Tag: Ira Smith Trustee

WHAT ARE EXEMPT ASSETS IN BANKRUPTCY?: ARE THEY REV1EWED UPON THE SAD DEATH OF THE BANKRUPT?

Post author By Ira Smith
Post date August 16, 2021

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

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

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

What are exempt assets in bankruptcy?: Bankruptcy exemptions – how what assets you can keep are determined

An assignment in bankruptcy does not require you to give up all of your assets. In bankruptcy law, there are rules for bankruptcy exemptions. Furthermore, every province/territory has regulations that mandate what assets can be kept and how much equity can be retained. Assets of this type are called exempt assets.

Assets that you are allowed to keep that are not accessible to your creditors are exempt assets in a bankruptcy. There are some that fall under federal law and some that fall under provincial law.

So what are exempt assets in bankruptcy in Ontario? To answer the question, we need to look at two statutes: one federal and one provincial. For federal, we look at the Bankruptcy and Insolvency Act (Canada) (BIA). Section 67(1) of the BIA deals specifically with the bankruptcy exemption issue. It states what property of the bankrupt available to creditors does and does not comprise. Property that is not included is:

Property held in trust by the bankrupt for any third party.
Under provincial law, the property cannot be seized.
Payments to the bankrupt are paid under a program that I will describe as social assistance provided by the federal or provincial government.
Retirement Savings Plans – The bankrupt’s RRSP or RRIF, except for contributions made in the 12 months before the bankruptcy.

When we discuss the property of a bankrupt, we are referring to the bankrupt’s equity in those assets.

Ontario bankruptcy exemptions: Assets you can keep

As indicated above, one of the asset exemptions in bankruptcy is any property that cannot be seized under provincial law. So what are exempt assets in bankruptcy in Ontario that cannot be seized? For that, we need to go to the Ontario Execution Act. In Ontario, the prescribed amounts for exemptions are:

Household furnishings and household appliances – $14,180.
Tools and other personal property used to generate income:
- Exemptions for farmers, being a debtor engaged exclusively in cultivating the soil or farming (and therefore it is that farmer’s principal source of primary income), $31,379 for livestock, fowl, bees, books, tools and implements, and other chattels ordinarily used by the debtor;
- $14,405 for any other case.
$7,117 for a motor vehicle.
$10, 783 for a principal residence.

As I have written before, there is an exemption in Ontario for equity in one’s home of not more than $10,783. It is not an exemption for the first $10K, but rather if the total equity is below that amount. Therefore, we can consider the equity in a bankrupt person’s ownership interest in their home to belong to the bankruptcy trustee for all practical purposes.

So this seems pretty straightforward. But what if the bankrupt person dies before the end of the bankruptcy proceedings and the bankruptcy estate administration? A recent decision from the Alberta bankruptcy court, which for reasons I will explain I believe would be instructive for Ontario, answers that question.

What are exempt assets in bankruptcy even in death?

In addition to the above statutory exemptions, since we are always dealing with the bankrupt’s equity in assets, there is another class of assets that form exempt property in a bankruptcy. If any of the bankrupt’s assets are pledged as security to the point where the amount owing to the secured creditor on the secured debt is the same or more than the value of the asset, then a bankruptcy trustee will not attempt to seize it.

So what may have started out as non-exempt property can become property that will not be seized. Two obvious examples are one of the motor vehicles owned by a person worth more than $7,117 that is heavily financed or a principal residence that has mortgages against it that essentially soaks up all the value.

Another type of asset that may be exempt is life insurance policies. If the beneficiary under the policy listed is the spouse, child, parent or grandparent of the deceased, then the funds flow directly to the beneficiary and avoid probate. The bankruptcy of the deceased does not change that.

Although not an asset per se, and only available while the person is living, are wages salary from employment. A bankrupt person is allowed to keep all of their income. However, all Trustees are required to perform an evaluation to see if the bankrupt must contribute by making surplus income payments. The concept of bankruptcy surplus income has been the subject of certain of my prior Brandon Blogs.

Now, what are exempt assets in bankruptcy if the bankrupt person dies before receiving a bankruptcy discharge? On August 3, 2021, the Court of Queen’s Bench of Alberta, Registrar in Bankruptcy L.R. Birkett released Reasons for Decision in Perry (Re), 2021 ABQB 609 (CanLII). In this case, the Trustee sought advice and directions with respect to whether the principal residence exemption continues or is no longer available on the death of the bankrupt. Keep in mind that the principal residence exemption is much different in Alberta than in Ontario. In Alberta, under the Civil Enforcement Act, an Albertan can claim a principal residence exemption up to $40,000.

However, the fact that the issue was over equity in a principal residence is somewhat irrelevant. The real issue is exempt assets in general. So I would frame it as whether any asset exemption continues or is no longer available upon the death of the bankrupt.

Mr. and Mrs. Perry each filed an assignment in bankruptcy on December 19, 2012 (date of bankruptcy) and both remain undischarged bankrupts. At the date of bankruptcy, the bankrupt husband was the only registered owner of the couple’s principal residence. The bankrupt husband died on January 28, 2018.

He did not have any dependents at the time of his death. The bankrupt wife is the only beneficiary under his Will. The widowed bankrupt wife moved from the home and the Trustee sold it.

As a first observation, this is a perfect example of why a bankrupt should not allow the bankruptcy proceedings to drag on. Future events are impossible to predict. Winning a lottery or acquiring an inheritance are the two best reasons to avoid letting the bankruptcy process linger for a very long time. If such a windfall occurs, the bankruptcy trustee administering the bankruptcy estate can claim it.

Types of assets commonly exempt from bankruptcy across Canada: The Registrar’s analysis

The question is does the personal exemption of an undischarged bankrupt remain after his death? In Alberta, the applicable laws under which property is exempt from execution or seizure are set out in the Civil Enforcement Act (CEA) and the Civil Enforcement Regulation(CER). The combined effect of s.88(g) CEA and s 37(1)(e) CER allows an enforcement debtor to claim up to $40,000 of the equity in the debtor’s principal residence as being exempt from execution or seizure. The Registrar noted that the personal exemption is personal to the individual, in this case, the deceased bankrupt husband.

Section 92(1) of the CEA specifically provides that where the enforcement debtor is deceased, the property of the debtor that would be exempt if the debtor were alive remains exempt from writ proceedings against the debtor’s estate for the period of time that the property is required for the maintenance and support of the deceased debtor’s dependents. This allows the dependents of a deceased enforcement debtor the opportunity to access up to $40,000 of exempt equity in the debtor’s principal residence for their needs.

In this case, the widowed bankrupt wife moved out of the house and the Trustee sold it. The exempt equity was no longer necessary for her needs. Therefore the Registrar decided that the deceased bankrupt husband’s exemption was lost on his death. Since the exempt equity was not required to support the bankrupt wife’s needs, the Trustee of the dead bankrupt husband can keep the $40,000 amount as property not covered by the provincial exemption and it is available for the benefit of creditors through the bankruptcy debtor‘s unsecured creditors.

There is a strong argument that if the personal exemption resulted in the bankrupt wife being entitled to her deceased husband’s exemption amount, it would not have been paid to her anyway. Rather, it would have been property available to her Trustee for her unsecured creditors and possibly even a dividend to creditors!

What are exempt assets in bankruptcy and what would happen in Ontario?

What would happen in Ontario with exempt assets (up to their prescribed maximum exempt amount)? Under s.5(1) of the Execution Act, if an execution debtor dies before the seizure and sale of his or her personal property, then whatever personal property the deceased already elected for exemption before death remains valid after death and may not be changed by an executor, administrator or heir of the debtor. s.5(2) of the Execution Act says that If no such election was made prior to death, then, in this order, a surviving spouse, a dependent or a family member has the right to make such an election.

S.5(3) of the Execution Act states:

“(3) The total quantity and total value of personal property of an execution debtor that may be claimed as exempt by a person mentioned in subsection (2) and by the execution debtor before death must not exceed the quantity and value of property that would have been exempt property to just the execution debtor. 2010, c. 16, Sched. 2, s. 3 (9).”

The wording of sections 5(1) and (2) of the Execution Act is very different from that of the relevant Alberta legislation referenced above. So, in my view, it appears that the personal exemption in Ontario would survive and not constitute property available for the Trustee to realize upon, but this is only up to the exemption limit of each class of exempt asset.

However, under a bankruptcy process, along with the bankruptcy protection from unsecured creditors, the bankrupt actually hands over all property to the Trustee. The Trustee either overtly or it is implied, hands back to the bankruptcy debtor any property that is exempt from seizure, either from a provincial statute or because it is a fully encumbered asset because of it being pledged for a secured loan and there is no equity.

In Ontario, since the Execution Act allows for selecting exempt assets after death for the benefit of the deceased Estate, it does not appear to me that bankruptcy would change things for the reasons I have stated. The provincial exemptions, up to their maximum limits, would continue to protect certain property from seizure in bankruptcy.

What are exempt assets in bankruptcy summary

I hope that you found this what are exempt assets in bankruptcy Brandon Blog helpful in describing the personal exemptions in Ontario and whether bankruptcy and death can change that. Problems will arise when you are cash-starved and in debt. There are several insolvency processes available to a person or company with too much debt. You may not need to file for bankruptcy.

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

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

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

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

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

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

Call us now for a no-cost consultation.

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

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

what are exempt assets in bankruptcy

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Brandon Blog Post

ESTATE TRUSTEE DURING LITIGATION: THE GOOD AND PRACTICAL WAY TO SAFEGUARD ASSETS DURING ESTATE LITIGAT1ON

Post author By Ira Smith
Post date August 9, 2021

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

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

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

Estate Trustee During Litigation: What is it?

All of us with business or family assets and/or debts can be subject to litigation or worry about it. Whatever the reason, the reality is that no one can remove themselves from the litigation process…not at the beginning, not at the end, and not even in death. Perhaps it is an employee or partner, a spouse or ex-spouse, your children or grandchildren, or even your parents.

Many times a person’s death creates Estate litigation between family members; either over a Will or because there is no Will! Sometimes it is necessary for the appointment of a neutral, independent court officer to control the Estate assets and deal with Estate issues while the beneficiaries and other potential stakeholders are involved in Estate litigation.

In our sister business, Smith Estate Trustee Ontario, we accept the appointment of Estate Trustee and we can also act as the independent court officer Estate Trustee During Litigation. This Brandon Blog is about why it may be necessary for the court to appoint an Estate Trustee During Litigation and why it may turn out to be a necessity.

The role of an Estate Trustee During Litigation

An Estate Trustee During Litigation is tasked with protecting the Estate while the litigation is ongoing and gathering information and, sometimes, helping to resolve the litigation.

The duties include, in particular:

Calculating the fair market value of the estate’s assets and liabilities.
Keeping its assets safe and secure.
Retaining and, if necessary, tracing anything discovered to be missing.
Keeping separate trust accounts.
Reviewing and handling protective and other expenditures.
Establishing, defending, settling and paying any debts.
The filing of income tax returns and if the situation allows for it, whatever tax planning to reduce income taxes can take place.
Investing estate funds to maximize yields until the Estate Trustee During Litigation is discharged of its obligations and funds.

Because of their experience, resources, objectivity, and integrity are sometimes viewed as the best option. As a matter of common law, responsibilities of the Estate Trustee During Litigation cease upon the termination of the litigation, and they are required to transfer assets without having to be ordered to do so separately.

Appointing an Estate Trustee During Litigation

A court appoints an Estate Trustee During Litigation to handle the deceased estate. Section 28 of the Ontario Estates Act, R.S.O. 1990, c. E.21 provides the statutory authority. The Ontario Superior Court of Justice grants administration in the case of either intestacy (when there is no Will) or pending a valid challenge to the validity of the Will, or some other action involving the Will and the deceased estate.

While the ongoing litigation continues, the Estate Trustee During Litigation has all the powers and rights of a general administrator, except for the right to distribute the residue of the property. Administrators of such estates are subject to the immediate control and direction of the court, and the court may order that the administrator receive reasonable remuneration from the estate of the decedent.

Court Appoints Estate Trustee During Litigation

The court appoints the Estate Trustee During Litigation and can set its remuneration. Therefore, the court must have some guiding principles it follows to determine when it is appropriate to make such an appointment. Well, it does. It comes from a situation I previously wrote about in my July 24, 2019, Brandon Blog DYING WITHOUT A WILL IN ONTARIO: DISTRIBUTION TO HEIRS NOT EASY. In that Brandon Blog, I wrote about Toller James Montague Cranston, deceased.

Toller Cranston was a popular Canadian figure skater and artist. He passed away on January 23, 2015, in Mexico where he lived for some 23 years. He passed away without leaving a Will. His sister, Phillipa Baran, was appointed Estate Trustee of the Estate of Toller Cranston by the Mexican court on September 3, 2015, on the consent of Phillipa and her two brothers, Guy Francis Cranston and Hugh Goldie Cranston. These three siblings were the only beneficiaries. In December 2016, her appointment as Estate Trustee of the Estate of Toller Cranston was confirmed by the Ontario court, also on consent. Phillipa Baran, therefore, had sole authority for Estate administration.

Estate litigation ensued and the court-appointed an Estate Trustee During Litigation. A rift between the three beneficiaries developed. The brothers filed a motion to remove their sister as Estate Trustee. One of the points of contention between the siblings was the manner ins which Phillippa Baran was handling the sale of Estate Assets, namely, the artwork of Toller Cranston. While that Estate litigation was pending, in 2019, the Master in the Estates court appointed an Estate Trustee During Litigation to take charge of trust property remaining in the meantime until the issue could be resolved.

During the litigation involving the Estate of Toller James Montague Cranston, the Master ordered the Estate Trustee During Litigation to act without posting an Administration Bond. The Master also ordered that all assets of the Estate shall be immediately turned over to the Estate Trustee Under Litigation who shall also file a Consent with the court. Phillipa Baran was ordered to fully cooperate in the transfer of the Estate assets and the production of records, including all financial records.

Philipa Baran appeals the appointment of the Estate Trustee During Litigation

Philippa Baran sought to set aside the Master’s decision and order appointing an Estate Trustee During Litigation. Her appeal was heard by the Divisional Court. According to the court, the Ontario Superior Court of Justice has statutory authority to appoint an Estate Trustee During Litigation.

On this appeal, the Divisional Court Judge felt the appeal boiled down to two points. Specifically, whether the decision of the Master should be set aside and whether the order issued exceeded the Master’s jurisdiction.

The Divisional Court determined that the Master did not err in either law or fact based on its review of the relevant statutory provisions and jurisprudence. The Judge found nothing wrong with the Master’s Order.

To be fair to Ms. Baran, the Judge noted that there is evidence that she has worked very hard to manage the estate’s assets and debts since Toller Cranston died. It has been a challenging task. It appears, however, that the parties have reached a deadlock.

The Judge also thought Ms. Baran’s handling of the remaining artwork, including either selling the art over her brothers’ objections or planning future rights to the artwork without consulting Guy Cranston or Goldie Cranston, was unreasonable and contrary to her obligations as Estate Trustee.

Ms. Baran was, in the court’s view, in a conflict of interest in this litigation. Ms. Baran’s appeal was therefore dismissed, the appointment of the Estate Trustee During Litigation stands and Ms. Baran must temporarily return her Certificate of Appointment to the court.

Estate Trustee During Litigation: A Primer for Accountants and Lawyers

In addition, the Divisional Court noted some of the factors that will be considered by the court in determining whether or not it should exercise its discretion to appoint an Estate Trustee During Litigation. Accounting firms, lawyers, and anyone advising in the Estates area should be aware of these factors.

In terms of the court’s jurisdiction to appoint an Estate Trustee During Litigation, the following points were confirmed:

When necessary, the court can draw upon its inherent jurisdiction to protect parties and ensure justice in the proceeding by supervising the management of estates and controlling its own processes.
It is in the court’s inherent jurisdiction to appoint an officer to preserve and protect the assets of an Estate that may be at risk during litigation.
A level playing field must be ensured and the assets of the estate protected from the tactics used by litigating parties. No one should be able to use their control over the Estate to benefit themselves or to hurt the other beneficiaries.
It is crucial to administer an Estate’s assets to the maximum advantage of its beneficiaries. When an Estate Trustee faces an adversarial position towards his/her co-trustees or beneficiary, it is prudent to replace that trustee temporarily;’simple prudence demands it.
A court should only refuse the appointment of an Estate Trustee During Litigation in the clearest of cases since it is not an extraordinary measure. In most conflicts between the trustee and beneficiaries, the court will favour the appointment, unless it is not one of those very challenging Estates thereby making the estate administration straightforward.

According to the Divisional Court:

Whether an Estate Trustee During Litigation should be appointed is a discretionary decision. In determining whether the discretion to appoint an Estate Trustee During Litigation should be exercised, the following factors should be considered:

An Estate Trustee may be a witness in litigation.
Conflicts of interest are possible.
Conflict of interests between the Estate Trustee and/or beneficiaries.
There is hostility between the Estate Trustee and/or beneficiaries.
There is a lack of communication between the parties.
There is evidence that some parties were excluded from settlement discussions.

Estate Trustee During Litigation summary

I hope you have found this Estate Trustee During Litigation Brandon Blog informative. The death of a loved one is probably the most traumatic life event you will encounter. It is doubly so if your loved one dies intestate and family members tie up the Estate with costly litigation.

Are you a stakeholder in Estate litigation where the appointment of an independent, neutral court officer can at least unlock the jamming up of assets so that the assets can be preserved and their value maximized for the beneficiaries? If so, Smith Estate Trustee Ontario can help you. Contact us so that we can provide a no-cost consultation to see how we can help you and the other beneficiaries.

Do you have way too much financial debt? Prior to you getting to the phase where you can’t make ends meet reach out to me. I am a licensed insolvency trustee (previously called a bankruptcy trustee). In fact, if you understand that you can’t pay your financial debts heading into or in your retired life, contact us.

We understand the pain and stress excessive financial debt can trigger. We can aid you to get rid of that discomfort as well as address your financial problems by offering prompt action and the ideal plan.

Call Ira Smith Trustee & Receiver Inc. today. Make an appointment with one of the Ira Smith Team for a free, no-obligation consultation and you can be on your way to enjoying a carefree retirement Starting Over, Starting Now. Give us a call today so that we can help you get back to stress and pain-free life, Starting Over, Starting Now.

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

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

Brandon Blog Post

TENANTS IN COMMON VS JOINT TENANCY IN ONTARIO: THE MODERN RULES OF A 1 CO-OWNER UNHAPPY BANKRUPTCY

Post author By Ira Smith
Post date August 4, 2021

tenants in common vs joint tenancy

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.

Tenants in common vs joint tenancy in Ontario: Shared ownership of property

There are two different types of property joint ownership: tenants in common vs joint tenancy. Whether you’re married or not, you still face the same problems. Having a co-owned home raises the issue of how the title should be held; tenants in common vs joint tenancy. Both are equally good. The answer really depends on the relationship between the co-owners and their estate planning needs.

A bankruptcy filing by one of the co-owners complicates matters further. A recent bankruptcy case decision in Ontario where only one of the joint owners filed for bankruptcy, highlights the problem, especially for non-bankrupt co-owner. This Brandon Blog discusses the recent bankruptcy case and what it means for both the bankrupt co-owner and the non-bankrupt co-owner regardless of the ownership choices between tenants in common vs joint tenancy.

Home ownership in Ontario: tenants in common vs joint tenants as co-owners

The word “tenants” is normally thought of with property rental. But both joint tenancy and tenants in common reference to a type of shared property ownership. As tenants in common, the ownership rights and all areas of an entire property are owned equally by all members of the group.

When one of the joint tenants dies, the deceased owner‘s share of the property passes to the surviving owner without going through the probate process. With tenants in common, in the event of death, this is not the case.. For asset protection and estate planning purposes, many married couples who want to hold title to the real property in a co-ownership structure, do so as joint tenants to avoid the probate process. Each joint tenant owns a 50% share ownership stake in the property.

Tenants in common may freely decide what ownership percentage of the property each owns. Each tenant in common does not need to own an equal percentage of the property; unequal ownership is fine as long as all co-owners agree on the ownership arrangements of unequal shares. The tenants in common can also transfer their share of the property through a Will, a real estate transfer, or even an arm’s length sale. Tenants in common are well advised to have a signed co-ownership agreement that spells everything out.

This is the primary difference between tenants in common vs joint tenancy in Ontario for the joint ownership of real property.

Property ownership part 2: tenants in common vs joint tenants in Ontario and the bankruptcy of 1 co-owner

When a co-owner becomes bankrupt, what happens? The Brandon Blog faithful knows that I have previously explained that upon bankruptcy of a person, the non-exempt assets of the bankrupt should be vested in the licensed insolvency trustee, subject to secured creditors‘ rights. For real estate ownership, the answer does not change whether title is held in tenants in common vs joint tenancy.

There is an exemption in Ontario for equity in one’s home of not more than $10,783. It is not an exemption for the first $10K, but rather if the total equity is below that amount. Therefore, we can consider the equity in a bankrupt person’s ownership interest in their home to belong to the Trustee for all practical purposes.

If the bankrupt has a 50% ownership stake due to a joint tenancy agreement, then it is the bankrupt’s equity in half the home. If the bankrupt’s ownership stake is under a tenants in common co-ownership agreement, then it is the equity in only the bankrupt’s co-ownership share. In either scenario, the ownership interest of the non-bankrupt owners are not directly affected. However, the other co-owners’ are affected one way or the other by the bankruptcy of a co-owner. The legal case I am about to tell you about is no exception.

Land Owner Transparency Registry: A Public Database

Upon the person’s bankruptcy, the bankrupt must disclose all assets to the Trustee. With computerization and the internet, it is easy for a Trustee to determine if the bankrupt has an ownership interest in the real estate where they reside. This is whether or not the bankrupt has disclosed such ownership interest.

The decision of the Honourable Justice Pattillo of the Ontario Superior Court of Justice in Bankruptcy and Insolvency dated July 28, 2021, in Re Johansen Bankruptcy, 2021 ONSC 5241 (CanLII) highlights the issues in the bankruptcy of a co-owner of real estate. In December 2016, Mr. Johansen filed a voluntary bankruptcy assignment. In his sworn statement of affairs, he listed no realizable assets and liabilities of $73,968 (unsecured) and $14,950 (secured). No mention is made of any ownership in real estate.

The Trustee learned of the bankrupt’s interest in the home he lived in with his mother in March 2017. In the period from April 2017 to October 2020, the Trustee wrote to the bankrupt and Mrs. Johansen as well as spoke to the bankrupt several times about his interest in the home and why it hadn’t been disclosed. The bankrupt did not provide any information other than denying interest in the property, and his mother did not respond.

A FedEx courier envelope containing a one-page statutory declaration purportedly signed by Mrs. Johansen on October 18, 2018, arrived at the Trustee on October 16, 2020. Her declaration stated, in part, that putting the 20% in the bankrupt’s name was intended to provide her son with an interest in her Estate over and above any other entitlements under her Will. According to her, the 20% was a gift to be realized only after her death.

In the Trustee’s view, the bankrupt and his mother are playing games with each other. The Trustee applied to the court for a declaration that the bankrupt held a 20% interest in the home at the time of bankruptcy, and that he could partition and sell it. Despite the Trustee having a lawyer, the bankrupt represented himself. It would have been better if he had gotten legal advice and been represented in court.

Tenants In Common vs Joint Tenancy: Can your 90-year-old mother be thrown out of her house?

The Judge determined that the bankrupt owned a 20% interest in the property based on the legal title, and hence, that 20% interest vested in the Trustee pursuant to s. 71 of the Bankruptcy and Insolvency Act (Canada) (BIA).

Mrs. Johansen’s statutory declaration to the effect that the bankrupt did not own the real estate and that the 20% was a gift that only passes to him on her death was not accepted by the Judge. The declaration was signed some two years after the bankruptcy when the Trustee’s ownership interest was well known. Despite repeated requests from the Trustee for information, it was not produced for another two years. In addition to what was noted by the Judge, his main concern was the way she characterized the bankrupt’s interest, given the evidence concerning the property they owned before this home, which Mrs. Johansen failed to mention.

Mrs. Johansen and the former marriage of the bankrupt’s wife, as well as the bankrupt, were the three parties on title to the home they purchased on January 30, 2007. They obtained a mortgage from TD Bank on January 30, 2007, which was discharged on February 21, 2007. Due to a marital split, the bankrupt’s wife was removed from the legal title on October 17, 2008, leaving just his mother Mrs. Johansen and himself as parties on the legal title. The bankrupt admitted that his ex-wife was paid for her interest in that home. On June 28, 2012, the bankrupt and his mother sold that home for $567,000, and the same day purchased the current home for $450,000.

The home was purchased in 2012. The title documents recorded at the time, its ownership is divided between 20% owned by the bankrupt and 80% owned by Mrs. Johansen. Mrs. Johansen and the bankrupt both signed the Land Transfer Tax affidavit showing as between tenants in common vs joint tenancy they chose to own the home as tenants in common. There are no mortgages recorded on the title.

All title searches, including a current title search, did not reveal the nature of the interests of each of Mrs. Johansen, the bankrupt or his ex-wife held in that previous home. However, it did show that each of them had an interest in it. The Judge determined that when Mrs. Johansen and the bankrupt bought the current home, it is a reasonable conclusion that the bankrupt had a 20% ownership interest in it. It was not intended to only pass on Mrs. Johansen’s death.

Justice Pattillo did not accept the bankrupt’s evidence that he has no interest in the property and had no knowledge that he was one of the parties on title. Given the history and the fact that he signed the affidavit of Land Transfer Tax at the time of purchase, Justice Pattillo held that the bankrupt was aware he had an interest in the legal title in the property.

Justice Pattillo found that the Trustee had the standing to bring the application for partition or sale of the property since he is a person with an interest in it. The Judge noted that Mrs. Johansen is 90 years old and does not wish to sell her home. Based on the evidence, however, he did not consider that to be of sufficient hardship to warrant refusing the requested remedy.

Tenants in common vs joint tenancy: The bankruptcy of 1 co-owner will affect the others

The Judge stayed his order for three months. He encouraged the bankrupt and through him his mother to seek professional advice so that this issue can be resolved with the Trustee before the sale process begins. The order will take effect if a resolution is not reached within that timeframe.

Now that the prospect of the sale of the entire home, not just the bankrupt’s co-ownership interest, was a reality, the bankrupt and his mother needed professional guidance. Their professional advice would be that the Trustee is only entitled to 20% of the bankrupt’s equity interest. So, if the mother from her own funds, or by getting a mortgage, can come up with the value of the 20% interest and pay it to the Trustee, then the house will not get sold. She will have bought the bankrupt son’s 20% interest, and the Trustee will have all the money he is entitled to.

If one co-owner goes bankrupt, the other co-owners are affected as well. It is the Trustee’s responsibility to convert the bankrupt’s equity into cash. One or more of the remaining co-owners are the natural buyers of the bankrupt co-owner’s interest. Sometimes non-bankrupt co-owners must sell, as is the case for Johansen if the mother cannot purchase the son’s equity from the Trustee, but most often someone will purchase the Trustee’s equity to maintain the status quo.

Had the choice of ownership interest as between tenants in common vs joint tenancy, this would not have changed the outcome of this case.

A lawyer can help you understand tenants in common vs joint tenancy in Ontario

I hope that you found the tenants in common vs joint tenancy Brandon Blog interesting. Problems will arise when you or your company are in financial distress, cash-starved and cannot repay debts. There are several insolvency processes available to a company or a person with too much debt.

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

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

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

Call us now for a no-cost consultation.

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

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

tenants in common vs joint tenancy

Brandon Blog Post

REVERSE VESTING ORDER: 1 REMARKABLE CREATIVE WAY TO DO FINANCIAL RESTRUCTURING

Post author By Ira Smith
Post date August 2, 2021

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

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

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

Vesting order and reverse vesting order

In a corporate insolvency case, a court may grant a vesting order, which authorizes the sale of a company’s assets to the buyer once the purchase price is paid. A vesting order vests ownership in the purchaser as a result of this court order. This is proof that the purchaser is entitled to transfer the assets into its name. No matter what insolvency process is used, this is the use of a vesting order.

In the past year or so, a new trend has emerged regarding the sale of the assets of insolvent companies as part of a restructuring under the Companies’ Creditors Arrangement Act (CCAA). That new trend is the use of a reverse vesting order.

In this Brandon Blog, I explain what a reverse vesting order is and why I believe its use will be a significant feature of Canadian firm restructurings in 2021 and beyond.

Reverse vesting order – A powerful tool for maximizing recovery in complex insolvencies

A reverse vesting order can be very useful in complex insolvencies. A timely recovery can benefit creditors, and the process can maximize recoveries for all parties. Reverse vesting orders are a good solution for an insolvent debtor corporation when:

there are a large number of secured creditors, unsecured creditors and assets;
all of the assets do not have an immediate buyer;
the company is insolvent; and
the company must deal with unwanted assets and a group of creditors in a particular way.

It is best used in a large-scale CCAA corporate restructuring but is not limited to that.

reverse vesting order

Reverse vesting order as a third restructuring tool

There have traditionally been two insolvency processes available to licensed insolvency trustees, insolvency lawyers, and company stakeholders. The two are (i) liquidating assets; and (ii) reorganizing companies. In general, assets are liquidated through either receivership or bankruptcy. Incorporated companies can restructure either under the provisions of the Bankruptcy and Insolvency Act (Canada) (BIA) or, for larger and more complex restructurings, under the CCAA. It is obvious that assets must be sold in order to liquidate them.

Sometimes, as part of a corporate restructuring, there are redundant and unwanted assets that can be sold to raise cash. The question is, what if the real value, especially a going-concern value of a company in a commercial insolvency case is not in its tangible assets. Rather, its real value lies in:

the ability to operate in a specific industry and such licenses cannot be sold by their very nature and wording – think of the cannabis and nursing home industries as two examples;
tax losses and tax attributes that can be monetized if the licensed insolvency trustee is also able to take over the shares; or
being listed on the stock exchange and thus as a public company having a greater market value than a private corporation.

As a result, it is extremely difficult to realize any value from such assets.

What is the importance of the reverse vesting order? How a reverse vesting order works will tell you all you need to know about why it is important as a third restructuring tool. Under a reverse vesting order, a newly incorporated residual corporation is added as a party to the CCAA proceedings.

As part of the CCAA restructuring, the operating debtor company transfers undesirable assets and liabilities to the newly incorporated non-operating company. With its assets and liabilities selected by the purchaser, the debtor company holds only the desirable assets and liabilities, which means its common shares can be sold rather than the company’s assets. As a result, valuable permits, contracts, tax losses, and statutory authority are preserved, which can otherwise be lost in a disposition of assets.

Why is reverse vesting order important?

A reverse vesting order is an alternative to the traditional CCAA plans of arrangement, particularly for companies operating in highly regulated environments or when there is no value remaining after the realization of secured debt and the parties intend to continue the running of the debtor company.

A reverse vesting order is an alternative to the traditional CCAA plans of arrangement, particularly for companies operating in highly regulated environments or when there is no value remaining after the realization of secured debt and the parties plan to continue operating the debtor company.

By using a reverse vesting order, existing corporations, which have been streamlined to become solvent through an innovative solution, are transferred to new investors instead of desirable assets being sold through a court-approved sale. The debtor corporation that initially filed for bankruptcy protection under the CCAA can now be removed from the restructuring proceedings. There are certain unwanted assets and unwanted liabilities that are transferred to the newly incorporated residual corporation. There can then be asset sales allowing for some sort of distribution to creditors (either in a plan of arrangement or in bankruptcy) in order to allow some creditor recovery.

A reverse vesting order may prove to be the most efficient approach to facilitate a going concern operation transfer through restructuring proceedings, letting businesses emerge from CCAA proceedings quickly without having filed a plan of arrangement, while preserving key attributes of the corporate entity and its existing corporate structure.

Legal challenges to the use of reverse vesting orders have been unsuccessful. I would like to discuss the case of Nemaska Lithium Inc.

Reverse vesting order issued by Québec Superior Court after first contested hearing

In December 2019, Nemaska Lithium Inc. and related companies (Nemaska Lithium or the Nemaska entities) commenced CCAA proceedings. A lithium mining project was developed in Quebec by them. A CCAA judge approved an uncontested sale or investment solicitation process (SISP) in January 2020 that led to the acceptance of a bid that was subject to the condition that a reverse vesting order is issued.

A proposed reverse vesting order provides that Nemaska entities will be acquired by the bidder free of the claims of the unsecured creditors, which will be transferred as part of a pre-closing reorganization to a newly incorporated non-operating company.

The reverse vesting order will allow the purchaser to continue to operate the Nemaska entities in a highly regulated environment by maintaining their existing permits, licences, authorizations, essential contracts, and fiscal attributes. In essence, it is a credit bid in which the shares of the Nemaska entities are acquired in exchange for the assumption of the secured debt.

A shareholder (who was also an alleged creditor) filed motions opposing the reverse vesting order issuance on multiple grounds, including:

a vesting order cannot be granted for anything other than a sale or disposition of assets through a vesting order for sales of assets;
the reverse vesting order is not permissible under the CCAA because it allows the Nemaska entities to exit CCAA protection outside of a plan of arrangement or plan of compromise;
this reverse vesting order contemplated a corporate reorganization that is not permitted by securities laws; and
in light of the proposed transaction, the directors and officers of Nemaska Lithium Inc. should not be released.

The Honourable Justice Gouin, J.S.C., reviewed and assessed:

the SISP process which led to the offer;
the lack of alternatives to the offer;
the potential harm to Nemaska Lithium‘s stakeholders, including its employees, creditors, suppliers, and the Cree community;
stopping the restructuring process to relaunch a SISP in the future following what was already a thorough examination of the market or, alternatively,
bankrupting the Nemaska entities.

In light of all these factors, the judge approved the reverse vesting order on October 15, 2020. Limiting the remedies available under the CCAA would unnecessarily hinder the development of innovative solutions for more complex commercial and social issues in Canadian insolvency matters.

The decision and formal recognition of reverse vesting order by the Court of Appeal

Leave to appeal the CCAA judge‘s decision was sought by the parties who objected to the reverse vesting order being made. The Appellate Court carefully considered the judge’s decision-making process and particularly that the Québec Superior Court judge relied extensively on the principles set out by the Supreme Court of Canada in the matter of 9354-9186 Quebec inc. c. Callidus Capital Corp., namely the:

development of CCAA proceedings and the role of the CCAA supervising judge;
remedial objectives of Canadian insolvency laws to provide timely, efficient, and impartial resolution of a debtor’s insolvency, secure fair and equitable treatment of creditors’ claims against a debtor, protect the public interest, and balance the costs and benefits of restructuring or liquidating the debtor company’s assets;
CCAA‘s goal of preventing social and economic losses from liquidating insolvent companies by facilitating their reorganization and survival as a going concern; and
CCAA judge‘s broad discretion under s. 11 of the CCAA in an effort to advance the CCAA’s remedial objectives while taking into account three fundamental factors that the debtor company application must prove: (1) the requested order is appropriate in the circumstances, and (2) good faith on the part of the applicant, and (3) the applicant has been acting with due diligence.

It was determined by the Court of Appeal judge that the risk of potential harm to stakeholders outweighed any legal merits of any arguments raised by the opposing parties. Therefore, the Quebec Court of Appeal denied the leave to appeal the decision of the CCAA judge.

Canada’s Supreme Court has denied leave to appeal. Having now established reverse vesting as an option for CCAA restructurings, the law is now set in stone.

The Nemaska case is the first reverse vesting order transaction to withstand judicial scrutiny in Canada and reaffirms the flexibility of CCAA proceedings for distressed M&A transactions of distressed businesses.

Reverse vesting order and distressed M&A opportunities

I hope that you found this reverse vesting order Brandon Blog interesting. Problems will arise when you or your company are in business distress, cash-starved and cannot repay debts. There are several insolvency processes available to a company or a person with too much debt.

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

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

Call us now for a no-cost consultation.

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

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

Tags 9354-9186 Quebec inc. c. Callidus Capital Corp., Appellate Court, Bankruptcy, Bankruptcy and Insolvency Act, Canadian insolvency, CCAA, CCAA judge, CCAA proceedings for distressed M&A transactions, CCAA supervising judge, commercial insolvency, Companies’ Creditors Arrangement Act, corporate insolvency, corporate reorganization, corporate restructuring, court-approved sale, covid-19 pandemic, debtor company, debtor corporation, distressed businesses, going-concern value, insolvency processes, insolvent, insolvent companies, Ira Smith Trustee, leave to appeal, Nemaska entities, Nemaska Lithium Inc., newly incorporated non-operating company, newly incorporated residual corporation, plan of arrangement, plan of compromise, plans of arrangement, receivership, remedial objectives, restructuring tool, reverse vesting order, Reverse vesting order as a third restructuring tool, Reverse vesting order issued by Québec Superior Court after first contested hearing, Reverse vesting order – A powerful tool for maximizing recovery in complex insolvencies, sale or investment solicitation process, secured creditors, SISP, Supreme Court of Canada, The decision and formal recognition of reverse vesting order, undesirable assets, unsecured creditors, unwanted assets, vesting order, vesting orders, Why is reverse vesting order important

Brandon Blog Post

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

Post author By Ira Smith
Post date July 14, 2021

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

What does the bankruptcy trustee investigate? All of that.

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

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

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

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

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

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

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

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

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

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

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

What does the bankruptcy trustee investigate summary

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

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

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

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

Call us now for a no-cost bankruptcy consultation.

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

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

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Brandon Blog Post

BANKRUPTCY DISCHARGE ORDER: OBSESSED CREDITOR LOSES APPEAL OF THE DISCHARGE ORDER

Post author By Ira Smith
Post date July 12, 2021

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

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

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

What does bankruptcy discharge mean in Canada?

A bankruptcy filing is a form of insolvency process under Canadian bankruptcy law available to individuals and businesses. Bankruptcy deals with a person’s or company’s debt load and assets. After performing a detailed initial assessment, the licensed insolvency trustee will be in a position to advise the debtor if they will be better serviced through a restructuring process as an alternative to bankruptcy (consumer proposal or Division I Proposal for individuals, Division I Proposal or Companies’ Creditors Arrangement Act bankruptcy protection for companies) with creditors, or whether the debtor will be better served filing for bankruptcy.

The final piece of any bankruptcy process for an individual is the bankruptcy discharge. Individuals who go bankrupt are entitled to a discharge from bankruptcy. Companies are only entitled to one if every bankruptcy claim filed is paid in full, with interest. Because this never happens, companies do not receive a bankruptcy discharge. It is not impossible, but for this reason, it really does not happen.

If you are thinking about filing an assignment in bankruptcy, then you may be wondering about the bankruptcy discharge process and how it will affect you. Many people think their debts are eliminated at the moment of their bankruptcy filing.

This is incorrect. It is the bankruptcy discharge that will remove all (with certain limited exceptions) of your unsecured debts from your life and will result in letting you move forward with a clean slate. In this Brandon Blog, I discuss the bankruptcy discharge process and a recent decision of the Supreme Court of British Columbia hearing an appeal to the decision of the Master sitting as bankruptcy registrar on a bankrupt’s application for discharge.

Bankruptcy discharge and its consequences for the bankrupt

When you are granted a bankruptcy discharge, this means that those debts caught by your bankruptcy are no longer your responsibility. This means that every action from creditors or the collection agencies they have retained stops trying to collect the debt obligations.

As I previously mentioned, most almost all debts are wiped off your slate when you receive your discharge from bankruptcy. The kinds of debts that remain even after a bankruptcy discharge are:

spousal or child support payments;
fines or penalties mandated by the court;
claims arising from fraud or fraudulent breach of trust;
student loan debt if less than 7 years have passed since the bankrupt stopped being a part-time or full-time student.
any kind of financial debts that are secured against your assets, such as a home mortgage or automobile financing, are not discharged as a result of your bankruptcy discharge.

These sorts of financial debts endure after bankruptcy as they are not released. The individual will be required to continue paying those financial obligations according to their terms. All various other financial obligations are discharged and do not have to be paid.

What are the types of bankruptcy discharge?

If there is no Trustee opposition or creditor opposition to a bankrupt’s application for discharge, and the bankrupt has fulfilled all of their duties of a bankrupt, in most situations, the licensed insolvency trustee can issue an automatic discharge which provides the bankrupt with an absolute discharge from bankruptcy.

If there is an opposition or the bankrupt meets one of the criteria that does not allow for an automatic discharge (such as the bankruptcy process finding the bankrupt a high income tax debt situation), there must be a discharge hearing in court which is heard by a Master of the court sitting as the registrar in bankruptcy. There are 4 types of bankruptcy discharge and a 5th bankruptcy outcome is also possible. They are:

absolute – an absolute discharge means the bankrupt is entitled to an immediate discharge. This can be given by the licensed insolvency trustee in the bankruptcy estate handling the bankruptcy administration if the bankrupt has fulfilled all of their duties and there is no trustee or creditor opposition;
conditional discharge – can get a discharge after meeting one or more conditions. The most common type of condition of discharge involves paying a sum of money to the licensed insolvency trustee;
suspended – the bankrupt’s discharge will take place at a later date and may very well be combined with either an absolute bankruptcy discharge or conditional bankruptcy discharge;
refused– the court refused to grant a bankruptcy discharge probably because the bankrupt has failed to provide full disclosure or perform other bankruptcy duties; or
“no order”– the Trustee advises the court that regardless of the time period that has passed, the bankrupt has actually not satisfied every one of his or her obligations and the bankrupt has actually failed to reply to the Trustee’s demands for information. In this situation, when the “no order” order is provided, the licensed insolvency trustee is at liberty to seek its discharge. Once the bankrupt person has actually fulfilled the requirements set by the court, the bankrupt can re-apply for a discharge hearing by the court.

Bankruptcy is a roughly 9-month legal process to eliminate debt

For a first-time bankrupt with no surplus income who fulfills of their duties, including attending the 2 mandatory credit counselling sessions, they are entitled to their bankruptcy discharge after a bankruptcy period of 9 months from the date of bankruptcy.

If this is your second bankruptcy a discharge will not be available after 9 months. A 2nd bankruptcy lasts for a minimum of 24 months if you do not have any surplus income payments to make to the Trustee. If you have surplus income, a second-time bankrupt must make those monthly payments for 36 months before they are entitled to a bankruptcy discharge.

For a 3rd or subsequent bankruptcy, the timeline is the same as the 2nd time bankrupt. However, it is much more possible that there will certainly be resistance to the discharge by the Trustee or the creditors. The court can also impose whatever conditions it sees fit.

Creditor objects to the decision of the Master on bankrupt’s application for discharge

On July 9, 2021, the decision in Hanlon (Re), 2021 BCSC 1348 in the Supreme Court of British Columbia was released. This was an appeal from an order by the bankruptcy registrar of the Supreme Court of British Columbia dated April 28, 2021 in Hanlon (Re), 2021 BCSC 800, VA B190492. This is an appeal under s. 192(4) of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (BIA), from an order of a master of that Court, sitting as a registrar in bankruptcy, granting the bankrupt, Mr. Hanlon, a bankruptcy discharge that was made conditional on his paying $7,500 to the Trustee.

The appellant, Ms. Johnson, is one of Mr. Hanlon’s creditors. She states that the registrar erred in approving the discharge on those terms. If the appeal is allowed, she looks for an order refusing Mr. Hanlon’s application for a discharge, with leave to apply again in two years, or alternatively, giving a discharge conditional on his paying $50,000. The appeal is opposed by both Mr. Hanlon the bankrupt, and the Trustee. The appeal was heard by Judge Milman, Canada’s bankruptcy legislation, the BIA states that a person dissatisfied with an order or decision of a registrar can appeal that decision to a judge of that court who in that capacity is sitting as a bankruptcy judge.

The alleged errors made by the registrar in the making of the order of conditional discharge

Ms. Johnson argued that the registrar made certain errors in granting the conditional bankruptcy discharge order. Ms. Johnson says that in granting the bankruptcy discharge on those terms, the registrar erred as follows:

in concluding that Mr. Hanlon had complied with the injunction resulting from Ms. Johnson’s original successful litigation against Mr. Hanlon when he had not;
in falling short to take into account Mr. Hanlon’s refusal to agree with the accuracy of the trial judge; and
in failing to consider Mr. Hanlon’s real income earning potential.

The standard of review on such an appeal

There is a standard of review on such an appeal from an order of a bankruptcy discharge hearing. S. 192(1) of the BIA gives the bankruptcy registrar the authority to, amongst other things, grant orders of discharge. S. 192(4) of the BIA allows a party dissatisfied with an order or decision of a
registrar may appeal it to a judge.

In granting an order of discharge in the bankruptcy process, the registrar is exercising judicial discretion. If the registrar has acted reasonably, the judge should not set it aside or ignore it. Further, if an appeal from a bankruptcy discharge order is based on alleged errors in findings of fact, the court will not interfere if there is no overriding error in the findings of fact and there is evidence from which the findings of fact could be made. Discretionary decisions may, naturally, be overturned if the registrar has materially misinterpreted the law or made an error in respect of the facts underlying the use of that discretion.

When a registrar’s decision in a bankruptcy discharge hearing imposes conditions, those conditions must be realistic for the bankrupt to perform in a reasonable period of time. Where the amount ordered was unrealistic and the bankrupt’s discharge is conditional on making additional payments, the appeal court did hold that results in an error of law and the appellate judge can either substitute the conditions or refer the matter back to the registrar for reconsideration.

**The judge’s decision on the appeal from the registrar’s bankruptcy discharge order**

The judge dismissed the appeal finding there were no overriding errors made by the registrar. With respect to the amount of $7,500 ordered as a condition of discharge from bankruptcy, the judge found as follows:

Ms. Johnson says that the registrar did not consider Mr. Hanlon’s untapped earning capacity and instead concentrated practically completely on her arguments of his potential inheritance. She suggests that Mr. Hanlon could be earning more than he is. In her opinion, he could earn more to enable him to make a settlement of $50,000 rather than the $7,500 that was ordered.

Mr. Hanlon’s real historic earnings offered adequate assistance for the registrar’s verdict that he was incapable of paying any more than the $7,500 that she ordered for him, did not have the financial prospects himself to do so and without getting personal loans from family members to help him with that. That was properly decided by the registrar based on the evidence before her.

The judge found that there is no merit in this or any other of the grounds of appeal. He found no error in the registrar’s decision, and having found the discharge condition that she imposed to have been reasonable in the circumstances, he dismissed the appeal.

Bankruptcy discharge summary

I hope that you found this bankruptcy discharge Brandon Blog interesting and that you now have a good appreciation for the process at the end of the administration for a person who files for bankruptcy and the considerations of the court if someone appeals a bankruptcy discharge order. Problems will arise when you are cash-starved and in debt. There are several insolvency processes available to a person or company with too much debt.

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

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

Call us now for a no-cost bankruptcy consultation.

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

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

Tags action from creditors, alternative to bankruptcy, application for discharge, assignment in bankruptcy, automatic discharge, bankruptcy deals, bankruptcy discharge, bankruptcy duties, bankruptcy estate, bankruptcy filing, Bankruptcy Judge, bankruptcy law, bankruptcy legislation, bankruptcy outcome, bankruptcy period, bankruptcy process, bankruptcy protection, Companies’ Creditors Arrangement Act, condition of discharge, condition of discharge from bankruptcy, conditional discharge, Consumer Proposal, creditor opposition, date of bankruptcy, debt load, debt obligations, discharge hearing, Division I Proposal, duties of a bankrupt, files for bankruptcy, filing for bankruptcy, income tax debt, Ira Smith Trustee, licensed insolvency trustee, mandatory credit counselling sessions, surplus income, Trustee opposition, unsecured debts

Brandon Blog Post

CUSHMAN WAKEFIELD TORONTO: COURT READILY APPOINTS FIRM TO REVIEW LAURENTIAN’S MASSIVE REAL ESTATE HOLDINGS

Post author By Ira Smith
Post date July 7, 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.

Sudbury, Ont., school looks for court approval to move on to Phase 2 of restructuring plan

On June 29, 2021, the Laurentian University CCAA Court-appointed Monitor issued its Fifth Report to Court in the Laurentian University insolvency restructuring under the Companies’ Creditors Arrangement Act (Canada) (CCAA). On July 5, 2021, it filed its Supplementary Fifth Report with the Ontario Court.

The report was issued in support of Laurentian’s application to the court for approval to retain a Toronto office of Cushman & Wakefield (Cushman Wakefield Toronto) as Real Estate Advisor to Laurentian. The Supplementary Fifth Report was filed at the direction of the Ontario Court (further described below).

I have previously written about Laurentian University’s court-supervised restructuring in 5 previous Brandon Blogs:

LAURENTIAN UNIVERSITY FACING INSOLVENCY MAKES STARTLING CCAA NEWS FILING FOR CREDITOR PROTECTION – February 8, 2021
LAURENTIAN UNIVERSITY INSOLVENCY RESTRUCTURING – OUR UPDATED GUIDE ON ITS MASSIVE CUTS TO GAIN FINANCIAL HEALTH – May 5, 2021
LAURENTIAN UNIVERSITY IN SUDBURY: THE LAURENTIAN FEDERATED UNIVERSITIES SUFFERED A CRUSHING DEFEAT – May 17, 2021
COMPANIES’ CREDITORS ARRANGEMENT ACT: CREDITORS ARE NOW ABLE TO MAKE BOLD CLAIMS AGAINST LAURENTIAN – June 14, 2021
LAURENTIAN UNIVERSITY OF SUDBURY: LAURENTIAN SCORES HUGE WIN OVER THORNELOE UNIVERSITY – June 28, 2021

The first phase of the Laurentian insolvency process had many parts to it. First was to declare its poor financial situation and file for bankruptcy protection under the CCAA and perform a review of its various contracts, leases, supplier arrangements, the federated university model, its academic offerings and its faculty and non-teaching staffing. As part of this first phase, Laurentian also needed to determine where cuts needed to be made.

Laurentian then implemented the reductions for cost savings including reaching new arrangements with the unions representing its employees to set out the terms of new collective bargaining agreements and to disclaim various agreements, including the federated university agreement with Huntington University, Thorneloe University and the University of Sudbury.

My February 8 and May 5 Brandon Blogs describe these steps in detail.

Next in this phase 1 was getting approval from the Ontario Court to retain a consultant to, amongst other things, perform a governance review and for the Monitor to get approval for the claims process the Monitor approves of. At this stage of the process, Laurentian pulled together a list of creditors; secured creditors and unsecured creditors.

This was all described in my June 14 Brandon Blog, including the changes to the claims process resulting from the hearing in the Ontario Court. The Monitor advised the court that the Monitor approves of the amendment and therefore the amended claims process received court approval.

In this Brandon Blog, I describe the second phase of this insolvency process and the Laurentian restructuring plan now being undertaken. It is the real estate review.

Cushman Wakefield Toronto: Laurentian University plans real estate review to see what could help pay off debt

On July 5, 2021, the Court listened to Laurentian University’s application for an order approving Laurentian to retain Cushman Wakefield Toronto as a realty advisor to do an evaluation of Laurentian’s real estate portfolio, and also its request for a sealing order with respect to the monetary details of the Cushman Wakefield Toronto retainer.

The Monitor advised the court that a significant amount of Laurentian University’s assets is represented by its real estate holdings. This includes the land and buildings on which the primary campus rests in addition to off-campus realty. The Monitor also advised that Laurentian has noted that with the academic and labour force changes lately executed within the CCAA proceedings, there may be opportunities to customize its use of space within different structures. This leads to possibilities to monetize specific real estate assets. Therefore, Laurentian determined, that it was appropriate to involve a real estate consultant to take on a study of its real estate portfolio in order to advise Laurentian on the best way to monetize its available real estate.

The Monitor described its RFP process that had a deadline of May 28 for the submission of proposals from qualified real estate professionals. After the Monitor, Laurentian and its respective legal counsel received certain requests for additional time in order to submit a proposal, the Monitor extended the deadline for submissions to June 1, 2021. The Monitor advised the Ontario Superior Court of Justice Commercial List that it received 6 proposals and held meetings with 4 of the parties who submitted a proposal in order to interview each of them.

The Monitor recommended to the court that the proposed contract between Laurentian and Cushman Wakefield Toronto (including the third parties Cushman Wakefiled Toronto advised would be part of its team) be approved. The Monitor also advised the Court that Laurentian would be seeking a sealing order from the Ontario Superior Court of Justice Commerical List concerning the financial terms of the Cushman Wakefield Toronto retainer. Accordingly, a copy of the Cushman Wakefield Toronto proposal excluding any financial terms.

What the court said about the Sudbury school plans a real estate review in Phase 2 of its court-guided restructuring process

Chief Justice Morawetz took issue with the part of the motion that requested the financial terms of the Cushman Wakefield Toronto proposal to continue to be confidential under a sealing order. He directed that the total amount of the retainer be disclosed. Proprietary information such as how Cushman Wakefield Toronto calculated its total fee could remain private.

After evaluating the Confidential Appendix, Chief Justice Morawetz shared his view that specific aspects of the appendix did not contain commercially sensitive or proprietary details. Upon obtaining further instructions, Laurentian legal counsel advised the court that certain portions of the appendix could develop part of the general public record. Therefore the information covered by the sealing order was tightened up.

The sole purpose of the Monitor’s Supplementary 5th Report to Court dated July 5, 2021, was to abide by the Court’s decision that a redacted copy of the financial terms of the Cushman Wakefield Toronto retainer must be filed with the Ontario Superior Court of Justice Commercial List so that it will become a public document.

Laurentian University owns some of the last undeveloped waterfront on Sudbury’s Lake Nepahwin

So phase 2 of the Laurentian University creditor protection CCAA process is now underway. Laurentian has real estate both on and off-campus that will be reviewed for monetization by Cushman Wakefield Toronto. The monetization will provide the necessary funds to offer to both secured creditors and unsecured creditors in the ultimate financial restructuring plan called a Plan of Arrangement.

Laurentian has some of the last undeveloped waterfront on Lake Nepahwin. Much of that land is bushland, including some prime beachfront property on Lake Nepahwin, where the university has its own beach.

Here is a fun fact about some Laurentian real estate. In recent years, the only public discussion concerning Laurentian’s lands has actually centred on a couple who purchased a residence in the area, just to find out half their backyard, including their septic tank, was encroaching on university property!

The Sudbury couple stated they made offers to Laurentian to purchase the land from them. The latest offer was for them to pay Laurentian $70,000 plus give the university a bigger land parcel in return for the Laurentian land to eliminate the encroachment. Laurentian refused and started a lawsuit against them.

Perhaps as part of the overall financial restructuring, Laurentian can see fit not to continue this war against the Sudbury couple and accept their offer. You would think the Board of Governors has much bigger issues to be concerned about, such as the entire CCAA restructuring including the monetization of the real estate portfolio.

Cushman Wakefield Toronto summary

I hope that you found this Cushman Wakefield Toronto Brandon Blog interesting. Problems will arise when you are cash-starved and in debt. You may have assets that you can monetize to rectify your financial situation. Many do not though.

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

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

Call us now for a no-cost bankruptcy consultation.

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

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

Brandon Blog Post

EXPENSIVE REAL ESTATE MARKET IN TORONTO MAY SLOW DOWN SAFELY DUE TO HOMEBUYER’S GRIDLOCK

Post author By Ira Smith
Post date July 5, 2021

real estate market in Toronto

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

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

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

Real estate market in Toronto introduction

Over the last few years, a lot has been written about the red hot real estate market in Toronto and Vancouver. Not even the COVID-19 pandemic has been able to slow them down. Many have predicted that the real estate market in Toronto is a dangerous bubble about to burst.

There is always a need for housing in Toronto. COVID-19 with the Ontario lockdowns and stay-at-home orders has created much change but has not slowed down the real estate market in Toronto. Many people are moving to the suburbs to get more space now that they have been working and living in their homes 24/7. As a result of travel bans, immigration into Canada has temporarily slowed down immigrants still moving to Toronto.

I recently read two articles that are about totally different aspects affecting the real estate market in Toronto. However, when I put these two very different ideas together, it leads me to the conclusion that natural economic forces may be enough to slow down the market for now without any government intervention.

Real estate market in Toronto: Canadians piled on mortgage debt during COVID-19

In my June 9, 2021, Brandon Blog, IS MORTGAGE DEBT NOW THE OBSESSION FOR MANY CANADIANS? I wrote about the mortgage debt surge and its effect on the overall rise in Canadian consumer debt according to Equifax Canada.

An article published in the Toronto Star on June 30, 2021, looked at Canadians who piled on mortgage debt during COVID-19 and how some economists fear a significant correction in the market. The thrust of the article is about:

the upward pressure on the average price of a home because of bidding wars;
how first-time buyers are being squeezed out of the real estate market in Toronto given the rise in the average home price/average selling price of a home in the GTA;
both first-time homebuyers and homeowners in urban centres looking to move farther out and even into the country both for affordability and to get more space since they plan to make working from home a permanent feature in their life;
how people have maxed themselves out on mortgage debt and how an increase in interest rates may cause financial problems for those homeowners and ultimately a significant correction in the housing markets and a drastic drop in housing prices.
real estate market in Toronto

US interest rates

The US Federal Reserve recently announced that based on its expectations for rising inflation this year, it has advanced the timeline for interest rate hikes. However, the Fed offered no indication as to when it will begin reducing its aggressive bond-buying program. Fed Chairman Jerome Powell acknowledged that the topic was reviewed at a recent Fed meeting.

Advancing the time frame for raising the rate of interest is all relative. The policymaking Federal Open Market Committee left its benchmark short-term borrowing rate at near zero. Yet officials indicated that rate increases won’t come until 2023, after saying last March, it saw no increases until at the very least 2024. So interest rates in the US are anticipated to stay very low for the foreseeable future. So if the US Fed is not increasing interest rates any time soon, mortgage rates should not be either.

Canadian interest rates

At its June 9, 2021 conference, the Bank of Canada held its target for the overnight rate of 1/4 percent, with the Bank Rate at 1/2 percent and the deposit rate at 1/4 percent. The Bank is maintaining its present expectations for the overnight rate. This is strengthened and also supplemented by the Bank’s quantitative easing program, which continues at a target pace of $3 billion each week.

With vaccinations proceeding at a quicker pace and provincial constraints easing over the summertime, the Canadian economy is anticipated to rebound strongly, led by consumer spending. Real estate market activity is expected to moderate yet stay very active. Solid developments in global demand and higher prices for commodities ought to bring about a strong recovery in exports and business investment.

The real estate market in Toronto and interest rates

Therefore, it seems that there will not be upward pressure on interest rates, and therefore probably not on mortgage rates either, soon. Both the US Fed and the Bank of Canada do not seem to be in any hurry to increase interest rates.

Another factor in Canada is the newer mortgage stress test. This newer stress test was created to ensure that borrowers can meet a more stringent economic test to qualify for a home mortgage. Effective June 1 of this year, the newer test requires borrowers to qualify at the higher of an annual rate of interest of either 5.25 percent or 2 percent over the current published home mortgage market rate they can get.

This makes it harder for some to qualify for a home mortgage. The federal government hopes this will lead to lowering the pool of qualified borrowers and therefore at some point, decreasing house prices.

Both the US and Canadian governments seem happy to not try to battle inflation through increased interest rates. Coming out of the pandemic, both countries will welcome their economies bouncing back and growing. Inflation will be a natural by-product of the resurgent economies. Higher prices will mean that employers will have to increase minimum wages if they wish to attract employees to handle business growth. A higher minimum wage without any government intervention of new legislation because of inflationary pressures will be a dream come true, especially in the United States. In Canada, it is always good to head into an election while there is good economic growth.

Given all of the above, I don’t see that the real estate market in Toronto being affected by increased mortgage rates, because, there won’t be an increase in 2021 and possibly not even in 2022. So I don’t see higher interest rates being a factor at all in causing downward pressure on house prices, especially in Canada’s largest city.

Real estate market in Toronto: Homebuyer’s gridlock

The second article deals with homebuyer’s gridlock. How does this relate to the real estate market in Toronto? We have seen that people staying in their homes 24/7 during the coronavirus pandemic has allowed them to reevaluate their long-term housing needs and lifestyle choices. This has kept the Canadian real estate market strong as people see what they like and what they don’t like in their current homes. They want to get more of what they like and want, put their home up for sale and buy that home they feel will suit their needs better.

Other than for perhaps empty-nesters, those making the move are generally buying larger homes. The normal progression is that immigrants coming into Canada, which has been reduced during the pandemic, generally start as renters in Canada’s biggest cities. The dream of all renters is to become first-time homebuyers.

Prospective homebuyers start looking for their starter home. It could be a condominium, a townhouse or semi-detached or detached house. They end up buying from someone who is selling their first home. That person now looks for a larger purchase in the mid-tier. They buy from someone looking to go up into a much larger and perhaps their dream luxury home. Ultimately, the empty-nester luxury home dweller looks to downsize and more than likely will be looking to buy in the condo market. All this market activity fuels the Canadian housing market activity keeping real estate prices strong and strong demand for all types of housing.

Zillow Canada commissioned a new study from Ipsos Reid. Buried among the usual analyses on things like affordability was an unusual item. Home prices across Canada have increased so much, lots of property owners can’t afford to sell. A quarter of house owners all set to sell have not listed, since they can’t afford their next move. This is what a homebuyer’s gridlock is. People are “locked” into their circumstances. It only happens throughout the frothiest of markets, which we are apparently in.

But what happens to market activity if one or more of these different buyer types cannot afford that next move? It means that there will not be as many sellers at different levels of homes. If the number of buyers does not decrease in ratio to the decrease in sellers, this will cause bidding wars and upward pressure on prices.

To determine if there is going to be downward or upward pressure, we have to know the supply and demand statistics for each level of housing. One thing for sure though, if the number of buyers decreases, this means less demand. Less demand means that prices would not increase. They may not drop dramatically, but they certainly will not increase either.

Real estate market in Toronto summary

With borrowing costs remaining low, the mortgage stress test making sure that borrowers can afford their mortgage at higher interest rates and now many would-be sellers not able to afford that next move up, I don’t agree with those market watchers who are predicting a huge real estate market in Toronto bubble about to burst.

Rather, I see market conditions remaining relatively stable, with perhaps less volume of activity than we have seen over the last couple of years. Average house prices may go down, but I don’t believe it is going to be a huge drop. Rather, I think the real estate market in Toronto may take a bit of a rest, until the next round of price appreciation. Ultimately, population growth in and around the GTA should fuel a new cycle of pent-up demand that will create new demand for ownership housing in Canada’s major cities.

I hope that you found this real estate market in Toronto Brandon Blog interesting. Problems can arise when there are increases in the prices of the goods and services that you need when you already have too much consumer debt.

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

Call us now for a no-cost bankruptcy consultation.

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

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

Brandon Blog Post

TRUSTEE IN BANKRUPTCY: CERTAIN ACTIONS AGAINST TRUSTEE CAN BE UNLEASHED WITHOUT FIRST REQUIRING COURT PERMISSION

Post author By Ira Smith
Post date June 21, 2021

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

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

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

Trustee in Bankruptcy: No action against Trustees without leave of court

Canadian insolvency laws say that there cannot be any legal action against trustees in bankruptcy (now called a licensed insolvency trustee) without the prior leave of the court. The leave application, more often than not, would be brought before a Bankruptcy Judge. However, as you will see below, any Judge of the Ontario Superior Court of Justice could hear such an application involving a trustee in bankruptcy.

Section 215 of the Bankruptcy and Insolvency Act (Canada) (BIA) protects the Canadian bankruptcy laws for all officials in the bankruptcy process, including the bankruptcy trustee:

“215 Except by leave of the court, no action lies against the Superintendent, an official receiver, an interim receiver or a trustee with respect to any report made under, or any action taken pursuant to, this Act.”

In my January 9, 2019, Brandon Blog, PRIVACY BREACH LAWSUIT AGAINST LICENSED INSOLVENCY TRUSTEE FAILS, I described one attempt that failed to obtain leave of the court to begin litigation against a trustee in bankruptcy.

Our bankruptcy and insolvency courts believe that the test to determine whether a court should use its discretion to give leave for litigation to be commenced against either a trustee in bankruptcy or a court-appointed receiver was not a tough test. The protection is only to ensure that the receiver or trustee in bankruptcy is protected against senseless or burdensome actions that have no basis.

In this Brandon Blog, I describe a recent Ontario court decision that further clarifies a basis for when the court will exercise its discretion and allow litigation against a licensed trustee in bankruptcy. As the Motions Judge used the old terminology, I will stick with it in this blog.

Action against the trustee in bankruptcy background

The Motion Judge‘s Endorsement was released on May 31, 2021. The Endorsement was from a motion by the plaintiff for a determination as to whether or not leave of the court under S.215 of the BIA was required. The plaintiff’s position was that it was not, but if it was, such leave should be granted. The defendant trustee in bankruptcy’s position was that leave was required and should not be granted.

The plaintiff, Mr. Flight, ended up filing bankruptcy proceedings 4 times over a 13 year period of time! He filed the same type of bankruptcy over and over again! He claims his financial situation is the fault of the defendant trustee in bankruptcy. He used the same trustee in bankruptcy for all of his bankruptcies! It is not clear in this motion how the trustee is responsible for his having to file personal bankruptcy all those times.

Mr. Flight brings on litigation against the trustee in bankruptcy claiming negligence, fraud, breach of fiduciary duty, unjust enrichment and conversion. The complainant claims the accused failed to identify and take suitable action relating to a fraud perpetrated by the bookkeeper for Mr. Flight’s sole proprietorship business.

The plaintiff’s amended claim seeks a declaration the defendant engaged in misfeasance, negligence, fraud and breach of fiduciary duty in his personal capacity, and that the defendant was unjustly enriched.

The plaintiff’s claim against the trustee in bankruptcy

The main subject matter of the claim alleges the bookkeeper’s theft caused the plaintiff’s repeated bankruptcies and that the defendant trustee in bankruptcy ought to have detected this fraud in the administration of the four bankruptcies.

The plaintiff maintains that the trustee in bankruptcy then failed to take any meaningful action to address the alleged fraud and its impact on the fourth bankruptcy after its discovery. In particular, the plaintiff claims the trustee failed to diligently commence an action against the former bookkeeper, failed to investigate the fraud, failed to adjust the plaintiff’s surplus income, failed to recommend debt relief options or financial options, and certainly no other possible insolvency process such as a consumer proposal alternative to bankruptcy and failed to have the plaintiff promptly discharged from his fourth bankruptcy.

The defendant’s alleged “grand failure to act” caused Mr. Flight damages of $10 million from loss of business, loss of profit, loss of income and pain and suffering.

The court’s analysis

As I mentioned above, the threshold issue under Canadian insolvency legislation is whether the plaintiff required leave to commence this action. If it is determined that leave is required, the analysis then moves to whether the claim meets the test for leave.

The Motion Judge stated that there is authority to support the plaintiff’s position that the insolvency laws state that leave is not required where the trustee in bankruptcy is being sued in its personal capacity.

More particularly, the Supreme Court of Canada held that the leave provision under the BIA is not to be interpreted as though it applied to any action arising out of the administration of the estate. That is not the way section 215 is worded. To allege that the trustee in bankruptcy made an act of omission is a claim that is not concerning a report made under or any action taken according to the BIA.

Trustee in bankruptcy: The court’s decision

The plaintiff alleges causes of action against the trustee in bankruptcy in his personal capacity in their amended statement of claim and affidavit materials for negligence, fraud, breach of fiduciary duty, unjust enrichment and conversion starting with the confidential consultation and with each bankruptcy assignment. The Motion Judge concluded that the plaintiff does not require leave under s. 215 of the BIA to commence this action. Based on this conclusion, the Motion Judge did not need to consider anything further.

You will observe as I previously stated, none of the court’s evaluation had anything to do with whether the claims had a possibility of success in its litigation legal process. The Motion Judge, who was not a Bankruptcy Judge but rather a Motion Judge felt the accusations were such that they were not purposeless or burdensome actions that have no basis.

As the main action will now proceed, I will follow the case to find out the exact details and the various bankruptcy claims that Mr. Flight is making regarding the conduct of trustees involved. As the case is reported, I will report to you.

Finding a good, Licensed Insolvency Trustee (Trustee In Bankruptcy) Near You

I hope that you found this trustee in bankruptcy Brandon Blog interesting. If you are concerned because you or your business are dealing with substantial debt challenges and you assume bankruptcy is your only option, call me.

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

Call us now for a no-cost bankruptcy consultation.

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

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

Brandon Blog Post

COMPANIES’ CREDITORS ARRANGEMENT ACT: CREDITORS ARE NOW ABLE TO MAKE BOLD CLAIMS AGAINST LAURENTIAN

Post author By Ira Smith
Post date June 14, 2021

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

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

If you would like to listen to an audio version of this Companies’ Creditors Arrangement Act Brandon’s Blog, please scroll to the very bottom and click play on the podcast.

Companies’ Creditors Arrangement Act: Facing insolvency, Laurentian University files for creditor protection

Laurentian University’s filing under the Companies’ Creditors Arrangement Act has been reported in the media and I have written about it in previous Brandon Blogs. On February 1, 2021, Laurentian University filed for what the media calls the “bankruptcy protection process” under the Companies’ Creditors Arrangement Act. It is really a creditor protection process for a financial restructuring. A large amount of work and involving tough choices will definitely be required for Laurentian to emerge from this as a financially and operationally sound university.

This restructuring will call for difficult negotiations with its lenders, suppliers, faculty and labour unions. Laurentian will have to overhaul its academic programs and look for brand-new revenue generation opportunities to survive. As well it will require a re-evaluation of its federated colleges’ design (Laurentian is just one of 4 universities that make the Laurentian Federation; the others who are all part of the Laurentian Federation Agreement are: the University of Sudbury, the University of Thorneloe, and Huntington University).

The stay of proceedings provided by the Court gives Laurentian protection from creditors and prevents them from taking steps against Laurentian, without the prior leave of the Court. The Companies’ Creditors Arrangement Act filing means that Laurentian has concluded that it cannot fulfill its financial commitments as they end up being due and uses the protection supplied by this restructuring law to reduce its overall debt load without having to pay its debts in full.

FOR A FULL DESCRIPTION OF WHAT THE COMPANIES’ CREDITORS ARRANGEMENT ACT IS AND HOW IT WORKS, SEE OUR BLOG:

CCAA CANADA: OUR EXTRAORDINARY GUIDE TO 2020 TROUBLED CANADIAN COMPANIES SEEKING BANKRUPTCY PROTECTION

FAQ on the Companies’ Creditors Arrangement Act Insolvency Proceedings of Laurentian University

As I mentioned, I previously wrote three blogs so far on the Laurentian University Companies’ Creditors Arrangement Act insolvency process:

Every time there has been a major event in this court-supervised restructuring, I have written about it. So far the topics I have covered are:

The filing under the Companie’s Creditors Arrangement Act.
What creditor protection is under the “Bankruptcy Protection Legislation“.
What a stay period and a stay of proceedings are.
What does CCAA mean?
The Laurentian President affidavit upon filing and what it said about the university finances.
What Laurentian has said about its day-to-day operations, the Federated University model and the need to get out of that agreement and general oversight of university affairs.
The shock and the effect on Northern Ontario’s community over Laurentian’s filing.
The potential effect on current students, both undergraduate and graduate students and the overall student experience.
The initial list of creditors, both secured and unsecured creditors, in this restructuring process filing.
The unions have lost the fight to unseal documents relating to Laurentian communications with the provincial government.
Faculty and other staff terminations.
The union represents faculty members on a new collective agreement reached by Laurentian Union Faculty Association or LUFA.
Adjustments to the benefit pension plan and health benefit plan.
The failure of the non-Laurentian parties to the Federated University agreement in appealing Laurentian’s disclaimer of the Federated University model agreement.
The status of the interim financing DIP loan in the Companies’ Creditors Arrangement Act administration.

So as you can see, all the topics that I have covered in these 3 previous Brandon Blogs really are answers to a legal FAQ regarding Laurentian University’s CCAA filing.

Decisions about Laurentian University being made by creditors, insolvency specialists and the Ontario Court but not public

The National Union of Public and General Employees have stated that in a free and democratic society, choices regarding publicly financed institutions are expected to be made by elected officials or people who are responsible to them. That makes sure that when choices are made the demands of our communities who are funding these institutions through our tax dollars and donations are considered.

But when such organizations, like Laurentian University, are permitted to use a bankruptcy protection statute like the Companies’ Creditors Arrangement Act, that responsibility is lost. All that matters is what the creditors either desire or are willing to accept. They want the federal government to change bankruptcy protection legislation so that this cannot happen again.

Liberal MP Paul Lefebvre introduced a bill in Parliament that aims to keep Laurentian University’s turmoil from happening at other schools. He and the Union believe that public institutions shouldn’t be allowed to use bankruptcy protection to force through cuts. I don’t believe that at this time, the bill has any traction to change bankruptcy legislation.

4 inspectors will be chosen to work with court monitor in the claims process

This now brings us current to the last attendance in the Ontario Superior Court of Justice Commercial List where Laurentian and its court monitor brought forward a claims process to be approved by the court in this Companies’ Creditors Arrangement Act process.

The lawyer for TD Bank advised the Court that TD supports the making of a Claims Process Order however feels that, in the circumstances, the procedure ought to contemplate that the Monitor will disclose its analysis of the claims filed with the Pre-filing Lenders. The Bank said that Laurentian and the Monitor have acknowledged that there may very well be material claims filed, some of which will be unliquidated and/or contingent. Some may be subject to a bona fide conflict – both relative to liability as well as quantum.

The Bank proposed a modification to the Monitor’s Claims Process where material cases should be discussed with the Pre-filing Lender group so that there could be a consensual resolution of such claims. The Bank said that it is reasonable as well as proper in this case to produce a reasonable and transparent process that enhances the goals of the Companies’ Creditors Arrangement Act.

Based upon information available to TD Bank at the time its factum was issued, the overall quantum of claims is unidentified, yet can sensibly be expected to include substantial claims representing: (a) the claims of the Pre-filing Lenders; (b) claims of current and also previous employees; (c) those of the federated colleges occurring from the termination and disclaimer of their contracts with Laurentian; (d) potential claims developing from the pension-related issues; as well as (e) claims of various other creditors with prefiling and also restructuring claims.

The Judge specified that he bore in mind the TD Bank submissions that it is extremely vital to move quickly, however not to rush. The Claims Process needs to be reasonable to all. He acknowledged that the Pre-filing Lenders should have some involvement in the Claims procedure. So the Judge borrowed from the provisions of the Bankruptcy and Insolvency Act (Canada) (BIA), as there were no specific rules for this in the Companies’ Creditors Arrangement Act. He ruled that there will be a bespoke process.

Laurentian and the Monitor should modify their proposed Claims Process by assigning 4 Inspectors; 2 of which will be representatives of the Pre-filing Lender group. The remaining 2 will be drawn from the creditors from those with a claim over $5 million.

The Inspectors will:

Be selected by the Monitor who will devise an appointment process.
Act in the interests of all creditors.
Stand in a fiduciary capacity on behalf of all creditors.
Need to accomplish their duties on an impartial basis.
Are entitled to payment by following the payment structure for Inspectors set out in the BIA.
Help the Monitor in evaluating and admitting material claims.
Companies’ Creditors Arrangement Act

Laurentian expecting about 15 claims of more than $5M from creditors, court documents show

Laurentian reported that upon filing under the Companies’ Creditors Arrangement Act, it estimated its liabilities at $322 million. The categories of creditor groups are properly summarized by legal counsel for TD Bank recently in Court, indicated above.

The “bespoke” Claims Process approved by the Court is now underway. It is for all claims against Laurentian, but not including any form of compensation claim by any current or former employee. That type of claim has been defined by Laurentian and its Monitor as “Compensation Claims“. The Monitor advised the Court that it would soon come back to Court to get approval for a special process to establish the Compensation Claims.

The current Claims Process, not including any Compensation Claims, works like this:

Any creditor who has not received a Claims Package and who believes that he or
she has a Claim against Laurentian, under the Claims Process Order must contact the Monitor
in order to obtain a Proof of Claim form or visit the Monitor’s website.
Employees (and Former Employees) will not be receiving a Claims Package and do not need to complete a Proof of Claim at this time. Compensation Claims of Employees and Former Employees will be determined by a Court Approved Compensation Claims Methodology at a later date.
Three types of Claims qualify for this Claims Process: (i) Claims for amounts owing as at the date of Laurentian filing under the Companies’ Creditors Arrangement Act (Pre-filing Claims), February 1, 2021; (ii) Claims which arose as a result of the restructuring itself (Restructuring Claims); and (iii) Claims against senior management, Directors and Officers, the Board (D&O Claims).
In order to for Claims to be considered in the Claims Process, the fully completed Proof of Claim must be received by the Monitor no later than:
- For Pre-filing Claims, 5:00 PM Toronto time on July 30, 2021 (Pre-Filing Claims Bar Date).
- For Restructuring Claims, 5:00 p.m. (Toronto Time) on, whichever is later: (i) July 30, 2021, or (ii) the date that is 30 days after the date on which the Monitor sends a Proof of Claim Document Package to the Creditor with respect to such Restructuring Claim (Restructuring Claims Bar Date).
- For D&O Claims, 5:00 PM Toronto time on July 30, 2021 (D&O Claims Bar Date).

No doubt the Monitor, the Inspector Group and Laurentian will be very busy sorting out all the Claims.

Public institutions shouldn’t be allowed to use bankruptcy protection to force through cuts

There has been an outcry from the public service community that public institutions should not be allowed to make use of Canadian insolvency laws like any other person or company that qualifies. I doubt that movement will get much traction.

I hope that you found this Companies’ Creditors Arrangement Act Brandon Blog interesting. If you are concerned because you or your business are dealing with substantial debt challenges and you assume bankruptcy is your only option, call me.

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

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Companies’ Creditors Arrangement Act

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