A credit reporting body is also known as a credit bureau or credit reporting agency. It collects, saves, makes use of and reveals personal credit scores about individual consumers. The bureau refines these details to report on the credit rating or creditworthiness of a person. Businesses considering extending credit to people subscribe to and make use of such a credit reporting body.
One thing the bureaus do is report a listing and condition of your debts. More on this below. People with financial problems who come to see me many times are confused as to how a credit reporting agency operates. Many times people are confused between the credit reporting agency’s reporting of debts where the creditor can no longer sue. The reason they can’t sue is because of the statute of limitations in Ontario (again, more on this below). Yet, the debt is still listed by the credit bureau.
I recently came across an Ontario court decision, that describes perfectly why debts can still be listed on your credit report, even though the creditor has run out of time to sue you.
What are the major credit reporting agencies in Canada?
In Canada, there are 2 such reporting companies for consumers: Equifax and TransUnion. For companies, one of the most prominent credit reporting company is Dun & Bradstreet Canada.
How do I get a free copy of my credit file?
You are able to get your complimentary credit report once every 12 months from each of the two nationwide rating companies. If you need a current report more often than that, you can pay TransUnion or Equifax to get it. You can get your credit report by phone, fax, online or in person. Each credit bureau provides instructions on how to do it.
This court case was somewhat unique in that it was a small claims court case. The 10-page decision clearly shows that a statute of limitations will not erase the debt. The case is Harvey v Capital One Bank, 2019 CanLII 69716 (ON SCSM).
Mr. Harvey sought $25,000.00 against Capital One Bank for purportedly posting to the credit reporting body firms, defamatory details impacting his professional reputation. Mr. Harvey admits he owed money to Capital One however asserts the debt can no longer be pursued, as it is beyond the 2 year limitation period for enforcement according to the Ontario Limitations Act, 2002, S.O. 2002, c. 24, Sched. B. Capital One Bank confessed it reported the debt but was fully justified in doing so according to the Consumer Reporting Act, RSO 1990, c. C.33.
The agreed statement of facts
Mr. Harvey and Capital One Bank submitted an Agreed Statement of Facts:
Mr. Harvey had two Capital One Bank accounts. The account concerned was opened up on or about March 5, 2009. The second account was opened on or around June 2018.
Mr. Harvey was contacted by collection firms acting on behalf of Capital One from 2015 to 2018 in an attempt to collect the debt.
Capital One provided disclosure regarding the terms of the account when Mr. Harvey was originally authorized. He received duplicates of the account statements created, which were accurate, consisting of the balance owing, repayments, interest and fees or charges. All rates of interest and various other fees were correctly applied.
Mr. Harvey was advised many times that his failure to pay the outstanding balance would be reported to the credit reporting body companies and it can adversely affect his credit rating.
Mr. Harvey paid $200.00 on the account in question on October 27, 2014. He failed to make the minimum payment due on December 4, 2014. He as well failed to make any type of subsequent repayment, other than for a $200.00 payment around August 20, 2018.
When Capital One charged off Mr. Harvey’s very first account on June 2015, the balance owing was $841.78.
All details about the Capital One debt in the credit reports generated by Mr. Harvey were accurate and true, with the exception of one amount of $1,449.00 for a different Capital One account which Mr. Harvey would not admit to. In his testimony, he deposed that he has no particular memory of the components of that account or any understanding of the accuracy of the information.
Other non-Capital One credit accounts referenced in Mr. Harvey’s credit record included unfavourable credit history reports. Some of his other non-Capital One credit rating accounts had actually been charged off and sent to a debt collector.
Mr. Harvey acquired a brand-new Canadian Tire Bank MasterCard around January 2019 with a $300.00 credit line, a brand-new FIDO cell phone account around September 2019, a brand-new credit line for a car loan of $22,465.00 around September 2019 and also a new Capital One MasterCard with a credit line of $300.00 around June 2018.
Capital One Bank’s evidence
Capital One’s evidence was straight forward. Credit cards revolve and are reported to the credit reporting body companies on a regular monthly basis. There is a standard conventional rating system used by all financial institutions when reporting to the reporting agencies:
Rating score
Meaning
R1
Indicates settlement on time or 1 to 30 days delinquent.
R2
31 to 60 days delinquent
R3
61 to 90 days overdue
R4
120 days overdue
R5
121 to 150 days overdue
R6
Does not exist
R7
Used only for credit counselling and bankruptcy
R8
Repossessions
R9
Account has been charged off
Mr. Harvey’s Capital One debt was reported to the credit bureaus in conformity with the legislation. By April 9, 2015, the account, 5 months overdue, was completely limited, meaning it cannot be re-opened to make purchases. An R5 score was reported to the credit reporting body companies. By May 9, 2015, it was 6 months overdue. R5 was reported once again.
Once it is 180 days past due, the account is charged off and also an R9 rating is reported. When an account is charged off, it is still reported to the credit reporting agencies and remains an R9 score. After the account was charged off, Capital One engaged various collection companies as normal to attempt to collect the debt.
As the account remains overdue, Capital One continues to report to the credit bureaus up until reporting becomes statute-barred after seven years, based upon the date of the very first payment missed. That was December 4, 2014.
This 7-year reporting period is based on legislative provisions for credit report coverage. After seven years, Capital One makes one final entry in the record which erases the entire line from the credit bureau history. The credit reporting body companies have a similar procedure so they will remove this information also.
The Court’s analysis
The Court’s analysis was simple. It rejected all of the plaintiff’s submissions. The Court stated that the plaintiff never even produced any evidence in support of his claim that he has suffered damages through a loss of reputation.
The Court correctly analyzed the situation. The Deputy Judge found that by Mr. Harvey’s own admission the debt was never paid and stays outstanding. Capital One is not insisting on a claim to title; it is asserting its right to report an unpaid debt throughout the 7-year reporting period under the Ontario Consumer Reporting Act. The Ontario Limitations Act and Consumer Reporting Act serve completely different legislative purposes. They are also not in conflict.
The Court sided with Capital One’s position that the case relied upon by Mr. Harvey entails an argument concerning a right vs. a remedy. In Ontario, the limitation period acts to limit the remedy to sue but not the right to be repaid.
The Court’s decision
Capital One Bank lost the right to sue Mr. Harvey after the 2-year period expired. However, on a mutually exclusive basis, it had the right to report the outstanding amount owing for a 7-year period under different provincial legislation.
The Court further stated that the ramifications to companies extending credit to others might be harmed if such information was inaccessible, merely because the creditor did not commence legal proceedings for repayment of the debt prior to the 2-year limitation period. A person’s failure or refusal to pay their debts is vital details for other creditors, to whom that very same borrower has looked to for more credit.
The Court, therefore, found in favour of Capital One Bank and awarded costs against Mr. Harvey.
Summary
This case perfectly answers the question many people ask me when they come for their free consultation. The question is either: (1) Why is this debt still showing up on my credit report because it is too late for the credit card company to sue me?; or (2) Does the statute of limitations erase my debt? As seen in Mr. Harvey’s case, the limitation period and the reporting period are two different and separate issues.
Do you have way too much debt? Prior to you getting to the phase where you can’t make ends meet and your credit report looks awful, reach out to a licensed insolvency trustee (previously called a bankruptcy trustee). In fact, if you understand that you can’t pay your financial debts, 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 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.
If you would prefer to listen to an audio version of this what is receivership Brandon’s Blog, please scroll down to the bottom of this page and click on the podcast.
What is receivership: Introduction
Last spring I wrote about a Court of Appeal For Ontario decision. That decision confirmed that the time allowed to appeal a receivership Court order is 10 days under the Bankruptcy and Insolvency Act (Canada) (BIA).
This Brandon’s Blog on what is receivership discusses a decision of the Court of Appeal of Manitoba which further sets out a framework for anyone wishing to appeal an order made in this court-appointed receivership legal process. Prior to discussing this Manitoba case, I ought to go over some receiver 101 facts.
What is receivership?
What is receivership? A receivership is a solution for secured lenders, such as a chartered bank. The bank loans the company money and the company agrees in the loan agreement to pledge the business assets as security for the loan. If the business defaults on its lending arrangement, generally by non-payment, the secured lender can enforce its security against the assets in receivership.
This is the lender using its enforcement rights to recover its secured debt. Other than for a government trust claim, the secured creditor’s debt ranks on a priority basis above all other creditor claims. Enforcement action is definitely a form of legal action. So receivership is a remedy for secured creditors.
There are 2 types of receivers in Canada; 1) a privately appointed receiver or; 2) a court-appointed receivership. A receiver gets its authority and powers from either the security documents in a private appointment or the Court Order in a court appointment. Once appointed, regardless of the type of appointment, the receiver has the power to take possession of all the assets of the company, including sending notices to all customers to advise that the receiver is now collecting the accounts receivable.
The BIA specifies that only a licensed insolvency trustee (previously called a bankruptcy trustee or also can be called a licensed insolvency practitioner) (LIT) can serve as a receiver. A receiver in a private appointment acts on behalf of the appointing secured creditor. A court-appointed receivership creates a responsibility to all creditors upon the court’s receiver, not just the applicant in the court process. This would include any unsecured creditor also. The BIA also requires the receiver to do file notice of its appointment with the Official Receiver at the Office of the Superintendent of Bankruptcy and to send the required statutory notice to all known creditors.
What is a company receivership?
Normally, the procedure starts with the secured creditor, who lent money to a company under a security agreement, talking to the insolvency trustee. The security document tends to secure all company assets, including accounts receivable.
When it is decided that there ought to be a receiver designated, the secured lender needs to decide if it will be a private appointment, or if the assistance of the Court is required. Each situation will dictate what is the best method for receivership. They can either appoint the receiver under an appointment letter (private appointed) or apply to the Court for an Order selecting the receiver (court-appointed receivership). So when considering what is receivership, you must look at all the circumstances and decide what kind of appointment is needed.
what is receivership
As a former employee, what am I entitled to? The Wage Earner Protection Program
Upon a company going into receivership (or bankruptcy), the LIT is obliged to inform workers of the Wage Earner Protection Program (WEPP) as well as offer former employees information about amounts owing to them. From the day of bankruptcy or receivership, trustees and also receivers have 45 days to send out Trustee Information Forms showing the amounts owing to workers. WEPP is administered by Service Canada.
Employees have 56 days to send their Service Canada WEPP application to the WEPP. The Service Canada handling time for a WEPP payment is within 35 days of receipt of a completed WEPP Canada application and Trustee Information Form.
The WEPP gives funds to Canadian former staff members owed money when their employer becomes either bankrupt or goes into receivership. The amount of employee earnings covered is an amount equivalent to 7 times maximum regular insurable earnings under the Employment Insurance Act.
As of January 1, 2020, the max yearly insurable earnings amount is $54,200. This means that the max amount a previous worker can assert under WEPP is $7,296.17 in 2020. A certain portion is a trust claim and the balance is an ordinary claim. Normally, the receiver makes at least the trust claim payment to the former employees. Service Canada will pay the balance.
So in what is receivership, if the receiver does not pay the trust claim, Service Canada will and bill it back to the receiver. This all takes time and will increase the cost of administration. That is why the receiver normally pays the trust portion directly.
What is receivership: Receivers and receiverships
In a private receivership, the receiver needs to get the approval of the party that made the secured loan and appointed the receiver prior to implementing its recommended action steps. In a court-appointed receivership, the receiver needs the authorization of the court for its activities and actions.
The receiver’s very first responsibility is to take possession and control of the assets, properties and undertaking of the company in receivership. In a private appointment, the receiver takes possession of the assets covered by the secured creditor’s security agreement. In a court-appointed receivership, the receiver takes possession of whatever assets it has authority over from the Court Order.
The receiver has to make a decision whether it can obtain a better value for the business asses if it runs the business. Conversely, the receiver might determine that the danger of running the business negates any potential upside in value. In that case, the receiver would not operate the business and merely liquidate the assets.
The receiver after that establishes a strategy for the sale of assets. The receiver also has to make sure that the assets are physically secured and insured. The what is receivership process is fairly complex and all-encompassing.
The receiver, whether in a private appointment or a court appointment, has wide powers to perform its duties.
What is receivership: Challenging a receivership appointment Court Order
On September 19, 2019, the Court of Appeal of Manitoba released its decision in 7451190 Manitoba Ltd v CWB Maxium Financial Inc et al, 2019 MBCA 95. On December 20, 2018, the Court made an Order appointing a receiver (Receivership Order) over the assets of 7451190 Manitoba Ltd. (Company). The Order was made upon the application to Court by the lender who made the secured loan.
On January 14, 2019, the Company launched an appeal to the Receivership Order. The secured lender opposed the appeal on 2 main grounds, being:
the company did not have an appeal as of right, rather, it requires to seek leave to appeal first (which should be declined); and
the appeal was statute-barred as it was not submitted within 10 days of the Appointment Order appealed from.
The issues the Appeal Court needed to consider were::
whether the nature of the Company’s appeal of the Appointment Order in what is receivership requires an application for leave or if it is a right under Section 193 of the BIA;
if the leave to appeal is necessary, should such leave be provided;
whether the Company should be given more time to submit its notice of appeal.
what is receivership
What is receivership: Appealing a business receivership Court Order
So the first issue the Court had to consider in what is receivership was whether or not the Company had an appeal of the receivership Order as a right, or if it needed to first apply to the Court with leave to appeal motion. The Court determined that the Company’s appeal of the receivership Appointment Order is not of right. Rather, leave to appeal needed to be made.
The things that the Appeal Court considered in making its determination included that:
The security documents entered into by the Company clearly outlined the lender’s remedy to appoint a receiver when there was an event of default.
The company was represented and made submissions against the appointment of a receiver at the initial hearing where the Appointment Order was made.
The Appointment Order contained the necessary “comeback clause”. No party made an application under this clause to amend the powers of the receiver under the Appointment Order.
Since appointed, the receiver has actually filed two reports with the Court. The reports notified all stakeholders and the Court of the decisions taken and choices made. The receiver also sought approval of different activities. The Company has actually not filed any type of motion challenging the actions taken by the receiver.
Should leave to appeal the appointment of the receiver-manager be granted?
Section 193 of the BIA allows that an appeal lies to the Court of Appeal from any kind of order of a judge of the court in certain situations. The Court confirmed that the criteria to think about in making a decision whether to give leave to appeal under section 193(e) of the BIA are:
The suggested appeal raises an issue of general importance to the practice of bankruptcy/insolvency matters or to the administration of justice as a whole.
The issue raised is of relevance to the action itself.
The proposed appeal is prima facie meritorious.
Whether the suggested appeal will unduly hinder the progression of the bankruptcy/insolvency case.
The Court went on to say that, regardless of these criteria, the Court retains a residual discretion to grant leave to appeal in what is receivership where the refusal to do so would result in oppression.
When the Court considered these requirements, taking into consideration the whole context, the Court was not persuaded to grant the Company leave to appeal the receivership order.
The Court determined that in this case, the Company’s appeal should be denied. This Court of Appeal of Manitoba is consistent with the Court of Appeal for Ontario case that I mentioned at the top of this Brandon’s Blog and previously wrote about. It also provided additional detail and reasons as to why appealing a receivership order is not a right, but leave to appeal needs to be granted.
What is receivership: Summary
I hope you enjoyed this what is receivership Brandon’s Blog. Is your company in need of financial restructuring? The financial restructuring process is complex. The Ira Smith Team understands how to do a complex corporate restructuring. However, more importantly, we understand the needs of the business owner entrepreneur. You are worried because your company is facing significant financial challenges. Your business provides an income not only for your family. Many other families rely on you and your company for their well-being.
The stress placed upon you due to your company’s financial challenges is enormous. We understand your pain points. We look at your entire situation and devise a strategy that is as unique as you and your company’s problems; financial and emotional. The way we dealt with this problem and devised a corporate restructuring plan, we know that we can help you and your company too.
We know that companies facing financial problems need a realistic lifeline. There is no “one solution fits all” approach with the Ira Smith Team. That is why we can develop a company restructuring process as unique as the financial problems and pain it is facing. If any of this sounds familiar to you and you are serious about finding a solution, contact the Ira Smith Trustee & Receiver Inc. team today.
Call us now for a free consultation. We will get your company back on the road to healthy stress-free operations and recover from the pain points in your life, Starting Over, Starting Now.
When discussions of debt come up, individuals frequently joke around and claim they’ll be rid of financial debt when they pass away. However, is that real? I have actually blogged about this before. One of our most-read ever Brandon’s Blog is WHAT HAPPENS TO DEBT WHEN YOU DIE CANADA: ARE YOU FREE OF DEBT.
So although I have written about what happens to debt if you die before, from my blog stats, I see it is a very popular topic. So, I thought this would be a great opportunity to drill down a bit more to write about what happens to mortgage when you die Canada?
what happens to mortgage debt when you die canada?
What happens to mortgage at death?
The short answer is, usually, nothing. A homeowner’s loan of this kind is a secured loan debt registered against the asset, the house. Except for one situation which I will talk about in a minute, the pledge and its related debt stay and must be dealt with.
Before being able to answer the question properly, there are several possible situations. Is the deceased:
The sole owner?
Owns the home jointly with his/her spouse or partner who is still alive?
Either way, the contract and its debt at the date of death does not go away. If the deceased is the sole owner of the home, then it is an asset that the Estate Trustee named in the person’s Will must deal with. The home will need to be cleaned up and perhaps some repairs are done to get it ready for sale. Either the existing furniture works or the home will need to be staged to show it off in its best light.
The Estate Trustee will also have made sure that there was proper insurance on the home, obtained one or more appraisals and made arrangements for the home to be checked on a regular basis to make sure no damage occurs. Then the home will be put up for sale and sold.
Upon the sale, the home debt will have to be paid off in order for a discharge of the homeowner’s loan contract to be registered. This will be a requirement of the purchaser and it will be impossible to convey title to the home without paying off the pledge and getting a discharge.
If there is a surviving spouse or partner, and the home was owned jointly, then the ownership of the home continues automatically in the name of the surviving spouse. The home also does not need to go through probate in Ontario. The surviving spouse’s lawyer will take care of getting the name of the deceased eliminated from the home loan and title.
If the surviving spouse or partner wants to remain in the home and can afford to keep up the payments, then that is what he or she will do. If not, then the spouse will need to sell the home and downsize. As discussed previously, to sell the home, the loan contract debt will have to be repaid in full and the mortgage discharged.
Is my mortgage paid off if I die?
There is only one way that the debt will be paid off when the owner dies. That is if the owner had taken out specific home loan insurance. Upon the death of the insured, the insurance company will pay the lender the amount needed to pay off the mortgage in full. The Estate Trustee or surviving spouse or partner will have to make sure that the lender discharges the mortgage.
In a similar way, if the deceased had a current life insurance policy, but not necessarily a specific mortgage insurance policy, that may also come into play. A surviving spouse or partner who is the designated beneficiary will receive the life insurance proceeds directly. The proceeds will not have to go through probate in Ontario. They could use all or a portion of the life insurance proceeds to pay off the mortgage and remain in the home.
This is how life insurance can be used to answer the question, what happens to mortgage when you die Canada.
what happens to mortgage when you die canada
Joint mortgage what happens if one dies?
Where both spouses or partners owned the home jointly, they will also be joint on the mortgage. As I mentioned above, when one of the spouses or partners dies, the family’s lawyer will notify the mortgagee lender.
What if the lender was relying upon the creditworthiness of the deceased spouse or partner and not that of the surviving spouse? If the mortgage payments are kept current, then in the interim, probably nothing. But what will happen when the mortgage comes up for renewal and the remaining spouse or partner cannot repay it and wishes to renew it?
Only time will tell. The lender can either just offer a renewal or can require the sole owner to requalify the mortgage. If the now sole owner cannot qualify, then the mortgagee will demand that the mortgage be repaid in full upon maturity. This might pose a hardship for the now sole owner spouse.
What happens to a mortgage when the lender dies?
If the mortgage lender is a Bank or corporation, then, of course, this question does not apply. What happens if the mortgagee is an individual who lent on what is called a private mortgage? In this case, the mortgage debt and the mortgage does not go away. The mortgage is an asset of the deceased lender’s Estate. The lender’s Estate Trustee will be responsible for collecting everything properly owing on that debt, subject to the terms of the mortgage document. If the mortgage does not mature for many years and is kept current, then the deceased lender’s Estate Trustee will have to keep the administration open.
what happens to mortgage when you die canada
What happens to a house with a reverse mortgage when the owner dies?
So far, I have written about what happens with a traditional mortgage. What if the mortgage is actually a reverse mortgage? What happens to a house with such a mortgage when the owner dies?
A Canadian reverse mortgage is financing that allows any person of the age of 55+ to get a mortgage loan relying upon their residence equity. The mortgage loan is secured using a mortgage registered against the house. This is typically called an “equity release”. You have the capacity to raise up to 55% of today’s worth of your home. The actual percentage and the dollar amount you will have the ability to obtain relies on your age, your residence’s appraised value and the lending terms of your reverse mortgage loan provider.
You do not need to make payments on a reverse mortgage up until it is due for repayment. This is usually when you sell your house or the last owner passes away. The loan interest accrues on a reverse mortgage. It must be paid on the payout of the mortgage, but no payments are required while you are living in your home.
The longer the funding is outstanding, the more time you go without paying. Consequently, the longer the interest accrues. This clearly reduces the equity in your house.
Summary: What happens to mortgage when you die Canada?
The death of a loved one is probably the most traumatic life event you will encounter. It is doubly so when you relied on the income of the deceased for your own well-being. I hope you have found this what happens to mortgage when you die Canada Brandon’s Blog informative.
Do you have way too much financial debt? Prior to you getting to the phase where you can’t make ends meet and you need to borrow against the equity in your house, reach out to 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 a stress and pain-free life, Starting Over, Starting Now.
If you would prefer to listen to the audio version of this Brandon’s Blog, please scroll to the bottom of the page and click on the podcast.
Who is eligible for GST/HST credit?
The GST/HST credit payment is a tax-free quarterly distribution by the Federal government. It assists people and their family members with low or moderate earnings counter all or a component of the GST or HST that they pay in their everyday lives. The purpose of this Brandon’s Blog is to discuss GST/HST credit payments in bankruptcy.
The base year is the year of the income tax return used to determine eligibility for the credit payment amount. As an example, GST/HST credit payments calculated from the 2018 income tax return will start being released in July 2019, which is the start of the repayment year. The payment period ranges from July 1 of the year after the year of the income tax return being relied upon. The payments for that year run to June 30 of the following year. So if the 2018 tax return is being used to calculate eligibility, for those who qualify, the payment year runs from July 1, 2019, to June 30, 2020.
You qualify for this credit if you are a Canadian resident under the Income Tax Act (Canada) in the month prior to and at the start of the month in which the Canada Revenue Agency (CRA) makes a payment. You also need to satisfy one of that you::
are at least 19 years of age
have (or had) a spouse or common-law partner
are (or were) a parent and also live (or lived) with your son or daughter
What is the maximum income for GST HST credit?
The maximum income for GST HST credit, based on a 2018 income tax return, is a sliding scale as follows:
It used to be the position of the Superintendent of Bankruptcy (OSB), that, a bankruptcy trustee (now called a licensed insolvency trustee) (LIT) that an insolvent person could assign their GST/HST credit payments in bankruptcy to the LIT for the period of time they are an undischarged bankrupt. The LIT could only keep those credit payments if those credit payments are necessary to cover the LIT’s fee and disbursements. The OSB also stated that it could not be kept in files where there would be a distribution to creditors from the realization of the assets of the bankrupt person.
A recent decision from the Court of Queen’s Bench of Alberta, following a decision from the Superior Court of Justice – Ontario (In Bankruptcy and Insolvency), rather than a prior Alberta Court decision, has changed all that for GST/HST credit payments in bankruptcy.
The Court reviewed the prior Alberta case, the OSB position paper and the Ontario decision in Glasgow (Re), 2018 ONSC 4608. The OSB position paper follows the Glasgow decision. The Alberta Court sided with the OSB’s position arising from Glasgow (Re). Here is why.
Can the bankruptcy trustee keep my tax refund?
Let us first discuss the GST/HST credit payments in bankruptcy, which is not really a refund. It is an income tax credit paid to those residents of Canada with low or modest incomes who qualify. After that, I will broaden the discussion to include actual tax refunds.
Section 67(1) (b.1) of the Bankruptcy and Insolvency Act (Canada) (BIA) states that the GST/HST credit payments in bankruptcy that are made in prescribed circumstances to the bankrupt are not a property that falls to the LIT for division amongst the creditors. Rule 59 of the BIA defines what the “prescribed circumstances” are. It states that if no dividend would be paid to the creditors of the bankrupt, even when these credit payments are considered, then all such credit payments received by the LIT form property of the bankrupt.
In other words, the GST/HST credit payments in bankruptcy can go to help fund the LIT’s fee and disbursements, but not any distribution to creditors. In this way, Canadians of modest means could have access to the Canadian bankruptcy system using all or some of the credit payments to pay for the bankruptcy process.
The Ontario Court looked at that prior Alberta decision. The Ontario Court disagreed with the Alberta decision that in a properly worded assignment agreement, the LIT could keep the payments as long as the prescribed circumstances existed. So, the Ontario Court did not follow that decision. Rather, the Ontario Court looked at Section 67 of the Financial Administration Actwhich says that a Crown debt is not assignable without a specific Act of Parliament authorizing it. This credit is a Crown debt for which there is no Act of Parliament allowing its designation by way of assignment.
It was this Ontario decision that the Alberta Court followed in Rites-Miguens (Re), 2019 ABQB 721.
The OSB position
As a result, the OSB updated its position paper on the topic of GST/HST credit payments in bankruptcy. The OSB’s position is:
Where there will not be a distribution to creditors, the credit payments comprise property of the bankrupt payable to the LIT through the operation of the BIA as described above.
Where there will be a distribution to creditors, the credit payments are exempt from seizure, cannot be assigned to the LIT and must be paid to the individual.
The OSB goes on to give an example as to how a LIT may treat the GST/HST credit payments in bankruptcy that are otherwise exempt. It is a bit cumbersome, but, goes as follows:
The LIT gets a GST/HST credit cheque;
It must be excluded according to the BIA as there will be a dividend paid to the creditors.
The bankrupt consents to pay an amount matching that credit cheque to the LIT.
The LIT needs to give the credit cheque to the bankrupt, despite any kind of contract between them. Based on the Ontario Court decision described above, that contract is not enforceable anyway.
The bankrupt gets and cashes the cheque.
The bankrupt pays to the LIT an amount matching to the credit cheque they just cashed. That payment can be by cash, bank draft, money order or a cheque drawn on the bankrupt person’s own chequing account.
How does filing bankruptcy affect your tax refund?
Real income tax refunds are a result of an overpayment of income tax by the tax debtor. In the year of bankruptcy, the two income tax returns that must be prepared and filed are:
A pre-bankruptcy income tax return covers your tax obligation from Jan. 1 to the day prior to your date of bankruptcy.
The post-bankruptcy income tax return covers the tax obligations from the day of bankruptcy to Dec. 31 of that year.
If there are assets that are liquidated that have income tax attributes, an in-bankruptcy tax return will also have to be prepared and filed.
Any pre-bankruptcy income tax refund is a property of the bankrupt divisible amongst the creditors. So, the LIT is entitled to keep the pre-bankruptcy income tax refund. It is also possible for the post-bankruptcy income tax refund to be assigned to the LIT. Any amount owing by the bankrupt person from the post-bankruptcy tax return must be paid by the bankrupt person as it is a post-filing debt.
Any income tax refunds for years prior to the year of bankruptcy is also a property of the bankrupt payable to the LIT and forms part of the bankruptcy estate.
Summary
Financial problems can happen to anyone. Not just people who have low or moderate incomes. It happens to those that we might think are rich too. It can happen to a person, a business or a company.
Are you or your company in need of financial restructuring? The financial restructuring process is complex. The Ira Smith Team understands how to do both a personal debt restructuring/debt settlement program as well as a complex corporate restructuring. However, more importantly, we understand the needs of people.
You are worried because you or your company faces significant financial challenges. The stress placed upon you due to your financial challenges is enormous. We understand your pain points. We look at your entire situation and devise a strategy that is as unique as you and your problems; financial and emotional. The way we deal with your problem and prepare and implement a restructuring plan, we know that we can help you.
We know that facing financial problems is scary and that you need a realistic lifeline. There is no “one solution fits all” approach with the Ira Smith Team. That is why we can develop a restructuring process as unique as the financial problems and pain you are facing. If any of this sounds familiar to you and you are serious in finding a solution, contact the Ira Smith Trustee & Receiver Inc. team today.
Call us now for a free consultation. We will get your company back on the road to healthy stress-free operations and recover from the pain points in your life, Starting Over, Starting Now.
If you prefer to listen to the audio version of this small business in Ontario Brandon’s blog, please scroll down to the bottom and click on the podcast
Starting a home-based business in Ontario
Are you fantasizing about beginning your very own small business in Ontario? Do you have a great passion and you feel it in your bones it could be profitable and provide a comfortable side or main income for you? Well, you’re not the only one. Lots of Canadians like you have their very own commercial desires. Many boomers could not afford to retire, so they have become seniorpreneurs.
Let’s say you have a dream to start your own biz doing what you love. In the beginning, you probably want to keep it simple. No employees, no fancy office, just you meeting with clients at your kitchen table. Sounds pretty simple but what do you need to go from a drawing to a solid business plan to a real endeavour?
A good plan is critical a realistic look at your market your potential customers and your goals current and future. It should map out what success means for your trading. From there, details of the next steps are different in each province or territory so you need to find out how it works where you want to operate your company. This Brandon’s Blog will deal with a livelihood in the province of Ontario.
How do I start a small business in Ontario?
A typical new commercial venture starts with the following four steps. The most basic first step is to choose a legal ownership structure. For example, you may have trouble choosing. Will it be a sole proprietorship, which is really just yourself trading, or will you choose incorporation, setting up a separate legal entity? This decision is very important. Each has its own advantages, disadvantages and differences in financial reporting and taxation.
Step 2 is to decide on a name. What are you going to call your new venture? You could choose to work under your own full name, especially if you’re a sole proprietor. Something like your name, operating as the style name you want for your business. Or, you could choose to incorporate and choose a company name.
Do I need to register my business Ontario?
Step three is registering your business. If you are operating as a sole proprietor, you would register provincially. If you are incorporating a company, you could register either provincially or federally. It really depends on the type of business you are operating and whether you will be operating in more than one province. You will also need to register with the Canada Revenue Agency. These registrations are about getting a business number to communicate with the government and about setting up for your various tax reporting and remittance obligations.
Step 4 involves getting whatever civic, provincial or federal business licenses you will need for your business to operate in a specific province, territory or city.
So four basic steps will get your business started. Decide on your legal structure and business name then look into business licensing and registration. And there you have it. You are now on your way.
How much does it cost to register a business in Ontario?
Before you sign up a new business name, or when altering the name/legal form of the business, you should browse the provincial database of existing registrations. The reason for doing this is to see if the name of your business is already taken and being utilized by another business. Once you are sure the name you want is available, you go ahead and register it.
The costs to search and then register a business name is:
Search – $ 8-$ 26 depending on the sorts of records you intend to search
Registration – $ 60
Renewing a registration – $ 60
If you plan to incorporate, you need the services of a lawyer or paralegal. They will do the incorporation and registration for you. You need to check with a professional to understand the costs involved in setting up a corporation.
How many small businesses are there in Ontario?
The last time Statistics Canada collected this information was for 2017. As of December 2017, there were 1.18 million businesses in Canada are categorized as follows:
21,926 (1.9 percent) were medium-sized organizations; and
2,939 (0.2 percent) were classified as big businesses.
Over half of Canada’s small businesses are focused in Ontario and Quebec (417,742 and 236,705 respectively). Western Canada has a large number of small businesses led by British Columbia, which had 179,517 as of December 2017. In the Atlantic region, Nova Scotia has the greatest variety of small biz at 28,874.
The province with the best variety of businesses per thousand individuals over 18 years old is Prince Edward Island (49.4), then Alberta (48.8). On the other hand, Quebec has the tiniest variety of services per thousand people over 18 years old (35.3), followed by Ontario (37.2) as well as Nova Scotia (37.3).
So you can see by these numbers the importance of small businesses in employing people and contributing to the Canadian economy.
How to start a business in Ontario with no money
You cannot start a business in Ontario or anywhere else with no money. Depending on the type of business you are starting, you may not need a lot of money, but you cannot start one with nothing. Basic expenditures like a website and business cards require money. Your marketing and advertising to get your business off the ground will require money.
Banks will not lend money to a startup. They also will not lend any money to a business where the owner has not made an investment into his or her own business. The reason is that the bank wants to see dedication. They want to know that when things get tough, and they will, that the owner has a reason to stick around. Having your own money in the business that you don’t want to lose is a great incentive to stick it out.
So in the beginning, you will need some money to get started. There are some ways that you can fund your new business. They include:
Don’t start your business until you have built up enough savings for expenditures to sustain the business for say, 6 to 9 months
Figure out what you can do and obtain for free
Ask your family and friends for funds
Apply for a small business loan after you have invested your own money in your business for when you need added cash
Look to small company government grants as well as local funding possibilities
Find out about– and charm– potential angel investors just like they do on television
You will be amazed at your own creativity when you need to use it to find extra cash. In the beginning, you will definitely be paying yourself last.
Small business debt
Every business needs money to sustain its growth. At first, money will be invested as equity, and perhaps debt, by the owners. In order to take on bank debt, the bank will require the owners to subordinate their claim to that of the bank. As the business expenses increase because sales are increasing and the business is growing, more money will be needed.
The business plan, including a detailed cash flow statement that is regularly updated, amended and followed, is crucial. The government encourages businesses that are growing to do so by way of debt. The income tax laws allow for the interest paid on debt to be deducted for tax purposes. The cost of debt is always cheaper than the cost of equity.
This is a good reason to take on debt. What the business owner has to be careful of is that the business is not taking on too much debt. What is not good is taking on more debt to make up for a history of losses and not fixing what is wrong with the business. Eventually, there will be no place to borrow from if the reason for the losses is not fixed.
A history of losses is one of the most common things I see with businesses in trouble that come to me for advice. Losses that have not been fixed, or at least stopped, is a danger signal of poor management. When your lenders determine management is poor, it is like a shark with blood. The lender will call in its loan. Your trade creditors will stop extending credit. This will lead to the demise of the business.
Summary
Is your small business in Ontario in need of financial restructuring? The financial restructuring process is complex. The Ira Smith Team understands how to do a complex corporate restructuring. However, more importantly, we understand the needs of the entrepreneur. You are worried because your company is facing significant financial challenges. Your business provides income not only for your family. Many other families rely on you and your company for their well-being.
The stress placed upon you due to your company’s financial challenges is enormous. We understand your pain points. We look at your entire situation and devise a strategy that is as unique as you and your company’s problems; financial and emotional. The way we dealt with this problem and devised a corporate restructuring plan, we know that we can help you and your company too.
We know that companies facing financial problems need a realistic lifeline. There is no “one solution fits all” approach with the Ira Smith Team. That is why we can develop a company restructuring process as unique as the financial problems and pain it is facing. If any of this sounds familiar to you and you are serious in finding a solution, contact the Ira Smith Trustee & Receiver Inc. team today.
Call us now for a free consultation. We will get your company back on the road to healthy stress-free operations and recover from the pain points in your life, Starting Over, Starting Now.
I recently read a case from the Court of Queen’s Bench of Manitoba. The decision deals with the responsibility of a trustee company in reviewing and disallowing bankruptcy proofs of claim.
On February 6, 2018, a creditors meeting was held in Winnipeg at which time the creditors of the Company, existing in person or by proxy, elected to approve the proposal. On February 5, 2018, the day prior to the meeting, Bellhop sent its Proof of Claim and also registered its ballot voting down the Proposal.
The Trustee disallowed the Bellhop Proof of Claim for voting. The Trustee also did not count Bellhop’s vote against in the calculation in whether the Proposal received the required majority of creditors.
In the Canadian bankruptcy system, the obligation to prove a claim is that of the creditor. When a creditor files a Proof of Claim, the Trustee has the duty of examining it in order to identify whether the claim stands. If the Trustee is not pleased with the Proof of Claim, he or she might look for additional details from the creditor. The goal of the Trustee is to figure out whether the claim of the creditor is a claim provable under the BIA.
Once the Trustee has made its determination, the claim is either admitted or disallowed. If disallowed, in whole or in part, the Trustee must issue its disallowance using Form 77—Notice of Disallowance of Claim, Right to Priority or Security or Notice of Valuation of Claim. The creditor receiving such a Notice of Disallowance can appeal the Trustee’s decision to the Court.
In this case, before getting to the merits of the appeal, the Court had to decide if the creditor was allowed to present new evidence in support of its claim not previously provided to the Trustee. In this case, the Court decided that it would be appropriate for this new evidence to be presented.
The Trustee did not handle its investigation properly
The Court was prepared to approve additional Bellhop evidence. The Court said that the Trustee company got Bellhop’s Proof of Claim and made inquiries through the Company regarding it. It obtained specific information and made use of some or all of it. The Trustee then developed its Notice of Disallowance.
The Court was critical of the Trustee’s analysis of the Proof of Claim. The Court stated that the Trustee should have shared with Bellhop the information it obtained from the Company and the Company’s legal counsel which it relied upon to develop the Notice of Disallowance. The Trustee could have also shared a draft of its Notice of Disallowance to see if Bellhop had any other documents or information to refute the Trustee’s analysis. Unfortunately, no such transmittal of details was provided by the Trustee to Bellhop before the issuance of the Notice of Disallowance.
The Court went on to say that it was this failure to share such details, it denied Bellhop of the chance to comment on it. It also, therefore, created this situation where Bellhop had to seek leave of the Court for the chance to submit extra details.
The Court’s view was that a Trustee could prevent this situation by having telegraphed its decision to the plaintiff before the official Notice of Disallowance was issued. The Trustee should have asked for the Bellhop’s remarks of any type of, prior to providing its Notice. If the plaintiff failed to react, or react properly, after that it will certainly have a harder job in obtaining approval to provide more proof of its claim.
So under these circumstances, the Court allowed Bellhop to submit more evidence.
The review of the claim and the Trustee’s disallowance
It is a shame that the Trustee seemed to stop short of a fullsome review of all potential information before reaching its decision to disallow the Bellhop Proof of Claim. The reason being is that the Court spent a great deal of time having to determine the issue of presenting additional evidence. The Court was quite critical of the Trustee in its handling of the adjudication of the claim requiring the motion for leave to present more evidence.
In the end, the Court agreed with the Trustee’s decision to disallow the Bellhop claim. The Court held that the proof sent to the Trustee did not warrant a claim of $3,270,684, or anything near that. To reach a decision to allow the claim, part of which was for the loss of income, the Trustee would have to decide on an arbitrary basis. The role of the Trustee is to be neutral and rely upon evidence; not act arbitrarily.
The Court went on to say that there is a responsibility upon creditors in a BIA proceeding to equip a Trustee with sufficient proof that sustains the claim they are making. That did not happen in this case. The Court went on to say that additionally, there is no responsibility on a Trustee to sustain the cost of a substantial examination of a claim which on its face seems blatantly overvalued. Were that the situation, creditors would certainly be urged to submit extremely pumped up claims.
The far better strategy is to urge a circumstance where creditors file sensible claims with sufficient proof to sustain them. That way creditors ensure that the time, initiative, and expense of a Trustee to examine, analyze and value the claim is reasonable.
So in the end, the Court sided with the Trustee’s decision but admonished the Trustee for essentially wasting the Court’s time.
Trustee company summary
Do you or your business have creditors claiming against you? Are you in financial distress? Do you not have sufficient funds to pay your expenses as they come due?
Call the Ira Smith Team today so we can get rid of the tension, anxiousness, pain and discomfort from your life that your money issues have generated. With the unique roadmap, we establish simply for you, we will promptly return you right into a healthy and balanced problem-free life.
We have years as well as generations of experience helping people and businesses trying to find debt restructuring to avoid bankruptcy. You can have a no-cost evaluation so we can assist you to repair your financial difficulties.
As a Trustee company, we are the only experts recognized, approved and audited by the federal government to offer insolvency guidance and solutions. A proposal is a federal government accredited debt settlement strategy to remove your debt and let you avoid bankruptcy.
Call the Ira Smith Team today. This will definitely enable you to return to a brand-new healthy and balanced life, Starting Over, Starting Now.
If you would prefer to listen to an audio version of this Brandon’s Blog, please scroll to the bottom and click on the podcast
What is a consumer proposal?
I have written Brandon’s Blogs before on the topic of consumer proposals. Recently, I have heard some people refer to them as “consumers proposal”. Placing the “s” on the wrong word. So, I thought it would be good for me to write a refresher blog on the most asked questions when it comes to a consumer proposal. A consumer proposal Canada faq Brandon’s Blog.
In summary, a consumer proposal is a structured process under the Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) (BIA). This procedure allows insolvent individuals to make an official deal with the people and companies they owe money to. This government accepted debt negotiation plan allows you to pay back only a portion of what you owe. You can take as long as 5 years of regular month-to-month repayments to do so.
When is a consumer proposal appropriate?
To be able to take advantage of this government-sanctioned debt settlement plan, you need to be insolvent and owe $250,000 or less to all your creditors. This dollar limit is apart from any financial debts secured by registration against your personal residence.
It is appropriate for anyone who:
has full-time employment;
can make their household budget allow them to make the required monthly payment you promised to make towards your debts; and
wants to avoid bankruptcy
What happens when you file a consumer proposal?
Under the BIA, a licensed insolvency trustee (formerly called a bankruptcy trustee) (LIT) administers the consumers’ proposal.
The LIT will submit the necessary documents with the Office of the Superintendent of Bankruptcy (OSB). As soon as it is filed, you stop paying your unsecured creditors as of the date of your filing. You also will have stopped paying any secured creditors where you decided that you couldn’t afford to keep the secured asset(s) that you already returned.
On top of that, if your creditors are suing you, then your filing stops those legal actions If certain creditors already have a judgment against you and are garnisheeing your assets or your income, those actions are also stopped. This is called a stay of proceedings.
The LIT will send the proposal to your creditors. The proposal will include a listing of your assets and liabilities. It will also tell the creditors the reasons for your money difficulties.
Creditors then have 45 days to either accept or decline the proposal. They can do this either before or at the meeting of creditors if one is held.
When is a meeting of creditors held?
In order for consumers proposal to be approved, a simple majority of your creditors by dollar value that has actually filed a proof of claim need to authorize it. If creditors that have actually filed a proof of claim pick not to vote, that is considered a vote in favour.
You may not require to have a meeting of creditors. Unless creditors holding 25% in the dollar amount of the claims submitted ask for one, or the OSB requests it, there is no requirement to hold one. If a meeting is not requested, the proposal is deemed to be accepted by the creditors.
There is not a whole lot to understand. As I mentioned, a simple majority by dollar value tells the tale. There is either a majority to accept or refuse your consumers proposal.
If your proposal is accepted, the OSB, or any other interested party, has 15 days to ask the LIT to put it on the Court list to have the proposal examined by the Court. If no such demand is made, the proposal will be considered to have been approved by the Court.
If your consumer proposal is accepted
An accepted proposal is a contract between you and your creditors. You have promised to make monthly payments to the LIT for a period of up to 60 months. You carry out your end of the deal by making all the required payments.
You also need to attend two mandatory credit counselling courses run by the LIT. If you complete all the payments and the two counselling sessions, you have discharged the balance of your debt. You have also been successful in avoiding bankruptcy.
consider various other choices for addressing your financial problems; or
file for personal bankruptcy
As mentioned above, if you complete all the payments and the two counselling sessions, you have discharged the balance of your debt. You have also been successful in avoiding bankruptcy.
How will a consumer proposal affect my credit rating?
Normally, a person who submits a consumer proposal is given the lowest credit rating.
Information that affects your credit report is typically removed from after a certain period of time. In Ontario, the notation of your consumer proposal insolvency proceeding stays on your credit record for 3 years after you complete all your payments and receive your certificate of full performance.
You will start rebuilding your credit. Through making a conscientious effort to show you can now handle credit, your credit score will start rising.
Is a consumer proposal worth it?
I think so. You had financial problems and maybe your assets and employment income were being garnisheed. You needed a solution. You chose the only government-sanctioned debt settlement plan in Canada. You successfully completed it. You shed a lot of debt. You also avoided bankruptcy.
I would say, that for sure, makes it worth it.
Is a consumer proposal bad?
A consumer proposal in itself is not bad. It has saved thousands of Canadians from their financial problems. It has made sure that the bankruptcy numbers in Canada are not as high as otherwise might have been.
The bad part was the financial trouble the person got into. Thankfully, in a country like Canada with a mature economy, there is a legal means to help the honest but unfortunate person shed their debt without going into bankruptcy.
What happens after a consumer proposal?
After you have successfully completed a consumer proposal, you have hopefully learned proper budgeting skills through credit counselling sessions. You are also now better equipped to make sure that you use credit more wisely. You also now know better that you cannot spend more than you earn, on an after-tax basis.
You can now start rebuilding your credit. Ways of doing that are:
Obtain a secured credit card. This is one where you put up a certain amount of money and you get a credit limit in line with your deposit. Every month that you pay your credit card balance in full, that is reported to the credit reporting agencies. When you show responsible use of the credit card, your credit score improves. If you do not handle that credit well, that is also reported. Hopefully, that will not be the case.
Take out a small RRSP loan your first year after getting your certificate of full performance. Pay that loan off within the next 12 month period. Making your loan payments on time is reported and helps increase your credit score.
Be careful with credit. You don’t want to fall back into the trap of taking on too much debt and having financial problems again.
Consumers proposal summary
Are you in financial distress? Do you not have enough funds to pay your bills as they come due?
As a Trustee, we are the only professionals acknowledged, accredited and also managed by the federal government to provide insolvency advice and services. A consumer proposal is a federal government licensed debt settlement approach to eliminate your debt. We will certainly help you to pick what is best for you to clear your own debt issues.
Call the Ira Smith Team today so we can eliminate the stress, anxiety, discomfort and pain from your life that your cash problems have produced. With the distinct roadmap, we develop just for you, we will swiftly return you right into a healthy and balanced problem-free life.
We have years and generations of experience assisting people and companies looking for debt restructuring to PREVENT bankruptcy. You can have a no-cost analysis so we can help you to fix your financial troubles. Call the Ira Smith Team today. This will certainly allow you to go back to a new healthy and balanced life, Starting Over Starting Now.
If you would prefer to listen to the audio version of this how to file for bankruptcy in Canada Brandon’s Blog, please scroll to the bottom and click on the podcast below
Introduction
I am most often asked by people how to file for bankruptcy in Canada. When I receive that question, I tell people that there are a few steps that need taking before the actual filing. These steps are the process I use to make sure that the person can actually benefit from personal bankruptcy. I don’t just put someone into bankruptcy and hope that it will work out alright for them. I have to make sure upfront that there is a benefit for them. It has to make sense.
Getting over the initial fear
It takes a lot for a person to overcome that initial fear and reach out to phone me. They are admitting that they have financial problems. I understand the fear a person has. My role in that first phone call or meeting, for which there is no charge, is to help the person get over their fears. I answer the most important questions the person wants to be answered. I also need to remind them that the answers are by necessity, generic. Once I have their specific information, then I can answer their questions in a way that is specific to their situation.
How do I apply for bankruptcy in Canada?
The first step in the application process is providing me with detailed information about your specific situation. We get this information by having you complete our initial assessment intake sheet. We call ours the Debt Relief Worksheet.
The Debt Relief Worksheet collects the information we need to do a proper initial assessment. The information collected includes:
Basic details such as name, address and marital status.
A listing of all your assets and your debts.
Your employment.
Your household monthly cash flow/budget.
Questions whose answers are important to understanding who you are.
Once I have a fully completed Debt Relief Worksheet, I can then analyze the information and provide you with an assessment designed specifically for you. Normally, when you first submit the information to me, I will have to follow up on questions for you to answer. This is all normal.
Once I have the full picture, I can properly assess what bankruptcy will mean for you. This will lead us to a discussion of alternatives to avoid bankruptcy that is right for you. It may be that you have a specific issue that can be dealt with outside of bankruptcy. Once resolved, the rest of your situation is manageable without resorting to a filing under the Bankruptcy and Insolvency Act, RSC 1985, c B-3 (BIA).
The next possibility is you can’t fix things on your own, but you still do not need a licensed insolvency trustee (formerly known as a trustee in bankruptcy) (Trustee) to do a BIA filing on you. Perhaps with credit counselling, you can get your budget under control and pay down your debts.
If the right answer is that you do not need to file under the BIA, I will tell you so and connect you with the proper help that you need. The cost for me to review your situation and provide you with the right alternatives available to you is zero. It will not cost you anything.
Consumer proposal vs bankruptcy
If you do need a formal insolvency filing, we have to figure out which one. We are still looking at if you can avoid bankruptcy. We do this by looking at your whole situation. We first look at what bankruptcy means to you. What would the outcome of your bankruptcy be?
Some of the factors we consider are:
Your assets that would not be exempt and therefore would be handed over to us as your Trustee.
Have you ever been bankrupt before?
Are your debts $250,000 or higher, not including any mortgages or other loans secured by your principal residence?
Do you owe $200,000 or more to Canada Revenue Agency (CRA) for unpaid income tax?
Are all your tax filings up to date?
Your income and do you have a surplus income?
If you do have surplus income, what would your monthly payment be and can you afford it in your budget?
Based on the information you gave us, can we determine the likelihood of any creditor opposing your discharge from bankruptcy?
Any other special circumstances you have told us about.
The answers to these questions help us determine if you need to file for bankruptcy or not. In many cases, I help people avoid bankruptcy by filing a consumer proposal. As I have written before, in many cases, it is possible to avoid bankruptcy.
By filing a viable consumer proposal debt settlement plan, you are offering to pay your creditors a fraction of what you owe. You are promising to make monthly payments for a time period not greater than 60 months. A successfully completed consumer proposal will release you from your debts that exist at the time of your filing.
Those that are eligible to file a consumer proposal choose this option. They are happy to avoid bankruptcy. Our assessment and the advice we give you on consumer proposal vs bankruptcy is still free.
How to file for bankruptcy in Canada
If we decide that bankruptcy is necessary, we will then prepare the required documents. These documents include your sworn Statement of Affairs and your monthly cash flow budget. The Statement of Affairs is a document that:
Identifies you.
Lists your assets with their respective estimated realizable value.
Indicates which assets are exempt from seizure, if any.
Lists your creditors by name and amount owing.
Part of the filing process is that the insolvent person swears that the document is accurate. This is done in our office as our Trustees are also commissioners for taking oaths for the work we do. All of this is done in my office.
I then electronically file the sworn Statement of Affairs and other required documents with the Superintendent of Bankruptcy. Once the Official Receiver, who is the Superintendent of Bankruptcy’s local official, reviews and accepts the filing, the insolvent person is officially bankrupt.
This is how a person files for bankruptcy in Canada.
What happens if I declare bankruptcy in Canada?
Once you declare bankruptcy (or file a consumer proposal), all collection and enforcement action against you stops. Creditors can no longer sue you or harass you trying to collect the outstanding debts. You are now protected by the stay of proceedings.
Then the Trustee needs to take possession of your assets that are not exempt from seizure under provincial law. Before you file, I always tell you what those assets are and what will happen.
If you declare bankruptcy (or file a consumer proposal), you will have to attend two counselling sessions. Those sessions are conducted in my office by the Trustee who is also a qualified credit counsellor.
If you have met all of your duties and responsibilities in your bankruptcy, including the payment of surplus income if required, you are then entitled to a discharge from bankruptcy. If no creditor or the Trustee objects to your discharge, then you receive an absolute discharge. If there is something in your activities or your background where there is an objection to your discharge, then the matter must be heard in the bankruptcy court.
Before you file, I will give you my best-educated guess on the likelihood of an objection to your discharge arising.
Will I lose my house if I file bankruptcy in Canada?
If you declare bankruptcy, there are various ways and conditions in bankruptcy that you will NOT lose your house.
Everybody who owns a house and also experiences financial issues is worried about losing their house. Losing your home is possibly among the most terrible concerns people with a huge debt load that is crushing them have. This is exactly how it functions if you file for personal bankruptcy in Ontario.
The exemption in Ontario for your house is $10,000 of equity. The present thinking is that if your equity is $10,000 or less, if you go bankrupt, then your entire equity is excluded from seizure by the Trustee. Nonetheless, if your equity is $10,001 or greater, your whole equity in your home is NOT exempt and also is readily available to your Trustee for the benefit of your creditors.
Keep in mind that we are talking about your equity. In determining your equity, we first have to determine the market value of the house. We then deduct any mortgages or other loans registered against the property. The net result of this calculation represents your equity. If you own the home jointly with your spouse, then it is half of that number that is your equity. The other half belongs to your spouse.
If someone is available and willing to purchase your equity from the Trustee for its value, then the Trustee will collect that money. Once the Trustee sells its interest in the equity of your home, the Trustee no longer has an interest. If the person purchasing your equity is your spouse, another relative or friend, they are doing it so that you will not have to leave your home.
If that happens, then you will not lose your house if you file for bankruptcy. If you have no equity because the loans registered against your home is equal to the home’s value, again, you will not lose your home.
How much does it cost to file bankruptcy in Canada?
The expense of declaring bankruptcy is something you will certainly need to take into consideration. Just how much you will need to pay to go bankrupt relies on a number of variables, including:
your month-to-month income;
what assets you own;
the size of your family members; and also
whether you have ever been bankrupt in the past.
You are required to your surplus income into your estate every month. Surplus income is defined by the federal government. If your household makes over a certain amount every month, you pay a component of your earnings over that base set by the government each year. That base is essentially the poverty line.
The surplus income computation is reasonably complicated. I recommend you bring your current pay stubs to your meeting with me to make sure that I can accurately estimate it for you.
The fee a Trustee is entitled to charge in an ordinary personal bankruptcy must be approved by the Court. In a bankruptcy where there really are no assets, the fee is set in the statute.
If you have non-exempt assets, the Trustee sells them and receives the proceeds of the sale(s). If you have surplus income to pay, the Trustee collects those payments from you. The Trustee’s fee, which is the cost of the bankruptcy, comes from the money collected by the Trustee. So, in this example, where the Trustee has collected more than the cost of the bankruptcy approved by the Court, there is no additional cost to you at all. In this way, the Trustee is free!
If there are no assets or surplus income, then the bankrupt has to make monthly payments to the Trustee to cover the cost of the bankruptcy. If the bankrupt person cannot afford to, then you will have to get a relative to put up the money necessary to pay for the cost of your filing for bankruptcy. In this case, the government approved fee is in the range of $1,800.
Summary
I hope this Brandon’s Blog gives you a good idea of how to file for bankruptcy in Canada. We know that having too much debt is very stressful.
The Ira Smith Team understands how to help you rid yourself of your debts. However, more importantly, we understand your emotional needs. You are worried because you are facing significant financial challenges. You are worried not only about yourself but also your family.
The stress placed upon you due to your financial challenges is enormous. We understand your pain points. We look at your entire situation and devise a strategy that is as unique as you and your problems; financial and emotional. The way we deal with your problems and devise a debt settlement plan, we know that we can help you.
We know that when you are facing financial problems you need a realistic lifeline. There is no “one solution fits all” approach with the Ira Smith Team. That is why we can develop a debt settlement plan for you as unique as the financial problems and pain you are facing. If any of this sounds familiar to you and you are serious in finding a solution, contact the Ira Smith Trustee & Receiver Inc. team today.
Call us now for a free consultation. We will get you back on the road to a healthy stress-free life. We will help you to recover from the pain points in your life, Starting Over, Starting Now.
Small and medium-sized businesses play a vital role in all worldwide economies. Bankruptcy experts in the USA identified problems. The Chapter 11 bankruptcy protection process for these companies was not working. It is pricey, usually ineffective and impractical. So, many businesses in the USA in need of restructuring could not have access to the US insolvency system.
On July 23, 2019, the US Congress passed the Small Business Reorganization Act (SBRA). On August 1, 2019, the Senate passed the Bill. On August 23, 2019, President Donald Trump signed it to enact it.
The purpose of the SBRA is to make business bankruptcy protection much less troublesome for small and medium-size ventures. The result is Chapter 11, subchapter V of the US Bankruptcy Code (Titled: Small Business Debtor Reorganization). The aim is to make it more affordable and will serve to save otherwise viable owner-managed businesses.
The purpose of this Brandon’s Blog is to discuss the new US legislation. I will also comment on an approach for the Canadian insolvency system. Can we streamline restructuring under the Bankruptcy and Insolvency Act (Canada) (BIA) for small business?
Changes made by the SBRA
A small company is defined in the SBRA as a person or company whose non-contingent debts (leaving out financial obligations to affiliates or people not dealing at arms’-length) are $2,725,625 or less and which chooses to be dealt with under the SBRA. The Act includes a new subchapter V to Chapter 11 of the US Bankruptcy Code. The purpose of this new approach is to make it simpler and more economical for small companies to efficiently restructure.
The main thrust of the Act is:
A creditor cannot lodge a Chapter 11 restructuring plan that it is prepared to support. Just the business can. The company’s plan must be filed within 90 days of the day it filed its bankruptcy protection application, other than in specific conditions.
A trustee comparable to those selected in a personal restructuring (Chapter 13) situations will be selected to manage each case.
A creditors committee will not be developed.
The Chapter 11 plan can change the legal rights of a lender registered against an individual’s primary home if the mortgage/funding secured by the home was used in the person’s business and was not financing used to purchase the property.
The Court can approve a small business’ restructuring plan without the approval of any class of creditors. The Court must be satisfied that the restructuring plan treats all creditors fairly and does not prejudice any creditor class.
To be fair and equitable, the restructuring plan must offer that all earnings received throughout the term of the restructuring plan will available to fund the restructuring for a duration of 3 to 5 years.
So the onus is on the creditors to carefully review all cases filed under the SBRA. Creditors will need to retain bankruptcy experts to advise them. Their role will be to make certain that Courts appropriately examine restructuring cases for fairness and that they treat all creditors equitably. This will be especially true for those that do not have the support of the creditors.
It will be very interesting to see if this new legislation accomplishes its goal of making it simpler and less costly for small businesses to restructure and continue.
To qualify for restructuring under the CCAA, the insolvent corporation must owe at least $5 million. The CCAA is only for insolvent companies or income trusts to restructure. It is not for:
proprietors or partnerships
banks
telegraph companies (do people still send telegrams?)
insurance companies
companies to which the Trust and Loan Companies Act applies
Proceedings under the CCAA are a very heavily Court-driven process.
Restructurings under the Part III Division I proposal provisions of the BIA are available to both companies, proprietors and partnerships. It is also available to people who owe $250,000 or more, not including any mortgages or loans secured by the person’s principal residence.
For people who owe less than $250,000, a more streamlined restructuring process is available under Part III Division II of the BIA. These are called consumer proposals.
Restructuring under the proposal provisions of the BIA is not a heavily Court-driven process like the CCAA. Under consumer proposals, if all goes smoothly there is never a Court application.
So we have a simpler and streamlined version for people who have a smaller debt level but are still in need of restructuring their financial affairs. The same is also true for people with fewer or no assets that need to start over through the bankruptcy process. However, there is no equivalent streamlined version in Canada for small to medium-size businesses.
Could such a streamlined business restructuring model be developed? Not only do I think it could be, as one of the bankruptcy experts in Canada holding the designation of licensed insolvency trustee, I think it must be.
The statute for a streamlined Canadian business restructuring model
The CCAA is designed for large corporations. As I already stated, it is a heavily Court-driven process. Therefore, I think this eliminates the CCAA from developing a more streamlined version. It is not the case that it could not be done. It is just that a new section designed for simpler and more cost-effective CCAA proceedings goes somewhat against the purpose of the CCAA.
Therefore, I propose that CCAA legislation should remain available only to larger companies. Especially because the BIA, another federal statute, already includes restructuring provisions. It already has a streamlined version for bankruptcy and restructuring to avoid bankruptcy. So, why not a streamlined business restructuring section?
What would BIA streamlined business restructuring look like?
You might ask, why is this even necessary? Many small and medium-sized businesses are family-owned. There are even very large family-owned businesses. The Financial Post reports that “Family businesses own a bigger chunk of Canada’s economy than you think — way bigger”. They report it is a significant business sector contributing 35 percent of Canada’s real gross domestic product.
So with such an important business sector, it would make sense to allow those businesses on the smaller scale to qualify to have a simpler and more cost-effective way to restructure when they hit a financial bump in the road. If the viable parts of the business can be saved, it will continue to employ people, allow families to have a good quality of life and contribute to Canada’s GDP. It does not make sense to essentially kill off these smaller businesses because the cost of the restructuring will use up all the resources necessary to run the business.
I am not talking about family-owned businesses Bombardier Inc. and Loblaw Cos. Ltd. Rather, I am talking about the majority of Canadian entrepreneurial companies in the mid to small size range.
So here is what I propose for a streamlined restructuring process for small and medium-sized businesses. I will call it a new Part III Division III of the BIA. I will call it the General Scheme for Small Business Proposals (SBP) section of the BIA.
Size matters
The new SBP should be available to corporations, proprietorships and partnerships that are set up to conduct business. Their total debt should not be more than $1.5 million. There is nothing scientific about this number.
Statistics Canada could do an analysis as to the average debt load of Canadian businesses and an appropriate debt level could be picked based on it. For purposes of this Brandon’s Blog, I will use the $1.5 million amount.
I would not exclude loans from affiliates or people not dealing at arms’-length such as in the US legislation. In Canada, it is normal for the first funding of a company to come from the owners. Our chartered banks want to see a commitment from the owners before they will lend. Owners have sacrificed their own money to get the company off the ground. Just because that is how they had to finance the company, I would not preclude that debt from counting in the calculation.
The Canadian business landscape is different from that in the USA. Our numbers are generally smaller. In order to exclude non-arms’-length debt, you would probably have to lower the debt threshold I have mentioned. So, let us keep that debt threshold for discussion purposes and include all debt; secured or unsecured, arms’-length or related parties and owners.
If a person is not conducting business in his or her name, then this new SBP would not be for them. They would fall under either Division I or Divison II restructuring proposals.
Administration of restructurings under the SBP
Currently, only a licensed insolvency trustee (formerly called a bankruptcy trustee) (LIT) can administer restructuring proposals. Under Division I Proposals, the LIT is called the Proposal Trustee. Under consumer proposals, Division II personal restructurings, the LIT is called the Administrator.
So, for the new SBP, I will call the LIT the Small Business Administrator. It makes it obvious that it is the restructuring of a business qualifying under the new Division III. The use of the word “administrator” ties nicely into the word chosen already by Parliament for consumer proposals. So again, it makes it obvious that the LIT is administering a small business streamlined restructuring.
Since we are not talking about personal restructuring that falls under the consumer proposal provisions in this Brandon’s Blog, my suggestions for a streamlined business restructuring applies only to Part III Division I of the BIA Proposal restructurings to avoid bankruptcy.
Time to restructure
Under a Division I Proposal restructuring, the company or person can begin the restructuring process by filing either a Notice of Intention To Make A Proposal (NOI) or the Proposal itself. Under either filing, the debtor then has 10 days to file its cash-flow statement reviewed and approved by both the company or person and the LIT. Under an NOI filing, the company or person then has an additional 20 days (30 days after the NOI filing date) to file a Proposal (unless the time is extended by Court Order).
Most times with small to medium-sized businesses, the debtor is not current in all of its filings with the Canada Revenue Agency (CRA). This includes payroll remittances, HST and perhaps even income tax returns. In any restructuring where CRA is a creditor, they need to have the most current information from the debtor’s business filings, to be able to know the full amount owing by the business. They will not be able to properly assess the Proposal until they know the proper amount owing to them.
Also in any Proposal restructuring, we want to have a provisional income tax return prepared by the external accountant for the business. The provisional return is to show if any further tax liability exists for the fiscal year up to and including the date of filing of the Proposal.
Books and records will first have to be brought up to date. Then the accountant will need time to prepare and file the income tax return. There is a reason for this. We want CRA to know if there is a further liability.
Although there is no statutory provision allowing for this, CRA so far on an administrative level will allow for a split tax year in a restructuring. The liability for the fiscal year up to and including the Proposal date will be included as a debt in the restructuring. This is to the company’s or person’s advantage in the business.
Once the Proposal is filed, the meeting of creditors has to take place within 21 days of the Proposal date. In my experience, there is never enough time for the business to do all the necessary filings for CRA that I just mentioned. So, CRA always requests an adjournment of the meeting until such time as all the filings are up to date.
So, in my proposed streamlined version, I would propose to extend the filing of a Proposal after the filing of an NOI from 30 days to 90 days, without the need for the expense of going to Court seeking an extension. This should give enough time for the business to get all of its filings up to date and hopefully avoid the need for an adjournment of the meeting of creditors.
Creditors
There really is nothing that needs to be changed on how creditors file their claims. The same is true for the rules of how the LIT must assess all claims. I do like the idea in the new Chapter 11 subchapter V. That is the ability to change the legal rights of a lender registered against an individual’s primary home if the mortgage/funding secured by the home was used in the person’s business and was not financing used to purchase the property.
In Canada, it is very rare, if not unheard of, for an entrepreneurial business to get a bank loan without the owner giving a personal guarantee. Many times the personal guarantee has to be backed by a hard asset, such as a pledge of the personal residence. If the secured debt can be restructured, shouldn’t the pledge agreement on a personal asset also be part of that restructuring?
So, I propose that in the new SBP, there should be the ability to change the legal rights of a lender registered against an individual’s primary home if the funds were used for the business or if the pledge was in support of a personal guarantee for funds borrowed by the business.
The types of changes to the security pledge will be unique to the individual restructuring. It has to make business sense and common sense. It is always up to the secured lender to vote against the plan if they don’t like it. In that case, the restructuring will fail. There will be great pressure on the business to bring forward the best possible restructuring plan and not go crazy on what changes the owner wants to make to the pledge of security.
Deemed acceptance and approval
Without going into all the rules, under the current consumer proposal legislation, there is the concept of deemed creditor approval and deemed Court approval. Unless creditors holding 25% in value of the proven claims request it, there is no need to hold a meeting of creditors. Creditors are asked to vote by way of voting letters when they file their proof of claim. If no obligation to call a meeting arises, then the consumer proposal is deemed accepted.
If a consumer proposal is either accepted or deemed accepted by the creditors, then there is probably never going to be a need for the LIT administrator to formally seek approval by the Court. The BIA reads that after the acceptance or deemed acceptance, the consumer proposal is deemed accepted by the Court unless the Official Receiver or “other interest party” requests it within 15 days after the date of (deemed) acceptance.
Currently, under a Division I Part III restructuring Proposal there are no deeming provisions for either creditor acceptance or Court approval. I would like to see in the new SBP section, that similar deeming provisions for both creditor acceptance and Court approval be implemented. This will save time and cost thereby being much more efficient.
No deemed bankruptcy
In a Division I Proposal, if the creditors do not accept the restructuring, or the Court does not approve it, then the debtor is automatically deemed to have filed an assignment in bankruptcy. There is not a similar provision for consumer proposals.
If the creditors do not accept a consumer proposal, then it just dies then and there and the debtor goes back to their normal unprotected state.
My proposal for the new SBP is that if the creditors do not accept or the Court will not approve the restructuring plan, that does not produce a corporate or personal bankruptcy. Rather, the debtor just goes back to their normal unprotected insolvent state and they have to fend off their creditors as best as possible.
It may lead to bankruptcy, but that will not be automatic. In some corporate situations, the cost of a bankruptcy proceeding just does not make sense. This is especially true if a chartered bank has security over all of the assets and will be enforcing its security through a receivership.
Directors/Owners
Right now a corporate restructuring Proposal allows for Directors to be released from debts that arise prior to the date of filing the Proposal. The kinds of debts that a Director can be released from are those solely resulting from their role as a Director. In other words, generally statutory claims they would be legally liable for.
As I already mentioned, more often than not, the only way a small or medium-sized company can get a bank loan is if the entrepreneur personally guarantees the debt. There are times where a corporate restructuring can be done, but the secured debt arrangements will have to be amended. If the lender is not willing to amend the personal guarantee security arrangements in place, then, the corporate restructuring does not make sense.
So in my dream of the SBP, if a secured lender agrees to a restructuring of their debt, then the Director(s) who may be personally liable will now be responsible for the revised secured lending arrangement. This would also go hand in hand with my proposed change to the ability to change the legal rights of a lender registered against an individual’s primary home if the mortgage/funding secured by the home was used in the person’s business and was not financing used to purchase the property.
Bankruptcy experts summary
So there you have it. The US government saw fit to add to its Chapter 11 bankruptcy protection statute to allow smaller companies to restructure. My vision for a Canadian version is the SBP section to form a new Part I Division III for the BIA.
To summarize, the changes to allow for a more efficient and less costly way to restructure smaller businesses would include:
The brand-new SBP will be offered to companies, proprietorships and partnerships that are established to run a business. It will be available to businesses with any kind of debt not greater than $1.5 million.
A LIT who will be called a Small Business Administrator, will oversee and be responsible for the business restructuring.
The time for the filing of a Proposal after the filing of an NOI will be extended from the current 30 days to 90 days. This will be without the need and cost of a Court application.
There ought to be the capability to transform the rights of a lending institution who has taken an entrepreneur’s home as security for a business loan or personal guarantee of such financing and the funds were put into the business.
Deeming provisions for both creditor acceptance and Court approval be implemented. It is already done in consumer proposals, so why not in streamlined business proposals? This will result in more efficient and less costly restructuring.
If the creditors’ decline or the Court will not approve the restructuring, that will not generate a corporate or personal bankruptcy. Instead, the debtor simply returns to their vulnerable financially troubled state and they will need to deal with their creditors as best as possible. In some cases it may lead to either bankruptcy or just a closing down of the business. Where there is a secured creditor, it will lead to the enforcement of their security. Either way, it won’t be an automatic bankruptcy.
A Director of a corporation can be released not only from statutory obligations arising from their office of Director. That person, or any other person, can have their guarantee of a debt to a lender be amended if the related business debt is amended in the restructuring.
There no doubt will be other areas that would need amending once all the relevant sections of the BIA were looked at. These are my ideas of the major amendments that could be made to the BIA, to allow for a more streamlined and cost-efficient restructuring for small and mid-sized businesses.
What about your business?
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We know that companies facing financial problems need realistic lifeline. There is no “one solution fits all” approach with the Ira Smith Team. That is why we can develop a company restructuring process as unique as the financial problems and pain it is facing. If any of this sounds familiar to you and you are serious in finding a solution, contact the Ira Smith Trustee & Receiver Inc. team today.
Call us now for a free consultation. We will get your company back on the road to healthy stress-free operations and recover from the pain points in your life, Starting Over, Starting Now.
If you would like to listen to the audio version of this Canada insolvency Brandon’s Blog, scroll to the bottom and click on the podcast
Introduction
On September 4, 2019, the Government of Canada department of Innovation, Science and Economic Development, issued a press release. They announced that there would be changes coming to the Canada insolvency legislation.
I have previously written about the fallout from the Sears Canada insolvency. Specifically, about the plight of retired employees seeing their medical benefits eliminated and their pension entitlement slashed. After that, there have been several private member bills trying to fix the Canada insolvency laws.
Budget 2019
As I have written in previous Brandon’s Blogs, the concern is for retired people (and present employees) when a company enters into an insolvency proceeding. Like in the Sears case, the worry is associated with the staff member’s health benefits plan which could be gutted for retirees. An equally important concern, are underfunded pension plans when a firm enters into bankruptcy protection.
Insolvent employers have placed a moratorium on reimbursements to workers and especially retirees on valid medical claims. Also, the staff member pension plan payments can be cut for retirees because the insolvent firm has not made the called for contributions. The retirees are in the weakest position as they can never make up for what they are now losing.
Pension payments are postponed income. In an insolvency filing, there is generally absolutely nothing left for current (other than perhaps their WEPPA claim in bankruptcy or receivership) and retired employees.
The reality is that all politicians currently acknowledge simply exactly how unsecure pension plans and health plans may be in the case of insolvency, restructuring or bankruptcy.
The Liberals acknowledge that this is a significant issue. Nonetheless, in this budget, they chose to ignore the problem.
What the press release said
The Government of Canada said that it is dedicated to far better safeguarding the rights of pensioners, employees and others during insolvency procedures. They say they can guarantee all Canadians can have satisfaction when it pertains to retirement. They say they can do this while maintaining laws that continue to support growth, advancement and also great jobs in Canada.
The Honourable Navdeep Bains, Minister of Innovation, Science and Economic Development Canada said, that beginning November 1, 2019, reforms to the Bankruptcy and Insolvency Act (BIA) and the Companies’ Creditors Arrangement Act (CCAA) announced in Budget 2019 will be enacted. He said that this will be done to enhance retired life security by making the insolvency procedure fairer, much more clear and also easily accessible.
So what is being planned?
The press release was consistent with the wording in Budget 2019. The press release went on to say that the BIA and CCAA modifications pertaining to boosting retirement protection will:
call for participants in an insolvency process to act in good faith (isn’t that already enshrined in our legislation and enforced by our Courts?);
offer the possibility of court-ordered disclosure of a creditor’s real financial interest in an insolvent business (how does this help retirees?);
enforce director obligations in suitable cases for senior management compensation settlements in the lead-up to an insolvency proceeding (whatever appropriate means);
limit the choices that can be taken initially in a CCAA administration to measures necessary to avoid the immediate liquidation of an insolvent company, thus boosting participation of all players (does this mean the government plans to outlaw a liquidating CCAA?);
exclude assets held in registered disability savings plans from creditors’ claims in bankruptcy;
reforms to the BIA and CCAA to guarantee the safeguarding of intellectual property user rights in insolvency, announced in Budget 2018, will also be enacted for November 1.
The devil is in the details
The Minister stated:
“It is unacceptable that some pensioners face hardship because of their employer’s insolvency and underfunded pension plans. Our government believes that after a lifetime of hard work, Canadians deserve a secure and dignified retirement. With these reforms, we are protecting Canadians’ retirement security and the ability of businesses to invest, grow and create more good jobs.”
This sounds great, but what does it mean? I don’t see anything in Budget 2019 or this recent press release that actually provides specifics on how retirees will be helped. There are no words talking about the super-priority of the amount of underfunding of pension plans. There is also no language on directors’ liability for such underfunding when the company continues to pay dividends to shareholders or bonuses to executives while the pension plan is underfunded.
We will have to wait to see how the proposed legislation actually reads. The other issue is our upcoming Federal election. Insolvency legislation is not a hot topic that gets votes. Perhaps real protection for retirees does. The government had a chance to really lay out how they will protect retirees, but they failed to do so. They talk about many issues in the press release. However, I don’t see anything directly related to retiree protection.
So I hope that the current federal government will follow through with legislation that has real teeth to protect retirees. But the 2019 Canadian federal election is scheduled to happen on or before October 21, 2019. That means that campaigning will have to begin very soon. So when will there be time to introduce the required legislation to be effective on November 1?
The federal government must have a plan otherwise they would not have put out the November 1 date in the press release. So let us wait and see and cross our fingers that retiree protection will be for real.
Canada insolvency summary
Are you nearing retirement with too much debt? Is your employer’s employee pension plan underfunded? Are you worried about how you will make ends meet in retirement?
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Call us now for a free consultation. We will get your company back on the road to healthy stress-free operations and recover from the pain points in your life, Starting Over, Starting Now.
