Tag: unsecured creditors

THE CANADIAN BANKRUPTCY AND INSOLVENCY ACT EASY BEGINNER’S GUIDE

Post author By Brandon Smith
Post date September 23, 2021

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

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

What is in the Canadian Bankruptcy and Insolvency Act?

Canada’s bankruptcy and insolvency laws are governed by two major pieces of federal legislation: the Canadian Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act. Additionally, provincial legislation intersects with the Canadian Bankruptcy and Insolvency Act. During bankruptcy, a debtor can keep certain types of property based on provincial legislation. Details may differ amongst each Canadian province. Provincial governments and territories have their own laws regarding property exemptions, court orders, and debt collection.

The Canadian Bankruptcy and Insolvency Act (often referred to as the “BIA” or the “Bankruptcy Act“) is a federal government statute that sets out the rules and procedures governing insolvency proceedings in Canada. These rules and procedures will apply to all corporations, individuals and partnerships that are parties to an insolvency filing. The whole point of bankruptcy legislation is to allow the honest but unfortunate debtor to shed themselves of their debts and to allow for the sale of assets or reorganization and refinancing of insolvent persons so that there is also fairness for the different claims of creditors.

Under the Companies’ Creditors Arrangement Act (CCAA), financially troubled corporations are given the opportunity to restructure their affairs in order to avoid bankruptcy. A corporation must have debts of at least $5 million to qualify for the CCAA.

The Canadian insolvency landscape is a complex one, with many different insolvency proceedings being used to deal with many different types of debtors. In this Brandon Blog, I provide an easy beginner’s guide of the Canadian Bankruptcy and Insolvency Act, as a primer into Canadian insolvency legislation and the administration of estates.

This Brandon Blog is not about the nuts and bolts of filing for bankruptcy. Other blogs I have written cover that topic and more. You can use the search function above to search for those Brandon Blog topics.

What is the purpose of the Canadian Bankruptcy & Insolvency Act?

Everyone knows you should do your best to stay out of too much debt, but for many people, it’s an impossible feat. When you’re over your head in debt, you’re having to keep up just to pay the interest on your debt. When you are spending more than you are making, you can’t pay your bills on time, or your assets when liquidated are worth less than your total liabilities, you are insolvent. Insolvency is the main test to see if you, or insolvent companies, qualify to start a bankruptcy process or a formal restructuring process, either under the Canadian Bankruptcy and Insolvency Act or the CCAA.

The Bankruptcy Act was designed to help Canadians who find themselves in financial difficulty. It is the main piece of Canadian insolvency legislation that governs bankruptcy proceedings, receivership and personal and corporate restructuring proceedings through consumer proposals and commercial proposals. Commercial proposals are also available for those people with consumer debt levels greater than the amount allowed to qualify for a consumer proposal. All Canadian bankruptcies, proposals and receiverships are governed by the Act. It contains bankruptcy laws, rules and guidelines for all stakeholders: the Superintendent of Bankruptcy (which is part of Industry Canada) the Licensed Insolvency Trustee, the debtor, and the creditors.

What options are available under the Canadian Bankruptcy and Insolvency Act?

The Canadian Bankruptcy and Insolvency Act provides a number of ways to deal with a financially troubled company or person. Most involve a court-supervised process. The options for a person or business in financial trouble and not able to right themself or itself are:

Consumer proposal

It is an offer to your creditors to repay a portion of your unsecured debt obligations in exchange for their elimination (with certain limited exceptions as laid out in the Bankruptcy Act). You can qualify if you owe $250,000 or less, excluding any debts registered against your home, such as mortgage debt or secured home equity line of credit debt.

A person proposes a plan to make monthly payments to the Licensed Trustee acting as the consumer proposal Administrator. The total amount offered to your unsecured creditors must be agreed upon by them. Within 60 months, you must pay off the entire amount accepted. Creditors typically accept a total payment of 25% or less of your total unsecured debt. Individual situations vary, however.

A successfully completed consumer proposal allows the insolvent person to eliminate their debts and avoid an assignment into bankruptcy.

Commercial proposal

Commercial proposals are also known as Division I proposals. The reason for this is because it is provided under Canadian Bankruptcy and Insolvency Act, Part III, Division 1 (consumer proposals are found under Part III Division II). An insolvent corporation or person can use it for restructuring proceedings. When a consumer’s debt exceeds the limits of a consumer proposal, a “commercial proposal” would be filed. If a definitive commercial proposal cannot be immediately prepared but the debtor needs to file in order to invoke the stay of proceedings (discussed in the next section), they can get the immediate protection they need by first filing a Notice of Intention To Make A Proposal.

A commercial proposal works in a very similar way to a consumer proposal, except for some differences as follows:

- A commercial proposal may have various classes of creditors. A consumer proposal normally does not.
- Unlike for a person, there is no streamlined reorganization process for companies. Therefore, even if its debt is $250,000 or less, a company cannot file a consumer proposal.
- A meeting of creditors must be held as part of a commercial proposal. If the Official Receiver (being a representative of the Superintendent of Bankruptcy), doesn’t wish to chair the meeting, it can be delegated to the Trustee. A creditor who has filed a valid proof of claim has voting rights. They have the right to vote ahead of the creditors’ meeting by using a voting letter or in person. An official meeting of creditors is only held in a consumer proposal if 25% of the proven creditors’ claims request one.
- In a consumer proposal, if a meeting is not requested, the consumer proposal is deemed approved and there are no voting rights to be concerned about. If a meeting is requested, then the creditors who attend the meeting can vote by ordinary resolution for the acceptance of the consumer proposal. In a commercial proposal, it is a two-pronged test: 3/4 of the $ value voting AND a majority in the number of those voting.
- If the commercial proposal is voted down, the person or company is immediately deemed to have filed an assignment in bankruptcy. There is no such automatic bankruptcy if a consumer proposal is not accepted.

As soon as the commercial proposal is accepted by the creditors and approved by the court, the debtor starts making the payments promised in the proposal to the Insolvency Trustee. Once full payment has been made, the trustee in bankruptcy will issue to the person or company their Certificate of Full Performance. At this point, all provable claims, regardless of whether they filed a proof of claim or not.

As part of a successful restructuring process, the Trustee will run a claims process, vet every proof of claim to ensure that they are valid and that only an allowable claim is considered for distribution purposes. The Trustee will then comprise a scheme of distribution in order to distribute the funds promised to the creditors in the commercial proposal.

Restructuring under either the Canadian Bankruptcy and Insolvency Act or CCAA becomes possible for companies with debts greater than $5 million.

Receivers and Secured Creditors

Receiverships are remedies for lenders who have loaned money out and taken security over the debtor’s assets. It is most common in Canada for financial institutions to be lenders to Canadian businesses. As long as their loan documents, including the security agreement, allow for it in writing, a secured creditor may appoint a receiver when a debtor defaults on secured debt. Secured creditors and receivers are subject to certain requirements under the Canadian Bankruptcy and Insolvency Act.

Receivership relies both on provincial laws and federal legislation. The Bankruptcy Act specifies several main requirements for receivership, including:

- It is not permissible to enforce a security interest on the business assets of an insolvent person unless the secured creditor has given 10 days prior notice in the prescribed form and manner.
- Only a Licensed Insolvency Trustees (formerly called Trustees in Bankruptcy) can act as a receiver.

The secured creditor can appoint the receiver privately or with court approval.

A private receiver’s primary responsibility is to the secured creditor who appointed it. A court-appointed receiver is an officer of the court who protects the interests of all creditors of the debtor company.

Private receivers usually have from the security documents the power to run the debtor’s business and sell the debtor’s assets through auctions, tenders or private sales.

A court appointment is also preferred over a private appointment when there are significant claims against the debtor or its property as well as litigation or a threat of litigation. It is according to the provincial rules of court and s. 243 of the BIA (National Receiver) that a court may appoint a receiver.

The receivership order normally stays proceedings (discussed below in the next section) against the receiver, the debtor, and its property. In terms of its purpose, it gives the receiver authority to manage the assets of the debtor, to borrow money against the assets to repay a loan, to sell the assets of the debtor with the approval of the court, and to commence and defend litigation on behalf of the debtor. A privately-appointed receiver does not enjoy a stay of proceedings.

Bankruptcy

If a personal or commercial restructuring is not possible, then the insolvent person or company has no choice but to file for bankruptcy. The first step in dealing with insolvency is to consult an insolvency trustee. You can learn about the bankruptcy administration process and your legal rights from Trustees in Bankruptcy so you can make an informed decision. A candid discussion about how much you earn, what assets you own, and what types of debts you have can help you decide if bankruptcy is the best choice for you.

Here is what the Canadian bankruptcy procedure is all about. After the bankruptcy assignment has been completed, the Trustee submits it to the Office of the Superintendent of Bankruptcy Canada. All legal obligations will be handled by the Trustee once the assignment has been filed. Your creditors will no longer receive payments directly from you.

The Trustee administers your bankruptcy. No more lawsuits or wage garnishments for you. Depending on your province’s law, some of your assets will certainly be exempt. The bankruptcy vests your non-exempt assets in the Trustee. The Trustee will sell them. According to the Canadian Bankruptcy and Insolvency Act, the proceeds will be for the benefit of the bankrupt estate and there could be a scheme of distribution among your preferred creditors and ordinary unsecured creditors.

In the administration of bankruptcy, the Trustee will send your creditors a notice of bankruptcy. You must attend a creditors’ meeting if one is called. Additionally, you will need to attend two counselling sessions. Canadian insolvency legislation in Canada includes rehabilitation programs to help individuals regain financial stability.

Finally, you may need to make payments toward your debt. “Surplus income payments” ensure that people who declare bankruptcy and have sufficient income contribute to paying back a portion of their debt. Your debts will eventually be discharged, relieving you from the obligation of repaying most of the debt you had on the day you filed for bankruptcy.

Despite the fact that most debts can be discharged, some cannot, namely:

alimony and child support;
court fines and penalties;
debts related to fraud; and some
student loans.

You will suffer credit damage for several years after filing for bankruptcy. After your debt is discharged, you can start rebuilding your credit. Although it’s not ideal, it will lift the burden from your shoulders and solve the debt problems you couldn’t resolve on your own.

Canadian Bankruptcy and Insolvency Act: Can bankruptcy protect you from creditors?

In addition to bankruptcy, any filing listed above under the Canadian Bankruptcy and Insolvency Act will protect you from creditors. In fairness to all stakeholders, the filing calls for a “time out” after which no claims for money, lawsuits, or collection efforts are permitted. In legal jargon, we call this a stay of proceedings.

By virtue of the individual’s bankruptcy or insolvency, you may not terminate, amend, or accelerated pay, or claim the term of any agreement. When an insolvent person files a notice of intention or a proposal, a similar provision is made.

Just like in bankruptcy, if you file a notice of intention or a Division I proposal or Division II proposal, all proceedings automatically stay and no creditor is entitled to take any action against the debtor or to pursue any execution or other proceeding for the recovery of a claim provable.

Commercial proposals are normally worded so that Directors of insolvent companies who have filed notices of intention or proposals enjoy similar protection.

A word on cross-border insolvencies

Many of the large CCAA reorganization filings in recent times have been cross-border insolvencies. Canadian courts prefer that cross-border insolvencies proceed as a single process with one jurisdiction acting as the primary entity. The Canadian court examines whether the Canadian case should be considered the main proceeding in order to determine whether it is significant and connected to Canada.

The other jurisdiction (most often the U.S.) usually recognizes the Canadian court’s authority when the court believes the insolvency action should be handled, for the most part, in Canada. Likewise, the opposite is also true.

Canadian Bankruptcy and Insolvency Act: Personal bankruptcy

Canadian Bankruptcy and Insolvency Act summary

I hope you found this Canadian Bankruptcy and Insolvency Act Brandon Blog informative. With too high household debt levels and not enough wealth, you are insolvent. You can choose from several insolvency processes to get the debt relief that you need and deserve. It may not be necessary for you to file for bankruptcy.

If you or your business are dealing with substantial debt challenges, you need debt help, and you assume bankruptcy is the only option, call me.

If you’re thinking about bankruptcy, you’re probably in a situation where you’re overwhelmed, frightened, and feel like you’re alone. That’s natural and it is not your fault.

It’s good that you’ve come to this site, where you’ll find answers to your questions, sort through your options, and discover that you can get help. You’re not alone, and the professionals at Ira Smith Trustee & Receiver Inc. are committed to helping you find a debt solution that’s best for you.

It is not your fault that you remain in this way. You have actually been only shown the old ways to try to deal with financial issues. These old ways do not work anymore.

The Ira Smith Team utilizes new modern-day ways to get you out of your debt difficulties with debt relief options as an alternative to bankruptcy. We can get you the relief you need and so deserve. Our professional advice will create for you a personalized debt-free plan for you or your company during our no-cost initial consultation.

You are under a lot of pressure. Our team knows how you feel. You and your financial and emotional problems will be the focus of a new approach designed specifically for you. With our help, you will be able to blow away the dark cloud over your head. We will design a debt settlement strategy for you. We know that we can help you now.

We understand that people with credit cards maxed out and businesses facing financial issues need a realistic lifeline. There is no “one solution fits all” method with the Ira Smith Team. Not everyone has to file bankruptcy in Canada. The majority of our clients never do as we know the alternatives to bankruptcy. We help many people and companies stay clear of filing an assignment in bankruptcy.

Because of this, we can develop a new method for paying down your debt that will be built specifically for you. It will be as unique as the economic problems and discomfort you are experiencing. If any one of these seems familiar to you and you are serious about getting the solution you need to become debt-free, contact the Ira Smith Trustee & Receiver Inc. group today.

Call us now for a no-cost consultation.

canadian bankruptcy and insolvency act

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

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

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

Brandon Blog Post

WHAT IS THE POWERFUL CRA LIEN ON PROPERTY TOOL?

Post author By Brandon Smith
Post date September 13, 2021

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

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

If you would prefer to listen to the audio version of this CRA lien on property Brandon Blog, please scroll to the very bottom of this page and click play on the podcast.

CRA lien on property: Canada Revenue Agency’s collection powers

The CRA (formerly known as Revenue Canada) assigns “collection officers” to taxpayers who fail to make timely payments or who do not pay in full. For the CRA to agree to a payment arrangement (usually monthly payments), the taxpayer must provide financial disclosure on a monthly basis (details of their expenses, their income, and their assets).

Tax debts that cannot be settled through a payment plan may be registered in Federal Court. Once the debt is certified, the certificate is equivalent to a judgment entered in court. This is called a memorial. If you own property, the CRA can create a lien on your property based on your judgment. A CRA lien on property against your interest in your home is the most common CRA lien on property they register.

This Brandon Blog discusses a recent decision from the British Columbia Supreme Court that confirms that the CRA lien on property becomes secured once they are registered.

CRA lien on property: CRA Super Priority Liens

I previously wrote a Brandon Blog about the legal case of Canada v. Toronto-Dominion Bank. By mentioning this case, I hope that my comments about the recent British Columbia Court decision below will be clearer.

Federal statutes give CRA a creditor powerful tools to collect debts. They can access avenues of collection significantly quicker than other types of creditors. It was not known to Toronto-Dominion Bank (TD) that, as a sole proprietor operating a landscaping business, the borrower had collected GST in the amount of $67,854.

After selling his home, the borrower fully paid off his first mortgage with TD. TD did not lend to or deal with the proprietor’s business. Since there was no CRA lien on property against the house, TD was not aware of the outstanding GST.

The CRA has enhanced security, known as “super-priority”, over most of a tax debtor‘s real property and personal assets, by virtue of deemed trust provisions in the Income Tax Act and Excise Tax Act (ETA). CRA has priority over substantially all secured creditors under the deemed trust concept, which means that the proceeds of the sale from the property subject to the deemed trust will go to CRA. A deemed trust claim is a CRA lien on property and is obtained without any registration.

A demand letter was subsequently sent to TD demanding that a portion of the proceeds be used to satisfy the GST debt. TD refused to pay since they believed their mortgage security ranked higher than CRA’s claim for unremitted GST. Court action was taken against TD by the CRA. The Crown argued that under section 222 of the ETA, the proceeds received by TD on the repayment of the mortgage and line of credit were subject to a deemed trust in favour of the Crown.

The Federal Court held that TD had an obligation to reimburse the CRA for the debt of $67,544, plus interest, owing by the Borrower to the CRA. Super-priority interests can be enforced by the CRA without notifying the secured creditor. TD was responsible for repaying CRA amounts received from a borrower with an outstanding GST/HST bill.

cra lien on property

FCA confirms CRA super-priority over secured creditors on a GST/HST debtors’ property

TD appealed the decision of the Federal Court to the Federal Court of Appeal (FCA). According to the FCA ruling in Toronto-Dominion Bank v Canada, the FCA agreed with the lower Court that TD must pay the CRA proceeds of $67,854 for unremitted GST that it received from a borrower upon the discharge of its mortgage. CRA is considered to hold in trust amounts paid to a secured creditor from a debtor who owes Goods and Services Tax/Harmonized Sales Tax (GST/HST) liabilities.

FCA affirmed the Federal Court’s finding that no triggering event was required and that the deemed trust operates continuously once GST is collected but not remitted. Further, the FCA noted that case law has distinguished between secured creditors and bona fide purchasers of value, such that the two categories are mutually exclusive.

It is best for secured creditors to review their current risk management practices and revise them both at the time of due diligence when vetting new borrowers as well as throughout the term of any secured credit agreement.

If we were talking about unremitted employee source deductions, the result would be the same.

CRA lien on property: Personal income tax debt collection

CRA is a powerful creditor when it comes to personal income tax debt collection. Above I discussed how they can get a CRA lien on property just by way of the statute for unremitted source deductions or unremitted GST/HST. But what about personal income taxes? CRA does not have an automatic lien for unpaid income taxes.

However, they can go to Federal Court and obtain a memorial and then register that CRA lien on property of the tax debtor who fell behind in their payment of taxes. Once they place that lien, they now turned their unsecured claim for unpaid taxes into a secured claim. As I already mentioned, the most common type of property they register against is real property, like the tax debtor‘s home.

If the CRA lien on property goes on the real property before the person who owes unpaid income taxes files either a consumer proposal or bankruptcy, then the CRA lien on property stays on. CRA will not try to go power of sale or foreclosure to throw the taxpayer out of their home based on this tax lien. Rather, they will just wait until the taxpayer either sells the home or tries to renew or refinance a mortgage.

In the case of a sale, they will get their tax lien paid out of the sale proceeds. In the case of a mortgage renewal or refinancing, mortgage lenders will not do a new mortgage loan or a refinancing with the CRA lien on property. This is how they get their money.

Keep in mind that the lien is only against the taxpayer’s interest in the home. So if the tax debtor is the sole owner, it is against 100% of the home. If the taxpayer owns the home jointly with say, a spouse, then the lien is only against the 50% interest.

cra lien on property

CRA lien on property: Can Canada Revenue Agency put a lien on my house?

You should now know that the answer to this question is yes. Licensed insolvency trustees know this. Nevertheless, in the British Columbia case I will describe now, the Trustee tried a novel, but an unsuccessful, approach to try to knock out CRA’s lien on property secured claim to collect taxes owed by the tax debtor. I am referring to Gidda (Re), 2021 BCSC 1460 (CanLII).

The licensed insolvency trustee appealed the decision of the Master as Bankruptcy Registrar dated February 3, 2020, reversing the Trustee’s rejection of a secured proof of claim filed by the federal Crown on behalf of the CRA in the bankruptcy. As well, the Trustee appealed the Master’s ruling that he is personally liable for the costs of the proceeding.

The CRA has taken out a memorial to attach a lien in favour of CRA to the taxpayer’s home due to unpaid income taxes. Then he filed for bankruptcy. So the lien against property holds as it came before the bankruptcy. A secured proof of claim for unpaid income tax was filed by the CRA in response to the memorial and registered tax lien. A secured claim was granted to CRA, which was not directly contested by the Trustee.

In my opinion, this claim, however, was handled by the Trustee in a novel way that wasn’t sustainable. It was so novel that the Judge took judicial notice of the submissions that such a case was never litigated before in Canada. There were also a number of judgments against the title of the property in addition to the memorial. There was no priority among the other judgments.

According to section 70(1) of the Bankruptcy and Insolvency Act (Canada) (BIA), bankruptcy takes precedence over judgments, garnishments, and any collection action. Furthermore, no judgment takes precedence over another.

A memorial is a judgment of the Federal Court, and since all judgments are treated equally as unsecured creditors, the Trustee disallowed CRA’s secured claim. Because the memorial and its registration against the title are secured claims under other federal statutes, it has powers not given to other simple money judgments. Therefore, I believe it is a losing argument. So did the Master.

In addition, the Master believed that the Trustee ought to have been aware of this when disallowing CRA’s secured claim and causing it to appeal the Trustee’s decision. Therefore, the Master awarded the Crown costs to be paid by the Trustee personally.

On both counts, the Trustee appealed the Master’s decision. The Judge who reviewed this found that the Master was correct in upholding the CRA secured claim and dismissed this portion of the Trustee’s appeal. The Judge did, however, let the Trustee off the hook by allowing the costs portion of the appeal. According to the Judge, the costs awarded by the Master will be paid by the bankruptcy estate and not by the Trustee personally.

CRA lien on property: Say goodbye to debt stress

I hope that you found this CRA lien on property Brandon Blog informative. Unpaid taxes and a heavy debt load do not mix well. If you have too much debt, you are considered insolvent. There are several insolvency processes available to you. It may not be necessary for you to file for bankruptcy.

If you are concerned because you or your business are dealing with substantial debt challenges, you need debt help and you assume bankruptcy is your only option, call me.

It is not your fault that you remain in this way. You have actually been only shown the old ways to try to deal with financial issues. These old ways do not work anymore.

The Ira Smith Team utilizes new modern-day ways to get you out of your debt difficulties with debt relief options as an alternative to bankruptcy. We can get you the relief you need and so deserve. Our professional advice will create for you a personalized debt-free plan for you or your company during our no-cost initial consultation.

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

We understand that people with credit cards maxed out and businesses facing financial issues need a realistic lifeline. There is no “one solution fits all” method with the Ira Smith Team. Not everyone has to file bankruptcy in Canada. The majority of our clients never do as we know the alternatives to bankruptcy. We help many people and companies stay clear of filing an assignment in bankruptcy.

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

Call us now for a no-cost consultation.

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

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

cra lien on property

Brandon Blog Post

A BANKRUPTCY DISCHARGED IS THE KEY TO HEARTWARMING DEBT ELIMINAT1ON

Post author By Brandon Smith
Post date August 23, 2021

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

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

If you would like to listen to the audio version of this Brandon Blog, please scroll to the very bottom and click play on the podcast.

**Your Bankruptcy Discharged – But Wait**

Well, that took no time at all. Last week I told you about a bankruptcy discharge hearing I attended where the bankrupt person had his bankruptcy discharged by the Master in the Ontario Superior Court of Justice In Bankruptcy and Insolvency.

The Master’s decision was released on August 13, 2021. On August 20, 2021, we received the Notice of Motion of the opposing creditor appealing the Master’s decision to give this person his discharge from bankruptcy. That is their right.

In this Brandon Blog, I want to discuss the reasons for the opposition to the fact that this bankrupt had his bankruptcy discharged and my thoughts on one scenario of how this may play out. First, I just want to refresh your memory about the bankruptcy process and specifically how the discharge under bankruptcy law in Canada process works. Then I will get into this real-life story.

Bankruptcy is a roughly 9-month legal process to eliminate debt for the simplest of cases

Canada’s Bankruptcy and Insolvency Act (BIA) gives people the option of filing a debt management plan restructuring consumer proposal if they are unable to pay back all unsecured debt owing to their unsecured creditors. This option offers the consumer a way to maybe keep their home and car that is heavily financed, as long as they can maintain the payments to the secured creditors such as the financial institution who financed the purchase of the home by way of the mortgage, or the auto loan, and it makes sense in their budget.

A successful consumer proposal is also the way to avoid bankruptcy. Like bankruptcy, the process starts with a no-cost consultation for financial advice with a licensed insolvency trustee. A licensed trustee is the only party able to administer a consumer proposal in Canada (or a bankruptcy). The Trustee can help you lose your debt load.

A first-time bankrupt who fulfills all of their obligations, including attending 2 mandatory credit counselling sessions, is entitled to a discharge after 9 months from the date of bankruptcy.

A bankruptcy discharged: First and second bankruptcy (or more)

When an insolvent debtor files for bankruptcy for a second time, you cannot be discharged after a nine months bankruptcy period. When you don’t need to pay the Trustee any surplus income payments, a second bankruptcy lasts for a minimum of 24 months. A second-time bankruptcy filer with surplus income must make those payments for 36 months to qualify to get their bankruptcy discharged.

A third or subsequent bankruptcy follows the same timeline as a second bankruptcy. There is, however, a high probability that the Trustee or creditors will oppose the discharge. Where there is opposition, there must be a court bankruptcy discharge hearing and the court can impose any conditions it deems appropriate.

What does bankruptcy discharged mean in Canada?

It is a Canadian legal term used to describe the release of a consumer debtor or business proprietorship from their obligations, responsibilities, debts, and legal claims. “Bankruptcy” is a legal proceeding to protect the estate of a person or company. “Discharge” fulfills the requirement that a person is released from their obligations, responsibilities, debts, and legal claims through the bankruptcy process. There is no equivalent requirement for a company.

The insolvent debtor filing for bankruptcy merely invokes the legal protection to the person and puts a bankruptcy trustee in place to realize upon any available assets in the bankruptcy estate for the benefit of the creditors. Bankruptcy filings do not relieve the person of their debts. It is when the person is bankruptcy discharged, that they are released from their debts (other than for a select list of exceptions).

Bankruptcy discharged: Types of bankruptcy discharge

The licensed insolvency trustee can usually issue an automatic discharge when there is no trustee in bankruptcy opposition or creditor opposition to a bankrupt’s application for discharge, and the bankrupt has fulfilled all of their duties during bankruptcy.

In case of opposition or if the bankrupt meets one of the criteria that prevents automatic discharge (for example, the bankruptcy process finds the bankrupt to have a high tax debt situation), a discharge hearing in court is held, which is conducted by the Master of the Bankruptcy Court. There are four types of the bankruptcy discharge and a fifth outcome is also possible. Here they are:

Absolute discharge – An absolute discharge means that the bankrupt may obtain a discharge immediately. If the bankrupt has fulfilled all of their duties and there is no insolvency trustee or creditor opposition, this can be provided by the licensed insolvency trustee of the bankruptcy estate handling the bankruptcy administration;
Conditional discharge – can get discharged if certain conditions are met. Typically, to get bankruptcy discharged this way, conditions include payment to the licensed insolvency trustee;
Suspended – the bankruptcy discharge will be granted at a later date and may very well be combined with an absolute bankruptcy discharge or conditional bankruptcy discharge;
Refused– because the debtor has not made full disclosure or done other bankruptcy duties; or
“No order” – the insolvency trustee informs the court that the bankrupt has not fulfilled all of his or her obligations and has failed to respond to the Trustee’s demands for information despite the passing of time. The licensed insolvency trustee is at liberty to seek its discharge when the “no order” order is provided. When the bankrupt has actually complied with the court’s requirements, he or she may apply for a hearing for discharge. When the Trustee gets its discharge, the stay of proceedings preventing collection actions against the bankrupt disappears.

A bankruptcy discharged: The appeal just served upon us – a true story

To refresh your memory about the discharge hearing itself you can CLICK HERE. The appeal just served upon us seeks an Order setting aside the decision of the Master made on August 13, 2021. The grounds for the appeal can be described as throwing everything including the kitchen sink! The stated grounds are that the Learned Registrar erred:

by granting the bankrupt an absolute discharge from bankruptcy;
in holding that the Receiver’s interest in the discharge application is not firmly established and by not recognizing that should the Receiver be paid an amount in excess of the debt owed to the secured creditor, any surplus funds would be available for the other creditors of the
corporate bankruptcy estate;
in holding that the discharge hearing is not the proper forum in which to make determinations as to the propriety of the various transactions that the Receiver has raised;
in finding that the bankrupt has generally cooperated with me as his Trustee;
in declining to consider the bankrupt’s conduct in the corporate bankruptcy because that the trustee in the corporate bankruptcy had remedies available to it;
in finding that the failure of the company’s business was due to the loss of its 1 customer and pricing related to that arrangement;
in relying on her finding that the corporate trustee may be the only truly interested party on the discharge or would benefit most from the conditional order sought if the secured debt is otherwise repaid;
in exercising her discretion in finding that an order of discharge requiring payment of the significant amount proposed by the Receiver is not reasonable;
in finding that the bankrupt has no ability to pay and that his future prospects to pay are unknown;
in finding that an order for a conditional discharge of the magnitude sought would be tantamount to a refusal;
by omitting to consider relevant evidence or the absence thereof, in relying on irrelevant considerations, and/or giving improper weight to the evidence before the Court; and
anything else the lawyers may want to say.
bankruptcy discharged

Standard of review to getting a personal bankruptcy discharged

Such an appeal from a bankruptcy discharge hearing has a standard of review. According to BIA S. 192(1), the bankruptcy registrar can, among other things, grant orders of discharge. S. 192(4) of the BIA permits a party dissatisfied with a registrar’s order or decision to appeal it to a judge.

Registrars are exercising judicial discretion when granting discharges in bankruptcy cases. As long as the registrar acted reasonably, the judge should not set it aside or ignore it. Furthermore, if an appeal from a bankruptcy discharge order is based on alleged errors in factual findings, the court will not intervene if the findings of fact can be justified based on credible evidence. If the registrar has materially misinterpreted the law or made an error in respect of the facts underpinning his or her discretion, discretionary decisions can, of course, be overturned.

If the registrar decides that in order for the person to get their bankruptcy discharged, the court imposes conditions, those conditions must be realistic to allow the bankrupt to meet the requirements in a reasonable amount of time. If an amount ordered in order for the person to get their bankruptcy discharged is unrealistic and the discharge is conditional on making additional payments, the appellate court in such cases previously held that results in an error of law. The appellate judge can either substitute other conditions or refer the matter back to the registrar for reconsideration.

A bankruptcy discharged: What my gut is telling me

I normally am not in the prediction business. However, having been the insolvency trustee responsible for administering the consumer bankruptcy, having written the reports to the court on the bankrupt’s application for discharge, having attended the discharge hearing and having heard all the evidence, having read the Registrar’s decision and the Appeal documentation, I believe that the appeal should be dismissed.

You might recall that opposing the bankrupt getting bankruptcy discharged was the Receiver of the company previously operated by the bankrupt. As a result of complaints regarding the bankrupt and his family in relation to the company’s operations, the Receiver has filed lawsuits against several parties. The proceedings are still pending. According to previous court rulings, the court should not consider the issues raised in other proceedings when deciding whether to discharge the bankrupt. A discharge hearing is a summary proceeding. It is important to see how the debtor behaved during HIS bankruptcy.

As for the judge’s decision, only time will tell. I’ll keep you up to date as always.

Bankruptcy discharged summary

I hope that you found this bankruptcy discharged Brandon Blog helpful in telling this real-life story of an appeal to a person getting their bankruptcy discharged. Problems will arise when you are cash-starved and in debt. There are several insolvency processes available to a person or company with too much debt. You may not need to file for bankruptcy.

If you are concerned because you or your business are dealing with substantial debt challenges, you need debt help and you assume bankruptcy is your only option, call me.

It is not your fault that you remain in this way. You have actually been only shown the old ways to try to deal with financial issues. These old ways do not work anymore.

Call us now for a no-cost consultation.

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

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

Brandon Blog Post

WHAT DOES RECEIVERSHIP MEAN FOR 1 BETTER GUARANTOR BANKRUPTCY DISCHARGE

Post author By Brandon Smith
Post date August 18, 2021

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

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

what does receivership mean

What does receivership mean: Receivership is for secured claims

What does receivership mean? A receivership is an enforcement proceeding that helps secured creditors recover secured debts on debtor defaults on loan payments from troubled companies. There are two types of receivers and receiverships: Privately-appointed receivers and court-appointed receivers.

As you can tell from the title of this Brandon Blog, I am not going to be writing about receiverships. You can take a look at my April 14, 2021, Brandon Blog titled “WHAT IS A RECEIVERSHIP? OUR COMPLETE GUIDE TO RECEIVERSHIP SOLUTIONS” to read all about what receiverships are.

What does receivership mean? It is a remedy for secured creditors.

I want to go through two more concepts quickly, and then I will get to what I really want to talk to you about today.

What does receivership mean: Bankruptcy vs. receivership

Despite the fact that receivership and bankruptcy sometimes get used interchangeably, they are not the same thing. A bankruptcy proceeding and a receivership proceeding are both legal actions conducted under the Bankruptcy and Insolvency Act (Canada) (BIA) and governed by the Office of the Superintendent of Bankruptcy (OSB). According to the BIA, either a receiver or a bankruptcy trustee in Canada needs to be a licensed insolvency trustee, whose license is granted and whose actions are supervised by the federal government’s OSB.

Here is where the similarities end. In a receivership, a secured creditor would either hire a receiver privately or ask a court to place a company into receivership and appoint one to liquidate the collateral they have against the debtor. According to the Canadian bankruptcy process, either the person or company voluntary files for bankruptcy with a licensed insolvency practitioner, or one or more unsecured creditors apply to the Court for the appointment of an insolvency trustee to administer the bankruptcy Estate.

Licensed insolvency trustees are needed in both cases. The receivership procedure is a secured creditor’s remedy and bankruptcy is an unsecured creditor‘s remedy. To read up more on the bankruptcy process, look at my September 30, 2020, Brandon Blog “DECLARE BANKRUPTCY: A COMPLETE GUIDE ON WHAT IS IT LIKE TO DECLARE BANKRUPTCY“.

What does receivership mean? Not the same as bankruptcy.

Employee Rights in Bankruptcy Protection and Bankruptcy⁄Receivership

Bankruptcy protection can be gained to try to make a troubled company stable and then return the company to profitability by filing pursuant to either the BIA or the Companies’ Creditors Arrangement Act (CCAA), employees retain their right to unpaid wages, vacation pay, and severance or termination pay. There is no difference between filing and not filing. They are unsecured creditors of a troubled company, and the company directors are personally responsible for amounts owed to employees.

For the company in receivership or bankruptcy, the employees do have greater rights. The receiver of a company in receivership must register with Service Canada under the Wage Earner Protection Program Act (WEPPA) for the Wage Earner Protection Program. This program provides some compensation to eligible employees who are owed money by a bankrupt or receivership company.

To read more about WEPPA, take a look at my February 10, 2020 Brandon Blog, “SEVERANCE PAY ONTARIO & BANKRUPTCY-BARRYMORE FURNITURE UNPAID WORKERS ANGRY“.

So what does receivership mean to an employee with unpaid wages? It means they can claim a priority and get paid by Service Canada.

***What does receivership mean: Receivership – a typical appointment***

Now I will get to what this Brandon Blog is actually about. In Canada, it is the norm for secured creditors advancing loans secured against company assets, to also take a personal guarantee on the same debt from the principals of the company. In all entrepreneurial companies in Canada, that is at least the president running company affairs. If the lender-secured creditor suffers a shortfall from the liquidation of the company assets, the lender then looks to the guarantor(s) of the company debt to make good on the lender’s loss. Many times the company president/guarantor has no choice but to file consumer bankruptcy.

I was involved in a bankruptcy discharge hearing for one of our personal bankrupts in April 2021. He caused his company, being its sole Director, to file for bankruptcy with another Trustee. That same Trustee was also appointed as the company’s private receiver by the secured creditor. The company president provided the secured creditor with a personal guarantee.

Realizing that they would suffer a shortfall from the company situation, rather than suing on their personal guarantee, they approached us to consent to act as the Trustee in a Bankruptcy Application against the company president. We consented and the company president ultimately consented to a Bankruptcy Order being made to put him into bankruptcy with my Firm as the Trustee.

What does receivership mean: The bankruptcy of the guarantor

We administered the consumer bankruptcy. There were some assets to realize upon which we did. One realization required court approval as we were selling seat licenses and the right to purchase tickets for the Toronto Maple Leafs to a related party. The bankrupt person’s largest single consumer creditor was Canada Revenue Agency for unpaid income tax. The company in receivership was also a creditor as the president owed the company money. The secured creditor of the company was also an unsecured creditor of his in his personal bankruptcy for the personal guarantee on the shortfall.

The known creditors each filed their respective proof of claim in his bankruptcy, including the company by its privately-appointed receiver. We believed that the company by its receiver was a creditor for the amount of the shareholder loan owing to the company. The proof of claim they filed was for a much larger amount. As Trustee, we neither admitted nor disallowed any proofs of claim filed in this bankruptcy estate. The Trustee would have to take a cold hard look at the receiver’s proof of claim at some future date it is determined that a dividend will be paid to the creditors in this bankruptcy estate, which is highly unlikely.

What does receivership mean: The receiver opposes a bankruptcy discharge

Only one unsecured creditor opposed the bankrupt’s discharge. That was the receiver, or more correctly, the company in receivership by its privately-appointed receiver. The Trustee had not opposed. The lender, as an unsecured creditor, did not oppose either along with the other consumer creditors.

As I mentioned, in April 2021, the discharge hearing was held before the Master sitting as Registrar in Bankruptcy Court. The court raised a novel issue. Does the receiver have the standing to oppose the bankrupt’s discharge? The court allowed the hearing to be completed and allowed the parties to file further submissions, subsequent to the hearing, on this issue. Submissions were received from us, the
Trustee and from the Receiver in mid-May, 2021. The bankrupt took no position on the issue.

Does the Receiver have standing to oppose the bankrupt’s discharge?

Here is what I wrote to the court.

The security documents under which a privately-appointed receiver is appointed will determine if an unsecured amount owing by a bankrupt debtor is an asset secured by security held by a creditor over the assets of another party. If so, then the privately-appointed receiver has the right to file a proof of claim in the debtor’s bankruptcy as part of attempting to realize upon that asset forming part of the secured creditor’s collateral.

In doing so, the privately-appointed receiver is acting as Agent for the secured creditor. If the privately-appointed receiver files a proof of claim in the bankruptcy that is not disallowed by the licensed insolvency trustee administering the bankruptcy estate, then, in order to oppose the discharge of the bankrupt, the privately-appointed receiver must also be able to be the Agent for the debtor in receivership.

If the security under which the privately-appointed receiver is appointed allows for that receiver to operate the business of the debtor in receivership, then that receiver has the ability to be an Agent of the debtor in receivership and bring a claim in the name of that debtor.

In this matter, of the various pieces of security held by the secured creditor, only the General Security Agreement (the “GSA”), allows a receiver appointed in writing under it to operate the business of the debtor company. Under the GSA, the privately-appointed receiver has the ability to act as both Agent of the secured creditor and Agent of the company. The appointment letter appointing the receiver confirms that the appointment is under all security held, including the GSA.

Therefore, my opinion was that although we have concerns about the amount being claimed, the receiver has the ability to both file a proof of claim in this bankruptcy and oppose the discharge of the bankrupt as an Agent of the company. I believed it aided the administration of this bankruptcy to allow the receiver to oppose because it is able to draw the attention of the court to conduct of the bankrupt of which the court otherwise might not be aware of.

Finally, I advised the court that if there still was concern that it is formal defect or irregularity section 187(9) of the BIA, the court can determine that such formal defect or irregularity will not invalidate the opposition to the discharge of the bankrupt.

What the bankruptcy court decided

The court accepted our submission and agreed with it. The court continued to be skeptical of the amount of the company’s proof of claim filed by the receiver. The court noted that as Trustee, I reported that the bankrupt has fulfilled all statutory duties. Income and expense statements were provided and there was no surplus income payable.

On a general perusal of the Trustee’s s. 170 report, the Trustee does not report any significant misconduct or concerns but reserved its rights as to its position on the discharge pending the hearing and matters disclosed therein. In the court’s view, the Trustee’s non-opposition to discharge is a factor favouring the bankrupt’s discharge. After considering all facts, the court gave the bankrupt an absolute discharge from bankruptcy.

What does receivership mean summary

I hope that you found this what does receivership mean Brandon Blog helpful in describing the role of a privately appointed receiver especially in opposing the discharge of the bankrupt guarantor of the company’s secured debt. Problems will arise when you are cash-starved and in debt. There are several insolvency processes available to a person or company with too much debt. You may not need to file for bankruptcy.

If you are concerned because you or your business are dealing with substantial debt challenges, you need debt help and you assume bankruptcy is your only option, call me.

It is not your fault that you remain in this way. You have actually been only shown the old ways to try to deal with financial issues. These old ways do not work anymore.

Call us now for a no-cost consultation.

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

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

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Brandon Blog Post

WHAT ARE EXEMPT ASSETS IN BANKRUPTCY?: ARE THEY REV1EWED UPON THE SAD DEATH OF THE BANKRUPT?

Post author By Brandon Smith
Post date August 16, 2021

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

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

If you would like to listen to the audio version of this Brandon Blog, please scroll to the very bottom and click play on the podcast.

What are exempt assets in bankruptcy?: Bankruptcy exemptions – how what assets you can keep are determined

An assignment in bankruptcy does not require you to give up all of your assets. In bankruptcy law, there are rules for bankruptcy exemptions. Furthermore, every province/territory has regulations that mandate what assets can be kept and how much equity can be retained. Assets of this type are called exempt assets.

Assets that you are allowed to keep that are not accessible to your creditors are exempt assets in a bankruptcy. There are some that fall under federal law and some that fall under provincial law.

So what are exempt assets in bankruptcy in Ontario? To answer the question, we need to look at two statutes: one federal and one provincial. For federal, we look at the Bankruptcy and Insolvency Act (Canada) (BIA). Section 67(1) of the BIA deals specifically with the bankruptcy exemption issue. It states what property of the bankrupt available to creditors does and does not comprise. Property that is not included is:

Property held in trust by the bankrupt for any third party.
Under provincial law, the property cannot be seized.
Payments to the bankrupt are paid under a program that I will describe as social assistance provided by the federal or provincial government.
Retirement Savings Plans – The bankrupt’s RRSP or RRIF, except for contributions made in the 12 months before the bankruptcy.

When we discuss the property of a bankrupt, we are referring to the bankrupt’s equity in those assets.

Ontario bankruptcy exemptions: Assets you can keep

As indicated above, one of the asset exemptions in bankruptcy is any property that cannot be seized under provincial law. So what are exempt assets in bankruptcy in Ontario that cannot be seized? For that, we need to go to the Ontario Execution Act. In Ontario, the prescribed amounts for exemptions are:

Household furnishings and household appliances – $14,180.
Tools and other personal property used to generate income:
- Exemptions for farmers, being a debtor engaged exclusively in cultivating the soil or farming (and therefore it is that farmer’s principal source of primary income), $31,379 for livestock, fowl, bees, books, tools and implements, and other chattels ordinarily used by the debtor;
- $14,405 for any other case.
$7,117 for a motor vehicle.
$10, 783 for a principal residence.

As I have written before, there is an exemption in Ontario for equity in one’s home of not more than $10,783. It is not an exemption for the first $10K, but rather if the total equity is below that amount. Therefore, we can consider the equity in a bankrupt person’s ownership interest in their home to belong to the bankruptcy trustee for all practical purposes.

So this seems pretty straightforward. But what if the bankrupt person dies before the end of the bankruptcy proceedings and the bankruptcy estate administration? A recent decision from the Alberta bankruptcy court, which for reasons I will explain I believe would be instructive for Ontario, answers that question.

What are exempt assets in bankruptcy even in death?

In addition to the above statutory exemptions, since we are always dealing with the bankrupt’s equity in assets, there is another class of assets that form exempt property in a bankruptcy. If any of the bankrupt’s assets are pledged as security to the point where the amount owing to the secured creditor on the secured debt is the same or more than the value of the asset, then a bankruptcy trustee will not attempt to seize it.

So what may have started out as non-exempt property can become property that will not be seized. Two obvious examples are one of the motor vehicles owned by a person worth more than $7,117 that is heavily financed or a principal residence that has mortgages against it that essentially soaks up all the value.

Another type of asset that may be exempt is life insurance policies. If the beneficiary under the policy listed is the spouse, child, parent or grandparent of the deceased, then the funds flow directly to the beneficiary and avoid probate. The bankruptcy of the deceased does not change that.

Although not an asset per se, and only available while the person is living, are wages salary from employment. A bankrupt person is allowed to keep all of their income. However, all Trustees are required to perform an evaluation to see if the bankrupt must contribute by making surplus income payments. The concept of bankruptcy surplus income has been the subject of certain of my prior Brandon Blogs.

Now, what are exempt assets in bankruptcy if the bankrupt person dies before receiving a bankruptcy discharge? On August 3, 2021, the Court of Queen’s Bench of Alberta, Registrar in Bankruptcy L.R. Birkett released Reasons for Decision in Perry (Re), 2021 ABQB 609 (CanLII). In this case, the Trustee sought advice and directions with respect to whether the principal residence exemption continues or is no longer available on the death of the bankrupt. Keep in mind that the principal residence exemption is much different in Alberta than in Ontario. In Alberta, under the Civil Enforcement Act, an Albertan can claim a principal residence exemption up to $40,000.

However, the fact that the issue was over equity in a principal residence is somewhat irrelevant. The real issue is exempt assets in general. So I would frame it as whether any asset exemption continues or is no longer available upon the death of the bankrupt.

Mr. and Mrs. Perry each filed an assignment in bankruptcy on December 19, 2012 (date of bankruptcy) and both remain undischarged bankrupts. At the date of bankruptcy, the bankrupt husband was the only registered owner of the couple’s principal residence. The bankrupt husband died on January 28, 2018.

He did not have any dependents at the time of his death. The bankrupt wife is the only beneficiary under his Will. The widowed bankrupt wife moved from the home and the Trustee sold it.

As a first observation, this is a perfect example of why a bankrupt should not allow the bankruptcy proceedings to drag on. Future events are impossible to predict. Winning a lottery or acquiring an inheritance are the two best reasons to avoid letting the bankruptcy process linger for a very long time. If such a windfall occurs, the bankruptcy trustee administering the bankruptcy estate can claim it.

Types of assets commonly exempt from bankruptcy across Canada: The Registrar’s analysis

The question is does the personal exemption of an undischarged bankrupt remain after his death? In Alberta, the applicable laws under which property is exempt from execution or seizure are set out in the Civil Enforcement Act (CEA) and the Civil Enforcement Regulation(CER). The combined effect of s.88(g) CEA and s 37(1)(e) CER allows an enforcement debtor to claim up to $40,000 of the equity in the debtor’s principal residence as being exempt from execution or seizure. The Registrar noted that the personal exemption is personal to the individual, in this case, the deceased bankrupt husband.

Section 92(1) of the CEA specifically provides that where the enforcement debtor is deceased, the property of the debtor that would be exempt if the debtor were alive remains exempt from writ proceedings against the debtor’s estate for the period of time that the property is required for the maintenance and support of the deceased debtor’s dependents. This allows the dependents of a deceased enforcement debtor the opportunity to access up to $40,000 of exempt equity in the debtor’s principal residence for their needs.

In this case, the widowed bankrupt wife moved out of the house and the Trustee sold it. The exempt equity was no longer necessary for her needs. Therefore the Registrar decided that the deceased bankrupt husband’s exemption was lost on his death. Since the exempt equity was not required to support the bankrupt wife’s needs, the Trustee of the dead bankrupt husband can keep the $40,000 amount as property not covered by the provincial exemption and it is available for the benefit of creditors through the bankruptcy debtor‘s unsecured creditors.

There is a strong argument that if the personal exemption resulted in the bankrupt wife being entitled to her deceased husband’s exemption amount, it would not have been paid to her anyway. Rather, it would have been property available to her Trustee for her unsecured creditors and possibly even a dividend to creditors!

What are exempt assets in bankruptcy and what would happen in Ontario?

What would happen in Ontario with exempt assets (up to their prescribed maximum exempt amount)? Under s.5(1) of the Execution Act, if an execution debtor dies before the seizure and sale of his or her personal property, then whatever personal property the deceased already elected for exemption before death remains valid after death and may not be changed by an executor, administrator or heir of the debtor. s.5(2) of the Execution Act says that If no such election was made prior to death, then, in this order, a surviving spouse, a dependent or a family member has the right to make such an election.

S.5(3) of the Execution Act states:

“(3) The total quantity and total value of personal property of an execution debtor that may be claimed as exempt by a person mentioned in subsection (2) and by the execution debtor before death must not exceed the quantity and value of property that would have been exempt property to just the execution debtor. 2010, c. 16, Sched. 2, s. 3 (9).”

The wording of sections 5(1) and (2) of the Execution Act is very different from that of the relevant Alberta legislation referenced above. So, in my view, it appears that the personal exemption in Ontario would survive and not constitute property available for the Trustee to realize upon, but this is only up to the exemption limit of each class of exempt asset.

However, under a bankruptcy process, along with the bankruptcy protection from unsecured creditors, the bankrupt actually hands over all property to the Trustee. The Trustee either overtly or it is implied, hands back to the bankruptcy debtor any property that is exempt from seizure, either from a provincial statute or because it is a fully encumbered asset because of it being pledged for a secured loan and there is no equity.

In Ontario, since the Execution Act allows for selecting exempt assets after death for the benefit of the deceased Estate, it does not appear to me that bankruptcy would change things for the reasons I have stated. The provincial exemptions, up to their maximum limits, would continue to protect certain property from seizure in bankruptcy.

What are exempt assets in bankruptcy summary

I hope that you found this what are exempt assets in bankruptcy Brandon Blog helpful in describing the personal exemptions in Ontario and whether bankruptcy and death can change that. Problems will arise when you are cash-starved and in debt. There are several insolvency processes available to a person or company with too much debt. You may not need to file for bankruptcy.

If you are concerned because you or your business are dealing with substantial debt challenges, you need debt help and you assume bankruptcy is your only option, call me.

It is not your fault that you remain in this way. You have actually been only shown the old ways to try to deal with financial issues. These old ways do not work anymore.

Call us now for a no-cost consultation.

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

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

what are exempt assets in bankruptcy

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Brandon Blog Post

REVERSE VESTING ORDER: 1 REMARKABLE CREATIVE WAY TO DO FINANCIAL RESTRUCTURING

Post author By Brandon Smith
Post date August 2, 2021

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

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

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

Vesting order and reverse vesting order

In a corporate insolvency case, a court may grant a vesting order, which authorizes the sale of a company’s assets to the buyer once the purchase price is paid. A vesting order vests ownership in the purchaser as a result of this court order. This is proof that the purchaser is entitled to transfer the assets into its name. No matter what insolvency process is used, this is the use of a vesting order.

In the past year or so, a new trend has emerged regarding the sale of the assets of insolvent companies as part of a restructuring under the Companies’ Creditors Arrangement Act (CCAA). That new trend is the use of a reverse vesting order.

In this Brandon Blog, I explain what a reverse vesting order is and why I believe its use will be a significant feature of Canadian firm restructurings in 2021 and beyond.

Reverse vesting order – A powerful tool for maximizing recovery in complex insolvencies

A reverse vesting order can be very useful in complex insolvencies. A timely recovery can benefit creditors, and the process can maximize recoveries for all parties. Reverse vesting orders are a good solution for an insolvent debtor corporation when:

there are a large number of secured creditors, unsecured creditors and assets;
all of the assets do not have an immediate buyer;
the company is insolvent; and
the company must deal with unwanted assets and a group of creditors in a particular way.

It is best used in a large-scale CCAA corporate restructuring but is not limited to that.

reverse vesting order

Reverse vesting order as a third restructuring tool

There have traditionally been two insolvency processes available to licensed insolvency trustees, insolvency lawyers, and company stakeholders. The two are (i) liquidating assets; and (ii) reorganizing companies. In general, assets are liquidated through either receivership or bankruptcy. Incorporated companies can restructure either under the provisions of the Bankruptcy and Insolvency Act (Canada) (BIA) or, for larger and more complex restructurings, under the CCAA. It is obvious that assets must be sold in order to liquidate them.

Sometimes, as part of a corporate restructuring, there are redundant and unwanted assets that can be sold to raise cash. The question is, what if the real value, especially a going-concern value of a company in a commercial insolvency case is not in its tangible assets. Rather, its real value lies in:

the ability to operate in a specific industry and such licenses cannot be sold by their very nature and wording – think of the cannabis and nursing home industries as two examples;
tax losses and tax attributes that can be monetized if the licensed insolvency trustee is also able to take over the shares; or
being listed on the stock exchange and thus as a public company having a greater market value than a private corporation.

As a result, it is extremely difficult to realize any value from such assets.

What is the importance of the reverse vesting order? How a reverse vesting order works will tell you all you need to know about why it is important as a third restructuring tool. Under a reverse vesting order, a newly incorporated residual corporation is added as a party to the CCAA proceedings.

As part of the CCAA restructuring, the operating debtor company transfers undesirable assets and liabilities to the newly incorporated non-operating company. With its assets and liabilities selected by the purchaser, the debtor company holds only the desirable assets and liabilities, which means its common shares can be sold rather than the company’s assets. As a result, valuable permits, contracts, tax losses, and statutory authority are preserved, which can otherwise be lost in a disposition of assets.

Why is reverse vesting order important?

A reverse vesting order is an alternative to the traditional CCAA plans of arrangement, particularly for companies operating in highly regulated environments or when there is no value remaining after the realization of secured debt and the parties intend to continue the running of the debtor company.

A reverse vesting order is an alternative to the traditional CCAA plans of arrangement, particularly for companies operating in highly regulated environments or when there is no value remaining after the realization of secured debt and the parties plan to continue operating the debtor company.

By using a reverse vesting order, existing corporations, which have been streamlined to become solvent through an innovative solution, are transferred to new investors instead of desirable assets being sold through a court-approved sale. The debtor corporation that initially filed for bankruptcy protection under the CCAA can now be removed from the restructuring proceedings. There are certain unwanted assets and unwanted liabilities that are transferred to the newly incorporated residual corporation. There can then be asset sales allowing for some sort of distribution to creditors (either in a plan of arrangement or in bankruptcy) in order to allow some creditor recovery.

A reverse vesting order may prove to be the most efficient approach to facilitate a going concern operation transfer through restructuring proceedings, letting businesses emerge from CCAA proceedings quickly without having filed a plan of arrangement, while preserving key attributes of the corporate entity and its existing corporate structure.

Legal challenges to the use of reverse vesting orders have been unsuccessful. I would like to discuss the case of Nemaska Lithium Inc.

Reverse vesting order issued by Québec Superior Court after first contested hearing

In December 2019, Nemaska Lithium Inc. and related companies (Nemaska Lithium or the Nemaska entities) commenced CCAA proceedings. A lithium mining project was developed in Quebec by them. A CCAA judge approved an uncontested sale or investment solicitation process (SISP) in January 2020 that led to the acceptance of a bid that was subject to the condition that a reverse vesting order is issued.

A proposed reverse vesting order provides that Nemaska entities will be acquired by the bidder free of the claims of the unsecured creditors, which will be transferred as part of a pre-closing reorganization to a newly incorporated non-operating company.

The reverse vesting order will allow the purchaser to continue to operate the Nemaska entities in a highly regulated environment by maintaining their existing permits, licences, authorizations, essential contracts, and fiscal attributes. In essence, it is a credit bid in which the shares of the Nemaska entities are acquired in exchange for the assumption of the secured debt.

A shareholder (who was also an alleged creditor) filed motions opposing the reverse vesting order issuance on multiple grounds, including:

a vesting order cannot be granted for anything other than a sale or disposition of assets through a vesting order for sales of assets;
the reverse vesting order is not permissible under the CCAA because it allows the Nemaska entities to exit CCAA protection outside of a plan of arrangement or plan of compromise;
this reverse vesting order contemplated a corporate reorganization that is not permitted by securities laws; and
in light of the proposed transaction, the directors and officers of Nemaska Lithium Inc. should not be released.

The Honourable Justice Gouin, J.S.C., reviewed and assessed:

the SISP process which led to the offer;
the lack of alternatives to the offer;
the potential harm to Nemaska Lithium‘s stakeholders, including its employees, creditors, suppliers, and the Cree community;
stopping the restructuring process to relaunch a SISP in the future following what was already a thorough examination of the market or, alternatively,
bankrupting the Nemaska entities.

In light of all these factors, the judge approved the reverse vesting order on October 15, 2020. Limiting the remedies available under the CCAA would unnecessarily hinder the development of innovative solutions for more complex commercial and social issues in Canadian insolvency matters.

The decision and formal recognition of reverse vesting order by the Court of Appeal

Leave to appeal the CCAA judge‘s decision was sought by the parties who objected to the reverse vesting order being made. The Appellate Court carefully considered the judge’s decision-making process and particularly that the Québec Superior Court judge relied extensively on the principles set out by the Supreme Court of Canada in the matter of 9354-9186 Quebec inc. c. Callidus Capital Corp., namely the:

development of CCAA proceedings and the role of the CCAA supervising judge;
remedial objectives of Canadian insolvency laws to provide timely, efficient, and impartial resolution of a debtor’s insolvency, secure fair and equitable treatment of creditors’ claims against a debtor, protect the public interest, and balance the costs and benefits of restructuring or liquidating the debtor company’s assets;
CCAA‘s goal of preventing social and economic losses from liquidating insolvent companies by facilitating their reorganization and survival as a going concern; and
CCAA judge‘s broad discretion under s. 11 of the CCAA in an effort to advance the CCAA’s remedial objectives while taking into account three fundamental factors that the debtor company application must prove: (1) the requested order is appropriate in the circumstances, and (2) good faith on the part of the applicant, and (3) the applicant has been acting with due diligence.

It was determined by the Court of Appeal judge that the risk of potential harm to stakeholders outweighed any legal merits of any arguments raised by the opposing parties. Therefore, the Quebec Court of Appeal denied the leave to appeal the decision of the CCAA judge.

Canada’s Supreme Court has denied leave to appeal. Having now established reverse vesting as an option for CCAA restructurings, the law is now set in stone.

The Nemaska case is the first reverse vesting order transaction to withstand judicial scrutiny in Canada and reaffirms the flexibility of CCAA proceedings for distressed M&A transactions of distressed businesses.

Reverse vesting order and distressed M&A opportunities

I hope that you found this reverse vesting order Brandon Blog interesting. Problems will arise when you or your company are in business distress, cash-starved and cannot repay debts. There are several insolvency processes available to a company or a person with too much debt.

If you are concerned because you or your business are dealing with substantial debt challenges, you need debt help and you assume bankruptcy is your only option, call me.

It is not your fault that you remain in this way. You have actually been only shown the old ways to try to deal with financial issues. These old ways do not work anymore.

The Ira Smith Team utilizes new modern-day ways to get you out of your debt difficulties with debt relief options as alternatives to bankruptcy. We can get you the relief you need and so deserve. Our professional advice will create for you a personalized debt-free plan for you or your company during our no-cost initial consultation.

Call us now for a no-cost consultation.

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

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

Tags 9354-9186 Quebec inc. c. Callidus Capital Corp., Appellate Court, Bankruptcy, Bankruptcy and Insolvency Act, Canadian insolvency, CCAA, CCAA judge, CCAA proceedings for distressed M&A transactions, CCAA supervising judge, commercial insolvency, Companies’ Creditors Arrangement Act, corporate insolvency, corporate reorganization, corporate restructuring, court-approved sale, covid-19 pandemic, debtor company, debtor corporation, distressed businesses, going-concern value, insolvency processes, insolvent, insolvent companies, Ira Smith Trustee, leave to appeal, Nemaska entities, Nemaska Lithium Inc., newly incorporated non-operating company, newly incorporated residual corporation, plan of arrangement, plan of compromise, plans of arrangement, receivership, remedial objectives, restructuring tool, reverse vesting order, Reverse vesting order as a third restructuring tool, Reverse vesting order issued by Québec Superior Court after first contested hearing, Reverse vesting order – A powerful tool for maximizing recovery in complex insolvencies, sale or investment solicitation process, secured creditors, SISP, Supreme Court of Canada, The decision and formal recognition of reverse vesting order, undesirable assets, unsecured creditors, unwanted assets, vesting order, vesting orders, Why is reverse vesting order important

Brandon Blog Post

DIFFERENCE BETWEEN CONSUMER PROPOSAL AND BANKRUPTCY: THE PROVEN CANADIAN WAY TO GET DEBT FREE

Post author By Brandon Smith
Post date July 26, 2021

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

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

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

Difference between consumer proposal and bankruptcy: Know your options

Regular readers of my Brandon Blog know that there are a lot of steps you need to go through to financially reorganize your life. I have written before different blogs on various aspects of both consumer proposals and bankruptcy. The purpose of this Brandon blog is to discuss in one place, the difference between consumer proposal and bankruptcy.

Many people opt for one of these options because life has thrown them a curveball, they no longer have the cash flow to pay off their debts and want to start fresh. There are some great benefits to filing bankruptcy. They include eliminating creditors and debts, getting control over your personal finances, and having a stress-free life, Starting Over, Starting Now. But if you’re considering a first-time bankruptcy, or the bankruptcy option even if you are familiar with the Canadian bankruptcy process from a prior time, you should consider the pros and cons of a consumer proposal, the only government-approved debt settlement plan in Canada. It will be good for you to know the options that I explain below.

Consolidation loans vs consumer proposals

What’s the distinction between a consumer proposal and a debt consolidation loan? The consumer proposal process is an insolvency procedure that allows you to resolve all the amounts you owe to your unsecured creditors via an arrangement with your creditors. It does this without needing you to file bankruptcy. A consumer proposal can only be carried out by a licensed insolvency trustee. A consumer proposal allows you to get rid of all the amount owed by repaying only a part of your financial obligations over time.

A consolidation loan means that you still have sufficient assets and income and a good enough credit score, in order to borrow the total amount you owe. The loan must carry an interest rate lower, and hopefully much lower, than the average interest rate of your combined total debt. You use the loan proceeds to repay 100% of your debts. You now have only one loan with a monthly payment you can afford. Taking out a consolidation loan is not an insolvency process.

The main difference between consumer proposal and bankruptcy

The consumer proposal is a fundamental part of our personal insolvency system. It is an insolvency procedure controlled by the Bankruptcy and Insolvency Act (Canada) (BIA) that allows individuals who owe $250,000 or less (not including any financial debts secured against their principal home). It permits you to pay a portion of your financial debts with time, yet eliminate all of them if fully executed. It is an alternative to declaring bankruptcy. It is an alternative to bankruptcy.

Bankruptcy is also a fundamental part of our insolvency system under the BIA. However, rather than restructuring, in personal bankruptcy, the person surrenders all of their non-exempt assets to the licensed insolvency trustee for the benefit of the person’s creditors. Once the bankrupt person has fulfilled all of their duties, they are entitled to receive a discharge from bankruptcy, subject to the Trustee or a creditor opposing it.

Personal bankruptcy involves the liquidation of the bankrupt’s assets in return for the eventual elimination of their unsecured debts. It is not considered a restructuring like a consumer proposal is.

Difference between consumer proposal and bankruptcy: The process of filing a consumer proposal vs bankruptcy

You start by talking to a Trustee who will provide you basic guidance on both a consumer proposal and also bankruptcy. The Trustee will likewise inform you specifically just how each process functions. If at the end of that discussion you inform the licensed bankruptcy trustee that you really feel good in wanting to take the next steps with them, the Trustee will provide you with their intake form. When the form is completed, you send it to the Trustee, including supplying any kind of backup documents asked for, the Trustee can then provide you advice for your unique financial difficulties.

If you choose a consumer proposal, the licensed insolvency trustee will prepare the necessary filing documents for you to sign. This includes assisting you with preparing the best possible proposal that works for both you and your creditors. You then meet with the Trustee to sign the documents. The Trustee then files the documents electronically with the Office of the Superintendent of Bankruptcy (OSB). The OSB then issues the Certificate evidencing the filing and the formal process begins.

After seeing your completed intake sheet, the Trustee will advise on whether or not a consumer proposal would work for you, or if your best or only option is filing for bankruptcy. Similarly, in bankruptcy filings, the Trustee prepares all the required filing documents for your signature. The Trustee explains all of them to you, you sign them and the Trustee then electronically files the filing documents with the OSB. The OSB then issues its Certificate evidencing the bankruptcy and that formal process begins.

You initially meet with the licensed bankruptcy trustee, in-person, by video or phone, to share details of your personal situation, and working together, you determine whether a consumer proposal, an alternative to filing bankruptcy, or personal bankruptcy is the best option for you. With COVID-19, we have been holding all of our no-cost consultations and meetings by phone and video. We can do the sign-up process by video and email. We have found this is very convenient for our clients as they are not required to take the time to attend our office in person.

As you can see, the process of filing a consumer proposal vs bankruptcy is not that different. For filing, there is not really a difference between consumer proposal and bankruptcy.

Major difference between consumer proposal and bankruptcy

Is there a major difference between consumer proposals and bankruptcy? Yes. So far in this discussion, there have not really been major differences. But there really are as the consumer proposal is akin to filing for bankruptcy protection while the other is bankruptcy. Both provide legal protection from creditors. But a consumer proposal gives a person what the media calls filing for bankruptcy protection. When you file for bankruptcy, that calls for the liquidation of non-exempt assets.

Both bankruptcy and a consumer proposal can be excellent options for somebody who is experiencing a challenging financial position. A consumer proposal is an excellent choice for individuals who have the ability to make monthly payments to their creditors totalling less than the amount they owe, yet eliminating all their debts, while keeping the equity they have in assets they wish to keep. Bankruptcy is an excellent choice for those who are bewildered by their financial obligations, and who don’t have a consistent income, making it actually hard or impossible to manage making payments at any level to their creditors.

While both bankruptcy, as well as a consumer proposal, can supply a financial clean slate, there are a few vital distinctions.

In a consumer proposal, you normally get to keep all of your assets. In a bankruptcy, if you have equity in assets that you want to keep, you or someone friendly to you has to pay that equity to your Trustee for the benefit of your creditors. Otherwise, you need to surrender all non-exempt assets to the Trustee for the Trustee to sell them and then put the cash towards the claims of your creditors. The assets covered by your bankruptcy exemptions do not need to be surrendered.

In bankruptcy, you also have the issue of needing to obtain your bankruptcy discharge. If either the Trustee or one or more creditors object to your discharge, then you will not get your automatic bankruptcy discharge and you will have a discharge hearing in Court. You may also be subject to surplus income payments in a bankruptcy, which you will need to make to your Trustee (21 months for a first time bankrupt, 36 months for a second time or more bankruptcy).

The amount to offer your creditors in a consumer proposal has to be a better amount than they would receive from your bankruptcy. After doing the calculations I spoke about above, including any surplus income obligation, you will better understand what amount needs to be offered to your creditors.

Another difference between consumer proposal and bankruptcy is that there is a benefit of a consumer proposal in that you can spread the monthly payments for the amount determined over a term of up to 60 months, interest-free. In a bankruptcy, you are typically required to make any required payments over the term of your bankruptcy, which is much shorter than in a proposal. Therefore the consumer proposal allows you to term out a slightly higher settlement over a longer period of time. This makes the monthly repayment less complicated on your cash flow as well as your budget plan.

Once your consumer proposal is (deemed) accepted by the creditors and (deemed) approved by the Court, you just need to make your promised monthly payments to the Trustee. The Trustee handles making payments at regular intervals to your creditors. Once you have completed the payment promised under the consumer proposal, you receive your Certificate from the Trustee showing that you completed the consumer proposal. That is it. No discharge hearing can be opposed and no extra surplus income payments. It is already accounted for in the amount offered to your creditors in your consumer proposal.

The cost difference between consumer proposal and bankruptcy

When doing a consumer proposal, the fee of the licensed insolvency trustee is included in the payment you negotiate with your creditors. As I mentioned above, the calculation of what to offer in a consumer proposal does not include what the fee and costs are. Rather, it is compared to what the unsecured creditors can expect in bankruptcy.

However, if you were to file bankruptcy, the fee is based on the surplus income you may have to pay (based upon a criterion that includes income and family size) and also any assets that you are required to assign over to the Trustee. You might also have to make month-to-month contributions to cover the fee and costs if your income and non-exempt assets are insufficient to pay for the bankruptcy proceedings.

If there is no surplus income or assets, you, or someone on your behalf, will need to pay the bankruptcy fee which will be approximately $1,800 plus HST.

Difference between consumer proposal and bankruptcy: What’s worse? Credit rating impact of a bankruptcy vs consumer proposal

Both a consumer proposal and bankruptcy are insolvency proceedings under the BIA. Therefore both will negatively affect your credit rating. In a consumer proposal, your credit rating will show as an R9 on your credit report while you are making payments. Once you have completed your consumer proposal, your credit rating will be an R7 for 3 years after completion.

For a first-time bankrupt, if you were to file for bankruptcy, your credit report will show an R9 rating for 6-7 years after being discharged.

The difference between consumer proposal and bankruptcy summary

I hope that you found this difference between consumer proposal and bankruptcy Brandon Blog interesting. Problems will arise when you are cash-starved and in debt. There are several insolvency processes available to a person or company with too much debt.

If you are concerned because you or your business are dealing with substantial debt challenges, you need debt help and you assume bankruptcy is your only option, call me.

It is not your fault that you remain in this way. You have actually been only shown the old ways to try to deal with financial issues. These old ways do not work anymore.

Call us now for a no-cost consultation.

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

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

Tags 407ETR bankruptcy debt, alternative to bankruptcy, alternative to filing bankruptcy, automatic bankruptcy discharge, Bankruptcy, Bankruptcy and Insolvency Act, bankruptcy filings, bankruptcy proceedings, BIA, Canadian bankruptcy process, consolidation loan, consolidation loans vs consumer proposals, Consumer Proposal, consumer proposal process, consumer proposal vs bankruptcy, consumer proposals, cost difference between consumer proposal and bankruptcy, credit rating, credit report, credit score, debt consolidation loan, difference between consumer proposal and bankruptcy, filing bankruptcy, filing for bankruptcy, financial difficulties, first-time bankruptcy, icensed bankruptcy trustee, insolvency, insolvency process, licensed insolvency trustee, non-exempt assets, Office of the Superintendent of Bankruptcy, OSB, personal bankruptcy, R9, surplus income, the main difference between consumer proposal and bankruptcy, the process of filing a consumer proposal vs bankruptcy, trustee, unsecured creditors, What's worse? Credit rating impact of a bankruptcy vs consumer proposal

Brandon Blog Post

BANKRUPTCY LAWYER IN TORONTO VS. BANKRUPTCY TRUSTEE IN TORONTO: WE EXPLORE AND EXPLAIN COMPLETELY THE DIFFERENCES FOR YOU

Post author By Brandon Smith
Post date July 19, 2021

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

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

If you would prefer to listen to an audio version of this Brandon Blog, please scroll to the very bottom and click play on the podcast.

Bankruptcy lawyer in Toronto introduction

Canada is recognized for its cultural diversity, but it can be a battle to locate trustworthy information on the nation’s laws. Bankruptcy is a difficult topic to learn about; both learning the technical side and dealing with the emotional one.

If you or your company are thinking about bankruptcy, you might think you need a bankruptcy lawyer in Toronto. However, you do not necessarily require one. A licensed insolvency trustee in Toronto (formerly called a bankruptcy trustee in Toronto) can help you pick the perfect insolvency process for you and make certain that you survive it as best as possible.

In this Brandon Blog, I discuss the roles of a bankruptcy lawyer in Toronto and a licensed insolvency trustee. Sometimes they can overlap and many times they do not. We will take a detailed look at a bankruptcy lawyer in Toronto vs a licensed insolvency trustee. We will discuss the differences between the two and exactly how they can each help you.

Bankruptcy lawyer in Toronto – Do you need one to file personal bankruptcy?

Whether it is personal bankruptcy proceedings, or one of the formal alternatives to bankruptcy such as a consumer proposal or a Division I Proposal that are being contemplated, a bankruptcy lawyer in Toronto or elsewhere is not involved in the actual bankruptcy filing. or the Canada – restructuring & insolvency filing. That is what trustees in bankruptcy do.

When a person or company is contemplating an insolvency process, they can get a no-cost consultation with any one of the bankruptcy trustees they choose to meet with. During the consultation, information is gathered by the Trustee, analyzed and possible solutions are discussed.

Trustees must always be careful to not tread into areas that could possibly give them a conflict in providing their financial services. People wanting advice on asset transfers, asset protection, or preferring one or more creditors over others are areas that Trustees should not wade into.

In situations like that, I always advise potential bankruptcy clients that as there is no privilege in our discussions and we should not talk about those things so that I will not be conflicted. Rather, the person should get advice from a bankruptcy lawyer in Toronto or elsewhere where the discussions and the legal advice are protected by solicitor-client privilege.

Do You Need a personal bankruptcy lawyer in Toronto to get your bankruptcy discharge?

As I have written before in several Brandon Blogs, there are 6 possible outcomes in a bankrupt’s application for discharge. This depends on whether the discharge is being opposed by either the Trustee and/or one or more creditors. The possible bankruptcy discharge outcomes are:

Automatic – This discharge is absolute and is given by the Trustee at the earliest possible time the bankrupt person is entitled to a discharge. It means that the bankruptcy has performed all of his or her duties, has fully cooperated with the Trustee and nobody has opposed the discharge.
Absolute – An absolute discharge is obtained when the Trustee issues the automatic discharge. it is also possible to obtain an absolute discharge when a creditor opposes the bankrupt’s discharge, the matter goes to court for a hearing, but the court does not believe the evidence presented by the opposing creditor is persuasive and the court orders an absolute discharge.
Conditional – In this type of discharge, there was opposition to the bankruptcy receiving an absolute discharge. The court considered the evidence and concluded that the bankrupt must fulfill one or more conditions before being entitled to a discharge from bankruptcy. More often than not, a conditional discharge includes a certain amount of money the bankrupt must pay to the Trustee for the general benefit of the creditors.
Suspended – A suspended discharge is given when there is opposition to the bankrupt’s discharge and the matter goes to court for a discharge hearing. Based on the evidence, the court believes that the bankrupt, either before or during the bankruptcy estate file administration, has conducted himself or herself in such a way that although a discharge will be given, it should be delayed. The suspension acts to delay the discharge and can be combined with conditions.
Refused – The bankrupt’s discharge is opposed probably by at least the Trustee and probably one or more creditors. There is sufficient evidence before the court that the bankrupt has not lived up to his or her duties and has probably failed to fully cooperate and provide full disclosure to the Trustee. The court, based on the evidence, refuses to consider the bankrupt’s application for discharge until such time as the bankrupt performs all duties and discloses all information.
No order – This is not an actual discharge type, but can be the outcome of a discharge hearing. The court can issue a “no order” instead of a refusal. The facts are probably similar to when the court can issue a refusal. However, in a “no order” situation, the bankrupt remains in bankruptcy but the Trustee is then free to pursue its discharge. Once the Trustee gets its discharge, the bankrupt lose the protection offered by the stay of proceedings. Creditors are then free to pursue all of their rights and remedies against the bankrupt in the enforcement of their trying to collect their respective debts.

When the time comes for the bankrupt to get his or her discharge from bankruptcy, if the Trustee or a creditor opposes, the bankrupt would be well advised to consult with a bankruptcy lawyer in Toronto or elsewhere. The Trustee cannot give an automatic discharge and the matter is going to court for a trial. The bankrupt should get the benefit of legal advice and probably will need to retain the lawyer to provide legal services in representing the bankrupt in court. That is not the job of the Trustee.

Corporate Bankruptcy in Canada – Corporate bankruptcy lawyer in Toronto, Canada – Do you need one to file corporate bankruptcy?

As I will explain, every Canadian corporate insolvency file requires probably several, not just one bankruptcy lawyer in Toronto or elsewhere. Insolvency law is complex and lawyers will help all the parties involved.

The current economic climate in Canada is going to be challenging for Canadian businesses and I expect there will be many financial difficulties. Government COVID-19 support programs are scheduled to end soon. Companies have been tapped out while shut down just trying to stay alive with little or no revenue being earned. Companies will need cash now that it is time to start everything up again. No doubt there will be business casualties.

However, not all businesses are created equal. Some will be able to restructure, some will file for bankruptcy and others will merely shut their doors and fade away.

Among the keystones of a restructuring proceeding under either the Companies’ Creditors Arrangement Act or the Bankruptcy and Insolvency Act is the debt workout. The restructuring is designed to maintain the debtor’s business and negotiate a financial debt repayment strategy with its creditors. The aim is to save jobs, allow the company to continue while avoiding bankruptcy liquidation.

Key components of a debt workout normally include debtor-in-possession lending (DIP lending) while the company is reorganizing, new capital for the company coming out of its restructuring and getting unsecured creditors, and possibly secured creditors, to agree to accept less than they are owed. In the very large corporate restructuring files, there are normally lending syndicates due to large and complex lending arrangements. They too will need lawyers to help them with the insolvency law.

If a restructuring proceeding is not possible or does not succeed, then either the company’s secured creditor will begin receivership enforcement proceedings or the company will file an assignment in bankruptcy or a creditor will launch a bankruptcy application to put the company into bankruptcy.

In every corporate insolvency file, legal services are required by all the stakeholders. Canadian counsel plays an important part in providing advice. In the larger files, a large team of lawyers will be needed for both the company and its main creditors. The Board of Directors will need their own independent legal team. The bankruptcy trustee in Toronto will also need a dedicated team of lawyers to help navigate through the formal restructuring in court or help in a court-appointed receivership, private receivership or bankruptcy.

As you can see, in pretty well every corporate file, a bankruptcy lawyer in Toronto or elsewhere is pretty well a must-have requirement. Lawyers will be able to help the company, its Board of Directors, its creditors and the insolvency professional create effective solutions. The best ones will also make sure that they are also practical solutions.

**Other situations where you could need a bankruptcy lawyer in Toronto, Barrie, GTA, or elsewhere**

When looking for a bankruptcy lawyer in Toronto, Barrie, GTA and elsewhere, you want to find one that has substantial experience. Depending on the situation you or your company are involved in, the experience could be in one or more of:

financial reorganizations;
debt reorganizations and debt restructurings;
debtor legal rights and creditor rights;
security enforcement;
forbearance/standstill arrangements;
lender liability suits;
receivership and related matters for banks or other secured lenders, court and privately appointed receivers;
insolvency and bankruptcy litigation or other complex matters; and
acting for receivers and Trustees, debtors, secured creditors, unsecured creditors or any other stakeholder in an insolvency process.

Take Your First Step Towards A Debt Free Life

I hope that you found this bankruptcy lawyer in Toronto Brandon Blog interesting and that you now have a better appreciation for when getting bankruptcy legal advice is necessary. Problems will arise when you are cash-starved and in debt. There are several insolvency processes available to a person or company with too much debt.

If you are concerned because you or your business are dealing with substantial debt challenges, you need debt help and you assume bankruptcy is your only option, call me.

It is not your fault that you remain in this way. You have actually been only shown the old ways to try to deal with financial issues. These old ways do not work anymore.

The Ira Smith Team utilizes new modern-day ways to get you out of your debt difficulties with debt relief options as alternatives to bankruptcy. We can get you the relief you need and so deserve. Our professional advice will create for you a personalized debt-free plan for you or your company during our no-cost initial consultation.

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

We understand that people and businesses facing financial issues need a realistic lifeline and practical financial advice. There is no “one solution fits all” method with the Ira Smith Team. Not everyone has to file bankruptcy in Canada. The majority of our clients never do as we know the alternatives to bankruptcy. We help many people and companies stay clear of filing an assignment in bankruptcy.

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

Call us now for a no-cost bankruptcy consultation.

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

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

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Brandon Blog Post

WHAT DOES THE BANKRUPTCY TRUSTEE INVESTIGATE? SIMPLE RULES EXPLAINED BY A TORONTO TRUSTEE

Post author By Brandon Smith
Post date July 14, 2021

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

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

What does the bankruptcy trustee investigate – What is a bankruptcy trustee?

The new name for a bankruptcy trustee is a licensed insolvency trustee. I will use the terms interchangeably in this Brandon Blog. In this blog, I discuss what does the bankruptcy trustee investigate? But first, I want to go through a few basics.

The process of a bankruptcy trustee’s role in the Canadian insolvency system is a delicate one. The licensed insolvency trustee starts out by reviewing the debtor’s financial information and advises the debtor on whether a restructuring is possible to avoid bankruptcy or if filing for bankruptcy is their only realistic option.

The Trustee’s job is to help a debtor restructure his or her financial affairs and to do that, he or she must know what the debtor’s assets and liabilities are, the bigger picture of the debtor’s life and what transactions the debtor may have recently entered into. It is not just what he or she claims his or her debts are.

The Trustee collects all this information in order to advise the debtor on whether a bankruptcy protection financial restructuring filing is possible or if bankruptcy is their best option and why. The debtor then must choose what sort of insolvency process they wish to enter. Once filed, the Trustee also acts for the creditors and is required to perform an investigation.

Today I discuss what does the bankruptcy trustee investigate? Anyone contemplating a bankruptcy filing should know what they are in for before it is too late.

What does the bankruptcy trustee investigate – Tell your bankruptcy trustee everything

I thought of writing this blog topic because just yesterday, a lawyer friend called up with a question. The lawyer is a family law lawyer, representing a spouse who completed a consumer proposal. The lawyer, on behalf of his client, is making a claim as having a trust claim over his spouse’s home.

The judge asked if the client declared this claim as a potential asset in his sworn statement of affairs in the consumer proposal bankruptcy paperwork? The answer is no. Now the judge says, correctly, that the client had a duty to disclose that information at the time. The judge is correct. The judge then went on to ask how he can rely on the credibility of the client’s assertions now? What a jackpot they are now in!

That is why I say tell your bankruptcy trustee everything. If there is full disclosure in the initial interview before the period of time the bankruptcy process begins, I can then consider any troublesome issues and advise on the best course of action. Then you don’t need to worry about what does the bankruptcy trustee investigate. Nobody wants to have a nasty surprise like my lawyer friend’s client.

What does the bankruptcy trustee investigate? What if I fail to remember to divulge something?

It is fairly possible that you will accidentally neglect to divulge something in your bankruptcy documents or inform your Trustee about it. You do not want anyone thinking you are conducting the concealment of assets.

What does the bankruptcy trustee investigate? What can I do?

As quickly as you learn of your error, call your trustee right away and correct this mistake. You want to make sure the Trustee understands it was a simple error and not a case of you making a false claim.

What does the bankruptcy trustee investigate? What if I have outstanding tax returns?

If as an example, you forget to inform your insolvency trustee that you have unfiled tax returns, CRA can oppose your discharge and request that all outstanding returns be filed before you get to a discharge hearing. This will extend the time you remain in bankruptcy and puts your discharge into a court hearing.

It may turn out that the amount owing from those unfiled returns is not that large, and if you had filed the returns before going bankrupt and declared that additional liability, there would not have been a problem at all. Your Trustee actually should have caught that before you filed and got you to bring your tax filings current.

What does the bankruptcy trustee investigate? What happens If I overreported income?

Reporting earnings greater than you actually earn might set off a surplus income payment requirement that is either higher than it should be or where there would not have been one at all if you had properly reported your monthly income. Make sure you have documents to back up everything you are advising your trustee about so that such an error is not made.

The same holds true for underreporting. You may have a surplus income obligation that will not be caught and finding out at the end will hold up your discharge. Again, your Trustee should have asked for backup during your initial meeting and should have caught your error before filing for bankruptcy.

What does the bankruptcy trustee investigate? Suppose I am not divulging certain information?

If you fail to divulge particular information about your assets or give information that at some point complicates your insolvency, it is certain that this will complicate your discharge at the very least. It may also open you up to having committed a bankruptcy offence which will create worse penalties and headaches for you.

Recall that I mentioned at the beginning of this Brandon Blog that the reason I wrote on this topic today was because of a phone call received from a divorce lawyer friend of ours. The lack of disclosure was not caught in the consumer proposal administration. However, it may totally ruin the client’s chances for any meaningful recovery in his family law proceedings.

If the client had divulged the asset, which at the time was contingent, to the bankruptcy trustee acting as an administrator in the consumer proposal, the Trustee could have worked that into a successful outcome for the client AND the client would not now have his legal problems which could very well cost him big time!

What does the bankruptcy trustee investigate? – Collection of information by bankruptcy trustee also allowed under PIPEDA

A person filed a complaint after a bank, where she as well as her husband had gotten a mortgage from, revealed her personal information, especially regarding her financial situation, to the Trustee of the Bankrupt Estate of her spouse. There was no disagreement that this disclosure happened without the complainant’s understanding or permission.

However, the federal government ruled that it was allowable under the Personal Information Protection and Electronic Documents Act (PIPEDA) given that the financial institution was required to provide the information under another law, namely, the Bankruptcy and Insolvency Act (BIA).

PIPEDA paragraph 7(3)(b) specifies that a party may disclose personal information without the knowledge or consent of that party if the disclosure is for the purpose of collecting on a financial obligation owed by the person to that party.

Paragraph 7(3)(i) of PIPEDA specifies that an organization might disclose personal information without the knowledge or permission of the person if the disclosure is required by law. Trustees are licensed by the Office of the Superintendent of Bankruptcy (Canada) (OSB) under the BIA and also are held to requirements of practices or solutions established by the BIA.

The designated Trustee for her hubby’s insolvent estate wrote to the financial institution, requesting the complete financial institution file connected to the mortgage on the residence jointly had by the complainant wife and the bankrupt husband be disclosed, according to the provisions of S. 164(2) of the BIA.

The bank stated that it revealed the wife’s personal details without her understanding or permission, based on the PIPEDA sections I referenced above. The complainant thought that the Trustee did not have the right to access her individual info from the financial institution without her understanding or consent. The Privacy Commission ruled against her.

As long as the Trustee is asking for information from a 3rd party that will assist in the bankruptcy administration, that 3rd party can provide the information without worrying about what does the bankruptcy trustee investigate or a PIPEDA violation.

On the flip side, for every insolvency administration we perform, as part of the initial sign-up documents, we provide a PIPEDA disclosure statement to the debtor or designated officer of the company. Our PIPEDA disclosure says that in performing our duties we collect and store personal information which we may have to divulge to 3rd parties in performing our duties under the BIA, to the court or in assisting the debtor in reaching arrangements with their creditors.

What does the bankruptcy trustee investigate? – Can I sell my stuff before filing bankruptcy?

Bankruptcy is a fair and well-balanced treatment that considers the interests of all stakeholders. I always tell potential clients that any sale or transfer of property has to be done as if your creditors are evaluating your every move while you do it.

In Ontario, the Execution Act provides for certain personal exemptions, which also apply to anyone who does a bankruptcy filing in Ontario, up to a stated value. The exempt property consists of:

household furnishings and appliances – $14,180;
tools and other personal property used to earn an income:
- in the case of a debtor engaged solely in the tillage of the soil or farming, $31,379 for livestock, fowl, bees, books, tools and implements and other chattels ordinarily used by the debtor in the debtor’s occupation, or
- in any other case, $14,405;
motor vehicle – $7,117; and
principal residence – $10,783.

You might be liquidating assets that you don’t need to because they would be exempt. If you are thinking about liquidating nonexempt property to make financial settlements with certain of your creditors, this will be problematic. You could end up preferring some over others which will cause both you and them problems in your bankruptcy.

This is another factor to think about. My best advice is that you raise these issues with a Trustee before you do anything if you are contemplating bankruptcy. The Trustee will explain to you the ramifications of what you are thinking of doing so that you will have the smoothest time possible in your bankruptcy estate. The Trustee will also explain what does the bankruptcy trustee investigate so you will be informed.

What does the bankruptcy trustee investigate and look for in bank statements?

The personal bankruptcy trustee uses bank statements and other documents to discover errors or irregularities in your pre-filing personal bankruptcy paperwork. To start, you’ll list your creditors and the amounts you owe each of them; your assets, their values, and whether you can keep any of them as exempt property; your earnings for the last 12 months; as well your regular monthly expenditures. Not only will you disclose your income in several spots in the bankruptcy documents, but you’ll also give confirmation in the form of paycheque stubs and income tax returns, as well

The Trustee then goes over these anomalies with you to permit you to give better paperwork in support of your list of assets and liabilities. You’ll likewise have to send duplicates of your bank statements and also other documents that the Trustee asks for after you file for bankruptcy. Your licensed insolvency trustee makes use of the bank statements to validate your reported info.

If for some reason your historical financial institution deposits are dramatically different than your claimed earnings, you’ll need to be prepared to describe the disparity. If you approximated your bank accounts having a total of $100, yet it was, in fact, your deposit accounts had $1,500 on the day you filed, it will be nonexempt, and the Trustee will take it.

If you paid any type of huge expenses or transferred a large sum or an asset to someone right before you filed personal bankruptcy, the Trustee will have an obligation to report those transactions to your creditors, the OSB and the court and bring that cash back right into the personal bankruptcy estate for all creditors to share. If the cash is not recoverable from a third party, the Trustee will oppose your discharge and will look for payment of a minimum of that cash from YOU as a condition of your bankruptcy discharge.

If nevertheless, the Trustee thinks that you either lied or deliberately omitted details, the Trustee has to report that. The Trustee will certainly oppose your discharge and you will have a substantial issue on your hands needing you to retain a personal bankruptcy attorney.

What does the bankruptcy trustee investigate? All of that.

Red flags the bankruptcy trustee looks for at the meeting of creditors

Communicating with creditors and the meeting of creditors are very useful tools for the trustee in bankruptcy. The creditors have a much longer relationship with the bankrupt than the Trustee. They may very well have information that would be helpful to the Trustee in gaining a better understanding of the assets and liabilities of the bankrupt and of the bankrupt’s financial affairs not clear from the financial documents already reviewed by the Trustee.

At the First Meeting of Creditors in bankruptcy or the Meeting of Creditors in a Division I Proposal (or if required in a consumer proposal), the Trustee and creditor representatives can ask the debtor questions about their financial affairs. This is especially so for any type of discrepancies raised by your filing documents or financial records that indicates that you may be misstating assets or worse, the concealment of assets.

In any financial restructuring, including corporate reorganization plans, the value of the debtor’s nonexempt property really matters mainly because of the rule that entitles unsecured creditors to get a better outcome from such a repayment plan than would be the case in the debtor’s bankruptcy.

If your earnings don’t match your reported numbers, or if you improperly report side hustle business revenues, you can anticipate some sharp concerns and also possibly trouble getting your restructuring authorized or your discharge from bankruptcy.

What does the bankruptcy trustee investigate – When the bankruptcy trustee suspects fraud?

When allegations of bankruptcy fraud enter into bankruptcy administration, the next step normally includes obtaining information via an examination under oath. The BIA enables either the Trustee or the OSB to examine a bankrupt under oath. The BIA additionally permits the Trustee to put questions under oath to anyone that might have information, knowledge or documents concerning the affairs of the bankrupt. One of the key functions of the bankruptcy trustee is to protect the interests of unsecured creditors and to do so at every stage of the bankruptcy process.

As soon as the Trustee has gathered sufficient proof to support a case, the Trustee has 2 options, depending on the circumstances. If it is criminal activities or bankruptcy offences that the bankrupt person or the Directors of the bankrupt company have done, the Trustee can ask the OSB to review the proof. If they concur with the Trustee’s analysis, they can then call in the RCMP to check out.

If the RCMP has adequate evidence of a crime having been committed, or of bankruptcy offences, they will have the Crown lay bankruptcy fraud charges and then there will be a criminal trial. The result can be a fine, jail time or both. This will also give cause for the Trustee to have no choice but to oppose the person’s bankruptcy discharge.

If it is only about the recovery of money for creditors, the Trustee, if it has sufficient evidence and also funds, can launch a legal action against the appropriate party. The point of this kind of adversary case is to obtain cash for creditors (rather than prosecuting a criminal offence).

Such a proceeding resembles legal actions in various other courts yet generally, the matter in a bankruptcy administration will be heard in a shorter period of time in bankruptcy court than proceedings in various other courts. The obvious goal is for the Trustee to enter into settlement agreements with the offending parties. The goal of settlement agreements is to get cash for the creditors.

What does the bankruptcy trustee investigate summary

I hope that you found what does the bankruptcy trustee investigate Brandon Blog interesting and that you now have a better appreciation for the investigation aspect of an insolvency proceeding. Problems will arise when you are cash-starved and in debt. There are several insolvency processes available to a person or company with too much debt.

If you are concerned because you or your business are dealing with substantial debt challenges, you need debt help and you assume bankruptcy is your only option, call me.

It is not your fault that you remain in this way. You have actually been only shown the old ways to try to deal with financial issues. These old ways do not work anymore.

We understand that people and businesses facing financial issues need a realistic lifeline. There is no “one solution fits all” method with the Ira Smith Team. Not everyone has to file bankruptcy in Canada. The majority of our clients never do as we know the alternatives to bankruptcy. We help many people and companies stay clear of filing an assignment in bankruptcy.

Call us now for a no-cost bankruptcy consultation.

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

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

Tags allegations of bankruptcy fraud, Bankruptcy, bankruptcy fraud, bankruptcy offence, bankruptcy protection, bankruptcy trustee, BIA, collection of information by bankruptcy trustee also allowed under PIPEDA, concealment of assets, Consumer Proposal, financial restructuring, financial situation, First Meeting of Creditors, I am not divulging certain information, insolvency, Ira Smith Trustee, jail time, licensed insolvency trustee, meeting of creditors, nonexempt property, Office of the Superintendent of Bankruptcy Canada, personal bankruptcy, PIPEDA, questions under oath, red flags the bankruptcy trustee looks for at the meeting of creditors, repayment plan, tell your bankruptcy trustee everything, trustee, trustee in bankruptcy, unsecured creditors, what does the bankruptcy trustee investigate, what does the bankruptcy trustee investigate and look for in bank statements, what happens If I overreported income, what if I fail to remember to divulge something, what if I have outstanding tax returns, what is a bankruptcy trustee, when the bankruptcy trustee suspects fraud

Brandon Blog Post

COMPANIES’ CREDITORS ARRANGEMENT ACT: CREDITORS ARE NOW ABLE TO MAKE BOLD CLAIMS AGAINST LAURENTIAN

Post author By Brandon Smith
Post date June 14, 2021

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

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

If you would like to listen to an audio version of this Companies’ Creditors Arrangement Act Brandon’s Blog, please scroll to the very bottom and click play on the podcast.

Companies’ Creditors Arrangement Act: Facing insolvency, Laurentian University files for creditor protection

Laurentian University’s filing under the Companies’ Creditors Arrangement Act has been reported in the media and I have written about it in previous Brandon Blogs. On February 1, 2021, Laurentian University filed for what the media calls the “bankruptcy protection process” under the Companies’ Creditors Arrangement Act. It is really a creditor protection process for a financial restructuring. A large amount of work and involving tough choices will definitely be required for Laurentian to emerge from this as a financially and operationally sound university.

This restructuring will call for difficult negotiations with its lenders, suppliers, faculty and labour unions. Laurentian will have to overhaul its academic programs and look for brand-new revenue generation opportunities to survive. As well it will require a re-evaluation of its federated colleges’ design (Laurentian is just one of 4 universities that make the Laurentian Federation; the others who are all part of the Laurentian Federation Agreement are: the University of Sudbury, the University of Thorneloe, and Huntington University).

The stay of proceedings provided by the Court gives Laurentian protection from creditors and prevents them from taking steps against Laurentian, without the prior leave of the Court. The Companies’ Creditors Arrangement Act filing means that Laurentian has concluded that it cannot fulfill its financial commitments as they end up being due and uses the protection supplied by this restructuring law to reduce its overall debt load without having to pay its debts in full.

FOR A FULL DESCRIPTION OF WHAT THE COMPANIES’ CREDITORS ARRANGEMENT ACT IS AND HOW IT WORKS, SEE OUR BLOG:

CCAA CANADA: OUR EXTRAORDINARY GUIDE TO 2020 TROUBLED CANADIAN COMPANIES SEEKING BANKRUPTCY PROTECTION

FAQ on the Companies’ Creditors Arrangement Act Insolvency Proceedings of Laurentian University

As I mentioned, I previously wrote three blogs so far on the Laurentian University Companies’ Creditors Arrangement Act insolvency process:

Every time there has been a major event in this court-supervised restructuring, I have written about it. So far the topics I have covered are:

The filing under the Companie’s Creditors Arrangement Act.
What creditor protection is under the “Bankruptcy Protection Legislation“.
What a stay period and a stay of proceedings are.
What does CCAA mean?
The Laurentian President affidavit upon filing and what it said about the university finances.
What Laurentian has said about its day-to-day operations, the Federated University model and the need to get out of that agreement and general oversight of university affairs.
The shock and the effect on Northern Ontario’s community over Laurentian’s filing.
The potential effect on current students, both undergraduate and graduate students and the overall student experience.
The initial list of creditors, both secured and unsecured creditors, in this restructuring process filing.
The unions have lost the fight to unseal documents relating to Laurentian communications with the provincial government.
Faculty and other staff terminations.
The union represents faculty members on a new collective agreement reached by Laurentian Union Faculty Association or LUFA.
Adjustments to the benefit pension plan and health benefit plan.
The failure of the non-Laurentian parties to the Federated University agreement in appealing Laurentian’s disclaimer of the Federated University model agreement.
The status of the interim financing DIP loan in the Companies’ Creditors Arrangement Act administration.

So as you can see, all the topics that I have covered in these 3 previous Brandon Blogs really are answers to a legal FAQ regarding Laurentian University’s CCAA filing.

Decisions about Laurentian University being made by creditors, insolvency specialists and the Ontario Court but not public

The National Union of Public and General Employees have stated that in a free and democratic society, choices regarding publicly financed institutions are expected to be made by elected officials or people who are responsible to them. That makes sure that when choices are made the demands of our communities who are funding these institutions through our tax dollars and donations are considered.

But when such organizations, like Laurentian University, are permitted to use a bankruptcy protection statute like the Companies’ Creditors Arrangement Act, that responsibility is lost. All that matters is what the creditors either desire or are willing to accept. They want the federal government to change bankruptcy protection legislation so that this cannot happen again.

Liberal MP Paul Lefebvre introduced a bill in Parliament that aims to keep Laurentian University’s turmoil from happening at other schools. He and the Union believe that public institutions shouldn’t be allowed to use bankruptcy protection to force through cuts. I don’t believe that at this time, the bill has any traction to change bankruptcy legislation.

4 inspectors will be chosen to work with court monitor in the claims process

This now brings us current to the last attendance in the Ontario Superior Court of Justice Commercial List where Laurentian and its court monitor brought forward a claims process to be approved by the court in this Companies’ Creditors Arrangement Act process.

The lawyer for TD Bank advised the Court that TD supports the making of a Claims Process Order however feels that, in the circumstances, the procedure ought to contemplate that the Monitor will disclose its analysis of the claims filed with the Pre-filing Lenders. The Bank said that Laurentian and the Monitor have acknowledged that there may very well be material claims filed, some of which will be unliquidated and/or contingent. Some may be subject to a bona fide conflict – both relative to liability as well as quantum.

The Bank proposed a modification to the Monitor’s Claims Process where material cases should be discussed with the Pre-filing Lender group so that there could be a consensual resolution of such claims. The Bank said that it is reasonable as well as proper in this case to produce a reasonable and transparent process that enhances the goals of the Companies’ Creditors Arrangement Act.

Based upon information available to TD Bank at the time its factum was issued, the overall quantum of claims is unidentified, yet can sensibly be expected to include substantial claims representing: (a) the claims of the Pre-filing Lenders; (b) claims of current and also previous employees; (c) those of the federated colleges occurring from the termination and disclaimer of their contracts with Laurentian; (d) potential claims developing from the pension-related issues; as well as (e) claims of various other creditors with prefiling and also restructuring claims.

The Judge specified that he bore in mind the TD Bank submissions that it is extremely vital to move quickly, however not to rush. The Claims Process needs to be reasonable to all. He acknowledged that the Pre-filing Lenders should have some involvement in the Claims procedure. So the Judge borrowed from the provisions of the Bankruptcy and Insolvency Act (Canada) (BIA), as there were no specific rules for this in the Companies’ Creditors Arrangement Act. He ruled that there will be a bespoke process.

Laurentian and the Monitor should modify their proposed Claims Process by assigning 4 Inspectors; 2 of which will be representatives of the Pre-filing Lender group. The remaining 2 will be drawn from the creditors from those with a claim over $5 million.

The Inspectors will:

Be selected by the Monitor who will devise an appointment process.
Act in the interests of all creditors.
Stand in a fiduciary capacity on behalf of all creditors.
Need to accomplish their duties on an impartial basis.
Are entitled to payment by following the payment structure for Inspectors set out in the BIA.
Help the Monitor in evaluating and admitting material claims.
Companies’ Creditors Arrangement Act

Laurentian expecting about 15 claims of more than $5M from creditors, court documents show

Laurentian reported that upon filing under the Companies’ Creditors Arrangement Act, it estimated its liabilities at $322 million. The categories of creditor groups are properly summarized by legal counsel for TD Bank recently in Court, indicated above.

The “bespoke” Claims Process approved by the Court is now underway. It is for all claims against Laurentian, but not including any form of compensation claim by any current or former employee. That type of claim has been defined by Laurentian and its Monitor as “Compensation Claims“. The Monitor advised the Court that it would soon come back to Court to get approval for a special process to establish the Compensation Claims.

The current Claims Process, not including any Compensation Claims, works like this:

Any creditor who has not received a Claims Package and who believes that he or
she has a Claim against Laurentian, under the Claims Process Order must contact the Monitor
in order to obtain a Proof of Claim form or visit the Monitor’s website.
Employees (and Former Employees) will not be receiving a Claims Package and do not need to complete a Proof of Claim at this time. Compensation Claims of Employees and Former Employees will be determined by a Court Approved Compensation Claims Methodology at a later date.
Three types of Claims qualify for this Claims Process: (i) Claims for amounts owing as at the date of Laurentian filing under the Companies’ Creditors Arrangement Act (Pre-filing Claims), February 1, 2021; (ii) Claims which arose as a result of the restructuring itself (Restructuring Claims); and (iii) Claims against senior management, Directors and Officers, the Board (D&O Claims).
In order to for Claims to be considered in the Claims Process, the fully completed Proof of Claim must be received by the Monitor no later than:
- For Pre-filing Claims, 5:00 PM Toronto time on July 30, 2021 (Pre-Filing Claims Bar Date).
- For Restructuring Claims, 5:00 p.m. (Toronto Time) on, whichever is later: (i) July 30, 2021, or (ii) the date that is 30 days after the date on which the Monitor sends a Proof of Claim Document Package to the Creditor with respect to such Restructuring Claim (Restructuring Claims Bar Date).
- For D&O Claims, 5:00 PM Toronto time on July 30, 2021 (D&O Claims Bar Date).

No doubt the Monitor, the Inspector Group and Laurentian will be very busy sorting out all the Claims.

Public institutions shouldn’t be allowed to use bankruptcy protection to force through cuts

There has been an outcry from the public service community that public institutions should not be allowed to make use of Canadian insolvency laws like any other person or company that qualifies. I doubt that movement will get much traction.

I hope that you found this Companies’ Creditors Arrangement Act Brandon Blog interesting. If you are concerned because you or your business are dealing with substantial debt challenges and you assume bankruptcy is your only option, call me.

It is not your fault that you remain in this way. You have actually been only shown the old ways to try to deal with financial issues. These old ways do not work anymore.

The Ira Smith Team utilizes new modern-day ways to get you out of your debt difficulties while avoiding bankruptcy. We can get you the relief you need and so deserve. Our professional advice will create for you a personalized debt-free plan for you or your company during our no-cost initial consultation.

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

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

Call us now for a no-cost consultation.

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

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

Companies’ Creditors Arrangement Act

Tags Bankruptcy Protection Legislation, bankruptcy protection process, benefit pension plan, benefit plan, bespoke process, Claims Process Order, Companies’ Creditors Arrangement Act, compensation claims, creditor protection, D&O claims, D&O claims bar date, day operations, Decisions about Laurentian University being made by creditors, Facing insolvency Laurentian University files for creditor protection, FAQ on the Companies' Creditors Arrangement Act Insolvency Proceedings of Laurentian University, Federated University, Federated University model, Federation Agreement, graduate students, Huntington University, insolvency process, Ira Smith Trustee, Laurentian, Laurentian President, Laurentian University, list of creditors, Northern Ontario's, ourt-supervised restructuring, oversight of university, pre-filing claims bar date, Pre-filing Lenders, protection from creditors, provincial government, restructuring claims, restructuring claims bar date, restructuring process, university finances, unsecured creditors, what does ccaa mean

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Vesting order and reverse vesting order

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Bankruptcy lawyer in Toronto – Do you need one to file personal bankruptcy?

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Take Your First Step Towards A Debt Free Life

What does the bankruptcy trustee investigate – What is a bankruptcy trustee?

What does the bankruptcy trustee investigate – Tell your bankruptcy trustee everything

What does the bankruptcy trustee investigate? What if I fail to remember to divulge something?

What does the bankruptcy trustee investigate? What can I do?

What does the bankruptcy trustee investigate? What if I have outstanding tax returns?

What does the bankruptcy trustee investigate? What happens If I overreported income?

What does the bankruptcy trustee investigate? Suppose I am not divulging certain information?

What does the bankruptcy trustee investigate? – Collection of information by bankruptcy trustee also allowed under PIPEDA

What does the bankruptcy trustee investigate? – Can I sell my stuff before filing bankruptcy?

What does the bankruptcy trustee investigate and look for in bank statements?

Red flags the bankruptcy trustee looks for at the meeting of creditors

What does the bankruptcy trustee investigate – When the bankruptcy trustee suspects fraud?

What does the bankruptcy trustee investigate summary

Companies’ Creditors Arrangement Act: Facing insolvency, Laurentian University files for creditor protection

FAQ on the Companies’ Creditors Arrangement Act Insolvency Proceedings of Laurentian University

Decisions about Laurentian University being made by creditors, insolvency specialists and the Ontario Court but not public

4 inspectors will be chosen to work with court monitor in the claims process

Laurentian expecting about 15 claims of more than $5M from creditors, court documents show

**Your Bankruptcy Discharged – But Wait**

***What does receivership mean: Receivership – a typical appointment***

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