I have just read a decision of the Ontario Superior Court of Justice dealing with an important aspect of real estate in receivership in Canada. The case is about when the Debtor/real estate owner does not believe that the court-appointed receiver has made proper decisions about the listing of the property for sale and the sale of a commercial property in receivership.
It also deals with the role of receivers and how they interact with the debtor, secured lenders and unsecured creditors.
A receivership is a legal process available to secured creditors, whereby a company’s affairs, business and property are entrusted to a receiver to manage and eventually sell the assets. Secured lenders may enforce their security to recover loans when the borrower defaults in its payment obligations relating to the secured debt. This remedy available to secured creditors is known as receivership, while the debtor is said to be “in receivership“.
If a business debtor does not make payments or otherwise defaults on a secured loan, the secured creditor would have the right to appoint a receiver to collect the money owed. Before appointing a receiver, a secured creditor must first issue a “Section 244” notice of intention to enforce security. This is a notification that secured creditors must send to defaulting debtors before appointing a receiver. Section 244 refers to that section number in the Bankruptcy and Insolvency Act (Canada) (BIA).
The notice states that the security covers certain assets, that the company in default owes a specified amount to the secured creditor, and that the creditor may enforce the security after 10 days. The company in default may waive the notice period and consent to the appointment of the receiver.
Under the BIA, only a licensed insolvency trustee (formerly called a trustee in bankruptcy) can be a receiver. No other party is licensed to administer the receivership process in Canada.
Types of Receivers In Receiverships
There are two types of receivers in receivership in Canada: (i) privately-appointed receivers; and (ii) Court-appointed receivers.
Privately-Appointed Receivers
A privately-appointed receiver is a licensed trustee who is appointed by a contract between the insolvency trustee and the secured creditor. A private receiver is typically used when there is no dispute to ranking among secured creditors or various claims to ownership of the company’s assets. The powers of a receiver listed in the security document give the privately appointed receiver more limited powers than a court-appointed receiver gets under a court order.
Court-Appointed Receivers
A receiver is court-appointed when the secured creditor makes an application to the court for the appointment of a receiver with more expanded powers. Like a privately-appointed receiver, a court-appointed receiver takes control of a company’s property because of financial distress and when there is a dispute among secured creditors and others regarding the ranking of secured claims and ownership of property.
Both kinds of receivers are tasked with protecting and preserving the value of the company or property and are certainly given broader powers by the court.
Duties and Responsibilities of a Receiver In Receivership
A Receiver is a licensed insolvency trustee appointed to manage and control the assets, property, or business of another person or entity, typically in a situation where the person or entity cannot manage their affairs due to financial difficulties, bankruptcy, or other reasons. In receivership in Ontario, a Receiver can be appointed either privately or through a court order.
Private Appointment
When a Receiver is appointed privately, it is typically done so through a contractual agreement between the Receiver and the secured creditor requiring the Receiver’s services. The Receiver’s duties and responsibilities may include:
Managing and controlling the assets, property, or business of the person or entity.
Collecting and managing debts, accounts receivable, and other financial obligations.
Paying bills, expenses, and other financial obligations.
Managing and overseeing the day-to-day operations of the business or property.
Identifying and realizing assets to convert them into cash.
Negotiating with creditors, suppliers, and other stakeholders to resolve disputes and improve the financial situation.
Preparing and submitting financial reports and statements to the appointing creditor and other stakeholders.
Providing advice and guidance primarily to the appointing creditor.
A privately appointed receiver needs to consult with and get approval from the appointing creditor for its proposed actions and activities. In a private appointment, the Receiver’s duty of care is mainly to the appointing creditor.
Court-Appointment
When in receivership a Receiver is appointed through a court order, many of the court-appointed receiver’s duties are the same as for a privately-appointed Receiver. The main differences though are that in receivership supervised by the Court, the court-appointed receiver:
Owes a duty of care to all parties.
Must obtain the approval of the Court for its actions and activities.
This case was heard in the Ontario Superior Court of Justice involving a court-appointed receiver appointed to sell real property. The Debtor (2184698 Ontario Inc.) challenged the Receiver’s real estate receivership process, alleging that it was not conducted in a commercially reasonable manner and was biased towards the lender (Rathcliffe Properties Inc.).
The Debtor’s Argument
The Debtor, being the property owner, claimed the Receiver breached its duty under s. 247 of the BIA to act in good faith and in a “commercially reasonable manner.” They alleged the Receiver set a low listing price for the real property ($4,500,000) potentially based on “liquidation basis” appraisals rather than “fair market value.” They also argued that the court-appointed receiver showed favouritism by consulting only the Lender about the realtor and listing price, denying the Debtor crucial information.
Finally, they argued that the Receiver withheld crucial information by not sharing its appraisals with the Debtor.
Receiver and Lender’s argument
They argued:
The Receiver acted properly by basing the listing price for the property in question on professional advice and independent appraisals.
Choosing not to share appraisals to avoid giving the Debtor an unfair advantage in the sale was proper.
Consulting the Lender due to their expertise and potential buyer network, while the Debtor lacked relevant information and consistently overestimated the property’s value, was also appropriate.
The Court’s Findings
The Court found it more efficient to address the substance of the motion, providing clarity and avoiding further delays. The Court dismissed the Debtor’s claims of a breach of the BIA, stating:
The Receiver was not obligated to share appraisals.
The listing price, based on professional advice from professinoals working in this kind of real estate market, did not breach the court-appointed receiver’s duties or the BIA.
Consulting the Lender was justifiable, aiming for the best interests of all stakeholders.
The Court considered the motion premature, stating concerns about the sale process can be raised at the Sale Motion, where a complete evidentiary record would be available.
Since the Court found no evidence of a breach of the BIA and dismissed the Debtor’s motion in this real estate receivership, the Court ordered the Debtor to pay costs to both the Receiver and the Lender. The Court also lifted an interim injunction the Debtor obtained stopping the Receiver from continuing the sales process.
Clashing Interests in Receivership: Lender vs. Stakeholders
The receiver’s duty to act in the best interests of all stakeholders can clash with the specific needs of the lender because the lender prioritizes recovering the debt owed to them, even if it means selling the property for a lower price. Conversely, the receiver must consider the interests of all stakeholders, including the debtor, and aim for the highest possible sale price, even if it takes longer.
Here’s how this tension plays out in this case:
The Lender’s Interest: The lender (Rathcliffe Properties Ltd.) wants to recover the $2.9 million loan it provided to the debtor (2184698 Ontario Inc.) as quickly as possible. They likely see the receivership and subsequent sale of the property as the most expedient way to recoup their investment.
The Receiver’s Dilemma: The court-appointed receiver has a fiduciary duty to act in the best interests of all stakeholders, not just the lender. This means they must strive to obtain the highest possible price for the property, under the circumstances, even if it delays the Lender’s recovery.
Conflicting Approaches: The debtor argued that the receiver’s listing price of $4,500,000 was too low and favoured a quick sale to satisfy the Lender’s debt. However, the court found no evidence of this, highlighting that the Receiver based the listing price on professional advice and appraisals. The court emphasized that the market ultimately determines the property’s value, not just the initial listing price.
This case demonstrates the inherent tension in receivership scenarios. While the Lender’s primary concern is recovering their debt, the receiver must balance this against the interests of all stakeholders, including maximizing the sale price for the benefit of all parties involved.
Key Takeaways From This In Receivership Case
This situation highlights the conflicting priorities often found in receivership proceedings. On one hand, financial institutions lenders are focused on getting back their money, while on the other, the Receiver has to consider the needs of all stakeholders involved, aiming to achieve the highest possible sale price to benefit everyone.
In Receivership: Conclusion
We experience these same issues whenever we act as a real estate receiver. We rely on real estate experts both for appraisals and for the receiver sale of real estate. We must rely on real estate professionals in order to show that we properly handled our duties as a real estate receiver.
I hope you enjoyed this real estate receiver in receivership Brandon’s Blog. Do you or your company have too much debt? Are you or your company in need of financial restructuring due to distressed real estate or other reasons? The financial restructuring process is complex. The Ira Smith Team understands how to do a complex restructuring. However, more importantly, we understand the needs of the entrepreneur or someone with too much personal debt.
You are worried because you are facing significant financial challenges. It is not your fault that you are in this situation. You have been only shown the old ways that do not work anymore. The Ira Smith Team uses new modern ways to get you out of your debt troubles while avoiding bankruptcy. We can get you debt relief freedom.
The stress placed upon you is huge. We understand your pain points. We look at your entire situation and devise a strategy that is as unique as you and your problems; financial and emotional. The way we take the load off of your shoulders and devise a plan, we know that we can help you.
We know that people facing financial problems need a realistic lifeline. There is no “one solution fits all” approach with the Ira Smith Team.
That is why we can develop a restructuring process as unique as the financial problems and pain you are facing. If any of this sounds familiar to you and you are serious about finding a solution, contact the Ira Smith Trustee & Receiver Inc. team today.
Call us now for a free consultation. We will get you or your company back on the road to healthy stress-free operations and recover from the pain points in your life, Starting Over, Starting Now.
The information provided in this Brandon’s 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 of this Brandon’s Blog should not be relied upon as a substitute for professional guidance or consultation. The author, Ira Smith Trustee & Receiver Inc. as well as any contributors to this Brandon’s Blog, do not assume any liability for any loss or damage resulting from reliance on the information provided herein.
The Office of the Superintendent of Bankruptcy (OSB) published several amended Forms under the Bankruptcy and Insolvency Act (Canada) (BIA) to promote a more efficient and effective insolvency system, removing some outdated elements and ensuring better data integrity for all stakeholders. These amended Forms were originally set to come into force on July 15, 2024. One of those new forms is the Form 31 proof of claim. This morning, the OSB announced that the effective date has now been pushed back to September 16, 2024.
In this Brandon’s Blog, given the new proof of claim form coming into use effective July 15, I feel I need to update my October 2018 blog titled: FORM 31 PROOF OF CLAIM: HOW TO PROPERLY COMPLETE THE PROOF OF CLAIM. I will compare the new form to the old one as there are substantial changes and advise on how it should be properly completed as we walk through the new form.
Background Information on Form 31 Proof of Claim
Purpose of Form 31 Proof of Claim
Claims of creditors in bankruptcy or restructuring proposal cases are made on a very specific proof of claim form. The purpose of the form is to furnish information about the claim by the creditor against the debtor. It asks for such things as the contact details of the creditor and permission to represent it if it is a corporate body. Additionally, there are interrogatives on debt aspects like the amount due and supporting papers.
The types of claims section encompasses unsecured claims, lessor claims, secured claims, farm or wage earner claims, plan administrator’s claims, director’s liability claims and client claims against their bankrupt securities dealer.
It also inquires whether or not there has been any relationship between the debtor’s recent transactions with the creditor such as recent payments.
One can obtain information regarding an insolvent person’s financial condition and their application for discharge from bankruptcy. There is a caution at the end of this document concerning penalties for making fake claims or giving false statements. The creditor must sign it himself or through the representative. If an affidavit is attached thereto, then it must be sworn by a person who is authorized by law to administer oaths.
Importance of Properly Completing Form 31
The proper completion of Form 31, Proof of Claim, is crucial in the claims process for creditors with substantiated claims. This form serves as a critical document for creditors looking to assert and potentially recover owed debts. Providing accurate and thorough information on this form is essential for creditors to establish a strong foundation for their claims.
Failure to provide complete or accurate information on Form 31 can lead to delays, rejections, or the disqualification of the claim. Therefore, it is imperative for creditors to closely follow the instructions and guidelines stipulated in Form 31. By doing so, creditors can ensure that their claims are accurately documented and processed efficiently within the specified timelines.
Section 1: Understanding the Basics of Form 31 Proof of Claim
Definition of Provable Claim
Section 2 of the BIA contains the definitions. In that section, a provable claim is defined:
“includes any claim or liability provable in proceedings under this Act by a creditor“
What does this mean? it means that a provable claim refers to a debt or obligation owed by a debtor that can be verified and substantiated through documentary evidence. For a claim to be considered provable, it must meet certain criteria established by the Act, including an amount that can be determined, is due and payable at the time of the bankruptcy or within a reasonable period after that, and not be contingent on some other event or unliquidated.
Difference Between Provable and Unliquidated Claims
An unliquidated claim under the BIA refers to a claim for a specific amount of money that has not yet been determined or quantified. This type of claim typically arises when the exact amount owed to a creditor is uncertain or requires further investigation to establish.
In the context of bankruptcy proceedings, unliquidated claims present a challenge as they may complicate the distribution of assets to creditors. To address this issue, mechanisms for resolving unliquidated claims include negotiations, mediation, a disallowance of the claim by the licensed insolvency trustee (formerly known as a bankruptcy trustee) (the “Trustee”) or court proceedings to determine the appropriate amount owed.
Properly handling unliquidated claims is essential for ensuring fair and efficient bankruptcy proceedings under Canadian law.
Identifying False Claims
Ensuring the validity of claims in Canadian bankruptcy proceedings is a crucial element in safeguarding the integrity of the bankruptcy system. Baseless claims hinder the fair distribution of assets to rightful creditors and undermine confidence in the process. The proliferation of meritless claims can result in delays, increased expenses, and potential financial harm to creditors.
It is essential for Trustees to thoroughly evaluate the authenticity of claims to prevent manipulation and dishonesty. Implementing rigorous verification procedures and penalties for unsubstantiated claims are essential strategies for upholding the fairness and transparency of Canadian bankruptcy proceedings.
Section 2: Required Information for Completing Form 31 Proof of Claim
Completing and returning a Form 31 proof of claim is an important phase in the bankruptcy process. They are one of the documents included with the notice of bankruptcy documents sent out by the Trustee to formally notify the creditors of the bankruptcy.
Personal Details of the Creditor
For proof of claim to be properly completed, the creditor must furnish their contact information, encompassing their mailing address, fax number, and email address. Moreover, the creditor must substantiate their legitimacy as a creditor of the debtor and exhibit a thorough understanding of all pertinent details related to the claim. This takes you from the top of the new Form 31 proof of claim down to numbered paragraph #2.
Details of the Claim
It is incumbent upon the creditor to clearly outline the total sum of the outstanding debt owed by the debtor, in addition to any potential counterclaims, accompanied by relevant documentation or substantiating evidence. The new proof of claim form now requires a creditor to verify that the debt remains within the statutory limitations stipulated by the pertinent provincial laws and regulations. In other words, the claim is not statute-barred.
Those details are covered by paragraphs 3 through 5 of the form.
Priority of the Claim
Paragraph 6 is where, as an unsecured creditor, you need to insert the amount for what you believe to be your claim provable in the actual restructuring proposal to creditors or bankruptcy of the person or company. You must also declare whether you do or do not claim a right to a priority. If you do not, this means that you are an ordinary unsecured creditor.
If you are claiming a right to a priority claim as an unsecured creditor, you are stating that you are entitled to a priority of payment ahead of the ordinary unsecured creditors. The new Form 31 proof of claim requires you to identify what type of priority you are claiming.
The various types of unsecured claims that can have priority over ordinary unsecured claims, which are called preferred claims, are, in order of priority:
For a deceased bankrupt, reasonable funeral and testamentary costs.
The claims for wages by a wage earner employee for unpaid wage claims and certain other amounts treated like remuneration for services rendered during the period beginning on the day that is six months before the date of the initial bankruptcy event or the first day on which there was a receiver. This claim is limited to a maximum payment of $2,000, less any amounts paid for their services by the licensed insolvency trustee.
Any shortfall to a secured creditor as a result of the claim for employees’ priority above.
Any shortfall to a secured creditor as a result of the claim of employees paid out for unpaid amounts regarding prescribed pension plans.
Alimony or support payments payable by the bankrupt person under either a court order or an agreement made before the date of the initial bankruptcy event.
municipal taxes levied against a bankrupt’s real property within the two years immediately preceding the bankruptcy not registered as a lien against the property. This preferred claim cannot exceed the value of the bankrupt’s interest in the property.
A lessor for rent arrears for no more than 3 months before the date of bankruptcy and only if stipulated in the lease, a claim for accelerated rent for no more than an additional 3 months. This claim is limited to the amount realized by the Trustee from the property of the bankrupt on those premises. Further, any payment made by the licensed insolvency trustee for accelerated rent shall be credited against any amount the Trustee may owe the landlord for the Trustee’s occupation of those leased premises.
One bill of costs of a lawyer for a judgment creditor who is the first to have garnished or otherwise executed against the property of the bankrupt, but only to a maximum of the amount obtained by the Trustee from the realization of assets from the sale of such property.
Certain government debts.
Claims from injuries to employees of the bankrupt where workers’ compensation legislation does not apply, but only if there is an insurer or surety guaranteeing damages from injuries and up to the maximum guaranteed.
Section 3: Additional Considerations for Completing Form 31 Proof of Claim
There are also specialized claims that a creditor may qualify for.
A Claim of Lessor For Disclaimer of a Lease
In a corporate restructuring under the Proposal provisions of the BIA, the insolvent company can disclaim or resiliate a commercial lease. The insolvent debtor must be able to show that it cannot successfully restructure if it still has to be responsible for that commercial lease. Upon the disclaiming or resiliation of the commercial lease, the landlord is allowed to calculate its claim using the formula and provisions laid out in the BIA.
Valuing a Secured Claim
Secured creditors have the option, though not a mandatory requirement unless stipulated by the licensed insolvency trustee, to file their claim. This process involves the secured creditor completing the proof of claim form, where they estimate the value of the assets linked to their security. Any outstanding amount owed to the creditor beyond the assets’ value is also specified on the proof of claim, thereby converting it into an unsecured claim.
Secured creditors must exercise caution when determining the value of their secured claim. As per subsection 128(3) of the BIA, a Trustee may opt to redeem a security by reimbursing the secured creditor with the security’s assessed value, as indicated by the secured creditor in the proof of claim. A licensed insolvency trustee would only proceed with redemption if they ascertain that the actual value of the assets surpasses the value assigned by the secured creditor to its security.
Moreover, a Trustee must seek an independent legal opinion on the security documents. That is why a Trustee will always ask for proof of security.
Claim by Farmer, Fisherman or Aquaculturist
Claims of farmers, fishermen, and aquaculturists are granted specific privileges for claims under the BIA legislation. This particular category of creditors is entitled to certain rights. In addition to the standard revindication rights, farmers, fishermen, and aquaculturists have a 30-day window following the initiation of bankruptcy proceedings or the appointment of a receiver to submit their claim for products supplied within 15 days before the bankruptcy event. Once the claim is successfully filed, these creditors are granted a primary lien on all the inventory of the insolvent debtor, excluding any inventory that may be subject to another party’s repossession rights.
Claim by Pension Plan for the unpaid amount
I alluded to claims in respect of an unpaid pension amount above. In 2008 the BIA was amended in reaction to several high-profile corporate restructurings and bankruptcies where there were pension payment amounts deducted from employee wages but not remitted to the pension plan. When the employer went bankrupt, the employees’ pension entitlement was negatively affected (think Sears Canada). Pension entitlement is an important component of the overall employees’ remuneration.
Therefore, Parliament mandated a reform where a super-priority is created for claims for unremitted pension contributions outstanding when an employer becomes bankrupt. The kinds of amounts given this super-priority are pension payments deducted from an employee’s wages but not remitted to the pension plan administrator, amounts owed by the employer for the cost of benefits paid by the pension plan and employer contributions to a defined benefit pension plan. What is excluded from this super-priority is any amount needed to reduce an unfunded pension liability.
Claims Against Directors
This kind of claim comes into play when a BIA corporate restructuring proposal provides for the compromise of claims against directors. The kind of claims against directors that a corporate proposal can compromise must have a very specific set of characteristics:
A claim against directors is being compromised in the corporate Proposal.
Arose before the filing of the Notice of Intention To Make A Proposal or the Proposal itself.
Relate to corporate obligations that are director liabilities by operation of law.
They do not include any corporate liabilities that one or more directors may have personally guaranteed as individuals.
Claim of a Customer of a Bankrupt Securities Firm
The BIA delineates precise protocols for the allocation and distribution of cash and securities within a securities firm customer pool fund. The intricacies of this process are highly technical and exceed the purview of this blog post on completing a Form 31 proof of claim. It is essential to understand that distinct provisions are in place for companies of this nature that have filed for bankruptcy.
Complicated or Contingent Claims
There are a variety of claims that by their very nature, produce complications. Just because a claim might be complicated, it does not mean the proof of claim should not be fully completed and filed with the Trustee. It also does not mean that the licensed insolvency trustee does not have to review it to determine if it is admissible or not.
Examples of complicated claims are unliquidated claims discussed above and contingent claims. In a Canadian insolvency case, a contingent claim is a claim that is not yet due and payable but may become due and payable in the future. Contingent claims are often referred to as “contingent debts” or “contingent liabilities.”
A contingent claim may arise in various situations, such as:
A lawsuit or legal action that has not yet been resolved, but may result in a payment or settlement in the future.
A contract or agreement that provides for payment or performance in the future, but only if certain conditions are met.
A guarantee or indemnity that may become payable in the future if a specific event occurs.
When a contingent claim is filed in a bankruptcy or proposal case, the licensed insolvency trustee must handle it in a specific manner. Here are the key steps:
Initial Review: The Trustee reviews the contingent claim to determine its validity and the likelihood of it becoming due and payable in the future.
Assessment of Likelihood of Payment: The Trustee assesses the likelihood of the contingent claim becoming due and payable, considering factors such as the strength of the underlying legal claim, the likelihood of a settlement or judgment, and the potential for future payments or performance.
Valuation of the Claim: The Trustee values the contingent claim, taking into account the likelihood of payment and the potential amount of the payment.
Inclusion in the Statement of Affairs: The Trustee should include a contingent claim in the sworn Statement of Affairs, which is the document that outlines the insolvent debtor’s assets, liabilities, and financial affairs. The creditor would be listed as a contingent creditor. Because at this stage the Trustee has not received a proof of claim to review, it is wise to list the amount of this contingent debt either as “unknown” or with a value of just $1.
Monitoring and Follow-up: The Trustee monitors the contingent claim and follows up with the creditor to ensure that any future payments or performance are made following the terms of the agreement or contract.
Distribution of Funds: If the contingent claim becomes due and payable in a specific amount and the creditor has filed the proof of claim properly, the Trustee needs to include the valued claim in calculating a distribution to the unsecured creditors.
Creditors are required to furnish the licensed insolvency trustee with all essential documentation and information to substantiate their contingent claim. Subsequently, the Trustee will work with the creditor to ensure the appropriate handling of the claim.
Section 4: Procedural Requirements for Submitting Form 31 Proof of Claim
As a creditor, it’s crucial to understand the procedural requirements for submitting a Form 31 Proof of Claim in a Canadian insolvency case. In this section, we’ll delve into the key issues that creditors should be aware of when submitting their Proof of Claim.
Deadline for Submitting Proof of Claim
The deadline for submitting a proof of claim is a critical aspect of the insolvency process. In Canada, creditors have a specific timeframe to file their proof of claim. Until a creditor files a proof of claim with the Trustee, the creditor cannot participate in the insolvency process. Creditors should ensure they submit their proof of claim well within the deadline to avoid any potential issues.
The First Meeting of Creditors in bankruptcy or the Meeting of Creditors in a restructuring proposal takes place 21 days after the date of filing. If a creditor who has a provable claim wishes to vote at the meeting of creditors, then it is important to have filed the fully completed proof of claim, with all supporting backup documentation, in time for the Trustee to be able to review it.
At the meeting of creditors, it is up to the meeting chair to admit or disallow any claim for voting purposes. In a bankruptcy, the creditors vote on several matters, including the appointment of Inspectors. The Meeting of Inspectors normally immediately follows the meeting of creditors. So if a creditor wishes to nominate an Inspector, it has to have filed its claim to be able to vote. To be able to vote for or against a consumer proposal or corporate restructuring proposal, the proof of claim must be filed.
The only other real deadline to file a proof of claim is before the Trustee is going to make a distribution. A Trustee must send each creditor listed on the Statement of Affairs who has not yet filed a proof of claim notice to file a claim before making a final distribution. That notice will have a deadline in it. If the creditor misses that deadline then they are not entitled to receive any dividend from the insolvency estate.
Properly Filing the Form 31
Properly filing the Form 31 proof of claim is a critical step. Creditors must ensure they complete the form accurately and thoroughly, providing all necessary information, including the amount of the debt, the date the debt was incurred, and any relevant documentation. It’s also essential to sign and date the form, as well as attach any supporting documentation. Creditors should also ensure they file the form with the correct office, as specified in the bankruptcy notice.
Notice of IntentionTo Make A Proposal
In some cases, the insolvent individual or corporation may file a Notice of Intention To Make A Proposal, which provides creditors with advance notice of the impending restructuring proposal. At the Notice of Intention stage, there is not a specific deadline for submitting a proof of claim. A proof of claim is not sent out at this notice stage. After the Proposal is filed and the Trustee sends out the Proposal package to the known creditors, in that package the proof of claim form 31 is provided. Creditors should carefully review the Proposal package and ensure they submit their proof of claim by the specified deadline.
I was involved some time ago in a corporate restructuring case where a financial institution creditor filed a proof of claim and a voting letter using their form at the notice of intention stage. The form was improperly completed and I warned the creditor that its proof of claim was not being accepted and that they must file a new one, properly and fully completed, after they receive the Proposal package from our Firm.
They ignored my warnings and did not do so. I therefore disallowed their claim which meant their vote did not count. They appealed my decision to the Court. The Court agreed with the Trustee. Not only did their vote not count, but because they lost the appeal, they also had to pay our lawyer’s costs!
Notice of Bankruptcy Process
The bankruptcy notification is a crucial document that provides creditors with essential information about the bankruptcy proceedings, including the timeline for submitting a proof of claim. This notification is distributed by the licensed insolvency trustee managing the bankruptcy process and offers creditors a detailed overview of the procedures involved, including the deadline for submitting proof of claims.
To ensure the accurate and complete submission of the claim form, it is advisable to follow the guidelines outlined below in Section 5. Submitting a Form 31 proof of claim is a critical aspect of the bankruptcy process. Creditors must meet the submission deadline, correctly file the form, and provide all necessary information. Understanding the procedural requirements for submitting a proof of claim helps creditors protect their rights and ensure their interests are properly represented throughout the process.
Section 5: Ensuring Accuracy in Completing Form 31 Proof of Claim– A Step-by-Step Guide to Filing a Proof of Claim
As a creditor, it’s essential to know how to complete Form 31, also known as the Proof of Claim, when dealing with bankruptcy or proposal proceedings. The only way for creditor claims to be registered properly is through the filing of a properly and fully completed proof of claim form.
Let me walk you through the step-by-step process of filling out this crucial document.
Step 1: Gather Required Information
Before starting to fill out Form 31, make sure you have the following information readily available:
The name of the bankrupt individual or corporation
The amount of the debt owed to you
The date the debt was incurred
Any relevant documentation, such as invoices or contracts
Step 2: Complete the Header Information
Begin by filling out the header section of the form, which includes:
The name of the bankrupt individual or corporation
The file number assigned to the bankruptcy proceeding
Step 3: Furnish Creditor Details
In this step, kindly provide the following details as the creditor:
Your full name and mailing address
Your business name and registered address (if applicable)
Your contact information, including phone number and email address
Step 4: Specify the Debt
Specify the debt you’re claiming:
The amount of the debt owed to you
The date the debt was incurred
A brief description of the debt, including any relevant details
Completing whether or not you are a secured, claiming a priority or an ordinary unsecured creditor
Make sure that you include the entire claim
Step 5: Provide Supporting Documentation
Attach any relevant documentation to support your claim, such as:
Invoices or receipts
Contracts or agreements
Bank statements or other financial records
Step 6: Sign and Date the Form
Once you’ve completed the form, including completing the proxy form section if the creditor is a corporation, sign and date it in the designated areas.
Step 7: File the Form
Submit the completed Form 31 to the professional trustee administering the bankruptcy, along with any supporting documentation. You can submit the proof of claim by fax, email, snail mail or delivery. The most important reason of course is that if there is going to be a distribution to the creditors, you want to make sure that you have submitted your claim for dividend purposes.
Additional Tips and Reminders
Ensure to maintain a copy of the completed form for your records.
If you’re unsure about any part of the process, consider consulting with a bankruptcy lawyer or the Trustee handling the bankruptcy case . In case of any uncertainties regarding any aspect of the process, it is advisable to seek advice from a bankruptcy lawyer or the Trustee overseeing the bankruptcy case.
File your claim on time to safeguard your rights as a creditor.
By adhering to these guidelines and furnishing precise information, you will complete Form 31 and safeguard your creditor rights throughout the bankruptcy or restructuring proceedings.
Section 6: Common Mistakes to Avoid when Completing Form 31 Proof of Claim
When engaging in the intricate process of submitting a proof of claim to the Trustee, it is imperative to steer clear of common errors that may result in delays, rejections, or potential dismissal of your claim. This section will outline three crucial errors to avoid when completing Form 31 for the proof of claim.
Providing incomplete or inaccurate information on your proof of claim: This can significantly hinder the processing of your claim or result in its rejection. To mitigate this risk, it is crucial to take the following steps:
Thoroughly review your claim amount to ensure it aligns with your records.
Verify the accuracy of creditor information, including names, addresses, and account numbers
Organize your documents coherently and logically to facilitate efficient processing and evaluation.
By paying close attention to these details, you can enhance the accuracy and efficiency of your claim submission process.
Failure to include supporting documentation: This is a significant oversight that can result in the rejection or delay of your claim. To mitigate this risk, it is imperative to adhere to the following guidelines:
Attach all pertinent supporting documents, including invoices, receipts, and contracts.
Ensure that all documents are clear, legible, and easily readable.
Organize your documents in a clear and logical order
Missed Deadlines for Submission: Be sure to allocate extra time for any unforeseen delays or complications when submitting your proof of claim before the deadline. To minimize last-minute stress, make sure to submit your claim well ahead of the due date. By being proactive and avoiding these typical errors, you can streamline the filing process and increase your chances of a successful outcome. Remember to thoroughly review your details, attach all necessary documentation, and submit your claim with ample time to spare. Finally, missing deadlines for submitting your proof of claim can have severe consequences, including dismissal of your claim.
To ensure a successful filing process, it’s important to avoid these common mistakes. Make sure to thoroughly review your information, attach all necessary supporting documents, and submit your claim with ample time before the deadline.
Section 7: Form 31 Proof of ClaimFAQs
In this section, we’ll address some frequently asked questions about completing Form 31 proof of claim.
Q1: What is Form 31 Proof of Claim?
A1: Form 31 Proof of Claim is a prescribed form that creditors use to indicate their claim against a bankrupt estate or in a formal restructuring under the BIA. It is a crucial step in the process, as it allows creditors to assert their rights and receive a portion of the available funds.
Q2: Where can I find Form 31 Proof of Claim?
A2: Form 31 Proof of Claim may be obtained from the office of the Trustee or downloaded from the official website of the Office of the Superintendent of Bankruptcy Canada. Make sure you get the most up-to-date version of the form as the new one goes into effect on July 15, 2024.
Q3: What information should I include in Form 31 Proof of Claim?
A3: When completing Form 31 Proof of Claim, you should provide accurate and detailed information, including your name and address, the debtor’s name, the amount of your claim, and any supporting documentation.
Q4: Are there any specific formatting guidelines for completing Form 31 Proof of Claim?
A4: While there are no strict formatting guidelines, it’s important to ensure that your form is neat, legible, and organized. Use clear and concise language, and avoid any unnecessary details. Attach supporting documents in a logical order and label them appropriately.
Q5: Can I submit multiple claims using Form 31 Proof of Claim?
A5: Yes, you can submit multiple claims using Form 31 Proof of Claim. However, you must separate each claim clearly and provide all the necessary information and supporting documentation for each claim.
Q6: Can I make changes to my submitted Form 31 Proof of Claim?
A6: Once you have submitted your Form 31 Proof of Claim, it depends on the change. If it is something very minor, like your phone number, the Trustee will make that change for you. If it is a major change, like the amount you are claiming, it is recommended that you file an amended claim. Therefore, reviewing your form carefully before submission and ensuring its accuracy is crucial. If you need to make corrections or updates, contact the Trustee’s office immediately.
Remember, completing Form 31 Proof of Claim accurately and on time is essential to assert your rights as a creditor and receive a fair distribution from the estate. By following these tips and guidelines, you can navigate the process successfully.
Conclusion
Completing Form 31 Proof of Claim is crucial for creditors seeking to assert their rights in a bankruptcy case. By avoiding common mistakes, including providing inaccurate information, failing to include supporting documentation, and missing submission deadlines, creditors can enhance their chances of a smooth filing process. Remember to double-check all information, attach relevant supporting documents, and submit your claim on time. By doing so, you can ensure that your claim is properly considered and increase your chances of a successful outcome.
Do you or your company have too much debt? Are you or your company in need of financial restructuring? The financial restructuring process is complex. The Ira Smith Team understands how to do a complex restructuring. However, more importantly, we understand the needs of the entrepreneur or the person who has too much personal debt.
You are worried because you are facing significant financial challenges. It is not your fault that you are in this situation. You have been only shown the old ways that do not work anymore. The Ira Smith Team uses new modern ways to get you out of your debt troubles while avoiding bankruptcy. We can get you debt relief freedom.
The stress placed upon you is huge. We understand your pain points. We look at your entire situation and devise a strategy that is as unique as you and your problems; financial and emotional. The way we take the load off of your shoulders and devise a plan, we know that we can help you.
We know that people facing financial problems need a realistic lifeline. There is no “one solution fits all” approach with the Ira Smith Team.
That is why we can develop a restructuring process as unique as the financial problems and pain you are facing. If any of this sounds familiar to you and you are serious about finding a solution, contact the Ira Smith Trustee & Receiver Inc. team today.
Call us now for a free consultation. We will get you or your company back on the road to healthy stress-free operations and recover from the pain points in your life, Starting Over, Starting Now.
The information provided in this Brandon’s 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 of this Brandon’s Blog should not be relied upon as a substitute for professional guidance or consultation. The author, Ira Smith Trustee & Receiver Inc. as well as any contributors to this Brandon’s Blog, do not assume any liability for any loss or damage resulting from reliance on the information provided herein.
Welcome to our Brandon’s Blog where we will explore the intricate world of insolvency and its profound impact on businesses in Canada from my perspective as a professional in the field. In this exploration of business insolvency, we will uncover the implications that insolvency brings for creditors, shareholders, their lawyers and accountants, and employees alike.
Understanding the complexities of financial distress is crucial for businesses to navigate through turbulent times successfully. Join me as we discuss effective strategies and best practices to mitigate the challenges of insolvency, ensuring a smoother transition toward financial stability.
Definition of Business Insolvency
Business insolvency in the Canadian context refers to the financial state of a business where it is unable to pay its debts as they become due. It is a financial condition, not a legal one. Do not confuse the business or company with the financial condition of being an insolvent person with the legal condition of being involved in bankruptcy proceedings. Corporate insolvency is not corporate bankruptcy.
Corporate insolvency results in the business being unable to pay its debts when due which may make it impossible for the business to continue its operations. Insolvent companies may very well end up in the legal state of bankruptcy or as an alternative to bankruptcy, in insolvency restructuring proceedings.
Business insolvency can force the business to choose one of the insolvency options for businesses, including bankruptcy filings or proposals for restructuring and repayment plans under the Bankruptcy and Insolvency Act (Canada) (BIA).
In Canada, the number of business insolvencies has been on the decline for many years, but the impact of the COVID-19 pandemic has seen a reversal of this trend. Business insolvency filings are on the rise again. However, there are many small businesses where a business bankruptcy process does not make any sense as there are either no or few assets to offset the large company debts. We get calls daily from entrepreneurs of such companies where we tell them it is in their best interests to merely close the business doors rather than spend money to put their company into bankruptcy.
Causes and Warning Signs of Business Insolvency
Economic Downturn and Market Volatility
One of the primary contributors to business insolvency in Canada is the unpredictable nature of economic fluctuations and market volatility. As businesses strive to adapt to shifting market trends and consumer demands, they are often met with unforeseen challenges that can strain financial resources. Economic downturns, changes in consumer behaviour, and global market dynamics all play a pivotal role in determining the financial health of businesses across various sectors.
Cash Flow Problems: Overleveraging and Excessive Debt Burden
Another significant factor that can precipitate business insolvency is overleveraging and an excessive debt burden. While leveraging can be a strategic tool for growth and expansion, it becomes problematic when businesses accumulate debt beyond their capacity to repay. High levels of debt, coupled with declining revenues or profitability, can create a precarious financial situation, ultimately leading to insolvency if left unaddressed.
Poor Financial Planning and Management
Effective financial management and planning are essential components of sustainable business operations. However, inadequate financial oversight and poor planning can leave businesses vulnerable to insolvency. From misaligned budgeting strategies to ineffective cash flow management, deficiencies in financial management practices can exacerbate existing challenges and hasten the onset of insolvency.
Regulatory Compliance and Legal Challenges
Navigating the complex regulatory landscape in Canada can pose significant challenges for businesses, especially concerning compliance and legal matters. Failure to adhere to regulatory requirements, such as tax obligations or industry-specific regulations, can result in legal disputes, penalties, and fines, placing additional strain on financial resources. Moreover, litigation and legal challenges can further impede business operations and contribute to business insolvency.
Technological Disruption and Industry Shifts
The rapid pace of technological innovation and industry shifts can disrupt traditional business models and market dynamics, presenting both opportunities and challenges for businesses in Canada. Failure to embrace technological advancements or adapt to changing industry trends can render businesses obsolete or inefficient, leading to a decline in competitiveness and financial viability. As such, businesses must remain agile and proactive in leveraging technology to stay ahead of the curve and mitigate the risk of insolvency.
External Shocks and Unforeseen Events
External shocks and unforeseen events, such as natural disasters, geopolitical instability, or pandemics, can have profound implications for business continuity and financial stability. The unprecedented disruptions caused by such events can severely impact supply chains, disrupt operations, and erode consumer confidence, thereby jeopardizing the financial health of businesses. While certain external shocks may be beyond the control of businesses, proactive risk management and contingency planning are essential to mitigate their adverse effects.
Remember, proactive planning, decisive action, and collaboration with knowledgeable professionals are the cornerstones of navigating business insolvency effectively.
Business Insolvency: Overview of Insolvency Law in Canada
In Canada, insolvency law plays a vital role in guiding businesses through financially distressed situations. As a professional knowledgeable in this field, I will delve into the types of insolvency proceedings and the key legislation and regulations that govern insolvency processes.
Types of Insolvency Proceedings: In Canada, businesses can navigate various types of insolvency proceedings:
bankruptcy;
proposal;
corporate restructuring;
receivership.
Bankruptcy involves the liquidation of assets to repay creditors, while a proposal allows for negotiating repayment plans to avoid bankruptcy. For larger corporations, corporate restructuring under different legislation than a proposal (discussed next) is available. Finally, when a secured creditor enforces its security to liquidate the business assets, that is receivership.
Understanding the nuances between these proceedings is essential for businesses facing financial challenges. All of these proceedings are described in detail in my previous blogs in the Lawyer and Accountant Series over the last few weeks.
Key Legislation and Regulations: The BIA applies to all business bankruptcy, proposal and receivership proceedings in Canada. The Companies’ Creditors Arrangement Act (CCAA) applies to corporations that owe more than $5 million to creditors who wish to avail themselves of Canadian bankruptcy protection to restructure their operations and finances.
These are the pivotal legislation for an insolvent person, be they a consumer, individual, proprietorship, partnership or corporation. They govern personal insolvency and business insolvency in Canada. The BIA will govern any personal bankruptcy or corporate bankruptcy.
Understanding these aspects of insolvency law is imperative for businesses as they navigate through financial difficulties. By recognizing the procedures and regulations outlined in the key legislation, businesses can protect their interests and work towards a successful resolution of insolvency issues.
As we continue to unravel the intricate landscape of insolvency law in Canada, I will now explore the specific roles of lawyers and accountants in business insolvency, shedding light on their invaluable contributions to navigating insolvency proceedings effectively.
Role of a Lawyer in Business Insolvency
Lawyers play a critical role in guiding businesses through the challenging landscape of insolvency. There are many complexities and responsibilities involved in representing clients during financial distress. Let’s explore the legal responsibilities and duties, as well as effective strategies for representing clients in insolvency proceedings.
Legal Responsibilities and Duties
A lawyer’s primary responsibility is to ensure that their clients navigate the legal proceedings smoothly, legally and ethically. Upholding the highest standards of professionalism and compliance with relevant laws is paramount in protecting the interests of all involved parties. From providing sound legal advice to negotiating on behalf of clients, every action must align with the legal framework outlined in insolvency law.
In insolvency proceedings, it’s essential to draft and review legal documents meticulously, such as restructuring plans and agreements, to safeguard the rights of creditors, shareholders, and employees. Transparency and adherence to the law are non-negotiable aspects that guide a lawyer’s responsibilities in representing clients effectively.
Strategies for Representing Clients
When representing clients in business insolvency cases, adopting a strategic approach is key to achieving successful outcomes. Clear communication with clients to understand their objectives and concerns forms the foundation of developing a tailored strategy. By conducting in-depth research, analyzing financial documents, and collaborating with other professionals like accountants and insolvency practitioners, lawyers can offer comprehensive legal services.
Each client’s situation is unique, requiring a personalized strategy that addresses their specific needs and goals. Through a combination of legal expertise, practical considerations, and proactive communication, lawyers strive to navigate the complexities of insolvency proceedings effectively. By working collaboratively with clients and other professionals, especially the insolvency professionals, they can secure the best possible resolutions for their clients’ insolvency challenges.
Role of an Accountant in Business Insolvency
Accountants also play a critical role in the realm of business insolvency. The CPA understands the importance of financial analysis and compliance with accounting standards in navigating through the complexities of insolvency. Let’s explore how accountants play a pivotal role in helping businesses facing financial distress.
Financial Analysis and Reporting
Financial analysis and reporting are fundamental aspects of dealing with business insolvency. The accountant’s role involves carefully assessing the financial health of a company experiencing insolvency issues. By analyzing crucial financial statements, cash flow projections, and other relevant data, CPAs can provide insights that help the business understand its current financial situation.
Through their expertise in financial analysis, CPAs identify key areas of concern and create accurate reports that are essential for stakeholders, including creditors, shareholders, and employees, to make informed decisions. Effective financial analysis enables businesses to develop strategies for managing financial distress, paving the way for a smoother resolution of insolvency issues.
Compliance with Accounting Standards
Compliance with accounting standards is a cornerstone for businesses navigating insolvency in Canada. The CPA will ensure that the financial statements are prepared in adherence to the relevant accounting principles and regulations. This commitment to compliance promotes transparency and upholds the integrity of financial reporting.
By maintaining strict compliance with accounting standards, businesses demonstrate their dedication to ethical practices and financial accuracy. This, in turn, fosters trust among creditors, shareholders, and other stakeholders during times of financial distress. Upholding accounting standards is crucial for businesses to mitigate legal and financial risks, emphasizing the need for meticulous attention to regulatory requirements.
CPAs recognize the significance of financial analysis and compliance with accounting standards in guiding businesses through the insolvency process. By providing invaluable financial expertise ensuring adherence to regulatory guidelines, and working with other professionals, especially the insolvency professionals, the external CPA supports businesses in making well-informed decisions and navigating the complexities of business insolvency successfully.
This is how both non-insolvency lawyers and accountants can still play a meaningful role in business insolvency, especially in a business restructuring process. A successful outcome of the business restructuring is the best way for the existing lawyer and accountant to maintain both the client but also a close meaningful business relationship for the long term.
Impact of Business Insolvency
Job Losses and Unemployment
The impact of Canadian business insolvency on job losses and unemployment can be significant. When a business becomes insolvent, it may be forced to lay off employees or shut down entirely, leading to job losses. This can result in a higher unemployment rate as workers find themselves without a job and struggle to secure new employment.
The COVID-19 pandemic has exacerbated these challenges, with many entrepreneurial businesses in Canada continuing to face financial difficulties and the continued risk of closure. Such businesses are still struggling to return to normal revenues, carry unpaid debt taken on during the pandemic, and face rising costs and a shortage of labour.
Targeted measures and support for small businesses are crucial to prevent closures and job losses. By assisting, such as financial aid, access to resources, and support for restructuring, the impact of business insolvency on job losses and unemployment can be mitigated. Additionally, policies like the recent amendments to prioritize creditor claims related to defined-benefit pension plans can help protect employees’ financial security in the event of insolvency.
Effects on Suppliers and Creditors
The effects of Canadian business insolvency on suppliers and creditors can be significant. When a business becomes insolvent, suppliers may face challenges in receiving payment for goods or services provided to the business. This can result in financial difficulties for the suppliers themselves, especially if they rely heavily on the insolvent business as a major customer.
Creditors, including financial institutions and other lenders, may also experience losses when a business files for bankruptcy or proposes a restructuring plan. In most cases, creditors will not receive the full amount owed to them, or they may have to wait a significant amount of time to receive any repayment.
Overall, Canadian business insolvency can have a ripple effect on suppliers and creditors, leading to financial challenges and losses for those involved in the business’s operations. Suppliers and creditors need to assess their credit risks before extending credit and take appropriate measures to protect their interests in the event of a business insolvency.
Potential Closure or Sale of the Business
In Canadian business insolvency, the potential closure or sale of the business can have significant implications for the business owner, employees, creditors, and the economy as a whole. If an entrepreneurial business is unable to meet its financial obligations and is forced to close its doors, it can result in job losses, financial losses for creditors, and a decrease in economic activity in the local community.
For the business owner, the closure or sale of the business can mean the end of their entrepreneurial venture, financial loss, and potential personal liability for both Director liabilities as well as any corporate debt personally guaranteed by the entrepreneur. Such liabilities can have a significant impact on their financial well-being and prospects.
For employees, the closure of a business can result in job loss, uncertainty, and financial hardship. They may struggle to find new employment, especially if the closure is due to broader economic challenges in the industry or region.
For creditors, the closure of a business can mean they probably will not recover the full amount owed to them. They may have to write off the debt as a loss, which can impact their financial stability and ability to extend credit to other businesses.
In terms of the economy, the closure or sale of a business can contribute to a decrease in economic activity, reduced consumer confidence, and a negative impact on the overall business environment. It can also lead to a loss of tax revenue for the government, further impacting public services and infrastructure.
Overall, the potential closure or sale of a business in a Canadian business insolvency is a complex and challenging situation that requires careful consideration of the implications for all stakeholders involved. It underscores the importance of effective financial management, planning, and risk mitigation strategies for entrepreneurial businesses to avoid insolvency and closure in the first place.
Reputation Damage
Reputation damage arising from a Canadian business insolvency can have long-lasting effects on a company. When a business becomes insolvent, it is unable to fulfill its financial obligations, leading to creditors and suppliers losing trust in the company. This can result in difficulty in securing credit, partnerships, and contracts in the future.
Moreover, news of a business insolvency can spread quickly, damaging the company’s reputation among customers and stakeholders. Customers may lose faith in the company’s ability to deliver products or services, leading to a loss of business and revenue. Employees may also become concerned about job security and employee wages. Morale suffers and the most qualified employees can find new jobs quickly. All of this leads to morale suffering which makes the business insolvency closer to a self-fulfilling prophecy.
Reputation damage from a business insolvency can be difficult to overcome. Rebuilding trust with creditors, suppliers, customers, and employees may take time and effort. Companies trying to implement a restructuring insolvency plan need to implement strong communication strategies to address concerns and demonstrate a commitment to financial stability and responsibility.
Overall, reputation damage arising from Canadian business insolvency can have significant consequences for a company’s long-term success and viability. Businesses need to address insolvency issues promptly and transparently to mitigate potential reputational harm.
Navigating Business Insolvency Proceedings
Initiating the Insolvency Process
In Canada, the process of initiating insolvency proceedings is a critical step for businesses facing financial distress. There are two kinds of processes; 1. voluntary and 2. involuntary.
The voluntary process normally begins with the insolvent business formally declaring insolvency by filing for bankruptcy protection under either the BIA or CCAA to begin the restructuring process. Alternatively, the insolvent business can file corporate bankruptcy if liquidation is the only answer for a business that is no longer viable.
The involuntary process would normally begin with either a secured creditor privately appointing or making an application to the Court for the appointment of a receiver. Alternatively, one or more unsecured creditors owed in total at least $1,000 can launch a Bankruptcy Application against the insolvent company.
Seeking professional guidance from experts like insolvency lawyers and licensed insolvency trustees is essential to navigate this complex process effectively. Businesses can begin addressing their financial challenges by initiating insolvency proceedings and working toward a resolution.
Managing Stakeholder Relationships
Managing stakeholder relationships is paramount during times of business insolvency in Canada. Creditors, shareholders, and employees all have vested interests in the outcome of insolvency proceedings. Effective communication and transparency are essential to build trust and mitigate potential conflicts. By keeping stakeholders informed, addressing their concerns, and involving them in decision-making processes, businesses can navigate insolvency proceedings with clarity and confidence.
Business insolvency is a complex issue that requires careful navigation. By understanding the implications for all stakeholders and seeking professional advice, businesses can better prepare for financial challenges.
Resolving Legal issues Within a Business Insolvency
There are two main avenues for addressing legal issues within insolvency cases: 1. Negotiation and Mediation Techniques, as well as 2. Litigation and Court Proceedings. I will now delve into the strategies and approaches essential for navigating through challenging financial times successfully.
Negotiation and Mediation Techniques
When faced with legal issues within insolvency cases, negotiation and mediation techniques can be powerful tools for finding amicable solutions. Insolvency trustees find that engaging in constructive dialogue with stakeholders can often lead to mutually beneficial outcomes. By exploring innovative and collaborative approaches, businesses can avoid unnecessary conflicts and costly legal battles.
Effective negotiation involves understanding the concerns and needs of all parties involved.
Mediation offers a platform for open communication, ensuring that diverse perspectives are heard and respected.
Skilled mediators facilitate the process, guiding toward agreements that protect the interests of creditors, shareholders, and employees.
By adopting a strategic and empathetic approach to negotiation and mediation, businesses can navigate the complexities of insolvency issues with resilience and integrity. The ability to find common ground and explore creative solutions is essential in any business restructuring.
Litigation and Court Proceedings
While negotiation and mediation are preferred methods for resolving legal issues within the insolvency case, there are instances where litigation and court proceedings become inevitable. This is more so within a liquidating bankruptcy proceedings rather than in a business reorganization. Licensed insolvency trustees understand the importance of legal recourse in protecting the rights and interests of all stakeholders involved.
Litigation provides a formal platform for resolving disputes and making legally binding decisions.
Court proceedings ensure that insolvency matters are adjudicated fairly and by the law.
Legal experts specializing in insolvency law offer invaluable guidance throughout the litigation process.
By preparing meticulously and engaging competent legal representation, businesses can navigate the complexities of court proceedings with confidence. While litigation may signify a more adversarial approach, it can also lead to definitive resolutions that provide clarity and direction in times of financial turmoil.
4 Common Business Insolvency FAQs
What is the difference between company insolvency and personal bankruptcy?
Company insolvency refers to a company that is unable to pay its bills and debts owed, while personal bankruptcy is a legal process for individuals who cannot pay their bills to eliminate debt.
When should a company consider filing for bankruptcy?
A company should consider filing for bankruptcy or bankruptcy protection to restructure when they are facing overwhelming financial difficulties, such as a loss of income, high levels of debt, inadequate cash flow, and reliance on personal credit to meet obligations. This only makes sense if action is taken relatively early in the insolvency when there are still assets that can be used in perhaps a different corporate form to continue to run the viable part of the insolvent business.
How much debt does a business need to owe to file for bankruptcy in Canada?
In Canada, an insolvent person or insolvent business needs to owe $1,000 or more to unsecured creditors to be eligible to file for bankruptcy.
Can sole proprietorships and partnerships file for business bankruptcy?
Yes, sole proprietorships and partnerships can file for business bankruptcy, and they would need to work with a Licensed Insolvency Trustee to do so. In these forms of business, it is the sole proprietor or partners who would be filing bankruptcy. As this would be a consumer insolvency, the bankruptcy rules dealing with the insolvency of individuals would guide this kind of bankruptcy process.
Business Insolvency Conclusion
Navigating business insolvency in Canada is a multifaceted challenge that requires careful consideration and strategic planning. As a licensed insolvency trustee, I have explored the intricacies of insolvency law and its impact on businesses, creditors, shareholders, and employees. Understanding the complexities of insolvency is pivotal for businesses to weather financial storms successfully for a brighter financial future.
The role of corporate lawyers and accountants in helping to guide businesses through insolvency proceedings is an important one. By recognizing the significance of legal responsibilities, financial analysis, and compliance with accounting standards, businesses, with the help of a Licensed Insolvency Trustee and insolvency legal counsel can tackle insolvency issues with confidence and resilience.
I hope you enjoyed this business insolvency 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 overwhelming debt 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.
Step into this week’s edition of Brandon’s Blog! Our topic this week explains the complicated landscape of Canadian receiverships. Our journey into a world where secured lenders sometimes grapple with their unhappiness with a receiver’s recommendation for a certain court-sanctioned buyer, wanting to buy the holdings of an insolvent enterprise.
Simplifying your journey, I shall use a recent, tangible case study to unveil how secured creditors can endeavour to wield influence in court-supervised receiverships. I will deconstruct the technical terms and explain every nuance in a manner that you will easily understand.
Canadian receiverships are a pursuit of balance, entwined with the rightful entitlements of secured creditors through the prism of procedural clarity and the scales of impartiality, as demanded by the court in the realm of Canadian receiverships.
Understanding Canadian receiverships and approved buyers
What is a receivership and how does it function in Canada’s legal framework?
Within the legal landscape of Canada encompassing matters of commercial contention, there is the intricate notion of receivership. This process entails the designation of one of the two types of receivers; either a privately-appointed receiver or a court-appointed receiver. A receiver is vested with the authority to assume dominion over a business’s array of assets and properties. This authority arises from situations of monetary default on their secured loans.
It is prudent to retain awareness that the role of a receiver can only be filled by a licensed trustee for assuming the mantle of a receiver within the confines of Canada’s legal expanse.
The fulcrum upon which the inception of the receivership mechanism pivots is usually the inability of secured creditors to recoup their financial outlay from a debtor, who in turn is incapacitated in discharging its pecuniary obligations.
The receiver becomes vested with the possession and control of the assets, affects their liquidation, and subsequently allocates the ensuing sale proceeds among the cadre of creditors within the hierarchy delineated by the legal ladder of priority of claims.
As an instrumental constituent of the commercial legal architecture in Canada, the receivership process endeavours to safeguard the vested interests of both creditors and debtors. It offers creditors the avenue to recoup either the entirety or a portion of their outstanding amounts due.
Concurrently, beleaguered commercial entities are afforded the prospect of either orchestrating a financial reconfiguration that extricates them from the quagmire of their fiscal problems or alternatively, facilitating the divestiture of assets with the aspiration of facilitating the uninterrupted continuity of the business, but under new ownership. It, therefore, emerges as an indispensable instrument within the gamut of the Canadian legal paradigm, upholding the equilibrium of economic constancy.
Who is an approved buyer in the context of a receivership sale?
In the detailed context of a receivership sale, an approved buyer describes an individual or entity that has effectively met the specific requirements stated by the designated receiver. These standards encompass a variety of variables, including financial disclosure, a shown understanding of the sale’s terms and conditions, and the tried and tested capacity to finalize the purchase quickly. Usually, the recognition of an approved buyer takes place within a defined bidding procedure, in which potential purchasers compete to meet these developed requirements.
Once identified, an approved buyer ends up being subject to the terms and terms laid out within the sale arrangement. It is the receiver’s responsibility to ensure that the sale is carried out with a commitment to fairness and transparency. This consists of the duty to pick an approved buyer who not only has the capacity to efficiently wrap up the transaction but also has the ability to enhance the overall value of the assets that are being sold.
The fiduciary responsibility of the receiver is paramount throughout this process. The receiver is obliged to act in the very best interests of all parties, which encompasses lenders and other stakeholders. For that reason, the receiver’s duty surpasses the simple identification of an approved buyer; it includes securing the integrity of the sale, guaranteeing fairness for all parties, and ultimately maximizing the value that can stem from the assets being sold within the context of the receivership.
receiverships
The role of secured creditors and their rights in receiverships
In the world of Canadian receiverships, secured creditors play an essential function in identifying the destiny of troubled companies. Recognizing their rights is essential in going through this complex landscape. Secured creditors have the legal authority to take enforcement proceedings against the assets covered by their security and have a higher priority in payment contrasted to unsecured creditors. They can either privately appoint or apply to the court for the appointment of a receiver.
The court-appointed receiver acts as a neutral party in charge of taking care of and selling the assets. The secured lenders have the right to challenge court-approved buyers if they think the receivership sale process is unfair or if they have a better deal. Nonetheless, safeguarding their legal rights within receiverships calls for a detailed understanding of the legal complexities and efficient timing associated with receiverships.
A secured creditor plays a crucial duty in the sale process. As the main financial stakeholder given their claim against the secured assets, the secured creditor has a vested interest in the end result of the sale procedure. The court-appointed sale procedure includes the marketing and sale of the debtor’s assets and properties, which inevitably establishes the amount of funds that will be available to pay over against the secured debt.
For that reason, the secured lender has a significant interest in guaranteeing that the sale procedure is conducted in a way that optimizes the recuperation of funds. The secured creditor’s beneficial interest in the sale procedure is shown in their capability to approve or reject the sale of assets in a private appointment and carries a level of weight with the court for a court-approved sale. This power allows them to protect their economic interests and ensure the very best feasible result from the sale process.
The timelines and stages of a receivership sale: The role of the approved buyer in Canadian receiverships
In Canadian receiverships, the role of the approved buyer is essential to the successful outcome of a receivership. In a court-appointed receivership, approved buyers are court-approved purchasers who typically offer the highest and most beneficial bid for the debtor company’s assets. They play a crucial role in maximizing the value of the distressed company and ensuring the best outcome for all parties involved. Their timely participation in the receivership process is instrumental in achieving sale finality and ultimately shaping the fate of the distressed entity.
In the world of Canadian receiverships, the involvement of court-approved buyers functions as a cornerstone in supporting an equitable and clear process. This essential process makes certain that every interested party has the possibility to take part in the bidding process for the assets being sold. The result of this bidding process finishes with the choice of the best overall bidder. This mechanism of operation is rooted in concepts of justness, striving to eliminate any type of unnecessary benefit that a solitary party might have over others.
When a company is placed into receivership, the assigned receiver assumes command over the assets as well as operational elements of the business. The purpose behind the orchestration of a receivership sale revolves around the liquidation of the firm’s holdings to get them out of the insolvent troubled company and into the hands of a buyer who can maximize their value. The timing and stages integral within receiverships have a level of fluidity depending upon the intricacy and complexity of the business’s operations and assets.
Generally, the receiver’s starting point is the meticulous groundwork and strategy in setting up the sale procedure. Typically, the initial stage involves the preparation and marketing of the sale of the assets. This is followed by the negotiation and acceptance of offers from interested parties. In court-appointed receiverships, once an offer is accepted, the sale is subject to court approval and then the transfer of ownership is completed.
As this complex process unravels, the receiver must follow rigid lawful as well as regulatory requirements, thereby promoting an environment of impartiality and transparency that emphasizes a fair sale process. In its totality, the underlying purpose of a receivership sale opens up as the optimization of the company’s asset values, a pursuit carried out in the service of all stakeholders’ well-being.
receiverships
When is it too late for a secured creditor to challenge an approved buyer in Canadian receiverships?
Within the intricate realm of Canadian receiverships, those holding the mantle of secured creditors find themselves navigating through a myriad of intricate challenges, especially when confronted with the task of contesting a buyer approved by the court. The genesis of these challenges emerges from the imperative to harmonize the rights of stakeholders with the irrevocability of a sale.
Timing emerges as an eminent concern for any actions by creditors, as secured creditors must expeditiously interpose to thwart the endorsement of an approved buyer. Such a stance necessitates astute contemplation encompassing not only the exigencies of insolvency statutes but also the jurisprudential lineage of past cases, in tandem with an astute assimilation of the considerations that judiciaries deliberate upon while adjudging the legitimacy of an opposition. The effective surmounting of these multifaceted impediments serves as the crucible through which a secured creditor’s sway attains its zenith, eventually moulding the denouement of an entity’s restructuring endeavour.
In Canadian receiverships, it is very important for secured creditors to understand when it is far too late to challenge an accepted buyer. A secured creditor has the status of a major stakeholder to object to the sale of property by a receiver. However, this objection needs to be made within an appropriate timespan. Normally this would be on the receiver’s motion to approve a specific buyer under an agreement of purchase and sale to buy the company’s assets in receivership.
If the creditor stays silent at the hearing, after being served with the receiver’s motion record, or worse, consents to the relief the receiver is requesting, it will be near impossible to change the outcome. Also, if the secured creditor waits too long to appeal the court’s decision on the approval of the buyer, it may be too late to overturn the accepted buyer.
The courts normally take into consideration variables such as the timing of the objection, the factors for the opposition, as well as whether the creditor had knowledge of the receiver’s motion recommending the sale. Therefore, it is essential for secured creditors to act without delay as well as seek legal advice in receiverships to ensure their rights are preserved and protected.
The Role of Investment and Due Diligence by Approved Buyers in Canadian receiverships
When potential investors turn their gaze toward the prospects of allocating resources in assets emanating from Canadian receiverships, a paramount imperative takes center stage—none other than the meticulous practice of due diligence. Embarking on this voyage entails a profound plunge into the annals of financials, operational intricacies, assets, and liabilities of pivotal suppliers—a linchpin to the enterprise’s continuity. Moreover, a comprehensive appraisal of the corporate entity’s visage within the tapestry of market conditions unfurls before them—an intricate matrix to fathom.
This immersive exploration fosters an enriched cognizance of the assets that conflate to shape the enterprise’s essence and the latent perils entwined. Concurrently, an assessment of the enterprise’s fiscal robustness commences, bifurcating between the financial vitality of the business itself and the overarching corporate infrastructure. This evaluation, ranging from debt metrics and asset portfolios to revenue inflows and the embryonic promise of future profitability, unfurls a tapestry conducive to ascertaining a judicious valuation, commensurate with inherent realities.
The compass of scrutiny extends further to encompass the realm of legality and regulation—a vista often overlooked yet of paramount significance. Engaging in a bout of legal due diligence emerges as the prudent course, an endeavour aimed at unearthing dormant legal quandaries or impending obligations that might cast a pall over operational congruence or intrinsic valuation.
As the due diligence crescendo navigates onward, an avenue laden with promise unfurls—plummeting into the corridors of potential betterment and restructuring, the twin gateways to magnifying operational yield. This orchestration, calibrated to fortify profitability, occupies a pivotal niche within the mosaic of considerations.
In the vanguard of this multifaceted expedition looms the bastion of market research—an indispensable edifice buttressed by industry ebbs and flows, the throes of competitive dynamics, and the overarching symphony of market demand. The synthesis of these nuanced factors culminates in an orchestration of knowledge that infuses sagacity into investment choices, ensuring an informed voyage into the tapestry of Canadian receiverships.
Within the realms of court-overseen receiverships in the Canadian context, the focal point unfailingly revolves around the paramount virtue of transparency. The bedrock of establishing confidence and credibility in the transaction resides in a meticulous and exhaustive due diligence endeavour. This endeavour, in its multifaceted essence, serves the dual purpose of ensuring equitability in pricing, commensurate with the genuine valuation of the assets on offer—an aspect that assumes cardinal significance for all stakeholders vested in the proceedings.
Furthermore, the inclusion of endorsed purchasers injects a paradigm of impartiality and impartiality into the entire procedural tapestry. Let us not be remiss in accounting for the aspect of legal conformity—a facet woven intricately into the fabric of this process. Said purchasers are vested with the task of scrutinizing potential legal conundrums, thereby preempting any semblance of post-sale imbroglio. An additional boon surfaces in the form of expedited procedural swiftness—a byproduct of the exhaustive due diligence undertaken.
Essentially, the realm of Canadian court-supervised receiverships beckons our attention to several pivotal considerations. First, and foremost, lies the meticulous endeavour undertaken by prospective buyers, involving an intricate choreography of research and analysis preceding their bids. This diligent preliminary inquiry manifests as a testament to their authenticity and competence, encapsulating an acute grasp of their enterprise. This facet’s significance stems from the heightened assurance it instills across the spectrum of participants, nurturing faith in their aptitude to consummate the transaction while adroitly managing the assets set to come under their aegis.
Segueing onwards, the confluence of comprehensive insights gleaned through rigorous due diligence serves as a compass directing prospective purchasers toward sagacious choices. These choices burgeon from the assimilation of manifold data points, sculpting a strategy to mitigate perils and optimize trajectories—calibrating the optimal approach for the assets earmarked for takeover. Additionally, negotiations unfurl as a canvas, where a nuanced comprehension of the distressed entity’s predicament acts as the brushstroke guiding buyers toward terms consonant with their aspirations. Simultaneously, the custodian of the proceedings—embodied by the receiver—meticulously orchestrates a harmonious equilibrium, ensuring equity persists as a recurring motif, safeguarding the interests of all implicated parties.
Collectively, the crux of the matter revolves around sanctioned buyers channelling their energies into a judicious exploration, culminating in a discerning investment stance. This virtuous circle of scrutiny and prudence furnishes a bastion of probity, where parity prevails and stakeholders’ interests find refuge within the tapestry of these exigent corporate circumstances. The intricate interplay of variables emboldens distressed entities’ myriad stakeholders, engendering optimism for recuperation within the contours of an intricate, multifaceted milieu.
receiverships
Legal precedents and case study
In the detailed tapestry of Canadian receiverships, the dissection of legal criterion and court decisions emerges as an essential core, important for the understanding of the detailed inflections that accompany the decisions of secured creditors in their search to overturn the approval of a purchaser. This case study, being a current decision of the Court of Appeal for Ontario, offers a fascinating look at the factors the appellate court takes into consideration when a secured creditor attempts to overturn a lower court decision on an accepted buyer and the approval of their offer to purchase assets from receiverships.
Scrutiny of cases bestows enlightenment rich with insights and strategies, unfurling before practitioners an intricate bouquet of knowledge encapsulating the symphony between legal principles and commercial actualities. Within this continuum, the equilibrium between safeguarding the prerogatives of creditors and the unalterable finality of an economic transaction assumes a role of pivotal prominence. By charting the trajectory of these paradigms, individuals of the legal craft glean invaluable insights that serve as compasses guiding their navigation within the intricate choreography of corporate metamorphosis.
The decision of the Court of Appeal for Ontario on August 21, 2023, I wish to discuss is Rose-Isli Corp. v. Smith, 2023 ONCA 548 (CanLII). It was on appeal from the order of The Honourable Madam Justice Kimmel of the Ontario Superior Court of Justice, dated February 2, 2023.
Overview of the case
Certain parties, including a secured creditor, appealed the authorization and vesting order released by the lower court judge that appointed the receiver and approved the sales process to be used to sell the property in receivership, in addition to a relevant ancillary order.
The appellants had actually initially sought the appointment of the receiver over the property. One of the applicants, 2735440 Ontario Inc. (“273 Ontario”), held a second mortgage on the real property. The order appointing the receiver contemplated 273 Ontario would certainly participate in a sales process for the property. The receiver received court authorization for a sales procedure, performed that approved sales process, and then sought court approval of the recommended bid.
When the receiver came to court for approval of the buyer and the sales agreement, the appellants opposed the proposed sale and, rather, looked for an order that 273 Ontario could pay out the first mortgage or, be acknowledged as a successful creditor bidder. The court approved the receiver’s recommendations of who the buyer should be and approved the sale as well as dismissing the applicants’ cross‑motion to redeem the 1st mortgage. The appellants submitted that the motions judge made an error by issuing the order that she did.
At the time of the issuance of the appointment order, the judge who issued the appointment order described the lay of the land at the time the applicants asked for the appointment of a receiver. That judge said that the relationship between and amongst the parties had irrevocably broken down. The evidence for that was the receivership application itself. That judge kept in mind that one way or the other, all stakeholders that day agreed that the Rosehill condo real estate project should be sold and that the sale process needed to be done by a court-appointed officer.
The appellants proclaimed that the lower court judge had made an error in not allowing the appellant’s cross-motion. They submitted that as the second mortgagee, they held the right to redeem the first mortgage at any conceivable juncture, even in the face of the implementation of a carefully run court-sanctioned sales procedure and the request for the approval of a sale to the approved buyer.
The appellate court analysis
273 Ontario, as one of the applicants seeking the appointment of a receiver, extended their consent to the issuance of the Appointment Order. Paragraph 9 of the Appointment Order made it clear that the entitlement of any kind of encumbrancer to effectuate the redemption of a mortgage pertaining to the property was now trapped under the jurisdiction of the appointed receiver.
Within that section was the affirmation that all privileges as well as remedies against the project or its assets or the receiver, or that impact the property, are currently kept in abeyance and suspended, unless the receiver concurred with the proposed action, in writing, or if the court made such an order.
The appellate court found that the motions judge deliberately acknowledged that the subject for adjudication did not orbit around whether 273 Ontario had a legitimate claim for redemption, yet instead, she focused on the much more practical query as to whether 273 Ontario ought to be given the authority to implement that preserved benefit once the process of court-sanctioned sales process had been carried out and the receiver coming to court seeking the approval of the sale of assets under that process. After all, the sales process carried out by the receiver followed the Appointment Order requested by the applicants, which included 273 Ontario.
The Court of Appeal found this to be an astute reframing of the concern and made certain that the heart of the matter was aptly described: (i) the appellants had requested for the appointment of the receiver; (ii) the receiver, in accordance with the approval of the court, had undertaken a methodical sales procedure; and (iii) most importantly, the period of the Receiver had yet to be discharged.
Therefore, the vital scope of 273 Ontario’s ability to obtain court authority to redeem the 1st mortgage was undoubtedly coloured by the plain reality that the property stayed within continuous control under an active receivership. The court supervising the receivership and the sales process status was beyond the redemption rights of the 2nd mortgagee.
The Court of Appeal for Ontario said that, when confronted with the petition of an encumbrancer looking to redeem a mortgage on a property in receivership, the court has to meticulously ponder upon the far-reaching repercussions that might unfurl should the encumbrancer be allowed to exercise its right of redemption.
This philosophy extends to incorporate any kind of and all stakeholders who have purposes of disrupting a court-sanctioned sale process, that has been properly performed by the receiver, all while bearing in mind the prospective purchaser who followed all the rules and waits to complete the acquisition. This principle is not restricted only to a mortgage redemption; it is a guiding beacon for any kind of stakeholder who attempts to disrupt a properly performed court-approved sales process.
The Court of Appeal for Ontario said that the following principles must be adhered to:
Usually, if a court-approved sales process has been carried out in a manner consistent with the principles set out in Royal Bank of Canada v. Soundair Corp., (1991), 1991 CanLII 2727 (ON CA), 4 O.R. (3d) 1 (C.A.), a court should not allow a subsequent endeavour to redeem to disrupt the consummation of the properly carried out sales process. From its perspective, the appellate court stated the rationale behind the Soundair principles applies in scenarios wherein an encumbrancer aspires to redeem a mortgage. Once the judicial machinery has been set in motion to oversee the sale of assets controlled within the confines of a receivership, that process must be allowed to play out. The court’s supervision of receiverships will give due regard to the intricate web of economic interests intertwined with the assets under the receiver’s control. In court-supervised receiverships, it is no longer the exclusive purview of a single creditor, but rather the collective interests of all economic stakeholders, that must be considered in this court-supervised process.
When addressing this issue, judicial deliberation should embark on a meticulous journey of ensuring balance. The court must delicately weigh the sacrosanct right to redemption against its potential repercussions of blemishing a fair, unbiased and transparent court-sanctioned receivership procedure.
A mockery would be made of the practice and procedures relating to receivership sales if redemption were permitted at that stage of the proceedings. A receiver would spend time and money securing an agreement of purchase and sale that was, as is commonplace, subject to Court approval, and for the benefit of all stakeholders, only for there to be a redemption by a mortgagee at the last minute. This could act as a potential chill on securing the best offer and be to the detriment of stakeholders.
The Court of Appeal for Ontario makes its decision
The Court of Appeal held that the appellants repeated the numerous complaints they made in the lower court about the lack of fairness in the sales process. The motions judge canvassed those complaints in considerable detail and found no merit in any of them. Her conclusion that the conduct of the sales process met the Soundair criteria was reasonable and free of palpable and overriding error, anchored as it was in the specific evidence before her.
Finally, the appellate court found no reversible error in the motions judge’s conclusion that the balance favoured protecting the integrity of the sales process over 273 Ontario’s request to redeem. The appeal was denied.
receiverships
Factors considered by courts in evaluating the timing of secured creditor’s challenge: Balancing creditor rights and sale finality
In evaluating the timing of a secured creditor’s challenge to block an approved buyer in Canadian receiverships, courts consider several factors. Firstly, they assess whether the creditor had sufficient notice and opportunity to challenge the sale. Timing is crucial, as courts look at whether the challenge was brought promptly and diligently.
Additionally, courts evaluate the potential impact on the sale process, including the harm to other stakeholders and the feasibility of an alternative solution. The creditor’s reasons and supporting evidence for the challenge are also scrutinized. Overall, the courts aim to balance the interests of the creditor with the need for finality and the preservation of the distressed company’s value.
Strategies for secured creditors to maximize influence
Testing a court-approved buyer too late in Canadian receiverships carries substantial prospective repercussions for secured creditors. The timing of these challenges is a vital variable that can considerably influence the outcome.
Leading among the dangers is the prospective loss of the opportunity to challenge the sale. Canadian courts value the finality of sales and receiverships while seeking to maximize the value of distressed company assets. Late legal challenges can interrupt this procedure and may not be viewed positively by the courts.
Secured lenders additionally risk forfeiting the chance to produce better offers or bargain for extra beneficial terms for themselves. Waiting too long to test an approved buyer can limit their capability to draw out the very best offer from the sale.
Additionally, late opposition can stain the integrity of secured creditors in the eyes of the court. This loss of reputation can have long-term consequences, potentially limiting their influence in future restructuring cases.
Secured creditors dealing with the intricate terrain of Canadian court-supervised receiverships, especially when opposing an approved buyer, are without a doubt confronted with an awesome challenge. To obtain the most favourable result for themselves, these creditors can carry out a variety of tactical techniques.
First and foremost, partnership emerges as a potent technique to reach an agreeable outcome. Secured lenders ought to take part in useful discussions with various other stakeholders and also the borrower, cultivating a joined front. This unity can significantly affect the selection of a receiver that understands their interests and intentions.
Moreover, direct engagement with the receiver is essential. By proactively participating in conversations with the receiver, secured creditors can make sure that their concerns and objectives are appropriately taken into consideration throughout the process. This interaction might also entail discovering different avenues, such as finding an approved buyer they support or offering financing to their preferred buyer, which can be advantageous in securing ideal end results.
A focus on detail cannot be underrated. Secured lenders should carefully inspect all essential documentation, leaving no rock unturned. Looking for experienced legal advice is critical to guarantee they are knowledgeable and supported to make sound decisions that will ideally safeguard their interests.
In summary, a mix of calculated planning, efficient interaction, as well as professional support is important for secured creditors seeking to navigate the elaborate landscape of court-supervised receiverships in Canada successfully. By embracing these approaches, they can boost their impact as well as maximize their opportunities to accomplish the most beneficial results.
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Canadian receiverships conclusion
I hope you enjoyed this receiverships Brandon’s Blog where I explored the dynamic realm of Canadian receiverships as secured creditors navigate the race against time to challenge court-approved buyers. The court must weigh the balance between creditor rights and sale finality that shapes the fate of distressed companies.
Individuals and business owners must take proactive measures to address financial difficulties 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 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, Starting Over, Starting Now.
How long do receiverships last in Canada? Introduction
In my September 2021 Brandon’s Blog, THE CANADIAN RECEIVERSHIP EASY BEGINNERS GUIDE, I provided an easy-to-understand guide to understand the receivership process. To summarize, I described that in Canada, a receivership is a legal remedy available to secured creditors to recover outstanding amounts under a secured loan if a company defaults on its loan payments. It may also be used in shareholder disputes to complete a project, liquidate assets, or sell a business.
A court may appoint a receiver to take possession of assets, oversee liquidation proceedings, and distribute the proceeds according to the applicable legal priorities as outlined in Canada’s Bankruptcy and Insolvency Act (BIA). Or, a secured creditor may issue a letter of appointment to the same effect.
It is essential to recognize that receivership and bankruptcy are distinct legal proceedings. Bankruptcy is a formal proceeding, regulated by the BIA, to provide debtors with debt relief when they are financially incapable of paying their unsecured creditors. Conversely, a receivership is a process available to secured creditors to recuperate outstanding debt arising from a secured loan or to address shareholder disputes.
The purpose of this Brandon’s Blog is to answer the question I am often asked: “how long do receiverships last in Canada?”.
how long do receiverships last
How long do receiverships last in Canada? Understanding what receivership is
There are two types of receiverships in Canada: court-appointed receiverships and private receiverships. Court-appointed receivers are appointed by a court to oversee the management and disposition of a debtor’s assets. Private receivers are appointed by secured creditors as part of a loan agreement and the security agreement between the debtor company and the creditor.to manage and sell a business debtor’s assets outside of the court system.
The receiver, regardless if it is a court-appointed receiver or privately appointed receiver, takes control of a company’s assets and business operations to repay outstanding debts to creditors. The receiver’s primary duty is to maximize the value of the assets and distribute the proceeds to the creditors according to their priority ranking. The receiver has the power to sell, manage, or liquidate the assets and may also negotiate with creditors to restructure the company’s debt.
Some key players in a receivership process are:
Borrower: The owner of the property who defaults on their loan obligations or faces financial distress.
Lender: The secured lender, normally a financial institution, who initiates the receivership action to protect their interest in the property and recover their debt.
Receiver: The neutral third party who is a licensed insolvency trustee (formerly called bankruptcy trustees) and is appointed either privately or by the court to take charge of the property and manage it toward a sale or resolution.
Court: The judicial authority that grants or denies the receivership request, sets the terms and conditions for the receiver’s appointment and oversees the receivership process.
Law firm: The lawyers who are acting for the lender, the borrower and the court-appointed receiver.
The powers and duties of a receiver can vary depending on the nature of the assets or the court order appointing them. Generally, it includes taking control of the assets, managing them in a financially responsible manner, and reporting to the court and parties involved in the dispute.
The duration of receiverships in Canada can vary depending on the specific circumstances of the case, but it typically lasts for a few months to over a year.
how long do receiverships last
How long do receiverships last in Canada?
Several factors will affect the duration of receivership in Canada, including:
the complexity of the case;
the number and nature of the assets involved;
the cooperation of the parties involved; and
the efficiency of the court system.
Other factors may include the availability of qualified professionals to manage and sell the assets, the level of creditor involvement and negotiation, and the overall economic and market conditions at the time. Ultimately, the length of receivership will depend on the specific circumstances of each case.
Court supervision is the oversight provided by a court in a court-appointed receivership. The purpose of court supervision is to appoint the receiver, to allow for the receiver to obtain the approval of the court to decisions and actions the court-appointed receiver wishes to take, to ensure that the receiver acts in the best interest of all parties involved and follows the court’s orders and to allow a forum for any aggrieved party to bring their dispute to the court for adjudication.
Termination of a receivership occurs when the court is satisfied that the receiver has fulfilled their duties and objectives or when the receiver’s appointment is no longer necessary. The court terminates a receivership by court order after approving the receiver’s final report and accounts.
how long do receiverships last
How long do receiverships last in Canada? Frequently asked questions (FAQs)
Navigating receiverships can be a tricky and complex situation. Asking questions like “how long do receiverships last in Canada?” is essential to any company dealing with financial hardship. Here I will cover some of the common FAQs associated with receiverships in Canada, and provide an in-depth look at the timeline of these proceedings. It is essential to have a thorough comprehension of receiverships to successfully manage this situation.
What are the differences between bankruptcy vs. receivership?
Receivership is a process to secure the rights of secured creditors, allowing for the control and eventual sale of the assets of a distressed company. Bankruptcy, on the other hand, is a legal process which allows a company in financial difficulty to reorganize its affairs or liquidate its assets under the guidance of an insolvency trustee – providing a safety net to unsecured creditors.
What happens during a receivership process in Canada?
As part of the receivership process in Canada, a receiver is appointed to handle a company’s assets and activities, facilitating the sale of these to settle the company’s debt to creditors.
How does a receiver sell a business or assets?
To sell a business or assets, a receiver has many options available. A receiver can:
advertise the assets for sale by running a tender bid sales process;
a tender bid sales process could be stand-alone or could be combined with a stalking horse sales process;
the assets could be liquidated through a public auction using the services of an auctioneer;
the receiver could hand all the assets over to a liquidator in order to sell the assets in an online auction;
in certain circumstances, the receiver may wish to hire a professional business broker experienced in that particular industry or assets the receiver took possession of; or
for retail store assets, the receiver may sell the entire package of assets and will then run a retail sale to the public.
Regardless of the process chosen, the receiver’s aim is to market and sell the assets or business and obtain the best price for the assets or business under the circumstances.
How does a creditor apply for receivership in Canada?
Secured lenders can apply for receivership in Canada by filing an application to the court under a federal or provincial statute or enforcing their security rights by appointing a receiver privately through a security instrument by way of an appointment letter. A receivership is a remedy that allows a secured creditor to take control of and sell the debtor’s property and assets to collect their secured debt through a private or court appointment process.
Can a receivership be stopped or avoided?
Receivership can sometimes be stopped or avoided through negotiation with the secured creditor(s), restructuring or refinancing of debts, or by finding alternative sources of funding. However, whether or not it can be stopped or avoided depends on the specific circumstances of each case. The cessation of receivership will not be easy unless the secured creditor is being paid out.
how long do receiverships last
How does a creditor enforce a secured loan in Canada?
In Canada, a creditor can enforce a secured loan by appointing a receiver under a private contract or through the court process. Upon appointment, the receiver will seize and sell the secured assets or the assets set out in the court order to recover the amount owed.
However, before being able to appoint the Receiver, there have to be one or more events of default as described in the loan agreement. Then, the lender must be reasonable in allowing the company borrower to cure the default. If the company in default does not remedy the default(s) and the lender has lost confidence, the lender can then make a written demand on the company to repay the entire loan, plus interest and costs and also serve the necessary statutory form on the defaulting borrower.
The lender must give the borrower a reasonable period of time to repay the secured lender’s debt. Reasonable time will vary depending on the unique circumstances of the situation. In Canada, the minimum amount of time that has to be given is 10 days, unless the borrower acknowledges in writing that they can never repay the debt and is waiving the notice period.
What are the legal options available to recover outstanding loan payments?
Legal options available to recover outstanding loan payments may include sending demand letters, filing a lawsuit, obtaining a judgment and using collection methods such as wage garnishment or asset seizure.
How long does the bankruptcy process take in Canada?
The timeline of a corporate bankruptcy process depends on the uniqueness and complexity of each individual situation. There is no typical timeline, but, it could be a year or more from the start of the bankruptcy until the licensed insolvency trustee is discharged.
How do I liquidate assets in Canada?
When seeking to divest yourself of some assets you have a plethora of choices – in the case of an asset like real estate, you can list it on the public market. Alternatively, you can try to find the right buyer on your own. Or, if you’d like some professional assistance, enlist the help of a savvy broker or financial adviser.
What are the consequences of not paying off secured loans in Canada?
In Canada, if you don’t pay back a secured loan, the lender may reclaim the collateral you put up, personal property like a car or real property such as a house. Don’t let your possessions be taken away! Be sure to make all loan payments in a timely manner.
how long do receiverships last
How long do receiverships last in Canada? Conclusion
So I hope that you now have a good appreciation for receiverships in Canada including the answer to the question “how long do receiverships last in Canada?”. If your company or business is under financial pressure and your secured creditor is about to demand full repayment of all loans, you need immediate professional advice.
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? 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 are obviously on your mind. Coming out of the pandemic, we are also now worried about the 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 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, Starting Over, Starting Now.
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.
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.
Call us now for a no-cost consultation. We will listen to the unique issues facing you and provide you with practical and actionable ideas you can implement right away to end the pain points in your life, Starting Over, Starting Now.
We hope that you and your family are safe, healthy and secure during this COVID-19 pandemic.
Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.
What is in the Canadian Bankruptcy and Insolvency Act?
Canada’s bankruptcy and insolvency laws are governed by two major pieces of federal legislation: the Canadian Bankruptcy and Insolvency Actand the Companies’ Creditors Arrangement Act. Additionally, provincial legislation intersects with the Canadian Bankruptcy and Insolvency Act. During bankruptcy, a debtor can keep certain types of property based on provincial legislation. Details may differ amongst each Canadian province. Provincial governments and territories have their own laws regarding property exemptions, court orders, and debt collection.
The Canadian Bankruptcy and Insolvency Act (often referred to as the “BIA” or the “Bankruptcy Act“) is a federal government statute that sets out the rules and procedures governing insolvency proceedings in Canada. These rules and procedures will apply to all corporations, individuals and partnerships that are parties to an insolvency filing. The whole point of bankruptcy legislation is to allow the honest but unfortunate debtor to shed themselves of their debts and to allow for the sale of assets or reorganization and refinancing of insolvent persons so that there is also fairness for the different claims of creditors.
Under the Companies’ Creditors Arrangement Act (CCAA), financially troubled corporations are given the opportunity to restructure their affairs in order to avoid bankruptcy. A corporation must have debts of at least $5 million to qualify for the CCAA.
The Canadian insolvency landscape is a complex one, with many different insolvency proceedings being used to deal with many different types of debtors. In this Brandon Blog, I provide an easy beginner’s guide of the Canadian Bankruptcy and Insolvency Act, as a primer into Canadian insolvency legislation and the administration of estates.
This Brandon Blog is not about the nuts and bolts of filing for bankruptcy. Other blogs I have written cover that topic and more. You can use the search function above to search for those Brandon Blog topics.
What is the purpose of the Canadian Bankruptcy & Insolvency Act?
Everyone knows you should do your best to stay out of too much debt, but for many people, it’s an impossible feat. When you’re over your head in debt, you’re having to keep up just to pay the interest on your debt. When you are spending more than you are making, you can’t pay your bills on time, or your assets when liquidated are worth less than your total liabilities, you are insolvent. Insolvency is the main test to see if you, or insolvent companies, qualify to start a bankruptcy process or a formal restructuring process, either under the Canadian Bankruptcy and Insolvency Act or the CCAA.
The Bankruptcy Act was designed to help Canadians who find themselves in financial difficulty. It is the main piece of Canadian insolvency legislation that governs bankruptcy proceedings, receivership and personal and corporate restructuring proceedings through consumer proposals and commercial proposals. Commercial proposals are also available for those people with consumer debt levels greater than the amount allowed to qualify for a consumer proposal. All Canadian bankruptcies, proposals and receiverships are governed by the Act. It contains bankruptcy laws, rules and guidelines for all stakeholders: the Superintendent of Bankruptcy (which is part of Industry Canada) the Licensed Insolvency Trustee, the debtor, and the creditors.
canadian bankruptcy and insolvency act
What options are available under the Canadian Bankruptcy and Insolvency Act?
The Canadian Bankruptcy and Insolvency Act provides a number of ways to deal with a financially troubled company or person. Most involve a court-supervised process. The options for a person or business in financial trouble and not able to right themself or itself are:
Consumer proposal
It is an offer to your creditors to repay a portion of your unsecured debt obligations in exchange for their elimination (with certain limited exceptions as laid out in the Bankruptcy Act). You can qualify if you owe $250,000 or less, excluding any debts registered against your home, such as mortgage debt or secured home equity line of credit debt.
A person proposes a plan to make monthly payments to the Licensed Trustee acting as the consumer proposal Administrator. The total amount offered to your unsecured creditors must be agreed upon by them. Within 60 months, you must pay off the entire amount accepted. Creditors typically accept a total payment of 25% or less of your total unsecured debt. Individual situations vary, however.
A successfully completed consumer proposal allows the insolvent person to eliminate their debts and avoid an assignment into bankruptcy.
Commercial proposal
Commercial proposals are also known as Division I proposals. The reason for this is because it is provided under Canadian Bankruptcy and Insolvency Act, Part III, Division 1 (consumer proposals are found under Part III Division II). An insolvent corporation or person can use it for restructuring proceedings. When a consumer’s debt exceeds the limits of a consumer proposal, a “commercial proposal” would be filed. If a definitive commercial proposal cannot be immediately prepared but the debtor needs to file in order to invoke the stay of proceedings (discussed in the next section), they can get the immediate protection they need by first filing a Notice of Intention To Make A Proposal.
A commercial proposal works in a very similar way to a consumer proposal, except for some differences as follows:
A commercial proposal may have various classes of creditors. A consumer proposal normally does not.
Unlike for a person, there is no streamlined reorganization process for companies. Therefore, even if its debt is $250,000 or less, a company cannot file a consumer proposal.
A meeting of creditors must be held as part of a commercial proposal. If the Official Receiver (being a representative of the Superintendent of Bankruptcy), doesn’t wish to chair the meeting, it can be delegated to the Trustee. A creditor who has filed a valid proof of claim has voting rights. They have the right to vote ahead of the creditors’ meeting by using a voting letter or in person. An official meeting of creditors is only held in a consumer proposal if 25% of the proven creditors’ claims request one.
In a consumer proposal, if a meeting is not requested, the consumer proposal is deemed approved and there are no voting rights to be concerned about. If a meeting is requested, then the creditors who attend the meeting can vote by ordinary resolution for the acceptance of the consumer proposal. In a commercial proposal, it is a two-pronged test: 3/4 of the $ value voting AND a majority in the number of those voting.
If the commercial proposal is voted down, the person or company is immediately deemed to have filed an assignment in bankruptcy. There is no such automatic bankruptcy if a consumer proposal is not accepted.
As soon as the commercial proposal is accepted by the creditors and approved by the court, the debtor starts making the payments promised in the proposal to the Insolvency Trustee. Once full payment has been made, the trustee in bankruptcy will issue to the person or company their Certificate of Full Performance. At this point, all provable claims, regardless of whether they filed a proof of claim or not.
As part of a successful restructuring process, the Trustee will run a claims process, vet every proof of claim to ensure that they are valid and that only an allowable claim is considered for distribution purposes. The Trustee will then comprise a scheme of distribution in order to distribute the funds promised to the creditors in the commercial proposal.
Restructuring under either the Canadian Bankruptcy and Insolvency Act or CCAA becomes possible for companies with debts greater than $5 million.
Receivers and Secured Creditors
Receiverships are remedies for lenders who have loaned money out and taken security over the debtor’s assets. It is most common in Canada for financial institutions to be lenders to Canadian businesses. As long as their loan documents, including the security agreement, allow for it in writing, a secured creditor may appoint a receiver when a debtor defaults on secured debt. Secured creditors and receivers are subject to certain requirements under the Canadian Bankruptcy and Insolvency Act.
Receivership relies both on provincial laws and federal legislation. The Bankruptcy Act specifies several main requirements for receivership, including:
It is not permissible to enforce a security interest on the business assets of an insolvent person unless the secured creditor has given 10 days prior notice in the prescribed form and manner.
Only a Licensed Insolvency Trustees (formerly called Trustees in Bankruptcy) can act as a receiver.
The secured creditor can appoint the receiver privately or with court approval.
A private receiver’s primary responsibility is to the secured creditor who appointed it. A court-appointed receiver is an officer of the court who protects the interests of all creditors of the debtor company.
Private receivers usually have from the security documents the power to run the debtor’s business and sell the debtor’s assets through auctions, tenders or private sales.
A court appointment is also preferred over a private appointment when there are significant claims against the debtor or its property as well as litigation or a threat of litigation. It is according to the provincial rules of court and s. 243 of the BIA (National Receiver) that a court may appoint a receiver.
The receivership order normally stays proceedings (discussed below in the next section) against the receiver, the debtor, and its property. In terms of its purpose, it gives the receiver authority to manage the assets of the debtor, to borrow money against the assets to repay a loan, to sell the assets of the debtor with the approval of the court, and to commence and defend litigation on behalf of the debtor. A privately-appointed receiver does not enjoy a stay of proceedings.
Bankruptcy
If a personal or commercial restructuring is not possible, then the insolvent person or company has no choice but to file for bankruptcy. The first step in dealing with insolvency is to consult an insolvency trustee. You can learn about the bankruptcy administration process and your legal rights from Trustees in Bankruptcy so you can make an informed decision. A candid discussion about how much you earn, what assets you own, and what types of debts you have can help you decide if bankruptcy is the best choice for you.
Here is what the Canadian bankruptcy procedure is all about. After the bankruptcy assignment has been completed, the Trustee submits it to the Office of the Superintendent of Bankruptcy Canada. All legal obligations will be handled by the Trustee once the assignment has been filed. Your creditors will no longer receive payments directly from you.
The Trustee administers your bankruptcy. No more lawsuits or wage garnishments for you. Depending on your province’s law, some of your assets will certainly be exempt. The bankruptcy vests your non-exempt assets in the Trustee. The Trustee will sell them. According to the Canadian Bankruptcy and Insolvency Act, the proceeds will be for the benefit of the bankrupt estate and there could be a scheme of distribution among your preferred creditors and ordinary unsecured creditors.
In the administration of bankruptcy, the Trustee will send your creditors a notice of bankruptcy. You must attend a creditors’ meeting if one is called. Additionally, you will need to attend two counselling sessions. Canadian insolvency legislation in Canada includes rehabilitation programs to help individuals regain financial stability.
Finally, you may need to make payments toward your debt. “Surplus income payments” ensure that people who declare bankruptcy and have sufficient income contribute to paying back a portion of their debt. Your debts will eventually be discharged, relieving you from the obligation of repaying most of the debt you had on the day you filed for bankruptcy.
Despite the fact that most debts can be discharged, some cannot, namely:
alimony and child support;
court fines and penalties;
debts related to fraud; and some
student loans.
You will suffer credit damage for several years after filing for bankruptcy. After your debt is discharged, you can start rebuilding your credit. Although it’s not ideal, it will lift the burden from your shoulders and solve the debt problems you couldn’t resolve on your own.
Canadian Bankruptcy and Insolvency Act: Can bankruptcy protect you from creditors?
In addition to bankruptcy, any filing listed above under the Canadian Bankruptcy and Insolvency Act will protect you from creditors. In fairness to all stakeholders, the filing calls for a “time out” after which no claims for money, lawsuits, or collection efforts are permitted. In legal jargon, we call this a stay of proceedings.
By virtue of the individual’s bankruptcy or insolvency, you may not terminate, amend, or accelerated pay, or claim the term of any agreement. When an insolvent person files a notice of intention or a proposal, a similar provision is made.
Just like in bankruptcy, if you file a notice of intention or a Division I proposal or Division II proposal, all proceedings automatically stay and no creditor is entitled to take any action against the debtor or to pursue any execution or other proceeding for the recovery of a claim provable.
Commercial proposals are normally worded so that Directors of insolvent companies who have filed notices of intention or proposals enjoy similar protection.
canadian bankruptcy and insolvency act
A word on cross-border insolvencies
Many of the large CCAA reorganization filings in recent times have been cross-border insolvencies. Canadian courts prefer that cross-border insolvencies proceed as a single process with one jurisdiction acting as the primary entity. The Canadian court examines whether the Canadian case should be considered the main proceeding in order to determine whether it is significant and connected to Canada.
The other jurisdiction (most often the U.S.) usually recognizes the Canadian court’s authority when the court believes the insolvency action should be handled, for the most part, in Canada. Likewise, the opposite is also true.
Canadian Bankruptcy and Insolvency Act: Personal bankruptcy
canadian bankruptcy and insolvency act
Canadian Bankruptcy and Insolvency Act summary
I hope you found this Canadian Bankruptcy and Insolvency Act Brandon Blog informative. With too high household debt levels and not enough wealth, you are insolvent. You can choose from several insolvency processes to get the debt relief that you need and deserve. It may not be necessary for you to file for bankruptcy.
If you or your business are dealing with substantial debt challenges, you need debt help, and you assume bankruptcy is the only option, call me.
If you’re thinking about bankruptcy, you’re probably in a situation where you’re overwhelmed, frightened, and feel like you’re alone. That’s natural and it is not your fault.
It’s good that you’ve come to this site, where you’ll find answers to your questions, sort through your options, and discover that you can get help. You’re not alone, and the professionals at Ira Smith Trustee & Receiver Inc. are committed to helping you find a debt solution that’s best for you.
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 Teamutilizes new modern-day ways to get you out of your debt difficulties with debt relief options as analternative to bankruptcy. We can get you the relief you need and so deserve. Our professional advice will create for you a personalized debt-free plan for you or your company during our no-cost initial consultation.
You are under a lot of pressure. Our team knows how you feel. You and your financial and emotional problems will be the focus of a new approach designed specifically for you. With our help, you will be able to blow away the dark cloud over your head. We will design a debt settlement strategy for you. We know that we can help you now.
We understand that people with credit cards maxed out and businesses facing financial issues need a realistic lifeline. There is no “one solution fits all” method with the Ira Smith Team. Not everyone has to file bankruptcy in Canada. The majority of our clients never do as we know the alternatives to bankruptcy. We help many people and companies stay clear of filing an assignment in bankruptcy.
Because of this, we can develop a new method for paying down your debt that will be built specifically for you. It will be as unique as the economic problems and discomfort you are experiencing. 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.
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.
We hope that you and your family are safe, healthy and secure during this COVID-19 pandemic.
Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.
what does receivership mean
What does receivership mean: Receivership is for secured claims
What does receivership mean? A receivership is an enforcement proceeding that helps secured creditors recover secured debts on debtor defaultson loan payments from troubled companies. There are two types of receivers and receiverships: Privately-appointed receivers and court-appointed receivers.
As you can tell from the title of this Brandon Blog, I am not going to be writing about receiverships. You can take a look at my April 14, 2021, Brandon Blog titled “WHAT IS A RECEIVERSHIP? OUR COMPLETE GUIDE TO RECEIVERSHIP SOLUTIONS” to read all about what receiverships are.
What does receivership mean? It is a remedy for secured creditors.
I want to go through two more concepts quickly, and then I will get to what I really want to talk to you about today.
What does receivership mean: Bankruptcy vs. receivership
Despite the fact that receivership and bankruptcy sometimes get used interchangeably, they are not the same thing. A bankruptcy proceeding and a receivership proceeding are both legal actions conducted under the Bankruptcy and Insolvency Act (Canada) (BIA) and governed by the Office of the Superintendent of Bankruptcy (OSB). According to the BIA, either a receiver or a bankruptcy trustee in Canada needs to be a licensed insolvency trustee, whose license is granted and whose actions are supervised by the federal government’s OSB.
Here is where the similarities end. In a receivership, a secured creditor would either hire a receiver privately or ask a court to place a company into receivership and appoint one to liquidate the collateral they have against the debtor. According to the Canadian bankruptcy process, either the person or company voluntaryfiles for bankruptcy with a licensed insolvency practitioner, or one or more unsecured creditors apply to the Court for the appointment of an insolvency trustee to administer the bankruptcy Estate.
Licensed insolvency trustees are needed in both cases. The receivership procedure is a secured creditor’s remedy and bankruptcy is an unsecured creditor‘s remedy. To read up more on the bankruptcy process, look at my September 30, 2020, Brandon Blog “DECLARE BANKRUPTCY: A COMPLETE GUIDE ON WHAT IS IT LIKE TO DECLARE BANKRUPTCY“.
What does receivership mean? Not the same as bankruptcy.
what does receivership mean
Employee Rights in Bankruptcy Protection and Bankruptcy⁄Receivership
Bankruptcy protection can be gained to try to make a troubled company stable and then return the company to profitability by filing pursuant to either the BIA or the Companies’ Creditors Arrangement Act (CCAA), employees retain their right to unpaid wages, vacation pay, and severance or termination pay. There is no difference between filing and not filing. They are unsecured creditors of a troubled company, and the company directors are personally responsible for amounts owed to employees.
For the company in receivership or bankruptcy, the employees do have greater rights. The receiver of a company in receivership must register with Service Canada under the Wage Earner Protection Program Act (WEPPA) for the Wage Earner Protection Program. This program provides some compensation to eligible employees who are owed money by a bankrupt or receivership company.
So what does receivership mean to an employee with unpaid wages? It means they can claim a priority and get paid by Service Canada.
What does receivership mean: Receivership – a typical appointment
Now I will get to what this Brandon Blog is actually about. In Canada, it is the norm for secured creditors advancing loans secured against company assets, to also take a personal guarantee on the same debt from the principals of the company. In all entrepreneurial companies in Canada, that is at least the president running company affairs. If the lender-secured creditorsuffers a shortfall from the liquidation of the company assets, the lender then looks to the guarantor(s) of the company debt to make good on the lender’s loss. Many times the company president/guarantor has no choice but to file consumer bankruptcy.
I was involved in a bankruptcy discharge hearing for one of our personal bankrupts in April 2021. He caused his company, being its sole Director, to file for bankruptcy with another Trustee. That same Trustee was also appointed as the company’s private receiver by the secured creditor. The company president provided the secured creditor with a personal guarantee.
Realizing that they would suffer a shortfall from the company situation, rather than suing on their personal guarantee, they approached us to consent to act as the Trustee in a Bankruptcy Application against the company president. We consented and the company president ultimately consented to a Bankruptcy Order being made to put him into bankruptcy with my Firm as the Trustee.
what does receivership mean
What does receivership mean: The bankruptcy of the guarantor
We administered the consumer bankruptcy. There were some assets to realize upon which we did. One realization required court approval as we were selling seat licenses and the right to purchase tickets for the Toronto Maple Leafs to a related party. The bankrupt person’s largest single consumer creditor was Canada Revenue Agency for unpaid income tax. The company in receivership was also a creditor as the president owed the company money. The secured creditor of the company was also an unsecured creditor of his in his personal bankruptcy for the personal guarantee on the shortfall.
The known creditors each filed their respective proof of claim in his bankruptcy, including the company by its privately-appointed receiver. We believed that the company by its receiver was a creditor for the amount of the shareholder loan owing to the company. The proof of claim they filed was for a much larger amount. As Trustee, we neither admitted nor disallowed any proofs of claim filed in this bankruptcy estate. The Trustee would have to take a cold hard look at the receiver’s proof of claim at some future date it is determined that a dividend will be paid to the creditors in this bankruptcy estate, which is highly unlikely.
What does receivership mean: The receiver opposes a bankruptcy discharge
Only one unsecured creditor opposed the bankrupt’s discharge. That was the receiver, or more correctly, the company in receivership by its privately-appointed receiver. The Trustee had not opposed. The lender, as an unsecured creditor, did not oppose either along with the other consumer creditors.
As I mentioned, in April 2021, the discharge hearing was held before the Master sitting as Registrar in Bankruptcy Court. The court raised a novel issue. Does the receiver have the standing to oppose the bankrupt’s discharge? The court allowed the hearing to be completed and allowed the parties to file further submissions, subsequent to the hearing, on this issue. Submissions were received from us, the Trustee and from the Receiver in mid-May, 2021. The bankrupt took no position on the issue.
what does receivership mean
Does the Receiver have standing to oppose the bankrupt’s discharge?
Here is what I wrote to the court.
The security documents under which a privately-appointed receiver is appointed will determine if an unsecured amount owing by a bankrupt debtor is an asset secured by security held by a creditor over the assets of another party. If so, then the privately-appointed receiver has the right to file a proof of claim in the debtor’s bankruptcy as part of attempting to realize upon that asset forming part of the secured creditor’s collateral.
In doing so, the privately-appointed receiver is acting as Agent for the secured creditor. If the privately-appointed receiver files a proof of claim in the bankruptcy that is not disallowed by the licensed insolvency trustee administering the bankruptcy estate, then, in order to oppose the discharge of the bankrupt, the privately-appointed receiver must also be able to be the Agent for the debtor in receivership.
If the security under which the privately-appointed receiver is appointed allows for that receiver to operate the business of the debtor in receivership, then that receiver has the ability to be an Agent of the debtor in receivership and bring a claim in the name of that debtor.
In this matter, of the various pieces of security held by the secured creditor, only the General Security Agreement (the “GSA”), allows a receiver appointed in writing under it to operate the business of the debtor company. Under the GSA, the privately-appointed receiver has the ability to act as both Agent of the secured creditor and Agent of the company. The appointment letter appointing the receiver confirms that the appointment is under all security held, including the GSA.
Therefore, my opinion was that although we have concerns about the amount being claimed, the receiver has the ability to both file a proof of claim in this bankruptcy and oppose the discharge of the bankrupt as an Agent of the company. I believed it aided the administration of this bankruptcy to allow the receiver to oppose because it is able to draw the attention of the court to conduct of the bankrupt of which the court otherwise might not be aware of.
Finally, I advised the court that if there still was concern that it is formal defect or irregularity section 187(9) of the BIA, the court can determine that such formal defect or irregularity will not invalidate the opposition to the discharge of the bankrupt.
What the bankruptcy court decided
The court accepted our submission and agreed with it. The court continued to be skeptical of the amount of the company’s proof of claim filed by the receiver. The court noted that as Trustee, I reported that the bankrupt has fulfilled all statutory duties. Income and expense statements were provided and there was no surplus income payable.
On a general perusal of the Trustee’s s. 170 report, the Trustee does not report any significant misconduct or concerns but reserved its rights as to its position on the discharge pending the hearing and matters disclosed therein. In the court’s view, the Trustee’s non-opposition to discharge is a factor favouring the bankrupt’s discharge. After considering all facts, the court gave the bankrupt an absolute discharge from bankruptcy.
what does receivership mean
What does receivership mean summary
I hope that you found this what does receivership mean Brandon Blog helpful in describing the role of a privately appointed receiver especially in opposing the discharge of the bankrupt guarantor of the company’s secured debt. Problems will arise when you are cash-starved and in debt. There are several insolvency processes available to a person or company with too much debt. You may not need to file for bankruptcy.
If you are concerned because you or your business are dealing with substantial debt challenges, you need debt help and you assume bankruptcy is your only option, call me.
It is not your fault that you remain in this way. You have actually been only shown the old ways to try to deal with financial issues. These old ways do not work anymore.
The Ira Smith Team utilizes new modern-day ways to get you out of your debt difficulties with debt relief options as analternative to bankruptcy. We can get you the relief you need and so deserve. Our professional advice will create for you a personalized debt-free plan for you or your company during our no-cost initial consultation.
The tension put upon you is big. We know your discomfort factors. We will check out your entire situation and design a new approach that is as unique as you and your problems; financial and emotional. We will take the weight off of your shoulders and blow away the dark cloud hanging over you. We will design a debt settlement strategy for you. We know that we can help you now.
We understand that people with credit cards maxed out and businesses facing financial issues need a realistic lifeline. There is no “one solution fits all” method with the Ira Smith Team. Not everyone has to file bankruptcy in Canada. The majority of our clients never do as we know the alternatives to bankruptcy. We help many people and companies stay clear of filing an assignment in bankruptcy.
That is why we can establish a new restructuring procedure for paying down debt that will be built just for you. It will be as one-of-a-kind as the economic issues and discomfort you are encountering. If any one of these seems familiar to you and you are serious about getting the solution you need to become debt-free,contact the Ira Smith Trustee & Receiver Inc. group today.
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.
We hope that you and your family are safe, healthy and secure during this COVID-19 pandemic.
Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.
If you would like to listen to the audio version of this Brandon Blog, please scroll to the very bottom and click play on the podcast.
What are exempt assets in bankruptcy?: Bankruptcy exemptions – how what assets you can keep are determined
An assignment in bankruptcy does not require you to give up all of your assets. In bankruptcy law, there are rules for bankruptcy exemptions. Furthermore, every province/territory has regulations that mandate what assets can be kept and how much equity can be retained. Assets of this type are called exempt assets.
Assets that you are allowed to keep that are not accessible to your creditors are exempt assets in a bankruptcy. There are some that fall under federal law and some that fall under provincial law.
So what are exempt assets in bankruptcy in Ontario? To answer the question, we need to look at two statutes: one federal and one provincial. For federal, we look at the Bankruptcy and Insolvency Act (Canada) (BIA). Section 67(1) of the BIA deals specifically with the bankruptcy exemption issue. It states what property of the bankrupt available to creditors does and does not comprise. Property that is not included is:
Property held in trust by the bankrupt for any third party.
Under provincial law, the property cannot be seized.
Payments to the bankrupt are paid under a program that I will describe as social assistance provided by the federal or provincial government.
Retirement Savings Plans – The bankrupt’s RRSP or RRIF, except for contributions made in the 12 months before the bankruptcy.
When we discuss the property of a bankrupt, we are referring to the bankrupt’s equity in those assets.
Ontario bankruptcy exemptions: Assets you can keep
As indicated above, one of the asset exemptions in bankruptcy is any property that cannot be seized under provincial law. So what are exempt assets in bankruptcy in Ontario that cannot be seized? For that, we need to go to the Ontario Execution Act. In Ontario, the prescribed amounts for exemptions are:
Household furnishings and household appliances – $14,180.
Tools and other personal property used to generate income:
Exemptions for farmers, being a debtor engaged exclusively in cultivating the soil or farming (and therefore it is that farmer’s principal source of primary income), $31,379 for livestock, fowl, bees, books, tools and implements, and other chattels ordinarily used by the debtor;
$14,405 for any other case.
$7,117 for a motor vehicle.
$10, 783 for a principal residence.
As I have written before, there is an exemption in Ontario for equity in one’s home of not more than $10,783. It is not an exemption for the first $10K, but rather if the total equity is below that amount. Therefore, we can consider the equity in a bankrupt person’s ownership interest in their home to belong to the bankruptcy trustee for all practical purposes.
So this seems pretty straightforward. But what if the bankrupt person dies before the end of the bankruptcy proceedings and the bankruptcy estate administration? A recent decision from the Alberta bankruptcy court, which for reasons I will explain I believe would be instructive for Ontario, answers that question.
what are exempt assets in bankruptcy
What are exempt assets in bankruptcy even in death?
In addition to the above statutory exemptions, since we are always dealing with the bankrupt’s equity in assets, there is another class of assets that form exempt property in a bankruptcy. If any of the bankrupt’s assets are pledged as security to the point where the amount owing to the secured creditor on the secured debt is the same or more than the value of the asset, then a bankruptcy trustee will not attempt to seize it.
So what may have started out as non-exempt property can become property that will not be seized. Two obvious examples are one of the motor vehicles owned by a person worth more than $7,117 that is heavily financed or a principal residence that has mortgages against it that essentially soaks up all the value.
Another type of asset that may be exempt is life insurance policies. If the beneficiary under the policy listed is the spouse, child, parent or grandparent of the deceased, then the funds flow directly to the beneficiary and avoid probate. The bankruptcy of the deceased does not change that.
Although not an asset per se, and only available while the person is living, are wages salary from employment. A bankrupt person is allowed to keep all of their income. However, all Trustees are required to perform an evaluation to see if the bankrupt must contribute by making surplus income payments. The concept of bankruptcy surplus income has been the subject of certain of my prior Brandon Blogs.
Now, what are exempt assets in bankruptcy if the bankrupt person dies before receiving a bankruptcy discharge? On August 3, 2021, the Court of Queen’s Bench of Alberta, Registrar in Bankruptcy L.R. Birkett released Reasons for Decision in Perry (Re), 2021 ABQB 609 (CanLII). In this case, the Trustee sought advice and directions with respect to whether the principal residence exemption continues or is no longer available on the death of the bankrupt. Keep in mind that the principal residence exemption is much different in Alberta than in Ontario. In Alberta, under the Civil Enforcement Act, an Albertan can claim a principal residence exemption up to $40,000.
However, the fact that the issue was over equity in a principal residence is somewhat irrelevant. The real issue is exempt assets in general. So I would frame it as whether any asset exemption continues or is no longer available upon the death of the bankrupt.
Mr. and Mrs. Perry each filed an assignment in bankruptcy on December 19, 2012 (date of bankruptcy) and both remain undischarged bankrupts. At the date of bankruptcy, the bankrupt husband was the only registered owner of the couple’s principal residence. The bankrupt husband died on January 28, 2018.
He did not have any dependents at the time of his death. The bankrupt wife is the only beneficiary under his Will. The widowed bankrupt wife moved from the home and the Trustee sold it.
As a first observation, this is a perfect example of why a bankrupt should not allow the bankruptcy proceedings to drag on. Future events are impossible to predict. Winning a lottery or acquiring an inheritance are the two best reasons to avoid letting the bankruptcy process linger for a very long time. If such a windfall occurs, the bankruptcy trustee administering the bankruptcy estate can claim it.
Types of assets commonly exempt from bankruptcy across Canada: The Registrar’s analysis
The question is does the personal exemption of an undischarged bankrupt remain after his death? In Alberta, the applicable laws under which property is exempt from execution or seizure are set out in theCivil Enforcement Act (CEA) and theCivil Enforcement Regulation(CER). The combined effect of s.88(g) CEA and s 37(1)(e) CER allows an enforcement debtor to claim up to $40,000 of the equity in the debtor’s principal residence as being exempt from execution or seizure. The Registrar noted that the personal exemption is personal to the individual, in this case, the deceased bankrupt husband.
Section 92(1) of the CEA specifically provides that where the enforcement debtor is deceased, the property of the debtor that would be exempt if the debtor were alive remains exempt from writ proceedings against the debtor’s estate for the period of time that the property is required for the maintenance and support of the deceased debtor’s dependents. This allows the dependents of a deceased enforcement debtor the opportunity to access up to $40,000 of exempt equity in the debtor’s principal residence for their needs.
In this case, the widowed bankrupt wife moved out of the house and the Trustee sold it. The exempt equity was no longer necessary for her needs. Therefore the Registrar decided that the deceased bankrupt husband’s exemption was lost on his death. Since the exempt equity was not required to support the bankrupt wife’s needs, the Trustee of the dead bankrupt husband can keep the $40,000 amount as property not covered by the provincial exemption and it is available for the benefit of creditors through the bankruptcy debtor‘s unsecured creditors.
There is a strong argument that if the personal exemption resulted in the bankrupt wife being entitled to her deceased husband’s exemption amount, it would not have been paid to her anyway. Rather, it would have been property available to her Trustee for her unsecured creditors and possibly even a dividend to creditors!
what are exempt assets in bankruptcy
What are exempt assets in bankruptcy and what would happen in Ontario?
What would happen in Ontario with exempt assets (up to their prescribed maximum exempt amount)? Under s.5(1) of the Execution Act, if an execution debtor dies before the seizure and sale of his or her personal property, then whatever personal property the deceased already elected for exemption before death remains valid after death and may not be changed by an executor, administrator or heir of the debtor. s.5(2) of the Execution Act says that If no such election was made prior to death, then, in this order, a surviving spouse, a dependent or a family member has the right to make such an election.
S.5(3) of the Execution Act states:
“(3) The total quantity and total value of personal property of an execution debtor that may be claimed as exempt by a person mentioned in subsection (2) and by the execution debtor before death must not exceed the quantity and value of property that would have been exempt property to just the execution debtor. 2010, c. 16, Sched. 2, s. 3 (9).”
The wording of sections 5(1) and (2) of the Execution Act is very different from that of the relevant Alberta legislation referenced above. So, in my view, it appears that the personal exemption in Ontario would survive and not constitute property available for the Trustee to realize upon, but this is only up to the exemption limit of each class of exempt asset.
However, under a bankruptcy process, along with the bankruptcy protection from unsecured creditors, the bankrupt actually hands over all property to the Trustee. The Trustee either overtly or it is implied, hands back to the bankruptcy debtor any property that is exempt from seizure, either from a provincial statute or because it is a fully encumbered asset because of it being pledged for a secured loan and there is no equity.
In Ontario, since the Execution Act allows for selecting exempt assets after death for the benefit of the deceased Estate, it does not appear to me that bankruptcy would change things for the reasons I have stated. The provincial exemptions, up to their maximum limits, would continue to protect certain property from seizure in bankruptcy.
What are exempt assets in bankruptcy summary
I hope that you found this what are exempt assets in bankruptcy Brandon Blog helpful in describing the personal exemptions in Ontario and whether bankruptcy and death can change that. Problems will arise when you are cash-starved and in debt. There are several insolvency processes available to a person or company with too much debt. You may not need to file for bankruptcy.
If you are concerned because you or your business are dealing with substantial debt challenges, you need debt help and you assume bankruptcy is your only option, call me.
It is not your fault that you remain in this way. You have actually been only shown the old ways to try to deal with financial issues. These old ways do not work anymore.
The Ira Smith Team utilizes new modern-day ways to get you out of your debt difficulties with debt relief options as analternative to bankruptcy. We can get you the relief you need and so deserve. Our professional advice will create for you a personalized debt-free plan for you or your company during our no-cost initial consultation.
The tension put upon you is big. We know your discomfort factors. We will check out your entire situation and design a new approach that is as unique as you and your problems; financial and emotional. We will take the weight off of your shoulders and blow away the dark cloud hanging over you. We will design a debt settlement strategy for you. We know that we can help you now.
We understand that people with credit cards maxed out and businesses facing financial issues need a realistic lifeline. There is no “one solution fits all” method with the Ira Smith Team. Not everyone has to file bankruptcy in Canada. The majority of our clients never do as we know the alternatives to bankruptcy. We help many people and companies stay clear of filing an assignment in bankruptcy.
That is why we can establish a new restructuring procedure for paying down debt that will be built just for you. It will be as one-of-a-kind as the economic issues and discomfort you are encountering. If any one of these seems familiar to you and you are serious about getting the solution you need to become debt-free,contact the Ira Smith Trustee & Receiver Inc. group today.
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.
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.
What is a receivership?
What is a receivership is a question I am asked often. Receivership is a remedy available to secured lenders to recoup as much of their debt as possible. A secured creditor, normally a financial institution, has lent funds to the company or individual under a secured financing transaction. They did it this way so in the event the company or person defaults on its finance payments, they can enforce against the assets subject to the security.
Receivership is a different process than bankruptcy for the sale of the properties of a corporation. In Canada, the secured creditor is typically the Bank as the lender. Normally, when a borrower misses payments, they tend to be insolvent. However, it is possible to have a receivership in Ontario even if the borrower is not insolvent.
In this Brandon Blog, I am going to tell you all about receivership. What is a receivership? How it works. When it can be used? What types of receivership are there?
What is a receivership? Examples of receivership in a sentence
What is a receivership? Receivership is a legal proceeding. Either a secured creditor privately appoints the receiver by instrument or a court appoints a person or company, called a receiver, to collect and manage the assets of a person or business that is unable to manage those assets effectively.
To understand more about the receivership process, we first need to look at the types of receivership. These are:
Liquidating receivership – This is a type of receivership that is brought about when a company ceases operations because the management of the company is unable to make it a viable business again. If the business is not viable, then the receiver will not operate it and will find buyers for the assets.
Operating receivership – This form of receivership is when parts of the company are viable or must otherwise continue operating under receivership. The business assets have a great deal of value if operating, but if shut down, relatively no value. In this case, the receiver will continue operating the business and the secured creditor will agree to lend funds if the business’s cash flow is insufficient. While operating the business, the receiver will also look for buyers.
The word “receiver” originally meant “a person appointed by a court to manage the affairs of another, especially a bankrupt or insolvent“. The term is now more widely applied and refers to a person placed in temporary charge and control of another person’s assets or a business entity. A receivership is a form of governance used in a wide range of situations. It is particularly common in the fields of law and business.
What is a receivership in a sentence – A receivership is a legal process started by a secured creditor either privately appointing a receiver by instrument or making an application to the court for an order that forces a party to carry out the duties of a receiver over the assets of a company or person.
what is a receivership?
In Canada, section 243(4) of the Bankruptcy and Insolvency Act (Canada) (BIA) dictates that only a licensed insolvency trustee can act as a receiver. From the above, you should now realize that there are two types of receivers: (i) privately appointed receiver; and (ii) court-appointed receiver.
What is a receivership? 10 – Day Notice of Intention to Enforce Security
Section 244 of the BIA relates to a secured creditor who intends to enforce its security against an insolvent debtor, either through private appointment or by making an application to the court. This section states that any secured creditor who intends to enforce against all, or substantially all, of the inventory, accounts receivable or other property used by the insolvent debtor in its business, must give adequate notice. The notice must be in writing by using the form prescribed by the BIA.
The BIA defines adequate as a minimum of 10 days. A secured creditor must send out the 10-day notice of intention to enforce security and cannot enforce its security until the 10 days have expired unless the debtor consents in writing to earlier enforcement. The purpose of giving the 10-day notice is to allow the insolvent debtor a chance to either negotiate some resolution with the secured creditor or otherwise attempt to reorganize its financial affairs. An example of reorganizing would be speaking with new potential lenders, consideration of assets that could be sold to repay or otherwise reduce the indebtedness to the unhappy secured creditor.
The insolvent debtor may also be considering invoking an insolvency process such as a Division I Proposal under the BIA to reorganize all of its debts to implement a financial reorganization strategy. If a proposal or a notice of intention to make a proposal under the BIA is filed by the insolvent debtor before the expiry of the 10 day period, then the enforcement action of the secured creditor has initially stayed.
That secured creditor would have to make an application to the court to show that it has lost total confidence in the insolvent debtor’s abilities and it will not support any reorganization attempt. The application is to lift the automatic stay of proceedings that happened when the insolvent debtor filed, to allow the secured creditor to enforce its security against the assets to try to recover as much of the secured debt as possible through the appointment of a receiver.
Why did 10 days become the official notice period? This was part of amendments to the BIA made in 2009. It arose as a .esult of court decisions over what is reasonable notice. The most famous case is one that insolvency practitioners refer to as Lister v. Dunlop. The case made its way all the way up to the Supreme Court of Canada. The proper name of the case is R.E. Lister Ltd. v. Dunlop Canada Ltd., [1982] 1 S.C.R. 726. The decision was released on May 31, 1982.
The case dealt with a variety of issues, including what is receivership. Another of the issues considered was a reasonable notice to be given when a secured creditor demanded repayment of its demand loan, due to one or more defaults on loan? The most common default is defaulting on making the required loan payments on time. The loan agreement and debenture securing the loan stated that it was a demand loan and that the lender must give reasonable notice when making the demand.
However, in the “old days”, there was never a definition of what reasonable notice was. In fact, in Ontario, the law at the time was that reasonable notice only came into being if the business owner asked for a time to repay the loan. What was reasonable was a matter of discussion and negotiation. In Lister v. Dunlop, it was determined that Dunlop did not provide reasonable notice, based on the specific facts in that case.
Case law evolved and eventually, in 2009, the BIA was amended as part of the new provisions to bring receivership under the BIA and receivers subject to the supervision of the Office of the Superintendent of Bankruptcy Canada. The 10 day notice period was Parliament’s way to try to codify what reasonable notice is.
Court Appointed Receivers vs. Privately Appointed Receivers
As discussed above, receivers are appointed when secured creditors want to recover on their secured loans. Receivership is a remedy for secured creditors. It is not a remedy for unsecured creditors. The intent is for the receiver to take possession of the insolvent company assets subject to the security agreement and conduct a sale of assets. The proceeds of the sale will then be distributed in accordance with the priority of the creditors under the BIA. The secured creditor should want to make sure that it is in the first place to receive the funds from the receiver, for the receivership process they are paying for!
From the above, by now, you have probably realized that a privately appointed receiver is appointed in writing by the secured creditor. The receiver gets properly retained and then is given an appointment letter by the secured creditor after the 10 day notice period has either passed or was waived by the insolvent debtor. The privately appointed receiver gets its powers from the security documents which will outline the approved steps the receiver can take.
Court-appointed receivers, as the term implies, are appointed by the court. The secured creditor properly retains the receiver and makes an application to the court for the appointment of the receiver. The secured creditor is the plaintiff in this litigation. If the court grants the order, then the court-appointed receiver begins the receivership administration. The powers and responsibilities of the court-appointed receiver come from the court order, called the Appointment Order.
The steps the receiver will take in determining what method will realize the most money possible from the sale of assets should be pretty well identical under both a court-appointed receivership and a privately appointed receivership. The analysis of how and the steps to be taken to realize the most money possible from the assets of the company in receivership should be the same, regardless of the form of appointment.
Either way, as stated above, the receiver must be a licensed insolvency trustee who is experienced in acting as a licensed insolvency practitioner.
what is a receivership
What is a receivership? Duties of a receiver
Receivers are required to act honestly and in good faith. A privately appointed receiver has a duty to the secured creditor who appointed the receiver. A court-appointed receiver has a duty to act in good faith to all creditors.
The main roles of the receiver, whether private or court-appointed, can be summarized as to:
Secure all the assets of the insolvent debtor pledged under the security agreement or covered by the Appointment Order.
Make sure the receiver has control of property, the assets are conserved and properly insured.
Advance the rights of the debtor with the approval of either the secured creditor or the court. This could include continuing or beginning any necessary litigation.
Formulate the plan to maximize the realization from the sale of assets. This also involves a decision as to whether or not to operate the business of the company.
Offer the assets for sale in a properly advertised public sale.
Complete the sale and distribute the net proceeds in accordance with the provisions of the BIA.
Make regular reporting to the court and/or the appointing creditor
Obtain the approval of the secured creditor, and under a court appointment, approval of the court for all actions to be taken by the receiver.
In a court appointment, to obtain the approval of the court for its fee and disbursements and for those of the receiver’s legal counsel.
The Appointment Order generally will give the court-appointed receiverextensive powers.
I want to summarize the difference between company receivership and bankruptcy
I find that many times people will confuse the terms receivership and bankruptcy. What is a receivership is not the same as what is bankruptcy. I want to summarize the difference between company receivership and bankruptcy. There are important differences between bankruptcy and receivership.
The terms bankruptcy and receivership are often mistakenly used; they are not the very same thing. Bankruptcy is a legal process for unsecured creditors. The bankruptcy of a person and that person’s discharge from bankruptcy acts to discharge that person’s unsecured debt. As a company is never discharged from bankruptcy, the bankruptcy process has the effect of ending the company’s business.
What is a receivership? Receivership on the other hand, is a legal process for the benefit of secured creditors that safeguards their security if an insolvent borrower defaults on its secured debt financial obligations.
what is a receivership?
What is a receivership? Is receivership the right solution for you?
I hope you enjoyed the what is a receivership Brandon Blog post. I have gone to great lengths to describe what is a receivership, the different types of receivership and that it is a remedy for secured creditors. However, many times, if properly handled, it can also assist the business owner. The entrepreneur may be very frustrated that the company can no longer pay all its debts as they come due and is looking for a way out, a way to sell the business or a way to get rid of the sick parts of the business and keep the good parts.
There may be sufficient value to take care of the secured creditor, but nothing for anyone else, including the unsecured creditors. There may be some business units that should not survive, but if cut out, the business will be viable. A receivership might very well accomplish the goals for the entrepreneur also. I have many times structured a receivership process, in order to meet the goals of the entrepreneur, while satisfying the requirements of the secured creditor.
Are you worried 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 whileavoiding bankruptcy. We can get you the relief you need and so deserve.
The tension put upon you is big. We know your discomfort factors. We will check out your entire situation and design a new approach that is as unique as you and your problems; financial and emotional. We will take the weight off of your shoulders and blow away the dark cloud hanging over you. We will design a debt settlement strategy for you. We know that we can help you now.
We understand that people and businesses facing financial issues need a realistic lifeline. There is no “one solution fits all” method with the Ira Smith Team. Not everyone has to file bankruptcy in Canada. The majority of our clients never do. We help many people and companies stay clear of bankruptcy.
That is why we can establish a new restructuring procedure for paying down debt that will be built just for you. It will be as one-of-a-kind as the economic issues and discomfort you are encountering. If any one of these seems familiar to you and you are serious about getting the solution you need, contact the Ira Smith Trustee & Receiver Inc. group today.
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.
