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CANADA BANKRUPTCY AND INSOLVENCY ACT GRANTS STAY OF EXECUTION

canada bankruptcy and insolvency act

Canada bankruptcy and insolvency act introduction

The Canada Bankruptcy and Insolvency Act is a federal statute. It attempts to balance the rights of an insolvent debtor with the rights of creditors to get paid. One of those balancing acts is that when you file under the statute, the person filing is granted a stay of proceedings. What that means is that debt collection and enforcement activities are stopped and cannot continue without the prior permission of the Court.

I recently read a very interesting decision of the Ontario Superior Court of Justice out of Ottawa, ON. What that case also shows is that if the insolvent and the then bankrupt person just told the truth, he would have been much better off.

Before getting into the actual case, there are a few questions that I am regularly asked that I would also like to answer. I think those answers will also help with understanding this case.

What is the purpose of the Canada Bankruptcy and Insolvency Act?

The main purpose of the Canada Bankruptcy and Insolvency Act is to help the honest but unfortunate debtor. It is designed to allow a person or a company to get financial rehabilitation through financial restructuring. It also allows a person the same opportunity to shed their debts through bankruptcy.

As mentioned above, at the same time, the rights of the creditors to get paid are also balanced. So that is why in a true restructuring, the creditors must receive more money than if the person or company went bankrupt. That is also why in a bankruptcy, the debtor must give up all their assets to the licensed insolvency trustee (formerly called a bankruptcy trustee) (Trustee). The only assets not given up are those for which there is an exemption under either provincial or federal law. That is also why there is the concept of surplus income payments in a personal bankruptcy filing.

The presumption is that the debtor is honest but unfortunate. That is both before and during their insolvency process. As you will see from the case description below, the debtor was not honest and it is his lies that got him into trouble.

The insolvency process begins with the requirement that in order to obtain relief from debt, the insolvent debtor will be truthful. That is why a filing is initiated by a sworn statement of affairs.

Is insolvency a criminal offence?

As you may recall from some of my prior Brandon’s Blog posts, being insolvent is a financial condition. It is that:

  • your debts are greater than your assets;
  • if you liquidated your assets there would not be enough money to pay off your debts in full; and
  • you have generally ceased paying your debts when they come due.

So becoming insolvent is not a criminal offence.

Similarly, filing for either a consumer proposal, Division I Proposal or for bankruptcy is not a criminal offence. However, if you really are not the honest part of the honest but unfortunate person the Canada Bankruptcy and Insolvency Act is designed to help, you must seek the advice of a lawyer before filing anything.

There are also certain offences a person could commit under the actual bankruptcy statute. Some are quasi-criminal in nature. Again, if you think you are in trouble, you need the advice of a lawyer.canada bankruptcy and insolvency act

canada bankruptcy and insolvency act

Now for the case – Re Brennan, 2019 ONSC 4712 (CanLII)

On August 8, 2019, this decision of The Honourable Mr. Justice Kershman was released. The case involved the bankruptcy of Mr. Lawrence Brennan (Mr. Brennan) and his creditor, Mr.André Robert (Mr. Robert).

Mr. Robert made an application to the Court to lift the stay of proceedings stopping Mr. Robert from enforcing his judgment against Mr. Brennan’s asset. Mr. Robert said that Mr. Brennan supplied incorrect and deceptive details relating to the presence of a Registered Retirement Savings Plan (RRSP) throughout a judgment debtor exam on July 10, 2018.

Mr. Robert brought this motion for:

  1. An Order stating that the stay of proceedings according to sections 69 to 69.31 of the Canada Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 does not apply in regard to Mr. André Robert, yet is restricted to the seizure of Mr. Brennan’s RRSP with the Lawyers Financial Investment Program.
  2. An Order proclaiming that Mr. Robert will be qualified to proceed with his enforcement process for repayment of his judgment, plus interest and the cost of enforcement restricted to Mr. Brennan’s above-noted RRSP.
  3. Indemnification for the costs of this motion.

Mr. Robert’s argument was that, had it not been for Mr. Brennan’s bankruptcy, there would be no stay of proceedings and he would have the ability to take Mr. Brennan’s RRSP according to the Execution Act, R.S.O. 1990, c. E.24.

The honest but unfortunate debtor

Mr. Robert is a lawyer. Mr. Brennan and others sought and obtained his legal advice. Mr. Robert then billed Mr. Brennan and each of his colleagues for the legal work. They thanked Mr. Robert by not paying him.

Mr. Robert went to Court to claim his legal fees and won. He then sent the Sheriff to seize any assets that could be found belonging to the defendants, including Mr. Brennan. That exercise awarded Mr. Robert with the princely sum of just under $65. So, Mr. Robert then notified Mr. Brennan that he was required to attend a judgment debtor examination. The purpose of this exam was for Mr. Brennan to answer questions, truthfully under oath, as to the nature, extent and location of all of his assets.

Throughout the judgment debtor exam, Mr. Robert asked Mr. Brennan if he possessed any kind of RRSPs. Mr. Brennan said, under oath, that he did not. This response was substantiated by Mr. Brennan’s written financial form, which was finished by Mr. Brennan as a component of the examination under oath.

It turns out that Mr. Brennan lied under oath to Mr. Robert. Seventeen days later, Mr. Brennan filed for bankruptcy. In his sworn statement of affairs completed as part of his bankruptcy filing, Mr. Brennan attested that he owned an RRSP in the amount of $13,017.00 held by the Lawyers Financial Investment Program.

Mr. Brennan may have been unfortunate, but prior to his assignment in bankruptcy, he was not honest.

Seizure of an RRSP – in bankruptcy and no bankruptcy

The evidence before the Court was that there were no contributions to Mr. Brennan’s RRSP in the 12 months prior to his date of bankruptcy. There was also evidence that there was no insurance element to the RRSP either.

This is important for 2 reasons:

  • If there is an insurance element to an RRSP, and the beneficiary is what is called a “designated beneficiary”, normally a spouse, parent, child or grandchild, then the RRSP is exempt from seizure under Ontario law.
  • In bankruptcy, an RRSP is exempt from seizure under federal law. The only amount that can be recouped by a Trustee is any contributions made to the RRSP within the 12 months prior to the date of bankruptcy.

So in this case, none of those conditions existed. The issue before the Court was because under Ontario Law, absent a bankruptcy, a judgment creditor can execute against a defendant’s RRSP. In other words, if there is no bankruptcy, in Ontario, the judgment creditor can seize the RRSP.canada bankruptcy and insolvency act

canada bankruptcy and insolvency act

Mr. Brennan’s defence

Mr. Brennan represented himself in Court. His defence consisted of that he:

  1. Did not understand that he had any RRSPs in his name.
  2. Informed Mr. Robert around one month prior to the examination that he would certainly need to go bankrupt.
  3. Needs the Court to have pity for his circumstances.

Certainly not the most compelling defence in the circumstances.

The Court agrees with Mr. Robert

The Court went through an analysis of the Canada Bankruptcy and Insolvency Act as well as the relevant Ontario laws. The Court concluded that:

  1. The RRSP currently in this bankruptcy is exempt from seizure but was available to be seized before the bankruptcy. If Mr. Brennan had been truthful in his examination under oath, Mr. Robert would have seized the RRSP through the Sheriff in enforcing his judgment.
  2. Therefore, the Court lifted the stay according to section 69.4 of the Canada Bankruptcy and Insolvency Act to be equitable so that Mr. Andre can seize them.
  3. To alleviate any kind of tax obligation effects, the Court ordered that 30% of the RRSP should be subtracted at source and also to the Canada Revenue Agency to the credit of Mr. Brennan’s current year income tax account. The remaining amount of the RRSP is to be paid to the Sheriff of the Judicial District of Ottawa, who will disperse it in conformity to the Execution Act and the Creditors Relief Act.

The moral to Mr. Brennan’s story

Although the Court decision does not say it, Mr. Brennan must have not obtained any legal advice before participating in the judgment debtor examination. Any lawyer hearing his story would have told him exactly what I tell every person who comes to my office to talk about an insolvency proceeding. Be honest and truthful.

Mr. Brennan did a really dumb thing. Part of the evidence that came out in Court is that he went to see the Trustee who did his bankruptcy filing six weeks prior to the July 10, 2018 judgment debtor examination to discuss his financial situation. He must have talked about the RRSP then.

If Mr. Brennan was honest and truthful at his judgment debtor examination, he could have filed for bankruptcy before the Sheriff managed to seize his RRSP. In that case, Mr. Brennan would have told the truth and his RRSP would have been exempt from seizure in his bankruptcy.

So instead of telling the truth and keeping his RRSP after bankruptcy, Mr. Brennan lied and therefore lost his RRSP, notwithstanding his bankruptcy.

That is the moral of Mr. Brennan’s story. By telling the truth and then becoming the honest but unfortunate debtor, the Canadian bankruptcy system will protect you.

Canada Bankruptcy and Insolvency Act summary

Are you an honest but unfortunate person in financial trouble? Have you run your company in an honest fashion but through various circumstances, the company’s debts are greater than its assets. Is there just not enough cash to pay all the bills?

If so, you need to call me today. As a licensed insolvency trustee (formerly called trustee in bankruptcy) we are the only professionals licensed, recognized as well as supervised by the federal government to give insolvency assistance. We are also the only authorized party in Canada to apply remedies under the Bankruptcy and Insolvency Act (Canada). I can definitely help you to choose what is best for you to free you from your financial debt issues.

Call the Ira Smith Team today so we can get free you from the stress, anxiety, and discomfort that your cash issues have created. With the distinct roadmap, we establish simply for you, we will without delay return you right into a healthy and balanced problem-free life, Starting Over Starting Now.canada bankruptcy and insolvency actcanada bankruptcy and insolvency act

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DEBT HELPERS: WHY CANADIANS DO NOT TRUST DEBT CONSULTANTS

Introduction

You may have read or heard about a recent survey. The headline was “Ipsos poll finds half of Canadians don’t trust professional help with debt”. The survey provided some interesting views but did not shed any light on why Canadians do not trust debt helpers.

I regularly speak with people who attend my office for a free initial consultation to try to solve their personal or company debt problems. From those experiences, I have compiled a list of the 10 most common reasons I believe why almost half of those surveyed do not trust debt professionals.

#1 What is a debt professional?

Confusion exists in the marketplace as to what you mean when you say the phrase “debt professional”. Depending on who is doing the talking, and the listening, you could mean:

  • A proper credit counselling agency
  • A for-profit debt settlement company
  • Debt counsellor who has no real qualifications and just acts as an agent for bad credit personal loan companies or worse charges fees just to then take the person to a specifically licensed insolvency trustee (formerly known as a bankruptcy trustee) (Trustee)
  • A Trustee

Unfortunately, the survey does not define what the term “debt professional” really means.

#2 I don’t have a debt problem because I am making all my payments

People believe that if they can keep up all their minimum payments, then they are making all of their payments. So if the person says they are making all payments, they can’t have a debt problem. Therefore, they don’t trust anyone who tells them that they do.

However, especially with credit cards, there is a difference between making all the monthly minimum payments and paying the entire debt off every month. What they don’t recognize is that all they are doing is paying the credit card company interest and never actually paying down any debt. Eventually, it will catch up with them when they have no more credit.

#3 You will ruin my credit score

People with debt problems always tell me that they have a great credit score and either a consumer proposal or bankruptcy will ruin that. So with the belief that if they see a debt professional, all that person will do is ruin their credit score, distrust is born.

Even people who have recently been turned down for debt consolidation loans tell me that. What I tell them is that it is true that an insolvency filing will remain on their credit report for some time after they successfully complete their consumer proposal or get their bankruptcy discharge.

However, I also point out that in return, they will have their debt problems fixed. By fixing their debt problems, they will no longer suffer from pain, stress, anxiety, depression and sleepless nights. Some people then choose to take responsibility, fix their debt problems and rehabilitate themselves. Others choose discomfort, stress and anxiety, and sleep deprivation.

#4 Talking won’t do any good. What I need is a loan

Many people feel that talk is cheap. What they really need is money. The gambler with a gambling addiction thinks the next roll of the dice or the next hand of cards will produce all the winnings they need. In the same way, the debt addict believes that one more personal loan will solve all their debt problems. All it will really do is give them a bit more cash, which will never be enough to repay all of their debt.

Increasing debt is not a good strategy for getting out of debt. That extra bit of cash may feel good in the short term, but eventually, all it really is is more debt. What these people don’t realize is that by talking to a Trustee, when they find the right one for them, a relationship begins. The functioning partnership you create with your Trustee is a connection. As you create that connection, long-term modifications in your financial behaviour start to happen to produce good long term results.

#5 It would be weird speaking about such a personal thing with a stranger

In my experience, this may be an initial feeling but does not in fact happen. The majority of Trustees are competent at making you really feel comfy rapidly. They are neither impersonal nor judgmental.

As I mentioned above, once you find the right Trustee for you, a relationship begins. I have found that many of the people that I have helped, consider me a resource to call upon, even long after our professional relationship ends.

#6 I would rather speak to a friend or family member

I have heard this many times. This is really an excuse for not dealing with their debt problems. It is not a reason why people don’t trust debt professionals.

In fact, a recent Angus Reid poll titled The Awkward Silences Survey 2019 found that 17% of the Canadians surveyed do not like to talk about finances. Of those, the least favourite topics they like to talk about are:

  • Personal debt or bankruptcy – 34%
  • Assets, liabilities and net worth – 22%
  • Their income – 16%
  • How they spend their money – 12%
  • Savings and investments – 11%
  • Their mortgage – 5%

I get it. The topic is not pleasant. Speaking with a debt professional is an admission that you have a problem with debt. However, it is also the first positive step to take to solve your debt problems.

#7 Debt professionals do not truly respect you; they do it for the cash

Yes, there are unscrupulous people in the world who advertise themselves to be debt consultants. They make outlandish promises such as they will eliminate your debt without bankruptcy. I cannot speak for them, but I do know myself and many of my Trustee colleagues across Canada.

The Trustee and staff do earn money from helping people with their debt. Just like you earn money from your job or career. However, there is a common bond amongst all Trustees in Canada. That common bond is that they all enjoy helping people. They enjoy seeing your success from their assistance. If they did not, they would be doing something else.

#8 Everyone will know if I go to see a debt professional

This is a common feeling. Again I can only speak about Trustees. Although there is not the same confidentiality with a Trustee as there is with a lawyer, a Trustee does not blab. As big a country as Canada is and as big a city where I practice is, the Trustee community is small. If a Trustee broke confidences, word would get around quickly and that Trustee would not get any referrals.

Keep in mind that the word “trust” is found in “Trustee”. People trust us with some of their deepest problems and we help solve them. I don’t talk to others about your issues.

It is true that the Office of the Superintendent of Bankruptcy runs a database of all insolvency filings. This is a public database that anyone can search for $8. Also, the two Canadian credit reporting agencies, Equifax Canada and TransUnion Canada, purchase that information for their own databases. I have never had anyone tell me that their brother-in-law searched the government database and found out about their insolvency filing.

So at the end of the day, the only people who will know that you filed are yourself, your Trustee, your spouse and anyone that you have told.

#9 The professional fee is too expensive

That depends on who you go to see. If you go to a community credit counselling agency, it is probably no charge. If you go to a debt settlement company scammer, then every one cent is too expensive because they do not do anything useful for you. If you go to see a Trustee, the entire process may end up being free.

Let me explain. The initial consultation with any Trustee will be free. You should get that confirmed upfront when you make the appointment. Other than for situation where you have no assets and no income, a consumer proposal filing or a bankruptcy administration will probably end up not costing you any money specifically for professional fees. Here is why.

The Trustee will advise you what will happen to you and what your responsibilities are in a bankruptcy or consumer proposal. In a bankruptcy, other than for exempt assets, you have to turn over your assets to the Trustee. If you earn income, you may also have a surplus income obligation to pay. The Trustee, under the statute, will be entitled to a fee for services out of those proceeds. So, you will pay nothing for the Trustee’s approved fee.

In a consumer proposal, the Trustee has to first do the bankruptcy calculation. Under the Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) (BIA), a consumer proposal must produce a better result for your creditors than your bankruptcy. The Trustee will discuss with you his or her best estimate of how much you need to offer to your creditors in your consumer proposal in order to be successful. That calculation has nothing to do with the fee the Trustee is entitled to under the BIA. The statute says that the Trustee is entitled to a statutory fee from the consumer proposal fund.

So, in this way, the Trustee’s fee for a bankruptcy or consumer proposal administration costs you nothing.

#10 I don’t have time

I believe this also is more of an excuse, not a real reason for not trusting a debt professional. It is uncomfortable to face your debt problems head-on. It is more comfortable to ignore them.

A Trustee will provide a 1-hour consultation for free. In that hour, you will gain better insight to your debt issues and the realistic options available to you to fix them. I always have people tell me at the end of the free consultation, that I have helped them feel much better than they did when they first walked in.

So think of all the things that you do in a day or week, and I am sure that you can find 1 hour to help yourself. If you have a job that makes it impossible to see a Trustee during normal business hours, a Trustee will accommodate you. I have held many early morning or evening appointments.

Debt helpers summary

I hope this debt helpers Brandon’s Blog helps you. As previously stated, there is a good reason not to trust certain debt helpers. You don’t need to feel that way about seeing a Trustee. Are you on the verge of bankruptcy? Do not let any misconceptions about being able to trust a Trustee stop you from understanding how you can restructure your financial affairs and avoid bankruptcy. You do not need to be one more person or company declaring bankruptcy in Canada.

As a licensed insolvency trustee (formerly called a bankruptcy trustee), we are the only specialists certified, accredited and overseen by the federal government to provide insolvency guidance and to apply remedies under the BIA. We will certainly help you to choose what is best for you to release you from your debt problems.

Call the Ira Smith Team today so we can get rid you for you the stress, anxiety, pain and discomfort that your money issues have created. With the distinct roadmap, we establish simply for you, we will without delay return you right into a healthy and balanced problem-free life, Starting Over Starting Now. Call the Ira Smith Team today.

debt helpers

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BANKRUPTCY TRUSTEE IN ONTARIO: REMARKABLE CARE NEEDED TO TAKE OVER A CLAIM

bankruptcy trustee in ontario
bankruptcy trustee in ontario

If you would prefer to listen to an audio version of this bankruptcy trustee in Ontario Brandon’s Blog, please scroll to the bottom and click on the podcast.

Bankruptcy trustee in Ontario: Introduction

As a bankruptcy trustee in Ontario (now called a licensed insolvency trustee ), there are many times where our investigation indicates that the bankrupt (usually a bankrupt corporation) has a claim against another party. The claim may very well be a good one worthy of pursuing. However, like with any potential litigation, there could be not enough funds to pay for pursuing that claim in the Court, or it may be unwise for a bankruptcy trustee in Ontario (Trustee) to assume the litigation risk.

In cases like this, the licensed insolvency trustee can offer up the opportunity to the creditors to take on the action in their own name. One or more creditors can get an order under s. 38 of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (BIA) from the Registrar in Bankruptcy, authorizing the assignment to them by the licensed insolvency trustee of the bankrupt company‘s right to advance that claim and if necessary, sue.

Without going into all the finer details and circumstances, any creditor or group of creditors who obtain that right can keep any amount collected under that claim up to the total of their claim against the bankrupt company plus the costs they spent in obtaining that award. Any surplus must be paid over to the bankruptcy trustee in Ontario.

A recent decision of the Court of Appeal for Ontario highlights an interesting issue regarding the interplay between advancing such a claim by a creditor and the limitation period in Ontario.

Bankruptcy trustee in Ontario case background information

The Ridel family used an investment and stock brokerage company called e3m Investments Inc. (e3m). In December 2006, the Ridels issued a Statement of Claim versus their account representative, as well as his employer, e3m. The action was for negligence, breach of contract and violation of fiduciary obligation in the monitoring of their financial investment accounts.

After a ten-day court hearing, judgment was issued against e3m as well as the account representative in Ridel v. Cassin, 2013 ONSC 2279. The judgment was especially scathing of both the account rep and e3m. The judgement, in the amount of $1,036,245.85, was upheld on appeal. As a result, the account representative needed to make an insolvency filing. My Firm administered the successfully completed Division I restructuring Proposal of the account representative. Given the judgement, he needed to do an insolvency filing and it was in his best interests to attempt to restructure to avoid bankruptcy. The Ridel family controlled the voting in his successful Proposal. e3m filed for bankruptcy on January 20, 2015.

The bankruptcy trustee in Ontario case before the Court of Appeal

On July 31, 2019, the Court of Appeal for Ontario released its decision in Ridel v. Goldberg, 2019 ONCA 636. The underlying claim was one the bankrupt company may have had against its Director and majority shareholder.

On October 25, 2016, the Ridels, as an unsecured creditor of e3m, got an order under s. 38 of the BIA. They obtained an assignment of the claim of e3m against its sole Director, a Mr. Goldberg. Since e3m was found liable under the Ridel judgement, e3m could have a claim and institute proceedings against its Director, Mr. Goldberg.

The s. 38 order supplied the Ridels with the legal authority to assert e3m’s claim against Mr. Goldberg “to recover the damages for which e3m became liable pursuant to [the 2013 Judgment, as amended] in their own name and at their own expense and risk, based on Mr. Goldberg’s failure to fulfil his obligations as a director and officer of e3m by abdicating his responsibility to supervise the Ridels’ accounts at e3m”.

The Ridels launched their lawsuit proceedings in the lower Court against Mr. Goldberg the day they obtained the s. 38 order, October 25, 2016. The Ridels were trying to get a summary judgement. Mr. Goldberg raised several defences, including, the Ridels’ claim was statute-barred under the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B (Limitations Act).

The lower court judge dismissed the Ridels’ action on two fronts. First, the judge found that there were concerns about needing a trial. Second, the lower court judge agreed that the claim should be dismissed because of the expiration of a two-year limitation period The Ridels appealed the lower court’s decision to the Court of Appeal for Ontario.

bankruptcy trustee in ontario
bankruptcy trustee in ontario

The fascinating part (for me anyway) of the Court of Appeal’s decision

The unanimous Court of Appeal ruling agreed with the lower court judge’s decision that the action the Ridels took by way of an assignment document from e3m’s licensed insolvency trustee was statute-barred under the Limitations Act. However, the appeal court review of the lower court decision disagreed with the reasons given by the lower court. Upon agreeing that the Ridel’s action should be dismissed based on it being barred by the Limitations Act, the appeal court did not wade into whether or not the lower court judge’s decision was correct that summary judgement should not be granted as there was a triable issue.

The arguments given for the limitation period are somewhat complex. I will attempt to summarize them here so as not to be confusing. The lower court judge held that the Ridels as applicants knew of the existence of the potential claim of e3m against its Director as early as in July 2006. Since they did not launch the e3m claim in a court action until October 2016. Hence, the limitation period of 2 years made that claim statute-barred.

The Ridels state that the limitation period cannot have actually begun up until after e3m was bankrupt. Before then, they could not take an assignment of any claim from e3m’s licensed insolvency trustee, especially a potential claim by the company against its Director (and Officer).

They also stated it is impossible to get an s. 38 order before the company actually is bankrupt.

The lawyer for the Ridels did not argue the testing of the timing of their very own understanding of the Director’s misdeed in regard to e3m. Rather, he focussed on the fact that the Ridels were not in a place to do anything concerning it, at a minimum, until the bankruptcy of e3m.

The appeal court went through a detailed analysis of the relevant statutes and case law. The Court of Appeal confirmed that the action launched was not a claim by the Ridels personally, but rather the company’s claim of which they took a court-approved assignment. So the appeal court agreed substantially with the Ridels that they could not have started their action until they took the assignment from the e3m licensed insolvency trustee.

When was e3m’s knowledge of its claim?

So the appeal court said what is important, since it is e3m’s claim and not the claim of the Ridels, when did e3m first become aware of the potential claim against its Director? The appeal court stated it fully understood why the Director would not have had e3m sue him or otherwise enjoin him in the original claim against the account rep and e3m. However, when did e3m first become aware of the potential of its claim?

On the proof in this matter, regardless of the Ridels’ or Goldbergs’ understanding of the case or his aversion to act against himself in support of e3m, at the very least, by April 2013, every one of the other e3m investors/shareholders had received a copy of the Reasons for Decision and Judgment against the account rep and e3m. It included different referrals to the Director’s misbehaviour. Those investors had the capacity to make e3m file a claim against the Director.

The Court of Appeal for Ontario judges determined that e3m recognized that: 1. an injury had actually happened; 2. its loss was brought on by an act or omission; 3. the act or omission was purportedly that of the Director, and 4. an action against the Director was a proper way to treat it. Regardless of the Director’s control to protect against such a lawsuit, the investors might have taken control of e3m’s board of directors and cause e3m to make such a case versus Goldberg.

So the appeal court decided that e3m first recognized that it may have a claim against the Director in April 2013, but the action was not commenced until October 2016. Accordingly, it was outside of the 2 year limitation period and the action was statute-barred.

So what does this mean for a bankruptcy trustee in Ontario?

As the bankruptcy trustee in Ontario in either a corporate bankruptcy or personal bankruptcy, many times we find as a result of our investigation that the bankrupt may have a claim against another party. More often than not, we either do not have sufficient funds or are not prepared to risk the funds in the Estate to the litigation risk. So, what we do is communicate with all known creditors to advise of the potential claim and that the licensed insolvency trustee is either unwilling or unable to act upon it. Accordingly, we are giving the creditors a chance to apply to the Court to take an assignment of such action under s.38 of the BIA.

Creditors seriously considering taking over the bankrupt’s claim must seriously consider the issue of whether or not launching a court action will be met with a defence that the claim is statute-barred, amongst other defences that may be available to the defendant(s). The Court of Appeal for Ontario has clearly communicated that the creditor taking an assignment of the bankrupt’s claim, cannot be in a better position than the bankrupt itself. The first knowledge that a claim exists will be when the bankrupt first had the knowledge, not the date that the creditor obtained the right to sue or any other date.

Bankruptcy trustee in Ontario Canada conclusion

The business world contains normal daily risks. This case clearly shows that. Are your company’s viability and solvency being threatened by claims against it, or for any other reason?

Is your company experiencing financial problems and requires debt relief? Are you on the brink of filing for bankruptcy just like e3m was because of your debts? Or are you an individual that has too much debt and you are looking at personal bankruptcy as your solution? Don’t wait until it is too late to properly restructure your company’s financial affairs. You don’t have to be another one filing bankruptcy in Canada. We can show you the various alternatives to bankruptcy.

As a licensed insolvency trustee, we are the only professionals who have met the requirements of the Office of the Superintendent of Bankruptcy Canada to obtain a trustee licence. One of those requirements to be trustees in bankruptcy is to pass an oral board of examination.

Insolvency trustee’s operations are licensed, authorized and their duties supervised by the federal government to offer insolvency advice and to implement solutions under the Bankruptcy and Insolvency Act (Canada). We are a licensed insolvency trustee operating in Ontario Canada and we will help you to select what is best for you to free you from your debt issues.

Contact the Ira Smith Team today so we can use our qualifications to get you or your company the debt relief that you deserve. We will eliminate the anxiousness, tension, discomfort and pain from your life that your bills and your cash problems have caused. With the unique roadmap, we develop just for you, you can eliminate your debts and we will promptly return you right into a healthy and balanced problem-free life.

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LICENSED INSOLVENCY TRUSTEES: CAN MY BASIC BANKRUPTCY DISCHARGE BE REVERSED?

licensed insolvency trusteesIf you would prefer to listen to an audio version of this licensed insolvency trustees Brandon’s Blog, please scroll to the bottom and click on the podcast.

Licensed insolvency trustees introduction

From time to time I am asked an interesting question about licensed insolvency trustees and the bankruptcy process. The question is, can a bankruptcy discharge be reversed? The simple answer is, yes.

Most people then wonder how this could be possible. In order to understand how we should have a discussion of the bankruptcy discharge process. The best way is through a recent Court case I recently read.

Licensed insolvency trustees: The discharge process

It is the discharge when the person’s debts are erased. The debts are not “discharged” until that time. In order to get a discharge, the bankrupt has to live up to all of his or her duties.

The duties of a bankrupt include:

  • make disclosure of and deliver possession of all his or her assets (other than for certain provincial exemptions) that is under his or her possession or control to the licensed insolvency trustee (Trustee) or to anyone the Trustee so directs;
  • in such scenarios as are defined by the Office of the Superintendent of Bankruptcy, provide to the Trustee, for termination, all credit cards;
  • supply to the Trustee all documents or files relating to the property of the person who has filed for bankruptcy;
  • make full disclosure of all assets and liabilities to the Trustee by completing the sworn statement of affairs within 5 days of the date of bankruptcy;
  • assist the Trustee in making an inventory of all property; make full disclosure to the Trustee concerning all property sold or otherwise transferred within 1 year prior to the date of bankruptcy;
  • disclose any property sold or transferred at undervalue within 5 years prior to the date of filing;
  • attend the first meeting of creditors if held;
  • disclose current income and expense and continue monthly disclosure until discharged in order for the Trustee to calculate any surplus income requirement;
  • if there is surplus income, to make all such payments to the Trustee in full; and
  • to perform any other acts required by the Trustee or the Court, including, fulfilling any conditions of discharge issued by the Court.

Failure to perform any of the duties laid out in the Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) (BIA), will result in the Trustee, and perhaps one or more creditors, opposing the bankrupt’s discharge. When there is an opposition, the Trustee will schedule a Court hearing date.

At the Court hearing, the Court can issue an absolute order of discharge, provide a discharge but with conditions to be fulfilled or even suspend the bankrupt’s discharge. Sometimes, there may be both a condition and a suspension, depending on the circumstances. In rare and bad circumstances, the Court could even refuse to hear the bankrupt’s application for discharge. Licensed insolvency trustees are expected to assist the Court by making a recommendation.llicensed insolvency trustees

Mark Daniel MacFarlane bankruptcy

Section 180 (1) and (2) of the BIA states:

“Court may annul discharge

180 (1) Where a bankrupt after his discharge fails to perform the duties imposed on him by this Act, the court may, on the application, annul his discharge.

Annulment of discharge obtained by fraud

(2) Where it appears to the court that the discharge of a bankrupt was obtained by fraud, the court may, on the application, annul his discharge.”

On June 24, 2019, the Supreme Court of Nova Scotia In Bankruptcy and Insolvency released its decision in the bankruptcy case of Mark Daniel MacFarlane (Citation: MacFarlane (Re), 2019 NSSC 201).

This case is not complex. However, it does clearly shows that the answer to the question, “can a bankruptcy discharge be reversed?” is clearly yes.

Mr. MacFarlane had a surplus income obligation to pay to the Trustee for the benefit of his creditors the amount of $3,823.05. At the time he was entitled to a discharge, he still owed the Trustee the amount of $2,879.05. In every personal bankruptcy, licensed insolvency trustees must do the surplus income calculation. If it turns out that the bankruptcy is required to contribute to his or her bankruptcy estate through surplus income payments, licensed insolvency trustees must report to the Court if the bankrupt made all the required payments.

The bankrupt also owned at the date of bankruptcy, an automobile that the Trustee estimated had a forced liquidation value of $17,500. The Trustee had disallowed the claim of a creditor claiming security over the vehicle. That creditor did not appeal the Trustee’s decision.

So, equity in the vehicle was available. In such cases, licensed insolvency trustees must obtain that value. For some reason that the Trustee could not fully explain, he agreed to sell the vehicle to Mr. MacFarlane for $15,702.50 plus HST. The Trustee did not sell it for all cash, but rather, entered into a conditional sale agreement with the bankrupt. In other words, the Trustee gave him financing.

Mr. MacFarlane paid made various payments totalling $7,040.00, both before and after his discharge, leaving a balance of $8,662.50.

Mark Daniel MacFarlane discharge

Although now stated explicitly in the Court decision, it appears that when it came time for Mr. MacFarlane’s application for discharge, the Trustee opposed it. On June 1, 2018, the Trustee applied for his discharge.

For some unexplained reason, the Trustee decided to not collect the balance of the surplus income requirement. The Trustee asked the Court for his outright discharge. The Court gave Mr. MacFarlane his absolute discharge.

So now the bankrupt is discharged, but he still owed the outstanding money for the vehicle that was sold to him by the Trustee under a conditional sale agreement. Rather than paying off the amount owing, Mr. MacFarlane sold the vehicle out of province and pocketed the cash.llicensed insolvency trustees

Licensed insolvency trustees can apply to Court to have a discharge reversed

So now the Trustee makes an application to Court to have Mr. MacFarlane’s discharge reversed. Officially, it is called having the discharge annulled. An annulment makes it as if the discharge never happened. So, if the Trustee is successful, Mr. MacFarlane will be back in bankruptcy. The Trustee also asked that the Court order the payment of the balance of what is owing on the vehicle, for a suspension of the discharge and an amount for costs and disbursements. Mr. MacFarlane represented himself in Court.

The Court was not overly impressed with either Mr. MacFarlane or the Trustee. The Court felt that not did he fail to carry out his responsibilities under the BIA, he actually acted in such a way to deny himself the advantage of any type of latitude the Court might have given him relative to those obligations.

The Court went on to say that his responsibilities under the BIA are not pointers or activities to be carried out when convenient or if life does not get in the way. It was obviously not his place to choose what he would and would not do. Concerning the automobile, it was not his to just sell it, pocket the cash, and tell the Trustee (and by extension his creditors) to go take a hike.

The Court was not too happy with the Trustee

The Court was at a loss to some of the Trustee’s behaviour also. There was no explanation given as to why the Trustee merely gave up on collecting all of the surplus income requirement. Likewise, there was no explanation why the Trustee would have given the bankrupt a discount off of the liquidation value of the vehicle. Such a look is not good for licensed insolvency trustees.

Quite rightly, the Court pointed out that in such situation, licensed insolvency trustees, and specifically this Trustee, should not have recommended to the Court that Mr. MacFarlane receive an absolute order of discharge. Rather, the Trustee should have insisted on a conditional order of discharge. The conditions would have been that the bankrupt pay off both the surplus income balance and the amount owing on the vehicle before being entitled to an absolute order of discharge.llicensed insolvency trustees

The Court’s decision

The Court ordered that:

  1. Mr. MacFarlane’s discharge from bankruptcy be annulled, so now he is once again an undischarged bankrupt.
  2. He must pay the Trustee the $8,662.50 owing on the vehicle.
  3. The Trustee will collect $500 for disbursements in tracing what happened to the vehicle from Mr. MacFarlane also.
  4. There will not be an automatic discharge once he pays the $9,162.50 to the Trustee. Rather, the bankrupt will have to apply to the Court for his discharge and there will be another discharge hearing.
  5. Since the Court was not asked to revisit the balance owing on surplus income, the Court didn’t review that again.
  6. The request of the Trustee for $5,000 as a censure of the bankrupt’s behaviour was denied. The Court said that this situation was caused in part by the Trustee allowing the surplus income requirement to be waived and agreeing to an absolute discharge.

Although not part of the Order, the Court strongly stated that any costs in the additional work done by the Trustee now, and the disposition of the amount to be received once finally paid, will be reviewed by the Court.

The Court emphatically intimated that since the Trustee’s actions were in part to blame for this situation, the Court was going to make sure that part of the $9,162.50 will go to the creditors when the Trustee comes back to Court to have its accounts taxed.

Licensed insolvency trustees conclusion

So there you have it on licensed insolvency trustees. Can a bankruptcy discharge be reversed or revoked? As we see in this case if the discharge was improperly obtained because the bankrupt did not fulfill all of his or her duties, YES. Similarly, if it can be shown that a discharge was obtained through fraud or fraudulent conduct, the discharge can be annulled in that case also.

Whenever I sit down with a person to talk about his or her insolvency, or with an owner of a company to discuss business financial problems, I make sure that we have an entire discussion. I not only talk to them about what process I recommend for their unique situation, but I also walk them through the entire process and what all the rights and responsibilities are. For personal insolvency, this includes the discharge process.

Are you or your business experiencing money troubles? Are you on the verge of bankruptcy? Do not wait till it is far too late to understand how you can restructure your financial affairs and avoid bankruptcy. You do not need to be one more person or company declaring bankruptcy in Canada.

As licensed insolvency trustees, we are the only specialists certified, accredited and overseen by the federal government to provide insolvency guidance and to apply remedies under the BIA. We will certainly help you to choose what is best for you to release you from your debt problems.

Call the Ira Smith Team today so we can get rid you of the stress, anxiety, pain and discomfort that your money issues have created. With the distinct roadmap, we establish simply for you, we will without delay return you right into a healthy and balanced problem-free life, Starting Over Staring Now. Call the Ira Smith Team today.

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Brandon Blog Post

FILING BANKRUPTCY IN CANADA: RETAILER BANKRUPTCIES AND CO-TENANCY

filing bankruptcy in canada

If you would prefer to listen to an audio version of this filing bankruptcy in Canada Brandon’s Blog, please scroll to the bottom and click on the podcast.

Introduction

I read one article and one legal case over this past weekend that gave me the idea for this Brandon’s Blog about filing bankruptcy in Canada. The article was about the large US jewelry and accessories retailer Charming Charlie’s filing Chapter 11 bankruptcy for the second time in just over a year. In its 2018 filing, the retailer shed almost half of its 400 stores in a restructuring. Unfortunately, that was not good enough to save them. They have now filed again and announced they are closing their remaining stores.

The case I read is Old Navy (Canada) Inc. v. The Eglinton Town Centre Inc., 2019 ONSC 3740 (CanLII). This decision of the Ontario Superior Court of Justice was released on June 21, 2019. This case involves a retail tenant’s right to put into play rights it has as a result of a co-tenancy requirement under its commercial lease.

What Is Co-Tenancy Provision?

Simply put, a co-tenancy clause in retail lease agreements permits retail tenants to reduce their lease payments if key renters or a specific variety of lessees leave the retail premises. The idea being that certain tenants are major draws to a shopping centre and produce traffic for themselves and the other tenants. Those types of tenants are called anchor tenants.

A retail tenant agrees with the landlord to specific lease terms, especially the amount of rent to be paid. The commercial tenant agrees to those terms expecting a certain level of traffic in the mall or shopping centre. If anchor tenants leave, a co-tenancy provision allows a tenant to decide if it wishes to remain or not. If it decides to stay, then the lower amount of rent to be paid when a co-tenancy provision comes into play is meant to compensate the tenant for the lower traffic volume.

The Players

Old Navy is a famous retailer of clothes. It runs stores throughout Canada, the United States, and worldwide. Old Navy is a subsidiary of Gap Inc. (GAP), which is headquartered in San Francisco, California. Old Navy’s operations and stores are owned and operated by GAP.

GAP is the biggest specialty retailer in the USA. It has roughly 3,700 locations globally, consisting of 240 shops in malls and strip/power centres throughout Canada. GAP also owns the Banana Republic brand. Of the three, Banana Republic is taken to be on the top end of the GAP household of brand names, while Old Navy is the reduced level, affordable or budget brand name.

The landlord, The Eglinton Town Centre Inc., is owned and run by Lebovic Enterprises, a major Canadian property developer with its head office in Toronto, Ontario. Among others, it owns and runs the “Power Centre”, situated at Eglinton Opportunity East (the Centre).

The Old Navy Canada Lease

The Old Navy Canada lease, of course, had many terms in it. It included a co-tenancy provision. The clause named the key retailers (Key Shops) and their square footage. The Key Shops are the following retailers with the flooring area indicated:

Key ShopsSquare footage
Cineplex68,000 sf
Roots6,545 sf
Globo Shoes12,084 sf
Danier Leather 6,548 sf

Although the co-tenancy clause had various alternative remedies in it, all of them are not essential for you to know for the purpose of this Brandon’s Blog.

It is important for us to know that the co-tenancy section consisted of three main parts: (i) the number of Key Shops; (ii) a gross leasable area test; and (iii) a requirement for the landlord to advise the tenant in writing when a co-tenancy failure has actually happened.

Simply put, if the co-tenancy provision kicked in Old Navy Canada had the option to either:

  1. Shut down its store and leave on proper notice to the landlord; or
  2. Remain and pay a lesser “Alternate Rent” for the period that the co-tenancy issue remained unresolved.

The Danier Leather bankruptcy

Danier Leather (Danier) was a prominent Canadian seller of leather clothing and related leather items. The landlord entered into a lease with Danier for a preliminary 10-year term from June 10, 1999, to June 9, 2009. Danier’s lease was renewed in 2009 and Danier continued to be a renter of the Centre up until 2016. Danier’s premises of 6,548 square feet of space was out of a total of 285,425.37 square feet of gross leasable area in the Centre. Danier’s retail outlet represented just 2.3% of the gross leasable area.

Danier was a public company. Its shares were traded on the Toronto Stock Exchange. Nonetheless, public filings showed that Danier had been battling financial issues since 2014. Decreased earnings and yearly losses were unfortunately now its norm.

The negative operating results were thought to have been attributable to a change in the preferences of the buying public. There was a sentiment among some people to stop wearing leather items and apparel. On February 4, 2016, Danier submitted a Notice of Intention to File a Proposal (NOI) under the Bankruptcy and Insolvency Act, R.S.C., 1985 c. B-3.

Certainly, Danier’s insolvency was major news in the retail market. It was publicly reported in the nationwide media. At the time of the NOI filing, Danier operated 84 stores throughout Canada. Every one of the shops was leased. Ultimately, nonetheless, Danier determined not to submit a proposal and instead made an assignment in bankruptcy. A receiver was also appointed over Danier to liquidate the shops. Danier continued running until July 2016.

Definitely, every one of the occupants at the Centre, including the local staff of the Old Navy shop, would have recognized that Danier was conducting a going out of business inventory sale. It was unclear if anyone from Old Navy Canada told this to its senior management at the GAP.

Throughout the duration of the closing of the Danier outlet, the various other retailers at the Centre were growing. The Centre’s construction had long been completed and was well over 90% rented at the time of Danier’s insolvency. Cineplex was drawing audiences daily. The remaining stores in the portion of the Centre in which the Old Navy shop was located, across the parking area from the Danier outlet, were all operating. There was no proof they were not operating well and profitably.

The Dispute

The landlord believed that the closure of Danier had no material impact whatsoever on traffic at the Centre or on Old Navy’s sales. Given its interpretation of the co-tenancy requirements, the landlord ruled out that a co-tenancy failing had actually occurred. Therefore it did not provide any notice to the Old Navy care of GAP.

By September 15, 2016, GAP asserted they had ultimately found out about Danier’s filing bankruptcy in Canada. Thus, Old Navy issued a Notice of Co-Tenancy Failure to the Landlord and took the view that:

  • Danier’s bankruptcy constituted a “co-tenancy failure” under the lease;
  • that the landlord had breached the lease by not advising Old Navy of Danier’s bankruptcy; and
  • that Old Navy was, as a result, exercising its “right” under the lease to pay the lesser rent to the landlord, retroactive to May 1, 2016.

The landlord argued that the Centre was in co-tenancy failure as a result of the closure of Danier and stated that if the current lease was not paid, the landlord would declare Old Navy Canada to be in default under the terms of the lease.

Various communications took place between lawyers for the landlord and Old Navy Canada. The landlord also kept them up to date on discussions it was having with various potential retailers that would be interested in either the Danier space or larger premises. One such retailer was a global party supply store chain. Another, that ultimately entered into a lease and began operating in the Centre, was a retailer of pets and pet products.

Old Navy Canada, through its parent the GAP, took the position that only a retailer of upscale clothing like Danier was, would be a suitable replacement. It also stated that it had a corporate policy not to be located in shopping centres that had a pet retailer as a tenant.

It turns out that assertion was untrue. The landlord produced evidence that there is a power centre in the west end of Toronto where the opposite is true. That centre was the Stock Yards Village, where the anchor was Target Canada until it failed several years ago. There is an Old Navy store operating in that shopping centre along with a PetSmart retail outlet. This contradicted Old Navy Canada’s and the GAP’s position on suitable co-tenants.

The landlord and Old Navy Canada continued to agree to disagree. Old Navy Canada continued to pay the normal rent but under protest. Ultimately, Old Navy Canada launched the litigation against the landlord looking for reimbursement of rent that it asserts to have actually overpaid to the Landlord.

The Court’s decision

The Court went through a complex analysis of legal precedents that are beyond the scope of this Brandon’s Blog. After careful consideration of the lease, the issues involved and precedent case law, the Judge decided:

  1. Old Navy’s interpretation of the provisions of the lease for the co-tenancy requirements is rejected.
  2. He accepted the landlord’s interpretation of the relevant terms as being the most objective.
  3. GAP/Old Navy’s evidence which was speculative.
  4. It was not sensible for GAP/Old Navy to anticipate to be able to occupy the facilities for the rest of its lease term without paying proper rent, merely because of a technical issue that had no noticeable effect on its operations.
  5. The landlord acted throughout in a commercially reasonable way.

Summary

What this case shows is that the bankruptcy of a retailer may very well invoke co-tenancy rights. However, it is not the bankruptcy that is the determining factor. Rather, it is the terms of the co-tenancy clause and its formulas contained in the clause that we have to look to. As seen in this example, the breach was not just because one of the Key Shops no longer operated. The terms of the Old Navy Canada Lease also forced a gross leasable area calculation to be performed. If the gross leasable area test was not met, then there was no breach.

Is your company experiencing financial problems? Are you on the brink of insolvency just like Danier was? Don’t wait until it is too late to properly restructure your company’s financial affairs. You don’t have to be another one filing bankruptcy in Canada.

As a Trustee, we are the only professionals licensed, authorized and supervised by the federal government to offer insolvency advice and to implement solutions under the Bankruptcy Act Canada. We will help you to select what is best for you to free you from your debt issues.

Call the Ira Smith Team today so we can eliminate the anxiousness, tension, discomfort and pain from your life that your cash problems have caused. With the unique roadmap, we develop just for you, we will promptly return you right into a healthy and balanced problem-free life.

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Brandon Blog Post

BANKRUPTCY CANADA NEW EVENTS (2019)

Introduction

There has been two recent bankruptcy Canada new events that I believe are important to discuss. I believe you will hear more about it over the next few months. The two are unrelated.

One deals with the insolvency of oil and gas companies. The other with the rights of retired people and their company pensions and health benefits when their former employer goes into insolvency proceedings.

Bankruptcy Canada – The Redwater decision fallout

I have previously written about the Supreme Court of Canada decision in the Redwater Energy Corporation matter. On January 31, 2019, the top Federal Court released its decision in the case of Orphan Well Association v. Grant Thornton Ltd. The Supreme Court reversed 2 Alberta lower Court decisions. It is now the law of the land that, prior to lenders or creditors getting any type of repayment, the receiver or trustee will need to invest the funds from the sale of assets on the environmental remediation costs on all orphaned wells, that provincial legislation may need.

The decision made it clear that the receiver or trustee does not need to spend cash it does not have from the sale of assets or other recoveries. However, whatever amount it recoups from the sale of assets, on a net basis, will initially need to go to provincially mandated clean-up costs of the financially troubled company’s wells. This is before secured or unsecured creditors see a penny.

Trident Exploration Corp.

Now for the fallout. Natural gas producer Trident Exploration Corp. (Trident) ceased operations on April 30, 2019. On May 3 on application to the Court by the Alberta Energy Regulator’s Orphan Well Association, Trident was placed in receivership.

Its staff and contractors have been terminated and its 3,600+ wells are being transitioned to the Alberta regulator.

The company claimed it had functioned openly and collaboratively with its lenders and the regulator since February. It further reported that it was unable to see that a successful restructuring could be accomplished in a timely fashion. Therefore, Trident’s lender stopped supporting the business. Due to this, Trident does not have the funds to run its infrastructure or enter into insolvency proceedings. Consequently, they have determined to walk away, leaving greater than 3,600 sites, a number of them active, without an operator.

The regulator then issued its order for the sites to be properly decommissioned and capped off. On April 30, Trident, without replying to the regulator’s order or addressing their environmental obligations, the Directors ceased operations, terminated its staff and contractors. The Board then resigned. Trident’s wells will soon be transferred to the Orphan Well Association.

The Redwater effect

Trident blamed the recent Redwater Supreme Court decision which ruled that capping of orphan oil and gas wells and environmental remediation should take priority over lenders when a business goes bankrupt and leaves behind orphan wells.

Trident also said that the Redwater decision, regulatory uncertainty and current low pricing has developed a treacherous setting for energy companies that dare to risk their capital in Canada.

Trident estimates that its total abandonment and improvement obligations are about $329 million. They estimate that with those costs, any recovery by secured lenders is unsure and there would be no funds for either unsecured creditors or shareholders.

The Redwater effect is that the Court’s decision has had the unintended result of increasing Trident’s financial distress and accelerating the abandonment of its wells, has it had no funds to live up to its obligations.

Only time will tell if other insolvent energy producers take the route of Trident by just shutting down and abandoning its business and leaving its wells for the regulator to deal with.

Bankruptcy Canada – Retiree pension and health benefit rights protection in insolvency proceedings

Another topic I have previously written about is the lack of protection for retirees for pension and health benefit payments when the former employer enters insolvency proceedings. Rank-and-file members of the United Steelworkers (USW) from across Canada were on Parliament Hill to consult with MPs and requesting a commitment to legislate protection for retired workers. The USW very much want to make this a 2019 federal election issue.

The 2019 federal budget plan was very quiet on any type of commitment to shield workers and retirees by treating them as protected or priority creditors in our insolvency laws.

As a result of high-profile cases such as Nortel in Ottawa, Stelco in Hamilton and Sears, the USW is committed to campaigning for retirees to have a safe future.

Retirees understand just how unsecure their pension plans and benefits might be if a firm gets into restructuring under the Companies’ Creditors Arrangement Act (CCAA) or any proceeding under the Bankruptcy and Insolvency Act (Canada) (BIA).

Pensions are delayed earnings and, by the time financial institutions as well as various other creditors are paid, there is nothing left for workers for any shortfall or benefit payments. The USW feels that all Canadians ought to be outraged by the treatment of retired Canadians in corporate insolvency matters.

This is why they met with MPs Senators. They want to focus on a collection of recent Bills presently before the House of Commons and the Senate. Two are before the House of Commons but they have not progressed. One is sponsored by the New Democratic Party, and the other by the Bloc Québecois. They are focused on reforming the CCAA and the BIA to offer top priority to claims by workers arising out of an underfunded pension plan and the removal of benefits.

An additional Bill, presented in the Senate late last year by now-retired Senator Art Eggleton, likewise aims to grant secured standing for pension claims.

It will be interesting to see if the Conservative Party picks up on this important debate and turns it into an election issue. The Liberal Party had promised to deal with this issue in the last four years, but alas, they have not delivered.

Bankruptcy Canada – Summary

Corporations that cannot afford to properly shut down their business and retirees losing out on benefits they worked their whole life for are important issues in insolvency. Does your company not have enough cash to continue its operations? Did you not receive all amounts you are entitled to and now are facing personal financial problems?

If so, call the Ira Smith Team today. We have decades and generations of experience assisting people and companies trying to find financial restructuring or a financial debt negotiation strategy. As a licensed insolvency trustee, we are the only professionals licensed, recognized and supervised by the federal government to supply insolvency advice and carry out strategies to aid you to stay clear of personal bankruptcy.

Call the Ira Smith Team today so you can cut the stress, anxiousness and pain from your life that your financial issues have caused. With the special roadmap, we establish just for you, we will immediately return you right into a healthy and hassle-free life.

You can have a no-cost analysis so we can help you fix your debt troubles. Call the Ira Smith Team today. This will most certainly allow you to go back to a new healthy and balanced life, Starting Over Starting Now.

 

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Brandon Blog Post

ESTATE TRUSTEE ONTARIO REMOVAL ISSUES

Estate trustee

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

Estate trustee Introduction

One of the most popular Brandon’s Blog article is:

WHAT HAPPENS TO DEBT WHEN YOU DIE CANADA: ARE YOU FREE OF DEBT

That led me to start looking more deeply into deceased estate matters, past the insolvency issues. So a few months ago I wrote a series of blogs on estate trustee matters. The series of blogs are:

In one blog I wrote how the duties and responsibilities of an estate trustee (formerly called either an executor or executrix) are very similar to the fiduciary duties and activities are undertaken all the time by a licensed insolvency trustee. In another, I wrote about the Court’s ability to remove and replace the estate trustee. In a third blog, I wrote about how all children are not fit to be an estate trustee.

A recent Court decision

I recently became aware of an Ontario Court decision about the removal and replacement of an estate trustee. The decision was handed down a couple of weeks after I wrote my blogs.

The recent decision is a very interesting case. Many of the issues I wrote about are all there. So, I thought it would be interesting to provide the information to you as it is a real-life example that actually took place, of many of the things I previously wrote about that could take place.

The case citation is Lanari V. Kay, 2019 ONSC 1506. It was heard in the Ontario Superior Court of Justice. The deceased was Patricia Anne Kay. She had eight children. Tragically, one daughter predeceased her. Of the seven remaining, in her will, three were appointed trustees. Along with the remaining four children, Ms. Kay’s granddaughter, the child of her dead daughter, was asserting that she was entitled to be a beneficiary.

The Applicant

The applicant insists five reasons to get rid of the estate trustees: (1) conflict of interest; (2) misbehaviour, violation of trust fund as well as violation of fiduciary responsibility; (3) animosity between the trustees; (4) conflicts between the trustees and the beneficiaries; and (5) delay and wastage of the assets.

The respondents

The trustees insist that:

  1. Any kind of conflict of interest can be relieved by guaranteeing the trustee with a conflict will not take part in any decision making in connection with the matter or thing where there is that conflict.
  2. There is no displeasure between the trustees, and there never was.
  3. Any bitterness between trustees and beneficiaries is not a sufficient ground to get rid of trustees.
  4. There has been no significant hold-up in the management of the estate and they have properly provided the necessary disclosure.
  5. From a functional viewpoint, the elimination of current trustees will increase expenses in this modest estate.

The Trustee Act

As I discussed in my earlier blogs, under the Trustee Act, R.S.O. 1990, c. T. 23 (the Act), the court can remove trustees and select brand-new trustees.

The basic concept adhered to in an estate and trust matter by the Court for removal applications like this one is that a Court will not easily remove an estate executor, executrix or trustee picked by the testator. Nevertheless, where there is a clear instance of conflict of interest, elimination is a suitable course of action. The well-being of the beneficiaries has to be an important factor to consider. Also, conduct by the trustee that jeopardizes the estate property or that reveals a lack of honesty or absence of proper ability to carry out the trustee’s duties and obligations are a basis for removal.

The Judge and his ruling

Therefore, the Judge kept in mind that the estate trustees have actually insisted in written documents that the estate might lack sufficient property to disperse if estate litigation continues. He found that the trustees’ activities have actually resulted in unnecessary litigation. The significant legal costs which have actually been sustained are partly due to the unreasonable positions taken by the trustees. This was a major variable to think about.

The Judge stated that:

  1. Bitterness between a beneficiary and a trustee might not be sufficient to cut a trustee.
  2. When that displeasure influences the management of the estate, it is a significant problem.
  3. If the animosity has actually been created by the failure to supply disclosure, it increased the time spent by the respective lawyers on behalf of the trustees and the beneficiaries.
  4. The additional time spent as a result of the lack of disclosure is matched by a matching boost in legal costs which might be the obligation of the estate.

The Judge felt that the problems in this situation have and remains to raise the costs associated with the estate management. He additionally stated that bitterness between the trustees might also exist.

Ultimately, the Judge determined that he was satisfied that the estate trustees have to be removed and he ordered that. The Judge assigned an independent person as the alternative estate trustee and approved a specific hourly rate to be billed by the brand-new trustee. Trustee compensation, just like that of a licensed insolvency trustee acting in Court matters, is subject to taxation by the Court.

Finally, the Judge referred to the various other disputes between the parties back to the Judge seized with this estate litigation.

Our role in estate matters

As I mentioned in one of the earlier blogs, my Firm had successfully completed a mandate as Court-appointed Estate Asset Manager. In that file we had to find common ground between two beneficiaries who could not agree on anything. We were able to do that. So, on consent, our plan to prepare for sale and then sell the assets and distribute the cash to the beneficiaries, on consent, was done. Our fee and that of our lawyer was also approved by the Court without any objection from the beneficiaries.

We were recently appointed by the Court in another estate matter. We will be receiving funds from a party purchasing the only real asset in the estate and attempting to find a missing beneficiary. Based on the results of our hunting, we will then prepare a distribution plan for the Court to approve.

As I have previously written and state above, a licensed insolvency trustee is an officer of the Court. We have the necessary skill set to act as either an estate trustee or perform many potential roles in estate matters. This is in addition to our normal work in the insolvency field.

If you are involved in a messy estate matter, call the Ira Smith Team today. We work cooperatively with lawyers and other professionals.

As a licensed insolvency trustee, we are natural problem solvers. We will be able to create a plan unique to your circumstances so that we can end the pain, stress and anxiety that you are feeling. This will allow you to reduce your overall costs and return to living a stress-free life.

Call the Ira Smith Team today for your free consultation. We will reduce your overall costs and end your pain points, Starting over Starting Now.

 

 

 

 

 

 

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LICENSED INSOLVENCY TRUSTEE RECEIVER APPOINTED BY COURT ERRORS TO AVOID

Licensed insolvency trustee: Introduction

I want to chat with you today about the independence of the licensed insolvency trustee (LIT or trustee) (formerly called a bankruptcy trustee) acting as a court-appointed receiver. I have seen many times when a secured creditor needs to resort to a court appointment, and not privately appoint the receiver, yet feel they still can control every aspect of the court-appointed receiver’s actions and conduct.

The decision of the Court of Appeal of Alberta released on February 4, 2019, in Jaycap Financial Ltd v Snowdon Block Inc, 2019 ABCA 47 (Jaycap), highlights the issue.

Licensed insolvency trustee: Back to basics

To better understand the Jaycap decision, I want to talk about a few basic points. In a private receivership, the receiver’s primary duties are to act:

  1. On behalf of and have a duty of care primarily to the secured creditor who appointed the receiver.
  2. In a commercially reasonable way.
  3. Lawfully.

In a court appointment, the court-appointed receiver:

  1. Acts on behalf of the Court as a Court officer.
  2. Be and be seen to be independent of all stakeholders.
  3. Owes a duty of care to all stakeholders.
  4. Must act in a commercially reasonable and lawful way.

Various practices have evolved over time to indicate the independence of the court-appointed receiver. They aren’t necessarily rules or laws. However, they are indicators that the Court looks to in determining if its court-appointed receiver is seen to be independent and is actually independent of specific stakeholders, normally, secured creditors.

Examples of these indicators are:

  1. The court-appointed receiver has its own legal counsel and does not rely upon legal counsel for one of the secured creditors.
  2. The court’s receiver has obtained sufficient independent appraisals of the assets and has not taken the word of or earlier appraisals commissioned by a secured creditor.
  3. A sales process being recommended by the court-appointed receiver is fair to all parties and does not favour one or more stakeholders over others.
  4. The analysis performed by a court-appointed receiver in making its recommendations to the court is seen to be free from undue influence.
  5. The court-appointed receiver has not shared its appraisal or other information which could influence the outcome of the receivership administration with any of the stakeholders.
  6. The court-appointed receiver has not treated some stakeholders differently than others.
  7. Any information shared by the court-appointed receiver or meetings held to share information has been done with all secured creditors, not just a senior secured creditor or the secured creditor who made the court application to appoint the receiver.

Licensed insolvency trustee: The Jaycap situation

The receiver was appointed by the court as receiver and manager of Snowdon Block Inc. (Snowdon) in February 2016. The only material possession of Snowdon was land and building in Calgary. In July 2016 the receiver started a sales procedure to ask for deals for the property. In October 2016 the Receiver ultimately received 2 offers for the real estate. The receiver accepted a conditional offer from a third party.

After months of extensions, the potential buyer was incapable to remove its conditions and the sale did not continue.

Jaycap was the primary lender of Snowdon and was funding the
receivership. Jaycap became interested in capping the increasing costs and safeguarding its financial investment. The receiver advised Jaycap that a credit bid would be a possible option to get title to the real estate and bring the receivership to an end.

On July 5, 2017, Jaycap emailed the Receiver that it would credit bid its “current costs” as a specific amount. Jaycap scheduled a numbered company it managed to be the buyer. For simplicity, I will refer to Jaycap’s nominee company as the buyer.

Licensed insolvency trustee: The first Jaycap credit bid

An agreement of purchase and sale (APS) was prepared and entered into by Jaycap and the Receiver on August 2, 2017. The total debt was defined to be the amount included in the July 5, 2017 e-mail and that amount was likewise the acquisition cost.

On August 21, 2017, the Receiver obtained the approval and vesting order authorizing the APS. The guarantors of the Jaycap debt did not oppose this application as there would be no shortfall that they would be responsible for.

It is somewhat unclear as to the reasons for what happened next. The receiver states in its 3rd report that on August 28, 2017, legal counsel for Jaycap indicated that there was an error in the purchase price. The report after that states that the receiver’s legal counsel advised it that a common mistake occurred about the purchase price as set out in the APS. They further advised that court authorization was needed to fix this mistake.

The transaction subject to the APS was not completed at the end of August 2017.

Licensed insolvency trustee: The second Jaycap credit bid

On September 6, 2017, the receiver and Jaycap entered into a new agreement (the 2nd APS), which decreased the purchase price. On September 8, 2017, the receiver filed an application to abandon the first approval and vesting order and sought approval of the 2nd APS.

The guarantors were served with the new application. One of the guarantors, a Mr. Richardson, sent out a series of letters to the receiver’s legal counsel asking for information as well as papers to support that a mistake had actually occurred. The receiver’s lawyer answered some, however not all, of these demands.

The application was to be heard on September 19, 2017. It was adjourned to October 26, 2017. The chambers judge reserved to think about the submissions and to evaluate Mr. Richardson’s materials which had not made it into the court documents prior to the hearing.

She released her decision a week later approving the 2nd APS and providing the necessary vesting order. She discovered that she was not prevented from abandoning the first order and providing another.

The chambers judge considered the merits of the 2nd APS and whether it fulfilled the requirements established in Royal Bank of Canada v Soundair Corp (Soundair). She was satisfied the 2nd APS was sensible in the circumstances, whether the receiver had made sufficient efforts to get the best price and was not acting improvidently. She kept in mind the lack of offers, the lack of ability to complete an earlier conditional deal, the earlier order approving the sale, and the changed acquisition price, which was still higher than the property’s appraised value.

Licensed insolvency trustee: The guarantor’s appeal

Under the 1st APS, there was no shortfall and the guarantors had no liability. Under the 2nd APS, there was a shortfall in excess of $1 million that the guarantors would be responsible for.

The guarantors appealed the approval of the 2nd APS specifying that the court erred in finding there was a mutual mistake. Further, given the lack of information provided to Mr. Richardson to his reasonable request for information, the guarantors say that the receiver’s conduct casts doubt on the honesty of the process. They say that the Receiver did not discharge its independent obligation and was following guidelines and instructions from Jaycap, that had a change of mind about the transaction and wanted to decrease the price.

Their position was that the 2nd approval and vesting order needs to be vacated, the 1st APS ought to be reinstated, and the guarantors should be alleviated of their responsibility under the guarantee.

Licensed insolvency trustee: The Appeal Court’s analysis

The Court of Appeal of Alberta agreed with the guarantors that the evidence did not support a mutual mistake was made. They found that it was a mistake for the chambers court to conclude that the test was satisfied.

While the guarantors were successful on this ground, this does not finish the matter. The appeal cannot be successful unless the guarantors establish a reviewable error in the chambers court’s Soundair evaluation.

The guarantors raised two concerns sustaining their allegation that the integrity of the process was jeopardized. First, the receiver fell short in not disclosing all relevant records about what transpired after August 2, 2017. Second, the receiver did not seem to be acting independently of Jaycap.

The Appeal Court agreed that the receiver’s proof about what transpired after August 2, 2017, was not sufficient, also taking into consideration the evidence from the confidential supplement to the third report. The receiver’s lawyer’s conclusion that there was a mutual mistake was inappropriate. That was for the court to decide.

As far as the conduct of the receiver, the Appeal Court had this to say. While insolvency proceedings undergo special procedural rules and are not surprisingly time delicate in nature, these considerations do not relieve the receiver from its basic responsibilities to the stakeholders and the court. Also, it does not excuse the Receiver from supplying proof to fulfill its requirement to provide sufficient evidence to the requisite standard for each application that it brings.

The Appeal Court went on to say that:

  1. A court-appointed receiver is an officer of the Court appointed to
    discharge certain duties listed in the appointment order.
  2. When a court-appointed receiver is appointed, the receiver-manager is given exclusive control over the assets of the company and in this regard, the board of directors is displaced.
  3. The significance of a receiver’s power is to clear up liabilities and sell off assets.
  4. It is well developed that a court-appointed receiver owes a duty of care not just to the Court, but likewise to all parties who may have an interest in the debtor’s assets. This includes competing secured creditors, guarantors, unsecured creditors, contingent creditors, and shareholders.
  5. A receiver has the duty to work out such reasonable treatment, supervision, and control of the debtor’s property as a regular person would give to his or her very own.
  6. A receiver’s duty is to perform the receiver’s powers truthfully and in good faith.
  7. A receiver’s responsibility is that of a fiduciary to all interested stakeholders involved with the borrower’s assets, properties.

The Appeal Court was harsh in its criticism of both the receiver and Jaycap. The court found that the absence of details about what occurred and the method the receiver and Jaycap used to skirt around the issues in its application materials definitely did not assist in showing the receiver’s independence.

The optics of the circumstances most likely added to the guarantors’ uncertainty that what had taken place warranted even more inquiries and that the Receiver was following Jaycap’s instructions to hide from the guarantors the real state of affairs.

Jaycap and the receiver were jointly represented by the same legal counsel before the Alberta Court of Appeal, which was unhelpful and was in the court’s view, highly unusual. Jaycap could not address questions the Receiver would be anticipated to know. Throughout the hearing, the panel discovered that the guarantors’ arguments were convincing.

Licensed insolvency trustee: The Appeal Court’s decision

What was missing was transparency. The process should be transparent. It should enable the court and interested parties to make an informed decision as to whether the sale can be considered fair and reasonable in the circumstances. Given the significant questions left unanswered by the Receiver, the Appeal Court had serious concerns about the efficacy, fairness, and integrity of the process the Receiver followed between August 2, 2017, and the hearing of the application to approve the 2nd APS. As a result, the Alberta Court of Appeal disagreed with the chambers judge that the Receiver met the requirements of Soundair.

The appeal was allowed, and an order was made returning the matter to the lower court for a rehearing before a different judge.

Licensed insolvency trustee: Summary

This decision clearly states what a court expects from a court-appointed receiver.

Does your company have too much debt and is in danger of shutting down? Are you concerned that future interest rate hikes will make currently manageable debt totally unmanageable? Is the pain and stress of financial problems now negatively affecting your health?

If so, contact the Ira Smith Team today. We have decades and generations of helping people and companies in need of financial restructuring and counselling. As a licensed insolvency trustee, we are the only professionals licensed and supervised by the Federal government to provide debt settlement and financial restructuring services.

We offer a free consultation to help you solve your problems. We understand your pain that debt causes. We can also end it right away from your life. This will allow you to begin a fresh start, Starting Over Starting Now. Call the Ira Smith Team today so that we can begin helping you and get you back into a healthy, stress-free life.licensed insolvency trustee receiver appointed by court

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Brandon Blog Post

SUCCESSION LAW REFORM ACT OPPORTUNITIES FROM A TORONTO BANKRUPTCY TRUSTEE

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If you would prefer to listen to the audio version of this Succession Law Reform Act Brandon’s Blog, please scroll down to the bottom and click on the podcast.

Succession Law Reform Act: Introduction

I wish to focus on the last provincial statute that is also important for the administration of a deceased estate; the Succession Law Reform Act, R.S.O. 1990, c. S.26.

This is my last blog in this collection to show how it would certainly be proper to appoint a licensed insolvency trustee (LIT or bankruptcy trustee) (formerly known as a bankruptcy trustee) as the estate trustee (formerly called an executor or executrix) of a solvent deceased estate.

As always, given that we are not lawyers, and I am not offering in this or any of the other Brandon’s Blogs in this series, suggestions on wills or estate issues. For that, you have to consult your lawyer.

My estate trustee blogs

In my blog TRUSTEE OF DECEASED ESTATE: WHAT A TORONTO BANKRUPTCY TRUSTEE KNOWS, I discussed some crucial issues when it entails a deceased estate and why a LIT would certainly be exceptionally knowledgable and qualified to serve as an estate trustee.

In the blog, TRUSTEE OF PARENTS ESTATE: DO I REALLY HAVE TO?, I discussed why many times moms and dads attempt doing the correct thing by selecting their youngsters as estate trustees and the several times it simply ends up all wrong.

In ESTATES ACT ONTARIO: TORONTO BANKRUPTCY TRUSTEE REVEALS HIDDEN SECRET, I describe how the needs and stipulations of the Estates Act are already very familiar to a bankruptcy trustee. As a matter of fact, a lot of the tasks called for by the Estates Act are currently carried out in the insolvency context by a LIT.

My blog ADMINISTRATION OF ESTATES ACT CANADA: EASY FOR TORONTO BANKRUPTCY TRUSTEE TO DO, I clarified why a LIT is an appropriate specialist to lead the management of Estates Act Canada.

In the blog TRUSTEE ACT ONTARIO BY A TORONTO BANKRUPTCY TRUSTEE, I describe the duties of a trustee under the Trustee Act Ontario and how a bankruptcy trustee is experienced to carry out those duties.

In this blog, I will explain why a bankruptcy trustee would be extremely comfortable working with this provincial legislation.

Things an estate trustee must be aware of

The Act has 79 sections and regulations. Sections 1 through 43 inclusive, set the ground rules for establishing wills and their validity.

The Act figures out how your estate and assets will be allocated to family members based on based upon guidance and a collection of policies.

This statute is different from the other ones I reviewed affecting acting as an estate trustee in a deceased estate. The Act is really just a set of guiding rules.

Intestacy and the entitlement of spouse and the preferential share

Section 44 of the Act deals with a person who has a spouse and no living children who die intestate. This section says that his or her spouse is entitled to all the property.

Section 45(1) of this Act deals with the situations where a person dies intestate and has both a spouse and living children. It says that where the value of the deceased’s property is not more than the preferential share, which is a defined term, then the spouse is entitled to all the property.

Preferential share is set by Ontario Regulation 54/95. It says that for the purpose of section 45 of the Act, the preferential share is $200,000.

Section 45(2) of the Act deals with the person who dies intestate, has a spouse and living children, and whose property is worth more than the preferential share. This section says that the spouse is absolutely entitled to the preferential share or the amount of $200,000. Presumably, the spouse and children then have to either agree or litigate about who is entitled to how much of the value above $200,000.

Just to add another wrinkle, Section 45(3) deals with the situation where the deceased dies with a will dealing with some property but intestate to the balance of the property and is survived by both a spouse and children. This section states that the spouse is always entitled to the preferential share out of the property not governed by a will. If the spouse is entitled to property under a will having a value of more than the preferential share ($200,000), then there is no need to be concerned with the workings of the preferential share.

Residue: spouse and children

Section 46(1) of this provincial statute says that where a person dies intestate and has a spouse and one living child, the spouse is entitled to one-half of the residue of the property AFTER payment of the preferential share.

Section 46(2) states that if the intestate dead person has a spouse and more than one child, the spouse is entitled to one-third of the residue. Again, this is after payment of the preferential share. Section 46(3) deals with the situation of any children predeceasing the parent who died intestate. This section says that for the purposes of calculating the spouse’s share, assume the deceased child(ren) is alive.

Distribution of kin

Section 47 of the Succession Law Reform Act deals with how property should be distributed when a person dies intestate. The general principle starts with the property being divided between the spouse and living children as described above. The balance of the section deals with the treatment of grandchildren, parents, siblings and nephews and nieces when a person dies intestate.

This section ultimately says that if there are no kin, then the intestate property becomes the property of the Crown under the Escheats Act, 2015.

Succession Law Reform Act: Designation of beneficiaries of interest in funds or plans, survivorship and support of dependants

The balance of the Act deals with specific rules about:

  • the designation in plans or funds of specific beneficiaries;
  • how to deal with the death of two or more persons at the same time who either hold property together or may be entitled to all or some of the other’s property; and
  • support of dependants.

Summary

I really hope that this collection of blogs show to you just how the various provincial statutes describing the obligations of a trustee or estate trustee tracks actually near to exactly how a LIT executes in either a Court-appointed receivership or bankruptcy mandate.

If you have any type of concerns about a deceased estate and the requirements for an estate trustee, whether it is solvent or insolvent, call the Ira Smith Team. We have decades and generations of experience in helping people and companies overcome their financial problems. You don’t need to suffer; we can end your pain.

If you have any questions at all, contact the Ira Smith Team.

 

Categories
Brandon Blog Post

TRUSTEE ACT ONTARIO BY A TORONTO BANKRUPTCY TRUSTEE

Trustee Act Ontario: Introduction

I want to highlight a provincial statute that is also important for the administration of a deceased estate; the Trustee Act, R.S.O. 1990, c. T.23 (Trustee Act Ontario). This blog continues my blog series to show how it would be proper to appoint a licensed insolvency trustee (LIT or bankruptcy trustee) (formerly known as a bankruptcy trustee) as the estate trustee (formerly called an executor or executrix) of a solvent deceased estate.

As always, since we are not lawyers, and I am by no means providing in this and upcoming Brandon’s Blogs advice on wills or estate planning matters. For that, you must consult your lawyer.

My prior estate blogs

In my blog TRUSTEE OF DECEASED ESTATE: WHAT A TORONTO BANKRUPTCY TRUSTEE KNOWS, I looked at some essential matters when it involves a deceased estate and why a LIT would be extremely knowledgable and competent to act as an estate trustee of a deceased estate with those basic requirements.

In the blog, TRUSTEE OF PARENTS ESTATE: DO I REALLY HAVE TO?, I explained why many times parents try doing the proper thing by appointing their children as estate trustees and how many times it just turns out all wrong.

In ESTATES ACT ONTARIO: TORONTO BANKRUPTCY TRUSTEE REVEALS HIDDEN SECRET, I describe how the requirements and provisions of the Estates Act are already very familiar to a bankruptcy trustee. In fact, most of the duties required by the Estates Act are already performed in the insolvency context by a LIT.

My blog ADMINISTRATION OF ESTATES ACT CANADA: EASY FOR TORONTO BANKRUPTCY TRUSTEE TO DO, I explained why a LIT is a right professional to lead the administration of Estates Act Canada.

In this and my next blog, I will focus on two more Ontario statutes that impact the administration of a deceased estate by an estate trustee. The three statutes are:

  1. Trustee Act, R.S.O. 1990, c. T.23; and
  2. Succession Law Reform Act, R.S.O. 1990, c. S.26

As you have by now correctly guessed, in this blog, I will show how a bankruptcy trustee would be very familiar with the workings of this provincial legislation.

Things an estate trustee must be aware of

There are various sections of the Trustee Act Ontario that affects the duties and responsibilities of an estate trustee in administering a deceased estate. All the concepts are very familiar to a LIT.

Power of court to appoint new trustees

Section 5(1) of this statute gives the Ontario Superior Court of Justice the authority to make an Order for the appointment of a new trustee. This is the same Court that we attend for Court-appointed receivership and bankruptcy matters. So, a LIT is very familiar with the workings and requirements of this Court.

Who may apply for the appointment of a new trustee, or vesting order

Section 16(1) of this provincial statute says that anyone who has a beneficial interest in the property of the trust can apply for the appointment of a new trustee. This is very similar to how a Court-appointed Receiver is appointed. Although it is normally a secured creditor who makes the application, in theory, it could be any party that has an interest. Section 101(1) of the Courts of Justice Act, R.S.O. 1990, c. C.43 states that a receivership Order may be made “…where it seems to a judge of the court to be just or convenient to do so.”. It is the “just and convenient” clause that was relied upon by the judge when we were appointed Receiver and Manager of the assets, properties and undertakings of The Suites at 1 King West condo strata hotel back in August 2007.

For this reason, as a LIT, we are very familiar with this aspect of appointing a trustee.

Power and discretion of trustee for sale

In my blog ADMINISTRATION OF ESTATES ACT CANADA: EASY FOR TORONTO BANKRUPTCY TRUSTEE TO DO, I referred to sections 16 and 17 of the Estates Administration Act. Section 17 in particular, provides the estate trustee with the power to pay off the debts of the deceased. It also allows a trustee to distribute or divide the estate among the beneficiaries.

Section 17 of the provincial Act provides the trustee with the authority to sell, but subject to the requirements of the Estates Administration Act.

A LIT, either in receivership or bankruptcy, is extremely acquainted and experienced in the sale of real and personal property. The LIT likewise makes certain that the creditors are paid in the correct order of priority.

Sales by trustees not impeachable on certain grounds

Section 18(1) deals with a certain aspect of the sale of the property. It states that unless it is proven that there was an inadequate sales price, a sale properly made cannot be impeached by any beneficiary. Any beneficiary wanting to try to impeach a sale must prove that the process used resulted in a sales price at less than fair market value.

Similarly, in a Court-appointed receivership or bankruptcy, the LIT must be able to prove that both the conditions of the sales process and the sales price achieved, was right for the types of assets in the circumstances.

The leading case is the Ontario Court of Appeal decision in Royal Bank of Canada v. Soundair Corp., 1991 CanLII 2727 (ON CA). The process a LIT must follow is known as the “Soundair principles”. This is the test used when deciding whether a receiver or trustee applying for Court approval of a sales process and the authority to sell assets has acted properly. The Court must decide whether the receiver or trustee has:

  • made a sufficient effort to get the best price and has not acted improvidently;
  • considered the interests of all parties;
  • Devised a fair process that has integrity by which offers were obtained; and
  • Introduced any element of unfairness in the working out of the process.

Therefore, I submit, that a LIT is very experienced in devising a sales process and selling assets in a way that is fair to all stakeholders or beneficiaries to attempt to maximize sales proceeds.

Trust funds and investing

Section 26 of the Act deals with the area of the requirement for a trustee to maintain trust accounts and to invest trust property in a way that will maximize the return while not putting the capital at risk to swings in investment pricing, inflation or income tax.

The LIT is very familiar and experienced in trust accounts and the investing of trust funds. Section 25 of the Bankruptcy and Insolvency Act (Canada) (BIA) deals with the requirement of a trustee to establish trust accounts. Also, the Superintendent of Bankruptcy Directive no. 5R5 deals with Estate funds and banking. The Superintendent also monitors the banking of trust funds by all LITs across Canada.

Therefore a LIT is very knowledgeable and experienced in the banking, investing and protection of trust funds.

Security by the person appointed

If letters of administration were granted under the Estates Act, R.S.O. 1990, c. E.21, section 37(2) of the provincial legislation requires every trustee to post security.

I discussed in my blog ESTATES ACT ONTARIO: TORONTO BANKRUPTCY TRUSTEE REVEALS HIDDEN SECRET, the experience of a LIT in the posting of security by way of an insurance company bond.

Actions for torts

Section 38(1) of the provincial statute gives authority to an estate trustee of a deceased person to maintain an action for all torts and injuries to the deceased person or his or her property, except in cases of libel and slander. Any recovery forms part of the deceased’s personal estate. Section 38(3) provides for a limitation on such actions. The action cannot be brought after the expiration of two years from the date of death.

As a LIT, this is a familiar concept to us. When a person or company is insolvent and has a chose in action against one or more parties, such action can be started or continued by a receiver or bankruptcy trustee. In fact, in a bankruptcy, the action actually vests in the trustee.

The receiver or trustee has to make sure that they have a legal opinion on the likelihood of success. The receiver or trustee also has to make sure that they can afford to fund the litigation. The litigation cost cannot reduce the value of the assets under administration. This includes the issue of costs if the action proves unsuccessful.

Distribution of assets under trust deeds for benefit of creditors, or of the assets of the intestate

Section 53(1) of the Act lays out the requirements of a trustee to make a distribution for the general benefit of creditors. As I have described in previous blogs, Section 135 of the BIA deals with the admission and disallowance of proofs of claim and proofs of security.

A LIT is an expert at sorting out creditor claims and could certainly do so under the Trustee Act also.

Trustee Act Ontario: Summary

I hope that this blog reveals to you how the provisions of this provincial statute, detailing the duties of a trustee or estate trustee tracks really close to how a LIT performs in either a Court-appointed receivership or bankruptcy administration.

Therefore, the LIT is used to acting as a Court officer and could very easily perform the requirements and duties of a trustee as described in this provincial legislation.

If you have any questions about a deceased estate and the need for an estate trustee, whether it is solvent or insolvent, contact the Ira Smith Team. We have decades and generations of experience in helping people and companies overcome their financial problems. You don’t need to suffer; we can end your pain.

In my next blog, I am going to write a similar comparison. It will be about the requirements outlined in the Succession Law Reform Act and how a LIT is most familiar with it also.

In the meantime, if you have any questions at all, contact the Ira Smith Team.

 

trustee act ontario

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