Tag: trustee in bankruptcy

BANKRUPTCY AND CRA DEBT STRATEGIES: A COMPREHENSIVE GUIDE ON NAVIGATING DEBT MANAGEMENT AND TAX RELIEF

Post author By Brandon Smith
Post date May 6, 2024

bankruptcy and cra debt

bankruptcy and cra debt

Bankruptcy and CRA Debt Introduction

Finance Minister and Deputy Prime Minister Chrystia Freeland introduced the 2024 Federal Budget on April 16. During her presentation in Parliament, she advised that Budget 2024 will include that any capital gain will be taxed from the current 50% to two-thirds. April 30 was the last day for most Canadians to file their 2022 personal income tax return.

At the end of April, Ms. Freeland announced that Budget 2024 would not include the capital gains tax change. Rather, she will ask Parliament to approve a stand-alone Bill which will include the capital gains tax change, no doubt combined with other initiatives such as more Federal money for access to housing, in a crass move to try to score voter points when the Conservatives vote against the Bill because of the tax increase. So income tax owed to the Canada Revenue Agency (“CRA”) is on everyone’s mind.

Canadian entrepreneurs are up in arms over the Budget 2024 capital gains taxation change. People are concerned over the level of taxation disclosed in their personal income tax returns. Some Canadians do not have the money to pay their calculated income tax payable.

This Brandon’s Blog discusses the complex world of Canadian bankruptcy and CRA debt, along with other potential options, to achieve financial stability. I aim to equip people with the necessary knowledge and strategies to make informed choices.

Definition of Bankruptcy and CRA Debt

Bankruptcy is a legal condition where consumers or companies admit they are unable to pay their outstanding debts. The bankruptcy process is a supervision and administration process overseen by a licensed insolvency trustee and the court. Under the bankruptcy legislation, people and businesses can either: (i) restructure to eliminate their debt by only paying a percentage of the amount owing; or (ii) liquidate most of their assets for the proceeds to be paid to the creditors in priority as outlined in the legislation.

CRA debt is one kind of debt that individuals or companies may owe for unpaid taxes, penalties and interest. Understanding the workings of bankruptcy and CRA debt will help people owing taxes they cannot repay make informed decisions on how to deal with their debts to get back to a financially healthy and stress-free life.

bankruptcy and cra debt

Bankruptcy and CRA Debt: Importance of Debt Management and Tax Relief

Effective debt management and tax relief are crucial aspects of financial stability for individuals facing Canadian bankruptcy and CRA debt. By implementing sound strategies for managing debt and seeking relief from tax obligations, individuals can regain control of their finances and work towards a brighter financial future.

Debt management techniques such as budgeting, debt consolidation, and credit counselling can help individuals navigate the complexities of bankruptcy and CRA debt. Additionally, exploring tax relief solutions such as deductions, payment plans, and professional assistance can alleviate the burden of tax liabilities. Prioritizing debt management and tax relief is key to overcoming financial challenges and achieving long-term financial well-being.

Bankruptcy and *CRA Debt**: Understanding Bankruptcy in Canada*

What is bankruptcy?

Having a solid grasp of how bankruptcy can affect a person is vital for those experiencing financial difficulties. Things such as the different types of bankruptcy, the procedure for initiating bankruptcy proceedings, and the real-life impact it has on a person’s daily life are crucial for anyone considering personal bankruptcy to understand. By examining the intricacies of bankruptcy, I hope you will gain valuable insights into how to effectively navigate this intricate legal process.

Whether contemplating personal or corporate bankruptcy, understanding critical aspects such as which assets can be liquidated by a Trustee, how your debt gets discharged, and creditor negotiations is essential. With the appropriate knowledge and assistance, people can make well-informed choices to manage their debts to head towards a new financial beginning.

*Bankruptcy law**s in Canada*

Bankruptcy laws in Canada are a set of legislation and regulations that govern obtaining bankruptcy protection and the subsequent handling of a person or business’ financial affairs. These laws are designed to provide individuals and companies with a second chance to manage their debts and start afresh.

In Canada, the main governing legislation for bankruptcy is the Bankruptcy and Insolvency Act (BIA), which outlines the procedures and requirements for obtaining relief to restructure debts under either a consumer proposal or a Division I proposal.

If restructuring is not a possibility, the BIA also covers the procedures for what is always the last choice, a liquidating bankruptcy. The BIA also covers the rights and responsibilities of debtors, creditors and insolvency trustees. Additionally, each province has its legislation that may impact the result of bankruptcy under federal laws.

In the case of larger and more intricate corporations, the Companies’ Creditors Arrangement Act (CCAA) presents an additional federal statute to be considered. This legislative provision enables such substantial entities to effectively reorganize their operations and financial matters, thereby ensuring their sustained business activities and provision of employment opportunities for Canadians.

Individuals and businesses alike must gain comprehensive knowledge of these legal frameworks and diligently seek expert counsel before undertaking any bankruptcy-related determinations.

bankruptcy and cra debt

Bankruptcy and CRA Debt

Overview of the CRA

The CRA is entrusted with the pivotal responsibility of overseeing the execution of tax laws and programs on behalf of the Canadian government at the federal level. From 1867 until 1999, the Department of National Revenue, commonly referred to as Revenue Canada bore the responsibility of overseeing tax services and programs. However, in 1999, a comprehensive reorganization took place, resulting in the establishment of the Canada Customs and Revenue Agency (CCRA).

Subsequently, in 2003, the CCRA underwent further transformation, giving rise to the inception of the Canada Border Services Agency (CBSA), thereby altering the agency’s core focus and subsequently prompting its name change to CRA.

The CRA’s mandate revolves around the proficient and equitable collection of taxes, diligent administration of benefits, and rigorous enforcement of tax laws. Additionally, they extend their services to taxpayers by disseminating pertinent information and offering assistance to ensure that Canadians have accurate comprehension and adherence to tax obligations.

Upholding the utmost integrity of Canada’s tax system while fostering voluntary compliance through educational outreach and enforcement measures remains at the forefront of the agency’s priorities. Backed by a devoted team of professionals and leveraging cutting-edge technology, the CRA is steadfastly committed to delivering superlative and exemplary services to the Canadian populace.

Types of debt owed to the CRA

Unpaid taxes result in individuals or businesses facing substantial CRA debt financial obligations. It is important to understand the ramifications associated with such indebtedness, given that it can give rise to severe repercussions including wage garnishment, bank account freezing, or legal repercussions. To mitigate the weight of this debt and avert penalties, it is always highly recommended to stay current in your obligations to CRA.

The Canada Revenue Agency (CRA) collects a range of debts from both individuals and businesses. Among these debts, the most prevalent is income tax owed, which represents the unpaid tax on an individual’s or business’s income. Another significant debt includes the Harmonized Sales Tax (HST) or, in provinces without sales tax, the Goods and Services Tax (GST) owed. These taxes apply to most goods and services supplied within Canada. CRA may also assess the individual Directors for GST/HST and employee source deductions not remitted by the corporation.

Furthermore, individuals and businesses may also encounter debts such as payroll remittance, excise tax, and penalties or interest charges resulting from late or erroneous filings. To ensure compliance and avoid further penalties or potential legal consequences, individuals and businesses must promptly and accurately address these debts on time.

Consequences of CRA debt

Noncompliance with the CRA and the resulting indebtedness can lead to serious problems for both individuals and businesses. Failing to pay your tax obligations to the CRA results in penalties, interest charges, and legal repercussions. These ramifications extend beyond mere financial burdens, encompassing wage garnishments, bank account seizures, seizure of amounts owing to the taxpayer from third parties, and property liens.

The CRA can freeze your assets and conduct audits to recover outstanding debts. The detrimental consequences of indebtedness to the CRA can have far-reaching implications, impairing credit ratings and impeding access to loans or mortgages. It is of utmost importance for individuals and businesses to expeditiously address and resolve any outstanding debt owed to the CRA to avert these severe consequences. Retaining a tax professional to assist in dealing with CRA is always advisable.

Bankruptcy and CRA Debt: Exploring CRA Debt Solutions in Canada

Informal Debt Settlements

When you seek an informal debt settlement option with CRA, absent formal insolvency proceedings, you will be disappointed. Without an insolvency proceeding, the CRA representative has no authority to accept anything other than 100 cents on the dollar – payment in full of the assessed tax, penalty and interest.

You can apply for a fairness hearing to see if you can get all or a portion of the penalty and interest eliminated, but the CRA person you speak to can only talk about the full amount that shows up on their computer screen.

*Debt Re**payment Plan*s

CRA will enter into a debt repayment plan, but depending on your situation, again, you may be disappointed. Normally, CRA will only agree to have you pay the full tax debt balance, plus penalty and interest, in 12 monthly instalments over the 1 year. That means that you need to repay the full amount in one year.

If you default on even one payment, then the whole deal is off and CRA will pursue you for the full amount to be immediately repaid. For some, this may be just the breathing room they need and they will be able to repay the full amount of the CRA debt over 12 equal monthly payments. But what if you cannot afford to do that?

Bankruptcy as a Debt Relief Option

Bankruptcy presents a potential solution for individuals or businesses grappling with substantial financial difficulties, especially those brought on by owing a substantial amount to CRA. By discharging most unsecured debts and providing a shield against creditors, it offers a pathway to financial renewal.

Nonetheless, it is crucial to approach bankruptcy as a final option due to its enduring impacts on credit rating, employment in areas that require bonding, and today to a much lesser extent, personal standing. Before making a decision, it is advisable to seek guidance from a qualified licensed insolvency trustee to gain a comprehensive understanding of the ramifications and to evaluate alternative strategies such as debt consolidation, a consumer proposal or corporate financial restructuring.

bankruptcy and cra debt

Bankruptcy and CRA Debt: The Bankruptcy Process in Canada

The bankruptcy process involves a diverse array of stakeholders, each playing a crucial role. Among the key participants are:

The insolvent individual or company, referred to as the debtor, has undergone financial failure and is now also known as the bankrupt.
The licensed insolvency trustee, formerly known as a trustee in bankruptcy, is responsible for managing the bankruptcy proceedings.
The creditors are owed financial obligations by the debtor.
The Office of the Superintendent of Bankruptcy (OSB), holds the mandate to regulate and oversee all administrations governed by the BIA within Canada.

Preparing for Bankruptcy

To prepare for bankruptcy, the debtor, being either the individual or the Director of the company, must make full disclosure to the licensed insolvency trustee about all assets and liabilities and all other information requested by the Trustee. This allows the Trustee to provide the debtor with advice on the realistic available options for the debtor to overcome their debt challenges and hopefully find a solution other than bankruptcy.

The Trustee will want to ensure that the debtor has filed all overdue income tax returns. That way, the debtor, the Trustee and CRA will have a good estimate of all the tax the person owes, subject to review and assessment by CRA of course. At least there will not be any outstanding filings as this can slow down an insolvency process. CRA will want a pause in the insolvency proceedings until they are certain they understand the full amount owed.

If it is decided that an insolvency process is required, such as bankruptcy, then the information also allows the Trustee to prepare all the necessary filing documents.

Filing for Bankruptcy

Filing for bankruptcy is a legal process that allows individuals or businesses to seek relief from overwhelming financial obligations, including CRA debt. It involves filing an assignment in bankruptcy document which is prepared by the Trustee, and reviewed and signed by the debtor. The bankruptcy filing discloses all assets, liabilities, and income and expenses.

Personal bankruptcy can be a complex and emotional decision, but it can provide both a shield against CRA debt collection activities and seizures and simultaneously a fresh start for those individuals struggling with overwhelming debt.

It is crucial to seek the guidance of a licensed insolvency trustee to get the advice necessary to ensure a smooth and successful filing. Bankruptcy is not a decision to be taken lightly, but it can offer a solution to individuals and companies facing insurmountable financial challenges.

Duties and Responsibilities during Bankruptcy

The focus of the BIA in personal bankruptcy is for the honest but unfortunate debtor to a society free of his or her debts. The premise is that the bankrupt, or the officer of the bankrupt corporation, will fulfill their duties with integrity and honesty. The duties are outlined in the OSB’s Directive No. 26. If you are interested, you can read them HERE.

But what if they don’t? What if the individual bankrupt does not fulfill all of their duties and essentially absences themself from the process once they have filed their assignment in bankruptcy? In that case, the Trustee must oppose the bankrupt’s application for discharge and bring the matter to court. With CRA debt, there are times when CRA will automatically oppose a person’s discharge from bankruptcy.

Bankruptcy and CRA Debt Discharge Considerations

Corporations do not receive a bankruptcy discharge; individuals do. When it comes to CRA debt, there are times when CRA automatically opposes a person’s discharge or when a Trustee must.

If an individual filing for bankruptcy has personal income tax debt exceeding $200,000 and if the personal income tax debt accounts for 75% or more of the total unsecured proven claims, they are not eligible for automatic discharge under section 172.1 of the BIA. GST/HST payable is not factored into the determination for high-tax debtors, but taxes on additional income resulting from shareholder loans, draws, or dividends are included in their assessment.

For high-tax debtors seeking discharge, the licensed insolvency trustee will present the bankrupt’s discharge application to the court for a hearing, which the individual must attend. The court’s considerations and the type of discharge order granted for high-tax debtors differ from those in cases of bankruptcy filed by non-high-tax debtors. To avoid this scenario, a high-tax debtor should consider filing an alternative to bankruptcy, such as a restructuring proposal.

Dealing with Bankruptcy and CRA Debt

Outstanding Tax Returns

Unremitted Canadian tax filings mean tax returns that are either outstanding or incomplete within the specified filing deadlines for Canadian taxpayers. Such delinquent filings will incur penalties and interest charges, requiring individuals and companies to prioritize their tax responsibilities with utmost care. It becomes the duty of each taxpayer to ensure the prompt and accurate submission of their tax returns, to avoid negative repercussions.

Tax accountants and lawyers help their clients in fulfilling their tax obligations. Timely resolution of outstanding Canadian tax returns is essential to sustain compliance and avert any future complexities.

As stated above, any person or company contemplating either trying to reach an accommodation from CRA or invoking an insolvency process to deal with their CRA debt must bring all their filings up to date.

Bankruptcy and *CRA Debt**: Discharge in Bankruptcy*

I discussed the issues for an individual high-tax debtor trying to get their discharge from bankruptcy. The Trustee must bring the application to court. At the discharge hearing, subject to any other problematic issues with the debtor’s conduct before or during the bankruptcy administration, CRA will send a lawyer from the Department of Justice to the discharge hearing to request a condition be placed on the bankrupt before they can obtain their discharge.

The condition that the CRA will request is that the debtor pay 25% of the total proven CRA debt to obtain their bankruptcy discharge. Even if the person is not a high-tax debtor, there may be other reasons why CRA will oppose the person’s discharge from bankruptcy. If the CRA file is replete with instances of failed promises, ignoring the CRA representative requests over some time and general “trouble-making” by the taxpayer, the CRA will oppose the discharge.

These are all considerations that a person must discuss with the licensed insolvency trustee up front to end up using a process that is most advantageous to the taxpayer in eliminating their CRA debt.

Rebuilding Your Finances After a Canadian Bankruptcy Discharge

Reestablishing your financial standing following a Canadian bankruptcy discharge may seem like a challenging endeavour. However, with strategic planning and commitment, it is feasible to recover from financial setbacks. The initial step involves developing a budget and adhering to it meticulously, guaranteeing that essential expenses are met while unnecessary spending is curtailed.

Next, it is important to start rebuilding credit in a few different ways:

Obtain a secured credit card. Not the drug store variety, but the kind where you put down a cash security deposit and then you are given a credit card limit equal to your cash deposit. When you make your credit card payments, it gets reported to the credit bureaus. If you make your payments when due, over time, this will increase your credit score.
Take out a small 1 year RRSP loan and pay it off on time. This will also improve your credit score on your credit report.
The two Canadian credit bureaus, Equifax and TransUnion, are now beginning to track residential rent payments. If you are a renter and you make your rent payments on time, this too will increase your credit score.

It is also recommended to seek guidance from a financial advisor or credit counsellor to develop a solid financial plan. With patience and discipline, it is possible to rebuild your finances and secure a brighter financial future.

bankruptcy and cra debt

Bankruptcy and CRA Debt FAQs

Here are the most frequently asked questions and the answers regarding bankruptcy and CRA debt:

Is it possible to file for bankruptcy solely for CRA debt?

When initiating bankruptcy proceedings, it is imperative to include all debts owed. Notably, CRA debt related to income taxes and Director liabilities is treated comparably to other unsecured debts within the scope of bankruptcy proceedings.

What happens to my CRA debt in bankruptcy?

In bankruptcy, CRA debt is included as part of your unsecured debts (the exception being a proprietorship or partnership debt for unremitted HST or employee source deductions). Keep in mind that the CRA may oppose your discharge and the court may make a condition of you paying a portion of the CRA debt to obtain your discharge from bankruptcy.

How does bankruptcy affect my tax refunds?

Tax refunds may be affected in bankruptcy. It’s important to consult with a professional to understand the specific impact on your tax refunds.

Can I include tax debt in a consumer proposal?

Yes, tax debt can be included in a consumer proposal. A consumer proposal offers a structured repayment plan to creditors, including the CRA. It can be a more favourable option than bankruptcy for negotiating repayment terms with the CRA.

What if my tax debt exceeds $200,000 and makes up over 75% of my unsecured debt?

Individuals with personal tax debt exceeding $200,000, constituting over 75% of their total unsecured debts, may not qualify for automatic discharge in bankruptcy proceedings. In such instances, a bankruptcy court hearing will be convened, and potential conditions for discharge may be mandated, such as contributing a specified amount to the bankruptcy estate.

Bankruptcy and CRA Debt Conclusion

I hope you have enjoyed this bankruptcy and CRA debt Brandon’s Blog. Hopefully, you have better insight now into the ways of dealing with CRA debt and what some viable options are.

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 in finding a solution, contact the Ira Smith Trustee & Receiver Inc. team today.

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

An image of a woman holding her head in her hands with an image of a building with a Canadian flag behind her to represent a woman worrying about her bankruptcy and CRA debt. — *bankruptcy and cra debt*

Brandon Blog Post

BANKRUPTCY LAWYER: IS ONE ESSENTIAL TO FILE FOR BANKRUPTCY IN ONTARIO?

Post author By Brandon Smith
Post date August 7, 2023

bankruptcy lawyer

Bankruptcy lawyer: Introduction

Step right into this week’s edition of Brandon’s Blog, where we’re embarking on a profound exploration. Our focus today delves into a crucial theme that carries substantial weight within the psyche of a myriad of Canadian consumers grappling with financial adversity, as well as Canadian business owners navigating their enterprises with too many business debts through fiscal quandaries. The question at the forefront: do the circumstances warrant enlisting the expertise of a bankruptcy lawyer when contemplations of insolvency filings in Canada take center stage?

Venturing through the intricate landscape of insolvency and the realms of personal or corporate bankruptcy has the potential to stir feelings of frustration and helplessness. This sentiment amplifies mainly when the trajectory of your personal or corporate fiscal destiny hangs in a precarious balance, swaying like a delicate pendulum. The gravity of making prudent choices during this trying juncture cannot be overstated. At its core, lies the quintessential need to not only identify the right course but also to discern the adept professional from whose wellspring of wisdom guidance should be sought.

In this Brandon’s Blog, I will outline the scenarios in which consulting with a bankruptcy lawyer is highly advised, but as you will see, it is not essential in every circumstance. Whether you are taking into consideration submitting a restructuring proposal or seeking bankruptcy protection, recognizing who to turn to for specialist assistance for legal and financial advice can substantially affect the result of your financial journey.

I will discuss the intricate details surrounding insolvency as well as bankruptcy law in Canada. By diving into the significance of professional assistance and support, I intend to equip you with the understanding needed to make enlightened decisions during this difficult phase. Join me as we decipher the secrets of insolvency and bankruptcy and empower ourselves to safeguard a better financial future.

Bankruptcy lawyer: Overview of the insolvency and bankruptcy process in Canada

The bankruptcy procedure in Canada is governed by the Bankruptcy and Insolvency Act (BIA). It is a legal statute developed to supply relief to people and companies that are unable to pay their financial obligations. The process always includes the services of a Licensed Insolvency Trustee that is responsible for administering the insolvency process.

The Licensed Insolvency Trustee is first required to assess the debtor’s entire financial situation, including the causes of the insolvency, the current financial position and the nature of the assets and liabilities of the debtor. The Licensed Insolvency Trustee then needs to make recommendations to the debtor to solve their current financial crisis. Once agreed on, what insolvency or bankruptcy process will be implemented, the BIA and the restructuring consumer proposal, Division I proposal or the bankruptcy, is put into operation to offer a fresh start for the debtor while making certain there is fair treatment for the creditors.

A Licensed Insolvency Trustee is the only professional licensed in Canada by the federal government to administer the Canadian insolvency process chosen. In many cases, the process can be carried out without the advice of a bankruptcy lawyer.

bankruptcy lawyer

Bankruptcy lawyer: Formal insolvency options in Canada

Navigating the intricate labyrinth of bankruptcy within Canada unfurls as a legal undertaking of profound significance, extending its benevolent embrace to both individuals and enterprises ensnared within the inescapable clutches of their fiscal commitments. This orchestrated progression finds its regulatory compass in the venerable BIA, its vigilant guardianship entrusted to a duly licensed sentinel of fiscal adversity, recognized as a Trustee.

Commencing this odyssey, the debtor sets forth to formally lodge their supplication for bankruptcy, an entreaty promptly received by the Licensed Insolvency Trustee, who, in turn, undertakes the judicious scrutiny of the debtor’s economic constellations. From this intricate appraisal blooms a stratagem, a masterwork designed to navigate the undulating terrain of debt repayment, fostering equilibrium amid the ranks of creditors.

Through the procession of this intricate ballet, the debtor finds sanctuary from the clamorous onslaught of creditor collections, an ephemeral respite nestled within the folds of the overarching process. This respite, however, is not a sojourn of idle reprieve; it entails the debtor’s obligatory participation in the convocations of credit counsel, a didactic interlude intended to illuminate the labyrinthine corridors of fiscal wisdom.

Once the intricacies of this design garner the seal of approval, the gears of asset liquidation are set into motion, unfurling a cascade of transactions wherein the debtor’s holdings metamorphose into liquid currency, a tribute disseminated among the consortium of creditors who await their apportioned spoils.

The culmination of this voyage heralds the debtor’s liberation from the shackles of residual indebtedness, a phoenix rising from the embers of fiscal duress, reborn into a realm unburdened by the obligations that once ensnared them.

The formal insolvency options in Canada are described below.

Insolvency and debt relief solutions for individuals –

Restructuring by making monthly payments under a consumer proposal for those who owe $250,000 or less (not including any debts secured by and registered against a person’s residence).
Financial restructuring under a Division I proposal, for those who owe more than $250,000.
Personal bankruptcy.

Insolvency and debt relief options for companies –

Financial restructuring under a Division I proposal as an alternative to bankruptcy.
Sale of assets through a receivership enforcement process initiated by a secured creditor.
Restructuring for companies that owe $5 million or more under the Companies’ Creditors Arrangement Act (CCAA).
corporate/business bankruptcies..

How a bankruptcy lawyer can assist you: Importance of seeking legal advice in certain situations

In certain situations, looking for the advice of a Canadian bankruptcy lawyer is of utmost significance. An insolvency or bankruptcy filing is an intricate legal process that needs careful consideration of an individual’s financial scenario. A bankruptcy legal representative can assist with whether corporate or personal bankruptcy, as the case may be, is the best option, the kinds of insolvency processes readily available, and the connected lawful obligations and effects.

Furthermore, individuals can seek assistance from a bankruptcy lawyer to guide them through the legal procedures. It is highly recommended that consumer debtors seek advice from both a licensed insolvency trustee and a bankruptcy lawyer in certain circumstances. Some typical scenarios that warrant additional counsel from a bankruptcy lawyer well-versed in insolvency law include:

They are involved in complex family law proceedings.
There are one or more legal actions against you that allege unlawful behaviour, such as fraud or fraudulent misrepresentation or the conversion of someone else’s property, such as funds held in trust.
The bankrupt’s application for discharge from bankruptcy is being opposed and therefore there will be a court hearing.
Their financial situation is intertwined with other issues where confidential consultation with legal advice is required and that advice must be protected by solicitor-client privilege.
There are special asset considerations where a privileged discussion with a bankruptcy lawyer is essential before seeking advice and assistance from a Licensed Insolvency Trustee.

In corporate insolvency situations, we always recommend that the Directors obtain legal advice from a bankruptcy lawyer in addition to the corporation obtaining legal assistance.

A bankruptcy lawyer can provide customized guidance in such touchy situations as well as representation to guarantee the most effective feasible outcome for their clients.

bankruptcy lawyer

Can I file for bankruptcy without a bankruptcy lawyer in Canada?

While it is possible to declare bankruptcy without a bankruptcy lawyer in Canada, it is recommended to seek legal counsel for complex corporate and personal filings. Hiring a bankruptcy attorney supplies several advantages, including knowledge of insolvency legislation, assistance in more complex proceedings and guidance on unusual issues, specific unique creditor issues or claims and personal liability under any personal guarantees.

In addition, a bankruptcy lawyer can represent you in court proceedings such as with litigants who have obtained approval of the court to continue litigation against the debtor and on a personal bankruptcy discharge hearing. This will guarantee that your legal rights are safeguarded throughout the process. Therefore, in these kinds of consumer and corporate insolvency matters, it is smart to talk to a qualified bankruptcy lawyer to ensure a smoother and much more successful bankruptcy process in Canada.

Determining the necessity of enlisting the services of both a bankruptcy lawyer and a Licensed Insolvency Trustee: Is a bankruptcy lawyer required to initiate bankruptcy proceedings in Canada?

Filing for bankruptcy in Canada can be a complex as well as stressful process, however, as defined above, it is feasible to do it without the help of a bankruptcy lawyer. A bankruptcy lawyer cannot launch the bankruptcy process in Canada. In Canada, bankruptcy, as well as any other insolvency process, is launched and administered by Licensed Insolvency Trustees that are qualified and also supervised by the Office of the Superintendent of Bankruptcy (OSB). So when someone files for bankruptcy, it is done with a trustee in bankruptcy (this is the old name for a Licensed Insolvency Trustee).

Trustees are accountable for overseeing and handling the Canadian bankruptcy and insolvency procedures, including the liquidation of assets and the distribution of proceeds to creditors for unsecured debts. They additionally offer debtors financial counselling, therapy and support on how to handle their financial resources in the future. To end up being a Trustee, people need to satisfy particular educational and professional requirements, consisting of completing specialized training, courses and examinations. Thus, Canadians can trust that their insolvency, as well as personal bankruptcy procedures, are being managed by qualified and also experienced professionals.

Regardless of the guidance and aid regarding your financial affairs from a Licensed Insolvency Trustee before and also after the initiation of a financial restructuring or personal bankruptcy process, a Licensed Insolvency Trustee practically acts on behalf of the unsecured creditors. So, for circumstances like those described above, if any debtor has an extra complicated scenario, is associated with sticky scenarios or is concerned about the director or personal responsibility as a result of a business restructuring or bankruptcy, then the recommendations of a bankruptcy lawyer should be acquired before entering into any insolvency procedure.

bankruptcy lawyer

Bankruptcy lawyer and a Licensed Insolvency Trustee: Determining the necessity of enlisting the services of both a bankruptcy lawyer and a Licensed Insolvency Trustee

There arise certain junctures where the imperative of engaging a proficient bankruptcy lawyer to adroitly navigate the intricate labyrinth of the Canadian bankruptcy process becomes unequivocal. As expounded upon earlier, should your fiscal panorama manifest intricacies reminiscent of a Byzantine tapestry, replete with an entanglement of debts and creditors, the tutelage and expertise proffered by a bankruptcy lawyer morph into an invaluable compass.

The determination of the exigency to enlist the services not only of a bankruptcy lawyer but also of a bankruptcy trustee constitutes a pivotal crossroads for both individuals and enterprises ensnared in the throes of financial quandaries. While a bankruptcy lawyer adroitly dispenses legal counsel and advocates in the corridors of justice, a bankruptcy trustee’s role expands to encompass the labyrinthine realm of debt reorganization, proposal filings, and the art of debt alchemy. Their convergence encapsulates a holistic stratagem in the pursuit of resolving the monetary labyrinth.

Grasping the complexity inherent in bankruptcy law is tantamount, and a seasoned bankruptcy lawyer deftly steers through the legal firmament, charting a course that aligns with the best nexus of legal tenets. Conversely, a Licensed Insolvency Trustee proffers a detached analysis of the financial constellation, endowing clients with an array of options extending beyond the binary realm of bankruptcy and answering any questions about bankruptcy you may have.

At its essence, the verdict to summon forth both the prowess of a bankruptcy lawyer and the sagacity of a Trustee should hinge upon the unique tapestry woven by individual circumstances and the crystalline aspirations of the client. Ultimately, it comes down to the complexity and sensitivity of the person’s or company’s overall situation.

How to find a qualified bankruptcy lawyer or Licensed Insolvency Trustee in Ontario

When confronted with financial troubles in Canada, it’s important to make informed choices. If you’re thinking about bankruptcy, it’s smart to seek guidance from a Licensed Insolvency Trustee. These professionals can assist you through the intricate procedure and also give important understanding.

For those with especially complicated financial circumstances, or who is a corporate director of an insolvency company, it might be essential to employ the help of a seasoned bankruptcy lawyer.

Starting your search for trustworthy professionals can be frustrating. Nonetheless, a calculated strategy can aid. Begin by discovering the Law Society of Ontario’s website, where you’ll discover a comprehensive list of competent legal experts that concentrate on bankruptcy and insolvency.

To locate a bankruptcy trustee near you, explore the computerized database of the OSB. This will certainly give a list of bankruptcy trustees in your locale to seek insight, advice and assistance. For both a bankruptcy lawyer as well as a Trustee, it is essential to engage in a comprehensive conversation with any prospective advisor, delving into their specialist background, navigational technique, and cost structure.

Efficiency is not the only aspect to think about; reliability and also the personal vibe you get from that person to see if you make a connection are likewise essential elements that need to inform your decision. By locating an ally who can give adept support throughout this challenging period, you can navigate this hard juncture with greater ease as well as confidence.

Finally, check out Google and other online reviews. There is nothing better than reviews from people who were in your shoes before and sought assistance from a Licensed Trustee, bankruptcy lawyer or both. Their experience and insight into specific professionals will help you immensely. Things to look for include:

What service did they perform for the person?
Does the reviewer live in your general area?
Did the professional do a good job?
What were some of the reviewer’s favourite things in working with that professional?
Did they work with any specific people in the firm that they highly recommend?
How did the Licensed Insolvency Trustee or bankruptcy lawyer they chose to compare to others they may have consulted with?
Are there any tips the reviewer offers to others?

Bankruptcy lawyer: Conclusion

Looking for legal advice when considering bankruptcy is not needed in every scenario. However, it is necessary when it concerns complicated plans. Hiring a qualified bankruptcy lawyer can provide countless benefits. They have the proficiency as well as knowledge to advise you before embarking on a bankruptcy process and afterwards to assist you with the whole procedure.

When considering filing an assignment in bankruptcy in Canada, it is crucial to comprehend the complexities of the process and also the potential effects. While it may be possible to navigate through it without an insolvency lawyer, talking to one will supply the specialist expertise necessary to guarantee a smooth and efficient process when you have complex or unique issues in your situation.

From evaluating your financial situation to exploring alternatives such as a restructuring proposal, a bankruptcy lawyer can direct you through the legal puzzle and also suggest the most ideal strategy. When it concerns matters as substantial as bankruptcy, seeking expert help is a sensible choice to secure your best interests and also secure a fresh financial start.

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

Creating a solid financial plan can be the key to unlocking a brighter and more prosperous future. By taking control of your finances, you can prioritize your expenses, set clear financial goals, and build a strong foundation for your dreams to come true. With the right mindset and approach, financial planning can empower you to regain control, eliminate this issue as a source of stress in your life and find peace of mind.

Individuals 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 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 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.

Brandon Blog Post

BIA: 2 PEOPLE’S CHALLENGE SUING A CANADIAN LICENSED INSOLVENCY TRUSTEE

Post author By Brandon Smith
Post date April 24, 2023

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Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) (BIA): Introduction

On April 13, 2023, the Supreme Court of Canada (SCC) dismissed the application by the legal counsel of a former bankrupt and his wife for leave to appeal the costs awarded against them in a decision of the Court of Appeal for Ontario. As is the usual case, the SCC did not give any reasons for the dismissal. The Court of Appeal for Ontario’s decision dealt with what is required under section 215 of the Bankruptcy and Insolvency Act (Canada) (BIA) to sue a licensed insolvency trustee.

In this Brandon’s Blog, I provide a comprehensive guide to the Court of Appeal for Ontario decision and everything you need to know about section 215 of the BIA. Using this real court decision as an example, we’ll explore the ins and outs of Section 215 of the BIA to give you a clear understanding of its purpose, how it applies, and the potential consequences of non-compliance.

Overview of BIA Section 215

Section 215 of the BIA requires that permission of the court be obtained to bring an action against the Office of the Superintendent of Bankruptcy Canada, an official receiver, an interim receiver or a licensed insolvency trustee with respect to any report made under, or any action taken, under the BIA.

The purpose of this section is to ensure that the court must first decide if a proposed action has on its surface a legitimate purpose relating to the administration of insolvency matters in Canada and to avoid frivolous actions that have no chance of success.

Regular readers of Brandon’s Blog know that I have been following and writing about the case of the former bankrupt, Mr. Wayne Flight and his wife, Amber Nicole Flight. In my November 2021 blog titled: TRUSTEE IN BANKRUPTCY: CERTAIN ACTIONS AGAINST TRUSTEE CAN BE UNLEASHED WITHOUT FIRST REQUIRING COURT PERMISSION, I detailed a decision of the Ontario court where the motion judge decided that notwithstanding section 215 of the BIA, the Flights did not need to first obtain authorization from the Court in order to initiate their legal proceeding.

Then in July 2022, I wrote that the licensed insolvency trustee (formerly called a bankruptcy trustee) had appealed this lower court decision and gave an overview of the appeal and other related issues in my blog titled: INSOLVENCY TRUSTEE: TURNS OUT CERTAIN ACTIONS AGAINST THE TRUSTEE CANNOT BE UNLEASHED WITHOUT COURT PERMISSION.

As stated above, this Brandon’s Blog will provide a comprehensive guide to the Court of Appeal for Ontario decision and everything you need to know about section 215 of the BIA.

BIA: The Motion Judge’s Decision

The motion judge decided that the Flights did not require the permission of the court, under s. 215 of the BIA, to bring an action against the Trustee, relating to the administration of four bankruptcies of Brian Wayne Flight! The same corporate trustee was the Trustee in each of his bankruptcy proceedings. The lower court judge rendered a decision that negates the applicability of the clause in dispute, deeming the action to be levied against the individual Trustee in a personal capacity, and further alleging omissions as a mitigating factor. She did not assess whether section 215 of the BIA did apply and if it did, should permission to proceed with the action be granted.

Upon due consideration of the arguments presented, the Court of Appeal for Ontario has granted the Trustee in Bankruptcy leave to appeal and has subsequently set aside the order of the motion judge. In rendering its decision, the appellate court has determined that pursuant to section 215 of the BIA, permission to bring the civil action must be obtained and has thus directed the matter back to the bankruptcy court to assess whether such permission should be granted.

It is noteworthy that, despite the Flights’ appeal of this ruling to the SCC, said appeal has been dismissed. Consequently, the matter will now be remanded to the bankruptcy court for further deliberations.

The BIA case background

Mr. Flight filed for bankruptcy on four separate occasions – specifically in the years 2004, 2006, 2011, and 2016. The same corporate trustee was the Trustee in respect of each of these bankruptcies. The same individual licensed insolvency trustee was the individual at the corporate trustee with carriage of Mr. Flight’s bankruptcies.

The total of the proven claims in the first three bankruptcies was $324,800. The total amount distributed to creditors of those bankruptcies was about $3,200. Proven claims in the fourth bankruptcy were $127,870.

In the year 2018, amidst his fourth bankruptcy, Mr. Flight uncovered the fact that substantial amounts had been unlawfully appropriated from his business operations between 2003 and 2018. The perpetrator of this offence was none other than Julie LeBlanc, his former spouse, his bookkeeper, and authorized agent. Ultimately, Mr. Flight determined that the amount of the misappropriations was approximately $206,000.

Mr. Flight successfully retrieved a sum of approximately $30,300 from Ms. LeBlanc, however, it was not submitted to the Trustee. Subsequently, in April 2018, Mr. Flight lodged a complaint with the Office of the Superintendent of Bankruptcy regarding the Trustee’s inability to identify Ms. LeBlanc’s actions. Following the formal complaint, the Trustee was made aware of Ms. LeBlanc’s illicit activities and the funds secured by Mr. Flight.

Disputes then arose between the Trustee and Mr.Flight concerning whether and on what terms he would be discharged from bankruptcy and how the payments from Ms. LeBlanc should be treated. In August 2019, Mr. Flight was granted a conditional discharge on terms that, if complied with, allowed him to receive an absolute discharge after twelve months. The Trustee and Mr. Flight did not agree as to whether those conditions were met.

In September 2019, Mr. Flight and his current spouse, Amber Nicole Flight, commenced an action against the individual licensed trustee, seeking relief (the “Action”). The Action does not name, or refer to, the corporate trustee, but it treats the individual trustee as though he were the Trustee. The central allegation in the Action is that the individual trustee, as the“Licensed Insolvency Trustee” for each of the bankruptcies, ought to have detected Ms. LeBlanc’s misappropriations and, once told about them, ought to have taken steps including suing Ms. LeBlanc.

As Mr. Flight states in his affidavit:

“At the heart of this action is the Trustee’s failure to detect, prevent, and once he became aware of it, to litigate, the theft and fraud committed by my former Accountant, Bookkeeper, and Power of Attorney, JulieLeBlanc”.

Did the undischarged bankrupt have the right to launch the Action under the BIA?

Both the individual trustee and the corporate trustee objected to the Action on the basis that at the time of its commencement, (i) Mr. Flight was an undischarged bankrupt person, and (ii) no permission was obtained under s. 215 of the BIA to bring the Action.

Mr. Flight brought a motion, in his bankruptcy proceeding, seeking directions with respect to whether he had the right to commence the Action as an undischarged bankrupt and, if required, seeking leave to do so under section 215 of the BIA.

In September 2020, and before the motion for directions was heard, Mr. Flight launched but did not proceed with, a motion for an absolute discharge. In October 2020, working with a different insolvency professional, he filed a consumer proposal under the BIA. It was accepted by Mr. Flight’s sole significant creditor in February 2021. The acceptance of the consumer proposal resulted in his bankruptcy being deemed annulled.

Following acceptance of the consumer proposal the motion judge heard the motion for directions with respect to the Action.

The Court of Appeal for Ontario’s analysis

The motion judge, sitting in the bankruptcy court, determined that permission was not required under section 215 of the BIA to commence the Action. She expressly did not determine whether, if permission were required, should it be granted. She did not address whether Mr. Flight’s status as an undischarged bankrupt at the time the Action was started prevented him from bringing it.

The motion judge described the Action as one seeking “a declaration that the defendant engaged in misfeasance, negligence, fraud and breach of fiduciary duty in his personal capacity and that the defendant was unjustly enriched.” She described the claims in the Action as alleging a theft (by Ms. LeBlanc) that caused Mr. Flight’s repeated bankruptcies, and as alleging that the individual trustee was liable since the“defendant trustee ought to have detected this fraud in the administration of the four bankruptcies”.

The motion judge described the Action as claiming damages flowing from the individual trustee’s alleged failure to: “take any meaningful action to address the alleged fraud and its impact on the fourth bankruptcy after its discovery”; “diligently commence an action against the former bookkeeper”; “investigate the fraud”; “adjust the plaintiff’s surplus income”; “recommend a consumer proposal in alternative to bankruptcy”; and “have the plaintiff promptly discharged from his fourth bankruptcy”.

The motion judge gave two reasons for finding that the Action did not require permission under section 215 of the BIA. According to her perspective, seeking recourse against trustees in their individual capacity does not necessitate prior authorization. Furthermore, it is noteworthy that the pursuit of legal recourse pertaining to omissions does not necessitate getting prior authorization.

The Court of Appeal for Ontario’s decision

The Court of Appeal for Ontario found that the motion judge erred in concluding that the capacity in which the Trustee was sued made section 215 of the BIA inapplicable. An action does not fall outside of section 215 of the BIA because it names an individual rather than the corporate trustee as the defendant, where the action alleges that the individual owed the duties of a Trustee and is liable as if he were the Trustee. Nor does an action fall outside of section 215 of the BIA because the claim asserts that it is brought against the Trustee in a personal capacity, where the gist of the claim is wrongdoing in the performance of the Trustee’s role.

The appellate court stated that the motion judge also erred in holding that an action that makes any allegation of an omission falls outside of section 215 of the BIA. Although section 215 does not apply to an action premised on the failure of a Trustee to do an act specifically and expressly mandated by the BIA, that is not the core allegation in the Flight’s claim. Section 215 applies to the Action, which alleges common law wrongdoing in the performance of the Trustee’s role, even if an aspect of that wrongdoing is described as an omission to act.

The Court of Appeal for Ontario granted the Trustee’s leave to appeal, allowed the appeal, and returned the matter to the bankruptcy court to determine whether the Flights should be granted permission to sue the individual trustee. The individual and corporate trustees were entitled to the costs of the appeal, fixed in the amount of $13,000, inclusive of disbursements and applicable taxes. Now that the SCC appeal is dismissed, the lower court will have to decide the real issues as determined by the Court of Appeal for Ontario

BIA: Conclusion

I hope you enjoyed this section 215 BIA Brandon’s Blog.

Revenue and cash flow shortages are critical issues facing people, 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 proceedings. 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.

Tags bankrupt person, Bankruptcy and Insolvency Act, bankruptcy proceedings, BIA, bia section 215, civil action, Consumer Proposal, corporate trustee, current spouse, interim receiver, Ira Smith Trustee, legal counsel, licensed trustee, official receiver, trustee in bankruptcy, trustee in respect, trustee with respect, undischarged bankrupt

Brandon Blog Post

OFFICERS AND DIRECTORS: NAVIGATING THEIR RESPONSIBILITIES IN AN INSOLVENT CANADIAN CORPORATION

Post author By Brandon Smith
Post date February 6, 2023

officers and directors

officers and directors

Officers and Directors: Introduction

In Canada, it is essential that the individual orchestrating any criminal activity must have the necessary competency to commit the offence before any corporate responsibility can be assumed. The executives and board members of the enterprise are viewed as the ultimate custodians of the company’s ethical obligations.

Welcome to Brandon’s Blog! Here I’ll be discussing the court’s ruling on fraudulent intent by officers and directors, and how it affects the transfer of assets at undervalue in insolvent corporations. I’ll be focusing on the 2022 Court of Appeal for Ontario decision in the Bondfield Construction Company Limited (“Bondfield”) and Forma-Con Construction (“Forma-Con”) case as creating new law.

After two court decisions over nearly two years, the Supreme Court of Canada has delivered their decision on the Court of Appeal’s decision upholding the lower court decision, granting the application for leave to appeal to the Supreme Court.

Officers and Directors: What is the “directing mind”?

The term “directing mind” in the context of Canadian corporations refers to a natural person who holds a high level of authority within theand can be considered the “alter ego or soul” of the corporation. The term “alter e organization go” or “soul” of a corporation refers to a person who holds significant authority within the organization. According to the web search results, this person can be considered the embodiment or representation of the corporation.

Federal legislation uses a more familiar expression for the directing mind “senior officer”. This includes individuals who have an important role in setting policy or making important decisions within the corporation. A “senior officer” is a person in a position of authority or seniority over others. They are responsible for leading and overseeing a group or organization.

officers and directors

The duties of Officers and Directors

Fiduciary Duty

In Canada, the phrase “directing mind” is used to refer to a top-tier individual, an officer or someone on the board of directors in a company who can be thought of as its “alter ego” or “soul”. This individual holds a great degree of influence and power within the corporation, making them its symbolic heart and soul.

Duty of Care

Officers and directors are expected to exercise the same degree of prudence, attention to detail, and knowledgeability that any reasonable individual would in similar scenarios. This means that they must stay abreast of the corporation’s financial well-being and make informed decisions using that information. Beyond the necessity of performing their fiduciary duty, they also have a duty of care to the company and its stakeholders.

Insolvency and the Obligations of Officers and Directors in Canadian Corporations

As a corporation’s liabilities come due and it finds itself unable to pay, insolvency looms large. This can be a stressful period for corporate officers and directors, as they are tasked with making crucial decisions that will affect the company and its stakeholders in the long run. It is paramount that they keep the corporation’s best interests in mind as they navigate these difficult waters.

Officers and directors of Canadian corporations have two significant legal obligations to fulfill: a fiduciary duty and a duty of care. Failure to uphold either of these duties could result in personal liability for them.

officers and directors

Navigating Responsibilities in an Insolvent Corporation: Do officers and directors owe a duty to creditors

When an enterprise finds itself insolvent or close to it, the officers and directors of the company accept a nerve-wracking assignment. These decision-makers are required to make authoritative choices that will determine the fate of the corporation and of all those involved.

Officers and directors of an insolvent company must jump into action to protect as best as possible the corporation and its stakeholders from added losses. This could include negotiations with creditors, liquidating redundant assets, and reorganizing the firm’s procedures. It’s not a simple task, but it’s a necessary one.

It’s necessary to protect the corporation and its stakeholders by focusing on the company’s important resources and operations. Decisions must be made to stave the loss of assets needed to operate and make sure that all of its transactions are in the corporation’s best interests.

Aside from their approved responsibilities, officers and directors need to be alert to their obligations and the repercussions that may arise from negligence. They need to be very careful to ensure that their fiduciary responsibility and duty of care are not abandoned and must correct any missteps.

With this perfect segway, I now wish to describe a very important recent decision from the Court of Appeal for Ontario upholding the lower court decision on the duties and responsibilities of officers and directors of an insolvency company. This decision has been appealed to the Supreme Court of Canada. It is such an important decision for officers and directors, corporations and especially insolvent ones for the entire country, that the Supreme Court of Canada has agreed to hear the appeal.

Officers and directors: Ernst & Young Inc. v. Aquino, 2022 ONCA 202 (CanLII)

On March 10, 2022, the Court of Appeal made a landmark decision in Ernst & Young Inc. v. Aquino, which delved into the corporate attribution doctrine – the idea that the actions of a corporation’s controlling figure can be attributed to the firm itself. The ruling was especially pertinent in the bankruptcy and insolvency context.

John Aquino was the directing mind of Bondfield Construction Company Limited (“Bondfield”) and its affiliate Forma-Con Construction (“Forma-Con”). He and his associates carried out a false invoicing scheme over a number of years by which they siphoned off tens of millions of dollars from both companies.

The monitor and the trustee challenged the false invoicing scheme and sought to recover some of the money. The participants argue that they did not intend to defeat any actual creditors and that John Aquino’s intent cannot be imputed to either Bondfield or Forma-Con.

Bondfield was a full-service group of construction companies that operated in the Greater Toronto Area and Southern Ontario starting in the mid-1980s. Bondfield was in financial trouble in 2018 and started proceedings under the CCAA on April 3, 2019.

After a careful investigation, the monitor and the licensed insolvency trustee administering the bankruptcy (formerly called a trustee in bankruptcy) uncovered a shocking discovery: Bondfield and Forma-Con had deceitfully dispersed a staggering sum of money to or for the benefit of John Aquino and others via a fraudulent invoicing system!

In cross-examination, Mr. Aquino admitted that the suppliers who falsely invoiced Bondfield provided no value for the transfers, but denied intent to defraud, defeat, or delay Bondfield’s actual creditors.

officers and directors

Can section 96 of the Bankruptcy and Insolvency Act (“BIA”) be used by the monitor and the trustee to recover the money officers and directors took from Bondfield and Forma-Con?

Section 96 of the BIA allows trustees to seek a court order “voiding transfers at undervalue” which are a transfer by the debtor to another party at no or undervalued consideration, which is an improvident transaction from the debtor’s perspective. The policy of the BIA goes beyond the modest origin of the law, which prohibits insolvent debtors from giving away assets to third parties instead of using those assets to repay their debts.

This section of the BIA is a remedy to reverse an improvident transfer that strips value from the debtor’s estate, but the trustee must nevertheless meet the requirements of the specific words used.
The monitor and the trustee had to prove two elements to require John Aquino and the other beneficiaries of the false invoicing scheme to repay the money they took under s. 96(1)(b)(ii)(B) of the BIA. The application judge bridged the gap by imputing John Aquino’s fraudulent intention to the debtors, Bondfield and Forma-Con.

The legal analysis of the false invoicing scheme was no longer in active dispute. John Aquino and his associates dispute liability under s. 96 on the basis that their fraudulent acts were not carried out at a time when Bondfield and Forma-Con were financially precarious.

John Aquino and his associates asserted that Bondfield and Forma-Con were financially healthy, so they did not intend to defraud any actual creditors. When assessing the intention of a debtor, a court must look at the information known at the time of the transfer or transaction, and the reasonableness of the debtor’s belief in light of the circumstances then existing.

In order to require John Aquino and the other beneficiaries of the false invoicing scheme to repay the money they took under s. 96(1)(b)(ii)(B) of the BIA, the monitor and the trustee had to prove two elements: first, John Aquino and the other participants were not dealing with Bondfield and Forma-Con at arm’s length; and second, at the time they took the money (during the statutory review period), they “intended to defraud, defeat or delay a creditor” of Bondfield or Forma-Con. The first element is amply established by the evidence. This case turns on the second element.

The lower court judge’s reasons for the timing of the transfers

The Court of Appeal found that the lower court judge decided correctly based on the legal principles that were presented. John Aquino and his associates presented their case of Bondfield and Forma-Con’s solvency when they received the funds. However, the judge decided that the affirmation of fraud provided an abundant base for deciding that Bondfield and Forma-Con had the purpose of deceiving, obstructing, or delaying their creditors.

The judge concluded that the presence of badges of fraud creates a presumption of fraudulent intent and that John Aquino had not rebutted the presumption. The judge also concluded that the true financial condition of Bondfield and Forma-Con at the time of each impugned transaction cannot be determined on the record before the court.

Based on the totality of the evidence, documents and information, the judge held that at the time of the fraudulent transactions, Bondfield and Forma-Con were already experiencing mounting financial difficulties, and their creditors were imperilled by the transfers. John Aquino continued on nonetheless, and the court found that the transfers were intended to defeat those creditors. The application judge took a pragmatic view of the evidence, found that John Aquino carried on with the false invoicing scheme knowing that Bondfield and Forma-Con were experiencing increasing financial difficulties, and inferred that he did this with the intent to defeat creditors.

John Aquino didn’t care if his scheme had the potential to defraud, defeat or delay creditors according to section 96 of the BIA. His recklessness was enough to show the intent needed to make the fraudulent transfers stand. It’s clear that he wasn’t concerned about the interests of the companies’ creditors.

Forma-Con paid over $11 million to certain purported suppliers under the false invoicing scheme during the time period of review allowed under s.96 of the BIA. For the Bondfield 5-year review period, the court found that the total amount of $21,807,693, are transfers at undervalue. The court ordered Mr. Aquino and associates, to repay this amount on a joint and several basis.

officers and directors

Officers and Directors: Uncovering the Impact of Fraudulent Intent on Transfers and Undervalue in Bankrupt Corporations

The application judge was able to uncover John Aquino’s scam involving false invoicing by Bondfield and Forma-Con, giving the trustee the green light under the BIA to reclaim the funds stolen by the fraudsters.

The appellants argue that the lower court judge erred legally because John Aquino’s fraudulent intent cannot be imputed to Bondfield or Forma-Con as a matter of law, even though he was one of their directing minds. They assert that the binding principles of the common law doctrine of corporate attribution set out in Canadian Dredge & Dock Co. v. The Queen,[55] do not permit the imputation of his intention to either defrauded the company. Accordingly, s. 96(1)(b)(ii)(B) of the BIA cannot be used to require John Aquino, or his associates as “privies” to the impugned transactions, to repay the money they took.

This intriguing argument brings up a difficult issue concerning the relationship between the stipulations of the BIA and common law doctrine. When can a court use common law in interpreting and putting the BIA into effect? I will start by presenting the judge’s rationale for the application. After that, I will tackle this legal inquiry and then consider its effects regarding the implementation of the corporate attribution doctrine in this appeal.

The lower court judge reasoned that common law doctrine can be enlisted by a court to interpret and supplement the BIA where necessary to better achieve its purposes, one of which is to protect the interests of the bankrupt’s creditors. She believed that common law can add content to the terms of the bankruptcy law not otherwise defined. In particular, the common law doctrine known as the anti-deprivation rule and its purpose of preventing fraud on the bankruptcy is especially pertinent in this case. The use of common law doctrine must respect the policy of the BIA.

The BIA is no stranger to the use of common law doctrines- though it has yet to officially codify ‘good faith’, the Supreme Court has nonetheless held that Parliament is expected to remain true to the traditional understanding of the common law unless there is some explicit and unmistakable indication of deviation. Consequently, when it comes to interpreting the BIA, the concept of good faith unquestionably plays a role, but it is not codified.

The fraud on bankruptcy law principle exists to protect creditors from unscrupulous parties who might otherwise try to remove value from an insolvent debtor’s assets. Corporations, being distinct from natural persons, necessitate the corporate attribution doctrine, which provides a link between the entity and the individual whose “guiding hand” propelled the corporation into action.

This kind of insolvency officers and directors case was novel in Canada

The corporate attribution doctrine has been applied in the fields of criminal and civil liability. Before this case, courts in Canada had yet to consider the doctrine in the bankruptcy and insolvency context under s. 96 of the BIA. The court recognized that the attribution exercise is grounded in public policy. These principles provide a sufficient basis to find that the actions of a directing mind be attributed to a corporation, not a necessary one.

Accordingly, as a principle that is grounded in policy, and which only serves as a means to hold a corporation criminally responsible or to deny civil liability, courts retain the discretion to refrain from applying it where, in the circumstances of the case, it would not be in the public interest to do so.

After thorough deliberation, the Court of Appeal sided with the lower court to declare that this case had implications for the public interest. It was determined that the invoicing scheme had been used as a way to fraudulently, obstructively, and detrimentally transfer funds to avoid payment to Bondfield’s and Forma Con’s creditors. The Court seeks to reverse these transactions and recover a total of $11,366,890 on behalf of Forma-Con’s creditors. For Bondfield’s creditors, the amount of $21,807,693,

officers and directors

The bottom line of Ernst & Young Inc. v Aquino

The lower court found and the Court of Appeal affirmed that decision that under s. 96 of the BIA, the payments by Bondfield and Forma-Con made in respect of the false invoices during the 12-month review period totalling for Bondfield, $21,807,693, and for Forma-Con, CDN$13,985,743 CAD and US$35,030 Are transfers at undervalue. Those that received these funds were ordered to repay them on a joint and several basis.

The Court of Appeal delved into some critical legal matters in their ruling, exploring the responsibilities insolvency practitioners must uphold, how much creditors should be able to expect, as well as the rights of everyone involved in bankruptcy proceedings. They also delved into the interpretation of the BIA and the reality of its application.

The Court decided that the BIA has to be implemented in a way that meets the expectations of the Act, and that insolvency professionals are to be held to a high standard of both expertise and responsibility.

At the beginning of this Brandon’s Blog, I mentioned this monumental case will be heard in the Supreme Court of Canada. As you can imagine, it will be a highly anticipated event in the insolvency world. And it won’t disappoint!

The ruling so far has had major implications for the insolvency industry, including the rights of creditors, officers and directors and insolvency practitioners. All in all, it was a groundbreaking decision that will shape the industry for years to come – and will no doubt be further shaped once the Supreme Court of the land hears the case and issues its decision.

Obligations and Responsibilities of the Board of Directors and Officers: Conclusion

The Ernst & Young Inc. v Aquino case was an important one for the insolvency industry and had far-reaching implications for the obligations of insolvency practitioners and the rights of creditors and other stakeholders. The Court of Appeal’s decision in the case was a clear and definitive ruling on a number of key legal issues, and it will likely have a lasting impact on the insolvency industry for many years to come.

I hope you enjoyed this officers and directors Brandon’s Blog.

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 its economic effects of inflation and a potential recession.

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.

Tags bankrupt corporation, bankruptcy law, bankruptcy proceedings, Board of Directors, Bondfield Construction Company Limited, corporate attribution doctrine, corporation directors, court of appeal, duties of officers, Ernst & Young Inc. v Aquino, Forma-Con Construction, Ira Smith Trustee, liabilities of directors, personal liability, section 96 of the Bankruptcy and Insolvency Act, time period, trustee in bankruptcy, voiding transfers at undervalue

Brandon Blog Post

THE COMPLETE CORPORATE BANKRUPTCY IN CANADA GUIDE: WHAT EVERY BUSINESS OWNER NEEDS TO KNOW

Post author By Brandon Smith
Post date January 30, 2023

business bankruptcy in canada

Corporate bankruptcy in Canada: Introduction

Are you a business owner with company financial difficulties and apprehensive about the possibility of corporate bankruptcy and is it something that you will have to seriously consider? Corporate bankruptcy in Canada process can be complex and overwhelming, but understanding it is necessary for making authoritative decisions about your business.

In this Brandon’s Blog, I will analyze the ins and outs of corporate bankruptcy in Canada, including the different types, the steps in filing for corporate bankruptcy, the impact on creditors and shareholders, and alternatives to consider. By the end of this Brandon’s Blog, you will have a better understanding of corporate bankruptcy in Canada and be able to understand how to make the best decision for your business.

Explanation of what corporate bankruptcy in Canada is

The corporate bankruptcy process in Canada – otherwise known as commercial bankruptcy or incorporate business bankruptcy – is a legal means by which an incorporated business that is unable to pay its debts can be liquidated, and its liabilities discharged. This process allows the business to liquidate its assets and redistribute the value among its creditors. The process is intended to give an honest, but unfortunate corporate debtor a discharge from most debts while ending the business of that corporation.

It is important to note that corporate bankruptcy is different from personal bankruptcy which is a legal process through which an insolvent individual can substantially reduce debt and hopefully restructure. Unlike an individual who files for personal bankruptcy, it is not intended that the bankrupt corporation will come out of bankruptcy through a discharge process.

If single individuals are operating businesses and are considering business bankruptcy, then we are talking about the bankruptcies of sole proprietorships. If more than one person is operating a business partnership, then we need to think of the issues in a partnership bankruptcy. Either way, we have insolvent persons, which means personal bankruptcy, which is not the subject of this Brandon’s Blog.

It’s important to note that the process of corporate bankruptcy in Canada is complex and can only be handled by a licensed insolvency trustee. The Trustee will help you understand the process and the options available to your corporation and then prepare the documents required to submit the bankruptcy filing.

In Canada, if a corporation is bankrupt, it is subject to both the federal Bankruptcy and Insolvency Act (Canada) (“BIA”) and relevant provincial regulations. The BIA outlines the procedure for managing a corporate bankruptcy, while provincial law governs other aspects of the business such as labour laws.

corporate bankruptcy in canada

A brief overview of how the process of corporate bankruptcy in Canada begins

Navigating corporate bankruptcy in Canada can be complicated, as there are numerous steps that need to be taken. To begin, it is important to consult with a licensed insolvency trustee to review the financial details of the company, including income, profits, liabilities, and any personal guarantees. From there, the next step is to determine the misogynist options.

The board of directors needs to hold a meeting, in order to pass a resolution permitting the corporation to file for bankruptcy. This process is initiated by a director, or the single director, who will then execute the necessary bankruptcy paperwork.

Types of corporate bankruptcy in Canada

There are two types of corporate bankruptcy in Canada: liquidations and reorganizations. Although a reorganization is not an actual bankruptcy, the phrase “bankruptcy protection” is used to describe a formal reorganization. So for the purposes of this Brandon’s Blog, we will consider both as types of bamkruptcy.

The type of corporate bankruptcy in Canada proceedings can often provide a good indication as to whether the unsecured creditors will get all, a portion, or none of what they are owed.

corporate bankruptcy in canada

An overview of the 2 types of bankruptcy proceedings available to Canadian businesses

Liquidation

The process of corporate bankruptcy involves a business ceasing operations as it is unable to fulfill its financial obligations and the demand for its goods and services has become obsolete. This form of corporate bankruptcy is commonly referred to as liquidation.

Canadian bankruptcy proceedings must adhere to Canadian bankruptcy law under the BIA. This law contains similar liquidations to Chapter 7 of the U.S. Bankruptcy Code. Commencing the process of bankruptcy liquidation in Canada is the initial step.

It all starts with the board of directors of the corporation getting together and deciding to file for bankruptcy. One of the directors, or a single director, will then have to sign the official documents for the bankruptcy process.

Once the liquidation process has been initiated, the corporation’s assets, subject to the rights of any creditor having security over all or some of the assets, are taken over by the Trustee. The Trustee will sell the corporate assets and the proceeds will be distributed among the creditors according to the priority established by law. The corporation will then be laid to rest, as it will no longer operate as a legal entity.

Reorganization

Corporate reorganization is one of the alternatives to bankruptcy. It is a process in which a process for a company that is facing financial difficulties is able to restructure its outstanding debt and its operations in order to improve its financial situation. In Canada, the primary statutes for corporate reorganization are the Companies’ Creditors Arrangement Act (CCAA) and the BIA. These laws are similar reorganizations under Chapter 11 of the U.S. Bankruptcy Code.

The CCAA provides a thoroughfare of debt reorganization for corporations on a larger scale, as the amount owed by the company must exceed $5 million. Through this federal legislation, the debtor corporation can still operate while reaching an approved plan of arrangement with its creditors.

For corporations that do not reach this $5 million threshold, the Division I Proposal under the BIA can be utilized. The BIA provides for the restructuring of insolvent corporations and individuals.

The CCAA is a federal statute that allows for the sale of an insolvent business, with a reach that transcends the wideness of the whole Canadian nation and even extends beyond its borders.

The process of corporate reorganization under either the CCAA or BIA begins with the corporation filing for protection under the appropriate Act. In the case of the CCAA, the filing is with the court. Under the BIA, the filing is with the Office of the Superintendent of Bankruptcy Canada.

The debtor will then be safeguarded with all its possessions. Then, the corporation will be allotted a specified value of time – typically 30 to 45 days – to present a plan of arrangement. This plan must be approved by the creditors and the court in order to move forward. When the plan of arrangement is given the thumbs up, it can be set into motion.

So corporate reorganization in Canada is a process in which a company that is viable but is facing financial difficulties is allowed to restructure its business debts and operations in order to modernize its financial situation. The CCAA is mainly used for larger corporations and the BIA for smaller ones. Both legislations provide a process to restructure a company while under the protection of the court and it’s intended to be a way to save a company while protecting the rights of the creditors.

Advantages and disadvantages of corporate bankruptcy in Canada

Liquidation

Advantages of corporate liquidation using corporate bankruptcy in Canada:

Allows an incorporated entity that is unable to pay its debts to file for bankruptcy, as per the BIA.
Allows for the liquidation of resources and redistribution of that value among creditors, which can provide relief for the corporation and its creditors.

Disadvantages to bankruptcy and corporate liquidation using corporate bankruptcy in Canada:

The Canada Business Corporations Act (CBCA) prevents a company in bankruptcy from seeking dissolution under the CBCA.
Unfortunately, specific liabilities or obligations of the corporation are passed to its directors. This would put personal assets at risk.
The process is time-consuming and may also be expensive.
Unfortunately, the director’s reputation may moreover be tarnished in the process.

Reorganization

Advantages of reorganization under corporate bankruptcy in Canada:

Can uplift profits and increase efficiency.
Can extend the life of the business.
Can modernize strategy and financial arrangements.
Could be done informally without a court process by agreement between the debtor and its creditors or formally under either a proposal as outlined in part III of the BIA or a plan of arrangement under the CCAA.

Disadvantages of reorganization under corporate bankruptcy in Canada:

It may not work.
Decreased employee morale and concern among customers.
Can be a significant time investment with potential setbacks in cash flow
If the financial matters are so dire that a reorganization is not viable, the remaining option is full bankruptcy, which results in the liquidation of resources to pay creditors.
corporate bankruptcy in canada

Filing a voluntary assignment into bankruptcy for corporate bankruptcy in Canada

Overview of steps involved in filing for Corporate Bankruptcy in Canada

Finding a Licensed Insolvency Trustee (formerly called a trustee in bankruptcy) (LIT) and retaining the LIT to make an informed decision about proceeding with bankruptcy.
One of the directors (or sole director) will be required to execute corporate bankruptcy papers
Upon bankruptcy assignment, the LIT will notify business creditors of the bankruptcy proceeding.
Hold a meeting of creditors.
Conduct a sale of assets.
Carry out its other duties in accordance with the BIA.

Note: The above steps are a general outline and the specific process may vary depending on the case. It’s advisable to seek guidance from a licensed insolvency trustee and a legal professional to ensure compliance with the laws and regulations.

Essential paperwork and information

In order to file a voluntary assignment for corporate bankruptcy in Canada, and get to the point of holding the First Meeting of Creditors, the following documentation and information are typically required:

Provide the LIT with the corporate minute book, seal and accounting records.
Fully signed minutes of a validly held meeting of directors resolving that the corporation file an assignment in bankruptcy and appointing either a director or senior management person to be the Designated Officer to sign all bankruptcy documents and attend the First Meeting of Creditors.
A completed Voluntary Assignment of the corporate debtor, prepared by the LIT and signed by the Designated Officer.
The LIT prepared statement of affairs, reviewed, approved and sworn/confirmed by the Designated Officer, which includes information about the debtor’s assets and the names and addresses of all known creditors and the amounts owing to each of them.
The LIT will take the necessary steps to lodge the paperwork with the Office of the Superintendent of Bankruptcy, who in turn will give the Certificate of Bankruptcy – marking the very beginning of bankruptcy proceedings in Canada. The moment the Certificate is issued will be the exact time the corporate bankruptcy in Canada is activated.
The LIT then prepares the statutory notice to creditors which is mailed to all known creditors with a notice of the time and place of the First Meeting of Creditors will be held and also includes a proof of claim form for the creditors to complete fully and file with the LIT.
The LIT will also prepare the bankruptcy notice to be placed in a local newspaper to advertise for creditors to contact the Trustee.
The LIT prepares its Report on Preliminary Administration to provide necessary information to the creditors about the causes of the corporate bankruptcy in Canada, the available assets to be sold, if any and other important information. The LIT’s report is distributed at the First Meeting of Creditors.

In a voluntary assignment, the LIT is picked by the debtor. In an involuntary assignment, the LIt is suggested to and chosen by the court. In issuing the Certificate, the LIT choice is confirmed by the Office of the Superintendent of Bankruptcy. However, it is ultimately up to the creditors attending and voting at the First Meeting of Creditors to either confirm the appointment of the LIT or substitute the LIT with another one (don’t worry about the mechanics for now!). The LIT will be responsible for overseeing the administration of the debtor’s estate and distributing the proceeds to creditors.

It’s important to note that the above list is not exhaustive and additional documentation and information may be required by the Office of the Superintendent of Bankruptcy(OSB) or the appointed Trustee. It’s recommended to seek professional advice from a LIT, a lawyer or both, before filing for a voluntary assignment in bankruptcy.

The OSB plays an important part in the area of insolvency

The OSB is tasked with keeping orderly standards for the supervisory oversight of stakeholders within the insolvency process, creating an accessible archive of public records, compiling and analyzing data, and enforcing the BIA and CCAA regulations. Furthermore, the OSB is devoted to facilitating an effective and efficient insolvency framework in Canada.

The OSB in Canada is responsible for the supervision and regulation of the Canadian insolvency system, and overseeing the administration of all insolvency proceedings described as bankruptcies, commercial reorganizations, Division I commercial proposals, consumer proposals and receiverships.

The effects of corporate bankruptcy in Canada on creditors and stockholders

How corporate bankruptcy affects the distribution of assets among creditors

Divvying up resources among those owed money in a corporate bankruptcy in Canada can be quite intricate and can be affected by various elements, such as the kind of bankruptcy declared and the company’s ownership and organizational setup.

When a company files for bankruptcy, its day-to-day operations will typically come to a halt. All of the corporation’s assets will be sold off and the proceeds will be divided among its creditors. In Canada, this process can have a major impact on how the assets are divided up among those who are owed money.

The BIA requires the LIT to take control of all the unencumbered assets, sell them and assigns orders of importance to the many claims against the debtor. The net sale proceeds are then doled out to creditors depending on the priority of the claims.

In a nutshell, the types of creditors and the order of priority is:

Trust claims, including unremitted employee payroll withholdings.
Secured lenders.
Preference is given to certain kinds of unsecured debt.
Ordinary unsecured creditors are last.

In Canada, though the assets of a company are distinct from the owners’ individual wealth, banks will always take security on the company’s assets when loaning funds and anticipate the entrepreneur to provide some kind of collateral. It bears mentioning that this is a standard requirement.

Should the proceeds of the company assets fail to cover the bank debt in the event of a Canadian bankruptcy, the owners will be called upon to make good on their personal liability and may be faced with the liquidation of some or all of their personal belongings to make up the difference.

What sort of ramifications does corporate bankruptcy in Canada have on the equity holders and their privileges?

Generally, when it comes to bankruptcy proceedings, it’s usually shareholders who are left holding the shorter end of the stick. Most often, they don’t get anything back after all other creditors have been taken care of– leaving them with nothing but the realization that their investments have gone down the drain. Furthermore, they forfeit any rights they once held with the company.

If any of the shareholders are also in a director position, then they will have the added worry about whether there are any debts that are also a director liability. Legal advice is always required by directors of an insolvent company. In next week’s Bradon’s Blog, I will talk about recent developents arising from an Ontario court decision about the directing mind of a bankrupt corporation.

The one small solace they may have is that Canada Revenue Agency will acknowledge the corporate bankruptcy in Canada as a legitimate means of allowing shareholders to deduct the value of their shares as a loss on their tax return.

corporate bankruptcy in canada

Alternatives to Corporate Bankruptcy in Canada

For a business that is viable yet unable to pay off its debts, there are 5 alternatives to corporate bankruptcy in Canada that must be explored:

Implement tighter controls over spending and create a cash-flow budget to see if costs can be cut or eliminated, freeing up funds to pay off debts.
Refinance existing debt in order to consolidate it into more manageable payments.
The shareholders provide a fresh injection of funds.
Informal out-of-court debt settlement through direct negotiation with creditors.
Selling redundant or no longer-needed assets to raise cash for debt repayment.

Rather than going through the effort of reorganizing debt under the CCAA or BIA, a corporate workout is an amicable arrangement between the company and its creditors that allows them to come to a mutually-satisfactory resolution without resorting to legal proceedings and a reorganization court case. This is seen as an advantageous alternative to a formal filing.

If all other solutions fail to prevent a company in Canada from going bankrupt, then the CCAA or BIA’s restructuring provisions should be carefully considered to potentially save the company, its jobs and business assets.

If the company is not viable or profitable and is in a state of financial distress, then a secured lender can exercise their rights through a receivership process. This could be used in conjunction with a corporate bankruptcy in Canada if the situation calls for that.
The reasons why bankruptcy and receivership may be needed to work in tandem are complex and are best left as a topic for another day.

Corporate bankruptcy in Canada: Conclusion

I hope you enjoyed this corporate bankruptcy in Canada Brandon’s Blog.

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.

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.

corporate bankruptcy in canada — *business bankruptcy in canada*

Brandon Blog Post

RECEIVERSHIP IN CANADA: THE COMPLETE STORY OF WHOSE HAPPY RECEIVER IS IT ANYWAY?

Post author By Brandon Smith
Post date November 21, 2022

receivership in canada

Receivership in Canada: What does receivership mean?

I have just read a decision of the Ontario Superior Court of Justice Commerical List dealing with an important aspect of receivership in Canada. The case is concerned with what happens when two equally applicable provincial laws appear to be working at cross purposes in the context of the receivership in Canada process.

I will explain the case and the process of company receivership in Canada. By understanding the process, the case will make more sense.

Secured lenders may enforce their security to recover loans from borrowers who have defaulted. This remedy available to secured creditors when a borrower, usually a company defaults, is known as receivership.

What does going into receivership in Canada mean?

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 from borrowers who have defaulted. This remedy available to secured creditors is known as 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 a receivership in Canada.

receivership in canada

Receivership in Canada: What is the difference between a court-appointed receiver and a privately appointed receiver?

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.

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 as to 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 to do so.

How is receivership in Canada different from bankruptcy proceedings?

Many people mistakenly use the terms “receivership” and “bankruptcy” interchangeably. However, bankruptcy and receivership are two distinct legal proceedings with different implications.

Bankruptcy vs. receivership can be confusing, but once you understand the key differences between the two, it is fairly straightforward. Whether it is a private appointment or a court-appointed receiver, the differences between bankruptcy and receivership in Canada are the same.

A receivership is a legal remedy available to secured creditors to enforce their security rights against a defaulting debtor. A receiver is appointed to manage the debtor’s property and assets and sell them under a properly run and fair sales process.

The Canadian bankruptcy process is a distinct legal process. An insolvency trustee does not represent secured creditors in bankruptcy proceedings. Instead, under the bankruptcy regime, they represent the unsecured creditors of the bankrupt estate. A corporate debtor may be subject to both bankruptcy and receivership proceedings simultaneously.

One of the major differences has to do with the creditors. In a bankruptcy administration, the bankruptcy trustee must call a meeting of creditors. This is where the insolvency trustee provides its report on the affairs and conduct of the bankrupt debtor and unsecured creditors get to vote on any matters of importance. In receivership, there is no such requirement to hold a meeting of creditors.

receivership in canada

What are the key distinctions between receivership in Canada and liquidation?

So you know what receivership is by now. The federal BIA doesn’t govern liquidation, that’s done under the provincial Business Corporations Act or Wind-Up Act.

A liquidation is for a solvent company where the shareholders, Officers and directors decide to cease business operations. The company puts up its assets for sale and uses the proceeds to pay off its creditors with cash. Any funds left over are then distributed to the shareholders.

A liquidator can be appointed either privately by the company’s directors or by a court order. Liquidation is therefore different from both bankruptcy and receivership in Canada.

Can individuals be placed into receivership in Canada?

The answer is yes. When a secured creditor wishes to take enforcement action upon the security agreement they have against a debtor’s property, as indicated above, they have the remedy of receivership in Canada. This remedy allows them to collect as much of their secured debt as possible.

There are no restrictions as to who can go into receivership in Canada. One of our more famous (infamous?) receivership cases over the years has been the receivership of the assets, property and undertaking of Norma and Ronauld Walton.

receivership in canada

Receivership in Canada: Whose receiver is it anyway?

Now for the court case where two different provincial laws caused a fight amongst secured creditors over the appointment of a receiver. The case is Canadian Equipment Finance and Leasing Inc. v. The Hypoint Company Limited, 2618905 Ontario Limited, 2618909 Ontario Limited, Beverley Rockliffe and Chantal Bock, 2022 ONSC 6186. The two competing provincial statutes are the Mortgages Act and the Personal Property Security Act.

The business is conducted through two affiliated entities. One owns the property and the other operates the business. This is quite a typical arrangement.

One creditor funded the purchase of equipment and took PPSA security over it. Another creditor funded the acquisition of the real property and has a traditional mortgage security. The security agreements extend over different assets, and the outcome is usually uncomplicated.

However, when equipment that has been purchased is attached to real property, there is disagreement about whether and how it can be removed, and whether such removal will negatively affect the value of both the equipment and the real property. The question is now more complicated: which creditor’s rights should take priority over this matter?

Both the equipment lender and the mortgagee are seeking to enforce their security. The equipment lender has filed a motion with the court to appoint a receiver over both the operating company (Opco) that owns the pledged equipment and the holding company (Holdco) that owns the real estate. This would allow the receiver to manage and sell the assets of both companies in order to repay the outstanding debt.

In this case, Opco was a commercial marijuana operation that was unable to get off the ground due to its heavy debt load and startup problems.

Although the mortgagee began power of sale enforcement proceedings, they do not object to a receiver being appointed over the equipment only. The mortgagee wishes to continue its power of sale proceedings and opposes the receiver being appointed over the building. The mortgagee in possession is of the opinion that the equipment is attached to the building and cannot be removed.

The mortgagee concurred that the court has the power to assign a receiver over the property of both Opco and Holdco according to section 101 of the Ontario Courts of Justice Act. They stated that, if a receiver is appointed, the receiver needs to be a firm chosen by them.

Both the licensed insolvency trustee firm preferred by the mortgagee and the firm nominated by the equipment lender filed a consent to act with the court.

What are the conditions under which a receiver may be appointed?

The court looked at numerous factors in order to make a decision on whether or not to appoint a receiver, and if so, which one, including those that have historically in receivership in Canada cases been taken into account in such determinations:

Although it is not essential for a creditor to establish irreparable harm if a receiver is not appointed where the appointment is authorized by the security documentation, the court considered if no order is made, will irreparable harm be caused?
The size of the debtor company’s equity in the assets and the need for protection or safeguarding of assets during litigation are important factors to consider when assessing the risk to the security holder.
The kind of property it is.
The potential for the assets to be wasted or dissipated.
The need to safeguard the property until a legal ruling is made.
The parties’ respective balance of convenience needs to be considered when making the decision.
Pursuant to the loan documentation, the creditor has the right to an appointment.
Enforcing the security instrument when the security holder experiences or anticipates difficulties with the debtor.
The principle of appointing a receiver should be approached with caution.
The court will determine whether appointing a receiver is necessary to enable the receiver to carry out its duties efficiently.
The effect a receivership order will have on the parties.
The parties’ conduct.
How long a receivership may last.
The financial impact on the parties.
The likelihood of maximizing return to the parties is increased.
The goal of ensuring the smooth running of the receiver’s duties.

As everyone agreed that all assets of both Opco and Holdco should be sold to maximize recovery for all creditors, but cannot agree on the process by which that should be undertaken, resulting in the entire process being stalled, the judge was satisfied that it is just and convenient to appoint a receiver.

The court found that either proposed receiver was acceptable and decided that the receiver nominated by the mortgagee would be appointed by the court to administer all assets. The receiver would eventually come back to court with a sales plan to maximize the value of all the assets subject to the security of all stakeholders.

receivership in canada

How the entrepreneur can avoid receivership in Canada

As a business owner, the way to avoid the receivership process is long before financial difficulties ever become serious financial problems. Here are a few tips on how to do just that:

Keep a close eye on your finances. This means regularly reviewing your income and expenses, and making sure you have a good handle on your cash flow.
Stay current on your bills. This includes not only making timely payments but also staying on top of any changes in your billing terms or amounts.
Keep good records. This means having up-to-date financial statements and documentation for all of your income and expenses.
Make a plan. If you do find yourself in a financial bind, have a plan in place for how you’ll get out of it. This may include negotiating with creditors, seeking new financing, or making cuts to your expenses.
Seek professional help from a licensed insolvency trustee with commercial insolvency experience. If your business is viable and you seek help early enough, there may be many options. The most common ones are refinancing with or without financial restructuring. Reviewing your business allows us to make restructuring recommendations allowing your viable company to become healthy and profitable once again.

Receivership in Canada summary & speak with a licensed insolvency trustee

I hope you enjoyed this receivership in Canada Brandon’s Blog.

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.

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.

Tags assets for sale, assets subject, bankrupt estate, bankruptcy and receivership, bankruptcy proceedings, bankruptcy process, bankruptcy regime, bankruptcy trustee, Bankruptcy vs. receivership, business operations, business owners, Canadian bankruptcy, commercial insolvency experience, company defaults, company in default, company receivership, court appointed receiver, creditors in bankruptcy, debtor company, differences between bankruptcy, financial difficulties, insolvency trustee, insolvent companies, legal proceedings, legal process, licensed trustee, meeting of creditors, notice of intention, outstanding debt, private appointments, private receiver, real estate, receivership in Canada, receivership proceedings, receivership process, sales process, secured creditors, secured debt, secured lender, security agreement, security instrument, security rights, solvent company, Trustee and Receiver, trustee in bankruptcy, unsecured creditors

Brandon Blog Post

CAN A LICENSED INSOLVENCY TRUSTEE NEAR ME OR ELSEWHERE POOCH OUT OF ESSENTIAL DUTIES?

Post author By Brandon Smith
Post date September 25, 2022

licensed insovlency trustee near me

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You can easily find a licensed insolvency trustee near me or you

There are Licensed Insolvency Trustees (LITs) (formerly called a bankruptcy trustee or trustees in bankruptcy) all over Canada who can help you with your debt problems. They’re the only debt professionals and debt advisors regulated by the federal government and are experienced in helping individuals and businesses figure out the best way to deal with their financial difficulties. There are about 1,066 individual Trustees and 218 different Insolvency Trustee Firms/bankruptcy companies in Canada, making it easy to find a licensed insolvency trustee near me or you.

The primary concern is finding a Trustee that you feel comfortable working with to discuss your debt issues and that is an ideal match for you or your business. You also need to find one that is willing to carry out its required functions. This is the same whether it is businesses with debt problems or it is people in debt.

Today’s Brandon’s Blog is about a recent decision from the Court of Appeal for Ontario which confirms that there are certain tasks in the administration of bankruptcy, be it a personal bankruptcy or corporate bankruptcy, or one of the alternatives to bankruptcy under the BIA, a Division I proposal or consumer proposal, that the licensed insolvency trustee cannot opt-out of.

The court’s decision confirms that a Trustee has certain duties under the Bankruptcy and Insolvency Act (Canada) (BIA) which are not optional, regardless of any difficulty that may be involved or the wishes of the party funding the Trustee. The case is Conforti Holdings Limited (Re), 2022 ONCA 651 (CanLII) which is the appeal by the licensed insolvency trustee of the lower court finding. I will describe it in a minute.

Licensed insolvency trustee near me: LITs are federally regulated to ensure consistent standards and supervision throughout Canada

If you’re struggling with debt, a Licensed Insolvency Trustee can help. These federally regulated professionals provide advice and services to individuals and businesses and can help you make informed choices about dealing with your financial difficulties. With their help, you can get back on track and start moving forward.

The only individuals who are authorized to administer Canadian government-regulated insolvency services that would allow you to be discharged from your debt are Licensed Insolvency Trustees. If you are in significant financial difficulty, speaking to a Licensed Insolvency Trustee near me or you to get debt management advice is the right thing to do to learn of the debt restructuring options available to come up with the right debt solution for your specific situation.

If you are not happy with the actions or decisions of a Licensed Trustee that you are unable to resolve, you can file a complaint with the federal regulator. LITs are mandated to follow all federal statutes, rules and guidelines, and your allegations will be given the appropriate consideration.

licensed insolvency trustee near me

Licensed Insolvency Trustee near me: We’ll speak with your creditors for you

After you file for a consumer proposal, Division I proposal, corporate bankruptcy, or personal bankruptcy, the Trustee will manage your affairs with your creditors. This includes sending out a notice with additional documents required by the BIA to all creditors listed on your sworn statement of affairs.

If creditors have questions, they should be speaking with the Trustee, not you. Also, unsecured creditors cannot continue or initiate any collection action or legal proceeding against the debtor who has filed either for financial restructuring or bankruptcy. The collection calls stop in either the consumer proposal process or the bankruptcy process.

Remember, only Licensed Insolvency Trustees are authorized to conduct government-regulated insolvency proceedings – qualified professionals who understand the complexities and nuances of this process. This ensures that your insolvency proceeding is handled correctly, efficiently and with the utmost care.

Locate a Licensed Insolvency Trustee near me who is currently active

So how would I choose a Licensed Insolvency Trustee near me for my problem financial situation and find debt relief solutions? There are 3 main ways that I recommend to anyone who asks me:

Ask a professional that you trust and feel that you can confide in for a referral. Your lawyer, insurance agent, banker or a non-profit credit counselling agency are but a few examples.
If you’re thinking about personal bankruptcy or bankruptcy for your business, it is very important to pick a Trustee you really feel comfortable with. A fast Google or Bing search for “Licensed Insolvency Trustee near me” to check out various internet sites can help you get a feel for various Trustees’ tones. If one resonates with you, make a no-cost confidential consultation to discuss your circumstance.
The Office of the Superintendent of Bankruptcy (OSB) has a database that is complimentary to search to find every Trustee in Canada. Do that search and choose a few. I still suggest looking at their internet site and getting a free appointment before making any kind of decision on the various debt relief options.
licensed insolvency trustee near me

How does a Licensed Insolvency Trustee near me get paid?

The Trustee’s fee and disbursements in a financial restructuring are normally paid out of the funds that the person or company makes available when compromising the debt of the unsecured creditors. In other words, it is the creditors who are actually paying the Trustee.

In a receivership or bankruptcy, the Trustee is paid from the proceeds of the sale of assets. If there are insufficient assets to cover the Trustee’s fees, the Trustee may seek a guarantee from a third party who is willing and able to pay, either by putting up a cash retainer, through monthly payments or both.

The guiding philosophy is that the Trustee has done its job and done so properly. This leads us to today’s discussion of the case.

Licensed insolvency trustee near me: What does a Trustee do?

A Trustee is responsible for administering the insolvency estate. This includes tasks such as collecting and selling assets, vetting and adjudicating creditor claims and distributing funds to the creditors. This is a perfect introduction to the recent Court of Appeal for Ontario decision in Conforti Holdings Limited (Re), 2022 ONCA 651 (CanLII).

Conforti Holdings Limited (CHL) as well as the Trustee in the Division I Proposal (Proposal Trustee) appealed the dismissal of the Proposal Trustee’s application for an order advising as well as directing the Proposal Trustee to not carry out the adjudication of the Moroccanoil, Inc. (Moroccanoil) proof of claim or the cross-claim by CHL versus Moroccanoil, as called for by s. 135 of the BIA. They also seek the lifting of the stay of proceedings to allow the parties to continue litigating in New Jersey.

CHL had been operating a chain of 52 hair salons for many years and had been embroiled in litigation with Moroccanoil in New Jersey for over seven years, over differences related to the supply of hair products. When told that CHL had filed a notice of intention to make a proposal pursuant to the BIA on September 28, 2020, the New Jersey court stayed proceedings there, at Moroccanoil’s request, and over CHL’s objections. The New Jersey proceedings have been case managed and the presiding judge said that the case could proceed to trial if the stay were lifted by the Canadian bankruptcy court.

Moroccanoil filed a proof of claim for $2,807,478.12 in CHL’s proposal proceedings. The Proposal Trustee filed a motion to be relieved of its obligations to determine whether the claim was provable or to value it.

This is a very basic cornerstone duty of all Licensed Insolvency Trustees. I am surprised that the Trustee and the company would prefer to continue with costly litigation in the United States, rather than reach an agreement on what value the claim should be allowed for.

By the very nature of the financial restructuring proceedings, CHL would not be paying the claim in full. Perhaps they were worried that Moroccanoil would vote against the Proposal and could carry the vote. In that case, CHL would become automatically bankrupt. However, as part of CHL agreeing to an amount of claim to allow, they could extract from Moroccanoil the quid pro quo that Moroccanoil would vote in favour of the Proposal.

licensed insolvency trustee near me

Licensed insolvency trustee near me: What the lower court said

The motion was denied for two reasons:

It was a requirement under s. 135(1.1) of the BIA for the Trustee to determine the claim, and there was no jurisdiction to exempt the Trustee from carrying out this basic duty.
The judge ruled that even if the court had the authority to make the requested order, the order was not warranted as it was not one of the clear cases that justifies the court departing from the usual process for valuation of claims under the BIA. He was not convinced that permitting the New Jersey proceedings to continue would be more efficient than adjudicating the Moroccanoil claim in the proceedings under the BIA.

Licensed insolvency trustee near me: Leave to appeal to the Court of Appeal for Ontario

The Trustee and CHL asked to appeal the lower court decision, but the Court of Appeal for Ontario said no. The appellate court said that there wasn’t obvious merit to the appeal.

The motion judge decided that it wouldn’t be right to have proceedings involving CHL and Moroccanoil go ahead in two different jurisdictions. The Court of Appeal for Ontario said that this decision could not be appealed. The proposed appeal is from the order made, not the reasons.

This doesn’t surprise me. There are two basic truths for any court-appointed officer:

The court officer will not be excused from performing the most basic duties.
Don’t ask the court to retrospectively approve a mistake you may have made. You just need to work through it.
licensed insolvency trustee near me

Licensed insolvency trustee near me: Are you sick of being in debt?

If you’re seeking to leave financial debt behind and live a much better life, we can assist. We know exactly how it really feels to be in debt as well as feel like you’re never going to get ahead. We have actually helped lots of people and businesses that were in your position reach financial stability, so we understand it’s feasible for you to prosper in your objective of ending up being debt-free. Nevertheless, it will certainly require some work on your part. We’ll be right here to assist you with every action necessary.

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 many personal unsecured debts, Credit card debt, income tax debt liability, unsecured loans or personal obligations from the running of your company or from being a business owner. These are all types of debt we can help you eliminate. We know that you are worried because you are facing significant financial challenges. Filing bankruptcy is the last option we explore only after we have exhausted all other options to avoid bankruptcy, such as financial restructuring through a debt repayment plan.

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 give you the best management advice 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. We know that we can help you the way we take the load off of your shoulders and devise a debt settlement plan.

We realize that people and businesses in financial difficulty need practical advice and a workable solution in an easy-to-understand financial plan. The Ira Smith Team knows that not everyone has to file for bankruptcy in Canada. Most of our clients never do, as we are familiar with alternatives to bankruptcy. We assist many people in finding the relief they need.

Call or email us. We would be happy to give you a no-cost initial consultation. We can find you the perfect solution to tailor a new debt restructuring procedure specifically for you, based on your unique economic situation and needs. We provide a full range of services to people and companies. If any of this sounds familiar to you and you’re serious about finding a solution, let us know. We will get you back to living a happy life, whether or not there is an economic recession in Canada.

Call us now for a no-cost initial consultation. We are licensed professionals.

licensed insovlency trustee near me — *licensed insolvency trustee near me*

Brandon Blog Post

TRUSTEE IN BANKRUPTCY ONTARIO: THE BEST MODERN RULES FOR GETTING PAID

Post author By Brandon Smith
Post date November 26, 2021

We hope that you and your family are safe, healthy and secure during this COVID-19 pandemic. Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

Trustee in bankruptcy Ontario introduction

One of two reasons led you to this page:

you regularly read my Brandon Blog; or
you typed in a search term something like “bankruptcy trustee Ontario“, “licensed insolvency trustee Ontario“, “insolvency trustee Ontario,” “trustee in bankruptcy Ontario” or a variation of these terms.

The bankruptcy process is one of several insolvency options available to the honest but unfortunate debtor in Canada to try to get back to financial stability.

Trustee compensation is charged in one of two distinct ways. It depends on the type of insolvency proceeding, as I will explain below. Trustees are sometimes only permitted to charge a relatively fixed fee, known as a “tariff”. Trustees cannot charge time-based fees in such cases.

On other occasions, the Trustee will charge the individual levels of staff by the hour. To charge time-based remuneration, the remuneration must be approved by the court. This is called taxation. All of this is governed by the Bankruptcy and Insolvency Act (Canada) (BIA), which is a federal government statute.

I discuss an unreported case from Ontario in this Brandon Blog, which was the topic of a webinar I attended this week. The first thing I will do is lay the groundwork, followed by a story of how a trustee in bankruptcy Ontario did not get the entire fee being requested upon the taxation of its accounts.

Trustee in bankruptcy Ontario: What is a Licensed Insolvency Trustee?

Individuals and businesses with debt problems can seek advice and services from licensed insolvency trustees, a federally regulated profession. It used to be called a trustee in bankruptcy Ontario to refer to an insolvency trustee licensed in Ontario.

What can a trustee in bankruptcy Ontario do for you? Depending on your needs, he or she can provide you with an array of options including alternatives to bankruptcy. Government-regulated insolvency proceedings are the only Canadian government-approved way through which you can be discharged of your debts.

You can trust that, when you hire a trustee in bankruptcy Ontario, you’re dealing with someone who has demonstrated that they possess the knowledge, experience, and skills that are required to be licensed by the Office of the Superintendent of Bankruptcy (OSB).

The insolvency system in Canada is regulated by the federal government. The OSB oversees an insolvency trustee and mandates that they adhere to federal standards of practice such as the Code of Ethics for Trustees. If you are unable to resolve a problem with a trustee in bankruptcy Ontario, you can file a complaint with the OSB. All complaints are reviewed and assessed.

trustee in bankruptcy ontario

Trustee in bankruptcy Ontario and the OSB: Who can act as trustee in bankruptcy Canada?

According to Canada’s Bankruptcy and Insolvency Act (BIA), the OSB oversees the administration of bankruptcy and receivership proceedings. It also has some responsibilities regarding the restructuring of large companies covered by the Companies’ Creditors Arrangement Act (CCAA).

Under each of these Canadian statutes, a person, business, or company experiencing financial difficulties may be discharged from most of their debts. Insolvency cases must be administered by a licensed insolvency trustee. On the OSB’s website, you can find contact information for all of Canada’s licensed insolvency trustees.

**What does a trustee in bankruptcy Ontario cost?**

Depending on the services they provide, the cost of an insolvency trustee in Ontario varies. Providing a no-cost initial consultation is standard practice for professional trustee firms. In this confidential consultation, our team collects information about your assets, liabilities, income, and expenses to gain a thorough understanding of your situation.

Then, we explain what debt relief options you or your business could benefit from, including any insolvency process. We will then explain our recommendations and provide you with a cost estimate. Insolvency costs depend on the type of insolvency proceeding. You will see why shortly.

trustee in bankruptcy ontario

Personal bankruptcy – summary administration

Summary administrations are consumer bankruptcy proceedings in which the realizable value of non-exempt assets (the value of non-exempt assets) after the claims of secured creditors are deducted does not exceed $15,000. For summary administrations, the professional Trustee cannot charge for their time spent. They are compensated according to a tariff. The tariff for summary administrations is:

100% of cash receipts up to $975;
the portion exceeding $975 but not exceeding $2,000 is taxed at 35%;
above $2,000, 50%;
each of the two mandatory counselling session’s tariff fee;
court fees;
an administrative and overhead fee of $100; and
HST/GST.

Personal and corporate bankruptcy – ordinary administration

Personal bankruptcy is classified as an ordinary administration if the net recovery after the claims of secured creditors will be more than $15,000. Corporate bankruptcy is always an ordinary administration. Corporate bankruptcy does not currently have a streamlined version as does personal bankruptcy.

An ordinary administration bankruptcy allows the Trustee to charge by time spent, subject to approval by the Inspectors of the bankruptcy estate (if any), the OSB and taxation by the court.

Consumer proposal

As regular readers of my Brandon Blog know, a consumer proposal process is the only federal government-approved debt settlement program in Canada and is always administered by a trustee in bankruptcy Ontario or elsewhere in Canada. It is also the only consumer insolvency choice in Ontario other than for a summary administration bankruptcy. A consumer proposal is available to any individual who has $250,000 or less in debt, not including any debt registered against their home. A consumer proposal is a way of eliminating debts while avoiding bankruptcy.

A professional Trustee, acting as the Administrator in a consumer proposal, cannot charge for time spent on consumer proposals. Compensation is based on a tariff. A consumer proposal tariff is as follows:

$750 upon filing the consumer proposal with the OSB;
when the consumer proposal is approved or deemed approved, another $750;
20% of the money distributed to creditors, when it is distributed:
the fee for each of the two mandatory credit counselling sessions;
court costs; and
HST/GST

Division I Proposal

A consumer proposal streamlines the process. Individuals with too much debt to qualify for a consumer proposal may submit a Division I proposal. Under the BIA, every corporate restructuring plan must be a Division I proposal.

Under a Division I Proposal, the Trustee can charge by the amount of time spent, subject to approval by the Inspectors (if any are allowed for and appointed), the OSB, and taxation by the court.

Receivership – private or court-appointed

Receivership is a remedy for secured creditors legal process. A trustee in bankruptcy Ontario and elsewhere in Canada can charge for time spent in a receivership. In a private appointment, there is no taxation. The secured creditor who appointed the receiver must approve the fee.

In a court-appointed receivership, there is taxation by the court. The stakeholders can approve or oppose the Receiver’s fee and costs.

The OSB is not involved in either type of appointment.

Restructuring of companies under the Companies’ Creditors Arrangement Act

Canada has a federal statute that governs large corporate restructurings, the Companies’ Creditors Arrangement Act (CCAA). It is a court-led restructuring process for companies with debts of $5 million or more. A licensed trustee serves as a Monitor under the CCAA. The fee for the Monitor is determined by the amount of time spent. The court must assess its fee and costs.

Having set the background information for you, I can now discuss the unreported court decision discussed in the webinar.

trustee in bankruptcy ontario

The unreported court decision: Background

A trustee in bankruptcy Ontario and two Ontario insolvency lawyers presented this unreported decision in the webinar. According to the licensed trustee who presented this court ruling, it was his file. If it had been my file, I would not have been so courageous as to use it as a teaching moment for members of the Ontario insolvency community.

The insolvent person is a real estate broker who has experienced substantial income growth. She incurred significant tax liabilities as a result of poor tax planning advice. She owes $417,060 to the Canada Revenue Agency (CRA), her single largest creditor. Other notable creditors include two chartered banks who are owed $119,196 and $44,025, respectively.

The debtor lodged her Division I proposal with the trustee in bankruptcy Ontario which he filed on October 31, 201. The debtor offered to pay her creditors $348,000 in 60 monthly installments of $5,800 under her proposal. A meeting of creditors took place on November 21, 2019. At CRA’s request, the meeting was adjourned to allow for further examination, as is normal when CRA is a major creditor.

The debtor amended her proposal on December 11, 2019, increasing the Proposal Fund to $408,000 payable at $6,800 per month for 60 months. The Amended Proposal was presented to the reconvened meeting of creditors on December 12, 2019. Upon submitting the Amended Proposal, the requisite majority of creditors approved it.

The Amended Proposal was approved by the court on January 28, 2020. The debtor made the 3 monthly payments of $6,800 promised in the Amended Proposal between February and April 2020. In June 2020, the debtor paid a lump-sum payment of $367,600 instead of continuing with monthly payments for the remainder of the 5-year term. The Trustee issued the Certificate of Full Performance of Proposal to the debtor and prepared the documentation needed to request a comment letter from the OSB.

It was stated in the original proposal and the Amended Proposal that the Trustee’s fee would be based upon 12.5% of proceeds plus a $5,000.00 deposit paid by the debtor, plus HST. The total proceeds were $413,007.13. As a result, the Trustee calculated and claimed a fee of $56,000 (plus HST). $56,000 was calculated as an amount equal to $5,000 for the initial deposit paid by the debtor, plus 12.5% of $408,000 (or $51,000).

**The unreported court decision: The taxation of the trustee in bankruptcy Ontario accounts**

Taxations of this nature are done “over the counter”, unless the Associate Justice has questions. Trustees in bankruptcy prepare the necessary motion material and submit it electronically to the court. The accounts are taxed and the court order issued without the need for the Trustee to appear in court unless the Associate Justice has questions or concerns.

Taxation of the Trustee’s Final Statement of Receipts and Disbursements was conducted by the Associate Justice on July 13, 2020, in writing at which time she adjourned the taxation so that the Trustee could provide the following:

The Trustee’s Report to the Court for approval of the debtor’s Amended Proposal.
Time records of the Trustee.
An explanation of where the proposal money came from, and how the proposal could have been completed within 6 months of filing.
trustee in bankruptcy ontario

**The unreported court decision: The taxation of the trustee in bankruptcy Ontario accounts continues**

The matter came back in July in writing. By letter dated July 14, 2020, the Trustee responded to the court’s requests as follows:

The Trustee provided the Report to the Court filed upon the approval of the
Amended Proposal.
The Trustee confirmed that no time dockets were kept as the terms of the Amended Proposal provided for the calculation of fees.
The source of the funds to pay out the proposal was the re-financing and mortgaging of the debtor’s primary residence.

On July 29, 2020, the Associate Justice adjourned the taxation so that it could proceed by video conference. The Associate Justice ordered the Trustee to give notice of the taxation to the debtor, the
creditors and the OSB. The Associate Justice also directed the Trustee to be prepared to speak to whether
the fee claimed was fair given the 5-year debt restructuring plan took only 6 months to complete.

Neither the creditors nor the OSB attended the video taxation hearing. Therefore it was unopposed to the taxation and the fee claimed by the Trustee.

The unreported court decision: The court’s analysis

As a result, the court considered both positive and negative factors in deciding whether to approve the $56,000 fee for the Trustee.

FOR:

by virtue of their approval of the Amended Proposal, the creditors have accepted the Trustee’s fee claim;
The Amended Proposal and fee were approved by the court;
unsecured creditors will receive a substantial dividend of 54.1% on the ordinary unsecured claims proven;
they will receive their dividends much sooner than expected;
The Trustee has sent a copy of the Final Statement to all creditors with proven claims and all creditors have been notified of the taxation; no creditors have objected to the fee sought by the Trustee or opposed the approval of the taxation; and
the clean OSB comment letter supports taxation and approval of the fee claimed by the Trustee and the OSB did not attend this hearing.

AGAINST:

A time docket was not kept by the Trustee to justify the fees claimed in the administration of the estate. There is no record of the hours spent by each level of staff at their normal hourly rate to prove the Trustee’s efforts.
Compensation for work not performed by the Trustee is neither fair nor justifiable because it was not done or was not necessary.
About five and a half years before the deadline, the debtor made full payment of the Amended Proposal. However, the trustee did not investigate the source of the funds. Although the Trustee claimed that the funds were proceeds from the debtor’s re-financing of her principal residence, he could not provide any additional information.
According to the sworn statement of affairs, the debtor had a 50% interest in the principal residence with resulting equity of $47,000 and total equity from the debtor’s interests in two other properties totalling $95,000. Even so, the debtor managed to raise $408,000 through allegedly refinancing only the principal residence. She raised more money against this one asset than the equity listed in all her assets in her sworn statement of affairs!
Would the ordinary unsecured creditors have accepted the Amended Proposal if they were aware of more assets available?

The Associate Justice held that the court still has the right to supervise the administration of the estate, and the BIA obligates the court to tax the fee requested by the Trustee. Further, taxation by the court is not a rubber stamp.

trustee in bankruptcy ontario

The unreported court decision: The court’s decision and the aftermath

The lack of time dockets made it difficult for the court to determine an appropriate level of compensation. The court would have been able to assess whether the $56,000 fee was reasonable and justified if the Trustee had kept time records. According to the Associate Justice, the trustee in bankruptcy Ontario had not discharged his responsibility for proving that the fee is justified.

Taking everything into account, the court reduced the Trustee’s fee by $15,000 from what was claimed. Accordingly, the court approved a fee of $41,000 plus HST.

As a result, the Trustee sought legal advice. An appeal was filed by the Trustee to a Justice of the Ontario Superior Court of Justice Commercial List appealing the Associate Justice’s decision. The appeal was dismissed. The judge deferred to the experience and discretion of the Associate Justice, who taxes Trustee accounts regularly.

Trustee in bankruptcy Ontario: The moral of this story

I said at the beginning that, had I been in charge of the case, I would not have been so courageous as this Trustee in turning it into a webinar for my colleagues. There is a simple lesson here. The trustee in bankruptcy in Ontario and the rest of Canada must also be a good timekeeper for every insolvency file for which no tariff applies. The Trustee must also be a good record keeper so that questions from the OSB or the court can be adequately answered. Lastly, if something doesn’t make sense, like how you can raise $400,000 from assets that are only worth $142,000, find out why.

Trustee in bankruptcy Ontario summary

I hope you found this trustee in bankruptcy Ontario Brandon Blog informative. Are you in financial distress and a debt crisis? Do you not have adequate funds to pay your financial obligations as they come due? Are you worried about what will happen to you in retirement? Do you need to find out what your debt relief options and realistic debt relief solutions for your family debt are? Is your company in financial hot water?

Call the Ira Smith Team today. We have decades and generations of experience assisting people looking for life-changing debt solutions through a debt settlement plan and AVOID the bankruptcy process.

As licensed insolvency professionals, we are the only people accredited, acknowledged and supervised by the federal government to provide insolvency advice and to implement approaches to help you remain out of personal bankruptcy while eliminating your debts. A consumer proposal is a government-approved debt settlement plan to do that. It is an alternative to bankruptcy. We will help you decide on what is best for you between a consumer proposal vs bankruptcy.

Call the Ira Smith Team today so you can eliminate the stress, anxiety, and pain from your life that your financial problems have caused. With the one-of-a-kind roadmap, we develop just for you, we will immediately return you right into a healthy and balanced problem-free life.

You can have a no-cost analysis so we can help you fix your troubles.

Call the Ira Smith Team today. This will allow you to go back to a new healthy and balanced 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.

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Brandon Blog Post

BANKRUPTCY PROTECTION: THE UNDENIABLE BEST THING YOU NEED TO KNOW TO CASH YOUR INSOLVENT CUSTOMER’S CHEQUE SAFELY

Post author By Brandon Smith
Post date November 12, 2021

We hope that you and your family are safe, healthy and secure during this COVID-19 pandemic. Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

Bankruptcy protection: What happens if a company gets into financial trouble?

A Canadian company seeking bankruptcy protection has two choices when it is financially troubled and wants to reorganize. By hiring insolvency legal counsel and a licensed insolvency trustee to get both insolvency and bankruptcy law advice and financial advice, they can protect themselves from their creditors, either by:

using the Companies’ Creditors Arrangement Act (CCAA) to file for bankruptcy protection; or
working with an insolvency trustee and filing a Notice of Intention to Make a Proposal under the Bankruptcy and Insolvency Act (BIA) you can obtain bankruptcy protection.

In order to reorganize in Canada, an insolvent company files for bankruptcy protection. If you are insolvent in Canada, then you must file for bankruptcy protection, which is equivalent to Chapter 11 in the United States. The process is called financial restructuring or financial reorganization. By doing this, the company will try to restructure while it continues to operate to come up with a restructuring plan that allows the company to survive while satisfying the needs of the creditors to some degree.a

This Brandon Blog discusses a recent court decision that demonstrates that there is a risk to creditors who receive payments from the insolvent company under bankruptcy protection for goods or services supplied if the restructuring fails.

What happens to the company that files for bankruptcy protection?

An organization that files for bankruptcy protection, or as it is sometimes called, creditor protection, differs from an organization that files for bankruptcy. A pure bankruptcy procedure consists of a liquidation. The company ceases to operate unless the Trustee sees value in continuing to operate the company for a limited period of time.

The trustee in bankruptcy takes possession of all assets that are either not subject to valid claims by secured creditors (typically financial institutions) or that belong to third parties (for example, equipment under lease or goods undergoing repair that are in the company’s possession). A licensed insolvency trustee then formulates a plan for selling the unencumbered assets of the company to maximize the proceeds. Afterwards, the Trustee distributes the funds in accordance with the BIA.

In the case of a company filing for bankruptcy protection, this is one of the alternatives to bankruptcy. The intention is to continue operating while it tries to restructure. Most of the time, this entails downsizing. A plan will be devised to repay some of the remaining debt in exchange for the creditors writing off the balance that is owed. With success, the company can retain employees and continue to operate. Creditors will be able to earn money by supplying the reorganized company in the future.

The CCAA allows companies that owe at least $5 million to their creditors to file for bankruptcy protection. Either the business will be restructured and continue to exist on new financial terms or a wind-down will be supervised to pay back anyone owed money by selling assets. BIA restructuring provisions can be used by companies that owe less than $5 million.

In other words, a company that goes bankrupt will shut down. Those who file for bankruptcy protection want to keep operating. As disruptive as bankruptcy and restructuring are, they can be beneficial for businesses, individuals and the economy since they preserve value and prevent assets from being wasted.

As soon as the company enters bankruptcy protection (or bankruptcy), proceedings against it are stayed. As a result, all collection rights for creditors are suspended. A “time-out” gives the company a chance to restructure, or the Trustee can handle its duties in bankruptcy without interference from creditors. Additionally, it “freezes” all creditors at the time of the filing, so that one cannot gain an advantage over another.

bankruptcy protection

A record number of companies have sought creditor protection under COVID-19 and more are on the way?

The list of large Canadian companies with outstanding debts looking for bankruptcy protection from creditors got to a decade high in May and June 2020. Numerous financial commentators believed there would be a full-blown financial crisis and that a lot more would certainly file as a result of COVID-19 caused the economic downturn. Despite this, the number of corporate insolvency filings appears to have stabilized and also slowed down in 2021. One main reason is the number of government programs supporting Canadian business. In the same way as the virus itself, COVID-19 has actually taken a hefty financial toll on companies with pre-existing conditions.

Some familiar Canadian corporations in the list of companies that filed in that time due to their financial situation were:

Reitmans
Frank & Oak
Aldo
DavidsTea
Cirque Du Soleil
Mendocino
Bow River Energy
FlightHub
Christian charity, Gospel for Asia
Cequence Energy
Delphi Energy
Sail

Twenty-two major Canadian companies sought creditor protection in May and June 2020, almost four times the usual rate. The list obviously does not include major U.S. names such as Chesapeake Energy, J Crew, Neiman Marcus, Brooks Brothers, Pier 1 and Boy Scouts of America.

**The bankruptcy protection court case facts**

I want to tell you about Schendel Mechanical Contracting Ltd (Re), 2021 ABQB 893. On November 9, 2021, the Honourable Mr. Justice Douglas R. Mah released his decision.

Schendel Mechanical Contracting Ltd. (Schendel) was one of three associated companies that at one time collectively formed a major construction concern in Alberta under the Schendel name. As a result of financial difficulties, it was an insolvent entity and it filed a Notice of Intention to Make A Proposal under the BIA on March 22, 2019. Schendel continued operations as part of its restructuring effort. On various Schendel projects, Schendel bought HVAC equipment from the supplier between April 2018 and May 2019.

Ultimately, Schendel’s debt restructuring plan failed. Schendel was deemed to have filed for bankruptcy when it failed to implement a successful BIA Proposal restructuring. Schendel went bankrupt immediately. Its secured creditor applied to the Court for the appointment of a Receiver, which was granted.

As a result of reviewing the company’s books and records, the Receiver found and disputed the legality of a $40,000 payment from Schendel, an insolvent company, to one of its suppliers. According to the Applicant Receiver, the payment was prohibited for a number of reasons and the funds should be returned. The recipient supplier asserted that the payment was both innocent and validly received and that it was entitled to retain it.

In this case, a cheque dated July 8, 2019, to make the payment. Due to an unknown reason, the supplier did not negotiate the cheque until 11:48 AM on July 19, 2019. Schendel was also deemed to have filed for bankruptcy and the Court made the Receivership Appointment Order all on the same day, July 19, 2019. The Court had, however, no evidence regarding the exact moment the receivership and bankruptcy decision was made on that same day.

bankruptcy protection

**The bankruptcy protection case: The Receiver’s position**

It is noteworthy that the action to recover the $40,000 was brought by the Court-appointed Receiver and not the insolvency trustee of the bankruptcy estate. According to the Receiver, the funds should be returned on the following grounds:

the automatic stay under section 69(1) of the BIA was in effect at the time of filing and throughout the extension of the proposal period, so the supplier was without recourse against Schendel;
the Court-ordered stay contained in the Receivership Appointment Order of July 19, 2019, as well as the concurrent stay imposed by a deemed bankruptcy under the BIA, deprived the supplier of all collection remedies as of that date;
as an alternative, the payment may be prohibited under the Fraudulent Preferences Act; or
it may be in violation of the Statute of Elizabeth (see note below).

NOTE: The English Parliament passed this statute in 1571 with the purpose of prohibiting transfers that would defraud creditors or hinder their collection efforts. As a result of widespread fraudulent transactions designed to defraud creditors, the 13 Elizabeth Statute was passed. It is still in effect in Alberta today.

**The bankruptcy protection case: The supplier’s position**

The recipient supplier said that it received the payment both innocently and legally and that it is entitled to retain it. In addition, the recipient supplier said:

besides some routine questions about payment, the supplier had not engaged in any activity to try to collect the debt;
the relationship with Schendel was arm’s-length;
both of the last two extension orders for the NOI define a process by which Schendel may pay, and the Receiver has fallen short to prove that the procedure was not followed when it comes to the subject payment; and
for either the Fraudulent Preferences Act or the Statute of Elizabeth, the required intent cannot be shown.

Since the bankruptcy trustee was not involved in this case, nobody was claiming that the payment was a preference or transfer under value under the BIA.

bankruptcy protection

**The bankruptcy protection case: The Judge’s decision**

The Court was not presented with evidence on whether the $40,000 payment in question was approved within the proposal extension process or whether it was not approved. There was evidence to support Schendel’s compliance with approved procedures. In the post-NOI period, the supplier was found to have provided goods to various Schendel projects worth $34,476.75.

There was evidence that the payment was not just a payment on account of a pre-filing debt without further transactions post-filing. According to the Judge, the stay would not apply to indebtedness arising from goods or services supplied to Schendel after the filing of the NOI. This is because such indebtedness would not be a claim that could be a proven claim in the bankruptcy.

The Judge further stated that it is the Receiver’s responsibility to prove that the payment violated the stay. Schendel and the supplier did continue to do business together after the NOI was filed, according to the evidence. During the hearing, the Judge said that he should not simply assume facts in the Receiver’s favour. Additionally, the evidence indicated that some of the $40,000 payment was applied to the post-NOI supply of goods. A total of $34,476.75 worth of product was supplied to Schendel after the NOI was filed.

As a result, the Judge rejected all of the Receiver’s arguments and dismissed his Application in its entirety. Consequently, the supplier kept the $40,000.

Bankruptcy protection: How to cash your insolvent customer’s cheque safely

Companies filing for bankruptcy protection, whether under the CCAA or BIA, are reorganizing to stay in business. Businesses require purchasing goods and services and paying for them. It’s possible that some pre-filing debts will be paid after the filing date even though the debts are frozen from a collection perspective.

The stay does not necessarily prohibit every post-NOI payment by an insolvent company to a creditor. Such payments are valid when they are necessary to enable the company to move forward with restructuring. For example, a creditor may require payment of all or a portion of its pre-filing debt in order to supply post-filing.

Parties can agree to repay past debts in order to secure future supplies. First and foremost, the BIA process aims to encourage a debtor to reorganize as a going concern. Both creditors and debtors benefit from the debtor’s continued operation during this critical time. The BIA’s stay provisions and preference provisions give debtors breathing room to reorganize their finances. Setting up legitimate agreements with key suppliers is an integral part of that process.

In the end, it is critical to determine whether the payment of past indebtedness is a valid condition of post-NOI supply, which is required for restructuring to proceed. In that case, the post-filing payment of the pre-filing amount will be valid. If not, the insolvency trustee can recover it from the supplier.

Creditors seeking to recover pre-filing debts must make the payment as a condition of a post-filing supply arrangement. Additionally, because all of this is playing out in real-time in higher-risk settings, a supplier is free to amend the pricing post-filing. Similarly, if the supplier can secure it, there is no reason for them to not try to go from an unsecured creditor to a secured creditor on the post-filing supply by taking security or requesting a letter of credit. This would all be done out of an abundance of caution because as stated above, unpaid post-filing debts are not a claim provable in the company’s bankruptcy if the restructuring is unsuccessful.

bankruptcy protection

Bankruptcy protection summary

I hope you found this bankruptcy protection Brandon Blog post informative. Are you worried because you personally or as business owners are dealing with substantial debt challenges and you assume bankruptcy is your only option? If it is too much debt for any reason, call me. It is not your fault that you remain in this way. You have actually been only shown the old ways to try to deal with financial issues. These old ways do not work anymore.

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

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

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

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

Call us now for a no-cost consultation. We will get you or your business back up driving to healthy and balanced trouble-free operations and get rid of the discomfort factors in your life, Starting Over, Starting Now.

Brandon Blog Post

THE CANADIAN BANKRUPTCY AND INSOLVENCY ACT EASY BEGINNER’S GUIDE

Post author By Brandon Smith
Post date September 23, 2021

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

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

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 Act and 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.

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.

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 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 Team utilizes new modern-day ways to get you out of your debt difficulties with debt relief options as an alternative 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.

Call us now for a no-cost consultation.

canadian bankruptcy and insolvency act

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.

Tags administration of bankruptcy, allowable claims, assignment into bankruptcy, bankruptcy estate, bankruptcy laws, bankruptcy legislation, bankruptcy procedure, bankruptcy proceedings, bankruptcy process, bankruptcy vests, canadian bankruptcy and insolvency act, canadian courts, Canadian insolvency legislation, claims of creditors, claims process, classes of creditors, commercial proposals, commercial restructuring, consumer debt levels, consumer proposals, corporate restructuring proceedings, cross-border insolvencies, debt obligations, debtor company, federal legislation, financial difficulty, insolvency proceedings, insolvent companies, insolvent corporation, Ira Smith Trustee, legal rights, licensed insolvency trustees, notice of inention, official receiver, preferred creditors, proof of claim, provable claims, restructuring proceedings, restructuring process, scheme of distribution, secured creditor, successful restructurings, trustee in bankruptcy, trustees in bankruptcy, types of debts, unfortunate debtor, unsecured creditors, voting rights

Bankruptcy and CRA Debt Introduction

Definition of Bankruptcy and CRA Debt

Bankruptcy and CRA Debt: Importance of Debt Management and Tax Relief

Bankruptcy and CRA Debt: Understanding Bankruptcy in Canada

What is bankruptcy?

Bankruptcy laws in Canada

Bankruptcy and CRA Debt

Overview of the CRA

Types of debt owed to the CRA

Consequences of CRA debt

Bankruptcy and CRA Debt: Exploring CRA Debt Solutions in Canada

Informal Debt Settlements

Debt Repayment Plans

Bankruptcy as a Debt Relief Option

Bankruptcy and CRA Debt: The Bankruptcy Process in Canada

Preparing for Bankruptcy

Filing for Bankruptcy

Duties and Responsibilities during Bankruptcy

Bankruptcy and CRA Debt Discharge Considerations

Dealing with Bankruptcy and CRA Debt

Outstanding Tax Returns

Bankruptcy and CRA Debt: Discharge in Bankruptcy

Rebuilding Your Finances After a Canadian Bankruptcy Discharge

Bankruptcy and CRA Debt FAQs

Is it possible to file for bankruptcy solely for CRA debt?

What happens to my CRA debt in bankruptcy?

How does bankruptcy affect my tax refunds?

Can I include tax debt in a consumer proposal?

What if my tax debt exceeds $200,000 and makes up over 75% of my unsecured debt?

Bankruptcy and CRA Debt Conclusion

Bankruptcy lawyer: Introduction

Bankruptcy lawyer: Overview of the insolvency and bankruptcy process in Canada

Bankruptcy lawyer: Formal insolvency options in Canada

Insolvency and debt relief solutions for individuals –

Insolvency and debt relief options for companies –

How a bankruptcy lawyer can assist you: Importance of seeking legal advice in certain situations

Can I file for bankruptcy without a bankruptcy lawyer in Canada?

Determining the necessity of enlisting the services of both a bankruptcy lawyer and a Licensed Insolvency Trustee: Is a bankruptcy lawyer required to initiate bankruptcy proceedings in Canada?

Bankruptcy lawyer and a Licensed Insolvency Trustee: Determining the necessity of enlisting the services of both a bankruptcy lawyer and a Licensed Insolvency Trustee

How to find a qualified bankruptcy lawyer or Licensed Insolvency Trustee in Ontario

Bankruptcy lawyer: Conclusion

Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) (BIA): Introduction

Overview of BIA Section 215

BIA: The Motion Judge’s Decision

The BIA case background

Did the undischarged bankrupt have the right to launch the Action under the BIA?

The Court of Appeal for Ontario’s analysis

The Court of Appeal for Ontario’s decision

BIA: Conclusion

Officers and Directors: Introduction

Officers and Directors: What is the “directing mind”?

The duties of Officers and Directors

Fiduciary Duty

Duty of Care

Insolvency and the Obligations of Officers and Directors in Canadian Corporations

Navigating Responsibilities in an Insolvent Corporation: Do officers and directors owe a duty to creditors

Officers and directors: Ernst & Young Inc. v. Aquino, 2022 ONCA 202 (CanLII)

Can section 96 of the Bankruptcy and Insolvency Act (“BIA”) be used by the monitor and the trustee to recover the money officers and directors took from Bondfield and Forma-Con?

The lower court judge’s reasons for the timing of the transfers

Officers and Directors: Uncovering the Impact of Fraudulent Intent on Transfers and Undervalue in Bankrupt Corporations

This kind of insolvency officers and directors case was novel in Canada

The bottom line of Ernst & Young Inc. v Aquino

Obligations and Responsibilities of the Board of Directors and Officers: Conclusion

Corporate bankruptcy in Canada: Introduction

Explanation of what corporate bankruptcy in Canada is

A brief overview of how the process of corporate bankruptcy in Canada begins

Types of corporate bankruptcy in Canada

An overview of the 2 types of bankruptcy proceedings available to Canadian businesses

Liquidation

Reorganization

Advantages and disadvantages of corporate bankruptcy in Canada

Liquidation

Reorganization

Filing a voluntary assignment into bankruptcy for corporate bankruptcy in Canada

Overview of steps involved in filing for Corporate Bankruptcy in Canada

Essential paperwork and information

The OSB plays an important part in the area of insolvency

The effects of corporate bankruptcy in Canada on creditors and stockholders

How corporate bankruptcy affects the distribution of assets among creditors

What sort of ramifications does corporate bankruptcy in Canada have on the equity holders and their privileges?

Bankruptcy and *CRA Debt**: Understanding Bankruptcy in Canada*

*Bankruptcy law**s in Canada*

*Debt Re**payment Plan*s

Bankruptcy and *CRA Debt**: Discharge in Bankruptcy*

**What does a trustee in bankruptcy Ontario cost?**

**The unreported court decision: The taxation of the trustee in bankruptcy Ontario accounts**

**The unreported court decision: The taxation of the trustee in bankruptcy Ontario accounts continues**

**The bankruptcy protection court case facts**

**The bankruptcy protection case: The Receiver’s position**

**The bankruptcy protection case: The supplier’s position**

**The bankruptcy protection case: The Judge’s decision**