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WHAT HAPPENS WHEN YOU FILE FOR BANKRUPTCY IN CANADA BUT CANNOT SPEAK BASIC ENGLISH?

what happens when you file for bankruptcy
what happens when you file for bankruptcy

What happens when you file for bankruptcy? Introduction

Canada has two official languages: English and French. Canada’s cultural diversity means that our citizens speak a wide range of languages as their native tongue. In Ontario, the majority of the people’s mother tongue is English. That is the language throughout this Brandon’s Blog site, however, if French is your native tongue, you can conveniently substitute the two languages wherever I speak of English, one for the other.

What happens when you file for bankruptcy in Canada when English or French isn’t your native language? In this Brandon’s Blog site, I will certainly discover the unique obstacles faced by non-English speakers in this process and also overview you on exactly how to get rid of language barriers, access necessary sources, as well as seek emotional support throughout this hard time.

Declaring bankruptcy is already a tough as well as stressful trip, and it becomes a lot more intimidating for people that do not speak English. Navigating the Canadian insolvency system needs a comprehensive understanding of the process and paperwork, all as explained by the licensed insolvency trustee, making language effectiveness paramount. Unfortunately, the lack of English can prevent those people from completely understanding their situation.

This Brandon’s Blog about what happens when you file for bankruptcy but cannot speak English reviews a BC court case as well as the resulting policy statement from the Office of the Superintendent of Bankruptcy on this exact subject.

What happens when you file for bankruptcy? Importance of understanding the bankruptcy process in Canada

Trying to understand the Canadian insolvency regime and what happens when you file for bankruptcy is difficult for every layman and particularly for people facing language obstacles due to their limited English. Navigating the ins and outs of insolvency can prove to be an overwhelming job, and language obstacles can worsen the difficulties. Nevertheless, equipped with a thorough understanding of the process, those that talk languages other than English or French can properly tackle their financial dilemma, access necessary resources, and discover the essential emotional support.

What happens when you file for bankruptcy? Declaring bankruptcy is a legal process that grants individuals and even enterprises a fresh start when they can no longer fulfill their financial obligations. In Canada, the insolvency procedure is overseen by the Bankruptcy and Insolvency Act (BIA). This intricate course of action entails various stages and specific regulations for addressing a multitude of concerns. Grasping the ins and outs of the insolvency process is vital for any individual or business seeking to restructure or entirely absolve their debt because they cannot afford to make the debt payments they are obligated to make.

The journey through insolvency can be overwhelming, particularly for an individual who lacks proficiency in English, but there’s no need for it to be so. Armed with the right information and supported emotionally and linguistically, both individuals and companies can make well-informed decisions about their financial future.

what happens when you file for bankruptcy
what happens when you file for bankruptcy

What happens when you file for bankruptcy? Requirements and eligibility criteria for filing for bankruptcy in Canada

To launch an insolvency filing in Canada, it is necessary to satisfy certain requirements. It is critical to have a comprehensive understanding of these criteria, no matter your mother tongue.

Eligibility for a declaration under the BIA needs the person or company to be insolvent. The BIA uses three main criteria to identify the insolvency condition of a specific person or business:

  1. Does the person or company owe $1,000 or more?
  2. Are they incapable to satisfy their liabilities as they end up being due?
  3. If they were to sell off all their assets, would the cash not be able to fully pay off their liabilities?

If you are able to answer “yes” to the very first inquiry as well as “yes” to either or both of the 2nd and 3rd questions, you or your company meet the standards for insolvency under the BIA and are eligible to proceed with an insolvency declaration.

Language barriers can complicate this procedure, making it important to overcome them in order to access the Canadian insolvency system. Utilizing an interpreter is an effective strategy for resolving the language obstacle and efficiently accessing the Canadian insolvency system. By fixing the linguistic divide, individuals are able to completely be involved with the system, make informed choices, and obtain the necessary assistance throughout the insolvency process.

What happens when you file for bankruptcy? Language barriers and their implications

Challenges faced by individuals who cannot speak basic English

When people who are not skilled in English seek help from Canada’s insolvency system legal process, they come across a wide range of challenges, especially when involving their creditors and the licensed insolvency trustee. Language barriers can greatly impede their ability to properly describe their financial difficulties, understand what happens when they file for bankruptcy, understand the insolvency process, and properly complete the needed documents. This interaction space can trigger misconceptions, delays, and also legal issues that are beyond their control. As we look into the conversation below, it comes to be evident that getting expert support, such as working with interpreters or translators, is crucial for non-English speakers to assist in reliable communication throughout the insolvency process.

Types of insolvency process people and companies can access

In the consumer market, the available insolvency processes are:

  1. Consumer proposal to restructure debts and avoid bankruptcy.
  2. Division I proposal to restructure debts and avoid bankruptcy.
  3. Bankruptcy – summary administration or ordinary administration.

For the corporate market, the insolvency processes under the BIA are:

  1. Division I proposal to restructure debts and avoid bankruptcy.
  2. Receivership.
  3. Bankruptcy – ordinary administration.

If you use the search function in the top right corner of this Brandon’s Blog and type in any of the above terminologies, you will find previous Brandon’s Blogs covering all these insolvency topics.

As you will see from the discussion of the court decision and the OSB’s position paper, the licensed insolvency trustee is responsible for hiring a qualified interpreter for a person who cannot speak English in specific situations. The cost of the interpreter in a Division I proposal, receivership or ordinary bankruptcy is not an issue as the cost is an allowable expense. Where the issue comes into play to pay for the cost of interpreter services is in both a summary administration bankruptcy or a consumer proposal.

what happens when you file for bankruptcy
what happens when you file for bankruptcy

What happens when you file for bankruptcy? Access to language support services

The OSB, in response to the British Columbia Supreme Court’s ruling in Ali (Re) 2022 BCSC 169, has lately revealed its position paper that emphasizes the critical value of diversity and also language inclusivity in our society. This document presents comprehensive guidelines for interpreter services, aiming to level the playing field and make sure equal accessibility to these important services, all the while adhering to the BIA and relevant case law.

This July 24, 2023 position paper explores the pivotal functions taken on by Licensed Insolvency Trustees in working with interpreter solutions for debtors during OSB examinations or meetings of creditors. Additionally, it clarifies the step-by-step process whereby Trustees can look for repayment of interpreter expenses from the estate. By promoting practical and also fair access to interpreter services, we can foster an all-encompassing and also inclusive culture that celebrates as well as appreciates the uniqueness of every individual’s voice.

The OSB maintains that if a debtor is unable to communicate fluently in the official language used during an OSB examination or the meeting of creditors, the Trustee must engage the services of an approved interpreter. The OSB’s position paper states that the Trustee has the responsibility of arranging and paying for the services of the interpreter.

As stated above, this really is a non-issue in every insolvency administration other than for a summary administration consumer bankruptcy or a consumer proposal. This is where the Ali (Re) case comes in.

What happens when you file for bankruptcy? The Ali (Re) case

This case before a judge in the BC Supreme Court was a result of an appeal from a decision of a Registrar sitting in bankruptcy court. The issue is who is responsible for paying the cost of an interpreter in a summary administration bankruptcy estate. In a summary administration bankruptcy, the Trustee’s fee is calculated by a government-set tariff and the Trustee’s disbursements, as part of the tariff, are fixed as an allowance of $100. As an aside, in a consumer proposal, the Trustee’s fee is a tariff calculation also and other than for the filing fee and court fee, there is no allowance for disbursements.

In this summary administration consumer bankruptcy estate, the Registrar determined that the Trustee was not responsible for paying for the cost of the service of an interpreter for an examination of the bankrupt as required by the OSB The Registrar, however, did not specify whether the bankrupt or the OSB was required to pay this expense.

In this case, The bankrupt is originally from Lebanon and her first language is Arabic. She came to Canada as a refugee in 2000. She is functional in English but did not feel comfortable with technical or business English, so she requested an interpreter. The Trustee found several individuals who spoke Arabic and were willing to translate for the bankrupt during the examination. However, they were not certified interpreters. The OSB insisted that at its examination, only certified interpreters were acceptable. The cost of retaining a certified interpreter for this duration ranges from $190 to $305.

The Trustee applied to the court to determine who is the responsible party for paying for a certified interpreter. The Registrar concluded that the Trustee was not responsible for the cost of the interpreter, as the Trustee had fulfilled their duty of arranging for the services of an OSB-approved translator. However, the issue of expense responsibility remained unresolved. As a result, both the Trustee and the OSB appealed the Registrar’s decision to a judge in the BC Supreme Court.

The OSB wants the Registrar’s order set aside. It seeks declarations that the Trustee is required to pay the cost of an approved interpreter and will be compensated out of the general remuneration from the bankrupt’s estate provided by the tariff.

The Trustee submits that the Registrar erred in failing to find that the government levy it receives pursuant to s. 147 of the BIA whenever a Trustee distributes funds and was set up to pay for the cost of the government administering the Canadian bankruptcy system is to be used to pay for the expense of having a certified interpreter attend the bankrupt’s examination by the OSB.

Our national association, the Canadian Association of Insolvency and Restructuring Professionals (CAIRP), sought and obtained intervenor status. CAIRP’s position was that the Trustee of the bankruptcy estate usually paid the cost, with correspondingly lower distribution to creditors. It recognizes that, on rare occasions, the Trustee will have to pay this expense where an estate has no assets. However, it submits that a general “trustee pays” rule skews incentives and access to the bankruptcy system by vulnerable groups.

The judge reviewed the BIA legislation and available case law and determined that the Registrar’s order should be set aside. The judge further ruled that the Trustee is entitled to the expenses it incurs, from the bankrupt’s estate, for the services of an interpreter for an examination requested by and to be conducted by the OSB.

what happens when you file for bankruptcy
what happens when you file for bankruptcy

What happens when you file for bankruptcy? The OSB position

Abiding by the court’s decision, the OSB now recognizes that the cost of interpreter services used for an examination conducted by the OSB or for a meeting of creditors is a reimbursable expense in a summary administration consumer bankruptcy (or in a consumer proposal). However, rather than just saying that the OSB will now approve it in those circumstances, it forces Trustees to go for taxation just like in ordinary administrations. In an ordinary administration, the Trustee is entitled to recover its time and disbursements in going for taxation or as the court may otherwise determine.

I can only imagine that if a Trustee goes for taxation in a summary administration or consumer proposal because of interpreter services costs, the OSB very well may take the position that the fee and disbursements of the Trustee in going for taxation are non-recoverable. What leads me to that conclusion is that in the position paper, the OSB states that the Trustee may just decide to:

“Consider the expenses incurred for the services of an interpreter as encompassed under their fees chargeable under section 128 of the Rules, not claim to recover the specific expenses, send their final statement of receipts and disbursements, and proceed to deemed taxation and discharge under sections 62 and 65 of the Rules.”

In other words, what happens when you file for bankruptcy and require an interpreter for those special situations, don’t bother trying to claim the cost of the interpreter, file your summary administration final statement of receipts and disbursements without including that cost, and you won’t have to get your fee and disbursements taxed as it will be in accordance with the tariff. If the Trustee decides to go for taxation to claim the interpreter cost, and perhaps the cost of going for taxation, then it is open for the OSB to issue a negative comment letter and oppose the taxation in court.

What happens when you file for bankruptcy? Conclusion

What happens when you file for bankruptcy is a challenge for all debtors, particularly for those who do not speak English or French. Language barriers can complicate the already difficult financial situation faced by non-English speakers.

However, it is crucial to recognize that language should not hinder individuals from seeking help and relief. Various resources are available to assist non-English speakers in navigating the bankruptcy process and overcoming language barriers. As seen from the above case and the OSB position paper, the Trustee must engage an approved interpreter for all OSB examinations or for a meeting of creditors.

I hope you enjoyed this what happens when you file for bankruptcy Brandon’s Blog. Problems with making ends meet are a growing concern in Canada, affecting individuals of all ages and income levels.

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what happens when you file for bankruptcy
what happens when you file for bankruptcy
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REDWATER ENERGY SUPREME COURT DECIDES

redwater energy supreme court

If you would prefer to listen to the audio version of this Redwater Energy Supreme Court Brandon’s Blog, please scroll to the bottom for the podcast.

Redwater Energy Supreme Court decision: Introduction

On January 31, 2019, the Redwater Energy Supreme Court decision was released. The 5-2 decision, in this case, Orphan Well Association v. Grant Thornton Ltd. overturned two Alberta lower Court decisions. It is now the law of the land that, before creditors receive any money, the receiver or trustee will have to spend the funds in its possession on reclamation or other environmental costs that provincial law may need.

The decision also made it clear that the receiver or trustee does not have to spend money it does not have. However, whatever money it recovers from the sale of assets, on a net basis, will first have to go to provincially mandated cleanup costs of the insolvent company’s property, before secured or unsecured creditors see a penny.

Redwater Energy Supreme Court decision: What the decision means

In my opinion, this is an important decision. Where provincial laws require companies to spend money to take certain steps when the business ceases, the assets of the company will be available to pay such costs.

Any company which is either a provincially regulated industry, or where provincial laws such as environmental laws have a real impact, will be affected. A Province will be able to insist that when a company ceases operating or is in receivership or bankruptcy, the company and its receiver or trustee, must use up to the full net realization from the sale of assets, to do what the provincial law requires, such as remediation of the real property.

This will no doubt affect how lenders view the value of their security and how much to lend to such companies. Property owners have now also been afforded some measure of protection against a commercial or industrial tenant’s activities and environmental transgressions.

Redwater Energy Supreme Court decision: Background

In my January 10, 2018 blog, REDWATER ENERGY CORP. – SUPREME COURT OF CANADA TO DECIDE WHO PAYS THE ENVIRONMENTAL CLEANUP COSTS OF THE BANKRUPTCY COMPANY, I described the 2-1 Alberta Court of Appeal decision upholding the Redwater ruling of the lower Court. The lower Court decision protected, in a bankruptcy, a lender’s secured priority over provincial ecological clean-up requirements.

Redwater Energy Supreme Court decision: The provincial environmental legislation

To work oil and gas sources in Alberta, a business requires a property interest in the oil or gas (commonly, a mineral lease with the Crown), rights and a licence issued by the Alberta Energy Regulator (Regulator). Under provincial regulation, the Regulator will certainly not provide a permit to remove, process or transport oil and gas in Alberta unless the licensee takes on end-of-life duties for plugging and capping oil wells to avoid leakages, taking apart surface area frameworks as well as restoring the surface area to its previous condition. These end-of-life responsibilities are called “abandonment” and “reclamation”.

The Licensee Liability Rating Program is one way the Regulator looks to guarantee the end-of-life commitments required of licensees. As a component of this program, the Regulator provides each business a Liability Management Rating (LMR), which is the proportion between the accumulated value assigned by the Regulator to a company’s assets under license and the accumulated liabilities determined by the Regulator to the last expense of abandoning and reclaiming those properties.

For determining the LMR, all the permits held by a business are dealt with as a bundle. A licensee’s LMR is determined monthly. Where it dips below the required ratio, the licensee is called upon to top up its LMR back up to the recommended level by paying a security deposit, executing the end-of-life responsibilities, or transferring permits with the Regulator’s authorization. If either the transferor or the transferee would have an LMR below 1.0 after such transfer, the Regulator will typically decline to authorize the permit transfer.

Redwater Energy Supreme Court decision: The insolvency of an oil and gas company

The insolvency of oil and gas firm licensed for operation in Alberta involves Alberta’s detailed licensing regime, which is binding on firms operating in the oil and gas market. The Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) (BIA), is the federal government’s statute that controls the management of an insolvent’s estate and the organized and fair dealing of the insolvent’s property for the benefit of the unsecured creditors.

Alberta’s Environmental Protection and Enhancement Act (EPEA) makes certain that a licensee’s regulatory responsibilities will remain to be satisfied when it goes through bankruptcy by including the trustee of a licensee in the interpretation of the term “operator” for the goals of the obligation to reclaim and by ensuring that an order to execute reclamation work can be provided to a trustee.

Nevertheless, it specifically restricts a trustee’s responsibility about such an order to the value of the assets in the insolvent estate, other than for gross negligence or willful misconduct.

The Oil and Gas Conservation Act (OGCA) and the Pipeline Act take a more common method: they merely include trustees in the meaning of “licensee”. Therefore, every power which these Acts offer the Regulator versus a licensee can in theory additionally be worked out versus a trustee.

The Regulator has entrusted the authority to reclaim and abandon “orphans”– oil and gas properties and their sites left in an incorrectly deserted or unreclaimed state by inoperative companies at the close of their insolvency process– to the Orphan Well Association (OWA), an independent non-profit entity. The OWA has no power to look for compensation of its costs, however, it might be compensated up to the amount of any security deposit held by the Regulator to the credit of the licensee of the orphans once it has actually finished its environmental cleanup.

Redwater Energy Supreme Court decision: The Redwater receivership

Redwater, a publicly traded oil and gas firm, was initially given licenses by the Regulator in 2009. Its major assets were 127 oil and gas properties — wells, pipelines and related facilities — and their equal permits. A few of its licensed wells were still producing, yet the bulk was tapped out and strained with reclamation and abandonment obligations that surpassed their worth.

In 2013, ATB Financial, which had complete knowledge of the end-of-life responsibilities connected with Redwater’s properties, advanced funds to Redwater and, in return, was given a security interest in Redwater’s existing and after-acquired property. In mid-2014, Redwater started to experience financial problems.

ATB appointed its receiver in 2015. Back then, Redwater owed ATB roughly $5.1 million and had 84 wells, 7 facilities and 36 pipelines. Seventy-two were non-active or spent, however, considering that Redwater’s LMR did not go down below the recommended proportion until after it entered receivership, it never paid any type of security deposit to the Regulator.

Upon being informed of Redwater’s receivership, the Regulator advised the receiver that it was legitimately bound to fulfill Redwater’s abandonment commitments for all licensed properties before dispersing any funds or completing any insolvency proceeding. The Regulator cautioned that it would not accept the transfer of any one of Redwater’s licenses unless it was satisfied that both the transferee and the transferor would have the ability to carry out all governing responsibilities and that the transfer would not create deterioration in Redwater’s LMR.

The receiver determined that it could not satisfy the Regulator’s demands since the cost of completion of the end-of-life responsibilities for the spent wells would likely surpass the realizable value for the producing wells. Based upon this evaluation, the receiver notified the Regulator that it was occupying and controlling just 17 of Redwater’s most productive wells, 3 related facilities and 12 pipelines (Retained Assets). The receiver also advised that it was not occupying or controlling of any of Redwater’s various other licensed properties (Renounced Assets).

The receiver’s position was that it had no requirement to do any regulatory requirements connected with the Renounced Assets.

Redwater Energy Supreme Court decision: The Regulator’s and the receiver’s positions

The Regulator responded by issuing orders under the OGCA and the Pipeline Act calling for Redwater to suspend and abandon the Renounced Assets (Abandonment Orders). The Regulator imposed short target dates, as it took into consideration the Renounced Assets an environmental and safety threat.

Alberta’s Regulator and the OWA applied for an affirmation that the receiver’s renunciation of the Renounced Assets was void and for orders needing it to follow the Abandonment Orders and to carry out the completion of the end-of-life responsibilities connected with Redwater’s licensed properties. The Regulator did not look to hold the receiver responsible for these responsibilities past the assets in the Redwater estate.

The receiver brought a cross-application looking for authorization to seek a sales procedure leaving out the Renounced Assets and an order directing that the Regulator cannot stop the transfer of the licenses connected with the Retained Assets based upon, inter alia:

  • the LMR requirements;
  • failure to abide by the Abandonment Orders;
  • refusal to take possession of the Renounced Assets; or
  • Redwater’s outstanding debts to the Regulator.

A bankruptcy order was made against Redwater and the receiver was appointed as trustee. The trustee invoked s.14.06(4)(a)(ii) of the BIA about the Renounced Assets. This section of the BIA allows for the abandonment of a property and to not hold the trustee personally liable for remediation costs.

Redwater Energy Supreme Court decision: The Alberta decisions

The Alberta lower Courts concurred with the receiver and held that the Regulator’s suggested use its legal powers to impose Redwater’s conformity with reclamation and abandonment commitments in bankruptcy contravened the BIA in 2 ways:

  1. It required the receiver the commitments of a licensee in connection with the Redwater properties disclaimed by the receiver/trustee, contrary to s. 14.06(4) of the BIA.
  2. It ignored the priority for the distribution of a bankrupt’s assets under the BIA by requiring the provable claims of the Regulator, an unsecured creditor, be paid in advance of the claims of Redwater’s secured creditors. The dissenting Judge in the Court of Appeal would have permitted the Regulator’s appeal on the basis that there was no conflict between Alberta’s environmental laws and the BIA.

Redwater Energy Supreme Court decision: The Redwater Energy SCC decision

The majority 5-2 Supreme Court of Canada (SCC or the Supreme Court) decision states that:

  • The Regulator’s use of its legal powers does not create a conflict with the BIA to trigger the doctrine of federal paramountcy.
  • Section 14.06(4) of the BIA deals with the personal liability of trustees and does not let a trustee to walk away from the environmental liabilities of the estate it is administering.
  • The Regulator is not asserting any claims provable in the bankruptcy.
  • The priority scheme in the BIA is not being interfered with.
  • No conflict is caused by the receiver’s status as a licensee under Alberta legislation. Alberta’s regulatory regime can coexist with and work with the BIA.

The Supreme Court decision goes on to say that bankruptcy is not a licence to ignore rules, and insolvency professionals are bound by and must follow valid provincial laws during bankruptcy.

They must, as an example:

  • adhere to non-financial responsibilities that are binding on the insolvent estate, that are not provable claims; as well as
  • the impacts of which do not contravene the BIA, regardless of the effects this might have for the insolvent’s secured creditors.

The SCC held that given the procedural nature of the BIA, the bankruptcy regimen counts greatly on the ongoing rules of provincial regulations. However, where there is an authentic problem between provincial statutes about property and civil liberties and bankruptcy regulations, the BIA dominates.

The SCC went on to say that the BIA has two main functions: (i) the fair distribution of the insolvent’s property among its creditors; and (ii) the insolvent’s financial rehabilitation. As Redwater is a company that will never arise from bankruptcy, just the first function matters.

The Abandonment Orders and the LMR demands are based upon legitimate provincial regulations of basic application — specifically, the type of legitimate provincial laws whereupon the BIA is constructed.

The Supreme Court of Canada decision found that there is no conflict between the Alberta regulatory scheme and s. 14.06 of the BIA, because, under s. 14.06(4), a trustee’s disclaimer of real property when there is an order to remedy any environmental condition or damage affecting that property protects the trustee from personal liability. The Supreme Court of Canada decision makes it very clear that although the BIA protects the trustee or receiver from personal liability, the ongoing liability of the bankrupt estate is unaffected.

The Supreme Court of Canada said that the end‑of‑life obligations binding on the trustee and receiver are not claims provable in the Redwater bankruptcy. Not all environmental obligations enforced by a regulator will be claims provable in bankruptcy.

The test that must be applied to decide whether a particular regulatory obligation amounts to a claim provable in bankruptcy is: (1) there must be a debt, a liability or an obligation to a creditor; (2) the debt, liability or obligation must be incurred before the debtor becomes bankrupt; and (3) it must be possible to attach a monetary value to the debt, liability or obligation. Only the first and third parts of the test are at issue in the Redwater case.

Bottom line, a court must decide whether there are enough facts indicating the existence of an environmental duty that will ripen into a financial liability owed to a regulator. In determining whether a non‑monetary regulatory obligation of a bankrupt is too remote or too speculative to be included in the bankruptcy proceeding, the court must apply the general rules that apply to future or contingent claims.

It must be sufficiently certain that the contingency will come to pass — in other words, that the regulator will enforce the obligation by performing the environmental work and seeking reimbursement.

Redwater Energy Supreme Court decision: BIA contemplates environmental regulators will extract value

The Supreme Court of Canada also went on to say that in crafting the priority scheme of the BIA, Parliament intended to permit regulators to place a first charge on real property of a bankrupt affected by an environmental condition or damage to fund remediation. Thus, the BIA explicitly contemplates that environmental regulators will extract value from the bankrupt’s real property if that property is affected by an environmental condition or damage.

Furthermore, Redwater’s only real assets were affected by environmental conditions or damage. Accordingly, the Abandonment Orders and LMR requirements did not seek to force Redwater to fulfill end‑of‑life obligations with assets unrelated to the environmental condition or damage. In other words, recognizing that the Abandonment Orders and LMR requirements are not provable claims and do not interfere with the aims of the BIA — rather, it facilitates them.

Redwater Energy Supreme Court decision: What about your company or client?

Is your company subject to significant costs under provincial law should it stop operating for any reason, including receivership or bankruptcy? Are you a secured creditor who loaned money to such a company and are now questioning the value of your security?

If so, you need the help of a licensed insolvency trustee (formerly called a bankruptcy trustee). Call the Ira Smith Team today. We have decades and generations of experience in the restructuring, turnaround, monitoring and liquidating insolvent companies.

Contact the Ira Smith Team today for your free consultation so that we can solve your financial problems and get you back on the right path, Starting Over Starting Now.

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TRANSFER OF PROPERTY UNDER S.160 OF THE INCOME TAX ACT: PROPERTY ISN’T PROPERTY

transfer of property under s.160 of the income tax actTransfer of property under s.160 of the Income Tax Act: Introduction

Last August, Rudy Giuliani said, “truth isn’t truth”. Today I want to explore an important issue we come across many times when dealing with income tax debt driven insolvency files. That is the transfer of property under s.160 of the Income Tax Act (Canada). The decision of The Honourable Justice David E. Graham of the Federal Tax Court of Canada released July 6, 2018, gives rise to a variation of Rudy Giuliani’s comment to say – property isn’t property.

The case was an appeal by Aitchison Professional Corporation (“APC”) of an income tax assessment issued by the Canada Revenue Agency (“CRA”). The case is Aitchison Professional Corporation v. The Queen, 2018 DTC 1101 (Tax Court of Canada).

Transfer of property under s.160 of the Income Tax Act: The participants

APC is a law firm operating under the name Aitchison Law Office. The creation of APC happened in December 2003 by 3 people: James Aitchison (“James”) and his two daughters, Kelly Aitchison (“Kelly) and Laurie Aitchison (“Laurie”). All three are Ontario lawyers.

In 2012, the Minister of National Revenue assessed APC for nearly $2.1 million pursuant to s. 160 of the Income Tax Act. The assessment stated that James had actually moved property worth even more than $3 million to APC for little or no value.

There was no disagreement that, at the time of the claimed transfers, James owed practically $2.1 million to the CRA. James had not paid any income tax since 1992. His tax obligation, along with interest and penalty, remains outstanding.

The main concern, in this case, was whether James moved property to APC. If he did, it would have to be valued. CRA claimed the property James transferred to APC is his right to invoice for legal services.

As indicated above, CRA’s position was that the right to invoice for legal services was the property transferred. It is interesting to note that they did not claim that either the work-in-process, the accounts receivable, or both, derived from James’ work, was the property transferred. In my view, this was a fatal error in their case.

The Court considered subsection 248( 1) of the Income Tax Act and in particular, His Honour considered the definition of the word property under the Income Tax Act is “a right of any kind whatever”. In his decision, His Honour stated the distinction that “property” has a wide meaning, but not every little thing of value is property.

Transfer of property under s.160 of the Income Tax Act: The Judge’s words


The Judge found that:

  1. CRA had problems verbalizing specifically how James’ “right to invoice for legal services” is property.
  2. He thought CRA was attempting to fit a square peg into a round hole.
  3. CRA was attempting to take something that is clearly a service and trying to make it fit into the definition of property.
  4. CRA’s position is faulty. They argued that James carried out work for APC neither as an independent contractor nor as an employee. CRA did not provide any evidence as to what they believed the actual arrangement was.
  5. Notwithstanding it is prudent for a company to have an employment agreement with all of its employees, none of James, Kelly or Laurie had an employment agreement with APC. However, CRA accepts that Kelly and Laurie are employees of APC but do not recognize James the same way.
  6. James was either an employee of APC with no salary or, an unpaid volunteer. The Judge held that it was not necessary for him to determine which one it was.
  7. It is an employee’s right to be paid. If the evidence was that James was entitled to a salary but he waived it, then he would have found that the waived salary was property transferred to APC. However, this was not the case.
  8. CRA, to their peril, did not argue that James was a sole practitioner, transferring his work-in-process and/or accounts receivable to APC.

Transfer of property under s.160 of the Income Tax Act: Saulnier v. Royal Bank of Canada

The intersection of insolvency and the issue of a transfer of property under s. 160 of the Income Tax Act is an important one. Although it did not help them, CRA referred to the Supreme Court of Canada decision in Saulnier v. Royal Bank of Canada, [2008] 3 SCR 166, 2008 SCC 58 (CanLII). That decision was in a bankruptcy case, dealing with the transfer of fishing licenses.

In that case, the Receiver and Trustee applied to the Court for the authorization to sell its interest in the fishing licenses. Due to an opposition, the Trustee went to Court seeking approval of the sale. The trial judge decided that the fishing licenses was a property that could be sold. The Court of Appeal agreed with the trial judge.

The Supreme Court of Canada dismissed the appeal of the Court of Appeal’s decision, upholding the trial judge’s finding, that the fishing licenses was property under s. 160 of the Income Tax Act. The interesting thing about that case is that the fishing licenses were considered as property mainly because of the wide sweeping definition of property contained in another federal statute, the Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) (“BIA”).

In the APC case, the Judge did not find the Saulnier case persuasive. The reason was the matter before him did not involve the BIA. In this case, it was only the Income Tax Act. Rather, the Judge relied upon a different case decided in the Federal Court of Appeal, Manrell v. Canada, [2003] 3 FC 727, 2003 FCA 128 (CanLII).

As explained by the Federal Court of Appeal in Manrell:

“[25] It is implicit in this notion of “property” that “property” must have or entail some exclusive right to make a claim against someone else. A general right to do something that anyone can do, or a right that belongs to everyone, is not the “property” of anyone . . . . . .

[50] The phrase . . . “a right of any kind whatever”, like the word “property”, has a very broad meaning. But it is not a word of infinite meaning. It cannot include every conceivable right. It cannot be given a meaning that would extend the reach of the Income Tax Act beyond what Parliament has conceived”.

Transfer of property under s.160 of the Income Tax Act: The verdict and the Judge’s conflict

Based on the evidence, His Honour found that James didn’t transfer property to APC by working for APC for free. The Judge also awarded costs to APC.

However, the Judge gave his personal view of his decision in the judgment. He felt that this was a horrible outcome. Furthermore, he commented that James had not paid a cent of income tax since being discharged from his bankruptcy in 1992. The Honourable Justice David E. Graham did not feel this was a just result, based on his interpretation of the law.

So that is why I paraphrase Rudy Giuliani to say – property isn’t property!

Transfer of property under s.160 of the Income Tax Act: Is CRA pursuing you?

Is CRA pursuing you because of transferred property to you? If so, you need an income tax lawyer. However, if you have received legal advice that you don’t really have a case, or you can’t afford to fight it out in Court and the debt renders you insolvent, then you need the help of a professional trustee.

The Ira Smith Team has years of experience of negotiating with CRA on behalf of tax debtors. If you are an individual person and owe CRA and your other creditors, other than for any loans secured by your home, less than $250,000, you can enter into a consumer proposal debt settlement plan. If you owe more or are a corporation, we can still negotiate with CRA and restructure you with a restructuring proposal debt settlement plan.

Our approach for each file is to create an end result where Starting Over, Starting Now takes place. This starts the minute you are at our door. You’re simply one phone call away from taking the necessary steps to get back to leading a healthy, balanced hassle-free life, recover your money and move on to the next investment opportunity.

In conclusion, call us today for your free consultation.

Special thanks to Ian MacInnis of Fogler Rubinoff for bringing this decision to my attention and inspiring me to write this blog.

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Brandon Blog Post

DEBT RELIEF IN CANADA: BANKRUPTCY COURT SALUTES CANADIAN MILITARY VETERAN

automatic discharge

Debt relief in Canada: Introduction

I recently read a decision of the Bankruptcy Registrar of the Supreme Court of Nova Scotia in Bankruptcy and Insolvency that really inspired me. It got me thinking about the sacrifices our men and women in the military make for all Canadians. This particular Court decision, also made me think of sometimes they need our help for debt relief in Canada.

Debt relief in Canada: The case

The case I refer to is Durdle (re), 2018 NSSC 206, released August 31, 2018. The first two paragraphs of the Registrar’s decision, I found especially poignant:

“[1] This Court routinely considers situations in which the Bankrupt is indebted to the people of Canada, through tax or other liabilities to the State. As a matter of general policy, these obligations have a higher moral and sometimes legal priority than to private creditors as they are borne by all of us, as citizens and fellows of Society; and because the public generally must bear the share not paid by someone else. The collective public is an involuntary creditor in the result.

[2] What, then, is the situation when that is reversed – when it is the people of Canada who are indebted to the individual? Should compensation paid out as a consequence be considered divisible among creditors in an insolvency?”

Debt relief in Canada: The facts

Master Corporal Durdle was a career soldier. He spent 24 years in the military, retiring at the age of 45 years old. Master Corporal is now 49 years old and suffers from military service induced post-traumatic stress disorder (PTSD). He remains under professional care. He is in need of debt relief.

On November 13, 2013, Master Corporal Durdle filed an assignment in bankruptcy. This was his second bankruptcy and therefore, he was not entitled to an automatic discharge from bankruptcy. The purpose of the Court hearing was for the Court to consider what form of bankruptcy discharge he should be entitled to. In this second bankruptcy, there were minimal non-exempt assets and unsecured creditors totaling $73,476.76.

In 2014 while an undischarged bankrupt, Master Corporal Durdle received taxable income, including:

  1. $16,778 from a wage loss replacement plan;
  2. A rehiring allowance of $28,107.04, including $19,675 in severance pay;
  3. Pension income of $23,594.10;
  4. Disability income of $49,289; and
  5. $3,624 in employment income.

The decision the Court had to make was, as the guidelines existed in 2014, how much if any of this 2014 taxable income should be considered “surplus income”?ira smith bankruptcy trustee vaughan

Debt relief in Canada: The Court’s thinking

The Registrar made a point of saying:

“…I wish to be clear that nothing should be taken as putting military debtors on a different footing than a civilian. The rule of law, including that of civil contract, is one of the core values we hold as Canadians, and which is protected by our men and women in uniform. What is, however, on a different footing is the debt we owe those men And women when they are injured or ill in the discharge of those Duties.”

Debt relief in Canada: The Registrar’s analysis

The Registrar went through a very thoughtful analysis of the law. He considered it in connection with the various types of 2014 taxable income:

  1. Wage loss replacement plan – Wrongful termination awards would normally be included in total income, as would pay in lieu of notice. The Registrar, however, went on to comment that in this case, the wage loss replacement plan was not termination pay or pay in lieu of notice but rather, pay because Master Corporal Durdle’s PTSD prevented him to continue serving. The Registrar concluded that this amount should not be considered as income in accordance with Section 68 of the Bankruptcy and Insolvency Act (BIA). Therefore, the Registrar also concluded that this amount should not be included in the calculation of surplus income.
  1. Rehiring allowance – The Registrar applied the same logic for this payment. He decided that it should not be included in the calculation of surplus income. He decided that this payment was a result of Master Corporal Durdle’s PTSD preventing him from continuing to serve in the military.
  1. Pension income – The Registrar could not determine whether this income was solely a benefit due to Master Corporal Durdle’s PTSD or not. However, it did factor into the Registrar’s ruling.
  1. Disability income – The Registrar considered this income in light of previous Court decisions involving lump sum awards. This included under a Workers’ Compensation Plan. The Registrar went on to review the actual Federal statute under which the payment was made to him, the Veterans Well-being Act (S.C. 2005, c. 21). The Registrar concluded that this amount would not be included in the calculation of surplus income.
  1. Employment income – The Registrar concluded that this amount is included in the surplus income calculation.

Debt relief in Canada: The Court’s decision

The Registrar concluded that if he includes the pension income ($23,594.10) and of course the employment income ($3,624) (less statutory deductions), Accordingly, Master Corporal Durdle’s income falls under the Superintendent of Bankruptcy threshold for 2014. Accordingly, Master Corporal Durdle had no surplus income to pay when considering Section 68 of the BIA.

Since this was Master Corporal Durdle’s second bankruptcy, he was not entitled to an absolute discharge. Therefore, the Registrar did not impose any conditions on his discharge, but rather, suspended his discharge for one day.

Debt relief in Canada: Sometimes understanding and kindness is required

The Registrar was obviously moved by Master Corporal Durdle’s service to Canada. He also considered his current plight brought on by service-related PTSD. The Registrar followed the law and also showed his understanding and kindness of this sad situation.

If you have financial difficulties, whether brought on by a medical cause or for any other reason, you need to seek professional advice from a Firm that will show you the understanding and kindness you deserve. The Ira Smith Trustee Team has seen many cases of personal and corporate financial distress. We understand your pain and we know how to alleviate it; with understanding and kindness.

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

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Brandon Blog Post

407 ETR DEBT SETTLEMENT: OUR NEWEST GUILT FREE WAY TO DO IT

407, 407 ETR, 407 ETR debt, 407 ETR debt settlement, Matthew David Moore, bankruptcy, Supreme Court of Canada, SCC, Bankruptcy and Insolvency Act, BIA, 407 debt, debt settlement, 407 debt settlement, plate denial, Moore Decision, Highway 407 Act, professional trustee, trustee, trustee in bankruptcy, Superintendent of Bankruptcy, bankruptcy alternative, credit counselling, debt consolidation, consumer proposal, 407 ETR bill, starting over starting now, Ira Smith Trustee407 ETR debt settlement

This 407 ETR debt settlement blog was reviewed earlier this week by Mr. Brian Empey, Partner, Goodmans LLP. We wish to express our thanks to Mr. Empey who made a valuable suggestion which we incorporated.

We have updated this blog for 2018 where 407 ETR has implemented some changes. Check out our blog 407 ETR RATES: THE ONLY 407 ETR RATES DEBT SETTLEMENT PLAN GUARANTEED TO ACTUALLY WORK for the update.

 

In January 2014 in our blog titled 407ETR FAIRNESS-ONTARIO COURT OF APPEAL ENSURES FRESH START we described to you the decision of the Court of Appeal for Ontario in 407 ETR Concession Company Limited v. Superintendent of Bankruptcy (In the Matter of the Bankruptcy of Matthew David Moore) (the Moore Decision).

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

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

The SCC dismissed the appeal of the ETR. The SCC considered whether the plate denial provisions of the Highway 407 Act conflicted with the discharge provisions of the BIA. ETR’s position was that provincial law about plate denial should apply following a person’s discharge from bankruptcy. The Attorneys General for several provinces, including the Province of Ontario, advanced positions in support of the provinces’ jurisdiction to legislate in vehicle licensing.

The SCC’s decision upheld the Moore Decision which found that the discharge provisions of the BIA override the plate denial provisions of the Highway 407 Act.

What is the effect on ETR debt settlement?

The effect of the SCC’s decision is that pre-bankruptcy amounts owed to the ETR are deemed to be provable claims under the BIA and can no longer be collected through plate denial under the Highway 407 Act following a customer’s discharge from bankruptcy. Therefore, 407 etr debt settlement is possible.

Where a person has been discharged from bankruptcy and has pre-bankruptcy amounts in plate denial, which are provable claims under the BIA, 407 ETR will credit these amounts (plus interest and fees incurred on those amounts) on the person’s 407 ETR bill, upon receipt of a Notice of Bankruptcy, and an Order of Discharge or a Certificate of Discharge.

In both cases, once the amount owing is credited, then the person is free to get plate renewal from the Province.

What will 407 ETR do next?

407 ETR must and is abiding by the SCC decision. They will set up a protocol whereby those who have already been discharged from bankruptcy and have been denied a plate renewal will be able to prove they have been discharged, get the 407 ETR debt, including penalty and interest, reversed, and get a plate renewal.

Those who are still in the middle of their bankruptcy proceedings and not yet discharged will be able to apply to have a plate renewal, once they are discharged from bankruptcy and prove it to 407 ETR.

Interestingly enough, there was no evidence whatsoever in any of the Court cases, including this one before the SCC, as to the 407 ETR’s right to deny anyone credit. When you get your transponder, the 407 ETR is actually extending credit to you, in the form of use of the toll highway in return for the toll charges they expect you to pay. It is no different from the bank loaning you money, and expecting you to repay it in full, with interest.

Will 407 ETR deny extending credit to discharged bankrupts? Will they only issue a new transponder to discharged bankrupts who give them a large cash deposit so that use of the 407 ETR will only be on a “cash and carry” basis? We don’t know, they have so far been silent on the issue, but it is still early in the game.

Do you need 407 etr debt settlement and a plan for your other debts too?

Instead of going deeper into debt seek help from a professional trustee, even if you’re not considering bankruptcy at this stage. A trustee in bankruptcy will evaluate your situation and help you to arrive at the best possible solution for your problems, whether that solution is a bankruptcy alternative like credit counselling, debt consolidation or a consumer proposal or bankruptcy. With immediate action and the right plan, the Ira Smith Team can solve your financial problems Starting Over, Starting Now. We’re just a phone call away.

Call a Trustee Now!