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.
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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.
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?
The financial restructuring process for either a large or small business 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 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.
UPDATE OCTOBER 30, 2019: On September 27, 2019, the Court of Queen’s Bench of Alberta issued its decision on the appeal of this case. The decision described in this Brandon’s Blog was reversed. You can read about it in our new blog:
“Forgiveness does not change the past, but it does enlarge the future.” Paul Boose
Introduction
In my last Brandon’s Blog, I talked about the balance between a debtor and the creditors the Canadian insolvency system strives for. I just read today a decision of the Registrar in Bankruptcy sitting in the Court of Queen’s Bench of Alberta in Edmonton. In this case, Morrison (Re), 2019 ABQB 521, highlights this balance in this case dealing with Canada student loan forgiveness.
Can Canada student loans be forgiven in bankruptcy?
This is an application according to s. 178( 1.1) of the Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) (BIA). As I have previously written in several of my Brandon’s Blogs, in general, student loans cannot be discharged by a bankruptcy where the date of bankruptcy occurred within seven years after the date on which the bankrupt discontinued to be a full-time or part-time student.
Section 178(1.1) of the BIA, allows for after five years after the day on which a bankrupt with student loan debt ceases to be a full-time or part-time student, the Court may, on an application, order that the financial debt will be discharged. For such Canada student loan forgiveness, the Court has to be satisfied that:
the bankrupt person has actually acted in good faith about their obligations under the student loan debt; and also
the bankrupt has and will continue to experience economic trouble to such an extent that the bankrupt will certainly be not able to pay that financial debt.
So it is possible for student loans to be forgiven in bankruptcy. In this case, if the bankrupt’s application for student loan forgiveness succeeds, the student loan debt will not survive after her discharge. The application was opposed by both Canada Student Loans and the Ontario Student Assistance Program (the government).
Is the forgiveness all or none?
Before getting into the unusual details of this case, the Registrar’s decision dealt with one of the issues that came up over the course of the application. The issue was whether the choice to forgive student loans is all or none. That is, whether it is open to a Registrar hearing this application to find that only a part of the financial obligation needs to survive, in contrast to releasing all of it.
Based on the case law, the Registrar was satisfied that this was an all or none proposition. The Registrar stated that he was somewhat let down that it had to be that way. If the decision is that these financial debts are extinguished by the bankrupt’s discharge, the government could object to the bankrupt receiving an absolute discharge.
Like any other creditor, they could ask that a financial condition be enforced as a condition of discharge. In other words, the bankrupt would have to pay a portion of the student loan amount into the estate to be distributed by the licensed insolvency trustee (formerly called a bankruptcy trustee) (Trustee) as a condition of getting a discharge. This frequently occurs with high tax obligation debtors.
As it turns out, the government did not oppose the discharge application that was heard following this student loan application. They also did not ask that a monetary condition be applied to the terms of the conditional Order that was given.
So, it had to be all or none.
The vital facts
In 2015 Ms. Morrison was in financial hardship. At the time, she estimated her overall unsecured financial obligations were $71,501.00. Of that amount, about $50,000.00 was student loan debt. She sought the guidance of a Trustee and then assigned herself into bankruptcy. Ms. Morrison’s stated intent was to have all her unsecured debt on an equal footing to make sure that she can take care of everything via the insolvency process. She told her Trustee that she wanted her student loan debt to be included in her unsecured debt that would be eliminated by her discharge from bankruptcy. She clearly wanted Canada student loan forgiveness.
Ms. Morrison was last a full-time student in April 2008. Her last day of classes was on April 18, 2008. She had been a full-time student up until that day. So, arguably, she discontinued being either a full-time or part-time student on April 19, 2008. Unfortunately for her, she assigned herself to bankruptcy on February 27, 2015. Her personal bankruptcy in February 2015 was just a bit too early.
This somewhat defeated her stated reason for going bankrupt. So this is why she made this application to try to have her student loan debt forgiven by her discharge from bankruptcy. Depending on how you do the calculation, Ms. Morrison’s date of bankruptcy was about 60 days or so too soon.
If she had actually waited until April 19, 2015, to become bankrupt, rather than February 27, 2015, as she did, her student loan debt would be eliminated by her bankruptcy discharge.
The government tried to argue that under the student loan legislation, you calculate the time that she ceased being a full-time or part-time student begins on the 1st day of the month following the month she finished her studies. The Registrar was not having any of that.
He said that the student loan treatment he was asked to consider was based on the terms of the BIA. Therefore, he was going to use the more practical conclusion that for BIA purposes, the day you ceased being the student is the day after classes ended. I guess you could quibble that the day after you finish writing your last exam was really the date you ceased being a student, but nobody raised that issue.
The considerations
The Registrar considered cases from both Alberta and other provinces laying out the factors that relate to the discretion the Court had in such a forgiveness application. As I stated above, the Registrar had to determine if:
the bankrupt person has actually acted in good faith about their obligations under the student loan debt; and also
the bankrupt has and will continue to experience economic trouble to such an extent that the bankrupt will certainly be not able to pay that financial debt.
The Registrar laid out his understanding of the factors he needed to consider based on previous decisions. His list was:
Whether the student loan funds were utilized for the purpose it was loaned for.
If the person finished their education.
Did the applicant obtain financial gain from education?
Whether the applicant has actually made reasonable initiatives to repay the financial debts.
If the applicant has made use of the option of applying for interest rate relief.
The timing of the bankruptcy.
Do the student loans form a significant percentage of the total debt?
Whether the applicant had an adequate job and therefore income to be expected to make payments against the student debt.
The applicant’s lifestyle.
Did the applicant had sufficient earnings for there to be surplus income in bankruptcy under the Superintendent’s Directive.
What approaches the applicant made to the government for debt relief and what the government’s response was.
Whether the applicant went to at any time was unable to work due to medical issues or disability.
The Registrar’s findings
Registrar’s findings reveal the following:
The student loans were used for the purpose the funds were loaned.
Ms. Morrison completed her education.
She acquired a financial advantage from her education as she currently works in the area she studied for, or a related one.
She made some effort to settle the student loan debt. She entered into a contract with the government but her financial condition prevented her from making good on that plan. She apparently made some repayment.
The bankrupt’s initiatives at getting to a practical arrangement were not trivial. However, it appears that she required the framework of an insolvency process for her to come to terms with all her debts.
The applicant got interest-free standing for a period of time.
The student loans developed by far and away made up the best part of the bankrupt’s general indebtedness.
The applicant is (and was) for the most part a single parent of one. She committed a significant percentage of her income to her child (now a teen).
She lived a modest way of life.
She now has full-time employment and surplus income.
The decision
The Registrar found that the timing in connection with the seven-year cut-off was extremely close. The bankrupt’s primary interest and her shared intent at the time of meeting with the Trustee were to deal with all of her creditors on equal ground. Ms. Morrison did not look for bankruptcy to avoid her student loan debt but rather to deal with all of her financial problems.
There was obviously miscommunication between Ms. Morrison and her Trustee. The trouble was that the miscommunication aggravated her stated goal, which was the entire point of her insolvency proceeding.
When the matter was heard, it was approximately eleven years after her education was finished. The Registrar stated that in these extremely uncommon conditions he is completely satisfied that it remains in the interest of justice that an order goes pursuant to s. 178(1.1).
The government did not otherwise oppose the discharge. The Registrar made a conditional order of discharge taking all circumstances, including her surplus income, into consideration.
In this way, the Registrar balanced the right of this honest but unfortunate debtor to get her fresh start, with the rights of her creditors.
“True forgiveness is when you can say Thank You for that experience.” Oprah Winfrey
Canada student loan forgiveness summary
Are you or your company in need of debt forgiveness. Have you tried your best to balance your financial survival with those of your creditors but you just cannot keep up?
The stress you are under because of your money challenges is huge. I understand your pain. At no cost to you, I will look at your whole set of circumstances and develop a plan that is as special as your issues. I know that I can help you through this.
There is no “one solution fits all” approach with the Ira Smith Team. That is why I 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 your company back on the road to healthy stress-free operations and recover from the pain points in your life, Starting Over, Starting Now.
The Canada Bankruptcy and Insolvency Act is a federal statute. It attempts to balance the rights of an insolvent debtor with the rights of creditors to get paid. One of those balancing acts is that when you file under the statute, the person filing is granted a stay of proceedings. What that means is that debt collection and enforcement activities are stopped and cannot continue without the prior permission of the Court.
I recently read a very interesting decision of the Ontario Superior Court of Justice out of Ottawa, ON. What that case also shows is that if the insolvent and the then bankrupt person just told the truth, he would have been much better off.
Before getting into the actual case, there are a few questions that I am regularly asked that I would also like to answer. I think those answers will also help with understanding this case.
What is the purpose of the Canada Bankruptcy and Insolvency Act?
The main purpose of the Canada Bankruptcy and Insolvency Act is to help the honest but unfortunate debtor. It is designed to allow a person or a company to get financial rehabilitation through financial restructuring. It also allows a person the same opportunity to shed their debts through bankruptcy.
As mentioned above, at the same time, the rights of the creditors to get paid are also balanced. So that is why in a true restructuring, the creditors must receive more money than if the person or company went bankrupt. That is also why in a bankruptcy, the debtor must give up all their assets to the licensed insolvency trustee (formerly called a bankruptcy trustee) (Trustee). The only assets not given up are those for which there is an exemption under either provincial or federal law. That is also why there is the concept of surplus income payments in a personal bankruptcy filing.
The presumption is that the debtor is honest but unfortunate. That is both before and during their insolvency process. As you will see from the case description below, the debtor was not honest and it is his lies that got him into trouble.
The insolvency process begins with the requirement that in order to obtain relief from debt, the insolvent debtor will be truthful. That is why a filing is initiated by a sworn statement of affairs.
Is insolvency a criminal offence?
As you may recall from some of my prior Brandon’s Blog posts, being insolvent is a financial condition. It is that:
your debts are greater than your assets;
if you liquidated your assets there would not be enough money to pay off your debts in full; and
you have generally ceased paying your debts when they come due.
So becoming insolvent is not a criminal offence.
Similarly, filing for either a consumer proposal, Division I Proposal or for bankruptcy is not a criminal offence. However, if you really are not the honest part of the honest but unfortunate person the Canada Bankruptcy and Insolvency Act is designed to help, you must seek the advice of a lawyer before filing anything.
There are also certain offences a person could commit under the actual bankruptcy statute. Some are quasi-criminal in nature. Again, if you think you are in trouble, you need the advice of a lawyer.
canada bankruptcy and insolvency act
Now for the case – Re Brennan, 2019 ONSC 4712 (CanLII)
On August 8, 2019, this decision of The Honourable Mr. Justice Kershman was released. The case involved the bankruptcy of Mr. Lawrence Brennan (Mr. Brennan) and his creditor, Mr.André Robert (Mr. Robert).
Mr. Robert made an application to the Court to lift the stay of proceedings stopping Mr. Robert from enforcing his judgment against Mr. Brennan’s asset. Mr. Robert said that Mr. Brennan supplied incorrect and deceptive details relating to the presence of a Registered Retirement Savings Plan (RRSP) throughout a judgment debtor exam on July 10, 2018.
Mr. Robert brought this motion for:
An Order stating that the stay of proceedings according to sections 69 to 69.31 of the Canada Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 does not apply in regard to Mr. André Robert, yet is restricted to the seizure of Mr. Brennan’s RRSP with the Lawyers Financial Investment Program.
An Order proclaiming that Mr. Robert will be qualified to proceed with his enforcement process for repayment of his judgment, plus interest and the cost of enforcement restricted to Mr. Brennan’s above-noted RRSP.
Indemnification for the costs of this motion.
Mr. Robert’s argument was that, had it not been for Mr. Brennan’s bankruptcy, there would be no stay of proceedings and he would have the ability to take Mr. Brennan’s RRSP according to the Execution Act, R.S.O. 1990, c. E.24.
The honest but unfortunate debtor
Mr. Robert is a lawyer. Mr. Brennan and others sought and obtained his legal advice. Mr. Robert then billed Mr. Brennan and each of his colleagues for the legal work. They thanked Mr. Robert by not paying him.
Mr. Robert went to Court to claim his legal fees and won. He then sent the Sheriff to seize any assets that could be found belonging to the defendants, including Mr. Brennan. That exercise awarded Mr. Robert with the princely sum of just under $65. So, Mr. Robert then notified Mr. Brennan that he was required to attend a judgment debtor examination. The purpose of this exam was for Mr. Brennan to answer questions, truthfully under oath, as to the nature, extent and location of all of his assets.
Throughout the judgment debtor exam, Mr. Robert asked Mr. Brennan if he possessed any kind of RRSPs. Mr. Brennan said, under oath, that he did not. This response was substantiated by Mr. Brennan’s written financial form, which was finished by Mr. Brennan as a component of the examination under oath.
It turns out that Mr. Brennan lied under oath to Mr. Robert. Seventeen days later, Mr. Brennan filed for bankruptcy. In his sworn statement of affairs completed as part of his bankruptcy filing, Mr. Brennan attested that he owned an RRSP in the amount of $13,017.00 held by the Lawyers Financial Investment Program.
Mr. Brennan may have been unfortunate, but prior to his assignment in bankruptcy, he was not honest.
Seizure of an RRSP – in bankruptcy and no bankruptcy
The evidence before the Court was that there were no contributions to Mr. Brennan’s RRSP in the 12 months prior to his date of bankruptcy. There was also evidence that there was no insurance element to the RRSP either.
This is important for 2 reasons:
If there is an insurance element to an RRSP, and the beneficiary is what is called a “designated beneficiary”, normally a spouse, parent, child or grandchild, then the RRSP is exempt from seizure under Ontario law.
In bankruptcy, an RRSP is exempt from seizure under federal law. The only amount that can be recouped by a Trustee is any contributions made to the RRSP within the 12 months prior to the date of bankruptcy.
So in this case, none of those conditions existed. The issue before the Court was because under Ontario Law, absent a bankruptcy, a judgment creditor can execute against a defendant’s RRSP. In other words, if there is no bankruptcy, in Ontario, the judgment creditor can seize the RRSP.
canada bankruptcy and insolvency act
Mr. Brennan’s defence
Mr. Brennan represented himself in Court. His defence consisted of that he:
Did not understand that he had any RRSPs in his name.
Informed Mr. Robert around one month prior to the examination that he would certainly need to go bankrupt.
Needs the Court to have pity for his circumstances.
Certainly not the most compelling defence in the circumstances.
The Court agrees with Mr. Robert
The Court went through an analysis of the Canada Bankruptcy and Insolvency Act as well as the relevant Ontario laws. The Court concluded that:
The RRSP currently in this bankruptcy is exempt from seizure but was available to be seized before the bankruptcy. If Mr. Brennan had been truthful in his examination under oath, Mr. Robert would have seized the RRSP through the Sheriff in enforcing his judgment.
Therefore, the Court lifted the stay according to section 69.4 of the Canada Bankruptcy and Insolvency Act to be equitable so that Mr. Andre can seize them.
To alleviate any kind of tax obligation effects, the Court ordered that 30% of the RRSP should be subtracted at source and also to the Canada Revenue Agency to the credit of Mr. Brennan’s current year income tax account. The remaining amount of the RRSP is to be paid to the Sheriff of the Judicial District of Ottawa, who will disperse it in conformity to the Execution Act and the Creditors Relief Act.
The moral to Mr. Brennan’s story
Although the Court decision does not say it, Mr. Brennan must have not obtained any legal advice before participating in the judgment debtor examination. Any lawyer hearing his story would have told him exactly what I tell every person who comes to my office to talk about an insolvency proceeding. Be honest and truthful.
Mr. Brennan did a really dumb thing. Part of the evidence that came out in Court is that he went to see the Trustee who did his bankruptcy filing six weeks prior to the July 10, 2018 judgment debtor examination to discuss his financial situation. He must have talked about the RRSP then.
If Mr. Brennan was honest and truthful at his judgment debtor examination, he could have filed for bankruptcy before the Sheriff managed to seize his RRSP. In that case, Mr. Brennan would have told the truth and his RRSP would have been exempt from seizure in his bankruptcy.
So instead of telling the truth and keeping his RRSP after bankruptcy, Mr. Brennan lied and therefore lost his RRSP, notwithstanding his bankruptcy.
That is the moral of Mr. Brennan’s story. By telling the truth and then becoming the honest but unfortunate debtor, the Canadian bankruptcy system will protect you.
Canada Bankruptcy and Insolvency Act summary
Are you an honest but unfortunate person in financial trouble? Have you run your company in an honest fashion but through various circumstances, the company’s debts are greater than its assets. Is there just not enough cash to pay all the bills?
If so, you need to call me today. As a licensed insolvency trustee (formerly called trustee in bankruptcy) we are the only professionals licensed, recognized as well as supervised by the federal government to give insolvency assistance. We are also the only authorized party in Canada to apply remedies under the Bankruptcy and Insolvency Act (Canada). I can definitely help you to choose what is best for you to free you from your financial debt issues.
Call the Ira Smith Team today so we can get free you from the stress, anxiety, and discomfort that your cash issues have created. With the distinct roadmap, we establish simply for you, we will without delay return you right into a healthy and balanced problem-free life, Starting Over Starting Now.canada bankruptcy and insolvency act
When I was in high school, I was very fortunate. I thankfully took two accounting courses, in addition to the normal reading, writing and arithmetic. It was in accounting, that I received some financial literacy education. Anyone who did not take accounting did not get any exposure to basic financial education.
When Ontario grade 10 students go back to school next week, their course curriculum is now amended so that a financial literacy course is mandatory. The purpose of this Brandon’s Blog is to discuss why financial literacy is important and what the new course will offer these students.
What is financial literacy and why is it important?
Financial literacy is the education, learning and understanding of different financial subjects related to handling personal money, budgeting and investing. This topic focuses on the capability to manage individual finance matters in a reliable way.
With such education, people gain an understanding of making suitable decisions about their personal money. Without a basic financial understanding, how can people develop their financial skills? Where will you learn about things such as investing, insurance, budgeting, saving, retired life and income tax concepts?
Why is financial literacy important for students?
The typical high school curriculum of education and learning is extremely important. People generally do not get specialist education until they are in a career program. To become a medical professional, an auto mechanic or a web developer requires specialist education for career success. The one area of education that is generally missing to equip our youth to be able to make smart economic decisions in their lives is proper financial education.
Our society values money and entrepreneurship, yet for some reason, our institutions appear to assume you will somehow just know or pick up the proper financial skills to succeed. Perhaps if there was a mandatory financial education system in place we would see the gap between the rich and poor lessen. Teaching basic financial concepts and skills can go a long way to make sure that people can learn good financial habits and keep their heads above water.
How do you get financial literacy?
The Ontario curriculum for Grade 10 career studies for the first time this school year will include a section on financial literacy. The provincial government believes that it is important for students to understand budgeting and financial management. I applaud this effort.
The education system’s overall expectation is that students will get an understanding of responsible monitoring of financial resources and of services readily available to support their financial proficiency as they prepare for post-secondary life. This is an excellent thing.
I remember my first day at university. Day one all the banks have tables to entice students to sign up for a new credit card. Young adults who have student loans and have never been exposed to financial management courses will now have the ability to take on more debt. Not a good thing.
The specific expectations are that students will:
Learn the principles of financial responsibility
Evaluate the advantages of a variety of financial savings options
Explore financial planning tools available with banks and other sources
What are the three main components of financial literacy?
The three main components that the new financial literacy piece to career studies program will cover are:
Financial responsibility
setup and follow a budget
sensibly handling bill payments and using credit wisely understanding the difference between
knowing the difference between a bank and a credit union
types of interest-bearing accounts and their associated rate of interest
tax-free savings accounts (TFSAs)
registered retirement savings plans (RRSPs)
Different kinds of borrowing and their advantages and disadvantages
federal government student loans
provincial government student financings, such as those available with the Ontario Student Assistance Program (OSAP)
loans or bursaries from their local cities and towns
personal (unsecured) loans from a financial institution, be it a chartered bank or a credit union
lines of credit, credit card and overdraft products
recognizing the benefits and disadvantages of the numerous kinds of credit products
how the responsible use of a credit card can boost an individual’s credit score ranking
how improper use of the same credit card can hamper a person’s credit score ranking
that the proper use of bank loans can allow a person to pay for a costly item, such as a car or home
how the improper use of loans and excessive debt can lead to a poor credit rating, money troubles and even insolvency and bankruptcy
How borrowing from family or close friends can be advantageous, but how defaulting on repayment can negatively impact personal relationships
The teacher’s role
The teacher’s role will be to provide illustrations to drive home these points. In the context of spending and personal finance, the students will learn the difference between “needs” and “wants”. Teachers will ask the students to reflect on exactly how a person’s values will influence their wants or the ways in which they satisfy their needs. Students will learn what “living within your means” really means.
The teacher will lead a discussion on exactly how a person can do this successfully. Students will consider what the impact on a person will be from not paying expenses promptly and from using numerous credit cards.
Students will learn the benefits of beginning to save at a young age. They will be exposed to the advantages of then having a formal financial savings plan. All this will naturally lead to a realization that budgeting for both short-term objectives, such as purchasing clothes, differs from budgeting for long-term goals, such as buying and maintaining a car. Students will also learn about the different types of savings vehicles as well as debt products. They will also learn the proper use of debt.
In my view, the students will learn about the three most important parts of any financial literacy program: 1. proper budgeting techniques; 2. the importance of saving from an early age and the various savings vehicles available; and 3. debt and how to use it properly.
Summary
Hopefully, by exposing grade 10 students to these concepts, they will be motivated to keep learning and using proper financial management techniques. My hope is that more students will come out of high school and begin their post-secondary career, whatever that may be, by having better financial management skills and therefore fewer people will be able to stay clear of insolvency.
Prior to the new mandatory curriculum, the first exposure many people had to financial literacy education was as part of insolvency counselling, which means they already made mistakes before having a chance to learn the basics.
Are you on the edge of insolvency? Are bill collectors hounding you? Are you ducking all your phone calls to the point where your voicemail box is always full?
If so, you need to call me today. As a licensed insolvency trustee (formerly called a trustee in bankruptcy) we are the only professionals licensed, recognized as well as supervised by the federal government to give insolvency assistance. We are also the only authorized party in Canada to apply remedies under the Bankruptcy and Insolvency Act (Canada). I can definitely help you to choose what is best for you to free you from your financial debt issues.
Call the Ira Smith Team today so we can get free you from the stress, anxiety, and discomfort that your cash issues have created. With the distinct roadmap, we establish simply for you, we will without delay return you right into a healthy and balanced problem-free life, Starting Over Starting Now.
I recently read an article that said seniors are taking on Canadian reverse mortgage debt in record numbers. In fact, this year, it is one of the fastest-growing debt products.
I doubt that many of the seniors using this type of debt to raise money fully understand all of the issues, including reverse mortgage problems. The purpose of this blog is to answer the most asked questions about this kind of debt.
How does a reverse mortgage work in Canada?
A http://www.irasmithinc.com/blog/what-happens-to-mortgage-when-you-die-canada/Canadian reverse mortgage is financing that permits anyone of the age of 55+ to obtain a loan from your home equity without having to sell your home. The loan is secured by way of a mortgage against your house. This is often called an “equity release”. You have the ability to get up to 55% of the present worth of your home. The actual percentage and dollar value you will have the ability to borrow depends on your age, your residence’s assessed value as well as the lending policies of your lender.
You do not need to make payments on a reverse home loan up until it is due for repayment. This is normally when you vacate your house, it is sold or the last borrower passes away. No payments do not mean the same as no interest. Interest accrues on a reverse home mortgage.
The longer the loan is outstanding, the more time you go without making payments. Therefore, the longer the interest accrues. This obviously reduces the equity in your house.
This is how this type of loan works.
What is the interest rate on a reverse mortgage in Canada?
The interest rate is but one cost of getting a reverse mortgage loan. At the time of writing this blog, the current annual interest rate on this type of loan is in the 5.5% to 5.7% range. This is obviously more than a traditional home mortgage today. This is obviously more than the interest rate on a traditional home mortgage today.
In order to set up such a loan, you will also need to pay for an appraisal fee and an administration fee. Right now that seems to be in the $1,500 to $1,800 range. You will also be responsible for the legal fees involved in preparing and registering the mortgage.
What is the downside of a Canadian reverse mortgage?
There are both advantages and disadvantages to this type of mortgage loan.
Advantages
You don’t need to make monthly payments.
You can turn some of the worth of your house into cash, without needing to sell it.
There is no tax to pay as a result of getting the cash.
This loan does not impact the Old-Age Security (OAS) or Guaranteed Income Supplement benefits seniors may receive.
You still own and live in your home.
You may have options as to when and how you get the money.
Disadvantages
Rates of interest are more than traditional home mortgages.
The equity you hold in your house will decrease as the interest on your home loan accumulates throughout the years. Depending on what happens to the market value of your home over the years, your home equity may decrease.
Your estate will have to repay the loan with interest in full within a set time period when you die.
The time needed to clear up an estate may be longer than the length of time permitted to repay a reverse home loan.
There might be less money in your estate to entrust to your children or other beneficiaries.
Expenses connected with a reverse home mortgage may be higher than a routine mortgage or other methods of financing.
Who offers reverse mortgages in Canada?
There are two lenders offering these loans in Canada: Canadian Home Income Plan (CHIP) and Seniors Money Canada. It is normal to go through a mortgage broker. However, HomeEquity Bank does also offer the CHIP product.
Why are seniors flocking to this type of debt?
A reverse home mortgage is not a new-fangled principle or invention. Actually, reverse mortgages have been around in Canada since 1983. But it’s just in recent times, as many senior citizens are desperate to find a means to fund their retired lives, that reverse home mortgages have become much more popular.
Financing one’s retirement has come to be progressively harder for many seniors. Pension plans are going away and also OAS and Canada Pension Plan (CPP) do not provide ample funds for today’s retirees. This is the main reason seniors have actually sought Canadian reverse home loans.
Many seniors with residences are house rich yet cash money poor. They’ve discovered that a reverse mortgage is a way to get the necessary cash to fund their retirement by using the equity in their home. As a retiree, they can no longer meet the income test to get traditional mortgage financing. So, the reverse mortgage solves that problem.
Senior Borrower Beware
I would be remiss if I did not provide a warning. A large proportion of reverse mortgages are arranged through mortgage brokers. Like any other financial professional, there are great ones, good ones, and not so good ones. Seniors are also more susceptible to scammers. So, it is always good for a senior to have a trusted advisor involved in the reverse mortgage loan process.
To start, there are some basic questions that every senior should ask BEFORE committing to a reverse mortgage loan. They are:
What are all the fees involved with this borrowing?
How the cash is actually paid to you?
What is the annual rate of interest charged?
Is there any type of extra charges if you sell your house within a certain period of time?
Just how much time you or your estate will need to pay off the loan if you need to sell your home or die?
What happens if it takes your estate longer than the specified amount of time to completely pay back the loan after your death?
What occurs if the amount of the funding plus interest winds up being greater than your home’s worth when it’s time to pay the loan back?
What are events of default?
If I default on something, like not paying my property taxes on time, what happens?
If such a default happens, will you lose your home?
Are there any other terms of the loan agreement that you must know?
It is important that seniors know the answers to these questions before signing on the dotted line!
Summary
Do you have too much debt? Before you get to the stage where you can’t make ends meet and you have to borrow against the equity in your home, reach out to a licensed insolvency trustee (formerly called a bankruptcy trustee). In fact, if you realize that you can’t pay your debts heading into retirement, contact us.
We understand the pain and stress too much debt can cause. We can help you remove that pain and solve your financial problems given immediate action and the right plan.
If you would prefer to listen to the audio version of this collection agency Ontario Brandon’s Blog, please scroll to the bottom of this page and click on the podcast
Introduction
In many of the free consultations I provide, the issue of collection agency Ontario arises. More often than not, people and companies that are insolvent, experience harassing phone calls from debt collectors.
In fact, in certain corporate bankruptcy or receivership matters that I handle, there are certain situations where I hire a collection agency. They can be very effective in collecting amounts owing to the insolvent company.
The purpose of this collection agency Ontario Brandon’s Blog is to answer the top 4 questions that I am asked about collection agencies.
1 – How do collection agencies work in Ontario
In Ontario, debt collectors need to be signed up and should adhere to the guidelines outlined in the Collection and Debt Settlement Services Act, R.S.O. 1990, c. C.14 and its regulations.
The Ontario Ministry of Government and Consumer Services registers and controls these firms.
Ontario registered collection agencies must first send you a personal letter by mail or email. Their letter should include:
details on just how much you owe as well as the kind of product and services that put you in debt
the name of the business/individual you owe money to
the amount of the debt on the day it was initially due and payable and, if different, the level of debt presently owing
advice that a breakdown of the present amount owing will be offered upon demand
the name of the collection agency and also the individual collector that is requiring payment of the financial debt
that the debt collector is registered in and as a collection agency Ontario
the contact details of the debt collection agency, including the complete mailing address, phone number and, if applicable for communication, their email address
a disclosure statement, which discusses your legal rights and the steps you can take if you believe the debt collection company has broken the law
After the agency sends out the letter they need to wait six days prior to their next effort to get the payment of the financial debt.
Collection agencies work on a commission basis. They get to keep a percentage of the debts collected on behalf of their respective clients.
2 – Can a collection agency sue you in Ontario?
The short answer is yes.
A collection agency, once it gets approval from its client, the party that feels you owe them money, can sue you. If it is a large amount of money, they will definitely hire a lawyer to do it. If it is a smaller amount that can be handled by Small Claims Court, they might hire a lawyer, a paralegal, or just have one of the collectors do it him or herself in Court.
The rules of the Court will apply. The collection agency will issue a Statement of Claim against you. You will then have the time the Court allows to file your defence. The Court will look at all the evidence before it and render its judgment. If you are found liable for the debt, then the collection agency can attempt to enforce the judgment against you. They will try to garnishee your bank account and/or a portion of your wages.
Keep in mind that in Ontario, the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B has a fundamental restriction of 2 years. Anyone has specifically two years, starting from the day you first recognized or should have known, that a loss occurred, to file a claim and sue. The two year period would start running the day the person trying to collect a debt from you first contacted you about your being in default.
For example, a credit card company writes to you telling you that you are in default and asks that you pay up in full or else they will take further action against you. You don’t reply or pay, and they write to you again threatening legal action. Again you don’t respond or pay, and then you get a letter from a collection agency. The collection agency then sues you.
The collection agency is only the agent of the credit card company. The debt they are collecting is not their own, it is the debt of the credit card company. So, the first date the credit card company knew of a loss is not the first time you are contacted by the collection agency. It is the first time you are contacted by the credit card company. That is the day you start counting the two years from.
If the collection agency begins its lawsuit against you more than 2 years after the date the credit card company first advised you that you are in default, it is too late.
3 – How long can a collection agency collect on a debt in Ontario?
This is always a fascinating question for me. Even if the 2-year statute of limitations kicks in, all that means is that you cannot be sued any longer. It does not mean that you no longer owe the money. Most normal people, if they know they can’t be sued, will not pay. However, since the collection agency works on commission, it does not mean that they will necessarily stop calling you to ask for the money, even though they can no longer sue you.
You will always owe that debt. The Ontario Court of Appeal confirmed this in the case of Grant v. Equifax Canada Co., 2016 ONCA 500 (CanLII). In that case, the Court ruled that if you owe money, even if it is too late for you to be sued, it can still show up on your credit report in Ontario. The Court of Appeal went on to say just because a creditor misses the deadline or chooses not to sue within the two-year period it doesn’t mean that the debt still isn’t owed.
The only way in Ontario short of paying off the debt, or a lesser settlement amount, is to file either a consumer proposal or assignment in bankruptcy. Once you successfully complete your consumer proposal or get your discharge from bankruptcy, that debt and all other unsecured debts are wiped out. They are discharged. However, if the only debt you are not paying is the one the collection agency is trying to collect, an insolvency filing may be a very drastic and unnecessary step.
To find out for sure, you would have to consult with either a lawyer or a licensed insolvency trustee (formerly called a bankruptcy trustee).
4 – How do I stop a collection agency?
The only real way to stop a collection agency in Ontario is to either pay off the debt in full or arrange for a debt settlement and pay it. The settlement can be an immediate payment for less than the total amount owed, or paying off some amount over time.
If you cannot make a settlement with them that you can afford to pay and live up to, then you the only other way is to do an insolvency filing. As I mentioned above, in the case of an individual person, that would be either a consumer proposal or filing for bankruptcy. In the case of a company, it would be either a restructuring proposal or bankruptcy.
Are you on the edge of insolvency? Are bill collectors hounding you? Are you ducking all your phone calls to the point where your voicemail box is always full?
If so, you need to call me today. As a licensed insolvency trustee we are the only professionals licensed, recognized as well as supervised by the federal government to give insolvency assistance. We are also the only authorized party in Canada to apply remedies under the Bankruptcy and Insolvency Act (Canada). I can definitely help you to choose what is best for you to free you from your financial debt issues.
Call the Ira Smith Team today so we can get free you from the stress, anxiety, and discomfort that your cash issues have created. With the distinct roadmap, we establish simply for you, we will without delay return you right into a healthy and balanced problem-free life, Starting Over Starting Now.
You may have read or heard about a recent survey. The headline was “Ipsos poll finds half of Canadians don’t trust professional help with debt”. The survey provided some interesting views but did not shed any light on why Canadians do not trust debt helpers.
I regularly speak with people who attend my office for a free initial consultation to try to solve their personal or company debt problems. From those experiences, I have compiled a list of the 10 most common reasons I believe why almost half of those surveyed do not trust debt professionals.
#1 What is a debt professional?
Confusion exists in the marketplace as to what you mean when you say the phrase “debt professional”. Depending on who is doing the talking, and the listening, you could mean:
Debt counsellor who has no real qualifications and just acts as an agent for bad credit personal loan companies or worse charges fees just to then take the person to a specifically licensed insolvency trustee (formerly known as a bankruptcy trustee) (Trustee)
Unfortunately, the survey does not define what the term “debt professional” really means.
#2 I don’t have a debt problem because I am making all my payments
People believe that if they can keep up all their minimum payments, then they are making all of their payments. So if the person says they are making all payments, they can’t have a debt problem. Therefore, they don’t trust anyone who tells them that they do.
However, especially with credit cards, there is a difference between making all the monthly minimum payments and paying the entire debt off every month. What they don’t recognize is that all they are doing is paying the credit card company interest and never actually paying down any debt. Eventually, it will catch up with them when they have no more credit.
#3 You will ruin my credit score
People with debt problems always tell me that they have a great credit score and either a consumer proposal or bankruptcy will ruin that. So with the belief that if they see a debt professional, all that person will do is ruin their credit score, distrust is born.
Even people who have recently been turned down for debt consolidation loans tell me that. What I tell them is that it is true that an insolvency filing will remain on their credit report for some time after they successfully complete their consumer proposal or get their bankruptcy discharge.
However, I also point out that in return, they will have their debt problems fixed. By fixing their debt problems, they will no longer suffer from pain, stress, anxiety, depression and sleepless nights. Some people then choose to take responsibility, fix their debt problems and rehabilitate themselves. Others choose discomfort, stress and anxiety, and sleep deprivation.
#4 Talking won’t do any good. What I need is a loan
Many people feel that talk is cheap. What they really need is money. The gambler with a gambling addiction thinks the next roll of the dice or the next hand of cards will produce all the winnings they need. In the same way, the debt addict believes that one more personal loan will solve all their debt problems. All it will really do is give them a bit more cash, which will never be enough to repay all of their debt.
Increasing debt is not a good strategy for getting out of debt. That extra bit of cash may feel good in the short term, but eventually, all it really is is more debt. What these people don’t realize is that by talking to a Trustee, when they find the right one for them, a relationship begins. The functioning partnership you create with your Trustee is a connection. As you create that connection, long-term modifications in your financial behaviour start to happen to produce good long term results.
#5 It would be weird speaking about such a personal thing with a stranger
In my experience, this may be an initial feeling but does not in fact happen. The majority of Trustees are competent at making you really feel comfy rapidly. They are neither impersonal nor judgmental.
As I mentioned above, once you find the right Trustee for you, a relationship begins. I have found that many of the people that I have helped, consider me a resource to call upon, even long after our professional relationship ends.
#6 I would rather speak to a friend or family member
I have heard this many times. This is really an excuse for not dealing with their debt problems. It is not a reason why people don’t trust debt professionals.
In fact, a recent Angus Reid poll titled The Awkward Silences Survey 2019 found that 17% of the Canadians surveyed do not like to talk about finances. Of those, the least favourite topics they like to talk about are:
Personal debt or bankruptcy – 34%
Assets, liabilities and net worth – 22%
Their income – 16%
How they spend their money – 12%
Savings and investments – 11%
Their mortgage – 5%
I get it. The topic is not pleasant. Speaking with a debt professional is an admission that you have a problem with debt. However, it is also the first positive step to take to solve your debt problems.
#7 Debt professionals do not truly respect you; they do it for the cash
Yes, there are unscrupulous people in the world who advertise themselves to be debt consultants. They make outlandish promises such as they will eliminate your debt without bankruptcy. I cannot speak for them, but I do know myself and many of my Trustee colleagues across Canada.
The Trustee and staff do earn money from helping people with their debt. Just like you earn money from your job or career. However, there is a common bond amongst all Trustees in Canada. That common bond is that they all enjoy helping people. They enjoy seeing your success from their assistance. If they did not, they would be doing something else.
#8 Everyone will know if I go to see a debt professional
This is a common feeling. Again I can only speak about Trustees. Although there is not the same confidentiality with a Trustee as there is with a lawyer, a Trustee does not blab. As big a country as Canada is and as big a city where I practice is, the Trustee community is small. If a Trustee broke confidences, word would get around quickly and that Trustee would not get any referrals.
Keep in mind that the word “trust” is found in “Trustee”. People trust us with some of their deepest problems and we help solve them. I don’t talk to others about your issues.
It is true that the Office of the Superintendent of Bankruptcy runs a database of all insolvency filings. This is a public database that anyone can search for $8. Also, the two Canadian credit reporting agencies, Equifax Canada and TransUnion Canada, purchase that information for their own databases. I have never had anyone tell me that their brother-in-law searched the government database and found out about their insolvency filing.
So at the end of the day, the only people who will know that you filed are yourself, your Trustee, your spouse and anyone that you have told.
#9 The professional fee is too expensive
That depends on who you go to see. If you go to a community credit counselling agency, it is probably no charge. If you go to a debt settlement company scammer, then every one cent is too expensive because they do not do anything useful for you. If you go to see a Trustee, the entire process may end up being free.
Let me explain. The initial consultation with any Trustee will be free. You should get that confirmed upfront when you make the appointment. Other than for situation where you have no assets and no income, a consumer proposal filing or a bankruptcy administration will probably end up not costing you any money specifically for professional fees. Here is why.
The Trustee will advise you what will happen to you and what your responsibilities are in a bankruptcy or consumer proposal. In a bankruptcy, other than for exempt assets, you have to turn over your assets to the Trustee. If you earn income, you may also have a surplus income obligation to pay. The Trustee, under the statute, will be entitled to a fee for services out of those proceeds. So, you will pay nothing for the Trustee’s approved fee.
In a consumer proposal, the Trustee has to first do the bankruptcy calculation. Under the Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) (BIA), a consumer proposal must produce a better result for your creditors than your bankruptcy. The Trustee will discuss with you his or her best estimate of how much you need to offer to your creditors in your consumer proposal in order to be successful. That calculation has nothing to do with the fee the Trustee is entitled to under the BIA. The statute says that the Trustee is entitled to a statutory fee from the consumer proposal fund.
So, in this way, the Trustee’s fee for a bankruptcy or consumer proposal administration costs you nothing.
#10 I don’t have time
I believe this also is more of an excuse, not a real reason for not trusting a debt professional. It is uncomfortable to face your debt problems head-on. It is more comfortable to ignore them.
A Trustee will provide a 1-hour consultation for free. In that hour, you will gain better insight to your debt issues and the realistic options available to you to fix them. I always have people tell me at the end of the free consultation, that I have helped them feel much better than they did when they first walked in.
So think of all the things that you do in a day or week, and I am sure that you can find 1 hour to help yourself. If you have a job that makes it impossible to see a Trustee during normal business hours, a Trustee will accommodate you. I have held many early morning or evening appointments.
Debt helpers summary
I hope this debt helpers Brandon’s Blog helps you. As previously stated, there is a good reason not to trust certain debt helpers. You don’t need to feel that way about seeing a Trustee. Are you on the verge of bankruptcy? Do not let any misconceptions about being able to trust a Trustee stop you from understanding how you can restructure your financial affairs and avoid bankruptcy. You do not need to be one more person or company declaring bankruptcy in Canada.
As a licensed insolvency trustee (formerly called a bankruptcy trustee), we are the only specialists certified, accredited and overseen by the federal government to provide insolvency guidance and to apply remedies under the BIA. We will certainly help you to choose what is best for you to release you from your debt problems.
Call the Ira Smith Team today so we can get rid you for you the stress, anxiety, pain and discomfort that your money issues have created. With the distinct roadmap, we establish simply for you, we will without delay return you right into a healthy and balanced problem-free life, Starting Over Starting Now. Call the Ira Smith Team today.
If you would prefer to listen to an audio version of this bankruptcy trustee in Ontario Brandon’s Blog, please scroll to the bottom and click on the podcast.
Bankruptcy trustee in Ontario: Introduction
As a bankruptcy trustee in Ontario (now called a licensed insolvency trustee ), there are many times where our investigation indicates that the bankrupt (usually a bankrupt corporation) has a claim against another party. The claim may very well be a good one worthy of pursuing. However, like with any potential litigation, there could be not enough funds to pay for pursuing that claim in the Court, or it may be unwise for a bankruptcy trustee in Ontario (Trustee) to assume the litigation risk.
In cases like this, the licensed insolvency trustee can offer up the opportunity to the creditors to take on the action in their own name. One or more creditors can get an order under s. 38 of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (BIA) from the Registrar in Bankruptcy, authorizing the assignment to them by the licensed insolvency trustee of the bankrupt company‘s right to advance that claim and if necessary, sue.
Without going into all the finer details and circumstances, any creditor or group of creditors who obtain that right can keep any amount collected under that claim up to the total of their claim against the bankrupt company plus the costs they spent in obtaining that award. Any surplus must be paid over to the bankruptcy trustee in Ontario.
A recent decision of the Court of Appeal for Ontario highlights an interesting issue regarding the interplay between advancing such a claim by a creditor and the limitation period in Ontario.
Bankruptcy trustee in Ontario case background information
The Ridel family used an investment and stock brokerage company called e3m Investments Inc. (e3m). In December 2006, the Ridels issued a Statement of Claim versus their account representative, as well as his employer, e3m. The action was for negligence, breach of contract and violation of fiduciary obligation in the monitoring of their financial investment accounts.
After a ten-day court hearing, judgment was issued against e3m as well as the account representative in Ridel v. Cassin, 2013 ONSC 2279. The judgment was especially scathing of both the account rep and e3m. The judgement, in the amount of $1,036,245.85, was upheld on appeal. As a result, the account representative needed to make an insolvency filing. My Firm administered the successfully completed Division I restructuring Proposal of the account representative. Given the judgement, he needed to do an insolvency filing and it was in his best interests to attempt to restructure to avoid bankruptcy. The Ridel family controlled the voting in his successful Proposal. e3m filed for bankruptcy on January 20, 2015.
The bankruptcy trustee in Ontario case before the Court of Appeal
On July 31, 2019, the Court of Appeal for Ontario released its decision in Ridel v. Goldberg, 2019 ONCA 636. The underlying claim was one the bankrupt company may have had against its Director and majority shareholder.
On October 25, 2016, the Ridels, as an unsecured creditor of e3m, got an order under s. 38 of the BIA. They obtained an assignment of the claim of e3m against its sole Director, a Mr. Goldberg. Since e3m was found liable under the Ridel judgement, e3m could have a claim and institute proceedings against its Director, Mr. Goldberg.
The s. 38 order supplied the Ridels with the legal authority to assert e3m’s claim against Mr. Goldberg “to recover the damages for which e3m became liable pursuant to [the 2013 Judgment, as amended] in their own name and at their own expense and risk, based on Mr. Goldberg’s failure to fulfil his obligations as a director and officer of e3m by abdicating his responsibility to supervise the Ridels’ accounts at e3m”.
The Ridels launched their lawsuit proceedings in the lower Court against Mr. Goldberg the day they obtained the s. 38 order, October 25, 2016. The Ridels were trying to get a summary judgement. Mr. Goldberg raised several defences, including, the Ridels’ claim was statute-barred under the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B (Limitations Act).
The lower court judge dismissed the Ridels’ action on two fronts. First, the judge found that there were concerns about needing a trial. Second, the lower court judge agreed that the claim should be dismissed because of the expiration of a two-year limitation period The Ridels appealed the lower court’s decision to the Court of Appeal for Ontario.
bankruptcy trustee in ontario
The fascinating part (for me anyway) of the Court of Appeal’s decision
The unanimous Court of Appeal ruling agreed with the lower court judge’s decision that the action the Ridels took by way of an assignment document from e3m’s licensed insolvency trustee was statute-barred under the Limitations Act. However, the appeal court review of the lower court decision disagreed with the reasons given by the lower court. Upon agreeing that the Ridel’s action should be dismissed based on it being barred by the Limitations Act, the appeal court did not wade into whether or not the lower court judge’s decision was correct that summary judgement should not be granted as there was a triable issue.
The arguments given for the limitation period are somewhat complex. I will attempt to summarize them here so as not to be confusing. The lower court judge held that the Ridels as applicants knew of the existence of the potential claim of e3m against its Director as early as in July 2006. Since they did not launch the e3m claim in a court action until October 2016. Hence, the limitation period of 2 years made that claim statute-barred.
The Ridels state that the limitation period cannot have actually begun up until after e3m was bankrupt. Before then, they could not take an assignment of any claim from e3m’s licensed insolvency trustee, especially a potential claim by the company against its Director (and Officer).
They also stated it is impossible to get an s. 38 order before the company actually is bankrupt.
The lawyer for the Ridels did not argue the testing of the timing of their very own understanding of the Director’s misdeed in regard to e3m. Rather, he focussed on the fact that the Ridels were not in a place to do anything concerning it, at a minimum, until the bankruptcy of e3m.
The appeal court went through a detailed analysis of the relevant statutes and case law. The Court of Appeal confirmed that the action launched was not a claim by the Ridels personally, but rather the company’s claim of which they took a court-approved assignment. So the appeal court agreed substantially with the Ridels that they could not have started their action until they took the assignment from the e3m licensed insolvency trustee.
When was e3m’s knowledge of its claim?
So the appeal court said what is important, since it is e3m’s claim and not the claim of the Ridels, when did e3m first become aware of the potential claim against its Director? The appeal court stated it fully understood why the Director would not have had e3m sue him or otherwise enjoin him in the original claim against the account rep and e3m. However, when did e3m first become aware of the potential of its claim?
On the proof in this matter, regardless of the Ridels’ or Goldbergs’ understanding of the case or his aversion to act against himself in support of e3m, at the very least, by April 2013, every one of the other e3m investors/shareholders had received a copy of the Reasons for Decision and Judgment against the account rep and e3m. It included different referrals to the Director’s misbehaviour. Those investors had the capacity to make e3m file a claim against the Director.
The Court of Appeal for Ontario judges determined that e3m recognized that: 1. an injury had actually happened; 2. its loss was brought on by an act or omission; 3. the act or omission was purportedly that of the Director, and 4. an action against the Director was a proper way to treat it. Regardless of the Director’s control to protect against such a lawsuit, the investors might have taken control of e3m’s board of directors and cause e3m to make such a case versus Goldberg.
So the appeal court decided that e3m first recognized that it may have a claim against the Director in April 2013, but the action was not commenced until October 2016. Accordingly, it was outside of the 2 year limitation period and the action was statute-barred.
So what does this mean for a bankruptcy trustee in Ontario?
As the bankruptcy trustee in Ontario in either a corporate bankruptcy or personal bankruptcy, many times we find as a result of our investigation that the bankrupt may have a claim against another party. More often than not, we either do not have sufficient funds or are not prepared to risk the funds in the Estate to the litigation risk. So, what we do is communicate with all known creditors to advise of the potential claim and that the licensed insolvency trustee is either unwilling or unable to act upon it. Accordingly, we are giving the creditors a chance to apply to the Court to take an assignment of such action under s.38 of the BIA.
Creditors seriously considering taking over the bankrupt’s claim must seriously consider the issue of whether or not launching a court action will be met with a defence that the claim is statute-barred, amongst other defences that may be available to the defendant(s). The Court of Appeal for Ontario has clearly communicated that the creditor taking an assignment of the bankrupt’s claim, cannot be in a better position than the bankrupt itself. The first knowledge that a claim exists will be when the bankrupt first had the knowledge, not the date that the creditor obtained the right to sue or any other date.
Bankruptcy trustee in Ontario Canada conclusion
The business world contains normal daily risks. This case clearly shows that. Are your company’s viability and solvency being threatened by claims against it, or for any other reason?
Is your company experiencing financial problems and requires debt relief? Are you on the brink of filing for bankruptcy just like e3m was because of your debts? Or are you an individual that has too much debt and you are looking at personal bankruptcy as your solution? Don’t wait until it is too late to properly restructure your company’s financial affairs. You don’t have to be another one filing bankruptcy in Canada. We can show you the various alternatives to bankruptcy.
As a licensed insolvency trustee, we are the only professionals who have met the requirements of the Office of the Superintendent of Bankruptcy Canada to obtain a trustee licence. One of those requirements to be trustees in bankruptcy is to pass an oral board of examination.
Insolvency trustee’s operations are licensed, authorized and their duties supervised by the federal government to offer insolvency advice and to implement solutions under the Bankruptcy and Insolvency Act (Canada). We are a licensed insolvency trustee operating in Ontario Canada and we will help you to select what is best for you to free you from your debt issues.
Contact the Ira Smith Team today so we can use our qualifications to get you or your company the debt relief that you deserve. We will eliminate the anxiousness, tension, discomfort and pain from your life that your bills and your cash problems have caused. With the unique roadmap, we develop just for you, you can eliminate your debts and we will promptly return you right into a healthy and balanced problem-free life.
canada bankruptcy and insolvency act
If you would prefer to listen to the audio version of this financial literacy Brandon’s Blog, please scroll to the bottom and click on the podcast
