Keep healthy and safe everybody.<\/b><\/span><\/p>\n The <\/span>COVID-19 pandemic<\/span><\/a> has upended our world.\u00a0 Everyone is scared, has many questions and there is a lot of misinformation out there.\u00a0 So many businesses have shut down and do not know if they will ever be able to start up.\u00a0 As a licensed <\/span>insolvency trustee Toronto<\/b>, I fully understand the fear and panic that has set in.<\/span><\/p>\n First, I hope you and your family are safe and healthy.\u00a0 The purpose of this Brandon\u2019s Blog is to show a newfangled business restructuring approach that recently occurred in the United States.\u00a0 As far as I can tell, there is no reason why this kind of restructuring plan could not work in Canada also.<\/span><\/p>\n On March 12, 2020, U.S. Bankruptcy Court District of New Jersey Judge Victor Papalia issued the Order approving the Chapter 11 bankruptcy protection application of <\/span>Modell\u2019s Sporting Goods, Inc.<\/span><\/a> and related companies (Modell\u2019s) filed on March 11.<\/span><\/p>\n Modell’s is America’s oldest, family-owned ran store of sporting products, athletic footwear, active clothing and fan gear. It was founded in 1889 by Morris A. Model.\u00a0 The initial Modell’s store was located on Cortlandt Road in lower Manhattan, New York City. Four generations of the Modell household have run and grown the family company into a chain of over 150 stores throughout the Northeast.<\/span><\/p>\n Mitchell Modell, the company\u2019s CEO and President said the company\u2019s poor financial performance resulting in the <\/span>Chapter 11 bankruptcy protection<\/span><\/a> filing was because of many reasons, including:<\/span><\/p>\n I personally doubt the losing records of the local sports franchises was a reason for Modell\u2019s failure.\u00a0 How many years were the Toronto Maple Leafs awful but you always saw lots of Leaf fans with jerseys, caps and flags?<\/span><\/p>\n On March 27, 2020, the Honourable Justice Papalia granted Modell\u2019s court application making an order providing for both a bankruptcy suspension and an operational suspension.\u00a0 The bankruptcy suspension froze the bankruptcy protection proceedings until April 30, 2020 (the Suspension Period). The operational suspension, allows Modell\u2019s to shut down all stores and not operate.\u00a0 The judge also gave Modell\u2019s the right to apply on short notice to the court to extend the Suspension Period. The order went on to state the stay of proceedings is in effect during the suspension.<\/span><\/p>\n Novel times call for novel solutions.\u00a0 As part of their application, Modell\u2019s filed a modified budget to indicate what sources of cash it would have and what expenditures it would pay during the Suspension Period.\u00a0 It also indicated what expenditures were being incurred, but not paid. <\/span>Commercial rent<\/span><\/a> on all of its stores was one of the items being accrued, but not paid.<\/span><\/p>\n The reason Modell did not include any commercial rent payments in its modified budget was simple.\u00a0 They had to close down all of their stores as a result of the coronavirus pandemic. Stores closed means no sales.\u00a0 They were not going to pay rent on stores that were not generating cash.<\/span><\/p>\n The court order approved the modified budget.\u00a0 It also confirmed that the only payments that Modell\u2019s would make were those indicated as essential.\u00a0 The company deemed payments to all of its landlords as non-essential. The court order did indicate that the accrued but unpaid expenditures were not and were not deemed to be waived or not payable at some time.<\/span><\/p>\n In February 2020, Pier 1 Imports, Inc. (Pier 1) filed for Chapter 11 bankruptcy protection as part of looking for a buyer of its operations.\u00a0 It then closed all of its stores in <\/span>Canada<\/span><\/a> and many in the United States.<\/span><\/p>\n On Tuesday, March 31, 2020, following the Modell\u2019s precedent, sent a request to the U.S. Bankruptcy Court for the Eastern District of Virginia to temporarily stop paying commercial rent on its retail locations along with certain payments to suppliers, shippers, and distributors.”\u00a0 Pier 1 has now had to shutter all of its shops as a result of the COVID-19 outbreak.<\/span><\/p>\n Judge Kevin Huennekens throughout the hearing provided approval of these activities while allowing for it to be reassessed each month. Judge Huennekens additionally provided authorization to hold off on any motions anyone other than Pier 1 may wish to file up until at the very least 45 days after Pier 1 returns to normal operations and payments.<\/span><\/p>\n So the question is, could an insolvency trustee Toronto help a company get this newfangled Modell\u2019s\/Pier 1 precedent happen in a Canadian bankruptcy protection restructuring?\u00a0 Right now landlords are reeling from their commercial tenants telling them that rent for April is not going to be paid due to the business closures.\u00a0 No doubt this will be the same story for every month that the closures continue.\u00a0\u00a0<\/span><\/p>\n Most landlords should be willing to work with their tenants.\u00a0 The reason behind the non-payment is from forces outside of everyone\u2019s control.\u00a0 But what if a <\/span>commercial landlord<\/span><\/a> plays hardball.\u00a0 Can a Canadian company file for <\/span>bankruptcy protection<\/span><\/a> in Canada and obtain a Court order approving the non-payment of rent?<\/span><\/p>\n The two corporate restructuring statutes in Canada are the Part III Division I section of the <\/span>Bankruptcy and Insolvency Act<\/span><\/i><\/a> (Canada) (BIA) and the <\/span>Companies\u2019 Creditors Arrangement Act<\/span><\/i><\/a> (CCAA).\u00a0\u00a0<\/span><\/p>\n There are no express provisions in either statute to invoke a bankruptcy or operational suspension.\u00a0 In fact, the opposite is true. In either a restructuring or liquidation, rent is calculated on a per diem basis for as long as the company in a restructuring or the <\/span>insolvency trustee Toronto<\/span><\/a> in a corporate bankruptcy, is using the premises.\u00a0 Fairness is part of the Canadian insolvency landscape.\u00a0 There are years of cases on this issue and they all end up the same.\u00a0 If you are in occupation, the rent must be calculated and ultimately paid.<\/span><\/p>\n However, there are two similar sections in each of the <\/span>BIA<\/span><\/a> and <\/span>CCAA<\/span><\/a>.\u00a0 Section 183(1) of the BIA reads as follows:<\/span><\/p>\n \u201c183 (1) The following courts are invested with such jurisdiction at law and in equity, as will enable them to exercise original, auxiliary and ancillary jurisdiction in bankruptcy and in other proceedings authorized by this Act\u2026\u201d.<\/span><\/p>\n The words \u201cauxiliary and ancillary\u201d has been interpreted by the courts to mean that the bankruptcy court in each province has the jurisdiction to sanction and authorize all acts required to be done for the proper administration of the <\/span>Canadian insolvency system<\/span><\/a>.\u00a0 This holds whether it is a bankruptcy protection filing or outright <\/span>bankruptcy<\/span><\/a>.<\/span><\/p>\n The CCAA offers more flexibility in a bankruptcy protection <\/span>corporate restructuring<\/span><\/a> than the BIA does.\u00a0 In general, the Court will reach its decisions in a CCAA restructuring on the basis of fairness and reasonableness.\u00a0 The court needs to be concerned that what is being proposed is not illegal and there are cogent reasons as to why what is being proposed serves to benefit all or the majority of creditors affected by the restructuring.\u00a0\u00a0<\/span><\/p>\n The CCAA, therefore, offers more judicial discretion than the BIA.\u00a0 Courts err on the side of giving the CCAA statue a large and liberal interpretation.\u00a0 The court supervising a CCAA restructuring will exercise its equitable jurisdiction. The application of equitable jurisdiction can be interpreted to mean equity considers done what ought to be done.\u00a0\u00a0<\/span><\/p>\n The judge in a CCAA bankruptcy protection case overseeing the CCAA proceeding is in a unique position.\u00a0 He or she is in the best position to determine whether or not an agreement should be suspended in the face of overly aggressive creditors who if allowed to act, would upend the entire CCAA process.\u00a0 Finally, Section 11 of the CCAA allows a judge to \u201c…make any order that it considers appropriate in the circumstances.\u201d.<\/span><\/p>\n So, to answer the question as to whether a Modell\u2019s or Pier 1 type order could be made under a BIA or CCAA corporate restructuring in Canada, my answer would have to be yes.\u00a0 It is possible. I don\u2019t believe it could be gotten on a regular basis, but, in this <\/span>COVID-19<\/span><\/a> pandemic world, I can see it being obtained in the face of an aggressive and uncooperative commercial landlord.\u00a0 It would, of course, be uncommon, but these are unique times.<\/span><\/p>\n So the answer for a large Canadian retailer facing an unreasonable and aggressive landlord when the commercial rent is not being paid may be to file for <\/span>bankruptcy protection<\/span><\/a> under either the BIA or CCAA, as appropriate.<\/span><\/p>\n The <\/span>Ira Smith Team<\/span><\/a> family hopes you and your family are staying safe, healthy and well-balanced. Our hearts go out to every person who has been affected either through inconvenience or personal family tragedy.<\/span><\/p>\n We are all citizens of Canada and we have to coordinate our efforts to stop the spread of the <\/span>coronavirus<\/span><\/a>. Social distancing and self-quarantining are sacrifices that are not optional. Family members are literally separated from each other. We look forward to the time when things can return to something close to normal and we can all be together again physically.<\/span><\/p>\n Ira Smith Trustee & Receiver Inc.<\/span><\/a> has always employed clean and safe habits in our professional practice and continues to do so.<\/span><\/p>\n Revenue and cash flow shortages are critical issues facing entrepreneurs and their companies and businesses.\u00a0 Should you take advantage of the CEBA? I say a resounding YES!. I just wanted to highlight all of the issues that you should consider.\u00a0<\/span><\/p>\n If anyone needs our assistance, feel confident that Ira or Brandon can still assist you. Telephone consultations and\/or virtual conferences are readily available for anyone feeling the need to discuss their personal or company situation.<\/span><\/p>\n Are you now worried just how you or your business are going to survive? Those concerns are obviously on your mind.\u00a0 This pandemic situation has made everyone scared.<\/span><\/p>\n The <\/span>Ira Smith Team<\/span><\/a> understands these concerns. More significantly, we know the requirements of the business owner or the individual that has way too much financial debt. You are trying to manage these difficult financial problems and you are understandably anxious.<\/span><\/p>\n It is not your fault you can\u2019t fix this problem on your own.\u00a0 The pandemic has thrown everyone a curveball. We have not been trained to deal with this.\u00a0 You have only been taught the old ways. The old ways do not work anymore. The <\/span>Ira Smith Team<\/span><\/a> makes use of new contemporary ways to get you out of your debt problems while avoiding bankruptcy. We can get you debt relief now.<\/span><\/p>\n We look at your whole circumstance and design a strategy that is as distinct as you are. We take the load off of your shoulders as part of the debt settlement strategy we will draft just for you.<\/span><\/p>\n We understand that people facing money problems require a lifeline. That is why we can establish a restructuring procedure for you and end the discomfort you feel.<\/span><\/p>\nIntroduction<\/b><\/span><\/h2>\n
Modell\u2019s Sporting Goods, Inc. et al Chapter 11 bankruptcy proceedings<\/b><\/span><\/h2>\n
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The novel court Order<\/b><\/span><\/h2>\n
Pier 1 Imports took a page from the Modell playbook<\/b><\/span><\/h2>\n
Could this happen in Canada?<\/b><\/span><\/h2>\n
Insolvency trustee Toronto summary<\/b><\/span><\/h2>\n
![\"insolvency](\"http:\/\/www.irasmithinc.com\/blog\/wp-content\/uploads\/2020\/04\/insolvency-trustee-toronto_0.jpg\" "\\"\\"")
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