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DECLARE BANKRUPTCY: A COMPLETE GUIDE ON WHAT IS IT LIKE TO DECLARE BANKRUPTCY

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

What is it like to declare bankruptcy?

What is it like to declare bankruptcy? It is a scary life event, but filing bankruptcy is not as bad or terrifying as the majority of people think. Actually, you have already been through the worst of it before you declare bankruptcy.

If it’s the right option for you, it will get rid of the tension, stress, and anxiety from your life that you have been lugging with you for a very long time. It does not require that much of your time. You will usually have 3 to 4 visits with the licensed insolvency trustee (formerly called a bankruptcy trustee) (Trustee). If all works out, you will never ever see the inside of the bankruptcy court and all your debt will be removed.

The purpose of this Brandon’s Blog is to describe what it is like to declare bankruptcy and what the bankruptcy process is all about.

When to declare bankruptcy

Bankruptcy law exists to help people who have handled an unmanageable amount of debt. Most of the time, it is a result of unforeseen expenses or other unexpected life events that are no fault of the person. Two main examples of such life events are job loss and illness.

Before deciding to declare bankruptcy, make sure to explore all your alternatives, and weigh the benefits and negative aspects of each reasonable option. Part of the no-cost examination we give everyone is doing precisely that; going through the alternatives, taking into consideration the pluses and minuses of each, and making our ideal professional recommendation to every person’s unique scenario.

If you determine that bankruptcy is your only viable alternative as lots of other Canadians do each year remember that the blot on your credit score will not be forever. By using credit properly in the future and paying your debts on time, you can begin to reconstruct your credit rating and put bankruptcy behind you.

To declare bankruptcy, either a bankruptcy restructuring or bankruptcy liquidation likewise assists companies that have unrestrained debt levels. We also offer solutions to companies and businesses searching for debt settlement help.

declare bankruptcy
declare bankruptcy

What are the consequences for a person to declare bankruptcy?

Everyone assumes that if you declare bankruptcy, it takes a massive emotional toll on you. Our experience in working with people we help is the exact opposite. Their financial debts, the fear of not having the ability to pay it off along with the anxiety of the unknown is what is devastating to everyone.

Once people declare bankruptcy, they tell us that the automatic stay of proceedings and the involvement of the Trustee stopping creditors’ collection calls are great benefits. Individuals that file for bankruptcy have already looked over the cliff and feared the worst. When they figure out that their worst worries never happen, and they currently have peace and quiet from collection phone calls, they feel like a weight has been taken off of them. As we tell people, your creditors will certainly now bother the Trustee, not you!

Your bankruptcy is a matter of public record. The Office of the Superintendent of Bankruptcy (OSB) maintains a public database. The Trustee alerts your creditors, Canada Revenue Agency (CRA) as well as the OSB of your filing. People can look up any name they wish for $8 per search. Although it is public, very few people spend money to browse the OSB database. It is mainly for Equifax and TransUnion to place on your credit history report. It is also for the federal government to keep data concerning people and companies that declare bankruptcy in Canada. There are no billboards or flashing neon lights with your name on it for all the world to see.

The most effective repercussion when you declare bankruptcy is that you have the chance to release either all or most of your financial debts and start life once again hassle-free.

How do I declare bankruptcy?

Anybody who is insolvent and owes more than $1,000 qualifies for personal bankruptcy or also known as a consumer bankruptcy filing in Canada. If you are having a problem meeting your financial responsibilities or have actually stopped satisfying them, you remain in financial trouble.

The primary step is to get in touch with a federally licensed Trustee asap to discuss your options. The Trustee will certainly initially collect info from you regarding your assets, liabilities, your household income, and expenses. This allows the Trustee to get a very good understanding of your one-of-a-kind situation.

You and the Trustee will then review your choices. Bankruptcy is just one of the feasible range of options. There are numerous bankruptcy alternatives which include, however, are not restricted to, debt consolidation and consumer proposals.

The Trustee will use the information you gave to prepare the bankruptcy forms. When you declare bankruptcy, of the various bankruptcy files the Trustee prepares, you are signing, and the Trustee is filing what is called an assignment in bankruptcy.

What should I do before I declare bankruptcy?

Many people think there are several things they should do before they declare bankruptcy. Common questions include:

  • Should I transfer my interest in the matrimonial home to my spouse?
  • When should I transfer the cash in my bank account to my spouse’s bank account?
  • Should I stop working or not look for work so that I will not have to make any surplus income payments?

The reality is that by the time you are contemplating bankruptcy, it is too late. The time to do your valid creditor proofing is not when you are insolvent, but when you are solvent! When you are not experiencing any financial problems.

Transferring assets most likely will be successfully attacked by the Trustee. That means that the Trustee will go after the person you have transferred assets to for no or little value. You will not only have protected assets, but you will also have caused your loved one to incur legal costs and have to cough up the assets.

Declaring bankruptcy is an emotional as well as a scary thing. There is only one thing you should do before you declare bankruptcy. You must meet with a Trustee for a no-cost initial consultation and be honest with them. Make full disclosure so that the Trustee can provide you with your realistic options. The Trustee will also fully explain to you what the process will look like and what might happen to you if you declare bankruptcy.

When is bankruptcy a good idea? The answer depends on your situation

Bankruptcy is not naturally negative or excellent, but it is vital for the honest but unfortunate debtor who finds themselves in big trouble with financial debt. Bankruptcy is actually for honest people that have come upon tough times. They need to look to bankruptcy due to the fact that they can’t see a way out. Even the Bible calls for debt mercy at the end of every 7 years (Deuteronomy 15:1).

If you find yourself in a hard financial situation and cannot see a way out, meet with a Trustee. Do not let fears or stereotypes stand in the way of getting the relief and your household need. To declare bankruptcy must be considered as taking a positive step in helping you and your family begin again on the right track.

declare bankruptcy
declare bankruptcy

Is filing bankruptcy bad? Can it be good?

You’ll listen to a great many people effectively say: “bankruptcy is bad”. Yet why? Why is the general consensus that filing for bankruptcy is a negative thing? While it is true that when you declare bankruptcy or a consumer proposal it is evidence of difficulty with your finances, that’s not the whole story.

A large part of the reason that people state bankruptcy is bad is that they do not understand the procedure. No two bankruptcy instances are alike. People are forced into bankruptcy for a whole host of different factors, most of which are outside their control and for that reason, not their fault.

What Happens to a company when it goes to declare bankruptcy?

The BIA regulates exactly how companies can liquidate or restructure and recover from crippling debt. An insolvent company may make use of Part III Division I of the BIA to reorganize its business and try to end up being profitable again. Management remains in place to run the daily activities of the company. Any significant change in the business organization should need to be approved by the Trustee, the bankruptcy court, or both.

Under a pure liquidation bankruptcy filing, the company stops operations and goes completely dark. The Trustee is assigned to sell the firm’s possessions and the money is used to pay for the bankruptcy administration and to make a distribution to creditors. The priority of payouts is governed by the BIA.

Trust claimants and secured creditors are paid first. For instance, secured creditors take less risk due to the fact that the money that they lend is backed by the firm’s assets. If the lender is concerned that the assets may not at any time be enough to fully cover the loan, it will also require additional backup by way of the personal guarantee of the entrepreneur. That personal guarantee can be either an unsecured promise or additional collateral by the entrepreneur pledging personal assets. They do this to limit their risk of loss if the company declares bankruptcy.

Bondholders have a better potential for recovery than shareholders because bonds are a financial debt of the business. The company promises to pay interest on the money it takes in through the sale of bonds. The company also promises to repay the principal according to the terms of the bond issuance.

Shareholders own the company and also take a higher risk. They might make more if the company does well, yet they could lose money if the company is not successful. The shareholders are last in line to be repaid if the company stops working. Bankruptcy laws establish the order of payment.

If I declare bankruptcy, what happens with the CRA garnishee?

If you declare bankruptcy or file a consumer proposal, personal income tax debt is one type of debt in the category of ordinary unsecured debts. When you’ve filed for bankruptcy or a consumer proposal, CRA can’t take any kind of further collection activity against you. This includes wage garnishment or freezing your bank account. Your Trustee will certainly alert CRA once you declare bankruptcy. The Trustee will also advise CRA to quit any type of collection activity against you.

What is it like to declare bankruptcy summary?

To declare personal bankruptcy is a major life event. However, it is a necessary thing to rid yourself of crippling debt. Most people who declare bankruptcy have been faced with a major life event. The main examples are illness, pay cuts, job loss, or divorce. It is not your fault. I hope this Brandon’s Blog has given you helpful information.

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

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

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

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

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

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

declare bankruptcy
declare bankruptcy
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Brandon Blog Post

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

stalking horse

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

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

Stalking horse introduction

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

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

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

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

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

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

Why would anyone want to become a stalking horse?

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

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

How a stalking horse bid works

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

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

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

MPH Graphics stalking horse bid process case study

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

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

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

MPH was insolvent

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

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

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

stalking horse

The stalking horse bidder came knocking

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

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

What kind of stalking horse insolvency process?

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

  • receivership;
  • bankruptcy; and
  • restructuring.

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

The insolvent company’s requirements were:

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

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

A stalking horse process works best in an insolvency restructuring process

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

The benefits of this approach are:

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

Liquidating proposal under the BIA to run the stalking horse process

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

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

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

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

Key elements of the stalking horse sales process

The key elements of the stalking horse sales process were:

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

The outcome of the stalking horse sales process

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

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

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

Court approval of the stalking horse bid

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

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

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

Stalking horse summary

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

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

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

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

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

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

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

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CONSUMER PROPOSAL VS BANKRUPTCY ONTARIO: THE BEST INFO YOU REALLY NEED

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

Consumer proposal vs bankruptcy Ontario introduction

What is the difference between a consumer proposal vs bankruptcy Ontario is a question people calling me up these days are asking. No doubt the looming end of the various COVID-19 government support programs is now sparking this interest. People and businesses were given a reprieve with Canada’s COVID-19 Economic Response Plan and the courts being closed. Now fear is creeping back into everyone’s minds about their debts that essentially were put on hold for the last 6 months.

So, since people are asking me the question, I want to answer the consumer proposal vs bankruptcy Ontario question in this Brandon’s Blog.

Consumer proposal vs bankruptcy Ontario: Who qualifies for and what is a consumer proposal?

A consumer proposal is different from bankruptcy. Consumer proposals are available to individuals only whose overall financial obligations do not exceed $250,000, not including debts secured by their principal residence.

Division 1 proposals are offered to both companies with any debt level and people whose debts go beyond $250,000 (omitting the mortgage or any other debts secured by their primary residence).

Consumer proposals are official methods regulated by the Bankruptcy and Insolvency Act (Canada) (BIA) readily available to individuals. Collaborating with a licensed insolvency trustee (Trustee) serving as the consumer proposal administrator, you make a proposal to:

  • Pay your creditors a percentage of what you owe them over a certain period not exceeding 60 months.
  • Expand the time you need to settle those debts.
  • Or a mix of both.

Payments are made via the Trustee, and the Trustee utilizes that cash to pay each of your creditors their pro-rata share. The consumer proposal must be completed within 5 years from the day of filing.

Consumer proposal vs bankruptcy Ontario: Who qualifies for bankruptcy?

You can declare bankruptcy if you:

  • Live in Canada.
  • Continue business or have assets in Canada.
  • Have financial debts totalling a minimum of $1,000.
  • Are insolvent.

There are different tests for insolvency laid out in the BIA. They are:

  • for any reason, you are unable to pay your financial debts as they generally come to be due;
  • you have ceased paying present debts in the regular course as they usually are due; or
  • the complete worth of your property is not, at a reasonable valuation, enough, or, if sold at a sale under legal process, would not be sufficient to make it possible for repayment of all your financial obligations.

Consumer proposal vs bankruptcy Ontario: What is bankruptcy?

A consumer proposal is an excellent option for you if you can afford to make payments towards your financial debts monthly. If you are entirely unable to make enough payments for a consumer proposal, then bankruptcy is probably your only other alternative.

By statute, the offer you make your creditors via a consumer proposal must be a much better option than what your creditors would certainly get in your bankruptcy. I help people make that analysis during our initial no-cost consultation prior to them selecting the ideal insolvency process for them. We discover the choices readily available, including a consumer proposal vs bankruptcy Ontario. Bankruptcy is an alternative when you cannot afford to fund a consumer proposal to your creditors.

If bankruptcy is the selected alternative, you work with me, as the Trustee, to complete the needed documents. I then submit them with the Office of the Superintendent of Bankruptcy Canada (OSB). When the OSB issues its Certificate, after that you are formally bankrupt.

From that point on, the Trustee will deal directly with your creditors in your place. As soon as you are bankrupt:

  • you will stop making payments to your unsecured creditors;
  • any type of garnishments against your wages or bank account will stop; and
  • any lawsuits for money against you from your creditors will also be stopped.

Consumer proposal vs bankruptcy Ontario: What are the advantages of a consumer proposal?

The benefits of a consumer proposal vs. bankruptcy Ontario are:

  • You maintain all of your assets.
  • Actions against you by creditors, such as wage garnishments will quit.
  • Unlike informal financial debt settlement, the consumer proposal is a legal forum where every one of your creditors has to deal with your restructuring.
  • You do not have to think any more about the “B” word.

Consumer proposal vs bankruptcy Ontario: What are the differences in credit score?

The person that files for bankruptcy will absolutely get an R9 rating. This is the lowest credit rating possible. It will continue to be on their record for at least 7 years. An individual that submits a consumer proposal will have an R7 credit score which is less extreme. It will certainly remain to be on their record for around 8 years overall, from the moment of filing.

You will absolutely pay less than the total you owe with a consumer proposal. Commonly as much as 70% less. All your unsecured financial obligations will be combined right into a simple regular month-to-month payment. This number will be based upon what you can afford.

Consumer proposal vs bankruptcy Ontario: What are the costs and fees of a consumer proposal versus filing for bankruptcy?

When doing a consumer proposal, the Trustee’s charges are paid for out of the repayment you bargain with your creditors. For example, if your consumer proposal has you paying a total amount of $20,000 over 5 years, the Trustee’s fee and disbursements are drawn from those funds. The cost of the consumer proposal is likewise regulated by the BIA. The expense does not go up or down based upon the amount you are required to pay in your consumer proposal.

However, if you were to file for bankruptcy, the cost is once again controlled by the BIA. The Trustee is paid out of the funds available in your bankruptcy. Examples of sources of funds in personal bankruptcy are any surplus income you might need to pay as well as any assets that are available to the Trustee to sell.

If there are not expected to be any type of funds in your bankruptcy, the regulated cost to be funded either by the debtor or a third party guarantor will be around $2,000. This is one more difference between a consumer proposal vs bankruptcy Ontario.

Consumer proposal vs bankruptcy Ontario: Are assets treated differently between a consumer proposal vs bankruptcy?

If you do a consumer proposal, you can keep your assets whereas in bankruptcy your assets in most cases are affected. This includes the equity in your home if greater than $10,000, an auto or other vehicle worth greater than $6,600 (without liens against it), investments, tax refunds, as well as any RRSP contributions made in the 12 months immediately before filing for bankruptcy.

This distinction between a consumer proposal vs bankruptcy Ontario is huge.

Consumer proposal vs bankruptcy Ontario: What if I default on my consumer proposal vs bankruptcy payments?

If you do not keep up your payments on a consumer proposal, and drop 3 months behind, you have defaulted and the consumer proposal is void. You additionally are unable to submit a brand-new consumer proposal. Collection activity by your creditors will begin again.

In bankruptcy, if you do not complete all your obligations, you will not have the ability to get your discharge from bankruptcy. As soon as the Trustee gets its discharge, your creditors will certainly return to collection activities too.

This is one more consumer proposal vs bankruptcy Ontario difference.

consumer proposal vs bankruptcy ontario
consumer proposal vs bankruptcy Ontario

Consumer proposal vs bankruptcy Ontario: When is a meeting of creditors held in a consumer proposal?

A meeting of creditors in a consumer proposal is held if one is requested by creditors that are owed at least one-quarter of the total amount of proven claims filed.

An ask for a meeting needs to be made by the creditors within 45 days of the declaring of the consumer proposal. The OSB can additionally ask for the Trustee to call a meeting any time within that same duration.

The meeting of creditors must be held within 21 days after being called. At the meeting of creditors, they vote to either accept or reject the proposal.

If no meeting of creditors is requested within 45 days of the declaring of the proposal, the proposal will be considered to have been approved by the creditors no matter any kind of objections made later.

How long does it take to complete a consumer proposal vs bankruptcy Ontario?

A consumer proposal is ended when the individual has made the call for payments over the amount of time stated in the proposal itself. In a bankruptcy, the discharge relies on a selection of different aspects, including whether it was the very first time the debtor filed for bankruptcy and if they need to make surplus income payments.

If the borrower has never proclaimed bankruptcy and they do not need to make surplus income payments, then they are entitled to be discharged 9 months. However, if the bankrupt has surplus income, then a first-time bankrupt will need to pay for 21 months before when they can be discharged

If this is not the person’s first bankruptcy, and they do not have surplus income, they cannot get a discharge before the expiry of 24 months. If that person has a surplus income requirement, then they must pay for 36 months before being able to be discharged.

This is another distinction between a consumer proposal vs bankruptcy Ontario.

Consumer proposal vs bankruptcy Ontario: What do consumer proposals and bankruptcy have in common?

Both a consumer proposal and bankruptcy are lawfully binding treatments that are administered by a Trustee. If you are thinking of a consumer proposal vs bankruptcy Ontario, it is vital that you consult with a Trustee to ensure that you completely understand what’s involved, and the costs. You can talk with friends or family that might have applied for one or the other before. It is also important that you get referrals from professionals you trust.

Declaring bankruptcy or doing a consumer proposal are both issues of public record. That means there will be a permanent public record concerning your insolvency that can be accessed by anyone. If your debts are joint or co-signed or guaranteed by someone else, the other person is liable for the debt. That is the case even if you file for either a consumer proposal or personal bankruptcy.

Even these similarities still point out differences between a consumer proposal vs bankruptcy Ontario.

How do I choose between a consumer proposal vs bankruptcy Ontario?

As you can see, when you consider a consumer proposal vs bankruptcy Ontario, there are most definitely differences between the two. But they are both formal insolvency processes to eliminate your debt. What’s essential, though, is that you discover the best method to get yourself back on the right track in such a way that will assist you to achieve your long-term goals.

Consumer proposal vs bankruptcy Ontario: How to file for bankruptcy?

In order to take advantage of either a consumer proposal vs bankruptcy Ontario, you must involve a Trustee. This is a person or company licensed by the OSB to provide the insolvency process. The 10 actions listed below are a guide to the bankruptcy procedure.

  • Call a qualified Trustee and go to a meeting with him or her to talk about your personal circumstance and your alternatives including if it is possible for you to prevent bankruptcy.
  • Deal with the Trustee to complete the needed forms. The Trustee will after that submit the bankruptcy with the OSB.
  • The Trustee notifies your creditors of the bankruptcy.
  • You participate in a meeting of creditors if one is called.
  • You participate in 2 counselling sessions.
  • Based on your personal exemptions, the Trustee markets your available assets; you may additionally need to make surplus income payments to the Trustee.
  • In certain circumstances, you might need to participate in an examination held by an OSB representative.
  • The Trustee prepares a report describing your actions throughout the bankruptcy.
  • You go to the discharge hearing if needed.
  • You obtain your discharge from your bankruptcy.

Afterward, the Trustee completes the administration, including paying a dividend to your creditors, if offered.

Consumer proposals and bankruptcy Ontario aren’t the only ways of obtaining debt relief and consolidating debt

There are additionally other ways of fixing debt problems that do not include a formal process or paying a fee. If you honestly wish to thoroughly and objectively take a look at all your options, contact a Trustee, and meet with him or her. They’ll pay attention to your scenario and concerns and advise you on what will work best for you even if you do not need to file for either a consumer proposal vs bankruptcy Ontario. Their assistance is normally cost-free and non-judgmental.

At my Firm, declaring bankruptcy is only encouraged until all other potential solutions have investigated. A consumer proposal is the only government-approved financial debt settlement strategy and is always the far better bankruptcy alternative.

Consumer proposal vs bankruptcy Ontario: Move on with your life

I hope you have enjoyed this consumer proposal vs bankruptcy Ontario Brandon’s Blog. Both a successfully completed consumer proposal or obtaining your discharge from bankruptcy lets you get back on the road to financial health, relieve the stress you face, and bring you:

  • Freedom from lawsuits and garnishments;
  • The ability to live better than just hanging on one payday to the next;
  • Improved credit scores; and
  • Better health and well-being.

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

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

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

We know that people facing financial problems need 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.

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

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BANKRUPTCY MEANS: SERIOUSLY, CAN IT EVER MEAN BEGGING FOR A BANKRUPTCY ANNULMENT?

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

Bankruptcy means introduction

From my perspective, bankruptcy means that a person or company has either filed an assignment in bankruptcy or the court has issued a bankruptcy order against the debtor. The debtor has taken the voluntary action to seek relief and the benefits obtained by doing so under the Bankruptcy and Insolvency Act (Canada) (BIA). Or a court, based on the application of one or more creditors, has ordered that the BIA applies and the debtor is adjudged bankrupt.

As I have written in the past, this is different from insolvency. Insolvency is the financial state where a company or person cannot meet their liabilities as they come due or whose assets, if sold at fair value, would not be enough to pay off all of the liabilities. Bankruptcy is a legal state.

I recently read an article about Mr. Stanley Frank Ostrowski aka Frank Ostrowski, who lives in Winnipeg, Manitoba. Mr. Ostrowski filed an assignment in bankruptcy on February 12, 2019. He listed his assets having a value of $250. He stated that his liabilities were $259,621. This is his second bankruptcy. His first was in 1983 and he received an absolute discharge in 1985.

The article states that Mr. Ostrowski has now made an application to the court to annul his bankruptcy. This Brandon’s Blog looks at: Is it possible to annul a bankruptcy and under what circumstances? Put another way, is it really the case that bankruptcy means you can file for bankruptcy and then say oops, I didn’t really want to file? I am not really sure that is how bankruptcies work.

The reasons why Mr. Ostrowski thinks bankruptcy means it can be annulled

In May 1987, a jury decided that Mr. Ostrowski was guilty of first-degree murder. In March 1992, he was found guilty of possession of cocaine for the purposes of trafficking. He was sentenced to 15 years in prison, concurrent with his life sentence for murder.

He served 23 years, 2 months and 24 days in prison. He got out of jail on December 18, 2009. In 2014, then federal justice minister Peter MacKay asked Manitoba’s Court of Appeal to review the case. Then justice minister MacKay believed that there was a miscarriage of justice with respect to the murder conviction.

In a November 2018 decision, the Court of Appeal set aside the conviction after it discovered a miscarriage of justice took place when two vital details were not revealed to the defence or the court. While the court set aside his conviction, it did not acquit him. In their decision, the three-judge panel said they thought there was enough proof against the accused, which the court could have found him guilty even if full disclosure had been made.

The court also held that it would be unfair to have another trial given that it had been 32 years since the shooting. The court also entered a judicial finding that the charge is stayed from further prosecution.

In June 2020, Mr. Ostrowski retained legal counsel to commence an action for damages because of his wrongful conviction. His lawyers have not yet launched the claim but they plan to. The article said that he will be seeking $16 million in compensation.

Now he wants to have his 2019 bankruptcy annulled. He believes he has a realistic chance of receiving sufficient compensation to be able to settle all his debts. So with all this background information, do I think his bankruptcy means that he can get his bankruptcy annulled?

Bankruptcy means: what happens if I declare bankruptcy?

I have written before about what happens when a person or company declares bankruptcy. There is a responsibility to make full disclosure to the licensed insolvency trustee (formerly called a bankruptcy trustee) (Trustee) all of your assets, liabilities, income and expenses. The debtor also must give to the Trustee all provincially non-exempt assets so that the Trustee can sell them for the benefit of the creditors.

In his bankruptcy filing documents, Mr. Ostrowski did not make mention of this potential lawsuit that had not yet been launched. He also did not indicate that he had the right to such an asset. If he had, there would be two realistic options.

He could have taken the position that the amount of recovery in a lawsuit not yet launched is unknown and speculative. So, the action should only be valued at $1 as a placeholder. By doing so, he would have made full disclosure to his creditors and to his Trustee as to the existence of this potential asset.

If Mr. Ostrowski had disclosed this asset and valued it at more than $259,371, then he would not have met the asset test for being insolvent and potentially would not have been able to file for bankruptcy. I say potentially because, in his affidavit, Mr. Ostrowski makes no mention of what his income and expenses were at the time of filing for bankruptcy or now. Mr. Ostrowski does not disclose in his affidavit whether or not he has to pay any surplus income to his Trustee for the benefit of his creditors.

Can bankruptcy be annulled?

Annulling a bankruptcy is more than just cancelling a bankruptcy. It is erasing it to the point as if it never happened. It is a complete elimination of the bankruptcy. If it was the person’s first bankruptcy, and it was annulled, they could honestly say they never were bankrupt.

To figure out what are the odds that Mr. Ostrowski will be successful in his application to annul his bankruptcy, we need to look at several factors. First, what reasons does Mr. Ostrowski say are the basis as to why his bankruptcy should be annulled?

In his affidavit sworn June 8, 2020, the reasons he gives are:

  1. “I have a realistic chance of receiving sufficient compensation to be able to settle my debts with my creditors in a manner that would be more advantageous to the creditors than if I pursue bankruptcy.”
  2. “I am advised by…” my lawyer “…that when he advised…” my Trustee, “… of my intention to seek an order annulling my assignment in bankruptcy…” my Trustee “…did not object to it.”.

That is it. No other reasons. To Mr. Ostrowski, his bankruptcy means that maybe perhaps he can do better for his creditors than they would get in his bankruptcy and his Trustee doesn’t object to his trying to annul his bankruptcy.

With all due respect to his legal counsel on this bankruptcy annulment application who only has what he has to work with, I rate those reasons somewhere between weak and lame! The bankruptcy annulment process was not designed for the convenience of the bankrupt.

Bankruptcy means when will a court annul a bankruptcy?

First, Section 181(1) of the BIA gives the court the authority to annul a bankruptcy. It says:

“181 (1) If, in the opinion of the court, a bankruptcy order ought not to have been made or an assignment ought not to have been filed, the court may by order annul the bankruptcy.”

This authority is discretionary. Generally, the court will only annul an assignment if it is shown that:

  • The debtor was not insolvent at the time of filing.
  • It was an abuse of process of the court
  • The debtor was trying to commit a fraud on his or her creditors.

If Mr. Ostrowski’s affidavit is the only evidence submitted in his application to annul his bankruptcy, he has not shown that the bankruptcy assignment “ought not to have been filed”.

Second, there have been cases where an assignment in bankruptcy has been annulled. The list of general reasons why the court found that a bankruptcy order ought not to have been made or an assignment ought not to have been filed are:

  1. An assignment in bankruptcy was completed and was to be held in escrow while the debtor negotiated with his creditors. The assignment was only to be filed if a resolution could not be worked out. A deal was reached but the assignment was filed in error. In other words, a verifiable mistake.
  2. The bankruptcy was of no benefit to the creditors. The creditors would receive a distribution but would bear all the costs of the bankruptcy administration.
  3. The debtor was restrained by court order from dealing with all of his assets without giving his estranged wife seven clear days’ notice and he filed an assignment in bankruptcy with no notice given.
  4. Joint assignment by a husband and wife where it was evident that a large amount of debt was from the husband’s unincorporated business and the wife was not in partnership with him.
  5. A bankruptcy assignment purportedly filed by an infant!
  6. The second assignment filed before the bankrupt received a discharge from the 1st bankruptcy.
  7. The husband filing an assignment in bankruptcy in an attempt to disgorge himself of his assets while embroiled in bitter family law proceedings.
  8. Directors of a company whose assets were already being administered under a court-appointed receiver having filed an assignment in bankruptcy for the company.

In all the above situations, the court DID annul the bankruptcy. The court did not agree that bankruptcy means it was the right choice in those situations.

Bankruptcy means when will a court NOT annul a bankruptcy?

Third, there have been cases where an assignment in bankruptcy was NOT annulled. The list of general reasons why the court found refusing the annulment request was appropriate are:

  1. The sole purpose of the bankruptcy was to rearrange the priorities of certain creditors.
  2. A bankruptcy to defeat the enforcement attempts of a judgment creditor.
  3. The sworn statement of affairs failed to show the name and amount of a creditor.
  4. The debtor had no assets.
  5. Debtor was insolvent and did not bring an application to annul the bankruptcy until 4 months after filing an assignment in bankruptcy. The court decided that an application to annul a bankruptcy only because the debtor did not wish to continue with the bankruptcy process should be brought immediately after the filing of the assignment in bankruptcy.

The last reason why the court did not annul a bankruptcy, is pretty much the reason Mr. Ostrowski says he wants his bankruptcy annulled. Only in his case, he is bringing the application some 18 months after becoming a bankrupt.

Interestingly enough, that last reason was a Manitoba case, Baker (Bankrupt), Re, 1997 CanLII 23100 (MB QB). In that case, the bankrupt contended that the Trustee filed the bankruptcy documents with the Office of the Superintendent of Bankruptcy in error. However, she waited for 4 months and the court was not persuaded that the filing was an error!

In Mr. Ostrowski’s case, his reasons boil down to it will be more convenient for him! As you can probably tell by now, I don’t place a high probability of his chances of success in persuading the court to annul his bankruptcy. But then I am not the judge.

Bankruptcy means what should Mr. Ostrowski do?

The answer as to what his bankruptcy means and what Frank Ostrowski should do lies within the BIA. Mr. Ostrowski has two choices and I believe it will be what the court decides.

First, the BIA allows for a bankrupt, with the permission of the inspectors in his bankruptcy, if any, to file a restructuring proposal. He could get that started right now without any court application.

If his debts are truly over $250,000, based on the claims filed to date, then he can file a proposal under part III division I proposal under the BIA. If the claims filed are a total under $250,000, then he could file a consumer proposal. Either way, the administration would continue under the BIA.

His proposal would be a very simple one. It would essentially say that he has a claim against several parties for what his lawyer believes is $16 million. He knows he will get at least enough to pay all of his creditors in full. So, if you vote in favour of my proposal, if I win, enough money will be paid to the Trustee to pay all the creditors in full. If I don’t win, or there isn’t enough money to pay everyone in full, all creditors will share in whatever is available.

Once the restructuring proposal is accepted by his creditors and approved by the court, his bankruptcy is annulled. He will get exactly what he is asking for. His creditors will get paid presumably in full. They will not just get the chance to have their debts settled as Mr. Ostrowski states in his affidavit.

Second, section 144 of the BIA says that the bankrupt is entitled to any surplus remaining after payment of all creditor claims in full, with interest, and the cost of the bankruptcy administration. So, if Mr. Ostrowski is successful and gets $16 million, that money would go to his Trustee, after the legal costs of winning that award. The Trustee would keep what is necessary to pay all the claims in full, with interest, and the costs of the bankruptcy administration. Mr. Ostrowski would keep the rest.

I recommend the first way, the restructuring proposal route because that could get Mr. Ostrowski’s bankruptcy annulled fairly quickly, which is what he is asking for.

It will be interesting to see what the court decides. I will let you know when I find out.

Bankruptcy means summary

I hope you found this bankruptcy means Brandon’s Blog informative and interesting.

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

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

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

Income, revenue and cash flow shortages are critical issues facing entrepreneurs, their companies and individual Canadians. This is especially true these days. Some people think that bankruptcy means the end of their life. Bankruptcy should be a last resort for anyone. We strive to help people and companies avoid bankruptcy. But if bankruptcy is necessary, do not think of it as the end of life. It really is a fresh new beginning. That is what bankruptcy means.

If anyone needs our assistance for debt relief Canada COVID-19, or you just need some answers for questions that are bothering you, feel confident that Ira or Brandon can still assist you. Telephone consultations and/or virtual conferences are readily available for anyone feeling the need to discuss their personal or company situation.

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

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BANKRUPTCIES IN ONTARIO: OUR EXCLUSIVE 6 THINGS LIST CREDITORS MUST KNOW ABOUT CANADIAN BANKRUPTCY

The Ira Smith Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

Stay healthy, well balanced and safe and secure everyone.

Bankruptcies in Ontario -Introduction

Much of the insolvency chatter developing from the COVID-19 pandemic world in which we find ourselves is now concentrating on the waterfall of brand-new bankruptcies in Ontario that are predicted to arrive. I have previously written about some of the big-name US retailers that have filed for Chapter 11 bankruptcy protection.

Businesses shut down, job losses, government funding for people and businesses to try to hang on through this coronavirus are all in the headlines. What our “new normal” will look like and which companies and jobs will survive, right now, is anybody’s guess.

In this Brandon’s Blog, I want to highlight things creditors must know about canadian bankruptcy and bankruptcies in Ontario. By being well-versed, creditors will hopefully be able to better understand what is in store for them and for the debtors.

1. Bankruptcies in Ontario – the automatic stay of proceedings

In Canadian insolvency matters, an automatic stay of proceedings happens when a company or person files under the Bankruptcy and Insolvency Act (Canada) (BIA) for either:

  1. Bankruptcy
  2. Consumer proposal
  3. Corporate or large personal restructuring

The stay of proceedings is automatic under the BIA. Other than in one specific situation which I will touch on in a minute, absent proof that some sort of fraud is being committed on the court, a judge will not interfere with the automatic stay provisions. So an unsecured creditor will not be able to start or continue any action for collecting on a debt.

The one exception is in a restructuring where the major secured creditor goes to court and provides evidence that no matter what the restructuring may look like, they will never support it. The secured creditor would at the same time be requesting the court to lift the stay of proceedings so that they can enforce on their security.

Absent a restructuring proposal that promises to pay out that secured creditor 100% PLUS proof that the company or person has a realistic chance of refinancing to take out that secured creditor. Even in that situation, the court could give the debtor some time to pull it off, but it will be a very short lease. Otherwise, the secured creditor will probably get their wish and the restructuring effort will end.

In the case of a privately appointed receiver, there is no automatic stay of proceedings. This is notwithstanding that the conduct of the receiver in a private receivership is also governed by the BIA. The reason there is no automatic stay of proceedings is that a private receivership is not a filing under the BIA.

In either a court-appointed receivership or a corporate restructuring under the Companies’ Creditors Arrangement Act (Canada) (CCAA), the stay of proceedings authority does not come from statute per se. The respective statutes allow for the judge to order a stay of proceedings. That language is then incorporated into the court order appointing the receiver or authorizing the bankruptcy protection CCAA filing. In these cases, the court is available for anyone to make an application to lift the stay if they can prove that they are being prejudiced. Again, normally only secured creditors will be able to show prejudice.

2. Bankruptcies in Ontario – Know whether, when, and where proof of claim needs to be submitted

For bankruptcies in Ontario and restructurings, it is important to know what kind of insolvency proceeding is taking place. The notice you receive from the licensed insolvency trustee (formerly called a bankruptcy trustee) (Trustee) will tell you what kind of proceeding it is. It will also provide a proof of claim form to be completed. The notice will provide all the details.

It is important that you know:

  • The details.
  • How to complete a proof of claim form.
  • Where to send it into.
  • What timelines there may be.

Some creditors wish to file a proof of claim only so that if a dividend is declared they will get one. In that case, you can complete and file the proof of claim any time before the Trustee issues a final dividend. The Trustee must send a final notice to all named creditors who have not yet filed a proof of claim before issuing a final dividend.

Some creditors wish to actively participate in the insolvency process. They may wish to attend the meeting of creditors, vote on a restructuring proposal under the BIA. If creditors wish to actively participate in bankruptcies in Ontario, they should complete and file the proof of claim with the Trustee within the time-frame indicated in the notice accompanying the proof of claim form.

In a receivership, there will only be a need to file a proof of claim if the receiver has realized enough money from the sale of assets to pay out the trust claims and secured creditor claims in full and now has money for the unsecured creditors. This is very rare. In that situation, the receiver will conduct a claims bar process later on in the administration. That is when a notice with a blank proof of claim form will be sent out to the known creditors.

In a restructuring under the CCAA, first, the restructuring plan, called the Plan of Arrangement, is finalized. Then the Trustee will send out notices and blank proof of claim forms for creditors to complete and submit. Filling out the form at that stage will allow creditors to actively participate in the meeting and voting on the plan, as well as be in line to receive a payment.

3. Bankruptcies in Ontario – Obtaining a preference repayment from a future bankrupt debtor is not illegal or unethical, but you may have to give it back

If a customer of yours offers to pay you money, even if it turns out to be on the eve of an insolvency filing, take it! Always take the money; stress over any claim for it by a Trustee later.

The premise of the BIA is that all unsecured creditors will be treated equally. So, if certain unsecured creditors receive partial or full payment on the eve of filing, and then the debtor goes bankrupt, there is a presumption of a preference. The onus is on the creditor who received payment to rebut the presumption of a preference. If the Trustee is successful in attacking such a transaction, then the creditor must pay over the money to the Trustee. The creditor will also have spent money on its own legal fees. There will also probably be a cost award for all or a portion of the Trustee’s legal costs also.

Notwithstanding all this, it is better to have the money than not. Perhaps the Trustee will not knock on your door. Or, maybe you can avoid a lot of heartache by agreeing to and paying over a settlement amount that is less than 100% of what you received. Finally, there is a very limited number of defences to rebut the presumption of a preference. Perhaps your situation falls under one of them.

Taking the money is not immoral, unethical or illegal. You just may not be able to keep it if your customer files for bankruptcy after making the payment to you.

4. Bankruptcies in Ontario – review the Trustee’s Report very carefully and ask questions

The Trustee’s report outlines issues of importance regarding the conduct of the debtor both pre and post-filing. Sometimes, there may be an action that the Trustee could take to enhance the recovery of an asset, but lacks the funding to do so.

In those cases, a creditor or a group of creditors can choose to either:

  1. Fund the Trustee to take the action for the general benefit of all unsecured creditors.
  2. Get court approval to take the action in their own name under s.38 of the BIA.

It would be unusual for creditors to fund the Trustee. The simple reason is that they would be responsible for 100% of the costs but have to share any recovery with all the other unsecured creditors on a pro-rata basis. For this reason, it is not done.

Many times a creditor or group of creditors will choose to obtain court permission to take on the action in their own name. The court will insist that the creditor group make the opportunity to all creditors. However, a “buy-in” will be set. Most of the time other creditors won’t pony up to join in. Either they are not sophisticated enough to realize the potential benefit or they feel it is not worth their spending money in that way.

Under an s.38 action, if successful, the creditor can first pay back all its costs in doing the action. Next, they are entitled to keep up to the full amount of their claim. If any funds are left over, they must be paid over to the Trustee.

I am administering a bankruptcy file right now where there was foreign real estate. I did my investigation and determined that although saleable, the properties would take many years to sell and then to repatriate the money back to Canada. The major unsecured creditor wished to take control of the sales process. So, her lawyer got court approval for her to do so under s.38 of the BIA. No other creditor joined in with her. The properties are now sold, we have so far received a six-figure payment from the surplus sitting in her Canadian lawyer’s trust account after she was fully repaid all of her costs and the amount of her claim.

There is another six-figure amount sitting in a foreign country. We have retained legal counsel in that country now to get the rest of the funds repatriated into our trust account. Once received, we will finalize our vetting of all proofs of claim and make a distribution to the unsecured creditors.

5. A discharge from personal bankruptcies in Ontario ends the debtor’s liability for pretty well all debts

Unless the Trustee of a bankrupt corporation raises enough money for all of the creditors to be paid off in full, with interest, a corporation is never discharged from bankruptcy. In personal bankruptcy, the debtor is eventually entitled to an absolute discharge. The absolute discharge can be:

  • Received straight away when the debtor is able to be discharged.
  • Given once the bankrupt fulfills all of the conditions of discharge.

There are only a handful of claims that are not discharged upon the discharge of the bankrupt. Those are:

  1. Trust claims.
  2. Secured claims.
  3. Those claims which fall under s.178 of the BIA.

If a debtor wishes to get out of a liability where the creditor holds security, such as vehicle financing, the debtor needs to trigger a default prior to filing for bankruptcy. So continuing with the vehicle example, the debtor could tell the lender that it cannot afford to make any more payments. The debtor would then give the vehicle and the keys to the lender.

The debtor should then wait for notice from the lender that the vehicle has been sold, the lender has suffered a shortfall and demands payment for the shortfall. The shortfall is an unsecured claim. The debtor now files for bankruptcy after the shortfall claim has crystallized. There now is no longer a secured claim for this debt.

If the debtor does not wait for the shortfall notice from the lender, they run the risk that the shortfall occurs after the date of bankruptcy. In that case, the shortfall unsecured claim will not be a debt discharged by the bankrupt’s discharge.

I have previously written about the s.178 claims. You can read about them in my blog.

Lacking affirmative action by a debtor or Trustee, all secured claims go through the bankruptcy unaffected. It is incumbent on the Trustee to get a lawyer’s security opinion on the validity of any secured creditor’s security as against the Trustee. I have a corporate bankruptcy file now where the legal opinion was that the security was not valid. I advised the creditor who did not object. I guess they already knew!

6. Bankruptcies in Ontario – A fully completed restructuring also discharges most debts

The most essential element of reorganization situations under the BIA and CCAA that creditors need to know is about how debts get discharged in a restructuring. Similar to a personal bankruptcies in Ontario, in a successfully completed corporate restructuring, the debtor’s debts are discharged. Again, except for trust claims and secured creditor claims, the ordinary unsecured debts of a corporation are fully discharged when a restructuring plan that has been accepted by the creditors and approved by the court is fully completed. When the payout is made to the creditors and the company has successfully completed it, there are no pre-filing debts remaining.

So what is the significance to creditors? Well, if you are a director of the company, any debts that would have been a director liability, other than for a trust claim, vanishes. As there is no debt left, there is nothing left for the director to be responsible for.

Likewise, if someone personally guaranteed a premises lease to the landlord, if the lease is disclaimed as part of the restructuring, then the landlord has an unsecured claim. Once that claim is fully discharged in the restructuring, there is no debt left for the guarantor to be responsible for.

Creditors should also know that a company in a restructuring, may come to you to renegotiate your agreement with the company. If you refuse, the company could disclaim the agreement and any claim you have will be an unsecured claim in the restructuring.

7. Bankruptcies in Ontario bonus tip

It is better to get professional advice about extending credit to a customer and the best way to do it before you approve the credit. Getting professional advice after they have filed for bankruptcy limits your options.

Bankruptcies in Ontario – Summary

I hope you have found this bankruptcies in Ontario Brandon’s Blog helpful.

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

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

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

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

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

The Ira Smith Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

Stay healthy, well balanced and safe and secure everyone.

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THE TORONTO CORONAVIRUS EXTRAORDINARY PLAN TO BUSINESS RECOVERY

The Ira Smith Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

Stay healthy, well balanced and safe and secure everyone.

Introduction

For businesses having a hard time enduring the Toronto coronavirus pandemic, insolvency may very well be the outcome. General insolvency filings were down in April, this is mainly because everyone has a built-in stay of proceedings right now.

Banks, credit card companies and collection agencies are not making a name for themselves right now during the Toronto coronavirus lockdown by harassing people who cannot afford to pay their regular monthly payment. However, that will not last too long.

In this Brandon’s Blog, I discuss options available to the entrepreneur if the Toronto coronavirus lockdown and quarantine wreaks havoc on your business.

Telltale signs from the United States

We have already seen the variety of companies that submitted to Chapter 11 insolvency. They did so in order to attempt to reorganize their financial obligations while trying to stay in business. This has been especially true for the large retail business sector. Their business problems were not caused by COVID-19. However, the pandemic merely accelerated where they were heading anyway.

The American Bankruptcy Institute reported that Chapter 11 filings in April 2020 represent a 26% boost from April 2019.

I have previously written about Modell’s Sporting Goods and Pier 1. Now we can add Neiman Marcus, JCPenney and J.Crew. Outside of the retail sector, Hertz Car Rental, Gold’s Gym, Foodora and Virgin Australia are also recent restructuring filings. I also really believe that it won’t be long before the floodgates open up to subject an excess of small firms looking for relief from their financial problems, in North America and the rest of the world. That is probably obvious to you, it really can’t be called a Toronto coronavirus news update!

Entrepreneurs are doing whatever they can

I have definitely noticed an uptick in telephone calls from people scared about their personal situation and from worried business owners in the past 4 weeks. They aren’t all set to throw in the towel right now. They are attempting to do whatever they can through the shutdown to stabilize their company. So for now, they are trying to take advantage of various federal government programs to help them stay afloat. The programs include:

However, the people I am talking to are also realists. They all understand that if what they are doing now doesn’t work, they will either have to try to restructure the company or have it go bankrupt. So for now, there is somewhat of a pause in remedies such as distraints, repossessions, terminations of leases and financial institution collections.

The moratorium won’t last forever

Right now the Canadian federal government is taking the lead. They have extended timelines for filing income tax and HST returns and paying amounts owing. They have also extended certain relief programs from their original expiration date of June 30. Right now, subject to a further extension, of course, it looks like the feds are shooting for September 30 to end the COVID-19 assistance programs.

Ultimately, the patience for non-payment being shown right now by landlords and creditors won’t last permanently. I expect business bankruptcy protection and bankruptcy filings to climb after the “all clear” is sounded on this Toronto coronavirus state of emergency and the government assistance ends. The pent up collection activity will go into full flight.

The floodgates will open. I expect one of the worst offenders to be the Canada Revenue Agency (CRA). There will be so many companies in default of their tax payment obligations. The government is spending trillions of dollars to prop up the Canadian economy. Those programs will have to be paid for and all the IOU’s will be called in.

It seems that everybody I have spoken with is simply waiting until this Toronto coronavirus period quiets down. The pool of business problems is overflowing right now.

Corporate bankruptcy is not the only option for a company battling its financial demons. There are going to be three categories of insolvent companies:

  1. Those who are too small and it just does not make sense for them to do anything other than paying the employees their final salary, wages and vacation pay. Then file their final corporate and income tax files. Then, turn the key in the door and walk away.
  2. A company that has just a few creditors and all or some of the business operations remains viable. They can negotiate with their creditors for a reduction in each amount owing on a creditor by creditor basis. The reason this does not work if there is a large group of creditors is because of human nature. Everyone is worried that the next person is getting a better deal. By the time you get the last person to say yes, the first person may have changed their mind. There is no way to independently satisfy all the creditors that nobody is getting a better deal. In reality, some are getting a better arrangement than others. It will be based on the negotiation ability of the creditor and how essential maintaining the supply of their product or service from them is.
  3. Businesses where all or some of their operations remain viable. However, the company can only survive if it can chop off the sick parts and eliminate however much debt they need to so that the newly restructured company is solvent.
  4. Companies with complex issues needing to assign their assets to a licensed insolvency trustee through a bankruptcy or whose secured creditor will enforce on their security by appointing a receiver, either a private receiver or court-appointed receiver.

Toronto coronavirus induced restructuring

If you anticipate your entire business or certain business units will remain viable but require relief from its creditors and debts, the first look at restructuring. This route enables a company to stay functioning while renegotiating its financial obligations. This process includes looking critically at all business units and determining how operations can be made more efficient in order to improve profitability. Many hard decisions will have to be made.

Companies have two choices in Canada for restructuring. For the larger restructurings, the kind that you read in the newspaper, the restructuring statute is the Companies’ Creditors Arrangement Act (Canada) (CCAA). In order to qualify for restructuring under the CCAA, the company has to owe its creditors at least $5 million.

All other companies restructure under the Bankruptcy and Insolvency Act (Canada) (BIA) restructuring provisions. It is called Part III Division I of the BIA. Regular readers of Brandon’s Blog will know that I have written several blogs before on aspects of both the CCAA and restructuring under the BIA.

In my blog, BANKRUPTCY EXPERTS WEIGH IN ON US & CDN SMALL BIZ RESTRUCTURING, I lamented the fact that the Canadian insolvency system does not have a streamlined restructuring process for smaller companies. We have the consumer proposal restructuring under the BIA for smaller personal insolvent debtors trying to restructure.

The United States has the Small Company Reorganization Act (SBRA) of 2019, also known as “Subchapter 5”. The SBRA is aimed at simplifying restructuring procedures for small companies by boosting efficiency, lowering costs, and easing the restructuring plan confirmation process. I believe this would be a great addition to the Canadian insolvency system. It may very well move some companies from my #1 category listed above into #3.

There is no sense dwelling any longer on what we don’t have. The Toronto coronavirus news today has affected so many companies. Many will just not survive. Others will be able to come out of the other side of this Toronto coronavirus pandemic but will need major surgery to stay alive.

The first step for any entrepreneur is to get professional advice in order to strategize and make a decision on what plan to put into place. You should speak either to a licensed insolvency trustee (formerly called a bankruptcy trustee) (Trustee) or a lawyer who has experience in insolvency matters.

Most licensed insolvency trustees will provide a one-hour no-cost strategy session.

You need to understand whether or not you have a viable business and company. Then, you need to have a sensible plan to increase your chances of success based on the viability analysis.

Both Ira and I have been doing many such strategy sessions over the telephone and video meeting since the Toronto coronavirus self-quarantine lockdown came into effect. I know that we will be doing many more as the city and the province begin to open up.

The goals of the entrepreneur have to be the driving force. For example, if the entrepreneur is adamant about staying in business, then you have to hope that business viability can be proven so that the likelihood of a successful restructuring is enhanced. On the other hand, if you can prove business viability but the entrepreneur has had enough and wants out, then you look at the restructuring and sale of the viable business parts.

Once viability is established, then a restructuring plan can be developed. The restructuring will take place either under the BIA or CCAA. Depending on the circumstances and the goals of the entrepreneur, either a refinancing of the restructured company of a sale of the business is part of any restructuring plan.

Business not viable

If the business is not viable, then pure restructuring is not possible. However, that does not mean that the assets that form the business unit cannot be used by someone else to efficiently run the business. I am not just talking about hard assets. Things such as patents, trademarks, processes, experienced workforce and the customer base before they go off to find a new supplier are all valuable parts of a business.

Perhaps the tangible and intangible assets can be sold to someone that can bring them into their existing operation and run the business profitably. Jobs can be saved also if this were to happen.

When this is the case, then you are into some form of liquidation. A secured creditor will move for the appointment of a receiver. As I have written before on this topic, the appointment can either be by way of a private appointment or an application to the court for a court-appointed receiver.

If there are no secured creditors, the security taken is invalid, or there are other factors that make a bankruptcy necessary, then the company can assign itself to bankruptcy. It isn’t every day you find this, but in a recent corporate bankruptcy filing that I am administering, I found that the security of the purported secured creditor was invalid as against us as Trustee.

Then either the receiver or Trustee can take possession of the assets, run a well-advertised and managed sales process and hopefully find a buyer for the assets to comprise all or many parts of the operating business. If such a buyer does not exist, then it will be a straight liquidation of individual assets. Obviously, higher values can be achieved when selling what amounts to a business rather than just individual assets in a liquidation.

Personal guarantees and director liabilities

In any corporate or business insolvency, the exposure of the directors has to be taken into consideration. This is not Toronto coronavirus news. It is normal for entrepreneurs to have to give a personal guarantee to a lender in addition to the security taken. Such a guarantee can be backed up by specific personal assets as collateral, or be an unsecured guarantee. Or, an entrepreneur has to indemnify the landlord as part of the corporation leasing premises.

Directors also have certain liabilities under provincial or federal law. Generally, directors will have personal liability for:

The exposure of directors must be recognized and taken into account in any restructuring attempt.

Toronto Coronavirus Summary

Businesses all over will look different due to the Toronto coronavirus pandemic and lockdown. The current environment is unprecedented and is teaching all of us things we have never seen before.

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

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

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

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

If anyone needs our assistance, or you just need some answers for questions that are bothering you, feel confident that Ira or Brandon can still assist you. During this Toronto coronavirus state of emergency, we are doing telephone consultations and/or virtual conferences that are readily available for anyone feeling the need to discuss their personal or company situation.

 

The Ira Smith Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

Stay healthy, well balanced and safe and secure everyone.

toronto coronavirus

 

 

Categories
Brandon Blog Post

CONSTRUCTION LIEN ACT: CAN YOU TRUST AN INSOLVENCY PROCEEDING?

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

Stay healthy and safe everybody.

Introduction

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

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

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

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

Some background matters

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

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

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

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

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

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

less,

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

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

Obligations as trustee

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

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

Now for the case.

The Urbancorp Construction Lien Act case

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

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

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

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

The constitutional question

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

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

Now for the actual appeal

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

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

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

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

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

The decision

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

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

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

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

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

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

Summary

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

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

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

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

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

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

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

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

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

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

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

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

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

Stay healthy and safe everybody.construction lien act

Categories
Brandon Blog Post

REDWATER ALBERTA NEWS: $1.7B TO CLEAN UP ORPHANED WELLS DUE TO COVID-19

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

Stay healthy and safe everybody.

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

Introduction

When it went insolvent in 2015, Redwater Energy Corp. (Redwater Alberta or Redwater) might have been a small business, with only 19 generating wells and 90 dormant wells. However, a relatively small oil producer was responsible for a huge Supreme Court of Canada (SCC) decision.

Basically, the SCC decided in the Redwater Acase, that if a business goes belly up, its environmental obligation needs to be paid before secured creditors. I have written before on the Alberta Courts’ decisions and the SCC decision. As a result of COVID-19, the Canadian government just announced a $1.7 billion fund to create jobs in the Canadian oil patch.

Redwater Alberta history of cases

In my previous blogs, I described the Alberta court decisions. The Alberta Courts concurred with the receiver and held that the regulator’s enforcement activities to force Redwater’s adherence to its previously agreed requirements to clean up and permanently cap its oil site, in bankruptcy was not enforceable.

The Courts stated that given the bankruptcy of the company (in addition to a receivership), the Bankruptcy and Insolvency Act (Canada) (BIA) took paramountcy over the provincial law. The provincial Courts said that the BIA took paramountcy because:

  1. Allowed the receiver protection from the promises of Redwater Alberta as the licensee in connection with the Redwater properties disclaimed by the receiver/trustee, according to s. 14.06(4) of the BIA.
  2. The priority for the distribution of a bankrupt’s assets is regulated under the BIA, not provincial legislation. If the provable claim of the Regulator, an unsecured creditor, was paid in advance of the claims of Redwater’s secured creditors, that would not be the regime laid out in the BIA.

The SCC decision

In the SCC 5 to 2 judgment in the Orphan Well Association v. Grant Thornton Ltd. case, the SCC ruled that financially troubled companies like Redwater can no longer disclaim or merely bow out of properties they don’t want. In this situation, non-producing oil wells, when abandoned or orphaned, leave the resulting ecological cleaning to Alberta’s Orphan Well Association. It is a non-profit operating for the Alberta Energy Regulator.

What the SCC decision in the case of the Redwater Alberta receivership means is that the costs of properly and permanently sealing an oil well that is to be abandoned is a first ranking charge against the producer’s assets. In the Redwater case, the receiver had to turn over the proceeds (about $600,000) from the asset sales to the Alberta regulator. There was absolutely nothing left for any other creditor, either secured or unsecured.

This case was obviously difficult and contentious, given that it was a 5-2 decision and not unanimous. The majority decision stated that:

  • The regulator’s use of its provincial powers is not in conflict with the BIA to trigger the doctrine of federal paramountcy.
  • Section 14.06(4) of the BIA deals with the personal liability of receivers and trustees and does not let a trustee ignore the environmental liabilities of the estate.
  • The regulator is not asserting any claims provable in the bankruptcy.
  • There is no attempt by the regulator to upset the scheme of priorities stipulated by the BIA.
  • There is not a conflict by the regulator tagging the Redwater receiver as a licensee under Alberta legislation.

The Supreme Court decision goes on to say that the rules cannot be ignored just because there is a bankruptcy. Insolvency professionals must abide by valid provincial laws in administering corporate bankruptcy. It also found that receivers and trustees must:

  • conform with non-financial requirements the insolvent company must still adhere to that do not create a provable claim in the insolvency administration; and
  • Adhere to the parts of the provincial legislation that does not go against the BIA, notwithstanding that it might prove harmful to the position of one or more groups of creditors.

COVID-19 and orphaned wells

Near the end of March 2020, Finance Minister Bill Morneau said that help for the oil and gas industry would be announced. This industry has been hit by two different factors:

  1. Reduced demand due to people self-quarantining because of COVID-19 and therefore there is less demand for oil and gas.
  2. The price battle between Russia and Saudi Arabia. Oil on the world market is at an all-time low. At one point, a barrel of Canadian oil was selling for less than $5. The industry cannot operate with oil prices that low.

As a result, there have been massive job losses in British Columbia, Saskatchewan and Alberta oil patches. As well, the regulators do not have the money to reclaim and permanently seal off the abandoned orphaned wells. It is currently estimated that the total cost could be in the $8 billion range.

On Friday, April 17, Prime Minister Justin Trudeau announced that the federal government will invest at least $1.7 billion to the orphaned well cleanup. The money is to be used to create oil patch jobs to allow for the environmental cleanup.

So COVID-19 or coronavirus, has forced the Canadian government to create this support for the Canadian oil and gas industry. It will create jobs badly needed and allow for the cleanup of some orphaned oil wells.

Details of the support package have not been released. Presumably, the legislation will have to be drafted and passed in the House of Commons. No doubt, more information will come out in the coming days or weeks.

Summary

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

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

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

Revenue and cash flow shortages are critical issues facing entrepreneurs and their companies and businesses.

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

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

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

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

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

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

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

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

Stay healthy and safe everybody.

Categories
Brandon Blog Post

CORONAVIRUS SAFETY AND READINESS TIPS FOR YOU – VIDEO ***

coronavirus safety and readiness tips for you

I hope the coronavirus information in this video is helpful to you. During these difficult times, everyone is doing their part to limit the spread of this dangerous virus. Ira Smith Trustee & Receiver Inc. has always employed clean and safe habits in our professional practice and continues to do so.

If anyone needs our assistance and is unable to go out, either through self-quarantine measures or just general precautions, rest assured that Ira or Brandon can still help you. Telephone consultations and/or virtual meetings are available for anyone wanting to discuss their personal or corporate situation.

So hopefully these coronavirus safety tips are helpful to you. We are available to be of assistance to you.

Stay healthy my friends.

coronavirus safety and readiness tips for you

 

Coronavirus safety and readiness tips for you

Categories
Brandon Blog Post

DIVORCE DEBT: NOT ALL EQUALIZATION ISSUES OR RULES ARE EQUAL IN BANKRUPTCY

divorce debt
divorce debt

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

Divorce debt and bankruptcy introduction

The topic of divorce debt and bankruptcy is always a tricky topic. There are 6 indisputable facts when it comes to this topic:

  1. The primary reason for marital failure and also separation is financial issues. Divorce.com
  2. Research shows that one out of every seven people who made an insolvency filing in Canada detailed separation, marital breakdown and/or divorce debt as a contributing variable to their economic troubles.
  3. One-third of all people facing bankruptcy issues are likewise experiencing a family breakdown and divorce.
  4. Bankruptcy won’t end all separation responsibilities. e. g. It does not end spousal support or child support.
  5. Personal bankruptcy of one of the spouses, where certain divorce debts are joint, the bankruptcy, notwithstanding the divorce, will negatively affect the non-bankrupt spouse.

With really only one exception, bankruptcy law in Canada has been purposely designed not to interfere with the administration of provincial family law proceedings.

The only exception to this in Ontario is that an equalization payment is an unsecured divorce debt from one spouse to the other. If the spouse who has to make the equalization payment goes bankrupt during or after the divorce proceedings, then that debt is a debt caught by the bankruptcy. The spouse entitled to receive the equalization payment will have a provable claim in the bankruptcy for at least that amount. This does not apply to support payments.

The purpose of this Brandon’s Blog is to review a recent Ontario court decision released on February 19, 2020, that determines the answer to the question: can a licensed insolvency trustee (formerly called a bankruptcy trustee) (Trustee) begin an equalization claim against the non-bankrupt spouse under the Ontario Family Law Act, R.S.O. 1990, c. F.3 (“FLA”).

Divorce debt: The facts

The facts of the case were not in dispute. They are:

  1. The husband and wife purchased a house in Toronto where they resided.
  2. The matrimonial home was bought solely in the wife’s name.
  3. The spouses separated in February 2015.
  4. He left the marital residence in October 2015 and has never returned.
  5. There is no disagreement that there the issues facing the husband and wife are irreconcilable, that the separation will be permanent and that the parties wish a divorce.
  6. Neither the husband nor the wife had commenced an application for an equalization of the net family property prior to the husband filing an assignment in bankruptcy. It was not a divorce debt claim that he made. The husband remains an undischarged bankrupt. His sworn statement of affairs shows liabilities totalling $282,700.
  7. The wife deposed that she paid the deposit and all other amounts to buy the marital residence. She also stated that in addition, she paid the mortgage, taxes, and all other expenses associated with the home.
  8. The separation and divorce proceedings began due to his gambling addiction and his financial infidelity and other forms of infidelity.
  9. Her affidavit sets out that there was never any intention that the husband would have any interest in the matrimonial house.

If the trustee is successful in asserting an equalization claim then she and her kids aged 12 and 15 would be forced to leave the home as it would have to be put up for sale in order to raise the necessary funds to pay the equalization claim.

divorce debt
divorce debt

Equalization in Ontario, divorce debt and bankruptcy

Trustees have various rights under the Bankruptcy and Insolvency Act (Canada) (BIA). One of those rights is to have the benefit of laws dealing with property in the BIA. There is no dispute that the marital home falls under the definition of property. There is also no dispute that if the husband had begun an equalization claim of divorce debt before his bankruptcy, the Trustee would have the right to continue that claim.

Under the FLA, where spouses are separated without any possibility of reconciliation, the FLA qualifies the partner with the lesser of the spouses’ two net family property to one-half of the difference between them. If the trustee is permitted to make a case for equalization and is successful, then his share of the marital residence assets (based on any applicable reductions or offsets) would be included as an asset in his bankruptcy estate.

There is no disagreement that equalization claim is a divorce debt chose in action that a Trustee inherits upon the bankruptcy of the spouse who started that action. The question is, can a Trustee, standing in the shoes of the bankrupt spouse who has not yet started that action, start it?

There are many cases dealing with valid scenarios in which an equalization claim had already been started. The applicant Trustee’s position is that the Trustee has the capability to begin a claim for equalization of the net family property where neither partner has made such a case. The Trustee is relying on the fact that an equalization claim is a chose in action which the Trustee inherits.

The Judge’s decision

The Judge disagreed with the Trustee’s position. The court held that while the decision to continue with the divorce debt equalization claim made by the spouse can be left to a stranger to the marriage, the decision itself to make the claim cannot. So the Trustee can continue the decision of the spouse to make a formerly begun equalization claim however the choice to make the claim may not be made by anyone other than the spouse. That decision continues to be personal as between the spouses.

The Judge dismissed the Trustee’s motion and ordered the Trustee to pay $20,000 in costs to the wife immediately.

divorce debt
divorce debt

Summary

I am not aware of that question ever having been asked and decided by the Court before. So for now, in Ontario, that is the answer to that kind of divorce debt question. Do you have too much debt because of marital breakdown or for some other reason? Does your company have excessive debt and in need of debt restructuring? Would it not be great if you could do a turn-around?

The Ira Smith team is available to help you at any time. We offer sound advice and a solid plan for Starting Over Starting Now so that you’ll be well on your way to a debt-free life in no time. For more information on a no-cost basis please call us.

The Ira Smith Team understands how to do a debt restructuring. More notably, we comprehend the requirements of the business owner or the person who has too much individual debt. Because you are dealing with these stressful financial issues, you are anxious.

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

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

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

Call us now for a no-cost consultation. We will get you or your business back on the roadway to healthy and balanced worry-free operations and end the pain points in your life, Starting Over, Starting Now.

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