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HOW TO BEAT 407 PLATE DENIAL RULES EACH AND EVERY MONTH FOREVER

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

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

how to beat 407 plate denial

How to beat 407 plate denial: What happens if you don’t pay 407?

Last week I received an inquiry from a woman who owes 407 ETR some $25,000. She wanted to know how to beat 407 plate denial. Being a licensed insolvency trustee and having written on the topic before, I thought it was already well known that there is only one real sure-fire way to beat them from denying your plate sticker when you show up to pay your renewal plate fee. So I am writing this Brandon Blog as a refresher since it is still a question people ask.

If you’re not paying your 407 tolls, chances are you’re going to get a letter in the mail asking you to pay up. You’ve probably also heard that the 407 is a hotbed for toll dodgers, but how many of them actually get found out?

According to figures from the 407 ETR, the company’s collection agencies and police forces find that only about 2% of toll dodgers pay up voluntarily. However, 407 ETR has the ultimate collection weapon; Ontario can enforce plate denials against those who have an outstanding 407 toll bill. People are always interested in how to beat 407 plate denial.

How do I fight my 407 payment?

You really cannot fight with 407 on your payment. The tolls are calculated based on your usage of the toll road. They know where you entered and exited the highway. They also have a picture of your vehicle and plate. So, unless you can prove that the amount you were billed is false charges, you cannot fight it. You may be able to negotiate, sort of, but you can’t fight it.

Can you negotiate 407 bill?

The 407 bill is one of the most intimidating bills that people receive in Ontario. It is called the 407 bill because it is associated with the 407 highway and that’s also where the tolls are collected. The 407 bill is the toll amount that you need to pay based on your trip. If you drive on the 407, you will have to pay the 407 bill.

The 407 bill is issued by 407 ETR, a company that operates the 407 highway. If you have received a 407 bill, you should pay it right away. If you do not pay it, you will receive a collection notice from the company.

407 ETR offers an Exceptional Hardship plan to aid consumers that have accumulated substantial tolls and who would suffer “exceptional hardship” with the denial of their licence plate. The plan permits a consumer to pay the amount owing over an agreed time period, rather than all at once.

Approval is at the sole discernment of 407 ETR. Their decision is final and there is no avenue for appeal. As you can see, it isn’t much of a negotiation.

As you will see below, the only way to successfully negotiate the 407 bill is with the assistance of a licensed insolvency trustee.

how to beat 407 plate denial
how to beat 407 plate denial

How to beat 407 plate denial: Does 407 affect credit?

It’s common knowledge that unpaid traffic tickets can result in fines and penalties galore, but did you know unpaid 407 ETR tolls can also result in toll fines and penalties? And, like unpaid traffic tickets, they can also affect your credit score and therefore your credit rating. When you do not pay your bills on time, they will eventually send the unpaid bills to a collection agency. Once in the hands of the collection agency, it gets reported to the credit bureaus. That reporting negatively affects your credit score.

How to beat 407 plate denial: Can 407 ETR garnish wages?

If 407 ETR sued people in court and obtained a judgement, then yes they could garnish wages. But they don’t sue. Rather, they rely upon their powers of license plate suspension to block those seeking license plate renewal.

It is stopping anyone from being able to how to beat 407 plate denial that is the real collection tool. That is the reason why 407 ETR had to amend their procedures because of a Supreme Court of Canada decision.

If you can’t pay the 407 toll charges, only a licensed insolvency trustee can show you how to beat 407 plate denial

Denying license plates were found by the court to be a collection tool. In Canada, there is only one professional who can stymie the 407 collection tool. So if you can’t fight 407 bills and you really can’t negotiate with them, then how to beat 407 plate denial seems to be a long shot, no? That is where the Supreme Court of Canada in the “Moore Decision” comes into play.

Our firm, Ira Smith Trustee & Receiver Inc., has assisted individuals in negotiating their 407 bills. A debtor who becomes our client is very easy to work with since they do not deny that they have debt and they know that they must pay. Our firm takes the 407 on. We start communicating with them by listing 407 ETR as a creditor in your bankruptcy or consumer proposal.

how to beat 407 plate denial
how to beat 407 plate denial

How to beat 407 plate denial: Highway Toll Arrears and the “Moore Decision”

In my blog titled 407ETR FAIRNESS-ONTARIO COURT OF APPEAL ENSURES FRESH START I described to you the decision of the Court of Appeal for Ontario in 407 ETR Concession Company Limited v. Superintendent of Bankruptcy (In the Matter of the Bankruptcy of Matthew David Moore) (the Moore Decision).

The highway’s owners appealed that decision to the Supreme Court of Canada (SCC). On Friday, November 13, 2015, the SCC released 3 decisions all dealing with the very same fundamental problem: does the federal government’s Bankruptcy and Insolvency Act (BIA) take paramountcy over provincial laws professing to handle the concerns of debt and bankruptcy in Canada. The SCC answer was a resounding YES!

What did the SCC decide about the provincial law about 407 debt settlement?

The SCC dismissed the appeal of the 407. The SCC considered whether the plate denial stipulations of the Highway 407 Act conflicted with the discharge provisions of the BIA. 407’s position was that provincial regulation about plate denial needs to apply after a person’s discharge from bankruptcy. The Attorneys General for several provinces, including Ontario, advanced arguments on behalf of the right of the province to enforce all laws for vehicle licensing.

The SCC’s decision supported the Moore Decision which found that the discharge section of the BIA bypasses and overrides the plate rejection arrangements of the Highway 407 Act.

What is the effect of a bankruptcy or consumer proposal on ETR debt settlement?

The effect of the SCC’s decision is that pre-bankruptcy amounts owed to the ETR are provable claims under the BIA and the plate rejection scheme under the Highway 407 Act, 1998, S.O. 1998, c. 28 can no longer be used to collect pre-filing amounts. Therefore, 407 etr financial debt settlement is possible.

Upon the filing of bankruptcy or consumer proposal, in which 407 ETR is provided for in the sworn Statement of Affairs as a creditor, 407 ETR will remove from plate rejection any amount still owing from the period before your Assignment in Bankruptcy, or filing of consumer proposal (that includes interest and any other type of charges incurred on those amounts). The Ministry of Transportation will be told to amend its records to show this change.

You will be removed from plate denial if:

  • you have not incurred any type of brand-new financial obligation with 407 ETR for which you might remain barred from how to beat 407 plate denial since the filing of your bankruptcy or consumer proposal; and
  • you have no debts with the Ministry of Transportation (e.g. parking tickets) causing plate denial.

In both instances, once the balance owing is adjusted from your account, then, the individual is allowed to get plate renewal from the Province.

How to beat 407 plate denial: This seems to be the end of the discriminatory plate denial

407 ETR must and is following the SCC decision. They have set up the procedure for those who have been rejected from plate renewal and who have filed either for bankruptcy or a consumer proposal. The 407 ETR debt, including penalty and interest, is reversed and plate revival issued.

Remarkably enough, there was no evidence whatsoever in any one of the Court hearings, including this one heard by the SCC, as to the 407 ETR’s right to reject anyone from providing credit to them. When you get your transponder, the 407 ETR is actually extending credit to you, in the form of using the toll highway with the promise to pay when your bill arrives. It is no different than you making purchases on your credit card and your bank expects you to pay them when it shows up on your bill.

How to beat 407 plate denial summary

I hope that you found this how to beat 407 plate denial Brandon Blog interesting. If you are concerned because you or your business are dealing with substantial debt challenges and you assume bankruptcy is your only option, call me. It is not your fault that you remain in this way. You have actually been only shown the old ways to try to deal with financial issues. These old ways do not work anymore.

The Ira Smith Team utilizes new modern-day ways to get you out of your debt difficulties while avoiding bankruptcy. We can get you the relief you need and so deserve.

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

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

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

Call us now for a no-cost consultation.

We will get you or your business back up driving to healthy and balanced trouble-free operations and get rid of the discomfort factors in your life, Starting Over, Starting Now.

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

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

how to beat 407 plate denial
how to beat 407 plate denial
Categories
Brandon Blog Post

CLOSING A BUSINESS DOES NOT AUTOMATICALLY MEAN AN ALARMING BANKRUPTCY

The Ira Smith Trustee Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting. We hope that you and your family are safe and healthy.

At the end of this blog, we have a special gift for you!

Closing a business introduction

Many times I am consulted by an entrepreneur about closing a business. This may sound odd coming from a licensed insolvency trustee (formerly called a bankruptcy trustee) (Trustee), but not all business closures involve a formal bankruptcy. In fact, there are more business closures that do not involve bankruptcy

Now with so many businesses hurting due to a slowdown or complete destination due to the result of the coronavirus pandemic, I expect more entrepreneurs are going to want to know about closing a business.

In this Brandon’s Blog, I provide the reasons why. I also go through the various steps in closing a business that you can use as a checklist.

Closing a business that does not have many (free) assets

Many times I get a call from someone whose business is not doing well. They probably cannot afford to pay the business rent next month and it does not make sense to stay open. They think bankruptcy is the only way they have for closing a business. The business does not have many assets, or all the assets are secured by a bank that loaned the corporation money. Think of a business where the assets were bought through a bank loan. The funding may or may not have been under a government small business loan program.

The entrepreneur gave a personal guarantee to the bank ranging from 25% to 100% of the total loan amount. The entrepreneur may also have provided a personal guarantee to the landlord. The business may or may not be current in its employee source deduction remittances and harmonized sales tax (HST) payments. The entrepreneur does not believe the assets have any value above the amount of the secured loan and wishes to place the company in bankruptcy as the answer to closing a business.

Here is why bankruptcy will not help:

  • The assets are fully secured by the bank.
  • Canada Revenue Agency (CRA) may have a trust claim over the assets because of unremitted source deductions.
  • A corporate bankruptcy will not solve the entrepreneur’s personal debt issues under the personal guarantee to the bank for any shortfall claim and the landlord for any claim due to the failure of the corporate tenant.

In this type of situation, there is not much I can do. I tell the entrepreneur that if they are going to shut the business down before the first of the next month, they should do so. Then, they should go to the bank, advise them and cooperate with the bank to allow them to realize their security. I tell them to make sure that they follow the steps for closing a business that I outline below.

I tell the entrepreneur that when the bank and the landlord each make a demand for their obligations under the respective personal guarantees to call me. We will then work together on their personal situation. Perhaps a consumer proposal will be possible. I also tell them that it is not worth spending the money they don’t have in order to bankrupt the company.

That is why in this case a corporate bankruptcy will not help an entrepreneur in closing a business. I call this the self-help remedy.

The business is still operating – will anyone buy it?

Before making any decisions about closing a business, you should first think in terms of is your business worth anything? You have spent many years building your business. It may be insolvent because it has suffered losses for several years, cash flow is weak and the corporation cannot pay its debts generally as they come due.

Although the current corporate body may be weak, you need to determine if your business is still viable. Does the marketplace still have a need for the service or product you provide? Are there competitors who seem to be doing well? Your business has a customer base and trained staff. One of your competitors may find your customer base and some or all of your staff something they want to amalgamate into their existing business.

If that is the case, you need to understand what your business might be worth. The selling prices of similar organizations in your geographical area or market will be a good barometer of what you can anticipate getting for your company. Innovative buyers might evaluate your business on the basis of projected cash flow for the next few years. They may very well mark down the worth of that cash flow to mirror the perceived threats and risks inherent in your business.

In the case of an insolvent but viable business, it may be that an insolvency process is necessary to allow the purchaser to buy the assets it wishes to purchase and take on all or some of your employees, maybe even including you.

The range of options available includes:

So with the right insolvency process, the assets of the business can be put back to good use and be very productive. It may very well help get a good M&A deal done.

I have written before many blogs on how these insolvency proceedings could help in getting the healthy parts of a business into a purchaser while leaving the sick parts behind and then be used for closing a business. Those details are beyond the scope of this Brandon’s Blog.

closing a business
closing a business

When does corporate bankruptcy make sense in closing a business?

Corporate bankruptcy is not a simple process. An entrepreneur needs the advice of their lawyer and also needs to retain a Trustee. This costs money. More often than not, there are no free assets in the company. That means the entrepreneur needs to personally fund the cost of the bankruptcy process for closing a business.

A bankruptcy of the company may make sense in several situations. Some of the most common are:

  • Certain government claim priorities need to be reversed and that only can be done in bankruptcy. The most common one is unremitted HST. Absent a bankruptcy, the HST obligation is a trust claim and will come before the claim of any other creditor, including a secured creditor. As probably the sole director of the corporation, the entrepreneur may be willing to bankrupt the company to put the HST behind the bank. The director may very well choose as part of closing a business, to take their chances on the claim for unpaid HST as a director liability, rather than increase the bank’s shortfall by the amount of that HST claim.
  • There may be value in the premises lease. If the rent under the lease is below market and can be sold, a bankruptcy will be necessary. That is because the combination of the Commercial Tenancies Act Ontario and the Bankruptcy and Insolvency Act (Canada) Trustee has certain rights to sell the lease that the corporation tenant does not have. So, bankruptcy may be a good idea in that case.
  • The security of a lender for which no personal guarantee has been given is invalid against a Trustee. The corporation may be able to restructure with that liability moved from secured to unsecured. Alternatively, a bankruptcy will allow for assets to be better protected for the secured creditors first and then provide some value for the unsecured creditors if there is a bankruptcy.

My closing a business checklist

This is what I tell any entrepreneur for a self-help remedy for closing a business that is most appropriate:

  • Advise the utilities that they should do a final meter reading and shut down the account.
  • Prepare and issue all records of employment to the former employees.
  • Remove the books and records (probably computerized) from the business premises so that the information can be secure.
  • Advise your bank lender that the business is shut down and that you are delivering the keys to the banker so that they can get their security.
  • If there is no bank lender, and no trust claims over the assets, hold a going out of business sale.
  • Tell the landlord the business is over and deliver the keys.
  • Cancel insurance policies. There may be an unearned premium refund coming back to the business.
  • Redirect the business mail to a different address. Most of the mail will be bills, but there may also be cheques you don’t want to miss so you can deposit them into the bank account.
  • Cancel any corporate credit cards.
  • Deal with the termination and return of any business license and permits.
  • Deal with your business social media accounts, website, and any other digital or intangible assets. You will have to decide when it comes up for renewal if you wish to retain the URL in light of your closing a business decision. The URL may have a value that you can unlock.
  • Make sure that the final financial statements and tax returns are prepared. File the tax returns with the government. If there is a balance owing, don’t worry about it as the business cannot pay and corporate income tax owed is not a director liability.
  • Prepare and issue final T4 statements of remuneration paid. Issue them to the former employees. Figure out if there are any employee source deductions owing. If there is and you can pay them as it is a director liability.
  • Calculate, prepare and file the final HST return. If there is a balance owing and you can pay the amount as it is also a director liability.
  • Maintain the books and records as CRA may want to perform an audit.
  • Send a letter to all creditors advising of your closing a business decision was due to financial problems, express your gratitude for the relationships you have built, tell them that there is no money for them and let them know that you have also lost money.
  • Mail a letter to your customers/clients advising of the closure of the business and thank them for their loyalty and patronage over the years.

Closing a business summary

I hope you have enjoyed this closing a business Brandon’s Blog. A sick insolvent company’s business might be saved by a debt restructuring.

Do you or your company have too much debt? Are you or your company in need of financial restructuring? The financial restructuring process is complex. The Ira Smith Team understands how to do a complex restructuring. However, more importantly, we understand the needs of the entrepreneur or the person who has too much personal debt.

You are worried because you are facing significant financial challenges. It is not your fault that you are in this situation. You have been only shown the old ways that do not work anymore. The Ira Smith Team uses new modern ways to get you out of your debt troubles while avoiding bankruptcy. We can get you debt relief freedom.

The stress placed upon you is huge. We understand your pain points. We look at your entire situation and devise a strategy that is as unique as you and your problems; financial and emotional. The way we take the load off of your shoulders and devise a debt settlement plan, we know that we can help you.

We know that people facing financial problems need a realistic lifeline. There is no “one solution fits all” approach with the Ira Smith Team.

That is why we can develop a restructuring process as unique as the financial problems and pain you are facing. If any of this sounds familiar to you and you are serious in finding a solution, contact the Ira Smith Trustee & Receiver Inc. team today.

Call us now for a free consultation.

We will get you or your company back on the road to healthy stress-free operations and recover from the pain points in your life, Starting Over, Starting Now.

CLOSING A BUSINESS INFOGRAPHIC. CLICK ON THE INFOGRAPHIC TO DOWNLOAD YOUR OWN COPY

closing a business

The Ira Smith Trustee Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting. We hope that you and your family are safe and healthy.

closing a business
closing a business

Categories
Brandon Blog Post

DEFAULTING ON A MORTGAGE: THE BEST COURT-APPROVED WAY TO DEBT FREEDOM IN 2020 & BEYOND

The Ira Smith Trustee Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting. We hope that you and your family are safe and healthy.

Defaulting on a mortgage introduction

I just finished reading a defaulting on a mortgage decision of the Ontario Superior Court of Justice released on September 15, 2020. It had to do with a person who had filed a proposal under the Bankruptcy and Insolvency Act (Canada) (BIA). The court case is about the debtor who could not afford to pay all the mortgages on her home. The home was sold on a conditional basis, and a dispute occurred between two potential purchasers. I describe below how the court dealt with the dispute.

That case highlighted for me three things:

  • what we advise everyone who comes to us for a no-cost initial consultation who cannot afford to keep paying a loan registered against an asset, normally a vehicle or house;
  • how sometimes a strategic default on a mortgage or vehicle loan can help someone in dealing with all of their debts when they are about to file either a proposal or for bankruptcy; and
  • the appropriate manner (in my view) the court decided to resolve the dispute between the two potential purchasers.

Defaulting on a mortgage: What we advise debtors

Whenever someone comes to us for a no-cost consultation, we first get financial information from them. We want to understand the nature of their assets and liabilities and their household income and expenses. Through our analysis and discussion, we determine if the person can afford to keep paying that loan or mortgage. We also ask them, if appropriate, are they happy with the asset if it seems that they are paying too much based on the level of secured debt and the market value of the asset.

If the person says they would love to get rid of the asset, that they have no or little equity in, then we look at the impact of using defaulting on a mortgage as a strategic default so that any shortfall experienced by the lender will be an ordinary unsecured debt which can be discharged through either a proposal or bankruptcy.

Obviously, the person has to have a realistic option to replace that asset or have an alternate plan:

  • Can they lease a different vehicle at a lesser cost before filing which they can afford and therefore will not default on?
  • Is public transit a realistic option as opposed to having their own vehicle for the time being?
  • Is there a relative who will co-sign for them so that they can lease or buy a more reasonable cost vehicle?
  • Can they rent somewhere that they can afford for much less than what they have been paying on their home and then look at buying something after they are through their debt restructuring when they are back on their feet?

As I said, we do this all the time when working with people to look at all of their options for financial restructuring. We especially look at in the case of a home, does defaulting on a mortgage make financial sense?

Defaulting on a mortgage: What is a strategic default?

When the market value of your home is less than the amount owed on the mortgage, that mortgage debt is underwater. To put it simply, an underwater home mortgage loan has a higher remaining principal balance than the value of the house.

Homeowners with little or negative home equity can find themselves in this situation when housing prices fall, even if they are current on all their payments. It’s also described as being “upside-down” or having “negative equity” in the residence.

When it doesn’t make sense to keep using your cash to stay current on that underwater mortgage, rather than using that money for other necessary expenses, defaulting on a mortgage as a strategic default may be your only option. After establishing that you can’t see your property rising in value in a reasonable period to restore some of your equity, you may plan to just stop making mortgage repayments. You’ll default and eventually, the lender will enforce on its mortgage, take over the property and sell it.

Even if you have equity in the home, but you can no longer afford to keep up the payments, you may find that putting your home up for sale is your best option. Again, you need to have a realistic plan in place on where you will live once your home sells. Depending on the situation, you might decide to also create a strategic default by defaulting on a mortgage at the same time you list your home for sale. Once sold, the net proceeds of the sale, representing the equity in the home, can be used to help fund the proposal.

During the financial crisis in the United States, a strategic default on underwater homes by defaulting on a mortgage became progressively typical. Such home loans came to a head at 26 percent of all mortgaged homes in 2009. Many house owners did the math and made the agonizing however rational decision to leave the home and let the lender deal with the property and its underwater mortgage.

As I explain in the next section, in most cases, you can just walk away from such a loan in the United States. Unfortunately, it is not so easy for Canadians to walk away from their homes and defaulting on a mortgage. But there is one way to do it in Ontario.

defaulting on a mortgage
defaulting on a mortgage

Defaulting on a mortgage: Walking away from a mortgage in Canada is not simple

In the United States, it is normal for a mortgage to be “non-recourse“. What this means is that the lender can only look to the value of the property it has mortgage security against to repay the mortgage loan. If the lender suffers a shortfall, unless there is a separate guarantee given, the lender cannot sue the mortgagor, the borrower, for any shortfall. So if you have negative equity, defaulting on a mortgage may be the right decision for such a US resident.

In Canada, it is normal for a mortgage to be “full recourse“. This means that if the lender suffers a shortfall on the mortgage debt, the terms of the mortgage loan automatically allows the mortgagee, the lender, to go to court and get a judgment against the borrower for the amount of the shortfall. So defaulting on a mortgage needs to be done in conjunction with a plan to deal with the shortfall debt.

For this reason, walking away from a mortgage in Canada is not simple. However, there is one way to do it. Once the shortfall is known and, either before or right after the lender gets a judgment, the debtor can file a proposal under the BIA to restructure all their unsecured debt. If that is not practical, then bankruptcy is the other option.

Now the shortfall is caught in the insolvency proceeding. The filing invokes an automatic stay of proceedings so that the lender cannot take action to try to execute against any of the assets or income of the debtor who has filed. The debt is caught in the insolvency proceeding and will be dealt with in that forum.

Defaulting on a mortgage: The first sale

The court case deals with a woman in Ontario who had begun a proposal process under the BIA. The debtor owned (at least) two residential properties. The property in question had 4 mortgages registered against it. The other property had multiple mortgages against it, including a mortgage as additional security for the 4th mortgage loan against the property in question. To make matters worse, there was also a lien registered against the same residential property in favour of the Canada Revenue Agency (CRA) in the amount of $308,258.

The 4th mortgage was totally underwater. The debtor entered into an agreement of purchase and sale. The sale of the home would result in a shortfall of over $700,000. It would not provide any funds for the 4th mortgage. It would only partially repay the 3rd mortgage. So, one of the conditions of sale was that the vendor would either get a discharge of all of the mortgages or a court order vesting title in the home to the purchaser clear of all mortgages and other registrations against the title. The 4th mortgagee’s charge against the other home, which was also in 4th position, was also totally underwater.

As part of the proposal proceedings, the debtor brought a motion to the court to approve the sale (supported by appraisals) and get the vesting order to vest title clear of all registrations against the title. The debtor was not only going to be defaulting on a mortgage but on at least 2 of them!

Defaulting on a mortgage: The 4th mortgagee opposes the sale approval motion

The 4th mortgagee appeared at the motion with her lawyer to get an adjournment in order to oppose the authorization and vesting order and enable her to acquire the home on the same terms but also for even more money. This would enable the 4th mortgagee to possibly recover something on her outstanding mortgage loan at a later date.

The purchaser or the purchaser’s lawyer was not told in advance that there was going to be an opposition to the application. Therefore, the purchaser’s lawyer did not attend the hearing.

At the hearing, the court authorized the sale and vesting order yet suspended its issuance for 9 days to allow the 4th mortgagee the chance to make an offer. She did, on the very same terms yet $5,000 greater than the approved offer. She also had the deposit funds put into her lawyer’s trust account. She then made a motion for the approval of her offer and vesting order. Not surprisingly, and as to be expected, the first purchaser objected to her motion.

Defaulting on a mortgage: What the court decided

The 4th mortgagee’s lawyer argued that the first purchaser’s agreement of purchase and sale is nullified since there was neither discharges provided nor a binding court order vesting title free and clear from all mortgages and the CRA registration by the closing date. Therefore, it cannot now come to court and try to extend the closing of a deal that is already dead.

Legal counsel for the first purchaser argued that if the court approves the 4th mortgagee as the buyer, the sales procedure will be unfair. The first purchaser was not notified that there would be any type of objection to its motion for the approval and vesting order of its deal. Although the first purchaser can be criticized for not keeping up with what was happening both before and on the date of its court motion, it is still a good-faith buyer who took part in a fair sales process. The 4th mortgagee had every right to bid on the subject property when it was initially listed and did not do so.

The court decided that ultimately, this situation boils down to the process being fair and seen as being fair. So given all of this, the court decided:

  • All previous agreements of purchase and sale for the subject property are terminated.
  • A new sales process will be carried out where any of the interested parties, being the first purchaser and the 4th mortgagee, can send their best offers to the Trustee, on a confidential basis.
  • The offers are to be submitted and evaluated by the Trustee by September 18, 2020, with the closing of September 25, 2020.
  • In the event, the winning bid is not able to close on September 25, 2020, the other party may purchase the property.
  • If court approval of the successful offer and a vesting order is needed, a draft order may be provided to the court.
  • The proceeds of the sale, presumably net of the realtor commission, the vendor’s real estate legal fees, and any HST that may be applicable on the sale, are to be paid into court in order to figure out the proper amount and priority of the charges against the property.

As neither side was totally successful, the court did not award costs to any party. This seems to be the fairest outcome to all concerned.

Defaulting on a mortgage: A proposal is your best option

So as you can see, it is possible to use the proposal process under the BIA either to sell a home you can no longer afford to keep which has equity. The net sales proceeds can be used to partially fund the proposal. A proposal under the BIA is the only government-approved debt settlement plan.

Alternatively, you can use the proposal process to sell the home where you are defaulting on a mortgage where there are one or more mortgages underwater. The proposal process will compromise the resulting ordinary unsecured debt arising from the shortfall claim of underwater mortgage lenders. An application can be made to the court for an order approving the sales process, the sale, and obtaining a vesting order to complete the sale.

We have helped many people and companies do exactly that when defaulting on a mortgage.

Defaulting on a mortgage summary

I hope you have enjoyed this defaulting on a mortgage Brandon’s Blog. Hopefully, you have better insight now into the fact that there is a way to get out of a secured loan, especially a mortgage. It will require an insolvency proceeding to settle all your debts, including any shortfall on the sale of the secured asset.

Do you have too much debt? Are you in need of financial restructuring? The financial restructuring process is complex. The Ira Smith Team understands how to do a complex restructuring. However, more importantly, we understand the needs of the entrepreneur or the person who has too much personal debt.

You are worried because you are facing significant financial challenges.
It is not your fault that you are in this situation. You have been only shown the old ways that do not work anymore. The Ira Smith Team uses new modern ways to get you out of your debt troubles while avoiding bankruptcy. We can get you debt relief freedom.

The stress placed upon you is huge. We understand your pain points. We look at your entire situation and devise a strategy that is as unique as you and your problems; financial and emotional. The way we take the load off of your shoulders and devise a debt settlement plan, we know that we can help you.

We know that people 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 restructuring process as unique as the financial problems and pain you are facing. If any of this sounds familiar to you and you are serious in finding a solution, contact the Ira Smith Trustee & Receiver Inc. team today.
Call us now for a free consultation.

We will get you or 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 Ira Smith Trustee Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting. We hope that you and your family are safe and healthy.

defaulting on a mortgage
defaulting on a mortgage

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STALKING HORSE INSOLVENCY PROCESS: OUR BEST GUIDE TO GET YOUR M&A DEAL DONE

stalking horse

The Ira Smith Trustee Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting. We hope that you and your family are safe and healthy.

If you would like to listen to an audio version of this stalking horse insolvency process Brandon’s Blog, please scroll to the bottom and click on the podcast.

Stalking horse introduction

I have written before about a stalking horse in the insolvency context. Two things recently happened that suggested that I should write about it again, from a slightly different perspective. The first thing was that Ira Smith recently did a Zoom webinar presentation for the M&A Club Canada. The topic they wanted the webinar on and the title of the webinar was “Insolvency restructuring to get your M&A deal done”. Second, I see that there has been an increase in online searches for that term.

So, the purpose of this Brandon’s Blog is to describe what a stalking horse is and provide you with some insight as to how an insolvency process can be used to get an M&A deal done.

What is a stalking horse in the insolvency and M&A world?

In the distressed M&A context, a stalking horse refers to a possible buyer participating in a stalking horse auction to purchase the assets of an insolvent debtor as a going concern. In a stalking horse public auction of a financially troubled business, an initial bid by the stalking horse bidder is divulged to the marketplace and becomes the minimum quote, or floor cost, that potential purchasers can then outbid.

It was first extensively utilized in the USA and currently is a routine part of the Canadian insolvency landscape. The stalking horse process is different than the sealed tender sale approach that is traditional in Canada. The stalking horse sales process has been used in Canada many times. The case study that Ira presented in his webinar and gone over below, was one that the Ontario Superior Court of Justice approved.

The stalking horse participates in the process understanding that it might be outbid. Accordingly, it negotiates a break fee to cover its costs. This includes its due diligence costs to put together the first offer. Typically, for a competing bid to knock out the stalking horse offer, it will certainly have to be more than the stalking horse bid plus the Break Fee (described below). The competing offer will certainly likewise need to be on the exact same terms as the stalking horse bid, and cannot include any kind of burdensome conditions.

Why would anyone want to become a stalking horse?

So, why would someone want to be a stalking horse? Initially, as a stalking horse, you will certainly have the most effective opportunity of discussing the terms of a purchase that are customized to satisfy your specific issues. Also, as the first prospective buyer, you will have even more time to evaluate and comprehend the insolvent debtor’s company. You will also have a chance to develop connections with management, vendors, and key stakeholders in the sales process. This gives the stalking horse bidder a leg up.

Their expenses of participating in the sales procedure are covered by the break fee that you will negotiate. That break fee is generally secured by a unique court-ordered charge against the assets of the insolvent debtor. However, you will need to consider the ranking of this charge against other charges that may have been already granted by the court.

How a stalking horse bid works

The stalking horse method permits a distressed company to prevent receiving reduced proposals as it sells its assets. When the stalking horse prospective buyer has made its deal, the court has accepted that quote and all other conditions of the court-supervised sale, other prospective purchasers may send contending bids for the company’s assets.

By setting the low end of the bidding process, the insolvent firm wishes to realize a greater price, yet understands it cannot obtain a lower one. Insolvencies are public. The general public nature allows for the disclosure of even more information about the opportunity and the company than what would certainly be available in a private deal. Because of this, in this case study, I explain below, I can mention some names.

Stalking horse prospective buyers can typically bargain which specific assets it wishes to obtain. It likewise does not have to acquire any of the insolvent business’s liabilities. It may however choose for business reasons to take some on voluntarily. Examples would be amounts owing to critical suppliers or employment-related liabilities for employees of the insolvent company they may wish to retain.

MPH Graphics stalking horse bid process case study

MPH Graphics inc. (MPH) was an insolvent company. They had a potential purchaser who was willing to stand as a stalking horse bidder. We ran a successful stalking horse process in this case. This case happened quite a few years ago, but, since then, we have used the identical technique in other cases. When a similar kind of case comes up in the future, we would use the same process. So, although the case is older, the steps taken are still well suited today.

MPH was a company that provided printing design and finishing for Canadian and US customers. MPH printed a variety of products such as business cards, direct mail pieces, annual reports, and marketing materials and primarily serviced government agencies, not for profit organizations, and unions.

MPH grew by acquisitions and required additional capital equipment financed by debt. The business also had to change because the industry was changing from traditional printing presses to digital. That changeover required further capital investment.

MPH was insolvent

MPH’s line of business primarily serviced government agencies, not for profit organizations, and unions. Absorbing the acquisitions produced inefficiencies and redundancies. It also needed to move to larger premises which meant moving costs and higher ongoing rent costs were being incurred.

At the same time, the industry was extremely pricing competitive. Gross margins were squeezed. Overhead costs, especially sales salaries and entertainment expenses increased. There was now a history of losses. The technical staff was very experienced. To get the union business, MPH’s technical side had to be a union shop. MPH had a blue-chip client list, which is what was really of interest to the stalking horse bidder.

Receivable collections were slowing down and the bookkeeper had to put payable cheques that were printed every month in a drawer. The cheques could not be released because there was not enough money to pay their liabilities as they become due.

stalking horse

The stalking horse bidder came knocking

The bidder was an industry consolidator. They came knocking to try to buy the MPH assets. The consolidator did its due diligence and issued a non-binding letter of interest. After further discussions, that interest turned into a binding agreement to purchase the assets. One of the terms of the deal was that the stalking horse bidder required court approval of the purchase and a vesting order from the court to vest the assets out of MPH into the acquiring corporation.

Notwithstanding there were tax losses, the purchaser did not want to purchase shares and have to deal with all the creditor issues. The company could not on its own give the purchaser the certainty it wanted by way of a vesting order. So an insolvency process was required.

What kind of stalking horse insolvency process?

There are generally three insolvency options. Some are not necessarily mutually exclusive. They are:

Receivership is a remedy for secured creditors. In a receivership, the company loses control of the sales process. Bankruptcy is a remedy for unsecured creditors. In bankruptcy, likewise, the company loses control. It needed a process where the company stays in control.

The insolvent company’s requirements were:

  • stay in control of the process;
  • do that specific transaction or a better one; and
  • get court protection for both the sales process and the sale.

So neither receivership nor bankruptcy would work. So what would allow the company to meet its requirements and run a stalking horse bid process?

A stalking horse process works best in an insolvency restructuring process

What is needed is a debtor in possession option. In the United States, it is called a Chapter 11 proceeding. In Canada, there are two federal statutes that apply and can accommodate the needed process:

The benefits of this approach are:

  • The company stays in control of the process.
  • It allows for the stalking horse transaction or a better one to be completed.
  • Allows the insolvent company to get protection from its creditors through the automatic stay of proceedings. This gives it the time to run the stalking horse process, go back to court for approval, and to complete a transaction.

Liquidating proposal under the BIA to run the stalking horse process

We chose the strategy of a proposal filing under the BIA. The main reason was that the CCAA is for companies that owe $5 million or more. MPH owed under that threshold, so only the BIA process was available. The strategy would have been the same, even if MPH qualified for a CCAA process and we decided to go under that statute.

As time was of the essence, we MPH first filed a Notice of Intention to Make a Proposal (NOI). This quickly got them the stay of proceedings they needed and access to the court, before needing to draft the definitive proposal document.

The company filed the NOI to implement a sale of its assets, properties, and undertaking, in order to attempt to preserve as much value as possible for the Company’s stakeholders, while preserving as many jobs as possible. As Trustee, we then wrote a report to the court in support of the company’s motion to get the purchaser’s agreement of purchase and sale to be approved as a stalking horse bid and for approval of a sales process, we would run.

As Trustee, we worked with MPH, the purchaser, and their respective legal counsel, to draft the sales process and the terms and conditions of sale. These would be the rules that would allow for the marketplace to become aware of the opportunity to purchase all or substantially all of the assets, properties, and undertaking of MPH.

Key elements of the stalking horse sales process

The key elements of the stalking horse sales process were:

  • The break fee payable to the stalking horse bidder if they turned out to not be the successful purchaser was set at the amount of $100,000.
  • The Overbid Amount (as described in the Stalking Horse Agreement of Purchase and Sale) was reduced to the amount of $100,000.
  • If an auction was to be held between parties that all qualified as successful bidders, each bid had to be at least $5,000 higher than the last one.

The outcome of the stalking horse sales process

The process we recommended to the court was a 5-week process. The court approved our recommendations and ran the sales process. The process included:

  • Advertising the opportunity in a national newspaper.
  • Preparing and distributing a “teaser” non-confidential information circular to distribute to anyone who requested it along with the terms and conditions of sale.
  • Preparation and distribution of a confidentiality agreement to those who wished more detailed financial information.
  • Receipt of signed confidentiality agreements and distribution of the confidential information memorandum we prepared.
  • Receiving non-binding letters of intent from potential purchasers and deciding which ones we chose to provide access to our electronic data room.
  • Potential purchasers performed due diligence and submitted their final binding offers with deposit funds.

We then reviewed all offers received, to make sure that they met the terms and conditions of sale. We did receive a better offer, but that purchaser’s offer was conditional on them obtaining financing. They could not waive the condition, so the stalking horse bidder’s agreement of purchase and sale turned out to be the winning bid.

Court approval of the stalking horse bid

As Trustee, we then prepared our report to court to provide all the information as to the steps we took and the results of the process. We obviously recommended that the company be allowed to complete the stalking horse agreement. The court agreed and issued the vesting order.

There were enough funds to pay out the government trust claim and all the secured creditors in full. There was also enough cash left over to pay for all the costs of the process. Unfortunately, there was not enough money to do any sort of proposal. So the company filed an assignment in bankruptcy and we became the trustee in bankruptcy.

Moving from our role as proposal trustee to the bankruptcy trustee, we informed all the creditors the details of the sale and the outcome. The business and many jobs were saved as a result.

Stalking horse summary

I hope you have enjoyed this stalking horse Brandon’s Blog. Hopefully, you have better insight now into the fact that a sick insolvent company’s business can be saved by doing a sale of its assets to a healthy organization.

Do you have too much debt? Are you in need of financial restructuring? The financial restructuring process is complex. The Ira Smith Team understands how to do a complex restructuring. However, more importantly, we understand the needs of the entrepreneur or the person who has too much personal debt.

You are worried because you are facing significant financial challenges.
It is not your fault that you are in this situation. You have been only shown the old ways that do not work anymore. The Ira Smith Team uses new modern ways to get you out of your debt troubles while avoiding bankruptcy. We can get you debt relief freedom.

The stress placed upon you is huge. We understand your pain points. We look at your entire situation and devise a strategy that is as unique as you and your problems; financial and emotional. The way we take the load off of your shoulders and devise a debt settlement plan, we know that we can help you.

We know that people 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 restructuring process as unique as the financial problems and pain you are facing. If any of this sounds familiar to you and you are serious in finding a solution, contact the Ira Smith Trustee & Receiver Inc. team today.
Call us now for a free consultation.

We will get you or 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 Ira Smith Trustee Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting. We hope that you and your family are safe and healthy.

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CONSTRUCTION LIEN ACT: CAN YOU TRUST AN INSOLVENCY PROCEEDING?

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Stay healthy and safe everybody.

Introduction

Matters involving the Construction Act, R.S.O. 1990, c. C.30 ( formerly known as the Construction Lien Act) is very complex. In this Brandon’s Blog, I will use the term that laypeople are most familiar with, being the former name of the provincial legislation.

Construction law is a specialty unto itself. It gets even more complex when a company involved in construction enters insolvency proceedings. There is normally a conflict in these kinds of files between:

In this Brandon’s Blog, I describe a recent 5 member panel decision of the Court of Appeal for Ontario who had to decide whether a trust created under section 9(1) of the provincial Construction Lien Act survives a sale by the Monitor in an insolvency proceeding under the federal Companies’ Creditors Arrangement Act (CCAA).

The case is Urbancorp Cumberland 2 GP Inc. (Re), 2020 ONCA 197 (Urbancorp). The matter was heard on October 3, 2019. The unanimous decision was recently released on March 11, 2020.

Some background matters

Before getting into the actual case, there are two background matters that I should first explain. When I thought of these concepts and then the decision this way, it made it easier for me to understand.

The first issue is the types of insolvency proceedings. There are essentially four types of insolvency proceedings. Some are not mutually exclusive. Each one of them can be used for the assets of the insolvent debtor to be sold. I break down the insolvency proceedings list in this way:

  1. Using the restructuring provisions of either the Bankruptcy and Insolvency Act (Canada) (BIA) or CCAA.
  2. A bankruptcy administration under the BIA.
  3. A secured creditor taking enforcement proceedings on the assets subject to its security through the security itself by privately appointing a Receiver or Receiver and Manager.
  4. A secured creditor making an application to the Court that it is just or convenient for the Court to appoint a Receiver to act on behalf of all creditors in stabilizing an insolvent debtor situation and to come back to Court with recommendations on how to proceed, including the sale of assets.

The second issue has to do with trust claims under the Construction Lien Act. There are several sections in the legislation dealing with trust claims. As I stated above, it is a very complex topic. So, I am going to only focus on the one that is the subject matter of this case. That is section 9(1) of the Act. That section deals with a trust claim against the vendor of the construction assets. It states:

“9 (1) Where the owner’s interest in a premises is sold by the owner, an amount equal to,

(a) the value of the consideration received by the owner as a result of the sale,

less,

(b) the reasonable expenses arising from the sale and the amount, if any, paid by the vendor to discharge any existing mortgage indebtedness on the premises,

constitutes a trust fund for the benefit of the contractor. R.S.O. 1990, c. C.30, s. 9 (1); 2017, c. 24, s. 9, 70.

Obligations as trustee

(2) The former owner is the trustee of the trust created by subsection (1), and shall not appropriate or convert any part of the trust property to the former owner’s own use or to any use inconsistent with the trust until the contractor is paid all amounts owed to the contractor that relate to the improvement. R.S.O. 1990, c. C.30, s. 9 (2).”

The distinction here that I want you to keep in mind is the words in the very first line “Where the owner’s interest in a premises is sold by the owner…”(emphasis added).

Now for the case.

The Urbancorp Construction Lien Act case

This case deals with Urbancorp and related companies that developed and was building a residential condominium project. Urbancorp was insolvent and filed first a Notice of Intention to Make A Proposal under the BIA. The proceedings were later converted by the Court into proceedings under the CCAA. The insolvency proceeding was in both cases under a Federal restructuring statue. The Court appointed a Monitor to oversee the insolvency administration. Through various Court applications and court orders, the Monitor was given the authority to market and sell the condominium assets. The Monitor did so.

Now the cash the Monitor received from the sale stood in place of the original condominium assets. Subcontractors brought an application before the lower Court claiming they had a valid trust claim under the Construction Lien Act. The lower court judge carefully reviewed the evidence and prior decided cases and came to the conclusion that the subcontractors did not have a valid trust claim against the assets. The subcontractors appealed the lower court’s decision.

In addition to appealing the lower court’s decision, they also raised with the Court of Appeal a constitutional question that comes up many times. The constitutional question is, does federal law always take priority, or trump (with a small “t”!!) provincial law. This is otherwise known as the concept of paramountcy. Stated slightly differently, the issue can be stated as does section 9 of the Construction Lien Act remain to have application after a bankruptcy or initial order under the CCAA? The Attorney General of Ontario also stepped in on that part of the case.

The Court of Appeal accepted this constitutional question to be decided so there were now two issues before the Court of Appeal; the issue of paramountcy and the trust claim issue.

The constitutional question

The Court of Appeal went through a very thoughtful and careful analysis. It confined the constitutional question to the facts of this case. The court concluded in this case:

  1. The trust created under section 9(1) of the Construction Lien Act is a valid trust under provincial law.
  2. The BIA excludes from property available to the creditors any property held in trust.
  3. Therefore, this provincial trust can be effective when there is an insolvency proceeding under the BIA.
  4. Similarly, with the CCAA legislation, it follows that a section 9(1) provincially created trust might be effective when the insolvency administration is subject to the CCAA.

Now for the actual appeal

The Appeal Court now turned to the lower court judge’s decision that a section 9(1) of the Construction Lien Act trust did not apply in this matter. The five-member panel again went through a careful analysis of the statute and the case law. They spent a lot of time reviewing an earlier Court of Appeal for Ontario decision which the lower court judge relied upon in his decision.

The Court of Appeal highlighted that in that decision the lower court relied upon, the owner, being the insolvent debtor, had no interest in the asset that the subcontractors were claiming a trust claim against. The reasons were:

  1. The asset was part of a package of assets sold.
  2. There was a secured creditor who had security over all of the assets of the developer.
  3. The proceeds less the expenses to produce the sale were less than what was owed to the secured creditor.
  4. The court allowed the cash from the sale to stand in place of the assets.

Using this framework, the Court of Appeal stated that a s.9( 1) trust only arises if the value of the consideration received by the owner from the sale of assets, which have actually been enhanced by the work or materials of the contractor, surpasses the amount of the mortgage debt. A trust will not occur if the value is zero, or if the mortgage debt is equal to or above any kind of sale proceeds.

Therefore, the decision that the lower court relied upon in disallowing the trust claim does not stand for the suggestion that control by a CCAA Monitor of a sales process, or the receipt by the Monitor of the proceeds of the sale by itself, avoids a s.9( 1) trust against the proceeds of the sale of the enhancement are shown to have a positive worth that surpasses the mortgage debt on the asset. That fact pattern was absent from the case relied upon.

The decision

Now, you remember at the beginning of this blog I went through the essentially four types of insolvency proceedings. The Court of Appeal also considered the various types. The court drew a distinction in them as it relates to section 9(1) of the Construction Lien Act. Also remember that from my quotation above of this section, it starts with “Where the owner’s interest in a premises is sold by the owner…”(emphasis added).

In a receivership or bankruptcy, the owner loses control of the assets. The vendor in a sale is either the receiver/receiver and manager or the trustee in bankruptcy, respectively. In those examples, it is not the owner selling its own assets. It is the licensed insolvency trustee (formerly known as a bankruptcy trustee) selling its right, title and interest, if any, in the assets of the debtor. So the vendor is the licensed insolvency trustee in its specific capacity.

The Urbancorp matter started out as a restructuring under the Proposal provisions of the BIA and was then converted by the Court and continued under a different restructuring statute, the CCAA. In an insolvency administration under the restructuring provisions/statue, the owner does not lose control of its assets. True that the Monitor is given court authority to make decisions, market and then sell the assets. However, one of the cornerstones of the appointment of a Monitor is that the owner does not lose control of the assets and the Monitor does not become the owner of the assets.

Rather, the Monitor gets its powers from the court. The Monitor is actually selling the insolvent company’s assets as the company’s representative or agent. So even though it is the Monitor doing the selling, it is doing so on behalf of the owner. This is very different than a sale by a receiver/receiver and manager or trustee in bankruptcy.

In the Urbancorp situation, the value of the consideration received by the owner from the sale of assets, which have actually been enhanced by the work or materials of the contractor, surpasses the amount of the mortgage debt.

Highlighting these distinctions, the Court of Appeal for Ontario overturned the lower court decision and upheld the subcontractors’ trust claim. It substituted the lower court decision with an order that a s.9( 1) trust under the Construction Lien Act applies for the sum of $3,864,429 held in the accounts of the Monitor on account of the Urbancorp companies, for the benefit of the subcontractors, pro-rata in accordance with the amount owing to each of them.

Summary

I hope you found this case review helpful. It should be of particular interest to contractors, developers and builders in Ontario.

The Ira Smith Team family hopes that you and your family members are remaining secure, healthy and well-balanced. Our hearts go out to every person that has been affected either via misfortune or inconvenience.

We all must help each other to stop the spread of the coronavirus. Social distancing and self-quarantining are sacrifices that are not optional. Families are literally separated from each other. We look forward to the time when life can return to something near to typical and we can all be together once again.

Ira Smith Trustee & Receiver Inc. has constantly used clean, safe and secure ways in our professional firm and we continue to do so.

Revenue and cash flow shortages are critical issues facing entrepreneurs and their companies and businesses. This is especially true these days.

If anyone needs our assistance, or you just need some answers for questions that are bothering you, feel confident that Ira or Brandon can still assist you. Telephone consultations and/or virtual conferences are readily available for anyone feeling the need to discuss their personal or company situation.

Are you now worried just how you or your business are going to survive? Those concerns are obviously on your mind. This pandemic situation has made everyone scared.

The Ira Smith Team understands these concerns. More significantly, we know the requirements of the business owner or the individual that has way too much financial debt. You are trying to manage these difficult financial problems and you are understandably anxious.

It is not your fault you can’t fix this problem on your own. The pandemic has thrown everyone a curveball. We have not been trained to deal with this. You have only been taught the old ways. The old ways do not work anymore. The Ira Smith Team makes use of new contemporary ways to get you out of your debt problems while avoiding bankruptcy. We can get you debt relief now.

We look at your whole circumstance and design a strategy that is as distinct as you are. We take the load off of your shoulders as part of the debt settlement strategy we will draft just for you.

We understand that people facing money problems require a lifeline. That is why we can establish a restructuring procedure for you and end the discomfort you feel.

Call us now for a no-cost consultation. We will listen to the unique issues facing you and provide you with practical and actionable ideas you can implement right away to end the pain points in your life, Starting Over, Starting Now.

The Ira Smith Team is absolutely operational and both Ira, as well as Brandon Smith, are right here for a telephone appointment, conference calls and also virtual meetings.

Stay healthy and safe everybody.construction lien act

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INSOLVENCY LAW CANADA AMENDMENTS FOR INTELLECTUAL PROPERTY RIGHTS

Insolvency Canada news

The Federal government published in the Canada Gazette, Part II, Volume 153, Number 18, its intention to amend Canadian insolvency law for intellectual property rights (IP). On November 1, 2019, those changes came into effect. This change was part of the Canadian 2019 Budget. In Brandon’s Blog, I will discuss what the changes are and why they were made.

Insolvency law amendments for IP in Canada

Amendments relating to how IP is treated under Canadian insolvency law were made to the Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) (BIA) and the Companies’ Creditors Arrangement Act (R.S.C., 1985, c. C-36) (CCAA) was made. The BIA controls liquidations and restructurings for people and companies, and the CCAA covers large company restructurings.

The changes are meant to shield IP user rights in cases where the IP licensor becomes insolvent.

The BIA, as well as CCAA changes in the Budget Implementation Act, 2019, No. 1, are intended to improve retired life protection by making the insolvency procedure fairer and much more clear.

Previous Canadian IP insolvency law

Previously, Canadian insolvency law only explicitly dealt with IP in restructuring proceedings. Both the BIA and the CCAA allows for a debtor to disclaim or resiliate agreements. There are certain conditions that the debtor business must meet. This essentially boils down to being able to prove that the agreement in question is either so onerous and/or costly to the debtor business, that a successful restructuring is impossible if the debtor must continue honouring that agreement.

Specifically, as it relates to IP, the BIA, and CCAA if a debtor who is a licensor under an IP agreement disclaims the agreement, the licensee has rights. The licensee can continue to use the IP and gain all benefits it had bargained for, as long as the licensee continues to perform its responsibilities under the IP agreement concerning the use of that IP.

There was no such equivalent section for the receivership or bankruptcy of the debtor. So, if there was a liquidation, the licensee was not protected the same way they would be if the licensor debtor business disclaimed the agreement in financial restructuring.

Insolvency law reform

The amendments in Budget Implementation Act, 2018, No. 2 were done to protect copyright (IP) individual rights in situations where the IP licensor comes to be insolvent.

Effective for all filings beginning on November 1, 2019, or later, there are changes to the BIA and the CCAA, Canada’s main insolvency statutes. The November 1 amendments are done so that the rights of a licensee under an IP agreement where the licensor has disclaimed the agreement will be the same in a financial restructuring or a liquidation through either receivership or bankruptcy.

The following modifications accomplish the goal of safeguarding IP customer’s rights in instances where the IP licensor ends up being insolvent:

  1. Many times as part of a corporate restructuring, the Court authorizes the company that filed a Notice of Intention To Make a Proposal, or a Proposal, to sell assets. The new amendments now make it so that if the corporation being restructured is the licensor under an IP agreement and sells it, the licensee retains its rights to use the IP, as long as they are and stay current under the agreement.
  2. If a bankruptcy trustee (now called a licensed insolvency trustee) (Trustee) administering the bankruptcy (or receivership) of a licensor under an IP agreement sells the agreement, the licensee retains its rights under that agreement. Again, the licensee must be current in its obligations to continue enjoying the benefit of the IP agreement.
  3. The Trustee disclaims the debtor licensor’s interest in an IP agreement as part of a bankruptcy (or receivership) administration. The licensee will continue to enjoy the rights and benefits of the IP agreement as long as it is current in all of its responsibilities under that same agreement.
  4. If that IP is sold in a CCAA restructuring, the CCAA legislation has now been amended, for administrations that began after October 31, 2019, offers that an IP licensee in excellent standing can continue to utilize the IP.

Proposed BIA wording for IP insolvency proceedings

These are new amendments. There have not been any court decisions on these new amendments yet. The new legislation is not available yet as far as I know. However, my understanding is that the BIA will be amended, in part, to implement the changes concerning IP agreements as I have discussed, along the following lines:

“Intellectual property — sale or disposition

246.1 (1) If the insolvent person or the bankrupt is a party to an agreement that grants to another party a right to use intellectual property that is included in a sale or disposition by the receiver, that sale or disposition does not affect that other party’s right to use the intellectual property — including the other party’s right to enforce an exclusive use — during the term of the agreement, including any period for which the other party extends the agreement as of right, as long as the other party continues to perform its obligations under the agreement in relation to the use of the intellectual property.

Intellectual property — disclaimer or resiliation

(2) If the insolvent person or the bankrupt is a party to an agreement that grants to another party a right to use intellectual property, the disclaimer or resiliation of that agreement by the receiver does not affect that other party’s right to use the intellectual property — including the other party’s right to enforce an exclusive use — during the term of the agreement, including any period for which the other party extends the agreement as of right, as long as the other party continues to perform its obligations under the agreement in relation to the use of the intellectual property.”

Summary

I hope you enjoyed this Brandon’s Blog on the insolvency amendments effective November 1, 2019. Are you or your company in need of financial restructuring? The financial restructuring process is complex. The Ira Smith Team understands how to do a complex corporate restructuring. However, more importantly, we understand the needs of the 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 deal with this problem and devise a corporate restructuring plan, we know that we can help you and your company too.

We know that companies facing financial problems need a realistic lifeline. There is no “one solution fits all” approach with the Ira Smith Team. That is why we can develop a company restructuring process as unique as the financial problems and pain it is facing. If any of this sounds familiar to you and you are serious in finding a solution, contact the Ira Smith Trustee & Receiver Inc. team today.

Call us now for a free consultation. We will get your company back on the road to healthy stress-free operations and recover from the pain points in your life, Starting Over, Starting Now.

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BANKRUPTCY SMALL BUSINESSES: COMPLETE BANKRUPTCY OPTIONS FOR SMALL BUSINESSES

bankruptcy small businesses

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

Bankruptcy small businesses introduction

The press has reported that certain Big Pharma have considered bankruptcy as part of negotiations to reach a settlement over their liability in the opioid crisis. Bankruptcy, or bankruptcy restructuring is not just for big companies. There are bankruptcy small businesses too.

Earlier this year, Insys Therapeutics Inc. in the United States ended up being the first opioid drugmaker to use the bankruptcy statute. It followed its US$225 million settlement with the Federal government. In recent months, there’s been a supposition that drugmakers might utilize insolvency laws as a means to run away from accountability.

Bankruptcy small businesses: That is not how bankruptcy protection works

Thankfully, that’s not how bankruptcy works. Instead, as I’ve learned in my experience in the Canadian bankruptcy space, insolvency procedures are developed to not only help debtors. It likewise assists creditors too.

Bankruptcy and restructuring proceedings are not best for every stakeholder every time. The end result always appears unreasonable to creditors because they are not being paid in full. However, it’s most definitely not the free ride for the company filing under the bankruptcy laws that many people think it will be. This is especially true in the area of bankruptcy small businesses.

Bankruptcy small businesses: What happens when a small business files for bankruptcy?

To many people, the thought of bankruptcy creates an adverse reaction. The reason is simple: a bankruptcy filing means there is not enough money to pay everyone 100 cents on the dollar.

But the system makes the best of a grim situation by imposing an organized and open process that preserves value and urges negotiation. Bankruptcy reorganizations by well-known brand names such as General Motors revealed that it can bring parties to the table to reach agreements that could not be made absent the structured reorganization laws. It also resurrects sick businesses.

At the most basic level, the Bankruptcy and Insolvency Act (Canada) (BIA) and the Companies’ Creditors Arrangement Act (CCAA) develops for the estate to:

  • value and account for every one of the debtor’s assets into one proceeding;
  • recognize and classify creditor claims against the debtor;
  • in bankruptcy liquidation, sell the assets and distribute the money in priority of the claims of the creditors; and
  • for a bankruptcy restructuring, to take a hard look at productive assets and those no longer needed, value them, allow for selling off redundant assets to allow the company to continue in its healthy business side and offer the creditors a better deal than they would get in a liquidation.

Specifically how those essential parts of the bankruptcy and insolvency legislation play out in a specific bankruptcy small businesses situation will differ depending upon what kind of insolvency filing the borrower makes and the specific truths regarding the conduct of the debtor.

Bankruptcy small businesses: What types of bankruptcy can small businesses file?

When we hear about bankruptcy small businesses we normally think of a liquidation. However, debtors have two choices under the BIA: liquidation or reorganization.

Pure bankruptcy liquidation is designed to sell off the assets either as a whole to one buyer to allow for someone else to carry on the company’s business, or just sell pieces to many individual buyers. In the latter case, it means that business will not exist anymore.

The value obtained from the asset sale(s) will be distributed to the creditors in priority. First to statutory trust claimants, then to secured creditors, if any. If anything is left after that, it will then be distributed to unsecured creditors: first preferred unsecured and then ordinary unsecured.

On the other hand, a filing under the proposal provisions of Part III of the BIA allows for the company to attempt to reorganize. All aspects of the business will be looked at. The debtor can sell some of its assets that are underperforming or no longer fit into the restructured business plan. The cash raised can be used in the reorganization strategy that aims to resolve the current business problems and allow the company to come out of bankruptcy protection as a new and profitable viable business.

The BIA restructuring provisions are what would be used for bankruptcy small businesses. Large businesses (defined in this case as companies that owe more than $5 million) could use the same BIA proposal provisions. Alternatively, those large companies could also use the CCAA statute to reorganize. The specific situation will dictate what legislation is used for a reorganization.

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Bankruptcy small businesses: A restructuring attempt could go wrong

It is possible that companies that originally file under the BIA restructuring provisions ultimately become bankrupt. The reasons can vary.

The company may find that the financing it thought it had was no longer available, so they could not put forth a successful restructuring plan. So it will have no choice but to liquidate.

The company’s creditors may not believe that the restructuring plan pays them enough, is not a viable plan or there is too long to wait for too little money. In this case, the creditors when voting on the restructuring plan will vote in sufficient numbers to tank the restructuring. Any company that tries to restructure under the BIA and receives a sufficiently negative vote, is deemed to have filed an assignment in bankruptcy. In such a case, the only remaining option will be a liquidation, probably through a bankruptcy small businessses.

For a business wanting to make it through a restructuring, a successful plan needs lender assistance or a sufficiently strong cash flow so that the restructuring will be funded properly. If there is insufficient cash to fund the restructuring, the Trustee will have to report that to the creditors. The Trustee will also have to recommend against the restructuring plan if the Trustee believes the company does not have enough cash to provide the staying power to carry out the plan.

In that case, there will certainly be a negative vote and the company will go into bankruptcy liquidation. On the other hand, in a successful bankruptcy small businesses restructuring, as soon as a BIA proposal plan of arrangement is fully performed, a company emerges from bankruptcy protection and continues operating, generally in a more powerful position than previously.

Bankruptcy small businesses: Advantages of an insolvency process for debtors

Bankruptcy provides at the very least two valuable advantages to all debtors: time and room to maneuver.

The minute a debtor files, an automatic stay is in play for the debtor. It operates as a time out button on any litigation, collection or enforcement activities. Creditors can ask the Court to lift the stay under specific conditions, however, the standard for doing so is typically tough to satisfy.

The Bankruptcy Court has broad authority to regulate all issues involving the debtor’s estate, including adjudicating any disputed claims. By uniting all those with a stake in the business’s assets in one place, a debtor can effectively handle all claims against it.

While the stay is in place, debtors use the insolvency process to review their troubles and make the essential adjustments to prosper after reorganizing. Decisions are made about which contracts they want to carry forward and which to abandon.

To stay clear of a disputed process, smart debtors use the insolvency restructuring process to reach a total overall negotiation and agreement with all stakeholders. If necessary, smart debtors will also offer a benefit to top up its restructuring plan to make sure that it gets the number of creditors necessary for the plan to succeed.

Bankruptcy small businesses: Benefits of the insolvency process for creditors

Clearly, bankruptcy supplies debtors with substantial power to reposition their business affairs.

What lots of people misunderstand, nonetheless, is that this power is balanced by solid creditor benefits too. The BIA calls for debtors to disclose considerable information about their operations and imposes stringent checks on their actions.

As an example, the company wishing to reorganize must openly disclose financial and other information concerning every one of its assets. Much fo the disclosure is under oath in the sworn statement of affairs. There is also if necessary, the ability to examine company officials under oath. In many cases, the debtor must seek the court’s approval before taking action beyond running the business operations in the normal course.

Under the bankruptcy small businesses BIA provisions, the company is allowed to stay in possession of its property. Management also remains in control to continue running the business. The Trustee must report any material adverse change. The Trustee will also report to the creditors as part of the restructuring process.

Creditors that are worried concerning the debtor’s capacity to maintain the estate’s worth might ask the Court to expand the Trustee’s powers. It is possible to have the Trustee also appointed as an interim receiver to control the receipts and disbursements of the company. Creditors can also ask the Court to end the restructuring and place the company into bankruptcy. Creditors would need to show that either a key secured creditor or a large enough group of unsecured creditors, will under no circumstances vote in favour of any restructuring.

The insolvency laws allow for the creation of a board of unsecured creditors to oversee the restructuring. The Court might also form a unique board standing for a major group of litigants in situations where the debtor faces lawsuits or claimants whose damages are not yet quantified.

These and various other attributes include a degree of justness to an inherently unfair situation. The debtor might think that it is driving the bus, however, countless other stakeholders have the power to make sure that the business complies with the rules of the road.

With such safeguards in place, creditors and the general public need not be afraid of the most awful possible outcome if bankruptcy provisions are used to try to restructure companies involved in bitter disputes. The playing field will never be even, but the Canadian insolvency statutes try to bring as much fairness into the bankruptcy small businesses system as possible.

Bankruptcy small businesses conclusion

I hope that you found this bankruptcy small businesses Brandon’s Blog informative. The financial restructuring process is complex. The Ira Smith Team understands how to do a complex corporate restructuring. However, more importantly, we understand the needs of the entrepreneur. You are worried because your company is facing significant financial challenges. Your business provides income not only for your family. Many other families rely on you and your company for their well-being.

The stress placed upon you due to your company’s financial challenges is enormous. We understand your pain points. We look at your entire situation and devise a strategy that is as unique as you and your company’s problems; financial and emotional. The way we dealt with this problem and devised a corporate restructuring plan, we know that we can help you and your company too.

We know that companies facing financial problems need 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.

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BANKRUPTCY ACT CANADA: ARE YOU REALLY PREPARED FOR IT?

Introduction

No person wishes to go make a filing under the Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) (Bankruptcy Act Canada), however occasionally it is inevitable. You might think that people who file are just those that are careless with their finances. However, with most of the people I see, it is usually an event outside of their control that pushes them over the edge.

In personal bankruptcy, things such as illness, divorce, job loss, unanticipated catastrophes, identity theft and fraud are many times the causes of insolvency. Of course, lack of proper budgeting, overspending and inappropriate uses of credit are also involved. In corporate insolvency, the #1 cause always seems to track back to management.

Insolvency filings happen every year. In 2018, a total amount of 128,846 insolvency filings were made with the Office of the Superintendent of Bankruptcy (OSB). This is 2.4% more from 2017. Consumer insolvency filings increased 2.5% (125,266 filings), while company filings dropped 0.8% to 3,580.

At the very same time, people choosing to avoid bankruptcy by filing a proposal continued increasing in 2018, bringing this number to a brand-new level. Proposals represented 52.6% of consumer filings in 2017. In 2018, they expanded by 6.6% to 56% of all personal filings.

Are you considering a Bankruptcy Act Canada filing, or at least speaking to a Licensed Insolvency Trustee (formerly called a trustee in bankruptcy) (Trustee)? In order to help you start your fact-finding, I want to tell you what will happen to your bank accounts, retirement accounts and your other important financial funds. Understanding what to anticipate can assist you to stay clear of some pricey blunders.

Bankruptcy or (consumer) proposal

Being insolvent is that you are not able to settle your financial debts. People with severe financial problems can make Bankruptcy Act Canada filing by filing either for bankruptcy, a consumer proposal or Division I proposal.

Proposals are official methods controlled by the Bankruptcy Act Canada for personal filings. Dealing with a Trustee you make a proposal to:

  • Pay your creditors a portion of what you owe them over a particular time period not going beyond 60 months
  • Extend the time you need to settle the debt
  • Or a mix of both

The Proposal is made via the Trustee, who uses the money in your proposal fund to pay the cost of administration and distribution to each of your creditors their pro-rata share. A consumer proposal needs to be finished within 5 years from the day of filing.

Proposal

People with severe financial problems can apply for bankruptcy. They can also try to avoid bankruptcy by using the Proposal provisions of the Bankruptcy Act Canada.

There are numerous advantages to avoiding bankruptcy. The main differences between proposals and bankruptcy are:

  • Unlike informal debt settlement, a Proposal produces a binding discussion forum where each of your unsecured creditors has to participate in for your debt restructuring.
  • You can keep your property, including your home, if you can afford to in your budget.
  • Lawsuits against you and enforcement proceedings, such as wage garnishments, cannot begin or continue.
  • In a successfully completed Proposal, you do not need to file for bankruptcy.

Keep in mind that financial institutions have “set-off” legal rights, implying that if you declare bankruptcy or file for bankruptcy when you’re behind in payments to them, they will take the funds in your accounts to try to cover all or some of what you owe them. This is notwithstanding that there is a stay of proceedings once a Bankruptcy Act Canada filing takes place and such an offset really should not take place.

So if you are thinking of filing either for bankruptcy or a proposal, I want you to be prepared for what might happen to your financial assets.

Your bank account

In a bankruptcy, the cash in your bank account is a property which must be paid over to the Trustee. Upon your filing, the Trustee will put all your banks on notice to provide the funds in any accounts maintained with them to the Trustee. As noted above, the bank may very well offset cash in your savings or chequing account against the money you may owe them, including credit card debt.

In a Proposal, you do not lose control of the money in your bank accounts. Rather, they are considered by the Trustee in formulating the type of Proposal you should offer your creditors. Remember, your Proposal must offer your creditors a better alternative than your bankruptcy would. However, even though there is a stay of proceedings invoked once you file your Proposal, it is not uncommon for a bank where you maintain an account and to whom you owe money, to take the money in your account and offset it against what you owe them.

So the moral of this story is that you are best to have bank accounts at financial institutions to whom you do not owe any money.

Registered Retirement Savings Plan (RRSP), Registered Retirement Income Fund (RRIF) or Deferred Profit Sharing Plan (DPSP)

In a bankruptcy, your RRSP, RRIF or DPSP are excluded from seizure. However, the Trustee is entitled under the Bankruptcy Act Canada to receive the equivalent to any amounts contributed to these accounts in the 12 months preceding your filing date. In a Proposal, this 12-month amount must be included by the Trustee in the calculation of what amount your Proposal should offer your creditors.

Canada Pension Plan (CPP) and Old Age Security income (OAS)

Canada Revenue Agency (CRA) is the only one permitted to garnish your CPP earnings if you have an unpaid personal income tax. By filing either for bankruptcy or a Proposal, the stay of proceedings will be invoked and CRA will have to stop the garnishment of your CPP and you will get the CPP payments you are qualified for.

However, the earnings obtained from CPP and OAS will certainly be taken into account by the Trustee in determining if you have any surplus income payment obligation in bankruptcy. In a Proposal, that amount also has to be considered in developing your Proposal.

Tax-Free Savings Account (TFSA), Registered Education Savings Plan (RESP) and other non-registered account investments

In a bankruptcy, just like any other non-exempt property, the amount held in your TFSA and any other non-registered investment account must be paid to the Trustee. In a Proposal, these amounts need to be taken into account in determining what type of Proposal to make. It may very well be that these accounts are collapsed in order to help fund a Proposal.

Similarly, RESPs are not excluded in personal bankruptcy. In a Proposal, the amount must be considered as an asset in calculating how much must be offered in your Proposal to stand a chance for success.

The reason that an RESP is not excluded from seizure in bankruptcy is relatively straightforward. Your child does not acquire ownership or other entitlement to the RESP funds as parents can take possession of the funds prior to the child becoming a post-secondary school student. For that reason, it is the parents who have ownership of the funds.

Consequently, the Trustee of an insolvent mother or father that has an RESP can collapse it. If the parent in bankruptcy wants the RESP to not collapse, adequate arrangements need to be made with the Trustee for the equal amount of funds in the RESP at the filing date be paid to the Trustee for the bankruptcy estate and the bankrupt’s creditors.

Annuity revenue in bankruptcy

Annuities are agreements where you pay a company (normally an insurance company) a specific amount, in order to get regular monthly payments for a specific period of time or for the remainder of your life.

If an annuity contract is properly set up with an insurance company, it will be exempt from seizure in bankruptcy. However, the income stream it produces will be considered by the Trustee in determining whether the bankrupt person has a surplus income obligation.

Your RRIF can also be considered as an annuity as it provides a legislated stream of payments. The RRIF is exempt from seizure in a bankruptcy, other than for any contributions in the 12 months immediately prior to filing. Like an annuity, the entitlement to payments will be considered by the Trustee in doing the surplus income calculation.

In a Proposal, you don’t give up ownership of an annuity contract or RRIF, but the income must be considered in preparing a suitable Proposal.

Bankruptcy Act Canada summary

Do you have financial problems? Do you not have enough money to pay your bills in full when due?

As a Trustee, we are the only professionals licensed, authorized and supervised by the federal government to offer insolvency advice and to implement solutions under the Bankruptcy Act Canada. A consumer proposal is a federal government licensed debt settlement plan to eliminate your debt. We will help you to select what is best for you to free you from your debt issues.

Call the Ira Smith Team today so we can eliminate the anxiousness, tension, discomfort and pain from your life that your cash problems have caused. With the unique roadmap, we develop just for you, we will promptly return you right into a healthy and balanced problem-free life.

Call the Ira Smith Team today. We have generations and decades of experience helping people and companies looking for debt restructuring and a debt settlement plan to AVOID bankruptcy.

You can have a no-cost consultation so we can work with you to fix your money 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.

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BANKRUPTCY IN ONTARIO CANADA & CONSUMER PROPOSAL ONTARIO

Bankruptcy in Ontario Canada: Introduction

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

Bankruptcy in Ontario Canada: Not entirely unexpected

This is an expected statistic once you understand the purpose of the Canadian insolvency system to get rid of financial obligations. It is also for the financial rehabilitation of people and companies and if possible, allow them to do so while retaining their assets.

In a down economic climate, even more, debtors use bankruptcy to protect their wide range of interests. Although on a per capita basis Canadians are savers, more recently, especially related to real estate, we are a country of borrowers. A lot of people are overloaded with debt, including credit card debt.

Bankruptcy in Ontario Canada: Bankruptcy is not always right

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

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

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

What about a proposal?

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

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

A filing may protect some assets

A bankruptcy or proposal filing may also be necessary to secure your assets; this is especially true for companies looking to restructure. In a BIA filing, all civil actions against you instantly stop— whether they are legal actions, CRA garnishments or secured creditor seizure and enforcement (the last under specific conditions). Every creditor must obey the automatic stay of proceedings imposed by the BIA. A proposal filing gives you the possibility to solve your economic issues with lenders who would certainly otherwise seize and sell your assets.

Timing is everything

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

5 general tips

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

Some debts can’t be discharged

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

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

Bankruptcy must be your last option

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

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

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

Seek the advice of a professional trustee

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

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

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

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DEBT RELIEF CANADA: CAN YOU DIPLOMATICALLY AVOID BANKRUPTCY?

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Debt relief Canada: Introduction

This is always a hot topic. I am asked often how does debt relief Canada work? I recently wrote blogs about professional athletes who made a lot of money in their careers and who are now broke, or worse, bankrupt.

I am going to tell you about former tennis star Boris Becker. He is trying to avoid bankruptcy, diplomatically.

First some background information. The inviolability of diplomats is among the oldest rules of international law. During the Greek Empire, it was unlawful to abuse, apprehend or detain a country’s agent. In contemporary times, there is polite resistance from court territory as a matter of global regulation. The purpose of this is to make certain the reliable efficiency of diplomatic features preventing the holding authority from intervening with the diplomat’s job.

Debt relief Canada: Diplomatic immunity

Diplomatic immunity separates into 3 categories. The resistance of the consular office properties and residential properties. The buildings, cars, archives and diplomatic communications. While the holding authority has a task to shield the diplomatic properties from any type of damages, the embassy remains immune from any kind of law enforcement actions. The authorities cannot enter the consular office other than to safeguard human life for instance of a severe emergency.

The 2nd kind is within the premises. The resistance of the employees functioning in the consular office from the local court’s jurisdiction. Mediators are immune from any kind of type of law enforcement like arrest, search as well as apprehension.

The 3rd kind is that the diplomat, as well as his/her family members, are additionally immune in the hosting country from paying taxes other than the settlement for solutions like electricity or water.

Article 29 of the Vienna Convention on Diplomatic Relations states that diplomatic immunity could only be forgoed by the sending out government.

Debt relief Canada: The Boris Becker story

It likely raised a few eyebrows when Boris Becker revealed he was pursuing a 2nd profession in diplomacy In April 2018 as the Central African Republic’s attaché for Sports/Humanitarian/Cultural Affairs in the European Union.

The statement came while Becker had a claim made against him over a loan he presumably owes to exclusive financial institution Arbuthnot Latham, after the sports celebrity’s bankruptcy in 2017. His lawyers claim that his diplomatic function grants him immunity under the 1961 Vienna Convention on Diplomatic Relations. They state this indicates he cannot be subject to any kind of lawful procedure in the courts of any nation. Additionally, they say this protection is for as long as he stays an identified diplomatic representative.

The Boris Becker method of debt relief

His legal representatives have also provided those claims to Britain’s High Court, saying that British Foreign Secretary Boris Johnson in addition to the Central African Republic would need to decide whether any kind of suits could continue. This takes the bankruptcy of a previous tennis star transforming it into a politically delicate matter. The Court process against Becker might lead various other countries can potentially make use of the situation. In the same fashion British diplomats abroad could lose immunity if certain countries wished to make a point.

Becker’s defence method has actually likewise set off inquiries over his motivations as well as timing in accepting a polite duty with the Central African Republic— a nation in the midst of a bloody civil conflict and humanitarian situation. It appears now the Republic has more important matters to focus on. Its social and sporting activities ties to Europe cannot be a current priority.

The former tennis champ condemned the choice to start bankruptcy procedures versus him as unjustified and unjust and introduced he would look for payment for the totally unneeded affirmation of bankruptcy that he was pushed into.

Debt relief Canada: The precedent story of Sheikh Walid Juffali

The Article 29 of the Vienna Convention on Diplomatic Relations I previously referred to, has actually long been controversial. In 2014, the little Caribbean island of Saint Lucia named Saudi business owner Sheikh Walid Juffali its irreversible representative. Moreover, this appointment occurred after his former spouse Christina Estrada separated from him and instituted divorce proceedings.

Britain’s High Court ruled that his diplomatic status was totally fabricated. Britain’s Foreign Office slammed the judgment when stating it can result in problems with British diplomats’ immunity abroad. The Court said that Sheikh Walid Juffali, a permanent resident of Britain, is not protected by his diplomatic status. Estrada’s award was about $100 million.

Applying the very same reasoning in Becker’s instance would negate any diplomatic immunity claim by the long-time British homeowner.

What if you can’t claim diplomatic immunity?

Boris Becker’s uses a very novel and entertaining defence to avoid lawsuits to recover debts. However, most of us don’t have the ability to get diplomatic status from a country and then claim immunity. We deal with creditors suing us on our debts. We have to take a less dramatic and more common sense approach. Here is my list of options for those looking for debt help in Canada.

Debt relief Canada: Credit counselling

This addresses debt troubles without bankruptcy and supplies you with the skills to live debt totally free. Credit counselling solutions consist of budgeting, just how to use debt intelligently, restoring credit as well as debt management programs.

Debt management programs are developed to aid you to settle your debt. You enlist willingly in a debt monitoring program; the court did not mandate it. When you enlist a credit counsellor will call your financial institutions and ask for their collaboration in minimizing your debt. Your creditors could agree in ways like minimizing the amount of debt owing. A debt management program cannot cover all debts. It cannot cover secured debts. A mortgage, line of credit registered against your home or an auto loan are examples of debts not covered.

Debt relief Canada: Debt consolidation

Debt consolidation is getting a loan that enables you to settle your financial debts to a number of or all your unsecured creditors, leaving you with simply one loan. Usually, this approach is ideal to deal with your unsecured debts. The theory is that the debt consolidation loan will have a lower annual interest rate than many of your unsecured debts.

Debt relief Canada: Proposals

Consumer proposals and Division 1 proposals are alternatives to bankruptcy. Although similar in many areas, there are some major distinctions. Consumer proposals are readily available to people whose overall financial debts do not go beyond $250,000, not consisting of debts secured by your house. Division 1 proposals are for both companies as well as people whose financial obligations go beyond $250,000 (excluding the mortgage on their primary residence).

Proposals are governed by the Bankruptcy and Insolvency Act (BIA). Collaborating with a licensed insolvency trustee you make a proposal to:

✥ Pay your creditors a percentage of what you owe them over a certain
 amount of time, without any interest

✥ Extend the time you need to repay the debt

✥ Or a mix of both

Proposal payments are made to your trustee. The trustee uses that money to pay each of your creditors. You can take up to 5 years to complete a proposal.

The last resort: Bankruptcy

As a last resort, you can declare bankruptcy. The Government of Canada licences and supervises us. We can look at your circumstance and discuss with you the options available to you to avoid bankruptcy. We can also advise you what is involved in the bankruptcy option and administer it for you.

Do you have too much debt?

I can’t provide you diplomatic immunity from your debts. However, If you’re thinking about a consumer proposal or are looking for ways to end your financial debt, or you need CRA debt forgiveness, call Ira Smith Trustee & Receiver Inc. We understand the stress and pain your financial problems are causing you. We feel your pain and we can end it for you.

Our strategy for every single person is to develop a result where Starting Over, Starting Now comes true, starting the minute you walk through our door. You’re just one call away from taking the necessary actions to get back on the road to leading a healthy and stress-free life.

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