Tag: protection from creditors

HOW D&O INSURANCE AND DUE DILIGENCE PROTECT CANADIAN DIRECTORS

Post author By Brandon Smith
Post date February 23, 2026

D&O insurance

As Senior Vice-President at Ira Smith Trustee & Receiver Inc., I’ve seen firsthand the immense pressure and confusion directors face when their company is struggling. Many believe their position offers an impenetrable shield, only to discover too late that their personal assets are very much at risk. My goal here is to cut through that confusion regarding Director liability and D&O insurance, giving you clear, actionable advice to protect yourself. Please keep in mind that we are licensed insolvency trustees, not lawyers. As I caution at the end of my Brandon’s Blog, this article is not meant as legal advice and does not replace or eliminate the need for you to get the advice of your lawyer.

D&O Insurance Key Takeaways

Personal Liability is Real: Directors can be held personally responsible for certain company debts, such as HST, payroll source deductions (CPP, EI, income tax), and employee wages, in Canada.
“Due Diligence” is Your Defence: Your best protection is to show you acted with the care a reasonable person would to prevent the debt. This must be proactive, well-documented, and create a solid “paper trail.”
Timing Matters: Resigning from a board after debts have piled up does not automatically free you. The Canada Revenue Agency (CRA) can look back two years from your resignation date to assess liability.
D&O and Tail Insurance are Crucial: Directors & Officers liability insurance (D&O insurance), especially “tail” or “run-off” coverage, is a vital safety net for protecting your personal assets from claims that arise later, long after the company has ceased operations.
Seek Expert Advice Early: Consulting with a Licensed Insolvency Trustee (LIT) like Ira Smith Trustee & Receiver Inc. as soon as financial trouble appears can provide crucial guidance and help build your defence, ensuring you act correctly at critical junctures.

D&O Insurance Introduction: Navigating the Perilous Waters of Corporate Distress

Many directors sleep soundly, believing their company’s legal structure shields them completely. But when a business faces a wind-down, that shield can crack, exposing personal assets to serious risks. Imagine losing your home or your life savings because of corporate debt you thought was not yours. This is a very real possibility for directors in Canada. Ignorance is not bliss; it’s personal liability.

As a director, you take on significant responsibility. When a company thrives, you share in its success. But when it struggles, especially towards a wind-down, your personal finances can be targeted. Laws exist to ensure that certain debts are to be paid by the directors, even if the corporation cannot. These include unpaid sales tax (HST), unremitted payroll deductions (like income tax, Canada Pension Plan, and Employment Insurance). These are called statutory obligations or “trust amounts” because the company holds them on behalf of the government(further described below). Unpaid employee wages and vacation pay are also a director’s liability.

Timing is everything. Waiting until a crisis hits is often too late. Early consultation with a Licensed Insolvency Trustee can provide the critical guidance and “due diligence” paper trail you need. This guide will walk you through these risks, show you how to build your defences, explain formal wind-down procedures, and highlight the crucial role of D&O insurance, especially D&O tail coverage. The “due diligence” shield is your only hope.

D&O insurance

1. D&O Insurance: The Director’s Evolving Role in Financial Difficulty

Being a director carries important duties. These duties become even more complicated when a company runs into financial trouble. An insolvent company transforms the expectations and legal requirements placed upon you.

1.1 Why Director Protection is Paramount During a Wind-Down

Director protection is paramount during a wind-down because the usual “corporate veil” that shields directors from personal liability can be pierced under specific circumstances. Normally, directors work to make the company successful and grow its value for shareholders. However, if the company becomes insolvent (cannot pay its bills), your main duty shifts. You must now focus on protecting the company’s assets for its creditors, not just its shareholders.

The idea that a company is a separate legal entity from its owners and directors usually protects directors from personal responsibility for the company’s debts. But under specific Canadian laws, this protection can be “pierced,” meaning your personal assets – your home, savings, and investments – can be at risk. This is why understanding these risks and proactively protecting yourself is so important. As a Senior Vice-President at Ira Smith Trustee & Receiver Inc., I have seen the devastating personal impact when directors are unaware of these shifts in liability.

1.2 Defining a Corporate Wind-Down: More Than Just Closure

Defining a corporate wind-down means understanding it is a formal, structured process of ending a business, not simply locking the doors. It involves settling debts, selling assets, and dealing with all legal duties. A wind-down can happen voluntarily, or through formal insolvency proceedings like bankruptcy or an arrangement with creditors.

The moment a company becomes insolvent – meaning it can no longer pay its bills as they become due – is a very important point. This is a critical turning point where your duties as a director change, and the risk of personal liability for certain debts increases significantly. This guide focuses on helping you navigate this complex process, emphasizing that early action and expert advice from professionals like Ira Smith Trustee & Receiver Inc. are your best allies.

1.3 The Shifting Sands of Fiduciary Duties: From Shareholders to Creditors

The shifting sands of fiduciary duties mean that your primary legal obligations as a director change from serving shareholders to prioritizing the benefit of creditors once a company faces insolvency. As a director, you have “fiduciary duties.” This means you must act honestly and in good faith, always doing what’s best for the corporation. When a company is doing well, this usually means working to increase profits and shareholder value.

However, once a company is insolvent or close to it, your duty shifts. You must then prioritize the interests of the company’s creditors (those it owes money to). This means making sure company assets are used to pay debts, not to benefit shareholders or yourself. Ignoring this shift can lead to personal liability, especially if you continue to make payments to shareholders or certain creditors while leaving others (like the CRA or employees) unpaid. Understanding this change is fundamental to director protection during a wind-down.

2. D&O Insurance: Key Areas of Personal Liability Risk for Directors

As a director in Canada, certain debts can fall onto your shoulders if the company can’t pay them. These are often called “trust amounts” or statutory obligations, and they are a primary focus for government agencies, representing significant personal liability risks.

2.1 CRA Director Liability: HST and Source Deductions

Directors can be personally liable for specific tax debts owed to the Canada Revenue Agency (CRA) if the company fails to remit them.

What personal liabilities do directors face in Canada for a company’s unpaid taxes (HST, source deductions) and wages during a wind-down?

In Canada, directors can be held personally responsible for:

Unremitted Payroll Deductions: These are amounts taken from employee paycheques for income tax, Canada Pension Plan (CPP) contributions, and Employment Insurance (EI) premiums. The company collects these amounts but holds them “in trust” for the government.
Unremitted GST/HST: This is the Goods and Services Tax / Harmonized Sales Tax collected from customers by the business. Like payroll deductions, these are “trust amounts” that the company holds on behalf of the CRA.

When a company uses these funds to keep the business going instead of sending them to the CRA, directors can become personally liable. The Income Tax Act and the Excise Tax Act (for GST/HST) outline these liabilities.

The CRA doesn’t automatically go after directors. It goes through certain steps to assess personal liability:

Failed Collection from the Corporation: The CRA must first try and fail to collect the unpaid amounts directly from the company. This usually involves issuing assessments and taking collection actions.
Assessment Within Two Years of Resignation: The CRA must send an assessment notice to the director within two years from the date they last stopped being a director. This means resigning doesn’t instantly remove your risk; the clock starts ticking then. Timing is everything. Resigning from a board after the debt has accrued does not stop the CRA.
Lack of Due Diligence: If the director cannot prove that they “exercised the degree of care, diligence, and skill to prevent the failure that a reasonably prudent person would have exercised in comparable circumstances”, then they are personally liable. This “due diligence” defence is your most crucial protection, which we will discuss in detail.

Directors can also face penalties and interest on these unremitted amounts.

2.2 Unpaid Wages and Director Responsibility

Directors can also be personally liable for unpaid employee wages. This liability is governed by provincial laws, such as the Ontario Employment Standards Act (ESA) and the Ontario Business Corporations Act (OBCA).

The scope of this liability typically covers:

Up to 6 months of unpaid wages: This includes regular pay, commissions, and potentially some bonuses owed to employees.
Up to 12 months of vacation pay: This covers vacation pay that has accrued and is due to employees.

Directors are “jointly and severally liable” for these amounts, meaning an employee can pursue one or all directors for the full amount owed. This means that if there are multiple directors, an employee could sue just one director for the entire amount, leaving that director to seek contributions from the others.

Certain conditions must be met for directors to be held liable for wages, such as the corporation being unable to pay, going bankrupt, or being formally wound up. It’s also important to note that claims for unpaid wages usually must be brought within a specific timeframe, often 6 months from when the wages were due or from the start of bankruptcy/liquidation proceedings.

2.3 Other Potential Liabilities

Beyond taxes and wages, directors can face other personal liabilities depending on the specific circumstances and actions taken:

Personal Guarantees: If you personally guaranteed a company loan, lease, or line of credit, you are directly responsible for that debt if the company defaults. These guarantees are separate from statutory liabilities and are a direct contractual obligation.
Environmental Liabilities: In Ontario, under the Environmental Protection Act, directors can be personally liable for the cost of cleaning up contaminated land that the corporation owned or operated, even after the company has dissolved. This is a severe and often overlooked liability.
Fraudulent or Oppressive Conduct: Directors can be held liable if they engage in fraud, mismanage the company’s assets for personal gain, or act in a way that unfairly harms creditors or shareholders. Examples include knowingly transferring assets to avoid creditors or making decisions that are clearly not in the company’s best interest but benefit the director.
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3. The Proactive Director: Building Defences Before the Storm Hits

The best defence against personal liability is to be proactive. This means taking steps before financial problems become too severe, establishing practices that demonstrate responsible oversight and diligence.

3.1 Establishing Robust Corporate Governance and Internal Controls

Establishing robust corporate governance and internal controls is foundational for directors to demonstrate they are fulfilling their duties and to build a strong “due diligence” defence. Good governance means having clear rules and practices for how the company is run. This includes:

Financial Oversight: Make sure there are proper systems for tracking all money coming in and going out. This includes accurate accounting records and regular financial reporting to the board.
Statutory Remittance Systems: Implement clear, non-negotiable procedures to ensure HST and payroll deductions are collected and sent to the CRA on time. Don’t just assume it’s happening; verify it regularly.
Detailed Records: Keep accurate and complete records of all financial transactions, tax filings, and board meetings. This creates your crucial “paper trail.”
Regular Board Meetings: Attend all meetings and make sure that financial reports are reviewed and discussed thoroughly. Board minutes should reflect these discussions.
Segregation of Duties: Ensure that no single person has control over all financial processes (e.g., the person who writes cheques should not be the same person who reconciles bank statements). This reduces the risk of fraud or oversight.

3.2 Implementing Effective Financial Risk Assessment and Management

Implementing effective financial risk assessment and management practices allows directors to identify, monitor, and mitigate potential financial pitfalls before they escalate into personal liability risks. It’s crucial to identify financial problems early.

Watch for Warning Signs: Keep a close eye on key financial indicators such as consistent negative cash flow, late bill payments, declining sales, increasing debt, or unusual changes in expenses. These are clear signs that the company might be in trouble.
Regular Financial Reviews: Don’t just glance at financial reports. Understand them. Ask challenging questions about the company’s ability to meet its current and future obligations, especially those related to statutory remittances and employee wages.
Cash Flow Projections: Insist on realistic cash flow projections and review them regularly. This helps predict potential shortfalls in time to address them.
Seek Early Advice: If you see problems, get professional financial advice before things get out of control. This can involve bringing in outside accountants or, ideally, a Licensed Insolvency Trustee like Ira Smith Trustee & Receiver Inc., to conduct a financial review or advise on options.

3.3 Maintaining Meticulous Records and Due Diligence Documentation (The “Paper Trail”)

Maintaining meticulous records and due diligence documentation is not just good practice; it is the cornerstone of your personal defence against liability, creating the “paper trail” that proves you acted responsibly.

How can a director use the “due diligence” defence to avoid personal liability for corporate tax debts and unpaid wages in Canada?

The “due diligence” defence is your most powerful tool to avoid personal liability for CRA debts and unpaid wages. This defence argues that you are not liable if you “exercised the degree of care, diligence, and skill to prevent the failure that a reasonably prudent person would have exercised in comparable circumstances.” This means you must show you took reasonable steps to prevent the company from failing to pay its statutory obligations or employee wages.

Here’s what that means and how to build your “paper trail”:

Proactive, Not Reactive: Due diligence is about preventing problems, not trying to fix them after they’ve happened. Actions taken after a debt has accrued are often too late to establish this defence. You need to show foresight and preventive action.
Inquire and Challenge: Regularly ask management about the company’s financial health, specifically regarding statutory remittances (HST, CPP, EI, income tax) and wage payments. Don’t just accept verbal assurances; demand proof.
Request and Review Documents: Ask for and carefully examine financial statements, tax filings, payroll records, and proof of remittance. Make sure these documents clearly show that all obligations are being met on time.
Document Everything: Keep detailed minutes of board meetings where financial matters were discussed. Record your specific questions, management’s answers, any concerns you raised, and any actions agreed upon to address those concerns. If you dissent from a decision you believe is risky, ensure your dissent is formally recorded.
Seek Expert Advice: If you have concerns, recommend bringing in outside financial or legal experts. Document this recommendation and their advice. Relying on professional advice from a Licensed Insolvency Trustee (LIT) like Ira Smith Trustee & Receiver Inc. can be a critical part of your due diligence, showing you sought expert guidance.
Challenge Mismanagement: If you believe the company is mismanaging funds, particularly “trust amounts,” you must voice your concerns forcefully and take steps to prevent the failure. Simply asking questions might not be enough if you don’t follow up and escalate your concerns or take corrective action. This could include insisting on a formal insolvency process if appropriate.

Keep in mind that “inside directors” (those actively involved in day-to-day operations) are held to a higher standard than “outside directors” (those less involved), as they have greater access to information and influence over company operations.

This “paper trail” is your best legal defence. It proves you took reasonable steps to prevent the default, even if the default ultimately occurred. Without this documentation, it becomes your word against the CRA’s or an employee’s, which is a very difficult position to be in.

Aspect of Due Diligence	Description	Why it’s Important
Regular Board Meetings	Attending and actively participating in all board meetings.	Demonstrates engagement and opportunity to oversee.
Financial Review	Consistently reviewing financial statements, cash flow, and projections.	Identifies financial distress early; ensures awareness of the company’s ability to pay debts.
Inquiry & Verification	Asking specific questions about tax remittances and wage payments. Requesting proof of payment.	Proves you didn’t just assume; you actively sought assurance.
Documenting Concerns	Recording any concerns raised and management’s responses in board minutes.	Creates the “paper trail” needed to show proactive effort.
Seeking Expert Advice	Recommending and acting on advice from financial or legal professionals (e.g., LIT).	Shows you sought specialized expertise to fulfill your duties.
Taking Corrective Action	Insisting on changes, payment plans, or formal insolvency if necessary.	Demonstrates you took tangible steps to address issues.

3.4 Understanding and Managing Key Stakeholder Relationships

Understanding and managing key stakeholder relationships during a wind-down means strategically engaging with creditors, employees, and government agencies to potentially mitigate future claims and foster cooperation. Maintaining good relationships with the CRA, employees, and other creditors is important. Open and honest communication, when appropriate and with legal advice, can sometimes help navigate difficult situations, such as negotiating payment plans or explaining the company’s financial state transparently. This proactive engagement can sometimes prevent or reduce aggressive collection actions against directors personally.

4. D&O Insurance And The Strategic Decision-Making During a Wind-Down: Actionable Steps for Protection

When dealing with an insolvent corporation, every decision counts. Taking the right steps at the right time is crucial for director protection, especially as the situation moves towards a formal wind-down.

4.1 Immediate Actions Upon Recognizing Irremediable Distress

Distressed companies must take Immediate action upon recognizing financial distress. Prioritizing legal obligations and seeking expert advice to minimize personal liability is key. If it becomes clear the company cannot recover, you must act quickly and decisively:

Prioritize Statutory Remittances: Immediately ensure that all HST owing and payroll deductions are paid. Do not use these “trust funds” to keep the business alive, as this is a direct path to personal liability. These payments take precedence over almost all other unsecured debts.
Evaluate Future Payments: Stop making payments to general creditors if it jeopardizes the payment of statutory debts, or if doing so could be seen as an unfair preference to one creditor over others, which can have legal consequences.
Consider Resignation (Carefully): While resigning might seem like a solution, it’s not a magic bullet. For CRA debts, the two-year look-back period starts from your resignation date. This means you can still be held liable for debts incurred while you were a director, even after you leave the board. Resignation should be properly documented and registered with corporate registries. Furthermore, resigning without ensuring proper governance and advice can sometimes be seen as an avoidance tactic, further complicating matters.

4.2 Engaging the Right Professional Advisors: Your Shield and Guide

Engaging the right professional advisors is perhaps the most critical step you can take when a company faces irremediable distress, as they provide essential expertise and legal protection.

The Indispensable Role of a Licensed Insolvency Trustee (LIT): An LIT, like Ira Smith Trustee & Receiver Inc., is the only professional legally able to administer formal financial restructuring insolvency proceedings in Canada. We are experts in Canadian insolvency law, with vast experience in guiding companies and directors through complex financial distress. We can help you:
- Assess the company’s true financial situation, giving you an unbiased and accurate picture.
- Advise on all available options, including restructuring (like a Division I Proposal under the BIA or a Plan of Arrangement under the Companies’ Creditors Arrangement Act) or formal corporate bankruptcy.
- Explain the specific director liabilities you face, providing clarity on your personal exposure.
- Help document your “due diligence” actions, which are vital for your defence, ensuring you have the necessary “paper trail.”
- Guide the company through formal wind-down procedures in a structured way that minimizes director risk, ensuring compliance with all legal requirements.
- Communicate effectively with creditors, including the CRA, on your behalf, often easing tension and facilitating resolutions.
Legal Counsel: You should also consult a lawyer who specializes in corporate or insolvency law to understand your specific legal position, potential defences, and any broader corporate law implications.

4.3 Balancing Competing Interests: Navigating Stakeholder Demands

Balancing competing interests means navigating the diverse and often conflicting demands of various stakeholders (employees, suppliers, banks, the CRA) while ensuring legal compliance and minimizing director liability. During distress, many groups will demand payment. An LIT can help you understand your legal duties to each group and navigate these competing demands fairly and legally, especially regarding preferential payments.

4.4 Managing Communications Effectively and Transparently

Managing communications effectively and transparently involves carefully planning what, when, and how to communicate with stakeholders to maintain trust and avoid exacerbating legal or reputational issues. Communicating with stakeholders during a wind-down is sensitive. Get advice on what, when, and how to communicate to avoid further liability or distress, as missteps can be costly.

4.5 Boardroom Protocols and Decision-Making under Pressure

Boardroom protocols and decision-making under pressure require strict adherence to governance principles and meticulous documentation, especially when the company’s solvency is at stake. Ensure all significant decisions are properly documented in board minutes, especially those related to financial distress, expert consultations, and steps taken to address liabilities. This reinforces your due diligence.

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5. Navigating Formal Wind-Down Procedures: A Director’s Overview

Navigating formal wind-down procedures means understanding the specific legal frameworks available in Canada for closing a business, each with distinct implications for directors. When a company cannot simply close its doors, formal legal procedures come into play. These procedures have specific rules for directors and are administered by a Licensed Insolvency Trustee.

5.1 Voluntary Corporate Dissolution: A Controlled Exit

Voluntary corporate dissolution through an orderly liquidation is a controlled exit strategy. It makes sense for companies with few or no debts, or where all debts can be paid off in full. It’s a structured way to close the business, often involving articles of dissolution filed with the government. In Ontario, if the company owns land, Crown (government) consent might be needed for dissolution. If there are significant debts that cannot be paid, a voluntary dissolution is not possible without creditor agreement.

5.2 The Bankruptcy and Insolvency Act (BIA): Director Implications

The Bankruptcy and Insolvency Act (BIA) is the primary federal law governing corporate bankruptcy and financial restructuring proposals in Canada, outlining the rules and regulations for a company unable to meet its financial obligations.

When a company files for bankruptcy under the BIA, a Licensed Insolvency Trustee is appointed. The trustee takes control of the company’s assets to sell them and pay creditors. This process often triggers director liabilities for unpaid wages and statutory remittances, as the company’s inability to pay usually becomes definitively clear. Our role as LITs is to manage this process fairly and transparently, and we can advise directors on their specific obligations and potential liabilities during this time, helping them understand how the bankruptcy process impacts their personal situation.

5.3 Companies’ Creditors Arrangement Act (CCAA): Restructuring vs. Liquidation

The Companies’ Creditors Arrangement Act (CCAA) is a federal law typically used by larger companies with debts over $5 million to restructure their finances, offering protection from creditors during the process. It allows a company to restructure its finances while being protected from its creditors. Directors play a significant role in developing and implementing the restructuring plan, often remaining in control under court supervision. If restructuring fails, the company may move to liquidation, often under the BIA. Directors still face the same personal liabilities under the CCAA as they would under the BIA, and their conduct during the restructuring process is subject to scrutiny.

5.4 The Winding-up and Restructuring Act : Specific Scenarios

The Winding-up and Restructuring Act is another federal statute that applies mainly to federally incorporated companies, or those in specific regulated industries like banks or insurance companies. It provides a framework for both winding-up (liquidation) and restructuring, similar to the BIA and CCAA, but tailored for these specific entities. Directors of companies subject to proceedings under this Act face similar personal liability risks as under the BIA, making due diligence and expert advice just as crucial.

6. The Essential Safety Net: D&O Insurance and Tail Insurance

Even with the best due diligence, directors can still face claims. This is where D&O insurance becomes a critical safety net for your personal assets, providing protection when legal challenges arise.

6.1 Understanding D&O Insurance

Understanding D&O insurance means recognizing it as a policy designed to protect company leaders from personal financial loss due to lawsuits stemming from their corporate decisions. D&O insurance protects company leaders – directors and officers – from personal financial loss if they are sued for decisions or actions made in their roles. It typically covers:

Legal Defence Costs: Lawyers’ fees and other costs to defend against a lawsuit, which can be astronomical even if the claim is baseless.
Settlements and Awards: Money paid to resolve a claim or awarded by a court, up to the policy limits.

It’s a common belief that only large corporations need D&O insurance. This is a misconception. Small and private businesses are just as vulnerable to claims, and without the deep pockets of larger firms, these claims can be financially devastating for individual directors. Even a director for a non-profit organization can face D&O claims.

However, D&O insurance does not cover everything. It generally excludes:

Deliberately fraudulent or criminal acts.
Intentional non-compliance with laws.
Fines and penalties (which can be a significant part of CRA assessments, as these are typically considered punitive rather than compensatory).
Bodily injury or property damage claims (these are covered by other types of insurance, such as general liability).
Claims based on personal guarantees.

The policy often has different “Sides” of coverage: “Side A” directly protects individual directors when the company cannot indemnify them (e.g., due to insolvency or legal prohibition), which is especially important during a wind-down when the company’s assets may be gone. “Side B” reimburses the company for indemnifying its directors, and “Side C” covers the company itself for certain claims.

6.2 The Critical Need for Run-Off (Tail) Coverage

The critical need for run-off (tail) coverage arises because most D&O policies are “claims-made,” meaning they only cover claims made and reported while the policy is active, leaving directors exposed after a company ceases operations.

What is D&O “tail coverage” and why is it essential for directors during a corporate wind-down or insolvency?

Most D&O policies are “claims-made.” This means they only cover claims that are made and reported while the policy is active. If your company closes and the policy expires, any claim made after that date, even if it relates to actions taken before the closure, will generally not be covered. This is a huge gap in protection, especially given that lawsuits can take years to materialize.

This is where “tail coverage” (also known as “extended reporting period,” “ERP,” or “run-off” coverage) becomes essential. Tail coverage extends the time you have to report claims under your D&O insurance policy.

Purpose: It protects directors from claims that surface months or even years after the company has ceased operations or the D&O policy has expired, but which relate to events that occurred while the original policy was active.
Why it’s Vital: Claims often emerge long after a company closes its doors. Creditors, former employees, or even the CRA can bring actions years later (e.g., the CRA’s two-year look-back for director assessments). Without tail coverage, your personal assets could be exposed to defence costs and settlements, with no corporate entity left to help you. The company itself, having wound down, would not be there to indemnify you.
Coverage Period: Tail coverage typically lasts for a specified period, often six years, to align with various statutes of limitation for different types of claims. This ensures a long-term safety net.

Think of your regular D&O policy as a security camera that only records while plugged in. Tail insurance lets you review the footage (report claims) even after the camera is unplugged (policy expires), providing an essential historical record of coverage.

6.3 Maximizing Your Policy’s Effectiveness: Beyond Just Having D&O Insurance Coverage

Maximizing your D&O insurance policy’s effectiveness goes beyond simply purchasing D&O insurance; it requires a deep understanding of its terms and proactive management of its features.

Review Your Policy Thoroughly: Understand its limits, exclusions, and how it behaves during insolvency or a change of control (e.g., a sale of the company). Don’t just file it away; read the fine print.
Consider Increased Limits: When a company is winding down, its own assets may be gone, placing more reliance on D&O insurance coverage. Therefore, consider whether your existing limits are adequate given the potential liabilities.
Negotiate Tail Coverage Early: Ideally, tail coverage should be discussed and secured as part of the D&O insurance renewal process or when the company first anticipates a wind-down, not as an afterthought. This ensures continuous protection.
Understand Claim Reporting Requirements: Be aware of the deadlines and procedures for reporting potential claims to your insurer. Late reporting can lead to denied coverage.

6.4 Regularly Reviewing and Updating D&O Insurance Policies

Regularly reviewing and updating all insurance policies is crucial because your D&O insurance and tail coverage needs can change over time, necessitating adjustments to maintain adequate protection. As your company evolves, or as the risk landscape changes, so should your insurance coverage. Review your policies regularly with an insurance professional to ensure you have adequate protection for current and potential future liabilities.

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7. The Post-Wind-Down Landscape: Lingering Concerns for Directors

Even after a company has formally wound down, a director’s duties and potential liabilities don’t always vanish immediately, often leaving lingering concerns that require continued vigilance.

7.1 Ongoing Scrutiny and Potential Investigations

Ongoing scrutiny and potential investigations mean that regulatory bodies or former stakeholders can initiate legal actions or probes years after the company is gone. Regulatory bodies, like the CRA, or former employees, or even court-appointed trustees, can initiate investigations or lawsuits years after the company is gone. Your meticulous due diligence records and D&O insurance tail coverage are your primary defences here, providing documented proof and financial protection.

7.2 Record Retention Requirements and Obligations

Record retention requirements and obligations mean directors have a continuing legal duty to ensure company records are properly kept and accessible, even long after dissolution. This is critical for defending against post-wind-down claims and supports your due diligence defence, proving your past actions.

7.3 Reputational Management and Future Opportunities

Reputational management and future opportunities are important considerations for directors, as how a wind-down is handled can significantly impact their professional standing. While not a direct legal liability, managing your professional reputation during and after a wind-down is important for future career opportunities. Transparency and demonstrating responsible conduct, supported by your documented due diligence and adherence to legal processes, can help protect your professional standing.

8. Frequently Asked Questions: Director Liability & D&O Insurance

Q. Does standard D&O insurance protect me after my company closes?

A: Standard D&O insurance typically only covers claims made while the policy is active. To protect yourself from claims that arise after a business has ceased operations, you must secure “tail coverage” (also known as “run-off” coverage), which extends the reporting period for several years.

Q: Can the CRA hold me personally liable even if I resigned?

A: Yes. In Canada, the CRA has a two-year look-back period from the date of your resignation to assess personal liability for unremitted HST and payroll deductions. Resigning does not instantly erase your risk for debts that accrued while you were a director.

Q: What specific debts am I personally responsible for as a director?

A: Under Canadian law, directors can be held personally liable for “trust amounts,” which include:

Unremitted GST/HST collected from customers.
Payroll Source Deductions, such as employee income tax, CPP, and EI.
Employee Wages and Vacation Pay typically cover up to six months of wages and twelve months of vacation pay.

Q: How does the “due diligence” defence work in Canada?

A: The due diligence defence allows a director to avoid personal liability if they can prove they exercised the degree of care, diligence, and skill that a “reasonably prudent person” would have to prevent the failure to pay. This requires a proactive, well-documented “paper trail” showing you questioned management and demanded proof of payments.

Q: Why is a Licensed Insolvency Trustee (LIT) necessary during a wind-down?

An LIT is the only professional in Canada legally authorized to administer formal insolvency proceedings. Consulting an LIT early, such as Ira Smith Trustee & Receiver Inc., helps you assess the company’s financial state, understand your specific exposure, and document your due diligence to protect your personal assets.

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D&O Insurance Conclusion: Proactive Protection as the Ultimate Defence

The role of a director in a company facing financial distress is challenging and carries significant personal risk. The idea that the corporate veil will always protect your personal assets is a dangerous myth. As we’ve discussed, specific laws in Canada hold directors personally liable for unremitted HST, payroll source deductions, and unpaid employee wages. These liabilities are not theoretical; they are enforced daily.

Recap of Key Director Protection Strategies

To summarize, your best defences are:

Understand Your Liabilities: Know precisely where your personal assets are at risk under Canadian and Ontario law.
Practice Proactive Due Diligence: Always act with care, diligence, and skill. Document every step you take to prevent corporate default, creating a robust “paper trail” that can withstand scrutiny.
Act Early: Timing is critical. Your actions and decisions before a crisis hits are far more effective than reactive measures. Resignation, without prior due diligence, offers limited protection, as the CRA’s look-back period can still catch you.
Secure Proper Insurance: Ensure you have comprehensive D&O insurance, and critically, D&O insurance tail coverage, to protect you from claims arising after the company winds down and its original D&O policy expires.

The Unwavering Importance of Professional Guidance

Navigating the complexities of director liability and corporate wind-downs is not something you should do alone. The laws are intricate, the financial stakes are high, and the potential impact on your personal financial well-being is immense. Trying to manage these issues without expert guidance can lead to costly mistakes and missed opportunities for protection.

Empowering Directors Through Knowledge and Diligence

Taking on a directorship is a serious commitment, one that comes with both privileges and responsibilities. With the right knowledge and a diligent approach, you can significantly reduce your personal risk, even when your company faces its most challenging times. Being informed and acting proactively are your strongest shields.

Don’t wait until it’s too late. If your company is facing financial difficulty, or if you have concerns about your personal liability as a director, the time to act is now.

Brandon’s Take: Don’t Let ‘Hope’ Be Your Strategy

D&O insurance

As a Senior Vice-President at Ira Smith Trustee & Receiver Inc., I’ve unfortunately seen too many directors come to us when it’s almost too late. They hoped things would turn around. They hoped they were protected. Hope is not a strategy when your personal assets are on the line.

The laws are clear: if you are a director, and your company owes money for HST, source deductions, or wages, the government and employees can come after you personally. This isn’t theoretical; it happens every day. Even with D&O insurance, there are exclusions and limitations.

What truly protects you is a clear, documented history of responsible action – your “due diligence.” It means asking the tough questions, demanding clear answers, and showing that you actively tried to prevent the problems, not just reacted to them. This paper trail, combined with the right D&O insurance, especially that critical tail coverage, is your shield.

Contact Ira Smith Trustee & Receiver Inc. Today

Don’t let uncertainty put your personal finances at risk. If your company is facing financial challenges or if you’re concerned about your personal liability as a director, take the proactive step.

Ira Smith Trustee & Receiver Inc. has the expertise and experience to guide you through these perilous waters. As Licensed Insolvency Trustees, we are uniquely qualified to assess your company’s financial situation, advise on the best course of action, and help you understand and mitigate your personal risks. We can help you understand your options, assess your personal risk, and develop a strategy to protect your future. Our approach is empathetic, non-judgmental, and focused on finding the best possible outcome for you and your company.

Contact us for a free, confidential consultation. The sooner you act, the more options you have, and the better protected you will be. Let us help you navigate your path to a brighter financial future.

Ira Smith Trustee & Receiver Inc. is licensed by the Office of the Superintendent of Bankruptcy and is a member of the Canadian Association of Insolvency and Restructuring Professionals.

Phone: 905.738.4167
Toronto line: 647.799.3312
Website: https://irasmithinc.com/
Email: brandon@irasmithinc.com

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Disclaimer: This analysis is for educational purposes only and is based on the cited sources and my professional expertise as a licensed insolvency trustee. The information provided does not constitute legal or financial advice for your specific circumstances.

Every situation is unique and involves complex legal and factual considerations. The outcomes discussed in this article may not apply to your particular situation. Situations are fact-specific and depend on the particular circumstances of each case.

Please contact Ira Smith Trustee & Receiver Inc.get in touch with Ira Smith Trustee & Receiver Inc.

About the Author:

Brandon Smith is a Senior Vice-President at Ira Smith Trustee & Receiver Inc. and a licensed insolvency trustee serving clients across Ontario. With extensive experience in complex court-ordered receivership administration and corporate insolvency & restructuring proceedings, Brandon helps businesses, creditors, and professionals navigate challenging financial situations to achieve optimal outcomes.

Brandon stays current with landmark developments in Canadian insolvency law. He brings this cutting-edge knowledge to every client engagement, ensuring his clients benefit from the most current understanding of their rights and options.

D&O insurance

Brandon Blog Post

PROTECTION FROM CREDITORS: WHAT TORONTO ENTREPRENEURS ABSOLUTELY NEED TO KNOW BEFORE IT’S TOO LATE

Post author By Brandon Smith
Post date May 12, 2025

protection from creditors

Protection From Creditors: The Real Problem Toronto Business Owners Face

I need to start by reminding you that I am a licensed insolvency trustee, not a lawyer. This Brandon’s Blog on protection from creditors is not about how to hide your assets from creditors when financial trouble looms. It is also not legal advice. For that, you need to see your lawyer.

Rather, this is for informational purposes about the realization that pretty much every Toronto entrepreneur risks losing their assets to business debt. This Brandon’s Blog is meant to provide practical steps to gain protection from creditors for your personal assets while resolving business financial troubles from a licensed insolvency trustee with many success stories.

Meet Carlos. He started a food truck in Toronto selling arepas in 2022. By 2024, food costs doubled, and he took out a $100,000 loan using his North York home and his food truck as collateral. Now, he’s three months behind on payments. The bank wants his business AND his house.

Carlos isn’t alone. Nearly 3 out of 4 small business owners in Ontario lose sleep over mixed personal and business debts. With consumer debt hitting record highs and business bankruptcies up almost 18% in Ontario last year, keeping your business problems from becoming problems for your personal financial affairs is crucial.

Protection From Creditors: Why Your Business Debt Becomes Personal -Three Common Traps

Trap #1: Using Personal Credit Cards for Business

“I just needed to buy supplies quickly.”

The hard truth: When you swipe your card for business expenses, you’re personally responsible for that debt. 68% of new businesses use personal credit.

Trap #2: Signing Personal Guarantees

“The bank said I had to sign my name to get the loan.”

The hard truth: Almost all Canadian small business loans (92%) require personal guarantees. Last year, a Mississauga contractor lost his heavily mortgaged home because he guaranteed a $350,000 equipment loan he could not repay.

Trap #3: Mixing Money

“I don’t have time to keep everything separate.”

The hard truth: When your personal and business money flows through the same accounts, you’re asking for trouble. Almost 9 out of 10 bankruptcy cases get more complicated and expensive because of mixed finances.

protection from creditors

Four Ways Toronto Entrepreneurs Can Get Protection From Creditors

Option 1: Creditor Protection Through Business Restructuring (For Incorporated Companies)

This uses Canada’s Companies’ Creditors Arrangement Act (CCAA) or the restructuring provisions of the Bankruptcy and Insolvency Act (BIA) to:

Keep your business running while you work out new payment terms
Shield your personal stuff from business creditors

Real example: A restaurant group kept six locations open through this process last year.

Good points:

Protects your personal assets
Keeps your employees working

Not-so-good points:

CCAA only works for bigger companies ($5+ million in debt) and is court-driven and therefore very expensive.
For companies that owe less than $5 million, the restructuring provisions of the BIA are available and is a less costly process than the CCAA. Technically, nothing is stopping a debtor that qualifies under the CCAA to use the BIA instead.
Takes 6-18 months to complete

Option 2: Consumer Proposal (Perfect for Many Small Unincorporated Business Owners)

A consumer proposal can legally:

Cut up to 80% off your total debt
Let you keep your assets if completed successfully
Stop collection calls, lawsuits, and bank account seizures immediately

Real example: A Scarborough sole proprietor cut $150,000 in mixed debts down to $30,000 through a consumer proposal.

How it works:

Meet with a licensed insolvency trustee (free first meeting)
File paperwork under the BIA
Make one affordable monthly payment for up to 5 years that your unsecured creditors have agreed to either at a meeting of creditors (if required) or having agreed in advance, and therefore no meeting is necessary

Option 3: Strategic Personal Bankruptcy

Sometimes starting fresh makes the most sense, especially when:

Your business can’t be saved
You need immediate relief from overwhelming debt
You don’t own any or many assets

What Can You Keep? Ontario’s 2025 Bankruptcy Exemptions

When dealing with serious debt problems, many Toronto entrepreneurs worry they’ll lose everything. Good news – Ontario law lets you keep certain things even during bankruptcy or proposals.

Your Home

You can keep your home if: You have $10,783 or less in equity (that’s your home’s value minus what you still owe on your mortgage).

You might lose your home if: Your equity is higher than $10,783. In that case, the trustee might sell your home to pay creditors, but you’d still get the first $10,783.

What Else Can You Keep?

Household Items: Furniture, appliances, dishes, and food up to $14,180

Work Tools: Equipment you need for your job or business up to $14,450

Your Car: One vehicle worth up to $6,600

Clothes: All your necessary clothing, no dollar limit

Retirement Savings: Most RRSPs are protected (except money you put in during the 12 months before filing)

Life Insurance: Many policies are protected from creditors

For Farmers: Special protections for livestock, equipment, and tools up to $31,379

Real-World Example: I will call this woman Samira. When Samira, a Toronto web designer, filed for bankruptcy, she kept her car valued at $5,000, her computer equipment (valued at $8,000), and her condo (because her equity was only $9,000). This gave her the fresh start she needed without losing essential assets. She still had lots of secured debt, which is another issue, but she did not have to give up those assets.

Note: These exemption numbers can change yearly with regulations. Always check with a licensed insolvency trustee for the most current exemption amounts.

Option 4: Debt Consolidation (The 2025 Method)

Many Toronto entrepreneurs are now:

Working with alternative lenders to the big banks, such as credit unions
If of sufficient value, using business equipment as collateral instead of their homes

Warning: Be careful with this option. Nearly half of consolidated debts end up in default within two years.

Get Protection From Creditors Today: The One-Hour Checklist

Step 1: Separate Your Money (This Afternoon)

Open business accounts at a different bank from your personal accounts
Stop using credit cards that you cannot afford to pay off monthly for business expenses
Set up automatic transfers for your business’s “salary”

Step 2: Document Everything (This Evening)

Take photos of all business equipment
Make copies of all loan agreements
Create a list of who you owe money to (both business and personal)

Step 3: Get Help (This Week)

Contact the Ontario Business Legal Clinic for free advice
Visit Toronto’s Office of Financial Empowerment
Calculate your business debt ratio (Total Debts ÷ Total Assets)
protection from creditors

Protection From Creditors: Real Toronto Success Stories

The Tech Startup That Bounced Back

Problem: A Markham software company owed $2.3 million to creditors, both secured creditors and unsecured creditors. The founder had used his $900,000 condo as loan collateral.

Solution: Through a court-supervised restructuring, the company cut their debt by 60%. Today, they’re profitable and employ 12 people.

The Food Truck Owner Who Saved His Home

Problem: Carlos (from our opening story) had $230,000 in combined debt. The CRA was about to garnish his income.

Solution: Through a consumer proposal, he reduced his unsecured debt to $30,000 and will be paying it off over five years ($500 monthly). He can pay that along with his bank loan payments and therefore keep his home and his food truck.

Protection From Creditors: Three Things To Do Before Friday

Download our free worksheet: “Toronto Debt Relief Worksheet“. Fill out all the requested information. Warning: it asks for a lot of information because it aims to look at every important aspect of your financial situation.
Review carefully all the information you filled in: If you were honest and completed the whole worksheet, the issues you need to work on will jump right off the page at you.
Book your free consultation: If the worksheet highlights issues you don’t know what the best solution would be to fix them, contact us for a no-cost consultation.
protection from creditors

Protection From Creditors Conclusion

I hope you’ve found this protection from creditors Brandon’s Blog, helpful. There is a lot of uncertainty in business today. The time to properly plan to gain asset protection from creditors is when you begin your business. Once your business is in financial trouble, it is too late.

If you or someone you know is struggling with too much debt, remember that the financial restructuring process, while complex, offers viable solutions with the right guidance. As a licensed insolvency trustee serving the Greater Toronto Area, I help entrepreneurs understand their options and find a path forward during financial challenges.

At the Ira Smith Team, we understand the financial and emotional components of debt struggles. We’ve seen how traditional approaches often fall short in today’s economic environment, so we focus on modern debt relief options that can help you avoid bankruptcy while still achieving financial freedom.

The stress of financial challenges can be overwhelming. We take the time to understand your unique situation and develop customized strategies that address both your financial needs and emotional well-being. There’s no “one-size-fits-all” approach here—your financial solution should be as unique as the challenges you’re facing.

If any of this sounds familiar and you’re serious about finding a solution, reach out to the Ira Smith Trustee & Receiver Inc. team today for a free consultation. We’re committed to helping you or your company get back on the road to healthy, stress-free operations and recover from financial difficulties. Starting Over, Starting Now.

The information provided in this blog is intended for educational purposes only. It is not intended to constitute legal, financial, or professional advice. Readers are encouraged to seek professional advice regarding their specific situations. The content should not be relied upon as a substitute for professional guidance or consultation. The author, Ira Smith Trustee & Receiver Inc., and any contributors do not assume any liability for any loss or damage.

protection from creditors

Brandon Blog Post

DEBT MANAGEMENT PROGRAM VS. BANKRUPTCY: OUR CHEAT SHEET HELPS YOU TO CHOOSE THE RIGHT OPTION FOR YOUR FINANCIAL SITUATION

Post author By Brandon Smith
Post date March 25, 2024

Debt Management Program: Introduction

Are you drowning in credit card debt, tax debt or any other debt and feeling overwhelmed by mounting interest charges? Are you behind in some or all of your debt payments? Is there a collection agency hounding you? It’s a common struggle, especially with the recent increases in interest rates. But fear not, there are debt relief options available to help you regain control of your finances. Two popular choices are a debt management program and bankruptcy, but there are key differences to consider.

In this Brandon’s Blog post, we will explore the differences between these two options and guide you on how to choose the right one for your unique financial situation. Read on to discover the path to financial freedom.

Understanding a Debt Management Program

A debt management program offers a way to pay off high-interest credit card balances without resorting to bankruptcy. However, it’s important to note that a debt management program may not be the best solution for everyone. It is most effective when your debt amount is manageable and you have assets you want to protect.

If you find yourself in this situation, a debt management plan can help you lower your overall payment to a more affordable amount, without the need for legal filings or interventions. This means you can keep your valuable possessions, such as homes, cars, and other assets. Additionally, debt relief allows for a more gradual approach, giving you the flexibility to regain your financial footing over time.

Is a debt management program right for you?

When you find yourself overwhelmed by debt, exploring debt management program options may provide a much-needed solution. However, determining whether a debt management plan is ideal for your situation requires careful consideration.

Debt Amount Consideration

A debt management program tends to be most effective when your debt amount is manageable. While the specific threshold varies depending on individual circumstances, having a debt level that you can realistically work to pay off over time is typically more conducive to successful debt management program outcomes.

You also need to separate secured debt from unsecured debt. Secured debt is what its name sounds like. The debt is secured against one or more of your assets, such as an auto loan. If you need the asset and its value is greater than the amount of debt against it, the secured lender will not be motivated to amend the amount you owe.

No Legal Filings Required

One of the key advantages of a debt management program is that it generally does not necessitate any legal filings or interventions. This streamlines the process and makes it more accessible to individuals seeking relief from their financial burdens. By avoiding legal procedures, a debt management program can offer a more straightforward and efficient path to debt resolution.

Use of Credit and Affordability

A debt management program allows you to continue using credit while you work towards repaying your debts. This can be particularly beneficial for maintaining essential expenses and managing unexpected costs during the debt management program process. Additionally, a debt repayment program often offers an affordable and gradual approach to debt repayment, making it suitable for individuals looking to regain financial stability without experiencing overwhelming financial strain or having the negative impact on your credit score that happens with bankruptcy.

Overall, the decision to pursue a debt management program should be based on a comprehensive evaluation of your financial situation and goals. By considering factors such as the amount of debt you owe, the convenience of the process, and the affordability of the options available, you can determine whether a debt management program aligns with your needs and priorities.

Debt Management Program: Considering Bankruptcy

A bankruptcy filing, on the other hand, provides a more immediate solution for those facing crushing debt loads. It can be the right choice when you owe significant amounts of credit card debt, unsecured personal loans, or other unsecured debts that far exceed your means. The bankruptcy process offers unparalleled debt elimination, but it comes with serious trade-offs.

Your credit score may be negatively impacted for a period of seven to ten years, making it a less favourable option if you have good or marginal credit and owe only a few thousand dollars. However, if your credit is already severely impaired, filing bankruptcy may be a quicker and more efficient way to resolve your debt burdens.

Is bankruptcy right for you?

Bankruptcy is a difficult financial decision that many individuals may consider when they find themselves overwhelmed by debt and unable to manage their financial obligations. While bankruptcy is a serious process under the Bankruptcy and Insolvency Act (Canada) with long-term consequences, it can also provide a fresh start for those in dire financial circumstances.

Relief from Crushing Debt Load

One of the primary reasons individuals opt for bankruptcy is the overwhelming burden of debt they carry. When debts become unmanageable, it can lead to constant stress, sleepless nights, and strained relationships. Filing for bankruptcy can provide relief by allowing individuals to eliminate or restructure their debts to a more manageable level.

By working with a Licensed Insolvency Trustee (LIT), individuals can develop a repayment plan or proceed with liquidating assets to pay off debts. This process can help individuals regain control of their finances and start anew with a more sustainable financial future.

Solution for Badly Damaged Credit

For individuals with severely damaged credit, bankruptcy can offer a way to address their financial challenges and start rebuilding their credit history. While bankruptcy harms credit scores initially, it also provides an opportunity for a fresh start.

By discharging debts through bankruptcy, individuals can eliminate the burden of overdue payments and past defaults that have been dragging down their credit rating. With a clean slate, individuals can gradually rebuild their credit by managing new credit responsibly and demonstrating improved financial habits.

Quick Resolution and Legal Protections

Unlike other debt management program options, bankruptcy offers a relatively quick resolution to financial problems. Depending on the type of bankruptcy filed, individuals can receive a discharge of their debts within less than 1 year to a few years, depending on the circumstances. This allows them to move forward without the weight of excessive debts.

Keep in mind that your discharge of debt does not take place until you are discharged from your bankruptcy. A few kinds of debt cannot be discharged through bankruptcy, but most people get their entire debt discharged.

Additionally, bankruptcy provides legal protections against creditors, wage garnishment, and foreclosure. Once an individual files for personal bankruptcy, an automatic stay goes into effect, preventing creditors from taking collection actions such as wage garnishment or repossession of assets.

This legal protection can provide individuals with much-needed relief and breathing room to address their financial situation. The downside of bankruptcy of course is that your non-exempt assets must be turned over to the Trustee to be sold.

The only Debt Management Program Approved By The Canadian Government

There is only one debt management program approved by the Canadian Government and it is an excellent option for those with a steady income. This government-approved form of debt relief is called a consumer proposal. It is the only government-approved debt settlement plan available in Canada and is an alternative to a liquidation bankruptcy. It is not as drastic as personal bankruptcy but has most of the bankruptcy protection elements making it more potent than in a debt management program.

A consumer proposal is a legal process also under the BIA designed to help individuals settle their debts with creditors in a manageable way. It provides a structured framework for debt repayment while offering protection from creditors’ collection actions. Let’s delve deeper into the key aspects of a consumer proposal.

Legal Process to Settle Debts with Creditors

When an individual is struggling with overwhelming debt and is unable to keep up with payments, a consumer proposal can be a viable solution. This process involves working with a LIT to create a formal proposal to creditors outlining a revised payment plan. The proposal typically includes an offer to repay a portion of the total debt over a set period, based on the individual’s financial situation.

Once the consumer proposal is submitted to the creditors, they have the opportunity to review and vote on the proposal. If the majority of creditors accept the terms of the proposal, it becomes a legally binding agreement, and the individual is bound to fulfill the revised payment plan.

Allows Debtor to Make a Formal Proposal to Creditors

One of the key benefits of a consumer proposal is that it allows debtors to take an active role in addressing their financial difficulties. Instead of facing aggressive collection actions from creditors or considering bankruptcy as the only option, individuals can work with a LIT to craft a proposal that is fair and feasible for both parties.

By making a formal proposal to creditors through a consumer proposal, debtors have the opportunity to demonstrate their commitment to repaying their debts in a structured manner. This not only helps in resolving financial issues but also allows individuals to regain a sense of control over their financial future.

Provides Protection from Creditors’ Collection Actions

Like bankruptcy, one of the significant advantages of opting for a consumer proposal is the protection it offers from creditors’ collection actions. Once the proposal is filed, an automatic stay of proceedings is initiated, which prevents creditors from pursuing legal actions, such as wage garnishments or asset seizures, against the debtor.

This protection provides individuals with relief from the constant stress and pressure of dealing with aggressive collection attempts. It allows them to focus on adhering to the terms of the consumer proposal and working towards becoming debt-free without the fear of immediate consequences from creditors.

In conclusion, a consumer proposal is a valuable tool for individuals facing overwhelming debt and seeking a structured way to settle their obligations with creditors. By understanding the legal process, the opportunity it provides to make a formal proposal, and the protection it offers from debt collectors’ collection efforts and legal actions, individuals can make informed decisions to improve their financial situation and work towards a debt-free future.

Meeting with a nonprofit credit counsellor to assess your financial situation

Consider credit counseling sessions with a certified nonprofit credit counsellor for expert recommendations. If you’re unsure about the best course of action to take regarding your debt, seeking advice from a certified nonprofit credit counselor can provide invaluable insights. These professionals working at a nonprofit credit counseling agency can assess your financial situation, provide personalized recommendations, and guide you toward effective debt management strategies.

WARNING: Stay away from for-profit debt settlement companies. A nonprofit credit counselor or a bankruptcy trustee can provide you with the same advice at no charge.

Choose between a debt management program or bankruptcy based on your specific circumstances

When deciding between a debt management program and bankruptcy, several factors should be taken into account. First, carefully assess your full financial situation and long-term goals. Consider the amount of debt you owe, your ability to make payments, and the impact on your credit score.

If you have assets you want to protect and prefer a more affordable and gradual approach, a debt management program might be the better option. On the other hand, if you are facing wage garnishment, or foreclosure, or need a quicker resolution, bankruptcy may be the right debt solution choice for you.

A consumer proposal or bankruptcy can be a viable option for individuals facing insurmountable debt, damaged credit, and the threat of financial instability. While it is a significant decision with long-lasting consequences, bankruptcy offers a path to financial relief, a fresh start, and legal protections against creditor actions.

It is essential for individuals considering bankruptcy to seek the advice of a financial advisor or bankruptcy professional to fully understand their options and make an informed decision about their financial future.

Debt Management Program: The bottom line

When it comes to managing debt, making informed decisions is crucial. Here are some key takeaways to help you navigate this challenging situation:

Carefully assess your financial situation and long-term goals.
Before taking any steps toward resolving your debt problems, it’s essential to have a clear understanding of the current financial position of your assets and all your outstanding debts.
Take stock of your monthly income and living expenses, so that you can create an accurate monthly budget to see where your money is being spent. Don’t forget to deduct from your monthly income your actual income taxes deducted from your monthly pay.

Debt Management Program: Conclusion

Assess your finances and goals, seek advice from a nonprofit credit counselor, and decide between a debt management program, consumer proposal or bankruptcy based on your specific circumstances. You can also have a no-cost consultation with a LIT to get personalized advice and find out how a consumer proposal or bankruptcy would work in your specific situation.

Dealing with overwhelming debt is no easy task, but there is hope. By understanding the differences between a debt management program, consumer proposal and bankruptcy, you can choose the right option for your financial situation. A debt management program offers a manageable and gradual approach, protecting your assets while you work towards becoming debt-free.

Bankruptcy, on the other hand, provides a quicker resolution and is best suited for those with significant debt loads and impaired credit. Remember to carefully evaluate your circumstances and consult with an expert if needed. With the right choice and determination, you can pave the way to a brighter financial future. Don’t let debt hold you back any longer – take control today and improve your financial health and your life.

I hope you enjoyed this debt management program Brandon’s Blog. Individuals and business owners must take proactive measures to address financial difficulties, consumer debt and company debt and promptly seek assistance when necessary. It is crucial to recognize that financial stress is a prevalent concern and seeking help is a demonstration of fortitude, rather than vulnerability. Should you encounter challenges in managing your finances and find yourself burdened by stress, do not delay in pursuing aid.

Revenue and cash flow shortages are critical issues facing people, entrepreneurs and their companies and businesses with debt problems that are in financial distress. Are you now worried about just how you or your business are going to survive? Are you worried about what your fiduciary obligations are and not sure if the decisions you are about to make are the correct ones to avoid personal liability? Those concerns and more associated with your company debt are obviously on your mind.

The Ira Smith Team understands these financial health concerns. More significantly, we know the requirements of the business owner or the individual who 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 and it does not mean that you are a bad person. 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 uses innovative and cutting-edge methodologies, to adeptly navigate you through the intricacies of your financial challenges ensuring a resolution to your debt-related predicaments without resorting to the rigours of the bankruptcy process. We can get you debt relief now! We have helped many entrepreneurs and their insolvent companies who thought that consulting with a Trustee and receiver meant their company would go bankrupt. On the contrary. We helped turn their companies around through financial restructuring.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.

The Ira Smith Trustee & Receiver Inc. team understands 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, to begin your debt-free life, Starting Over, Starting Now.

Tags Bankruptcy, collection agency, credit card, credit card debt, credit score, debt collectors, debt management program, debt relief options, debt settlement, debt settlement plan, debt solution, financial difficulties, monthly budget, nonprofit credit counseling agency, nonprofit credit counselor, protection from creditors, tax debt, unsecured debt, wage garnishments

Brandon Blog Post

CAN A COMPLETED CONSUMER DEBT PROPOSAL BE ANNULLED? A COMPREHENSIVE GUIDE TO UNDERSTANDING COURT AUTHORITY

Post author By Brandon Smith
Post date February 26, 2024

Consumer Debt Proposal: Introduction

Welcome to Brandon’s Blog post where we will delve into the intriguing world of the consumer debt proposal and the legal framework surrounding them. Today, we will first look at what a consumer debt proposal is, why it is one of the most popular debt solutions to avoid personal bankruptcy and how to go about making one.

Then, we will take a close look at the case of Kamaljit Singh, shedding light on the authority and discretion of the courts when it comes to annulling a completed consumer proposal. Join us as we navigate the complexities of this case and gain a deeper understanding of the legal processes involved.

Consumer Debt Proposal: A Step-by-Step Guide to Financial Freedom

Dealing with debt can be overwhelming and stressful. However, there are solutions available to help manage and alleviate this burden. One such debt relief option is a consumer debt proposal, a formal agreement between you and your creditors to settle your debts for less than what you owe.

Here’s a step-by-step guide to creating a consumer debt proposal and taking control of your finances:

Assess Your Debt Situation:

Before creating a consumer debt proposal, it’s important to make a proper debt assessment. Calculate the total amount of debt you owe, including credit cards, loans, and other outstanding balances. Understanding the full scope of your debt will help you determine a realistic proposal that you can afford to pay. Any insolvent person who owes $250,000 or less (not including any debts secured by a charge on the personal residence) is eligible to make a consumer debt proposal to his or her creditors.

All types of debt qualify for this alternative to filing bankruptcy. Consumer debt, including income tax debts and if you are either a sole proprietor or partner in a business, business debts qualify for debt forgiveness.

Seek Professional Financial Advice:

Consult with a Licensed Insolvency Trustee or a non-profit credit counselling agency to discuss your options for managing your debt. They can provide valuable insights and guidance on creating a consumer debt proposal and negotiating with your creditors.

Create a Budget:

Develop a realistic budget that outlines your monthly income, expenses, and debt payments. This will help you determine how much you can afford to offer your creditors in a consumer debt proposal. Be honest and transparent about your financial situation to ensure the proposal is manageable for you.

Formalize the Consumer Debt Proposal Agreement With A Licensed Insolvency Trustee:

After the no-cost consultation, contact the Licensed Insolvency Trustee who will act as the Administrator in your consumer debt proposal. Provide the Licensed Insolvency Trustee with your list of assets, liabilities, income and expenses including the budget you prepared. The Licensed Insolvency Trustee will take this information and prepare all necessary filing documents, including, the consumer proposal. That is the formal legal agreement you the LIT will present to your creditors on your behalf to vote on.

Once you and your creditors have agreed on a consumer proposal, the Licensed Insolvency Trustee will obtain (deemed) court approval. The consumer proposal is a legally binding process after creditor acceptance and court approval. It outlines the terms of the proposal, including the total amount to be paid and payment terms, being regular monthly payments to your consumer proposal Administrator. It contains the repayment schedule and any other conditions agreed upon. Make sure to review this document carefully before signing it to begin your debt settlement program.

If both spouses are insolvent and the majority of the debts for each are the same, such as when one has co-signed for the other, then it is possible to eliminate these unsecured joint debts through a joint consumer proposal.

Negotiate the Consumer Debt Proposal with Creditors:

Once filed, the Licensed Insolvency Trustee will contact your creditors to advise of the consumer proposal. At this point, you have protection from creditors. All collection efforts, collection action and any legal action against you, including wage garnishment, must stop. The Administrator’s report will explain your financial hardship and offer a realistic monthly payment plan that you can afford.

If required, a meeting of creditors will be held where the Licensed Insolvency Trustee as Administrator will advise you on how to negotiate with creditors to reach a mutually beneficial agreement that will help you eliminate your debt in full by only paying a portion of it, while also satisfying creditor concerns.

The fee of the Administrator is paid out of the total amount to be paid in the consumer debt proposal. It is a Government tariff that the Licensed Insolvency Trustee is allowed to take out of your consumer proposal payments. Therefore, there is no additional cost to the insolvent debtor for professional fees of the Licensed Insolvency Trustee.

Although every situation is different, and there are no guarantees, a consumer proposal that offers to pay about 25% of the total outstanding unsecured debts, is the going rate for consumer proposals to be accepted by the unsecured creditors. This is what sophisticated unsecured creditors like chartered banks expect to see for them to vote for acceptance.

Adhere to the Consumer Debt Proposal Payment Plan:

A consumer debt proposal is a legally binding agreement. Stick to the consumer proposal terms of the repayment schedule outlined in the consumer proposal. Make timely monthly consumer proposal payments to your Administrator over the period of time called for (no greater than a maximum term time period of 60 months) to honour the agreement and gradually eliminate your outstanding debt. Stay committed to your financial goals and prioritize debt repayment to achieve financial freedom.

If you are lucky enough to have a family member willing to lend you the total amount of your consumer proposal, this enhances the chances of a successful consumer debt proposal. It is an effective tool as creditors always look kindly on an immediate lump-sum payment, rather than having to wait up to 5 years to see their reduced amount of money.

Monitor Your Progress:

Track your progress and monitor your debt repayment journey as you make your payments on time. Celebrate each milestone as you eliminate your unsecured debts and work towards financial stability. Examples of unsecured debts that are eligible debts to be eliminated in a consumer proposal are:

unsecured lines of credit;
credit card debt;
personal loans;
vehicle loans;
personal income taxes; and
other unsecured loans;

Stay motivated and focused on your financial goals to successfully manage your consumer debt.

By following these steps and creating a consumer debt proposal, you can take control of your finances and work towards a debt-free future. Remember, seeking professional guidance and staying committed to your repayment plan are key components of a successful debt management strategy.

Can A Consumer debt proposal Be Annulled? Exploring the Case of Kamaljit Singh

In the matter of the consumer proposal of Kamaljit Singh, an important question arises: Does the court have the authority under the Bankruptcy and Insolvency Act Canada (BIA) to annul a consumer proposal that has been approved by creditors and fully performed by the consumer debtor, even after the administrator has been discharged? This question, along with the subsequent determination of whether the court should exercise its discretion to grant the requested annulment, forms the crux of the case.

The first issue at hand is the authority of the court to annul a completed consumer debt proposal. According to subsection 66.3(1) of the BIA, the court does indeed possess the statutory authority to annul a fully completed consumer proposal. This crucial section allows for the annulment of a consumer proposal in cases of:

default
ineligibility of the debtor
injustice
undue delay or
if the court approval was obtained by fraud.

By analyzing this section in the context of the case of Kamaljit Singh, we gain insights into the court’s decision-making process.

Furthermore, it is essential to explore the factors that the court considers when exercising its discretion to annul a consumer debt proposal. In the case of Kamaljit Singh, several factors played a role in the court’s decision.

The knowledge of the debtor and their obligation to disclose potential claims, the creditor’s knowledge of all factors in considering the consumer proposal, the eligibility of the consumer debtor to file a consumer proposal, the amount and nature of the debt, the timing of the application, the interests of the debtor and creditors, and the integrity and public confidence in the bankruptcy system all weighed heavily in the court’s deliberations.

Background – Consumer Debt Proposal Proceeding

Mr. Singh’s statement of affairs dated September 16, 2019, listed unsecured liabilities totalling $81,555, and a contingent amount of $60,000 for the Canada Revenue Agency (CRA). An unsecured creditor, Mr. Nagra, claimed that $ 94,027.98 was owed to him under a judgment as of the date the consumer proposal was filed.

Mr. Singh states that he was not aware of the existence of the default judgment when he had discussions with the licensed insolvency trustee acting as the consumer debt proposal Administrator before filing his consumer proposal, or at the meeting of creditors. The Administrator’s report dated September 18, 2019, refers to an estimated total amount of claims of $81,555. The report also indicates that Mr. Singh’s interest in his matrimonial home was between $30,222 and $75,222 and that Mr. Singh was unable to sell or refinance the property at that time.

The minutes from the creditors meeting held on December 11, 2019 show that there was a total of $136,833.54 in voted claims, which included $75,596.40 for CRA. CRA was the sole creditor that voted in favour of the consumer proposal. The other six proven creditors voted against the consumer proposal. The Dividend Sheet prepared by the Administrator, with a declaration date of March 9, 2023, shows:

$162,326.40 in proven claims; and
$35,373.23 in dividends being paid to the creditors.

Based on a comparison of the statement of affairs and Dividend Sheet, the change from claims totaling $81,555 to $162,326.40 was due to:

CRA having proven a claim of $73,770.60; and

the proven claims of the remaining nine creditors being in aggregate, $7,000.80 higher than the amounts listed in the statement of affairs.

Consumer Debt Proposal: Factors to Consider When Exercising Discretion under Subsection 66.3(1)

The authority to annul a proposal is discretionary. In exercising such discretion, the Court should take into account the interests of the debtor and his or her creditors and balance their interests while maintaining the integrity and confidence of the public. Based on the Court’s review of applicable cases, the Court concluded that the following factors must be taken into consideration:

knowledge of the debtor;
the creditors’ knowledge of the consumer debt proposal;
eligibility of the consumer debtor to file a consumer proposal;
amount and nature of the debt;
timing of the application;
the interest of the debtor and creditors; and
the integrity and public confidence in the BIA and the process of consumer proposals.

Test for Annulment of a Consumer Debt Proposal

The test for the annulment of a consumer proposal is set out in subsection 66.3(1), which provides that:

Where default is made in the performance of any provision in a consumer proposal, or where it appears to the court:

(a) that the debtor was not eligible to make a consumer proposal when the consumer proposal was filed,

(b) that the consumer proposal cannot continue without injustice or undue delay, or

the court may, on application, with such notice as the court may direct to the consumer debtor and, if applicable, to the administrator and the creditors, annul the consumer debt proposal.

Subsection 66.3(1) does not contain language that restricts the timing when such an application for an annulment of a consumer proposal may be made.

This differs from the language of subsection 66.3(3), which provides that a consumer proposal may be annulled after it is“accepted or approved” where the consumer debtor is afterwards convicted of any offence under the BIA.

Consumer Debt Proposal: Knowledge of the Debtor

Mr. Singh was personally served with the statement of claim. He did not take any steps to defend that claim. Mr. Singh states that even if he had been aware of the existence of the default judgment and the writ, he would not have disclosed them to the Administrator because he did not believe that he owed any amount to Mr. Nagra given the payments he and his mother had made to him.

While Mr. Singh may not have had actual knowledge of the default judgment and the registration of the writ at the time he initially met with the Administrator, he was required under the BIA to provide them with information on his financial situation. It was his obligation to inform the Administrator of any potential claims against him, even those he may dispute. The BIA consumer debt proposal process must have at its foundation that all properly secured debts and unsecured debts and liabilities will be disclosed by debtors seeking the protection of the Act.

It was open to Mr. Singh to take the position with the Administrator that Mr. Nagra’s claim should be listed as a contingent amount. This was how the claim of CRA was treated in the statement of affairs. Mr. Singh suggests that he relied on the Administrator to have performed due diligence in connection with filing his consumer proposal and that they did not discover the existence of the default judgment or the writ.

The Administrator is required to investigate or cause to be investigated, the consumer debtor’s property and financial affairs to be able to assess with reasonable accuracy the consumer debtor’s financial situation and the cause of his insolvency. Whatever the steps taken by the Administrator to investigate Mr. Singh’s affairs are, it did not absolve Mr. Singh from the requirement to notify the Administrator of the fact that he had been served with a statement of claim in the previous six months.

Therefore the Court’s view of the knowledge of the debtor that a claim was being pursued by Mr. Nagra, and his failure to disclose this to the Administrator at any time during the consumer debt proposal proceeding, weighs in favour of annulling the consumer proposal.

Consumer Debt Proposal: Knowledge of the Creditor

Mr. Nagra stated that he first learned about the consumer proposal proceeding on June 9, 2023, based on correspondence received by his counsel from counsel to Mr. Singh. He says that had he been notified of the consumer proposal, he would have participated in the process and opposed the proposal. Mr. Singh claims that Mr. Nagra had been aware of the consumer debt proposal since 2019, but he provided no evidence in support of this statement.

Based on the evidence, the Court accepted Mr. Nagra’s evidence that he did not become aware of the consumer proposal until June 9, 2023, which was after the consumer proposal had been completed and the Administrator had been discharged.

Eligibility to File a Consumer Debt Proposal

At the time of the completion of the consumer debt proposal, there was $162,326.40 in proven claims, which, together with his claim of $94,027.98, exceeds the $250,000 consumer proposal threshold. Mr. Singh contests the amount he is said to owe to Mr. Nagra. However, Mr. Nagra has a judgment against Mr. Singh, and that judgment had not been set aside.

An Administrator cannot file a consumer proposal if he or she has reason to believe that the consumer debtor is not eligible to make a consumer proposal. As of September 16, 2019, if Mr.Nagra’s claim of $94,027.98 had been added to the $81,555 listed in the statement of affairs, along with the $60,000 contingent amount for the CRA, the total amount of claims would have been $235,582.98.

By the December 11, 2019 creditors meeting, CRA had a proven claim of $75,596.40, so the total amount of claims would have increased to $251,179.38. As a result, Mr. Singh would no longer have been eligible to complete a consumer debt proposal by the time of the creditors meeting if Mr. Nagra’s judgment was known to the Administrator.

A consumer proposal is not invalid by reason only that the debtor was not eligible to make the consumer proposal. If an Administrator determines, after the filing of a consumer proposal, that it should not have been filed because the consumer debtor was not eligible to make a consumer proposal, all that is required of the Administrator is that he or she shall forthwith inform the creditors of this fact. It is on the creditors to commence an application to annul the consumer proposal.

Consumer Debt Proposal: Amount and Nature of the Debt

While the amount is disputed by Mr. Singh, Mr. Nagra has a judgment for $94,027.98. That represents approximately 36.68% of the total claims proven against Mr. Singh. It is a significant claim. The nature of the claim must also be taken into account. As acknowledged by Mr. Nagra in his materials, as he is Mr.Singh’s father-in-law, they are connected by marriage and he and Mr. Singh are deemed to be related persons under the BIA.

Subsection 66.19(2) provides that a creditor who is related to the consumer debtor may vote against but not for the acceptance of the consumer debt proposal. Based on what happened at the meeting of creditors, where $75,596.40 of claims voted in favour of the consumer proposal, and $61,237.14 voted against it, had Mr.Nagra been able to file a proof of claim in an amount over $14,400 and voted against the consumer proposal, it would have failed.

Consumer Debt Proposal: Timing of the Application to Annul

There is no issue with the timing of Mr. Nagra’s motion to annul the consumer debt proposal. He learned of it on June 9, 2023, and submitted a request to the BankruptcyCourt Office to schedule the motion on July 13, 2023.

Consumer Debt Proposal: The Interest of the Debtor and the Creditors

As noted above, Mr. Singh’s proven creditors received $35,373.23 in dividends on account of $162,326.40 in claims. This amounts to a recovery of 21.79 cents on the dollar. If the proposal is annulled, these creditors, along with Mr. Nagra, will be permitted to take steps to recover additional amounts, which would include the $103,631.63 from the sale of the matrimonial home. Unsurprisingly, it would be to Mr. Singh’s detriment if the consumer debt proposal is annulled, since his creditors’ claims would be revived, and they could take steps to recover the $ 103,631.63 that he currently is entitled to keep.

The Court decided that, in balancing the interests between Mr. Singh and his creditors, it weighed in favour of the creditors to annul the proposal. If the consumer proposal is not annulled, Mr. Singh will be permitted to only pay $35,373.23 in dividends to his creditors and keep $103,631.63, because he did not inform the Administrator of the existence of Mr. Nagra’s claim. The Court believed that this would be an unfair result, and negatively impact the integrity of the consumer proposal process under the BIA.

Integrity and public confidence in the BIA and the process of a consumer debt proposal

Mr. Singh argued that the public confidence in the BIA and the process of a consumer debt proposal would be lost if “innocent debtors” like him could have their consumer proposals annulled. The Court felt that Mr. Singh was not “innocent” and that the integrity of the system would be undermined if a debtor was permitted to benefit from not disclosing a potential claim to his or her Administrator at the commencement of the process.

This is especially so in this case because, if the debt to Mr. Nagra was disclosed, it could have a material impact on whether a consumer proposal would be accepted by creditors. The system requires that creditors have confidence that they will be provided with proper notice of a consumer proposal and have the ability to elect to participate in the process if they so choose.

The Court’s Disposition of this Consumer Debt Proposal Matter

The Court has the discretion to annul a consumer debt proposal under subsection 66.3(1), even where the consumer proposal was fully completed. Having considered all of the circumstances and factors listed above, Mr. Nagra satisfied the Court that his motion fits under subsection 66.3(1)(a) and that this is an appropriate case in which to exercise the Court’s discretion.

Therefore, the Court annulled Mr. Singh’s consumer proposal even though he completed it and the Administrator was discharged.

Consumer Debt Proposal: Closing Remarks

The case of Kamaljit Singh serves as a fascinating example of the authority and discretion of the courts in annulling a completed consumer proposal. By carefully considering the factors and legal principles at play, the Court ultimately decided to grant the requested annulment. This decision highlights the importance of transparency, disclosure, and fairness within the consumer debt proposal process.

As individuals navigating the complex world of personal finances, it is crucial to be aware of the legal framework surrounding consumer proposals. Understanding the authority and discretion of the courts empowers us to make informed financial decisions and ensures the integrity of the bankruptcy system.

I hope that this closer look at the case of Kamaljit Singh’s consumer proposal has shed light on the intricacies of consumer proposals and the role of the courts. As always, it is essential to consult with professionals for personalized advice regarding your specific financial circumstances.

Individuals and business owners must take proactive measures to address financial difficulties, consumer debt and company debt and promptly seek assistance when necessary. It is crucial to recognize that financial stress is a prevalent concern and seeking help is a demonstration of fortitude, rather than vulnerability. Should you encounter challenges in managing your finances and find yourself burdened by stress, do not delay in pursuing aid.

It is not your fault you can’t fix this problem on your own and it does not mean that you are a bad person. 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 uses innovative and cutting-edge methodologies, to adeptly navigate you through the intricacies of your financial challenges, ensuring a resolution to your debt-related predicaments without resorting to the rigours of the bankruptcy process. We can get you debt relief now!

We have helped many entrepreneurs and their insolvent companies who thought that consulting with a Trustee and receiver meant their company would go bankrupt. On the contrary. We helped turn their companies around through financial restructuring.

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.

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, to begin your debt-free life, Starting Over, Starting Now.

Brandon Blog Post

CCAA PROTECTION FAQ: 10 EASY THINGS YOU MUST KNOW TO BE FINANCIAL RESTRUCTURING SAVVY

Post author By Brandon Smith
Post date October 24, 2022

What is CCAA protection?

The Companies’ Creditors Arrangement Act (CCAA) allows insolvent companies owing creditors $5 million or more to seek CCAA protection. This can help them restructure their business and settle their debts over time. The CCAA gives such companies the ability to restructure their business affairs and financial obligations. In Canada, the CCAA operates under the authority of the federal government and is administered by the courts of each province.

If a debtor company owes less than $5 million, it can restructure under Part III Division I of the Bankruptcy and Insolvency Act (Canada). This federal insolvency statute has streamlined procedures for handling insolvency restructuring cases. There’s no prohibition against using this statute if the company owes $5 million or more. Those larger companies just have a choice as to which statute to restructure under. This kind of restructuring is done in order to avoid liquidation through the filing of an Assignment in Bankruptcy. By successfully restructuring, the company can avoid job losses, claims by employees and the other negative effects of bankruptcy.

In this Brandon’s Blog post, I’ll be discussing CCAA protection for companies needing to go through a financial restructuring by making the Initial Application to the court. I’ll also be talking about a recent court decision that will be of interest to companies needing to restructure when their bank is demanding that all loans be repaid and they are trying to enforce their security.

Is CCAA protection the same thing as chapter 11?

Bankruptcy protection is a term closely associated with a US company filing under Chapter 11 of the US Bankruptcy Code. In Canada, it most likely means that the Canadian company has applied to a Canadian court to make its application for CCAA protection under the CCAA.

What is CCAA protection in Canada and “The Stay”?

Creditor protection under the CCAA is a process that provides companies with some relief from their creditors. This process can help them to reorganize their affairs and continue operations.

CCAA protection can provide some much-needed breathing room for companies that are struggling to stay afloat. It can give them time to restructure their affairs and come up with a plan to repay their creditors. A debtor company files its application for creditor protection in order to obtain an Initial Stay from the court. This will allow the company to begin restructuring its financial affairs.

While the CCAA protection order is in place, creditors are not allowed to take any action to recover money owed to them. They can’t try to seize the company’s property or petition the court for its bankruptcy, without the prior approval of the court. This is called the CCAA protection “stay of proceedings”.

A CCAA Canada filing is typically made when a business is insolvent and seeking to restructure its debts. The goal of the business in CCAA protection is to reach a satisfactory agreement with its creditors, which can include both secured and unsecured creditors. I will talk more about the support of secured creditors when I discuss the court case below.

Comeback hearing: Can CCAA Canada protection be extended?

Yes. Initial Order applications are often submitted on an urgent basis with prior notice only to key stakeholders such as senior lenders. Initial orders usually contain a “comeback” clause allowing stakeholders who did not receive initial notice an opportunity to attempt to change the terms of the CCAA protection order. Under the CCAA, Section 11.02(1) states that the Initial Order cannot be effective for more than 10 days.

The Canadian court system requires that there must be a “comeback hearing,” where interested parties can challenge aspects of the initial order, or even request additional relief before the order is extended. This means that the comeback hearing must be scheduled for within those 10 days. This ensures that the process moves forward promptly while protecting the interests of those involved. At the comeback hearing, the court will then assess the evidence before making a decision on whether or not to extend CCAA protection. If the court decides to extend protection, it will only do so for a limited amount of time.

The amount of time given will be at the discretion of the court and is definitely not open-ended. The company and its Monitor will be required to provide regular reports to the court detailing this progress.

The court will determine the next reporting period based on the information provided, which will allow the debtor company to continue its restructuring. The court may also be asked to make other orders, such as borrowing authority for financing the debtor company’s operations.

CCAA protection: What is the role of the Monitor?

The Monitor is the Licensed Insolvency Trustee (LIT) appointed by the court to monitor the business and financial affairs of the debtor company in a CCAA proceeding. The LIT’s role is to ensure compliance with the law, court order(s), and terms of the debtor company restructuring plan.

The Court-appointed Monitor is responsible for assisting with the preparation of the restructuring plan, formally known as the Plan of Arrangement and sometimes referred to as a Plan of Compromise. Monitors act as financial advisors to the insolvent company and they also advise creditors on the claims process and oversee voting at each meeting of creditors.

A Monitor must submit regular reports to the court summarizing the debtor company’s activities and the progress of the case. This includes the claims process when they get to that point in the administration.

These reports are published online and are accessible to creditors and interested parties. One of the ongoing responsibilities of the Monitor in its reporting is to advise if, in the Monitor’s opinion, the debtor company under CCAA protection is continuing to act in good faith and carrying out its restructuring on a timely basis.

CCAA protection: The Plan of Arrangement or Compromise

The company usually begins talking with its creditors and investors right away after the initial order is made. To do this, it may end or give away unwanted and especially unprofitable contracts, fire employees, sell property, negotiate new credit terms, change its corporate structure, and take other restructuring steps to ensure the viability and profitability of the company.

The court will ultimately be asked to approve all major actions in order to allow the company to move towards a viable Plan of Arrangement it believes will garner the support of the necessary majority of creditors.

The Plan of Arrangement or Compromise is the proposal presented by a company to its creditors detailing how it intends to resolve the issues it is facing and how the amounts owed to creditors will be compromised, An arrangement is a broader term that encompasses any plan for reorganizing. The distinction between “compromise” and “arrangement” is in practice, immaterial.

Different creditors are often treated differently based on terms of priority. This affects the order and amount they will be paid under the restructuring plan.

The first step in a CCAA restructuring will be to prioritize any government claims that are considered trust claims. Next will be any new charges ordered by the court as part of the restructuring. Examples of such court-ordered charges are amounts owing under a Key Employee Retention Plan and the lender financing the company during the restructuring phase.

The pre-filing secured creditors are typically at the forefront next when it comes to recovering their funds. They may have security in the form of a general security agreement or mortgage.

Unsecured creditors are next in line for payment. These creditors have provided goods or services to the company on credit, without receiving any security in return. In retail insolvencies, the company under creditor protection has to decide as part of its business plan if it is going to treat customers who have paid deposits for items they have not yet picked up as unsecured creditors or if they will complete the sale providing value for the prior deposits.

Such differing priorities will influence how the Plan of Arrangement or Compromise is constructed.

CCAA protection and the financial statements of the debtor

When a company seeks CCAA protection from the court, they are required to submit a projected cash flow statement. This document projects the company’s expected revenue and expenses from ongoing business operations and any required financing over the next 12 months and is used to assess whether or not it can fund day-to-day operations and survive during the CCAA protection proceedings.

Furthermore, the company must provide copies of all financial statements issued during the one-year period prior to the date of the Initial Application. If none were issued during this time period, it should provide a copy of the most recent financial statement.

CCAA protection: Creditor approval of the Plan of Arrangement or Compromise

A company can establish separate classes of creditors to increase the chances of a favourable vote for the Plan of Compromise or Plan of Arrangement. There must be some form of shared characteristic or similarity amongst the creditors in each class in order to qualify for each such classification.

In addition to the simple majority test, the creditors in each class who are voting must vote in favour of it by at least 2/3 of the total value of the creditors voting in each class.

CCAA protection and court approval of the Plan of Arrangement or Compromise

The court may approve the Plan once they have been approved by each participating class of creditors. The Plan will include all negotiated compromises and arrangements that deal with any matter, including claims against directors and amendments to the articles of incorporation or letters patent incorporating the company,

A Plan cannot be approved by the court if a provision is not made for settling “super-priority” claims relating to:

compensation and reimbursement claims by employees other than officers and directors;
pension plan contributions (except where an agreement has been reached with the relevant pension regulator); and
unremitted employee source deductions from employee paycheques for taxes and other deductions.

Additionally, any equity claims cannot be authorized by the court through a compromise or arrangement until all other claims have been paid in full.

CCAA protection: You can access CCAA filing records and court documents through 2 sources

There are two ways to find CCAA filing records and court documents. The easiest way is to go to the Monitor’s website specifically set up for the CCAA case. All documents filed by the Monitor in court and all court orders will be there. The second source is the court file itself.

This leads us to the actual court case I mentioned at the very beginning of this CCAA protection blog post. It is a decision dated October 14, 2022, by the Honourable Justice MacDonald of the Supreme Court of Newfoundland and Labrador in Bankruptcy and Insolvency. The case is Edward Collins Contracting Limited (Re), 2022 NLSC 149.

It is an application by a group of companies in the construction industry seeking an Initial CCAA protection Order for the debtor company. The case is notable for one factor: the companies’ main secured creditor, the Royal Bank of Canada, is opposing the application.

The companies were operating under a forbearance agreement. However, Royal Bank claims that they were in breach of their forbearance agreement and that the Bank should be allowed to have a Court-appointed Receiver. Although they did not provide any evidence in their material, in argument, the Bank claimed the companies were not acting in good faith.

The court ruled that if the companies’ application for CCAA protection is approved, then the Royal Bank of Canada’s application for a Court-appointed receiver is moot.

The court’s entire decision and His Honour’s thought process in considering all issues can be located online. Of specific relevance to me is His Honour’s thought process and careful consideration of all the points he must consider in deciding whether or not to grant the requested relief of CCAA protection.

The court considered the following:

Do the companies have proper standing under the CCAA?
Have the companies satisfied the test to allow the granting of grant an Initial Order?
If so, should the company’s conduct during the prior Consent Stay period cause it to refuse the Initial Order?

The court found that the CCAA applies to the debtor company and the affiliated debtor companies as they are all insolvent corporations or have committed an act of bankruptcy and owed their creditors in excess of $5 million. The court also found that the companies were entitled to CCAA protection from creditors and even the Royal Bank of Canada notwithstanding its opposition to the Initial Application and the granting of the Initial Order. The Initial Order was made.

You can read His Honour’s lengthy analysis if you wish, as it is very detailed and provides a great deal of insight.

You Owe Money—The CCAA protection

I hope you enjoyed this Brandon’s Blog on CCAA protection.

Revenue and cash flow shortages are critical issues facing entrepreneurs and their companies and businesses. Are you now worried about just how you or your business are going to survive? Those concerns are obviously on your mind. Coming out of the pandemic, we are now worried about its economic effects of inflation and a potential recession.

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.

Brandon Blog Post

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

Post author By Brandon Smith
Post date June 14, 2021

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The Inspectors will:

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

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

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

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

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

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

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

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

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

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

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

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. Our professional advice will create for you a personalized debt-free plan for you or your company during our no-cost initial consultation.

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

We understand that people 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 to become debt-free, contact the Ira Smith Trustee & Receiver Inc. group today.

Call us now for a no-cost consultation.

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

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

Companies’ Creditors Arrangement Act

Tags Bankruptcy Protection Legislation, bankruptcy protection process, benefit pension plan, benefit plan, bespoke process, Claims Process Order, Companies’ Creditors Arrangement Act, compensation claims, creditor protection, D&O claims, D&O claims bar date, day operations, Decisions about Laurentian University being made by creditors, Facing insolvency Laurentian University files for creditor protection, FAQ on the Companies' Creditors Arrangement Act Insolvency Proceedings of Laurentian University, Federated University, Federated University model, Federation Agreement, graduate students, Huntington University, insolvency process, Ira Smith Trustee, Laurentian, Laurentian President, Laurentian University, list of creditors, Northern Ontario's, ourt-supervised restructuring, oversight of university, pre-filing claims bar date, Pre-filing Lenders, protection from creditors, provincial government, restructuring claims, restructuring claims bar date, restructuring process, university finances, unsecured creditors, what does ccaa mean

Brandon Blog Post

LAURENTIAN UNIVERSITY FACING INSOLVENCY MAKES STARTLING CCAA NEWS FILING FOR CREDITOR PROTECTION

Post author By Brandon Smith
Post date February 8, 2021

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.

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

UPDATE MAY 5, 2021: SEE OUR UPDATED BLOG PUBLISHED TODAY ON THE LAURENTIAN UNIVERSITY INSOLVENCY CREDITOR PROTECTION PROCEEDINGS STATUS – CLICK HERE FOR THE UPDATE

Laurentian University introduction

Laurentian University is facing a cash crisis and has filed for creditor protection. The Ontario university states that the application under the federal Companies’ Creditors Arrangement Act (CCAA) is intended to permit the university to continue running day-to-day operations during restructuring.

The Sudbury, Ontario school is not shutting down and will continue to provide services for students. It states it will keep normal operations and keep classes running. In this Brandon Blog, I talk about what creditor protection in the Canadian context is and why Laurentian University did so.

***Laurentian University: What is creditor protection***?

In its simplest terms, creditor protection is the protection you get when you start a proceeding with a filing under either the Bankruptcy and Insolvency Act (Canada) (BIA) or the CCAA. Under the BIA, an individual or company gets that protection in either a consumer or corporate bankruptcy. This safeguard is also obtained by filing under the restructuring proposal provisions of the BIA. A company safeguards itself when it files for restructuring under the CCAA.

Once a filing is done, without getting special permission from the court, none of your creditors can start or continue legal action against the person or the company for the repayment of a debt or for any enforcement action against its assets.

Laurentian University, therefore, received its sheltering once it made its filing under the CCAA. When using this statute, it can also be called CCAA protection.

Below is the section titled “How the Laurentian University restructuring story begins”. I discuss its particular issues leading up to the need to file.

Laurentian University: What is a stay period?

The “time out” that a person or business gets from its creditors is called a stay period (Stay of Proceedings). Upon the agreement of the court to the initial filing, the result is that the court will issue an Order giving the company an initial 30 days of protection from creditors to allow for the preparation of the restructuring proposal called a Plan of Arrangement.

This initial stay can be extended by the court, as long as the judge is convinced that the company is acting in good faith and working expeditiously in sorting through the myriad of issues stopping it from putting together its Plan of Arrangement.

Laurentian University: What does CCAA mean

The CCAA is a Canadian federal law that helps companies in financial difficulties emerge from its difficulties. The company begins its reorganization proceeding with its application to the court and files for creditor protection to avail itself of the process for a company and its creditors to come to an agreement on how to reorganize the company’s debt, while the company continues to operate normally and pay amongst other things, wages to its employees.

One of the biggest advantages of the CCAA is that it allows a business to “hold the fort” while the creditors and the company work out an agreement that will hopefully get the company back on its feet. While operating in this fashion, company management remains in control of running the business. The company does not hand over its assets to a licensed insolvency trustee (Trustee). Rather, the Trustee is appointed by the court to act as Monitor.

As the title sounds, the role of the Monitor is that of the neutral court officer working with the company. The duties of the Monitor include:

overseeing and providing supervision of the company’s affairs;
assisting in the negotiations with creditors;
helping with the drafting of the Plan of Arrangement for describing what the restructuring process will be;
report regularly to the court on the progress and details of the restructuring administration, and ultimately,
conducting the meetings of the various classes of creditors where voting on the Plan of Arrangement takes place.

Although the CCAA is unique to the country of Canada, other countries have similar restructuring legislation. The most famous is probably Chapter 11 of the US Bankruptcy Code. This is when you normally hear the term “bankruptcy protection“.

Laurentian University files to reorganize university finances

Last Fall, Laurentian University recognized it was in financial trouble. On October 1, 2020, it issued a press release advising that it has financial challenges brought on by the global COVID-19 pandemic and its pre-existing structural deficit. It also announced at that time that it hired Ernst & Young as financial advisors to assist in a further review of its detailed financial results, budgets, and our various initiatives to help identify and analyze any additional opportunities for cost savings or improvement.

On February 1, 2021, facing insolvency, Laurentian University took the step to begin its insolvency proceeding under the CCAA in order to come up with a formal restructuring plan. Since it is in the early stages of the insolvency administration, the actual plan has not yet been developed as Laurentian University needs time to come up with the proper plan. It will be one of many future events I will keep my eye on for you.

From my review of the filing documents, I can tell you what the story is so far.

How the Laurentian University restructuring story begins

“We are working with all stakeholders to ensure a smooth process for students,” said Peter Baxter, the university’s provost and vice-president, academic.”

Who would’ve thought that universities, which are supposed to be institutions of higher learning, would actually run into financial problems and put their stakeholders at risk? But that’s exactly what happened and is the current situation with the Laurentian University insolvency in Sudbury, Ontario. I guess the place was not run by any of the finance profs! It is obviously a stressful time for all students, staff, faculty, and creditors.

Dr. Robert Haché, the President and Vice-Chancellor of the Laurentian University of Sudbury, swore the necessary affidavit on January 30, 2021, in support of Laurentian’s court application for an Initial Order to commence CCAA proceedings. In his affidavit, Dr. Haché stated:

Laurentian’s financial issues were first determined as early as 2008-09 when a prior administration gave a budget to the Board that would not be balanced for the 2008-2009 academic year and showed little to no improvement for the future financial prospects of the university absent any revised processes. The budget was approved, but the Board expected the financial situation to be fixed as a top priority item.
A Plan for Regaining Sustainability at Laurentian was presented to the school’s Board on December 18, 2008, and again on February 20, 2009. The Board approved the implementation of the plan, expecting to regain financial health over a three-year period.
Starting in 2014, Laurentian undertook a $64 million Campus Modernization Project for the construction of approximately 250,000 sq. ft. of classrooms, research, study as well as a public area.
The Campus Modernization Project involved Laurentian incurring a substantial amount of long-term debt (approximately $40 million) to pay for the construction of buildings and facilities to modernize the campus in order to accommodate its historical growth and fuel the projected enrolment growth. The university elected to defer repayment of the principal amounts borrowed until after construction was completed, leading to the accrual of further interest.
When the Board approved the 2016-17 operating budget, LU forecasted operational deficits continuing through 2021-22 leading to an accumulated operational deficit of greater than $43 million.
With the exception of the modest growth experienced in 2020, enrolment has declined each year from 2015 to 2018 and tuition fees remain low, while labour and debt servicing costs have grown substantially.
The 10% tuition reduction and tuition freeze ordered by the Province of Ontario beginning in 2019.
Laurentian’s academic costs are generally higher as a percentage of total costs than other Ontario universities.
Not re-evaluating over the last decade its programs to make sure it is focusing on those the marketplace of students deem relevant and required.
The COVID-19 pandemic has made all these issues worse.

From reading his sworn affidavit, I would use one simple word to describe what has led to the Laurentian University insolvency – MISMANAGEMENT! Dr. Haché joined Laurentian University in July 2019. So he has only been involved in this mess for the last 19 months.

What Laurentian University reports its immediate plans are by making this CCAA filing

Laurentian University reported that as at April 30, 2020, it had $358.5 million in assets based on generally accepted accounting principles. Of that total, only $33.2 million is either liquid or near-liquid. As at the same date, its liabilities are:

Line of credit $14.4 million
Short-term loan $1.4 million
Accounts payable and accrued liabilities $22.4 million
Accrued vacation pay $1.8 million
Deferred revenue $1.0 million
Current portion of long-term debt $2.7 million
Long-term debt $89 million
Employee future benefits liabilities $20.8 million
Deferred contributions $38.6 million
Deferred capital contributions $129.9 million

This adds up to $322 million. The balance sheet balances because the remainder represents either restricted capital or special purpose endowments.

Laurentian University advised the court that it intends to come back requesting an Amended and Restated Initial Order. Right now, Laurentian has the benefit of the Stay of Proceedings and will not be making any payments on any outstanding amounts owing as of February 1, 2021.

Among other things, the motion in respect of the Amended and Restated Initial Order will seek the following additional relief:

extending the Stay of Proceedings to April 30, 2021;
suspending Laurentian’s requirement to make certain special payments in respect of its defined benefit pension plan, pending further Order of the Court;
suspending Laurentian’s need to reply to requests for information received under the Freedom of Information and Protection of Privacy Act (Ontario) during the Stay of Proceedings, nunc pro tunc to February 1, 2021;
the appointment of a mediator, as an officer of the Court and a neutral third party to undertake a mediation of various issues under the supervision of this Court, on an urgent basis;
approving Laurentian’s request for a debtor-in-possession credit facility (the “DIP Facility”) borrowing authority up to the principal amount of $25 million to finance its working capital requirements and other general corporate purposes, post-filing expenses and costs during the Stay of Proceedings.

The court has now declared that Laurentian University is insolvent. I will be following this CCAA administration and will write more blogs on material points of special interest as this restructuring winds its way through the court.

Laurentian University summary

I hope you enjoyed the Laurentian University Brandon Blog post. 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 in such a time of uncertainty 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.

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.

Tags bankruptcy and insolvency act canada, bankruptcy protection, CCAA, classes of creditors, Companies’ Creditors Arrangement Act, covid-19 pandemic, Dr. Robert Haché, Ernst & Young, initial order, Laurentian University, licensed insolvency trustee, plan of arrangement, protection from creditors, restructuring proposal, stay of proceedings, what does ccaa mean, what is a stay period, what is creditor protection

Brandon Blog Post

HOW TO SOLVE THE BIGGEST PROBLEMS WITH BANKRUPTCY PROTECTION MEANING

Post author By Brandon Smith
Post date June 28, 2017

Bankruptcy protection meaning: Introduction

The Cambridge English Dictionary gives us the bankruptcy protection meaning as follows:

“bankruptcy protection noun [ U ]

UK US also bankruptcy-law protection

LAW, FINANCE laws that limit the amount of money a bankrupt company (= one that owes more money than it can pay) must pay to those it owes money to:

The firm filed for bankruptcy protection after a massive accounting scandal.

We have filed for bankruptcy protection from creditors.

It’s the second time the company has sought bankruptcy protection in 25 months.

The Chicago-based business, already forced into Chapter 11 bankruptcy protection, said that a complete collapse is now a “distinct possibility”.

See also

Chapter 11”

Bankruptcy protection meaning: Bankruptcy protection meaning

The above definition is helpful, but, I would make one small change to it. There is a difference between a company that does not have enough cash to meet its expenses, or whose assets are worth less than the value of its liabilities. Such a company is insolvent. Such a company is only bankrupt if it has filed an assignment in bankruptcy or a Court has issued a Bankruptcy Order against it. Insolvency is the financial condition; bankruptcy is a legal state.

So, I will give you my bankruptcy protection Canada definition:

Bankruptcy protection is a legal state where the insolvent company (or person) has filed under the country’s bankruptcy laws to restructure and avoid becoming a bankrupt.

Bankruptcy protection meaning: How does it begin?

A company starts to go into “bankruptcy protection” by putting together its motion to the Court to tell that:

they are admitting that they cannot pay their debts generally as they come due;
their assets are worth less than the amount of their liabilities;
they cannot continue in business in their current financial and business condition;
there may be come calamity about to befall them if they do not have the time and breathing space to focus only on a restructuring and running of their business to regain profitability;
and they’re asking for the Court’s help and protection while they formulate a proposal or a plan of arrangement to present to the creditors.

The company is not seeking “bankruptcy protection”. Rather, it is seeking protection from its creditors. It is seeking a “time out” from the Court so that the company’s creditors cannot begin or continue legal action against the company. It wishes to be protected from such outside influences so that nobody can tip it over.

Management is saying that if given time, it believes that it can come up with a plan to restructure the company so that it can emerge a better and financially healthy company. It wishes to take the opportunity to see if its creditors, and the Court, will agree to a restructuring plan. It wishes to continue in business to continue to buy and sell goods and services and to continue to be an employer.

Bankruptcy protection meaning: We have all heard about Chapter 11 bankruptcy protection

We have all heard about Chapter 11 bankruptcy protection proceedings. This refers to the restructuring provisions of the United States Bankruptcy Code. A case filed under chapter 11 of the United States Bankruptcy Code is often called a “reorganization” bankruptcy.

The Chapter 11 filing provides bankruptcy protection to the company and allows it to restructure itself and its assets to attempt to maximize creditor and shareholder value and avoid bankruptcy. A Chapter 11 case begins with the petition being filed with the bankruptcy court serving the area where the debtor can show a domicile or residence. A petition may be a voluntary petition, a debtor filing, or it may be an involuntary petition, a filing by creditors that meet certain requirements.

You have probably just heard about Chapter 11 this week, as Takata Corp., the Japanese company that made faulty airbag inflators and is now the subject of many lawsuits in the United States and elsewhere just filed Chapter 11 bankruptcy protection proceedings this week.

Bankruptcy protection meaning: Does Chapter 11 exist in Canada?

Chapter 11 is not a Canadian term or provision. In Canada, there are two federal statutes that a company wishing to reorganize can rely upon. Because they are federal statutes, they apply across the country. So, it does not matter if you are applying for bankruptcy protection Ontario Canada or in any other province.

The first statute is the Part III Division I Proposal restructuring provisions of the Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) (BIA). The second, and today more common statute large companies file under, is, the Companies’ Creditors Arrangement Act (R.S.C., 1985, c. C-36) (CCAA).

There is no such thing as a bankruptcy protection act Canada. The BIA and CCAA are also not new bankruptcy laws in Canada. They have been on the books for some time and form part of the corporate bankruptcy laws in Canada . This vlog does attempt to give a bankruptcy protection Canada definition.

Bankruptcy protection meaning: The Canadian restructuring laws

Both companies and people can file under the restructuring provisions of the BIA. Only companies that meet the test can file under the CCAA. The CCAA is a relatively brief statute which allows a company the time for them to restructure their affairs. The CCAA is more flexible than the BIA and that is why it is the restructuring statute of choice for large and complex Canadian corporations. It has often been called the Canadian Chapter 11.

The reason for filing under the restructuring provisions of either the BIA or CCAA, is for the company to avoid bankruptcy. So there is a big difference when considering bankruptcy protection vs bankruptcy. That will be a topic for another blog or vlog.

A company would file for restructuring if management believes there is a viable business to be saved. Management believes that it has a viable business within the corporation and the corporation can be nursed back to good health by taking certain steps, including:

reducing debt;
preparing and implementing a new business plan;
reducing expenses; and
perhaps shedding redundant assets and/or unsuccessful business units.

3bestaward

Bankruptcy protection meaning: What happens to the company when it is in restructuring mode?

The premise is that management remains in control of the business, its assets and operations while restructuring. As part of the plan, there may be senior management changes if confidence has been lost in the old management. However, management remains in control and the company continues to run.

The further assumption is that the company has enough cash flow, and/or enough lines of credit while in reorganization mode, to run and ultimately emerge from its restructuring proceedings. The Court needs to know that there will not be prejudice to any creditor by providing the bankruptcy protection to the company. Ultimately, the creditors and the Court will consider the company’s restructuring plan and decide whether to approve it.

Bankruptcy protection meaning: Some examples please

There have been many CCAA filings over the last few years. Some very well-known household names in fact, such as:

Sears Canada Inc. – June 22, 2017
Express Fashion Apparel Canada Inc. and Express Canada GC GP, Inc. – May 04, 2017
Grafton-Fraser Inc. – January 25, 2017
Performance Sports Group Ltd., Bauer Hockey Corp. – October 31, 2016
Urbancorp Group of companies – May 18, 2016 and October 6 and 18, 2016
Golf Town Canada – September 14, 2016
Victorian Order of Nurses for Canada – November 25, 2015
Verity Energy Ltd. – May 1, 2015
Target Canada Co., et al – January 15, 2015 (this was just a liquidation, not a restructuring, but they used the CCAA)
U.S. Steel Canada Inc. – September 16, 2014

Bankruptcy protection meaning: What to do if your company cannot carry on because of too much debt

If your company has too much debt and insufficient cash flow, you need your plan and strategy in place NOW. Contact us now. The Ira Smith Team is here to solve your debt problems and help you carry out that winning strategy, no matter the reason. We’re here to help and get you back on solid financial footing Starting Over, Starting Now. We’re just a phone call away.

UPDATE: CHECK OUT OUR NEW VLOG BY CLICKING ON:

SEARS CANADA IS CLOSING: THE #1 REASON YOU HAVE TO RUN AND NOT JUST WALK TO REDEEM YOUR GIFT CARDS AND CREDITS

bankruptcy protection meaning 4

D&O Insurance Key Takeaways

D&O Insurance Introduction: Navigating the Perilous Waters of Corporate Distress

1. D&O Insurance: The Director’s Evolving Role in Financial Difficulty

1.1 Why Director Protection is Paramount During a Wind-Down

1.2 Defining a Corporate Wind-Down: More Than Just Closure

1.3 The Shifting Sands of Fiduciary Duties: From Shareholders to Creditors

2. D&O Insurance: Key Areas of Personal Liability Risk for Directors

2.1 CRA Director Liability: HST and Source Deductions

2.2 Unpaid Wages and Director Responsibility

2.3 Other Potential Liabilities

3. The Proactive Director: Building Defences Before the Storm Hits

3.1 Establishing Robust Corporate Governance and Internal Controls

3.2 Implementing Effective Financial Risk Assessment and Management

3.3 Maintaining Meticulous Records and Due Diligence Documentation (The “Paper Trail”)

How can a director use the “due diligence” defence to avoid personal liability for corporate tax debts and unpaid wages in Canada?

3.4 Understanding and Managing Key Stakeholder Relationships

4. D&O Insurance And The Strategic Decision-Making During a Wind-Down: Actionable Steps for Protection

4.1 Immediate Actions Upon Recognizing Irremediable Distress

4.2 Engaging the Right Professional Advisors: Your Shield and Guide

4.3 Balancing Competing Interests: Navigating Stakeholder Demands

4.4 Managing Communications Effectively and Transparently

4.5 Boardroom Protocols and Decision-Making under Pressure

5. Navigating Formal Wind-Down Procedures: A Director’s Overview

5.1 Voluntary Corporate Dissolution: A Controlled Exit

5.2 The Bankruptcy and Insolvency Act (BIA): Director Implications

5.3 Companies’ Creditors Arrangement Act (CCAA): Restructuring vs. Liquidation

5.4 The Winding-up and Restructuring Act : Specific Scenarios

6. The Essential Safety Net: D&O Insurance and Tail Insurance

6.1 Understanding D&O Insurance

6.2 The Critical Need for Run-Off (Tail) Coverage

6.3 Maximizing Your Policy’s Effectiveness: Beyond Just Having D&O Insurance Coverage

6.4 Regularly Reviewing and Updating D&O Insurance Policies

7. The Post-Wind-Down Landscape: Lingering Concerns for Directors

7.1 Ongoing Scrutiny and Potential Investigations

7.2 Record Retention Requirements and Obligations

7.3 Reputational Management and Future Opportunities

8. Frequently Asked Questions: Director Liability & D&O Insurance

Q. Does standard D&O insurance protect me after my company closes?

Q: Can the CRA hold me personally liable even if I resigned?

Q: What specific debts am I personally responsible for as a director?

Q: How does the “due diligence” defence work in Canada?

Q: Why is a Licensed Insolvency Trustee (LIT) necessary during a wind-down?

D&O Insurance Conclusion: Proactive Protection as the Ultimate Defence

Recap of Key Director Protection Strategies

The Unwavering Importance of Professional Guidance

Empowering Directors Through Knowledge and Diligence

Brandon’s Take: Don’t Let ‘Hope’ Be Your Strategy

Contact Ira Smith Trustee & Receiver Inc. Today

Protection From Creditors: The Real Problem Toronto Business Owners Face

Protection From Creditors: Why Your Business Debt Becomes Personal -Three Common Traps

Trap #1: Using Personal Credit Cards for Business

Trap #2: Signing Personal Guarantees

Trap #3: Mixing Money

Four Ways Toronto Entrepreneurs Can Get Protection From Creditors

Option 1: Creditor Protection Through Business Restructuring (For Incorporated Companies)

Option 2: Consumer Proposal (Perfect for Many Small Unincorporated Business Owners)

Option 3: Strategic Personal Bankruptcy

What Can You Keep? Ontario’s 2025 Bankruptcy Exemptions

Option 4: Debt Consolidation (The 2025 Method)

Get Protection From Creditors Today: The One-Hour Checklist

Step 1: Separate Your Money (This Afternoon)

Step 2: Document Everything (This Evening)

Step 3: Get Help (This Week)

Protection From Creditors: Real Toronto Success Stories

The Tech Startup That Bounced Back

The Food Truck Owner Who Saved His Home

Protection From Creditors: Three Things To Do Before Friday

Top Questions Toronto Business Owners Ask About Debt Protection From Creditors

Protection From Creditors Conclusion

Debt Management Program: Introduction

Understanding a Debt Management Program

Is a debt management program right for you?

Debt Amount Consideration

No Legal Filings Required

Use of Credit and Affordability

Debt Management Program: Considering Bankruptcy

Is bankruptcy right for you?

Relief from Crushing Debt Load

Solution for Badly Damaged Credit

Quick Resolution and Legal Protections

***Laurentian University: What is creditor protection***?