA become inoperative on bankruptcy, and therefore secured creditors are not liable to account for proceeds received from a debtor pre-bankruptcy, is significant.

Calculate HST: GST/HST liability For directors

ETA section 323 increases the CRA‘s power to collect unremitted GST/HST when efforts to collect against corporations prove futile. As a result of the failure of the corporation to remit GST/HST, its directors will be liable for any tax the corporation should have remitted. The directors are jointly and severally liable for the corporation’s unremitted GST/HST.

CRA has the right to look to the directors whether the corporation is in bankruptcy or not. When we calculate HST and discover a company owes net HST, there is another downside to bankruptcy. CRA may now want to claim on the directors sooner because of the HST liability becoming unsecured.

Calculate HST summary

I hope you now see why I feel the combination of the CFIB survey results and the announcement from CRA spells upcoming trouble for Canadian businesses. I also hope you found this calculate HST Brandon Blog post informative. Are you worried because you or your business are dealing with substantial debt challenges and you assume bankruptcy is your only option? If it is too much debt for any reason, 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. Even though we are licensed insolvency trustees, we have found that 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.

Brandon Blog Post

3 TOP WAYS TO SUCCEED IN CREDIT REPAIR USING A CREDIT CARD FOR REBUILDING CREDIT

Post author By Ira Smith
Post date November 4, 2021

Credit card for rebuilding credit: Introduction

Money mistakes in the past can negatively impact your credit score and your ability to qualify for a loan or obtain a good interest rate. Fortunately, there is hope. Bad credit scores can be improved in Canada by the use of perseverance and some time. You might even qualify for a credit card for rebuilding credit in Canada.

This Brandon Blog shows you how to take control of your finances, including learning how to use a credit card for rebuilding credit to improve your credit rating.

credit card for rebuilding credit

A credit card for rebuilding credit for people with bad credit is not your first step

Getting a copy of your credit report is the best way to determine which areas need improvement when it comes to repairing your credit. How many late or missed payments have you had in the past? The credit bureaus can report past due utility payments, outstanding cell phone bills, and old parking tickets. Have you exceeded your debt utilization ratio? Did you experience bankruptcy in your past?

Could your credit report be inaccurate? This is something that needs to be brought to the creditor’s attention so that they can fix the problem and revise their reporting. As an alternative, you can provide proof to the two credit reporting agencies in Canada, so that each can correct the error.

credit card for rebuilding credit

A credit card for rebuilding credit Canada is not your next step either

Now that you know your debts need to be addressed, you need to figure out how to get your payments in order. You need to develop smart spending and saving habits to rebuild your credit score. One of the best ways to do this is to create a budget that reflects your income and expenditures. In my Brandon Blog, I have written extensively about the importance of household budgets. Budgets are essentially a plan for how you will spend your money. Following a budget will help you with having normal and current payment activity.

Getting comfortable with not overspending and living within your means should become a habit. You don’t have to give up every nice dinner or outing just because you have a budget, but you do have to be aware of how much income you have available to spend and save after taxes. This will allow you to be able to make all necessary payments on time.

Next, you must establish better credit history through consistent payments. Your payment history is the most important factor in determining your credit score, so if you’ve fallen behind on your payments – or haven’t been paying on time – your credit situation is unlikely to improve until you catch up on your accounts. Without improving on this, you cannot fix a poor credit score. Spoiler alert – making only the minimum payment each month against your regular credit card is not keeping current on that debt.

If you cannot pay your overdue accounts right now, call up your creditors. Maybe you can negotiate a special repayment plan that fits your budget. Cut your debt as much as possible. Credit utilization ratios are very important. If your various types of credit, such as credit card balance, line of credit, or overdraft are used more than three-quarters of your available credit, that will bring down your credit score.

With time, patience, and financial discipline, building a better credit history and credit score – even rebuilding credit after bankruptcy – can be done. In the beginning, you may need to only use cash, and preferably not your debit card, for all of your necessary everyday purchases. Put your credit cards away to avoid temptation. Knowing that if you do not follow your budget you will run out of money is a strong motivation to stay on track when you only take out the amount of cash your budget says you can afford to spend.

One of the first steps to rebuilding credit with a credit card might be to lock each traditional credit card away and not use them!

credit card for rebuilding credit

Prepaid Credit Cards vs. Secured Credit Cards: What’s the Difference?

Prepaid cards are sold at many retail locations, such as grocery stores and pharmacies. A service fee is charged when you load money onto the card and when you use it. So not all the money you load onto the card is applied to your purchases. Whenever you do buy something with this kind of credit card, the dollar amount of your purchase is deducted from your cash balance.

You can still get a prepaid credit card without having a good credit score. That is because by getting this type of card, you are not applying for or getting credit from anyone. To load it, you use your own money. To put money onto a prepaid card you can: (i) transfer money from your bank account onto the card; or (ii) give cash to the clerk who will add it to the card at the store that sold it to you.

Prepaid cards are not credit cards in the traditional sense, so they won’t help you build credit or repair credit. In the same vein, it is not a credit card for rebuilding credit.

One of the requirements of a secured credit card is that you need to pay a cash deposit. Once the deposit is made, the credit limit is equal to the amount of the deposit. The security deposit that you pay is collateral held onto by the credit card issuer in return for the credit they are extending to you. If you don’t repay your balance on time, the credit card company can use this security deposit to pay off your debt. Once you have paid the security deposit, you can use the secured credit card.

The normal size of payment of security deposit typically varies from $500 to $10,000. You can get a secured charge card if you do not get approved for a standard unsecured credit card. Those with a poor credit history looking for a credit card for rebuilding credit will certainly find a charge card of this kind beneficial. Secured cards do not require a credit check because the financial institution is protected by the down payment. Consequently, you are practically certain to be authorized.

You will boost your credit rating as you make purchases and repay your full balance outstanding every month with this type of card. It is because the issuer of the secured credit card is really giving you credit. Your balances as well as payment history are reported frequently to the two credit bureaus in Canada. You can enhance your credit score over time by making your full regular monthly payments when due. Any individual aiming to use a credit card for rebuilding credit should seriously look into getting a secured credit card.

credit card for rebuilding credit

Credit card for rebuilding credit: Secured credit cards vs. unsecured credit cards

There are differences between secured cards and unsecured credit cards. An unsecured credit card is a routine charge card that can be made use of day-to-day as much as the credit limit allows. The issuer of these types of traditional charge cards makes a hard credit check inquiry right into your credit report when you apply for one. An unsecured card does not need a down payment. An unsecured charge card normally has a higher credit limit, and some credit card companies offer with their unsecured cards benefits like cashback, price protection, a better interest rate on purchases or travel points.

You can ask if your secured card can be turned into an unsecured one after an amount of time (and your security deposit returned). I would say that a reasonable time period would be six months to a year of making consistent payments on time as well as staying within your credit line. You have to demonstrate that you can handle credit properly.

Credit cards, both secured and unsecured, report your activity to the credit bureaus. If you use the card responsibly, you can build or rebuild your credit. Look around carefully to find the right credit card for your financial and credit score situation that will help you rebuild your credit. Secured, unsecured, low-interest rate, travel benefits and even guaranteed approval credit cards are available from many financial institutions in Canada.

Picking the ideal credit card for rebuilding credit is really crucial. While some bank cards have an annual cost, others do not. You must constantly check out the fine print in the contract when picking a credit card. I wish you great success in your financial journey.

credit card for rebuilding credit

Credit card for rebuilding credit: Summary

I hope you found this credit card for rebuilding credit Brandon Blog post informative. Are you worried because you or your business are dealing with substantial debt challenges and you assume bankruptcy is your only option? Your situation may be so dire that a redone budget and a secured credit card may not be enough of an answer. If it is too much debt for any reason, 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.

Brandon Blog Post

WHAT DOES BANKRUPTCY DISCHARGED MEAN FOR 1 BANKRUPTCY TRUSTEE AND SOMEONE WHO IS SERIOUSLY BANKRUPT?

Post author By Ira Smith
Post date October 28, 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 bankruptcy discharged mean: Restrictions placed on undischarged bankrupts

By enabling debtors to file an assignment in bankruptcy or consumer proposal, the Bankruptcy and Insolvency Act (BIA) provides relief to an honest but unfortunate debtor. Garnishment of wages (other than marital support) ceases, legal actions and collection calls cease, and the debtor receives some breathing space. If a bankrupt fails to fulfill his or her obligations, what happens? Can they receive a discharge from bankruptcy?

This Brandon Blog examines a recent case from Nova Scotia dealing with what does bankruptcy discharged mean for both a bankrupt person and for the licensed insolvency trustee. I also describe what does it mean for an undischarged bankrupt if the bankruptcy trustee gets its discharge when the bankrupt person does not have their bankruptcy discharge.

I will eventually get to the Court case, but there is first some background information that I will provide which sets the stage for a better understanding of the Court decision.

What does it mean to be an undischarged bankrupt?

In the event, you were unable to fulfill your obligations under your personal bankruptcy proceedings, your Trustee, and maybe a creditor or two would have opposed your discharge from bankruptcy. A bankrupt who has not been discharged poses many potential problems. Therefore, if you are an undischarged bankrupt, it is because you have failed to fulfill one or more of your obligations as a bankrupt.

what does bankruptcy discharged mean

What does bankruptcy discharged mean: Debts eliminated by bankruptcy discharge

A bankruptcy discharge means that you have completed your personal bankruptcy process and are no longer legally liable for any outstanding debt you included in the bankruptcy filing (with the exception of a few which I will describe soon). Upon receiving an absolute discharge from bankruptcy (we’ll get to that shortly), you are no longer responsible for any discharged debts.

The discharge in bankruptcy eliminates most of your debts, including unsecured debts such as credit card bills, medical bills, and payday loans. When you are discharged from bankruptcy, not the fact that you filed for bankruptcy, is what eliminates your debts. You need your discharge to get rid of your debts, which explains why it’s so important. That is what does bankruptcy discharged mean, really means.

What does bankruptcy discharged mean: Bankruptcy law can resolve tax debts

As well as the usual unsecured debts mentioned above, if you owe Canada Revenue Agency (CRA) money because you were not able to pay your whole personal income tax obligation when you filed your taxes, then a payment arrangement makes sense.

Collections officers from the CRA contact taxpayers regarding outstanding income tax debt arising from their tax filings and notices of assessment. They attempt to collect from delinquent taxpayers. When you say that you cannot pay the full amount at that time, they will offer you the option of a payment arrangement. The interviewer will ask you about your financial situation and may ask you to submit documents to support your income and expense claims.

They recommend a settlement plan after evaluating the information. Only if all attempts at collection have failed will legal action be taken. You must send the CRA postdated cheques to cover the agreed-upon monthly payment to participate in such a plan. Additional payments can be made if you have money to spare. The interest clock does not stop with a CRA payment plan. Be certain that all your cheques clear the bank as well. The entire payment plan can be cancelled if only one is returned NSF.

Should you enter into a payment plan? Yes. You should demonstrate to CRA that you want to work with them, and avoid tax debt collection activities that will disrupt your life. The most common enforcement activity involves freezing and taking money from your bank accounts, as well as garnishing your salary or wages if you’re employed. If you are a proprietor, they can notify your customers and claim your receivables. Furthermore, a federal judgment can be obtained without your knowledge to place a lien on your home.

You do not need to experience CRA’s more drastic collection methods. Be sure to pay your obligations on time. A tax garnishment, third-party assessment, or an asset lien is never pleasant. The consequences are severe and disruptive. In most cases, CRA only takes this step if you fail to comply with their efforts to enter into and maintain a CRA payment arrangement.

CRA tax debts can be discharged under bankruptcy law if no payment plan can be arranged. If bankruptcy is successfully discharged or a consumer proposal is fully completed, the income tax debt can be eliminated. We assume that CRA hasn’t already obtained a judgment against your interest in your home and registered it against it. Upon doing so, the CRA has successfully turned an unsecured debt into secured debt, and bankruptcy law no longer applies.

Several other things to keep in mind are:

A bankrupt who owes more than $200,000 in personal income taxes and whose personal income tax debt represents at least 75% of their total unsecured proven claims is considered a high-tax debtor. In this situation, you cannot be automatically discharged. It is unavoidable that the Trustee will object to your discharge and there will be a discharge hearing before the Bankruptcy Registrar in the Bankruptcy Courts. Additionally, the CRA will oppose your discharge and will make submissions at your hearing. I am certain you will receive a conditional discharge, at least with the condition that you pay a portion of your income tax debt to the Trustee for distribution among your creditors.
Unremitted employee source deductions owed by a proprietor or partner of an unincorporated business will not be helped by bankruptcy law. Generally, bankruptcy will eliminate HST obligations. For now, CRA ranks the debt as unsecured in a consumer proposal, but as CRA provides the accommodation, it is not a part of bankruptcy law. If the outstanding HST is extremely large, the CRA may argue that since you held the HST in trust for them, it still remains a claim even if you declare bankruptcy. Under Canadian bankruptcy law, they can do this, but I have not seen them do it yet.
Director liability for unremitted employee source deductions or HST is an unsecured claim against you for your personal liability as a Director. Bankruptcy and a properly worded Proposal will both eliminate that debt.
what does bankruptcy discharged mean

What does bankruptcy discharged mean: Debts never discharged in bankruptcy

In personal bankruptcy, there are certain types of debts that are not discharged. Section 178(1) of the BIA outlines the following debts that are nondischargeable debt:

Any type of fine, penalty, restitution order, or other order similar to a fine, penalty or restitution order, imposed by a court for an offence, or any kind of debt arising from a recognizance or bond;
Damages awarded by a court in a civil case for:
- bodily injury intentionally caused, or sexual assault, or
- wrongful death as a result of these acts;
the payment of spousal support or an alimentary pension;
any financial obligation or liability arising under a judgment establishing an association or regarding support, maintenance, or an agreement for maintenance and support of a spouse, former spouse, previous common-law partner, or child who is not living with the bankrupt;
a financial obligation or liability that results from fraud, embezzlement, misappropriation or defalcation in a fiduciary capacity or, in the Province of Quebec, while acting as a trustee or administrator;
apart from debts and responsibilities arising from equity claims, any debt or liability resulting from getting property or services by false pretenses or fraudulent misrepresentation;
unless a creditor had notification or understanding of the bankruptcy and didn’t take reasonable action to prove a claim, the liability for the dividend that a creditor would have received on any provable claim not disclosed to the trustee; or
student loans if the bankruptcy occurred before the bankrupt stopped being a full- or part-time student or within seven years of the date the bankrupt stopped being a full- or part-time student.

***What does bankruptcy discharged mean:* *Absolute discharge vs. conditional discharge and so on and so forth***

In order to obtain a discharge, a bankrupt person must have fulfilled all of their bankruptcy duties. These personal bankruptcy duties include:

providing all books, records or documents to the Trustee that identify the assets and liabilities of the debtor;
prepare and submit to the Trustee within 5 days after filing for personal bankruptcy, unless the Office of the Superintendent of Bankruptcy Canada extends the time, a sworn statement of affairs detailing the person’s assets and liabilities, and for each of the bankrupt’s creditors, their respective names, addresses and the amount owing;
disclose to the Trustee complete details of all dispositions of property within 1 year before the date of the bankruptcy;
make a disclosure to the Trustee of all the details of property disposed of by gift or settlement without adequate valuable consideration within a 5 year time period before the date of bankruptcy;
if a creditors’ meeting is called, attending it;
making any required surplus income payments to the Trustee;
participating in two mandatory financial counselling sessions; and
offering whatever assistance is requested by the Trustee.

If the bankrupt fulfill all of their duties, then the Trustee will not have a reason to oppose the discharge. If no creditor opposes, then the bankrupt is entitled to an absolute discharge. As already stated, the discharge is what eliminates unsecured debts.

In addition to an absolute discharge, there are other types of discharge under bankruptcy law available to a bankrupt person upon having a discharge hearing:

conditional discharge;
suspended discharge; and
refused discharge.

To read more on the different kinds of discharges available to be applied to a bankrupt person, and for what does bankruptcy discharged mean, take a look at my August 2021 Brandon Blog “A BANKRUPTCY DISCHARGED IS THE KEY TO HEARTWARMING DEBT ELIMINAT1ON“.

what does bankruptcy discharged mean

What does bankruptcy discharged mean: At long last, the Nova Scotia case

The Nova Scotia bankruptcy case deals with the discharge of the Trustee in a personal bankruptcy matter. Once the Trustee brings on the bankrupt’s application for discharge and a discharge Order is made by the Court, and the Trustee completes the rest of the administration of the bankruptcy estate, the Trustee is entitled to a discharge. If the bankrupt did not receive an absolute discharge and has not completed his or her duties, including complying with a conditional discharge order, eventually, the Trustee can still apply for its discharge. Upon the Trustee’s discharge two things occur:

The bankrupt goes into bankruptcy purgatory. No discharge occurs. The Trustee has fulfilled its obligation to present the bankrupt’s discharge request to the court and the court has issued an Order. Whenever the bankrupt wants to prove they have fulfilled all their obligations, obeyed the discharge order, and now deserve an absolute discharge, he or she will need to retain a bankruptcy lawyer and apply to the Bankruptcy Courts.

On the day the Trustee is discharged, the stay of proceedings that had protected the bankrupt from any enforcement action by creditors whose debts were owed at the date of bankruptcy no longer applies. As a result, creditors can now pursue the bankrupt person since the debts have not been eliminated and the stay of proceedings is no longer in place.

It is interesting to examine how far the Registrar in Bankruptcy directed the Trustee in this Nova Scotia bankruptcy case to ensure that all creditors understood that they still had the right to pursue the bankrupt.

The decision in Frost (Re), 2021 NSSC 296 can be boiled down to the following facts:

Mr. Frost went bankrupt.
He failed to fulfill his duties and moved to the UK permanently.
He didn’t inform the Trustee of his new address and telephone number.
His actions left his Trustee and other stakeholders to fend for themselves, explicitly telling the Trustee he wasn’t going to fulfill those duties and didn’t intend to do so.
A hearing was held for the bankrupt’s discharge and Mr. Frost was refused discharge.
The Court previously directed the Trustee to appear before it to be heard on the Trustee’s application for discharge.

The Court concluded that the Trustee completed the administration of the bankruptcy estate and gave the Trustee its discharge. However, the reason why the Registrar in Bankruptcy wanted the Trustee to attend such a hearing was so the Registrar could take things one step further. In the normal course, the Trustee sends out a notice to all those whose proof of claim was admitted of the results of the bankruptcy administration and of the Trustee’s discharge. However, the Registrar wanted to make sure that it was crystal clear to all creditors.

The Registrar wrote a cover letter for the Trustee and directed the Trustee to send it along with the normal statutory notice to creditors (or their debt collectors of record). Here is a copy of that letter:

what does bankruptcy discharged mean

What does bankruptcy discharged mean summary

I hope you found this what does bankruptcy discharged mean Brandon Blog post informative. Are you worried because you or your business are dealing with substantial debt challenges and you assume bankruptcy is your only option? If it is too much debt for any reason, 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.

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 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.

Brandon Blog Post

FIGHT FOMO-RELATED DEBT: FOLLOW OUR STEPS TO FINANCIAL RECOVERY

Post author By Ira Smith
Post date October 25, 2021

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.

Why is FOMO a thing?

Are you experiencing FOMO right now? In the modern-day, FOMO, or fear of missing out, is a significant stressor in people’s lives. You’re wondering how you are going to make it through life at such a fast pace. Social media posts constantly tell you what your friends are doing, what you should do with your life, and what to buy. People suffering from FOMO have lost track of what’s important in life, and you have lost track of what you want to accomplish. If you want to keep your mind (and your bank account) and financial situation healthy, there are steps you can take to make sure that you have proper spending habits.

Missing out on important events or social gatherings is the feeling of being excluded. The term FOMO was coined and popularized by Patrick J. McGinnis in The Harbus, the Harvard Business School’s magazine, in 2004.

It is often difficult to bring up the subject of money with friends, yet it is one of the most important. I discuss how FOMO can lead to runaway debt and how to avoid it, in this Brandon Blog.

The internet has created a social media engagement platform for bragging; things, events, and even happiness itself can appear competitive on social media. You do not just feel as if there are better things that you could be doing at this moment, but you also feel as if you are missing out on something fundamentally important that others are experiencing right now.

It is difficult to identify the nuances of FOMO since social media users have different social priorities. FOMO users share one common characteristic: the feeling of social exclusion.

Self-concept and perception of oneself play a role in FOMO. Individuals’ perceptions of and experiences of the world – and what they feel they are excluded from – play a critical role in their fear of missing out. There is a very strong connection between self-perception on social media and FOMO.

FOMO has become an all-too-common affliction. FOMO can strike anyone at any time, but it is usually strongest in children, teenagers and young adults. FOMO can also have serious financial repercussions.

FOMO debt on the rise: Nearly 50% of millennials overspend to keep up with friends

Credit Karma/Qualtrics surveyed 18-38-year-olds in both Canada and the United States prior to the pandemic. With November being financial literacy month in Canada, the topic of FOMO debt is timely, notwithstanding when the surveys were done. Findings were strikingly similar in each country. Millennials are overspending on food and drinks, music events and tattoos because of rising social pressures.

In the Credit Karma surveys, 48% of Americans and half of Canadian young adults reported spending money they did not have and going into debt to keep up with their peers. Over a third of respondents said it is hard to turn down friends who suggest activities they cannot afford.

Almost one-third of young Canadians who got into FOMO-related debt owed more than $500. Key survey findings show that among those who have borrowed to keep up with friends:

49% said they did it to avoid being excluded from future events if they did not participate in spending time with friends.
A similar 49% said they didn’t want to miss something once-in-a-lifetime or novel in their social lives.
45% of respondents said they didn’t want to be seen as an outsider.
34% feel it is the way to keep friendships strong because they feared losing friends.
29% feared being judged.

According to Credit Karma, the items and experiences that push Millennials into FOMO-related debt include:

social situations requiring the purchase of meals and alcohol (47%);
clothes (41%);
travel (38%).
Autos (15%);
body art (11%); and
residential (9%).

In other words, FOMO-related debt is a real problem among young adults.

How to Avoid Overspending Due to FOMO

The temptation to think you won’t have it later or your friends won’t like you if you don’t buy it now can be quite strong. This may not always be true. Perhaps you would be better off finding new friends who don’t spend money so obsessively all the time.

Simply stopping spending is the first step toward overcoming FOMO unnecessary spending! Not forever, just until you figure things out. You might also consider limiting your use of credit cards or even debit cards and making most of your purchases with cash. If you feel FOMO creeping in, you will be less likely to impulse spend. It will also prevent you from incurring more FOMO-fueled debt.

You can avoid FOMO-fueled debt by working within your budget and becoming comfortable with saying no to overspending. Having a budget doesn’t mean you have to give up every nice dinner or outing, but you have to understand what is within it.

I have written on the need for household budgets many times on my Brandon Blog. You can prevent FOMO-fueled debt by creating a monthly budget or even a weekly budget.

Buying things out of impulsiveness might seem to make us feel better because we’re getting what we want right away, but there’s actually another side effect to consider. In the end, we pay more interest and fees when we buy items without considering future needs and end up falling behind in monthly payments.

Whether you’re trying to pay off debt, add to your savings, create an emergency fund for unanticipated events, plan for retirement, or save for a new home, be sure to keep your bigger goals in mind. There’s no reason to let your friends get in the way of your longer-term goals, such as paying off your debt, saving for retirement, or buying a house.

FOMO summary

I hope you found this FOMO Brandon Blog post informative. Are you worried because you or your business are dealing with substantial debt challenges and you assume bankruptcy is your only option? If it is FOMO-fueled debt or too much debt for any other reason, 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.

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.

Tags Credit Karma, Credit Karma/Qualtrics, financial situation, fomo, FOMO and the rise of social media-induced debt, fomo debt, FOMO debt on the rise: Nearly 50% of millennials overspend to keep up with friends, FOMO-fueled debt, FOMO-related debt, How to Avoid Overspending Due to FOMO, Ira Smith Trustee, key survey findings, monthly payments, music events, rising social pressures, social situations, spending habits, spending time with friends, unanticipated events

Bankruptcy search: What bankruptcy records exist in Canada?

Bankruptcy search type 1: Bankruptcy and insolvency records search

Bankruptcy search type 2: How long do credit bureaus report consumer bankruptcies?

Bankruptcy search type 3: Will my bankruptcy be published in the newspaper?

Bankruptcy search type 4 is only available to a select few

Bankruptcy search: The Judge’s analysis

Bankruptcy search: The Judge’s decision

Bankruptcy search: Summary

Laurentian University update: Introduction

Laurentian University update: The Laurentian insolvency reflects a structural crisis in Ontario’s university system

Laurentian University update: Auditor General of Ontario investigating Laurentian’s finances

OAG gives a Laurentian University update on the value-for-money audit

Laurentian University update: Laurentian’s response to OAG accusations that it is withholding documents for financial audit

Laurentian University update: Auditor General seeks court hearing on access to information Laurentian deems “privileged”

Laurentian University update: Summary

Non compete clause enforceable?: Introduction

What is a non compete clause and historically are non compete clauses enforceable in Canadian courts?

Can an insolvency proceeding under the Bankruptcy and Insolvency Act (Canada) (BIA) help you escape a judgment liability for breach of a non compete clause enforceable in Canada?

Ontario introduces employee-friendly legislation making non compete clause enforceable no more

Non compete clause enforceable with respect to the sale of a business and other employer alternatives

Non compete clause enforceable?: Summary

What is a supply chain?

Snarled supply chain: First was the Suez canal supply chain crisis

Supply chain crisis: Port congestion in Los Angeles and Vancouver

Global supply chain crisis: Shoppers need to start early for the holidays

Involuntary vs. voluntary liquidation of a company

Paying off creditors

2021 global supply chain crisis and my liquidation story

Supply chain crisis summary

What is a stalking horse bid?

The company of celebrity chef Mark McEwan files for creditor protection

The owner of the Bloor-Yonge location opposes CCAA restructuring by celebrity chef Mark McEwan

What is a stalking horse? Why did MEI’s proposed bankruptcy sale process fail?

What is a stalking horse? The competitive bidding process Chef McEwan should have used

What is a stalking horse? A court-supervised auction for bankruptcy sales

What is a stalking horse and what are the advantages and disadvantages of a stalking horse bid?

What is a stalking horse recent well-known Canadian example?

What next for the chef?

What is a stalking horse summary?

RESP bankruptcy introduction

Will I lose my RRSP in bankruptcy?

Registered Education Savings Plans (RESP) and bankruptcy: RESP bankruptcy is not exempt

How to preserve an RESP bankruptcy

RESP bankruptcy: A very recent divorce example

RESP bankruptcy: What about you?

Calculate HST and Canadian small business

Calculate HST Amounts in Sales and Purchase Documents

Calculate HST is just one part of small business debt and the COVID-19 impact

How to calculate HST is only the first part: Businesses owe $14.3-billion in unpaid sales tax, Canada Revenue Agency says

Calculate HST but if you don’t pay, it is a deemed trust

Calculate HST: Are HST and COVID debt crushing the life out of your business?

Calculate HST: What happens to the deemed trust claim in a bankruptcy?

Calculate HST: GST/HST liability For directors

Calculate HST summary

Credit card for rebuilding credit: Introduction

A credit card for rebuilding credit for people with bad credit is not your first step

A credit card for rebuilding credit Canada is not your next step either

Prepaid Credit Cards vs. Secured Credit Cards: What’s the Difference?

Credit card for rebuilding credit: Secured credit cards vs. unsecured credit cards

Credit card for rebuilding credit: Summary

What does bankruptcy discharged mean: Restrictions placed on undischarged bankrupts

What does it mean to be an undischarged bankrupt?

What does bankruptcy discharged mean: Debts eliminated by bankruptcy discharge

What does bankruptcy discharged mean: Bankruptcy law can resolve tax debts

What does bankruptcy discharged mean: Debts never discharged in bankruptcy

What does bankruptcy discharged mean: Absolute discharge vs. conditional discharge and so on and so forth

What does bankruptcy discharged mean: At long last, the Nova Scotia case

What does bankruptcy discharged mean summary

Why is FOMO a thing?

FOMO and the rise of social media-induced debt

FOMO debt on the rise: Nearly 50% of millennials overspend to keep up with friends

How to Avoid Overspending Due to FOMO

FOMO summary

**OAG gives a Laurentian University update on the value-for-money audit**

***Non compete clause enforceable*?: Introduction**

**What is a non compete clause and historically are non compete clauses enforceable in Canadian courts?**

**Can an insolvency proceeding under the Bankruptcy and Insolvency Act (Canada) (BIA) help you escape a judgment liability for breach of a non compete clause enforceable in Canada?**

**Ontario introduces employee-friendly legislation making non compete clause enforceable no more**

***Non compete clause enforceable*?: Summary**

**What is a supply chain?**

**Involuntary vs. voluntary liquidation of a company**

**2021 global supply chain crisis and my liquidation story**

***Calculate HST* Amounts in Sales and *Purchase Documents***

***Calculate HST* but if you don’t pay, it is a *deemed trust***

***What does bankruptcy discharged mean:* *Absolute discharge vs. conditional discharge and so on and so forth***